World Trade Organization Case Studies

Who benefits or suffers from the World Trade Organization’s version of “free trade” is seen most clearly in the WTO’s rulings. The following cases are excerpted and adapted from the International Forum on Globalization publication Invisible Government – The World Trade Organization: Global Government For The New Millennium? by Jerry Mander and Debi Barker. See Resources, p. xx. 
United States Regulations on Reformulated Gasoline Cleanliness Challenge by Venezuela and Brazil against the United States.
[Cases WT/DS2 and WT/DS4]

The WTO’s first ruling dealt a direct blow to a 1993 U.S. Environmental Protection Agency (EPA) rule which required gasoline refineries to make cleaner gas in an effort to reduce air pollution. The EPA had opted for a program that allowed gradual improvement based on past performance. Where past performance could not be reliably ascertained, a refinery’s baseline was set to match the actual 1990 performance data of all oil refineries. Thus, some domestic and foreign producers were treated identically, some domestic producers were held to higher standards than foreign suppliers, and some to a lower one.

The rule was set to expire in 1998, giving refiners five years to bring baseline standards up to a single cleanliness target. However, in 1996 a WTO dispute panel, and later an appellate body, decided the U.S. rules could be “discriminatory” because the gradual phase-in violated GATT’s National Treatment rule, despite the fact that the EPA rule was being applied equally to some U.S. producers. As a result, the EPA, which administers the Clean Air Act, has been forced to rewrite its standards to allow dirtier gasoline. One of the end results will be an increase in health problems in the United States.
The Shrimp-Turtle Case
Challenge by India, Malaysia, Pakistan and Thailand against the U.S. [Case WT/DS58]

The U.S. Endangered Species Act (ESA) requires domestic and foreign shrimp fishers to catch shrimp by methods that do not kill endangered sea turtles. ESA bans shrimp products from countries that do not use “turtle excluder devices” (TEDs). In 1998, the WTO ruled that U.S. laws created to protect turtles violated WTO rules, including the principle of National Treatment. One proposed solution was that the United States will be allowed to target only individual shrimpers’ boats. The likely outcome of that will be to encourage “shrimp laundering,” where shrimp harvested on boats without TEDs are transferred to boats with TEDs and passed off as “turtle-friendly” for import purposes.

This solution also means that many expenses – such as hiring more border inspection personnel, and training officials to inspect boats – become the burden of countries that wish to protect environmental standards. Previously, the burden of proof was on the exporting commercial interests.

Many environmentalists, especially those from Third World countries, point out that this dispute does not get to the heart of the matter. It fails to address the non-sustainability of industrial shrimp fishing. Small-scale fishing operations in both the North and the South have been harvesting shrimp for many years with little damage to other aquatic life. Sea turtles became threatened only when large, industrial fishing vessels came onto the scene. Although TEDS may save turtles, the continuation of industrial trawling is what destroys millions of marine species, along with the livelihoods of millions of traditional families dependent on small-scale fishing.
The Banana Case
Challenge by the United States, joined by Guatemala, Honduras, Mexico and Ecuador, against the European Union
[Case WT/DS31]

In September 1997, a WTO panel ruled that the European Union (EU) was giving preferential access to bananas produced by former colonies in the Caribbean. This arrangement had been previously negotiated between the EU and its former African and Caribbean colonies under the Lomé Treaty.

The United States, which does not produce any bananas, brought this case against the EU on behalf of the U.S.-based Chiquita corporation, formerly known as United Fruit. Chiquita produces bananas in Latin America on huge plantations that are notorious for exploiting cheap farm labor and using environmentally damaging techniques. In the Caribbean, which Europe is favoring, banana producers tend to be small-scale farmers who own and work their own land (an average of three acres), often incurring higher production costs.

This was a very divisive case within the WTO because of its economic, social justice, and environmental dimensions. At one point the United States began implementing a threat to impose sanctions on more than $500 million of EU exports, nearly setting off a trade war. The EU eventually said that it would comply with the ruling but it is still negotiating with the United States over settlement terms.
Beef Hormone Case
Challenge by the U.S. and Canada against the European Union
[Cases WT/DS26 and WT/DS48]

The European Union has banned the non-therapeutic use of hormones in its food industry, citing many studies that indicate that hormones, particularly implants of pellets containing estradiol, can cause cancer. Following the challenge by the United States and Canada, and citing the onerous provisions of the SPS Agreement and other WTO rules, the WTO ruled against Europe’s ban.

The WTO panel demanded scientific certainty that hormones cause cancer or other adverse health effects, thus ignoring the precautionary principle – “better safe than sorry” – as a basis for food safety regulations. This ruling has frightening implications for the ability of governments to set high standards to protect public health. It means that European consumers and governments are forced to accept imports of beef raised with hormones or be penalized with harsh trade sanctions.

Public opinion in Europe is strongly demanding defiance of this WTO ruling. The United States and Canada have produced lists of exports important to Europe, including luxury items such as prosciutto, cheeses, and Dijon mustard, among other things, on which they intend to slap 100% tariffs if the EU fails to comply. These retaliatory measures would total more than $125 million.
The Chilling Effect

More and more frequently, proposed national laws are never put into effect, or are weakened, because another nation threatens a WTO challenge to the proposed law or its implementation. Poor countries are especially vulnerable to such threats by more affluent developed nations, which have more resources, both legal and monetary, to take a case to the WTO. Here are some key examples:
Gerber vs. Guatemala’s Infant Health Law

In this well-known case, The Agreement on Trade Related Intellectual Property Rights (TRIPS) was used to thwart a law designed to protect infant health in Guatemala. In accord with recommended United Nations Children’s Fund (UNICEF) guidelines, Guatemala had banned claims on packaging that equated infant formula with healthy, fat babies. Gerber Products Co., the world’s premier seller of baby food, got the U.S. State Department to threaten a WTO challenge of this regulation, arguing that Gerber had an “intellectual property right” under the WTO TRIPS agreement. Under threat of challenge, Guatemala revised its law and now allows labeling that actually violates UNICEF guidelines.
AIDS Drugs Denied to HIV-Infected in Thailand and South Africa

In another case, the U.S. pharmaceutical industry is attempting to stop South Africa and Thailand from developing their own versions of AIDS drugs that can be sold at a fraction of the usual price. The TRIPS agreement guarantees a 20-year patent for drugs. However, over objections from industrialized nations, Article 31 of TRIPS provides a way for countries to override the patent through a “compulsory license” clause, which allows a government to grant local companies a license to produce a drug in cases of health emergencies.

South Africa and Thailand, both hard-hit by AIDS, have used this clause to begin to manufacture AIDS-related drugs. For example, U.S.-based Pfizer used to charge $14 for a daily dose of fluconazole, an antibiotic that can fight off a fatal form of meningitis contracted by one in five AIDS sufferers in Thailand. Three Thai companies began making the drug at a cost of just over $1 per daily dose.

The U.S. threatened Thailand with trade sanctions under the WTO. Twenty-five percent of Thai exports go to the U.S. The Thai government then banned compulsory licensing even though it has a genuine health emergency.

The U.S. pharmaceutical companies claim that the drugs are so expensive because they have spent enormous sums of money on research and development. They neglect to mention that some of the most important AIDS drugs were discovered by researchers with the U.S. National Institutes of Health and by researchers in other facilities whose budgets are supplemented with government grants. Their discoveries were then handed over to corporations that produce the drugs and reap the profits.
Patents on Plant Varieties: Advancing the U.S.-Style Patent System
Challenge by the U.S. against India
[Case WT/DS50]

India’s current law deliberately excludes plants and animals from patenting in order to maintain local control over these life forms. This helps to maintain low prices for some products such as pharmaceuticals. Under the current Agreement on Trade Related Intellectual Property Rights (TRIPS), however, “developing” countries must, by the year 2005, allow foreign companies the right to patent local plant varieties.

The basic complaint by the United States was that India had violated its TRIPs obligations by not moving fast enough toward compliance. The WTO agreed, even though its own deadline for compliance is 2005. As a result of this WTO ruling, India was forced to grant market monopolies to corporations on the basis of patents given by other countries.

The Burma Case: Human Rights Affected by Finance and Investment
Challenge by the European Community (EC) and Japan against the United States.
[Case WT/DS88/1]

In 1996 Massachusetts enacted a law that bars companies that do business with the brutal military regime in Burma (Myanmar) from bidding for large public contracts in the state. The European Community argued that, under WTO rules, including the Agreement on Trade-Related Investment Measures (TRIMS), the Massachusetts restriction is unfair “to the trade and investment community,” and that it breaches current WTO rules on government procurement.

Massachusetts questioned whether doing business with a brutal military regime is fair. Similar economic sanctions were used in the anti-apartheid movement in the United States in the 1980s and have been credited for hastening the transition to democracy in South Africa. Should the Massachusetts law be struck down, the efforts of any social justice movement advocating government sanctions against criminal regimes will be severely hampered.

The mere existence of this WTO challenge has already squelched other efforts to use economic sanctions to uphold human rights. For example, hoping to avoid trouble in the WTO, in 1998 the U.S. Administration actively lobbied the Maryland state legislature to stop the adoption of a selective purchasing law against Nigeria. The proposal subsequently lost by one vote.
Looking Ahead

These are some of the more controversial provisions that are currently being considered, or may soon come under consideration at the WTO.
Free Trade in Wood Products

A “free trade agreement on wood products,” is being pushed aggressively by the United States under the Advanced Tariff Liberalization (ATL) initiative. Although forest protections are already being eliminated under current WTO rules, the ATL and additional rules being introduced into other WTO agreements would further accelerate the elimination of all tariffs on wood products worldwide. Forest protection groups protest that such an agreement would result in a sharply increased rate of deforestation, declining health in global forests, a significant decrease in environmental protections for forests, and an increase in invasive species.
Free Trade in Water

Currently, trade in bulk fresh water is covered by GATT. Already, several corporations around the globe have begun prospecting for fresh water reserves and have made agreements with various countries to begin drawing water from lakes and rivers to be transported across oceans in scrubbed out oil tankers or giant floating bladders. Some nations, led by the United States, are now proposing that another WTO agreement, the General Agreement on Trade in Services (GATS), should specifically offer foreign corporations further rights and access to domestic water and water systems, including the commercial operation of municipal drinking water systems.
The Computer Industry and E-Commerce

The computer industry in the United States and other “developed” countries is calling for WTO negotiations to establish global rules on e-commerce, the selling and purchasing of products on the Internet, in the hope of forcing countries to give up their right to tax or otherwise regulate commerce on the web. This would provide an advantage to large corporations for two reasons: (1) businesses that have physical locations (your local bookstore, market, etc.) would still have to pay local, state, and national sales taxes, and (2) full-time Internet access can be too expensive for smaller businesses and individuals. In addition to the access charges, which are projected to increase due to the industry’s push to deregulate, it is expensive to advertise a website and to provide security for financial transactions, not to mention the costs of adding a shipping and handling department to fulfill electronic orders. Thus, small proprietors are less able to compete.

Last Updated Spring 2002

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