The architecture of the WTO

Abstract

This paper reviews the internal and external architecture of the WTO. The internal architecture relates to the rules of the GATT and the Uruguay Round Agreements. The external architecture relates to the relationship between the WTO and other multilateral organisations. The present architecture is incoherent. The paper proposes that the architectural design should be based on the objective of full-non-discrimination; that is, free trade and national treatment without exception. There are gaps in the internal architecture that should be filled. The main consideration in the external architecture is the scope of the WTO rules relating to the environment, competition and investment. Some principles for the design of external architecture are proposed. These indicate that the rules of the WTO might be extended to cover foreign direct investment but not the environment and competition.

Introduction

At the Seattle Ministerial Meeting, one of the sets of issues that divided the members of the WTO were those relating to the scope of the next round. In addition to the items mandated by the Built-in Agenda from the Uruguay Round, there were various proposals to extend the proposed round to other issues. Some of these concerned areas that are within the present rules of the WTO; for example, industrial tariffs and anti-dumping. Others, however, would require an extension of the rules of the WTO. For example, the US was in favour of adding labour and environment issues and the EU pushed hard to bring investment and competition within the negotiations. Equally, many of the proposed items were strongly opposed by other nations; for example, the Developing Countries generally were determined to keep the new issues out of the negotiations. These divisions have continued after Seattle.

In addition, there have been substantial changes in the world economy in the 1990s. Capital is much more mobile internationally and exchange rates are more flexible. Many of the transition economies of East Europe and Central Asia have suffered declining incomes and their economies are not integrated with the rest of the world. Electronic commerce has boomed. Regional trading arrangements have proliferated.

In these circumstances, there is a need for a clear view as to the direction in which the WTO should move. It is vital that global institutions change to accommodate structural changes in the world economy. When it takes place, the next Round will be the First WTO Round. For the first time in the post-Second World War era, the world has an organisation that is capable of playing the role of the third institution envisaged by the 1944 Bretton Woods Convention. The GATT was not a multilateral organisation and operated for almost 50 years under the Protocol of Provisional Application. It had what the eminent US international lawyer John Jackson has called a “flawed constitution” (Jackson, 1997, p. 35). By contrast with the GATT, the WTO is an international organisation with provision for an institution, a secretariat and a more complex set of rules regarding decision-making.

This paper takes a long-term view of the future of the WTO. It is concerned with examining how the organisation should change to provide a set of rules that lead to the efficient organisation of world production and consumption in a world economy with much higher levels of cross-border flows of trade in goods, services, assets and intellectual property. These issues are within the scope of “institutional” issues that were canvassed in the process of the WTO preparing for the third Ministerial Conference. They are relevant to the new round and to subsequent rounds beyond that. The paper considers only individual issues that have architectural implications and it does not consider modalities of reducing barriers to trade.

Section 1 discusses the present objectives of the WTO. It proposes an objective of full non-discrimination against foreigners for the WTO. This comprises global free trade and national treatment without exception or favour and implies the derivative principles of equality of treatment and universality of coverage. These principles should guide the development of the rules of the international trading system. Section 2 looks at the architecture of the WTO that comes from the evolution of the GATT and the agreements of the Uruguay Round. The inconsistencies in these agreements may be called incoherence in the internal architecture of the WTO. Section 3 looks at the external architecture of the WTO in relation to the new issues which might be included in WTO negotiations, and the relationships between the WTO and other multilateral organisations. Some general observations are made in Section 4.