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Volume 17, Number 7
This Isn't Free Trade
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
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
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
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
Green activists, who now provide legal advice to the Appeals Body, interpret this phrase as
requiring global ecology
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
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.
James Sheehan works for the Competitive Enterprise Institute.