Forget about China—Can Trade Be Saved from the WTO?


National Journal, May 13, 2000

As Congress braces itself to debate China's entry into the World Trade Organization, now may be a good moment to remember, nostalgically, the most successful international organization that ever was. The United Nations? Get serious. The Bretton Woods monetary system? Only until it crashed. The World Bank? Not bad, but have you looked at Africa lately? The International Monetary Fund? In bad odor since the 1997 Asian financial flu.

No, the winner is GATT.

GATT? Lowly, humdrum, gone-but-forgotten GATT? Because you read super-elite publications like this one, chances are you have heard of GATT, and you may even know it stands for General Agreement on Tariffs and Trade. After World War II, the great democracies decided to create a global trade organization as a sister to the IMF and World Bank. The International Trade Organization, it was to be called—but it never got off the ground. So 23 countries settled instead for a negotiated package of tariff reductions, which they called GATT, a name whose clumsiness betrays its ad hoc origins.

Yet GATT was an astonishing success. Under a series of trade agreements, global exports rose 6 percent a year. World trade grew by a factor of 14. Tariffs in the industrial countries fell by an order of magnitude, to an average of only 4 percent. By the end, 125 countries were taking part in GATT negotiations. And, what was most miraculous of all, GATT accomplished all of that in total obscurity. No one heard of it. So no one hated it. If you said "GATT" to the general public, the general public would say "gesundheit."

GATT is dead. In 1995, under the terms of the final GATT treaty, the World Trade Organization replaced it. Nearly everyone has heard of the WTO, and this is a problem.

Hardly a week goes by when the WTO is not in the news. Late last year, in Seattle, its attempt to frame a new agenda collapsed in dissension as 40,000 protesters stormed the streets. It is in the middle of bitter trade disputes between America and the European Union over bananas, beef hormones, and tax breaks for "foreign sales corporations" (don't ask). It is in the middle of the China debate. The WTO is like a little black cloud that rains controversy wherever it goes.

If you wanted to be strictly fair, you would protest that this is not the WTO's fault. The WTO is often a scapegoat or intermediary in larger international disputes, ranging from biotechnology to labor rights. Nonetheless, there is a curmudgeonly, but still compelling, case that the WTO is to blame for many of its problems, and that the old GATT structure was better, and that reformers' attempt to replace messy politics with orderly legal process has backfired, as such attempts always do.

Formally, GATT was a series of treaties rather than an organization. It possessed some powers to decide which trade practices were fair and which unfair, but it lacked the teeth to do more than advise. In the end, thorny trade disputes were decided the old-fashioned way: politically, through deals, threats, or fisticuffs.

The WTO was what happened when lawyer-diplomats sat down and looked at GATT. All well and good, they said, but where is the enforcement mechanism to prevent abuses? What stops countries from cheating or throwing their weight around? And who is to make the rules as trade agreements move further into intangible realms, such as intellectual property?

And so the WTO, basically, is GATT with some adjudication and enforcement powers. Aggrieved countries appeal to the WTO. If it finds a violation, the offending party "has to" change its laws to drop whatever is the illegal trade barrier.

I put quotation marks around "has to" because, in fact, the WTO has virtually no coercive power. If the WTO tells the Europeans to drop their blatantly illegal trade protections for bananas (as it did), and if the Europeans refuse (as they have), all the WTO can do is authorize Americans to erect comparable trade protections against Europe. (The Europeans are not quaking in their boots.)

In other words, the enforcement mechanism is one that countries have been using for decades anyway: tit-for-tat retaliation. The only difference is that the retaliation is officially blessed by the WTO, which is therefore in the middle of every fight but is powerless to change any member nation's policies. A succinct summary of the WTO's position, then, is: the appearance of sweeping powers without the reality.

The result is pretty much as, in 20-20 hindsight, one might have expected from the start. Because the WTO has no real muscle other than its prestige, every act of defiance by any major country imperils the whole system. At the same time, every dispute becomes a question of sovereignty—"Who's in charge here, our own legislature or this shadowy global authority?"—instead of just dollars and cents. In theory, the WTO was supposed to depoliticize international trade disputes; in practice, the result has been to politicize the WTO itself.

For anti-trade protesters, the WTO is a godsend. It is the Conqueror Worm of global capitalism, the hydra snapping left and right at nations' sovereignty. "The WTO," hyperventilates William Finnegan in The New Yorker, "is the spearhead of the present surge toward economic globalization." Even the overweening name is a godsend. "International Zionist Financial Conspiracy" would have been about as good.

Meanwhile, the WTO presents activists with a broad new front for lobbying. Understandably, they argue that if the WTO is going to make and enforce global economic rules, it ought to concern itself with other priorities than just trade. Politicians, who are in the business of pleasing noisy local constituencies, agree. The Clinton Administration wants to condition any further trade progress on including in the WTO protections for workers and the environment, and Al Gore's rhetoric suggests he would go further and faster in that direction.

And so here is the final indignity for the trade liberalizers who created the WTO. They must look on with mounting alarm as the WTO is dragged toward including in its remit the very sorts of trade restrictions that it was supposed to dismantle.

Without question, many of the people who protest the WTO today would also protest GATT, if it still existed. In fact, the groups that tried to bust up the WTO ministerial meeting in Seattle last year turned around and tried to bust up the World Bank and IMF meeting in Washington last month. Any handy symbol of globalization will do.

But power arrangements make a difference. GATT had about the right amount of power, which is to say, not enough. Its treaty structure projected no illusion of sovereignty. It had "contracting parties," rather than members. The WTO, by contrast, has just the wrong amount of power: enough to look like a super-sovereign, but not enough to behave like a super-sovereign. GATT might be a political lightning rod if it still existed today, but it would neither attract nor deserve the sort of high voltages that the WTO now routinely receives.

In the early 1990s, when the WTO was conceived, GATT seemed to be floundering. Countries resorted to ever more subtle forms of protectionism (such as so-called anti-dumping laws) and argued over issues that were ever more arcane (intellectual property) and contentious (agriculture). The United States increasingly tended to cut side deals and act unilaterally. At the time, a lot of people, including me, thought the problem was institutional. GATT was too weak; a stronger, more orderly system could bang countries' heads together.

We were wrong. GATT's problems were political, not institutional. In retrospect, its institutional limitations were also its political strengths. Countries could cheat on its rules, or even flout them, and did. But the fantastic expansion of trade under GATT tells the larger story: Cheating went on in the context of broader liberalization, and may even have helped make liberalization possible. Economists always point out that protectionism is like blocking up your own ports: economically self-punishing. They should have listened to themselves. The cause of liberal trade would have lurched and staggered under GATT, but the direction would have been forward, and with less of the sound and fury and potential for mischief that the WTO has brought.

Well, we're stuck with the WTO, and now we have to make the best of it. Certainly it has potential to do much good. China's admission, for example, will propel Beijing toward opening up. The pity is that the WTO holds at least as much potential for harm as for good, and steering it away from the ditch will be a preoccupation, and a struggle, for decades to come.