The Ludwig von Mises Institute

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July 1999
Volume 17, Number 7

According to the hoopla, the World Trade Organization (WTO) was created in 1995 as an instrument of global free trade. Instead, it is proving to be a vehicle for corruption, economic reprisals, and politicization of trade.

The agency's true character was revealed when the city of Seattle, host of the November 1999 WTO Summit, was caught selling corporate sponsorships in exchange for access to high-level trade officials. The WTO is starting to resemble an economic version of the International Olympic Committee.

Like moths attracted to a flame, special interests are attracted uncontrollably to the WTO. Their motives are obvious--the WTO wields enormous power. Neither was the agency born without sin. Its very charter included an endorsement of environmental regulations, labor controls, Keynesian fiscal policy, and buzz words that imply nothing but government-controlled trade.

It was a magnet for lobbyists from the beginning. Whereas the older and relatively benign General Agreement on Treaties and Tariffs (GATT) arrangement was powerless to impose its will on anyone, the WTO's decisions are binding on all nations. That makes it a particularly attractive arena for would-be regulators, whose actions in turn lead to trade wars--the very opposite of the stated intent of the agency.

The new state of affairs created by the WTO led directly to the spectacle of a trade war between the US and European Union over bananas, which are not even grown in the US. Here's what happened. The Central American banana empire of Chiquita Brands mogul Carl Lindner could not boost its market share in Europe because of banana quotas designed to benefit former European colonies. Lindner's $2.5 million in campaign contributions to both parties ensured that his complaint would become a top priority of the US government.

After Lindner donated a half-million dollars to the Democratic Party and spent the night in the Lincoln bedroom, the US trade representative's office was put to work as his personal law firm to sue the Europeans at the WTO. The world body slapped 100 percent tariffs on $190 million worth of EU imports, a testament to the rewards of privileged access to coercive force.

Another WTO decision in the "shrimp-turtle" case further demonstrated the agency's lust for power. The case pitted tiny Thailand against the US, which had imposed a crippling embargo against imports of shrimp. Why? Because Thailand did not require its fishermen to use expensive, US-manufactured "turtle-excluder devices" on their shrimping nets. A WTO panel ruled in favor of Thailand, a decision that might have been a minor victory for free trade principles were it not for the stunning intervention of the WTO's highest authority, the Appeals Body.

First, the Appeals Body decided to grant itself the powers of a world Supreme Court. It ruled that all non-governmental organizations (NGOs) like the Sierra Club are equivalent to nation-states, and may submit amicus briefs in all WTO disputes. Nowhere does the WTO treaty allow NGOs to participate in formal dispute settlement, but the Appeals Body invented this novel legal concept on its own, much like our Supreme Court does when it creates new "penumbras" in the Constitution. In US jurisprudence, the case is similar to Marbury v. Madison, in which the US Supreme Court aggrandized itself with the power to define what is unconstitutional.

The dramatic power grab represented by the shrimp-turtle decision was hardly noticed in Washington, DC, but numerous developing countries cried foul. India complained that by opening the dispute settlement process to NGOs, the WTO unilaterally amended the Uruguay Round treaty without a vote of the member states. Unlike the old GATT, which simply acted as a referee in trade disputes, the WTO has proclaimed international lawmaking power. The US Senate has never voted on whether to ratify this world super agency.

The second shrimp-turtle case shocker was the WTO's finding that the US import barriers were only procedurally unacceptable. The Appeals Body told the US government to revise its shrimp import barriers slightly to take advantage of a new environmental loophole in world trade rules. It said that GATT Article XX, negotiated in 1947, allows trade barriers based on "process and production methods" in the country of origin.

Thus, the US may investigate the way any import is harvested or manufactured in a foreign country, and fashion an environmental regulation against it. Such a loophole, never before discovered in the fifty years of GATT, would allow the powerful US government to use its trade leverage to impose environmental regulations on all weaker trading partners.

The WTO's green fanaticism has evolved dramatically since its creation in 1995. To justify its shrimp- turtle decision, the Appeals Body highlighted vague language in the world trade treaty pledging all nations to "sustainable development." Green activists, who now provide legal advice to the Appeals Body, interpret this phrase as requiring global ecology regulations.

Secretary General ReNato Ruggiero invited green activist groups to Geneva for a special meeting, where he apologized for the ecological damage done by world trade. The world's top trade official then called for the creation of a "World Environmental Organization" to bring economic globalization under control.

That latest struggle over the new Secretary General has degenerated into a war to the knife among Europe, the US, and Asia. The stakes are huge, so instead of worrying about buying and selling on international markets, multinational corporations are wasting resources on lobbying and pressure tactics.

Real free trade, consisting of unilateral lowering of trade barriers, is unheard of at the WTO. Economic freedom would leave its bureaucrats with essentially nothing to do. By politicizing trade, imposing sanctions, and enforcing bureaucratic regulations, WTO officials win praise from influential corporations and social activists. Only by extinguishing the WTO candle and restoring an unregulated, nineteenth-century-style trade regime, will the special interest moths disappear.

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James Sheehan works for the Competitive Enterprise Institute.

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