The WTO's Getting a Bum Rap. It's Not Usurping Power.

A recent debate in Washington about trade policy and the ethics of globalization drove home to me how much arguments about political sovereignty matter to the globalization skeptics. Zanny Minton Beddoes, a colleague of mine at The Economist, and I made the case for international capitalism, while William Greider and Lori Wallach, representing The Nation, spoke for the skeptics. On the pro-globalization side, we came well equipped with arguments about the economic case for trade. The discussion turned out to be less about economic growth and living standards than I had expected, and more about political power.

Wallach is an expert in trade law and one of the most persuasive and articulate spokesmen for the American anti-globalist movement. For her, especially, sovereignty seems to count more than anything, and certainly more than the issues that preoccupy most economists. Her concern is puzzling, though.

I spend a lot of time these days thinking and writing about the European Union and its plans for political integration in my neighborhood, so I believe I am not blind to worries about sovereignty. If the need arose, I would be as willing as Wallach and the other anti-globalists to give up some economic growth in exchange for political freedom—meaning, among other things, the right to be led by politicians who are democratically accountable to voters. My chief (though by no means only) objection to the E.U. is indeed that it is substituting rule by anonymous bureaucrats—or by politicians acting in a vacuum of democratic control—for rule by leaders who are elected and properly accountable.

Anti-globalists, of course, say exactly the same thing about the World Trade Organization. If I thought their complaint were as true of the WTO as it is of the E.U., I would be joining the anti-trade protesters in celebrating their recent victory at Cancun, where they were instrumental in delaying and maybe wrecking the current round of global trade talks. And I would take that view even believing, as I do, that liberal trade promotes growth and is the most powerful force for eradicating poverty in the developing world. But it happens that the skeptics' complaints about the WTO and sovereignty are, in fact, simply wrong.

What does genuine loss of sovereignty look like? Try this: The E.U., acting at its officials' initiative, can make laws of certain kinds that become enforceable in every member country without further domestic legislative action. Possibly, those laws will not even have been reviewed, let alone endorsed, by every member-country's domestic legislature, or even by the executive branch of the country concerned. In specified areas, in other words, full power to make law has been moved abroad. That is what loss of sovereignty means. Now, given safeguards and adequate alternative channels of democratic control, such transfers of power may sometimes be defensible. That is another issue. For the moment, the question is whether the WTO has powers as great as this. The answer is, not remotely.

Critics talk as though this modestly endowed body were some rich and mighty force in its own right—a world government in embryo, they often call it—that resembles the World Bank and International Monetary Fund combined, on steroids. The World Bank has a staff of about 10,000 worldwide and nearly $120 billion of loans outstanding; the Fund has 2,700 or so officials on the payroll, with lending of around $110 billion. The United Nations system of institutions (not counting the World Bank and the IMF) has a staff approaching 50,000 and a budget of about $12 billion a year. By these standards, the WTO is microscopic: It has a staff of 550 and a budget this year of a little over $100 million. With resources like that, you would struggle to rule a medium-sized city, let alone the world.

But that only makes it more sinister, right? Numbers aren't everything. What matters is power—and that is where the WTO scores. So Wallach and her fellow anti-globalists appear to believe. In reality, though, the WTO's powers are even smaller than its budget. This is because it does not have any.

Essentially, the WTO is a place where governments meet to design international agreements on trade policy, or to conduct negotiations when a dispute arises. It is a forum with a secretariat. With one partial exception, of which more in a moment, it makes no decisions of its own. Every rule of the WTO has been agreed to unanimously by the governments that are members of the organization. Every member of the WTO, no matter how small, has a veto. In no other international institution do small, poor countries carry such weight. This hyperdemocratic feature of the institution has often been a cause of complaint among big countries: It is impossible to get anything done, they say, when nothing happens unless every government agrees.

The exception to the claim that the WTO makes no decisions of its own concerns its role in settling disputes. More confusion surrounds this than any of its other functions. Critics of the WTO like to point to cases where, as they put it, the WTO has compelled the American government to bring its policies into line with the organization's rules. In that way, the organization has trampled the democratic rights of American citizens, who had naively supposed that they were being governed from Washington, not from lakeside offices in Geneva. These instances invariably arise from dispute-settlement cases, so it is important to understand how they work.

The WTO has no power of its own to pick a fight with America or any other country. What happens in the cases the critics complain about is that some other government has first brought a complaint against America to the WTO. The only ground for such complaint is that America is failing to keep a trade promise it has already made, usually in exchange for trade commitments by other governments. Typically, the accusation will be that a measure America has adopted (a product-safety standard, say) discriminates against imports—in other words, that it applies a higher standard to imported goods than to domestically produced goods. That is something WTO members have promised not to do. A WTO dispute panel then assesses whether the complaint is justified.

What happens if the panel and the body to which panel rulings can be appealed both find that America is not in compliance, and America chooses not to honor its earlier commitment? WTO critics like to say that the organization will then apply trade sanctions. Wrong. First, the WTO will invite the disputing parties to negotiate. If that fails, again following rules agreed to by all the members, it will propose an amount of compensation that America should pay to the complainants, based on the harm suffered as a result of the trade discrimination. If that gets nowhere, the WTO will eventually permit the complainants to undertake trade retaliation, capped according to the harm suffered, against America. It is the disputing parties that may eventually apply trade sanctions, not the WTO.

Washington uses this procedure to bring complaints against other governments, just as the system is sometimes used against America. It has no objection to the method in principle, nor should it, because the procedure is really nothing more than a way to contain and defuse disputes that would otherwise be worse. And that "otherwise" is the key thing: What would happen in such disputes if the WTO did not exist? For understandable reasons—their case would collapse—the critics never ask.

Without the WTO's dispute-settlement procedure, there would still be trade disputes. But there would be no independent arbitration-like mechanism to help resolve them. There would be no body to discourage specious accusations. And the sanctions that countries would subsequently apply in retaliation for the (real or imagined) offenses of their trading partners would not be capped by an independent third party. The risk would be much greater that small disputes would spiral completely out of control.

Finally, does the WTO have any enforcement powers of its own to use against offending governments? Again, no. Governments can, and do, remain in violation of WTO dispute-settlement findings as long as they like, and there is nothing the WTO can do about it. The worst that can happen is that WTO's intervention has no effect on the contending parties, in which case trade relations between them may break down—an outcome no worse than if the WTO had not existed in the first place. The best that can happen is the WTO's efforts as mediator stop the dispute before it starts. In most cases, failing that, the WTO can play a role that reduces the damage to both parties from a dispute that would otherwise have been more serious.

The WTO never forced anybody to do anything. It infringes on no country's sovereignty. That whole line of argument is false.