Articles

Trade as an Engine to Reach Sustainability Kunibert Raffer

Definitions

Goal 10 of the Sustainable Development Goals (SDGs) is reducing inequality within and among countries. This is extremely important, in a way the essence of development. To finance and make possible the fulfilment of all SDGs, trade is by far the most important source of resources. Increasing income from trade is therefore necessary. Unfortunately, this fact is not appropriately mirrored by the SDGs. References to trade by SDG 10 and SDG 17 do not appreciate the fundamental importance of trade and a fair global trading environment. Instead, SDGs refer to the World Trade Organization (WTO), a biased system that is institutionally rigged against the South. The fault lies with Northern signatories once again averting a level playing field. Discussing Target 10.A, Special and Differential Treatment, this contribution looks into present trade reality, criticizing the SDGs’ undue reliance on the WTO. To achieve the SDGs, a different and more promising avenue is advised.  The necessary minimum reforms of WTO treaties are presented. Unfortunately, even this biased WTO system is presently under severe attack by the North, and it remains to be seen whether it will survive until 2030.

Introduction

Target 10 of the Sustainable Development Goals (SDGs) ‘Reduce inequality within and among countries’ is the essence of successful development. It is what development is about. Taking off after WWII, the main aim of development economics was abolishing global inequality, while present neoliberal policies increase inequalities.

SDG 10 is not the only Goal referring to trade. SDG 17 also does so. It seems logically unclear why trade was divided between two SDGs. While 17.10 calls for ‘a universal, rules-based, open, non-discriminatory and equitable multilateral trading system under the World Trade Organization, including through the conclusion of negotiations under its Doha Development Agenda’, SDG 17 nevertheless also speaks of ‘doubt … cast over the future of a sound multilateral trading system under WTO [sic!]’. SDG 1 (ending poverty) does not mention trade revenues as a means, although it mentions domestic private sector investment (which could stem from trade-revenues). The important role of trade, of making one’s own money to finance the SDGs, is not given due attention.

As trade dwarfs other resource flows, this is deplorable. Total global merchandise trade was some $19.5 trillion in 2018 (UNCTAD 2019). Southern Countries (SCs) accounted for $8.66 trillion, Least Developed Countries (LDCs) for $191 billion.

By contrast Official Development Aid (ODA) was $149.3 billion according to the old methodology, $153 billion according to the new ‘more accurate’ (OECD 2019, 5) methodology. Foreign aid dropped between 2017 and 2018, ostensibly because of money spent inside donor countries on so-called ‘refugees. This just mirrors the fact that ‘donors’ have always bloated (donors prefer ‘broadened’) ODA, up to some 42% (cf Raffer 1998; Raffer and Singer 2001, 86), apparently continuing to do so. Real resource transfer after removing broadened (=fake) expenditures is therefore much below official figures. LDCs officially got $27.6 billion of ‘broadened’ ODA in 2018, of which a large chunk did not really flow to them. Taking OECD data, SCs received 1.72% of their merchandise export revenues as ODA, LDCs some 14.45%. This underlines the importance of trade: better trade opportunities, with a level playing field, would be much more helpful for SCs to finance and achieve the SDGs than ODA ever could be.

Unfortunately, the need to make trade fair and the required reforms are not perceptibly mentioned by the SDGs. They do not recognize the overwhelming importance of trade, de facto minimizing its role in financing development and in achieving the SDGs. Without adequate trade income, the SDGs will not be achieved.

Discussing Target 10.A, Special and Differential Treatment (SDT) of SCs, this contribution looks into the present reality of trade. It criticizes the wording ‘in accordance with World Trade Organization agreements’ (UN 2020) and the undue reliance on the WTO, in spite of officially expressed doubts regarding the WTO’s future expressed in SDG 17. Northern Countries (NCs) have short-changed SCs during WTO negotiations. Therefore, this entry critically discusses this target as well as its indicator. Repairing this injustice is essential. As trade is the main source of foreign exchange of virtually all SCs, a level playing field is extremely important. Many other SDGs can only be financed if sufficient income from trade is assured. In a way, fair trade arrangements and fair export revenues are the foundation and essence of successful development. Unfortunately, the SDGs do not stress the importance of trade appropriately

This contribution briefly shows that in contrast to orthodox theory, trade is also theoretically inequalizing. This is obvious: if textbook theory were right, there would be no need for SDGs.

Trade Theory and the Denial of Trade Reality

As orthodox academia claims trade to be beneficial for development and the WTO very strongly supports this opinion, it is necessary to tackle the ‘theoretical’ basis of the WTO.

Caveats, critical statements or theoretical findings at odds with the liberalization dogma have usually been brushed aside and eagerly ‘forgotten’. One hardly finds economists ready to criticize free trade fundamentally. This author’s research has only found two highly critical of the Heckscher-Ohlin theory on which, together with comparative advantages, the free trade dogma and the WTO are built. Ohlin (1967, 308-309) chided outspokenly:

‘The obstinate conservatism with which the classical comparative cost thinking has been retai­ned in theory as something more than a pedagogical introduction – or a model for the treatment of a few special problems – is evidence that, even today, there is in many quarters an insuffi­cient understanding of this fundamental fact.

It follows that not only the comparative cost model but also the factor proportions model can only be applied in special cases and used as a general introduction to illuminate the character of trade in some essential aspects … It is characteristic of the developing countries that a good many factors do not exist at all and that the quality of others differs from factors in the indu­strialized countries. This means that a simple method of analysis – such as the factor proporti­ons model – which does not take this into account is to some extent unrealistic.’

Eli Heckscher (1950, 275; stress added) explicitly found his theory ‘in full accordance with List’s point of view, since his criticism of the ‘school’ was directed only at the dynamic factors’. List (1920, 234-235) shared this view fully. Nevertheless ‘Heckscher-Ohlin Theory’ is used to advocate unrestricted liberalization and to ‘disprove’ List’s infant industry protection. Either neoliberal economists are so much more knowledgeable about Heckscher-Ohlin theory than its founders, or they are simply lying in order to support their interests.

Regarding comparative costs, Graham (1923) proved that once the unrealistic restriction of constant returns is dropped, trade may disadvantage countries specializing according to the theorem. After attempts to disprove this so-called Gra­ham Paradox (Viner 1937 is especially recommended, presenting the problem much more clearly than Graham) had failed, textbooks simply stopped telling students about it – a prime example of orthodox academic “honesty”.

World Bank economist Chenery (1961, 23) concluded that the sta­tic concept of comparative advantage creates conflicts between trade theory and growth theory. Thus, two important bodies of or­thodoxy cannot be reconciled: ‘There are a number of contradicti­ons between the implicati­ons of trade theory and growth theory. To make these theories consistent, it is necessary to dis­card’ some assumptions, such as the crucial condition of constant returns. Thus, there exists no logically consistent theory guaranteeing the outcome that anyone is better off, as neoliberals claim. While the comparative advantages theorem, the main argument for unconditional liberalization, is irre­futably cor­rect within its assumptions, constant returns are necessary to guarantee an unequivo­cally positive outcome. If, ceteris paribus, this absolutely unrealistic restriction is dropped, trade may be to the disadvantage of a country specializing according to the theo­rem.

While models work quite well under 2 countries/2 products/2 factors assumptions they cannot be generalized. It was attempted to generalize the Heckscher-Ohlin theorem to any numbers of goods, factors, and countries. Success was limited as the clear results of the theorem are totally lost (Vanek 1968). So far, no orthodox economist has been foolish enough to try generalizing comparative costs. All recommend them to a world with more than two countries, two products, though.

Tilting Trade Rules against the South

Fairness in accordance with WTO arrangements is no doubt needed, not least because NCs have continuously violated WTO commitments. But this is not enough. The WTO is itself biased against the South, tilting trade rules further against SCs (Raffer and Singer 2001, 197-236). Fairness according to this biased construct is logically unfair. Rather than allowing development, SDG 10.A thus pleases those discriminating against SCs and hindering Southern development.

Given the present problems of the WTO, it remains doubtful whether it will still exist in 2030, a doubt also expressed diplomatically in an official SDG document quoted above. Its dispute settlement is now inoperative because vacancies have not been filled. Without enough members, the Appellate Body (AB) became non-operational in December 2019 because the US blocked re-appointments, destroying the WTO’s compulsory and theoretically binding dispute settlement system. The only instrument formally able to protect contractual rights of weaker members is gone. Tariffs imposed by the US are clearly and openly violating WTO rules. Bown and Keynes (2020) show that the possibility of establishing WTO-violating tariffs is the reason for destroying the WTO’s dispute settlement. The percentage of US trade remedies subject to WTO-arbitration has increased sharply since 2013, though still lower than in the early 2000s (ibid.). Neither the fact that the ‘United States has brought the most offensive disputes of any WTO member and has won an overwhelming number for the benefit of American companies and workers’ (ibid), nor that the WTO gave in to US Super 301, had any impact.

There seems to exist another intention too. Gonzalez (2020), non-resident senior fellow of a US think tank, proposed that some SCs ‘could give up their prerogative to “special and differential treatment” (SDT) in future trade negotiations in return for a commitment by the United States to restore the AB.’ One notes: the US would only commit itself, but these SCs would relinquish rights recognized and conferred upon them also by the US in the Uruguay Round without any guarantee that the US would actually restore the AB. Even worse, the US could any time again destroy the dispute settlement process, insisting that these SCs had formally renounced their rights and demand more concessions. Comparing all cases of 15(!) SCs with the US alone (which has slightly less cases) she ‘reasons’ that these SCs ‘have actually become the main users’ (ibid.). If 15 had not sufficed to ‘top’ US cases, she would probably have aggregated more SCs.

While the secretariat still exists, the WTO as a trading system – biased as it had been all the time – is obviously dead. As shown below, this does not mean that WTO dispute settlement has always been working fairly.

The Uruguay Round brought about substantial changes in the framework of international trade likely to increase the structural disequilibria of North-South trade. Generally, liberalization occurred where it was in the interest of NCs. Sectors important to SCs remain selectively more protected.

To encourage development, trade policy must be different. To allow SCs to develop their economic structures they should have the right to protect their economies at least as strongly as the North. Preferential treatment of SCs (Part IV of GATT 1947), an exception from the basic under­standing of equal treatment in GATT 1947, gained by strong political pressure in 1965, enabled developing GATT members to achieve preference systems from NCs. Even though actual results remained sobering, the principle of preference as such is valuable, allowing to take special developmental needs into account. The WTO has largely, though not completely (s. below), done away with that. Apart from exception for LDCs, especially some formal preferences such as ‘longer’ implementation periods were stipulated (cf WTO 2020). Compared with the time NCs ‘needed’ to adapt one sector, textiles and apparel, these few additional years are a joke.

The first three paragraphs of Article 12, Agreement on Technical Barriers to Trade, or Article 9.2 of the Agreement on Sanitary and Phytosanitary Measures (importing industrialized countries ‘shall consider providing … technical assistance’) are pure lip-service. Others may be interpreted to contain substance, but it remains to be seen how they will be implemented. An example is Article XI.2 of the WTO-Agreement. Pursuant to it, LDCs ‘will only be required to undertake commitments and concessions to the extent consistent with their individual development, financial and trade needs or their administrative and institutional capabilities’. Bilateral treaties might do away with this. Article 12.4 of the Agreement on Technical Barriers to Trade confers the right to SCs not to use international standards not appropriate for their developing needs, stating clearly the right to preserve indigenous technology and production methods. The Decision speaks of regular reviews of LDC-friendly measures, or states ‘Consideration shall be given to further improve GSP and other schemes’. The usefulness of such norms has yet to be shown by practice. Finally, a few norms are clear and unequivocal. Article 15.2 of the Agreement on Agriculture states that LDCs shall not be required to undertake reduction commitments, or the higher de minimis threshold (10 instead of 5 per cent) regarding agricultural support reduction. The additional year to submit their schedules granted by the LDC-Decision is another example, even though this period is quite short.

Even this result had to be defended against resistance, and may be seen as a small success. The International Bank for Reconstruction and Development (IBRD 1987, 154-155 or 167), e.g., as so often well in tune with one of its larger shareholders, vented these feelings, arguing strongly against preferential treatment (quite in line with orthodox theory) for developing countries, recommending reciprocity as fair and efficient. It advised the South to open their markets unilaterally even if the Northern countries should become more restrictive than they already were.

The Decision on Measures in Favour of Least-Developed Countries deserves special mention. Additional funds for net-food-importers had been stipulated to lure these countries into signing. After net importing SCs had signed, NCs simply refused to grant the stipulated relief.

The WTO system has not been very successful fostering development. Apparently, it is not in­tended to be. NCs opened Northern markets in areas where little competition from SCs could be ex­pected or actually occurred, leaving sectors of genuine Southern interest (such as agriculture and manufactures where SCs could compete re­latively successfully) well protected.

Empirical evidence shows that protectionist measures, especially Non-Tariff-Trade Barriers (NTBs), have been used asymmetrically, targeting SCs conspicuously more often than other NCs (IBRD 1987, 140; Taylor 1987). Since SCs have less power to reta­liate effectively this is little surprise, but quite in line with the very consistent history of NC-protectionism.

The Uruguay Round pushed the principle of preferential treatment further back, containing clauses that can be used to dismantle valuable preferences for some SC-exporters (cf Raffer 2019). To allow SCs to develop their economic structures their right to protect their economies at least as strongly as NCs must be built into WTO agreements.

Judging the WTO framework, one cannot but agree with the expert analysis of  the then Director General of the WTO in 2007:

‘But today a number of the current substantive rules of the WTO do perpetuate some bias against developing countries. This is true for example with rules on subsidies in agriculture that allow for trade-distorting subsidies which tends to favour developed countries. This is also true when we look at the high tariffs that many developed counties apply on imports of agricultural and industrial products, in particular from developing countries. I often say that while the political decolonization took place more than 50 years ago, we have not yet completed economic decolonization.’

NCs were mostly able to shape the WTO-system according to their interests. Lamy continued, putting his hopes on the so-called Development Round: ‘A fundamental aspect of the Doha Development Agenda is therefore to redress the remaining imbalances in the multilateral trading system and to provide developing countries with improved market opportunities.’ This was a vain hope, as the outcome of this ‘Development Round’, a Blairite expression, proves. Demanding measures in favour of SCs within this tilted framework is a sad practical joke. Nevertheless, the SDGs put their faith in the WTO.

While estimates of incredibly large gains by the Uruguay Round had been presented before signing, Mattoo and Subramanian (2005, 21) criticizing the assumptions of a model disconnected from reality, concluded soberly: ‘benefits of the Round were exaggerated and its costs were underplayed’. This goes especially for SCs. While the ‘WTO would seem to be the best vehicle for advancing the current interests of the industrial countries’ private sectors’, the WTO process is a ‘victim’ of the ‘success of the World Bank and IMF’ (Mattoo & Subramanian 2005, 20). During ’structural adjustment’ SC economies had been so largely liberalized that they had little to offer during negotiations. SCs started a game of strip poker already practically naked. NC interests had been able to secure their main goals, especially as regards TRIPs (Trade-Related Aspects of Intellectual Property Rights), which ‘increased the monopoly power of the patent holder’ (ibid.)  against generic competition. Thus, the Doha Round ‘has always been plagued by a private sector interest deficit’ (ibid.,19).

At Bali, finally, some official agreement was made to avoid having to recognize the failure of the ‘Development Round’. Naturally, its focus is not on development but on NC concerns. Trade facilitation, an urgent NC concern to open Southern markets, was agreed upon, and followed up. The Trade Facilitation Agreement (TFA) entered into force on 22 February 2017.

One might call it an SC victory that subsidies to save poor people from starving are now ‘temporarily’ accepted. A permanent agreement was and still is to be negotiated. Thus, SCs can do what NCs have been doing all along. Under the term ‘Special Agricultural Safeguards’ they had assured continuing protectionism. Under this mechanism it is not necessary to demonstrate that serious injury is caused to domestic industry. A similar mechanism for SCs, the Special Safeguard Mechanism, has been averted by NCs so far. Regarding the long boiling conflict on cotton, ‘dedicated discussions(!)’ on subsidies and export practices were agreed on in Bali. Practical consequences remain to be seen. While saving face for the WTO, Bali rendered no developmental benefits for SCs, a Development Round without real development benefits.

While the Doha Round was touted as a single undertaking, dispute settlement and improvements demanded by SCs were not part of the negotiations, even though the US has expressed grave concerns that could already have been treated then.

Indicator 10.A.1 is quite in line with its ill-chosen target. Zero tariffs for LDCs are not really useful. Their exports largely consist of raw materials, which have been welcome imports in NCs since mercantilist times. Zero tariffs for raw materials is in no way an indicator of development – quite the opposite.

During 2015-2017, 64.2% of LDC-exports were primary commodities. Of 35% manufactured goods, 29.7 were ‘1abour intensive and resource intensive manufactures’ (UNCTAD 2018b, 15). This means, e.g., cheap apparel produced under inhumane conditions in Bangladesh, where 93.1% of exports fell under this category. As generally known, tariffs are not the barrier in this sector. To some extent, cheaper imports are extremely welcome, exploiting SCs (Unequal Exchange – for this concept v. Raffer 1987) is profitable. One only has to keep the lid on to large imports. Less than 6% of LDC-exports fall outside these categories and could actually benefit from zero tariffs, provided no NTBs existed, which is highly doubtful.

UNCTAD (2018a, 59) finds ‘inadequate infrastructure and poorly functioning trade-related institutions’ hindering LDC-exports as ‘specific trade-related obstacles’. Tariff escalation and tariff peaks are seen as ‘major’ barriers. Truly so, but considering the amount of LDC-exports affected, possible short-term gains are peanuts. In the long run, though, abolishing these trade barriers may well increase more advanced manufactured exports by LDCS.  Zero tariffs on LDC-produced supersonic planes do not matter, simply because LDCs do not produce them. Northern tariff policy has always been highly selective: no tariffs on non-competing products, high tariffs (and other barriers) on products competing with domestic production, and high effective rates of protection.

The EU Commission (1998, 53) also identifies a ‘lack of supply capacity and competitiveness of most ACP [Asian-Caribbean-Pacific] countries which renders them unable to cope with external demand and competition’. Liberalization is as easily granted under such conditions as allowing people in wheelchairs to climb Mount Everest alone without having to pay fees.

The fact apart that the indicator only measures LDCs, it would be much more meaningful to have indicators on NTBs or tariff escalation, both for LDCs and all SCs. Naturally, this would cloud the rosy picture. Realistically both Target and Indicator are fairly useless and misleading.

LDC exports are unlikely to increase dramatically. Their doubling by 2030 is called for by SDG 17. Target 17.11 ‘is most likely to be missed even before it is going to be adopted in September this year.’ (Bruckner, no year) Neither raw material nor clothing exports are likely to double.

The WTO – Enhanced Voice of the South?

Target 10.6 calls for ‘enhanced representation and voice for developing countries in decision-making in global international economic and financial institutions in order to deliver more effective, credible, accountable and legitimate institutions’. Indicator 10.6.1 is based on ‘Proportion of members and voting rights of developing countries in international organizations’. By this indicator the WTO is the model pupil: each member has one vote.

Speaking of governance reforms, the UN (2020) does not hesitate to present the WTO as the model: ‘While countries in developing regions represent over 70 per cent of the membership of the General Assembly and World Trade Organization, which utilize a one member, one vote system, their voting share in other international organizations remains far below these levels.’ However, in the WTO all animals are as equal as on Orwell’s Animal Farm. In addition, the history of the General Assembly also shows the real power of one-country-one-vote majorities.

Northern promises that the WTO would establish a rule-based, predictable, non-discriminatory multilateral trading system, upholding the rights and interests of weaker trading partners, made SCs accept these treaties, hoping that trade would become less biased. Logically, strengthening the rule of law is always in the interest of less powerful participants. Multilateral decision-making, mirrored in the stronger role of the WTO is often claimed to be a bonus for SCs and small countries. But practice turned out very different from theory. Installing the one-country-one vote principle, the WTO, like the UN General Assembly, gives the group of SCs representing the majority of countries and of people the majority of votes. Establishing majority decisions and consensus, this is said to form the legal base for full participation of SCs in decision making.

In practice votes are, of course, not equal. Poor and small SCs could hardly block a decision when (rather than if) subject to strong pressure by big players – unlike the US or the EU. Such pressure is not outlawed by WTO treaties. One interesting feature is the so-called Green Room. This refers to the practice of backroom negotiations to which only a few countries are invited, whose results are then presented to the rest for ‘consensus’, sometimes under time (and other) pressure. At Seattle, that practice led to strong protests. On one occasion delegates from SCs, arriving in the morning found that the texts discussed had undergone major transformation overnight. Considering the emphasis particularly the WTO’s Northern members had repeatedly put on transparency, open decisions, accountable democracy and so on, this would be surprising if one believed political declarations.

Dispute settlement has never been wholly correct and fair. Like the one-country-one-vote principle, it was presented as another chocolate on the tray. The rule of law would govern international trade relations. Unlike under the old GATT, disputes would be solved quickly, efficiently, and equitably. Reality once again turned out quite differently. Powerful members (those more equal) can choose whether to obey decisions or not.

Art. 3.7 of the Understanding on Rules and Procedures Covering the Settlement of Disputes is absolutely frank, containing a less than subtle warning to SCs and small countries in general: ‘Before bringing a case, a Member shall exercise its judgement as to whether action under these procedures would be fruitful. The aim of the dispute settlement mechanism is to secure a positive solution to the dispute.’

Not protecting contractual rights or the law but fruitfulness is the stipulated aim. If, e.g., the US or the EU are likely simply to ignore decisions of the Dispute Settlement Body (DSB) or the AB, lodging a complaint would be unfruitful, thus logically violating dispute settlement rules. While the WTO’s dispute settlement mechanism is a convenient legal veil to allow disciplining smaller countries and most SCs (China or India, e.g., can defend themselves), it is toothless, when it comes to bigger members. In a way, it is the law of the jungle hypocritically and thinly hidden under a pseudo-legal cloak.

The Understanding on Rules and Procedures Covering the Settlement of Disputes states that its ‘last resort’ provided to ‘Members invoking the dispute settlement procedures is the possibility of suspending the application of concessions and other obligations … vis-á-vis the other Member, subject to authorisation by the DSB of such measures.’ (Art. 3.7) One may speculate whether the authorized suspension of concessions by Antigua vis-à-vis the US will be equally effective as a suspension the other way round. Suspending concessions and obligations is subject to strict rules and not always possible (Art. 22.5). Compensation for damage inflicted by breach of contract is voluntary (Art. 22.1). Like in the case of Voluntary Export Restraints (legalized by the WTO) where SCs volunteer more often than NCs, one may assume that compensation might not be forthcoming with equal eagerness from all countries either.

Historical record shows that powerful countries can just disregard rulings they do not like (for further information and quotes on all cases mentioned below v. Raffer and Singer 2001, 214-215)

  • When the EU complained against the US Helms-Burton Act the US threatened that ‘the WTO panel process would not lead to a resolution of the dispute, instead it would pose serious risks for the new organization.’ (WTO 1996a, 2). Following US ‘advice’ to ‘explore other avenues’() the EC requested the panel to suspend its work in April 1997 after agreeing bilaterally not to apply Helms-Burton to EU-corporations. While Helms-Burton is a clear violation of US obligations under the WTO one could as well call the EU’s complaint illegal due to its evident unfruitfulness. The US insists on choosing whether to comply with decisions or not. Unlike many other countries, the EU is equally able to assert itself.
  • Losing its dispute with the US on hormone meat, the EU simply continued not allowing imports of hormone meat on health grounds. Of particular interest is the AB’s finding why health concerns were overruled. It saw this necessary ‘for the maintenance of the delicate and carefully negotiated balance … between the shared, but sometimes competing, interests of promoting international trade and of protecting the life and health of human beings.’ (Appellate Body 1998, para 177, emph. KR) In other words, a small increase in trade might well outweigh a few hundred or thousand lives. Might one assume especially so in SCs?
  • It had been argued that the WTO’s legal framework would put an end to bilateral (and GATT-violating) measures such as the US Super 301 to lure SCs into signing. Signatures obtained the WTO saw Super 301 as WTO-consistent (WTO 1996b, 16; Raffer and Singer 2001, 212-213).
  • Canada, a country subsidizing its own small aircraft industry, complained about subsidies Brazil granted to her aircraft producers. Brazil in turn complained against Canadian subsidies. Canada simply refused to provide the information requested by the panel, in particular about the debt financing activities of its Export Development Corporation (EDC). Declining Brazil’s demand to infer that the information withheld was prejudicial to Canada’s position, the panel stated that Brazil’s evidence was insufficient. The AB found that Canada had violated its obligation to respond promptly and fully pursuant to Article 13.1 of the Understanding. It remarked that ‘a party’s refusal to collaborate has the potential to undermine the functioning of the dispute settlement system’ (WTO 2000, 59). The AB ‘might well have concluded that the facts on the record did warrant the inference that the information Canada withheld … included information prejudicial to Canada’s denial that the EDC had conferred “benefit” and granted a prohibited export subsidy.’ In spite of this fundamental threat to the very WTO-system, the panel’s finding was upheld, as Brazil had not done ‘enough’ to make the inferences requested. Adding insult to injury, the AB did ‘not intend to suggest that Brazil was precluded from pursuing another complaint against Canada … concerning the consistency of certain of the EDC’s financing measures’ with contractual obligations (ibid.). It remains unclear, however, why Canada (a G8 country) should then provide prejudicial information it withheld successfully, illegally but with official blessing by the WTO dispute settlement mechanism. If the accused had been Benin or Jamaica, the full rigour of the ‘law’ would have hit the offender, equal as all animals are.
  • Cotton and sugar are other prime examples to illustrate the WTO’s double standard, which for the sake of brevity are not further described (for more v. Raffer 2019, 84-85)
  • Two complaints by Korea against US anti-dumping actions were not followed. The DSB ‘deferred consideration as the United States indicated it was not in a position to agree to both requests’ (WTO 1997, 4) – no doubt an easy way to deal with complaints not available to all members.

These few examples prove that dispute settlement is not based on the rule of law. If one party can successfully tell the court to choose between rendering a fair judgement and its own existence, or can just chose to ignore the decision, the contractual rights of smaller members depend on bigger members’ ‘goodwill’. It resembles Mafia arrangements, even though these are arguably more rule based. The way dispute settlement is stipulated one has to ask whether there ever was any honest intention to establish correct legal relief. However, even this unfair arrangement proved too much for NCs as present problems prove.

This should not be understood as meaning that the WTO’s dispute settlement has never rendered correct and helpful judgements. Among the hundreds of decisions, this has often happened and decisions have very often been obeyed. But some members are able to choose whether to do so, others not. This is no failure of the panels, but of the WTO system, and therefore ultimately of its signing parties.

What should have been Demanded to Reach the SDGs?

Assessing SDG demands regarding trade, one cannot avoid concluding that these Targets and Goals are not well chosen and unlikely to be very helpful to SCs. No doubt, this is also the result of NCs once again able to protect their interests against fairness, developmental needs, human rights, and humanitarian exigencies. This is particularly unfortunate because the SDGs are meant and needed to reduce global inequalities, and trade is the main provider of resources to achieve this.

Logically, the SDGs should have called for meaningful WTO reforms (cf Raffer 2002) rather than simply referring to the WTO. Reforms are first and foremost the establishment of a proper and powerful Dispute Settlement Board, including

  • Compensation (a proposal already made by SCs early on) for legal costs if an SC wins and for damages inflicted upon SCs.
  • Proving non-negligible damage if NCs start complaints against SCs. This would be an important change protecting poor countries against legal harassment.
  • Collective retaliation: mandatory retaliatory action by all WTO members against offenders would change the present situation where powerful countries are above WTO-‘law’.

Other reforms are needed in addition:

  • Infant Industry Protection: SCs should be allowed to develop their economic structures, just as the North ern countries did earlier. Their right to protect their economies at least as strongly as NCs must be built into the WTO agreements (cf. Raffer and Singer 2001, 251-252)
  • Trade Related Investment Measures (TRIMs) should be waived for SCs. This could, of course, be differentiated by level of development.
  • Voluntary Export Restrictions against SCs must become illegal.
  • A Food Import Facility should be established at the WTO or another compensation mechanism without conditionality, as promised by the North before signing to lure some SCs into signing. It must work as a contractual insurance scheme (Raffer 1997a), like the original Stabex in Lomé I.
  • The TRIPS Agreement must be changed fundamentally, At present, it does not protect local indigenous knowledge, strictly speaking it does thus not protect intellectual property. It only protects specific intellectual property defined according to Northern criteria, wishes, and needs. Expressions such as ‘kleptocracy’, bio-piracy, and other very badly sounding words have been used to describe the plunder of indigenous knowledge in SCs. [In parentheses it might be said that the WTO itself stole the acronym of the World Tourism Organisation (WTO), which is a clear breach of Article 15 of its own TRIPS agreement.] Not less important, harassment by NCs against SCs exercising their rights under TRIPS must stop.

All these demands would have been so much more suitable and practical. But (or: therefore) they were not made. Disregarding trade and its developmental effects is quite likely to frustrate reaching the SDGs in general and in particular SDG 10, reducing inequality within and among countries.

Conclusion

Trade is the most important source of resources available to fund development and the SDGs. Unfortunately, this is not mirrored by the SDGs. SDG10 refers to trade, as does SDG17. Nevertheless, these references do not appreciate the fundamental importance of fair trade. The WTO referred to by the SDGs is biased and rigged against SCs. To reach SDG10, in fact all SDGs, a different and genuinely fair trade regime is mandatory.

References

  1. Appellate Body (1998) EC-Measures Concerning Meat and Meat Products (Hormones) – AB-1997-4 – Report of the Appellate Body, https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symbol=%20wt/ds26/ab/r*%20not%20rw*)&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true#. Accessed 4 March 2020.
  2. Bown, CP, S Keynes (2020) Why did Trump end the WTO’s Appellate Body? Tariffs. https://www.piie.com/blogs/trade-and-investment-policy-watch/why-did-trump-end-wtos-appellate-body-tariffs?utm_source=update-newsletter&utm_medium=email&utm_campaign=piie-insider. Accessed 9 March 2020
  3. Bruckner M (No year) Exports of LDCs to drop after 2018. UN LDC Portal, https://www.un.org/ldcportal/exports-of-ldcs-to-drop-after-2018/. Accessed 5 March 2020.
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* Kunibert Raffer is retired from the Department of Economics, University of Vienna, Vienna, Austria. Email : Kunibert.Raffer@univie.ac.at

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