Summary

The World Trade Organization (WTO) went into effect in 1995, replacing the General Agreement on Tariffs and Trade (GATT) which had been in existence since 1948. Under the WTO, the governments of the 136 member countries agree on a set of rules and principles for trade, negotiate periodically to reduce trade barriers, and participate in the dispute settlement procedure. Economists believe that, over the past 50 years, the more predictable environment for trade as well as the reduction in trade barriers has contributed to unprecedented economic prosperity for the majority of countries. On the other hand, trade liberalization under the WTO has resulted in economic costs to those whose jobs have been adversely affected, although they are relatively few compared to total employment in the United States.

The WTO is of interest to the Congress for several reasons. First, H.J.Res. 90 (withdrawing the approval of the United States from the Agreement establishing the World Trade Organization) was introduced March 6, 2000. Second, the Congress will likely vote on permanent normal trade relations (NTR) for China in connection with China's accession to the WTO.

One criticism of the WTO is that "international bureaucrats" at the WTO can override laws enacted in the United States, thus violating U.S. national sovereignty. WTO supporters point out that all major decisions at the WTO are made by representatives of the member countries, most of whom are democratically elected. Moreover, supporters maintain that WTO rules specifically recognize that each country will determine its own laws, regulations and standards.

WTO critics would like labor standards included in the WTO, which is opposed by some U.S. supporters and most developing countries. Generally, both supporters and critics agree on the desirability of raising foreign labor standards, but disagree on the best way to achieve this goal and on the implication of lower foreign labor standards on U.S. import-competing products and U.S. jobs.

In environmental and food safety issues, critics charge that the WTO's dispute settlement procedure can (and has) adversely affected environmental and health laws. Supporters counter that the dispute settlement process only requires that domestic measures be implemented in a non-trade-restrictive way and do not discriminate among trading partners.

Some critics argue that non-governmental organizations (NGOs) should be allowed to participate in WTO decisions, which supporters maintain is inappropriate because the WTO is a government-to-government organization. The issue of accepting information and analysis from NGO experts in their areas of expertise is less controversial. With regard to transparency and secrecy in the WTO, critics and many supporters argue that improved transparency is needed, and confidentiality requirements in the dispute settlement procedure may no longer be necessary.

The World Trade Organization (WTO) is of interest to the Congress for several reasons in the second session of the 106th Congress. First, the Congress is expected to vote on H. J. Resolution 90, (withdrawing the approval of the United States from the Agreement establishing the World Trade Organization), which was introduced March 6, 2000. Section 125 of the Uruguay Round Agreements Act (the law that implemented changes negotiated in the last round of multilateral trade negotiations) permitted any Member of Congress to introduce such a resolution within 90 days after the Administration submits a report analyzing the costs and benefits of the WTO. ⁽¹⁾ The Administrations's report was submitted March 2, 2000. ⁽²⁾

Second, the Congress will likely vote on permanent normal trade relations (NTR) for China in connection with China's accession to the WTO. At present, NTR is granted on an annual basis, giving Congress the ability to review U.S.-China bilateral concerns once a year. Continuing the annual renewal process, however, may be inconsistent with WTO rules, and be unacceptable to China. ⁽³⁾

The congressional debate over the joint resolution and permanent NTR may revolve around, among other things, the growing criticism of the WTO in the United States. For the past seven years or so, some have argued that the WTO should be addressing important nontrade issues, especially the environment, labor rights, consumer and human rights issues. It is argued that in a increasingly integrated world, trade is interrelated with many other issues and the WTO should reflect this interrelationship.

Concerns about nontrade issues became much more evident at the WTO's Seattle Ministerial in late 1999, where demonstrations attracted considerable media attention. It should be noted that the inability of the Seattle Ministerial to launch a new round of trade negotiations was primarily the result of wide differences between the United States and the European Union on a proposed agenda, and concerns by the developing countries that their needs were not being met. Nevertheless, the demonstrations in the streets reflected opposition to the WTO by many groups in the United States. To some extent, the criticisms reflected a deeper fear of globalization and its impact on ordinary citizens. The concerns of environmental, labor, and other related groups are likely to be expressed to Members of Congress as the joint resolution and permanent NTR are being debated.

The purpose of this report is to analyze the main criticisms of the WTO by the U.S. public and the responses of WTO supporters. To put the issue in perspective, the report begins with a brief history of the WTO, including its purpose and functions, followed by an examination of the economic benefits and costs of the WTO. The main body of the report addresses the criticisms of the WTO in the following areas: national sovereignty; labor standards; environmental issues; food safety; participation by non-governmental organizations (NGOs); and transparency and secrecy in the dispute settlement process.

It should be noted that criticisms of the WTO encompass a wide variety of issues, some of them very specific. Moreover, critics appear to represent many different viewpoints. This report does not attempt to address all criticisms or all viewpoints; instead it provides an overview of the main criticisms and the WTO supporters' response to them. Also, this report does not address the discussions among WTO member countries regarding how to improve the WTO, but instead focuses on the debate in the United States between critics and supporters of the WTO.

Brief History of the GATT/WTO

The World Trade Organization went into effect in 1995, replacing the General Agreement on Tariffs and Trade (GATT) which had been in existence since 1948. One important motivation for the GATT in the immediate postwar period was to prevent a return to the era of the 1930s where, many believed, restrictions on trade contributed to the depth and duration of the world-wide economic depression as well as the political instabilities that led to World War II. In an attempt to protect its own economy, each country imposed trade restrictions, which were often followed by trade restrictions in other countries. The Smoot Hawley tariff in the United States, which raised U.S. tariffs to an all time high in 1930, has often been cited as an important part of that process. Ultimately, economic activity declined in all countries.

The GATT, and now the WTO, has three broad functions. First, the governments of the member countries agree on a set of multilateral rules and principles for trade, which provide a stable and predictable basis for trade. The benefits of agreed-on rules and principles are difficult to quantify precisely, but are likely substantial. This is suggested by the fact that membership in the GATT/WTO has grown from 23 countries in 1948 to 136 countries at present (with about 30 more countries waiting to join). Also, as discussed later, world trade over the past half century, by growing more rapidly than world production, has served as an engine of economic growth for many countries.

The second function of the WTO is to provide a mechanism to enforce the rules. An important part of this mechanism is the dispute settlement procedure, which provides a way in which disagreements among countries over the interpretation of the rules can be resolved. Broadly, a country with a complaint requests a consultation and, if the dispute is not resolved during the consultation, the complaining country may request establishment of a panel. After the panel (or the Appellate Body if the panel's decision is appealed) issues its ruling, the Dispute Settlement Body (representatives of all the WTO members) adopts the report unless the Dispute Settlement Body decides by consensus to reject it. ⁽⁴⁾

Third, the WTO provides a forum for negotiations to reduce trade barriers. In the early years, negotiating rounds focused on reducing tariffs, which, on average, are now very low. As tariffs were reduced, countries sometimes turned to nontariff barriers (for example, subsidies, government procurement regulations, antidumping procedures) to restrict imports. More recently, if health, safety, or environmental standards are used primarily to restrict trade (and not for legitimate health, safety or environmental purposes), they are called "disguised trade restrictions" or "disguised protectionism." Some WTO rules have been agreed on to prevent countries from using such standards as disguised protectionism, although it is important to emphasize that each country retains the right to set its own standards.

The Uruguay Round, the eighth and most recent round, which lasted eight years, was unique in several ways. For the first time, agriculture, services, intellectual property rights, trade-related investment measures, and textile and apparel trade were brought under the discipline of multilateral rules. The new issues negotiated in the Uruguay Round go far beyond tariff barriers usually covered by trade agreements. Many argue that WTO rules are now encroaching on what once were exclusively domestic policy issues.

The Uruguay Round also established the WTO and strengthened the dispute settlement procedure. Under the GATT, the Dispute Settlement Body established panels, adopted panel reports and authorized retaliation by a consensus vote. In the WTO process, unless the Dispute Settlement Body decides by consensus not to do so, it will automatically establish panels, adopt panel and appellate reports, and authorize retaliation (if necessary). The procedure is automatic, and clear deadlines for each stage of the process were established. The United States was a strong supporter of a strengthened dispute settlement procedure during the Uruguay Round negotiations, since the enforcement of the WTO's rules under the GATT was somewhat weak.

Economic Benefits and Costs

The WTO's rules and principles for trade, trade liberalization, and dispute settlement procedures are all designed to encourage trade. Increased trade, over time, improves productivity and raises the standard of living for all countries through increased specialization, economies of scale, and improved competitiveness. Consumers, in particular, benefit from lower prices, as well as from higher-quality products and a broader variety of goods to choose from. ⁽⁵⁾

Economists believe that, over the past 50 years, the more predictable environment for trade as well as the reduction in trade barriers has contributed to unprecedented economic prosperity for the majority of countries. For example, world exports in 1998 were 18 times those in 1950, while world GDP in 1998 was 6 times that of world GDP in 1950. ⁽⁶⁾ Looked at another way, the average annual rate of growth in the volume of world exports was higher than growth in GDP in the three time periods shown in figure 1. The rapid growth in world exports likely contributed substantially to the growth in world GDP.

Trade has been particularly important in raising standards of living for many developing countries, such as Korea, Taiwan, and many in Latin America. Ultimately the developed countries' economies are expected to benefit; as the developing countries' incomes rise, so do their imports from developed countries.

Some WTO critics admit that trade liberalization might have benefitted the world economy in the past, but argue that now that trade barriers are very low, continued trade liberalization would not have a significant effect on standards of living. While that may be true for the industrial countries, WTO supporters maintain that, for developing countries, trade liberalization continues to be important in raising standards of living. Trade, along with appropriate education and monetary and fiscal policies, is an important way in which countries can ultimately work their way out of poverty.

On the other hand, trade liberalization under the WTO has resulted in economic costs to some. Although the majority of workers gain from trade in the form of lower prices and increased choice, their gains are diffuse and not readily observable. Those workers whose jobs or wages are adversely affected are often readily identifiable. Some industries, especially steel and textiles, have had a more difficult time competing with imports. Generally, low-skilled workers have been the losers, while those with high-skills, especially in technology (where the United States is very competitive) have been the winners.

Increased trade may have contributed to the widening distribution of income in the United States. When measured over several decades, it is clear that the gap between the rich and the poor has been widening. Several studies suggest that technological developments have been the main cause of the widening income gap, although trade probably contributed. A recent study, however, suggests that the income gap may be narrowing. Between 1993 and 1998, family incomes in the lowest income group (out of five groups) grew 2.7% annually, more than the 2.4% annual growth of family incomes in the highest income group. ⁽⁷⁾

Analysis of Main Criticisms of the WTO

Although there are thousands of non-governmental organizations (NGOs), the largest, and most well organized critics of the WTO are those representing labor, environmental and consumer interests. The current debate differs from the traditional trade debate over winners and losers, which focuses on the economic gains and losses of liberalized trade. Currently, one broad argument is that non-trade goals are being sacrificed and made inferior to trade goals and especially to WTO rules. The following statement in a recent book exemplifies this argument. ⁽⁸⁾

In the WTO forum, global commerce takes precedence over everything - democracy, public health, equity, the environment, food safety and more.

The criticisms reflect several new developments since the WTO went into effect in 1995. First, some of the new issues included in the Uruguay Round, especially services rules (in banking and insurance, for example), intellectual property rights, and sanitary and photosanitary standards, were in response to the growing interrelationship between trade and domestic regulation. No longer do trade issues end at the border, where tariffs and quotas were traditionally imposed, but now affect issues of domestic concern and regulation. Second, the strengthened dispute settlement procedure in the WTO, which the United States encouraged and has benefitted from, suggests to some critics that the WTO is exceeding its authority by overriding domestic laws and regulations which are implemented under democratic processes with participation by all interested parties.

The WTO and National Sovereignty

Some critics charge that "international bureaucrats" at the WTO can override laws enacted in the United States. For example, according to the Sierra Club, "the WTO shifted enormous power from local, state and national governments to unaccountable international bureaucrats. The WTO can review and penalize any act of any government that in any way compromises trade rules. Governments must comply." ⁽⁹⁾ While many of the criticisms focus on the dispute settlement procedure, the WTO rules are also of concern.

Supporters argue that the national sovereignty of the United States (or other countries) is not violated by the WTO. They point out that governments join the WTO to obtain assurance that foreign governments will not restrict trade in certain specified ways, and, in return, commit themselves to abide by the same rules. Countries participate in trade agreements because the gains from the predictability of other countries' actions exceed the costs of refraining from such actions themselves. From this perspective, the United States, or any other country, does not give up sovereignty by being a member of the WTO, since any country can withdraw from the WTO after six months notice if it believes the benefits of the agreed-on rules no longer exceed the costs.

Supporters also point out that all major decisions at the WTO are made by representatives of the 136 member governments, most of whom are democratically elected. Power is not delegated to a board of directors or an executive board in the WTO, but is exercised by the member countries as a whole. Decisions are usually reached through consensus among the member countries. The WTO's Secretariat of about 500 people does not make any major decisions. Its main functions are to provide administrative and technical support to the WTO's councils, committees, working parties, and negotiating groups; to provide technical support to developing countries; to undertake trade policy analysis of individual member countries; to provide legal assistance in the resolution of trade disputes; and to assist in accession negotiations for potential new members.

Supporters also cite WTO rules which, in several places, specifically ensure that each country retains the right to determine its own laws, regulations and standards and advance domestic policies in issues that may conflict with WTO rules. For example, as far back as 1947, and still in effect, Article XX(b) of the GATT/WTO provides a general exception from the obligations of the GATT for measures that countries use to protect human, animal, or plant life or health, provided that such measures do not arbitrarily or unjustifiably discriminate and are not used as disguised restrictions on trade. Article XX(g) provides a similar exception for measures to conserve exhaustible natural resources.

Standards issues are addressed in two chapters of the Uruguay Round Agreement (URA): the Agreement on the Application of Sanitary and Phytosanitary Standards (SPS Agreement) ⁽¹⁰⁾ and the Agreement on Technical Barriers to Trade (TBT Agreement). Both of these agreements establish rules and procedures for countries to follow when they are developing and adopting standards; the agreements themselves do not set standards. Both agreements reaffirm the right of member countries to enact measures necessary to protect health, safety, and the environment, among other things, even if those measures are higher than internationally-recognized standards, as long as they are "legitimate" measures and not adopted primarily to restrict trade. ⁽¹¹⁾ Supporters see the rules in these agreements being aimed at preventing standards from being used as disguised protectionism, but, at the same time, ensuring that countries retain the right to enact whatever standards they believe appropriate for their situation. Critics believe this formulation may lead to a least common denominator approach to standards among developed countries.

WTO critics are also very concerned about the dispute settlement procedures. One view is that "the WTO's binding dispute resolution procedure and the Uruguay Round's expansive new rules ... effectively shift many decisions regarding public health and safety and environmental and social concerns from democratically elected domestic bodies to WTO tribunals meeting behind closed doors in Geneva, Switzerland." ⁽¹²⁾ In this connection, two WTO dispute settlement cases - shrimp-turtle and beef hormone - are discussed later in this report.

As discussed earlier, the WTO's dispute settlement procedure was tightened by imposing stricter deadlines, and making it easier to establish panels, adopt panel reports, and apply retaliation, if necessary. The procedure is more automatic now, and more legalistic than in the past. Nevertheless, supporters argue that decisions of WTO panels cannot override domestic laws for two reasons. First, WTO panels generally do not rule on specific domestic laws as internal regulatory measures per se. Instead they rule on whether or not a particular law, or the way it is administered, is restricting trade unnecessarily or discriminating among countries in violation of agreed-upon WTO rules.

Supporters state that even if a WTO panel finds that elements of a domestic law violate the WTO's agreed-on rules, it does not have the power to force a country to change its law. After a WTO panel recommends that the country meet its WTO obligations, and the panel report (and any Appellate Body report) is adopted, the disputing countries must then decide how to settle their differences. One option is for the defending country to change its law. Another option is for the defending country to offer compensation, such as lower tariffs. If the defending country does not act to change the measure in question, the country initiating the complaint may retaliate by suspending trade concessions equal to the trade lost by the original measure.

Labor Standards

There is growing agreement among national governments and international organizations on the importance of core labor rights. ⁽¹³⁾ The Declaration of the 1995 World Social Summit in Copenhagen includes core labor standards, and the Organization for Economic Development and Cooperation (OECD) stated that core labor standards have the "characteristics of human rights." ⁽¹⁴⁾ The issue is not so much the existence of core labor standards (most countries have some form of laws or regulations on labor standards) but, perhaps more important, the enforcement by national governments of their own labor standards. Generally, both supporters and critics of the WTO agree on the desirability of raising foreign labor standards, but there is considerable disagreement on the best way to achieve this goal and on the implication of lower foreign labor standards on U.S. import-competing products and U.S. jobs.

The link between trade and labor was discussed at the WTO's Singapore Ministerial in December 1996. The United States and a few other industrial countries supported the establishment of a working group to discuss labor rights in the WTO, but developing countries were strongly opposed, fearing that a working group would be the first step toward WTO rules (and sanctions) on labor standards. Ultimately, the Singapore Ministerial Declaration supported the observance of internationally recognized core labor standards, but stated that the International Labor Organization (ILO) is the competent body to set and deal with those standards. ⁽¹⁵⁾ No WTO working group was established. One of the U.S. Administration's negotiating goals at the December 1999 Seattle Ministerial was to establish a working group on trade and labor at the WTO; this was strongly opposed by the developing countries and was one of the reasons the Seattle Ministerial was unable to agree on an agenda for a new round of negotiations.

Critics of the WTO argue that trade rules should include minimum levels (and enforcement) of labor standards, and possibly trade sanctions to enforce the rules, for several reasons. First, low foreign labor standards are offensive to consumers in the affluent countries. For example, anecdotal evidence of children working long hours under appalling conditions strikes a chord in many people. The ILO estimates that, worldwide, about 120 million children between the ages of 5 and 14 work at least full time. ⁽¹⁶⁾ Some of these (data are not available on how many) work more than 8 hours a day and/or under dangerous conditions, such as in poorly ventilated factories. Critics point out that U.S. law bars the import of products of forced child labor and prison labor and that international standards would help meet these requirements.

Supporters of the WTO are usually sympathetic to the goals of the critics, but maintain that the issue is much more complicated. Child labor, for example, is closely related to poverty, and often reflects low family income. Some supporters believe that requiring increased enforcement of child labor laws could force children into further poverty, or into even less desirable activities, such as prostitution or drug selling, thus hurting the children they were designed to help. A broad range of policy options, such as economic development policies to raise family incomes and better education might, it is argued, be more effective than requiring higher labor standards in dealing with child labor problems. The opportunity to produce labor-intensive goods to export to developed countries has raised incomes of millions of people from "abject poverty to something still awful but nonetheless significantly better." ⁽¹⁷⁾ More broadly, some maintain that direct contributions from the developed countries could aid those in developing countries adversely affected by lower labor standards, rather than including labor standards in trade rules.

Second, critics argue that low foreign labor standards effectively lower wages abroad, which gives an artificial advantage to foreign firms, who already pay lower wages to workers than in developed countries. Thus, internationally-enforced rules on labor standards would provide a "level playing field." A closely related argument is that low foreign labor standards encourage U.S. firms to invest abroad. Both of these arguments suggest that ultimately U.S. workers and U.S. jobs are adversely affected by low-standards countries through increased imports and U.S. investment abroad. Several studies, however, suggest that low foreign labor standards have not had a significant effect on trade and investment flows. For example, a 1996 OECD study concluded that there is "no evidence that low-standards countries enjoy a better global export performance than high-standards countries," and that "aggregate foreign direct investment data suggest that core labor standards are not important determinants of location in the majority of cases." ⁽¹⁸⁾ In another study, one of several conclusions was that "the limited empirical evidence available suggests that international variations in core labor standards have little influence on trade performance, international prices, or foreign direct investment." ⁽¹⁹⁾

Third, low standards abroad might lead to declining standards in the United States if producers (and governments), to maintain competitiveness, become less committed to high labor standards. Multinational companies, WTO critics argue, search the world for inexpensive products to buy, and low-wage countries in which to produce. To the extent that low labor standards contribute to lower wages abroad, developed-country governments may be forced to relax their own labor standards to maintain the competitiveness of their own firms. There is no evidence, however, that labor standards in the United States have been lowered by lower foreign standards.

Suggestions that potential WTO rules on core labor standards would be enforced through the dispute settlement procedure and that violators would be subject to trade sanctions have proved very controversial. For example, the AFL-CIO has argued for incorporation of enforceable rules on core workers' rights. ⁽²⁰⁾ Opponents of this position argue that the use of trade sanctions to enforce agreed-on labor standards would be extremely difficult to administer, and, as a result, could easily be used as a disguised trade barrier. To overcome this difficulty, one analyst proposes that the WTO, perhaps in cooperation with the ILO, be empowered to investigate complaints about specific plants and locations, brought through governments. ⁽²¹⁾ If violations were found and not removed, trade sanctions could be used.

Developing countries strongly oppose including labor rights in the WTO, arguing that it would deny them access to foreign markets, and might be used as a disguised barrier to trade. Regarding the first argument, according to the 1996 OECD study mentioned earlier, differences among countries in core labor rights have not had a significant effect on trade flows. Thus, raising core labor standards would not appear to deny developing countries market access for their products. The argument that labor standards might be used as disguised barriers to trade is a valid concern but difficult to evaluate.

Some maintain that foreign labor standards will increase as the incomes of the developing countries grow, arguing that poor working conditions existed in the United States (and other industrial countries) in the 1800s when economic development was in its earliest stages. Others suggest that waiting for economic growth to improve enforcement of standards is a slow, unsure, process. Moreover, one study suggests that raising some foreign standards (especially prohibition of forced labor and non-discrimination in employment) could improve productivity and economic efficiency, contributing to developing countries' economic growth. ⁽²²⁾ This suggests that establishing higher labor standards might be beneficial to developing countries in some cases.

Another argument by advocates of incorporating labor standards is that there are precedents for WTO rules in non-trade areas. The Uruguay Round Agreement on Trade in Intellectual Property Rights (TRIPS) is cited as the prime example of rules that require foreign countries to abide by standards of intellectual property protection. If business firms can obtain protection from pirating of patented and copyrighted material, why, it is argued, should workers not be similarly protected from poor working conditions? Also, since intellectual property and labor standards are both basically domestic regulatory issues, why should intellectual property be covered by a trade agreement, but not core labor standards? A recent study analyzed the differences between intellectual property rights and labor standards (among other issues) to determine the extent to which they were appropriate for multilateral trade rules. ⁽²³⁾ It found that WTO rules on intellectual property rights are appropriate primarily because they are trade related and focus mainly on market access and competition. The study found little economic justification for including labor standards in WTO rules.

Some argue that, if negotiations among countries to achieve higher core labor standards is desired, the WTO is not the appropriate institution to undertake it. Since the WTO's mandate is to reduce barriers to international trade, they believe attempting to enforce rules on core labor standards is outside its expertise. Another, perhaps better alternative, supporters argue, is to strengthen the ILO, especially in the area of enforcement of agreed-on rules. The ILO, established in 1919, is the main international organization devoted to the implementation and monitoring of labor standards. Critics of the WTO argue that the WTO's rules and dispute settlement procedures make it the logical organization to enforce labor standards, not the ILO, which lacks enforcement capability. Supporters respond by proposing that the ILO be strengthened.

Environmental Issues ⁽²⁴⁾

Environmentalists first became concerned about trade issues during the Uruguay Round negotiations, which lasted from 1986 to 1994. As a result, the preamble in the agreement that established the WTO includes goals such as sustainable development and seeking to protect and preserve the environment. A few environmental concerns were also addressed in the Uruguay Round agreements on agriculture, sanitary and phytosanitary measures, subsidies, and countervailing measures, and technical barriers to trade. Nevertheless, the main areas of concern to environmentalists were left for future negotiations.

In April 1994, the WTO ministers established a Committee on Trade and the Environment (CTE). The purposes of the CTE are to study the relationship between trade and environmental measures and to make recommendations as to whether modifications of the WTO are required. The CTE has been meeting several times each year and has issued several reports. While considerable information and analysis have been exchanged, no recommendations regarding changes in the WTO have been made. Environmentalists have expressed disappointment that the CTE has not made more progress. Others believe that the CTE has been a useful forum for information sharing, analyzing issues and improving understanding.

Perhaps the main issue of concern to environmentalists in the past few years is the WTO dispute settlement process in which, some claim, environmental laws have been challenged in the WTO. For example, according to the World Wide Fund for Nature International, "over the past four and a half years, the panel process has become the arena for decision-making on some of the most substantive issues in the international debate on trade and sustainable development." ⁽²⁵⁾ Supporters of the WTO counter that such statements are unsubstantiated. They say that in the relatively few cases where environmental measures have been at issue, the WTO dispute panels have ruled on narrow aspects of these laws or regulations that were implemented in a discriminatory manner with regard to other WTO members and that environmental protection in the United States has not been compromised.

The well-publicized dispute regarding the U.S. import ban on shrimp harvested in a manner harmful to endangered species of sea turtles illustrates how a law or part of a law can be challenged under the WTO and what the implications of such a challenge are. Article 609 of P.L. 101-162 (a law making appropriations to several government agencies) contained the import ban, and also waived the ban if the harvesting methods of foreign countries could be shown to be not harmful to sea turtles. India, Malaysia, Pakistan, and Thailand argued that the U.S. ban violated the WTO rules requiring non-discrimination among countries and WTO rules prohibiting quantitative restrictions on imports.

After a WTO dispute panel issued its report in April 1998, which was unfavorable to the United States, the United States appealed the ruling to the Appellate Body. The Appellate Body determined that the U.S. procedures for deciding whether countries met the requirements of the law did not provide adequate due process. It also found that the United States had unfairly discriminated between the complaining countries and Western Hemisphere nations.

The Appellate Body ruled that the import ban was administered in a way that violated WTO rules on non-discrimination. The Appellate Body found that the environmental aspect of the statute was valid under Article XX(g) (which provides an exception from WTO rules for measures to conserve exhaustible resources), but that the United States applied the ban in a discriminatory way among countries.

The United States complied with the Appellate Body's recommendations, and issued revised import guidelines to conform to WTO obligations. According to the Administration, U.S. import restrictions on shrimp harvested in a manner harmful to sea turtles have remained fully in effect and the U.S. commitment to protect endangered sea turtles was not compromised by the Appellate Body's ruling. ⁽²⁶⁾

WTO critics also claim that some multilateral environmental treaties which include trade sanctions might be challenged by a WTO dispute panel. The Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), the Montreal Protocol on Substances that Deplete the Ozone Layer, and the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal all have provisions to restrict trade to achieve their environmental objectives. Given that there is some legal uncertainty, environmentalists argue for a statement(s) that would clarify WTO rules in this area. Supporters of the WTO argue that no multilateral environmental agreement has ever been challenged in the WTO, and it is unlikely that there would be such a challenge.

Another issue of concern to environmentalists is eco-labelling, the process of attaching a label to a product providing consumers with environmental information related to how it was produced. If well designed, eco-labelling can provide information to consumers who can then make an informed choice about which products to purchase and can further environmental goals. Trade analysts are concerned that eco-labelling could be used, in some circumstances, primarily to discriminate between domestic and foreign products, or between products made by different trading partners, and not mainly for environmental purposes. To some extent, transparency in the design, adoption, and application of eco-labels can alleviate some of these concerns.

Lower environmental standards (or lax enforcement) in foreign countries raise some of the same issues as lower labor standards do. WTO critics are concerned that lower environmental standards abroad might contribute to a loss of jobs in the United States and/or lower standards in the United States. Empirical evidence to support this claim is not available. Many environmental problems, however, are international in scope. Issues such as ozone depletion, climate change, and species protection are not limited to one country. In some cases, actions in one country result in higher pollution levels in one or more other countries; acid rain is an example. In other cases, actions of countries spill over into the global commons, such as the atmosphere and the oceans.

Although a strong case may be made for international negotiations on environmental issues, there is no consensus as to where such negotiations should occur. In the case of issues where there is no multilateral environmental treaty, a number of WTO critics want the WTO to address environmental concerns. Others suggest that efforts should be made to negotiate a multilateral environmental agreement, since the WTO lacks the expertise to negotiate such issues. One study concluded that although the WTO is not the appropriate institution to negotiate environmental standards, a separate institutional structure, such as a World Environmental Organization, is worthy of consideration. ⁽²⁷⁾

Food Safety

In the past few years, some WTO critics have argued that U.S. food safety laws are being jeopardized by WTO panel rulings. The claims are based on the perception that WTO panelists are able to, and have, overturned U.S. (and other countries') food safety laws. Or, some critics argue, WTO panels are superceding judgments by the public in regard to their desired level of food safety. WTO supporters counter that food safety laws are not being overturned, but that countries have agreed in the WTO to administer such laws in a nondiscriminatory way. At issue is usually the SPS Agreement, which established criteria defendants must meet in order to show that the law is not a disguised trade restriction. Broadly, the criteria are that sanitary and phytosanitary standards (SPS) measures should be based on sound science, a risk assessment, or relevant international standards.

The most well-known WTO case in food safety is the U.S. challenge of the EU's ban on imports of meat from animals to which any of six hormones have been administered. ⁽²⁸⁾ Although this dispute dates back to the 1980s, a WTO case was initiated after the Uruguay Round Agreement on Sanitary and Phytosanitary Standards went into effect on January 1, 1995. A WTO panel was established in 1996, and in August 1997, the panel issued its report, which found that the hormone ban is not consistent with the EU's obligations in the SPS agreement, since it is not based on scientific evidence, a risk assessment, or relevant international standards. After an appeal, the Appellate Body issued its report in January 1998, affirming the panel's decision.

The dispute revolves around whether the EU ban on hormone-treated beef was enacted in response to legitimate health concerns or to eliminate competition for European beef producers (disguised protectionism). The SPS Agreement (Articles 2 and 3) recognizes the right of each WTO member to adopt measures it considers appropriate to protect human, animal or plant life or health within its territory, but also requires that these measures be founded on scientific evidence and applied only to the extent necessary to achieve the public health goals.

In the beef hormone case, the U.S. Administration argued that the preponderance of scientific evidence indicates that the consumption of beef from animals produced using the hormones in question does not pose a risk to human health. ⁽²⁹⁾ It was also argued that some of these hormones are found in much larger quantities in many other foods, such as eggs, soybeans, wheat germ and broccoli. The European Union disputed the scientific finding.

The beef hormone case, as well as consumer fears about genetically modified organisms (GMOs), raise questions about the safety of products where scientific evidence about the long-term effects is unavailable. Some argue that a country should have the right to ban a product whose long-term health effects are unknown, based on a precautionary principle. However, there is no agreed-on definition of the precautionary principle. At one extreme, some suggest using caution in adopting new products where the effects are not clear, while at the other extreme, some suggest that, until conclusive evidence is presented that the long-term effects are acceptable, a product should be banned. For example, according to one definition, "potentially dangerous substances must be proven safe before they are put on the market. The principle is based on the fact that science does not always provide the information necessary for authorities to avert environmental or public health threats in a timely manner." ⁽³⁰⁾

It should be noted that Article 5.7 of the SPS Agreement includes a variant of the precautionary principle. It provides that in cases where relevant scientific evidence is insufficient, a WTO member may provisionally adopt sanitary or phytosanitary measures on the basis of available pertinent information, but must seek additional information and review the sanitary or phytosanitary measure within a reasonable period of time. The precautionary principle has recently been incorporated in the Biosafety Protocol. Several environmental groups argue that the SPS Agreement should be amended to specifically incorporate the precautionary principle. ⁽³¹⁾ The European Union, at the March 15-16, 2000 meeting of the WTO's SPS Committee, presented a white paper on the precautionary principle. A number of other countries, including the United States, expressed concern that the white paper could weaken WTO rules.

The SPS Agreement does not define scientific evidence. As a result, it is not clear how many scientific studies, or what degree of scientific certitude, is necessary to determine that a measure is scientifically sound. It is possible that the rules referring to scientific evidence need to be clarified. It should be noted that the SPS Committee, at its March 15-16 meeting, drafted voluntary guidelines that countries could use in developing SPS measures that would not discriminate among countries or be disguised protectionism.

Participation by Non-Governmental Organizations in the WTO

Some critics maintain that non-governmental organizations (NGOs) should be allowed to participate in the WTO. They argue that WTO decisions affect civil society, and therefore civil society should have a role in such decisions. An important distinction here is between giving NGOs a vote in WTO decisions, and accepting or soliciting input from NGO experts on non-trade issues, and acting as observers at WTO proceedings.

NGOs should have a vote in WTO decisions, according to some critics, because the concerns of NGOs are not adequately represented by governments. Moreover, they contend, many NGOs are international in scope, (or have an international component) and represent the environmental, consumer and labor concerns of people in many countries. Finally, they say that NGO participation, especially in the dispute settlement process, would alleviate some of the concerns of the public about the WTO.

WTO supporters argue that NGO voting in the WTO is inappropriate because the WTO is a government-to-government organization. They maintain that NGOs can, and do, have a voice in determining the negotiating position of each government and, as a result, WTO negotiations among governments already reflect the concerns of NGOs. They also point out that NGOs are not accountable to their membership in the same way as democratically-elected governments are accountable to citizens. Finally, if NGOs were permitted a vote, it is not clear which of the thousands of NGOs would be selected. It is possible that well-funded NGOs, who are not elected by the general public in their home countries, would have undue influence on WTO decisions.

The issue of accepting or soliciting input from NGO experts on non-trade issues is less controversial. WTO supporters usually have no objection (and some encourage) NGOs to provide information and analysis in their areas of expertise to the WTO. In the shrimp-turtle case, the Appellate Body reversed the panel's finding that a panel could not accept unsolicited information from NGOs. This suggests that in the future such information will be accepted by WTO panels.

With regard to participation by NGOs at conferences or forums, the WTO has hosted symposia such as a trade and environment conference in March 1999. Also NGOs have been invited to WTO forums at the first three Ministerial Meetings.

Transparency and Secrecy in the Dispute Settlement Process

In the past, GATT bodies normally did not release minutes of their meetings, and most of the official documents were classified as "restricted." Many WTO critics have denounced the lack of transparency in the World Trade Organization, and have urged greater openness. Criticism of the closed nature of the dispute settlement procedure has been particularly strong. In the Uruguay Round Agreements Act, Congress directed the U.S. Trade Representative to seek adoption of procedures that will ensure broader application of the principle of transparency by the WTO Ministerial Conference, the General Council, the dispute settlement bodies, and the Appellate Body. ⁽³²⁾

Many WTO supporters admit that transparency of the dispute settlement process should be improved. In response to criticisms, the WTO has taken some steps towards greater openness and transparency. On July 18, 1996, the General Council adopted a decision in which many WTO documents are made available to the public fairly quickly. ⁽³³⁾ Some documents, such as trade policy review reports and dispute settlement panel reports, are made public almost immediately. Other documents, such as minutes of meetings, are considered for derestriction after about six months. The World Trade Organization also began making documents more accessible by putting many of them on its website.

Nevertheless, the Clinton Administration continues to press the WTO for increased transparency. For example, in the WTO review of the dispute settlement procedure that is currently underway, the United States has urged, among other things, that the dispute settlement procedure be more transparent. The Administration has also offered to open to the public any dispute settlement proceeding involving the United States if the other party to the dispute agrees.

The WTO's dispute settlement procedure specifically requires confidentiality in panel deliberations and in the Appellate Review. The Understanding on Rules and Procedures Governing the Settlement of Disputes, Article 14, states that panel deliberations shall be confidential, the reports of panels shall be drafted without the presence of the parties to the dispute in the light of the information provided and the statements made, and opinions expressed in the panel report by individual panelists shall be anonymous. Similar confidentiality requirements are included in Article 17 (Appellate Review).

WTO critics strongly oppose such confidentiality requirements, which, they argue, contribute to panel decisions that do not reflect the concerns of all of society. Some WTO supporters suggest that the need for confidentiality is not as great now as it was under the GATT. In the past, when consultation and negotiation among member countries played a larger role in disputes, confidentiality was important in allowing countries to compromise. Under the WTO, however, the dispute settlement procedure is more rules-based and, except for the attempts at consultation before panels are established, more closely reflects a legal proceeding. Thus, some believe that it may be more appropriate for the panel and Appellate Body deliberations to be open to the public under the present procedures.

Conclusions

For many years, the GATT received relatively little attention by the general public in the United States. The agreed-on rules and principles for trade were detailed and legalistic, and appeared to have very little effect on the average citizen. In the 1990s, however, this changed, especially as the WTO member countries agreed on new rules in previously uncovered areas and strengthened the dispute-settlement process.

Critics and supporters of the WTO disagree on the validity of many of the concerns. Perspectives on the WTO's effects on national sovereignty, the environment and food safety and on the need for inclusion of labor standards are quite different. On transparency and secrecy in the WTO, however, there is more agreement (or less disagreement) between critics and supporters.

An initiative that both sides might endorse is making the public more aware of what the WTO can and cannot do. A broad educational effort by the U.S. government and private companies and organizations may be effective. The WTO could contribute to an educational effort by improving transparency and eliminating secrecy (where appropriate), especially in the dispute settlement process.

As part of an educational effort, it would be important that the public gain a better understanding of the economic benefits and costs of the WTO. The benefits of agreed-on rules and principles are difficult to see but, especially at a time of increased globalization, may, according to some, be more necessary than ever. Understanding the costs of trade liberalization to those workers and industries that are adversely affected is also important. Devising and implementing effective adjustment policies, which might involve retraining and temporary replacement of lost income for workers, could lesson some of the costs of trade liberalization.

With a better understanding of what the WTO can and cannot do, it might be possible to address the concerns of critics more directly. Some of the WTO's rules and principles may need to be changed, especially those relating to the environment and food safety. Changing the WTO's rules, however, is a lengthy process, since it involves negotiating and achieving consensus among the 136 member governments. At present many of the developing countries are opposed to including the environment and labor in WTO rules.

Another option, suggested by some, is to address labor and environmental concerns in other fora. While international rules may be necessary, the WTO may not be best suited to negotiating environment and labor issues. The International Labor Organization could be strengthened to include a more effective enforcement mechanism, some argue, and a multilateral environmental organization could be negotiated.

Footnotes

1. ^(back)See CRS Report RS20422. United States' Withdrawal from the World Trade Organization: Legislative Procedures, by Vladimir N. Pregelj.

2. ^(back)The report can be found in Office of the U.S. Trade Representative. 2000 Trade Policy Agenda and 1999 Annual Report of the President of the United States on the Trade Agreements Program, pp. 27-152.

3. ^(back)See CRS Report RS20139. China and the World Trade Organization, by Wayne Morrison.

4. ^(back)See also CRS Report RS20088 , Dispute Settlement in the World Trade Organization: An Overview, by Jeanne J. Grimmett.

5. ^(back)See also U.S. Council of Economic Advisors. America's Interest in the World Trade Organization: An Economic Assessment. November 16, 1999. pp. 11-14.

6. ^(back)World Trade Organization. Annual Report 1999; International Trade Statistics. p. 11.

7. ^(back)Council of Economic Advisors. Economic Report of the President: Transmitted to the Congress February 2000. p. 27.

8. ^(back)Lori Wallach and Michelle Sforza. Whose Trade Organization? Corporate Globalization and the Erosion of Democracy. Public Citizen, Washington, D.C. 1999, p. 7.

9. ^(back)Website: http://www.sierraclub.org/trade/summit/fact.asp.

10. ^(back)Sanitary and phytosanitary measures are those that protect human, animal and plant life from risks of pests or diseases, or additives, contaminants and toxins in foods, beverages, or feedstuffs.

11. ^(back)See, for example, Article 2 of the Agreement on the Application of Sanitary and Phytosanitary Standards and the Preamble to the Agreement on Technical Barriers to Trade.

12. ^(back)Lori Wallach and Michelle Sforza, op. cit., p. 196.

13. ^(back)Core labor rights include freedom of association and collective bargaining; elimination of exploitative forms of child labor; prohibition of forced labor; and non-discrimination in employment. The terms "labor rights" or "labor standards" in this memorandum will refer to these four core labor rights.

14. ^(back)OECD. Trade Employment and Labour Standards: A Study of Core Workers' Rights and International Trade. Paris. 1996, pp. 26-28.

15. ^(back)Singapore Ministerial Declaration, Adopted on 13 December 1996, WTO Focus, January 1997, p. 7.

16. ^(back)International Labor Organization. Website: http://us.ilo.org/

17. ^(back)Paul Krugman. In Praise of Cheap Labor: Bad Jobs at Bad Wages Are Better Than No Jobs at All. Slate. March 20, 1997. Website: http://web.mit.edu/krugman/www/smokey.html

18. ^(back)Organization for Economic Co-operation and Development (OECD). Trade, Employment and Labour Standards: A Study of Core Workers' Rights and International Trade. Paris. 1996. pp. 12-13.

19. ^(back)Keith E. Maskus. Core Labor Standards: Trade Impacts and Implications for International Trade Policy. Policy Research Working Paper 1817. The World Bank. August 1997. p. 66.

20. ^(back)Statement of John Sweeney, President American Federation of Labor and Congress of Industrial Organizations as presented by Richard Trumka, Secretary-Treasurer. Testimony Before the Subcommittee on Trade of the House Committee on Ways and Means. Hearing on the World Trade Organization Ministerial in Seattle, February 8, 2000. p. 2.

21. ^(back)Peter Morici. Setting U.S. Goals for WTO Negotiations. Economic Strategy Institute. June 1999, p. 34.

22. ^(back)Keith E. Maskus. Core Labor Standards, op.cit., p. 49.

23. ^(back)Keith E. Maskus. Regulatory Standards in the WTO: Comparing Intellectual Property Rights with Competition Policy, Environmental Protection, and Core Labor Standards. Working Paper 00-1. Institute for International Economics. January 2000. Website: http://www.iie.com/CATALOG/WP/2000/00-1.html

24. ^(back)See also CRS Report RS20417, Environment and the World Trade Organization (WTO) at Seattle: Issues and Concerns, by Susan R. Fletcher.

25. ^(back)Environmental Group Urges Reform of WTO Dispute Settlement Process. International Trade Reporter, August 18, 1999, p. 1362.

26. ^(back)Office of the U.S. Trade Representative. 2000 Trade Policy Agenda and 1999 Annual Report of the President of the United States on the Trade Agreements Program, p. 45.

27. ^(back)Keith E. Maskus. Regulatory Standards in the WTO, op. cit., p. 9.

28. ^(back)See also CRS Report RS20142, The European Union's Ban on Hormone-Treated Meat, by Charles E. Hanrahan.

29. ^(back)Office of the United States Trade Representative. USTR Factsheet: U.S. Response to EU Beef Import Ban, 99-58. July 12, 1999.

30. ^(back)Lori Wallach and Michelle Sforza, op. cit., p. 60.

31. ^(back)Environmental Groups Urge WTO to Allow Import Bans Based on 'Precautionary' Rule. International Trade Reporter, May 26, 1999, p. 877.

32. ^(back)P.L. 103-465, Sec. 126.

33. ^(back)The decision can be found at http://www.ustr.gov/agreements/wto/derestriction.html.

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