The Transatlantic Trade and Investment Partnership

by Aoife O'Donoghue | 27 Nov 2014

An oft told tale at the start of international economic law modules is the failure of the Havana Charter of 1946 to establish the International Trade Organisation (ITO). Unlike its sister the International Monetary Fund and the World Bank Group, the ITO failed to launch. This failure was largely down to the US’s reluctance to join an organisation within which, and unlike its other post-World War multilateral fellows the United Nations, the IMF and the World Bank Group, it did not possess a veto. The UN’s Permanent Five veto members enables this genus to manage both institutional questions such as choice of International Court of Justice judges or Secretaries General alongside questions of international peace and security. Both the IMF and the World Bank Group require a qualified majority of 85% to change its own voting arrangements and institutional structures, the US vote hovers around 16% ensuring that nothing can happen within either organisation without the US’s say-so. (Indeed the continued refusal of the US Congress to pass changes to the IMF voting arrangements to give China a vote in proportion to the size of its economy and financial contributions demonstrates this veto’s continued importance). In contrast the ITO flopped because it was to be based on a one country one vote model or the notion of sovereign equality which many international lawyers unfailingly cling to in spite of much evidence to the contrary. The ITO failed as it spread a minutia of economic power too broadly.

No wonder then that the arrival of the World Trade Organisation (WTO) in 1995 was hailed by some as such a new dawn. An organisation whose membership, while not quite universal, aimed to bring everyone into the freer trade fold, indeed the eventual membership of both China and Russia have gone some way to achieving this universal aim. Significantly for its long term importance, the WTO, like its failed predecessor the ITO, maintained the one country one vote ideal that the ITO had some forty years previously failed to convince was necessary. The WTO, in terms of voting structures, was the only one of the four big international organisations to have parity of voting and it certainly tells itself that it was totally member driven.

Of course, the WTO did not quite work this way in practice. The use of consensus decision-making over voting has silenced those countries whose political muscle could not take the strain of being the one to block a decision. The continued use of so called ‘Green Room’ negotiations where a small number of leading economic states (usually the G20 but not always) plus one country (usually Bangladesh) to represent the “poorer” states often brought a completed settlement for the other members to agree without an opportunity to frame the negotiations. The WTO’s much lauded Dispute Settlement Understanding, while independent and unafraid to come to decisions that larger economic power may not like, is in reality only for those with the capacity to enter into expensive dispute settlement procedures and withstand the economic pressure in the interim.

Nonetheless, the WTO in establishing the Doha Development Round over a decade ago was at least partially aware of the inequalities within its structures. The focus on development was also the first sign that developing countries were starting to really make their presence felt after the failed Battle in Seattle where negotiations collapsed. The failure of this Development Round of negotiations, whose core aim was to improve the status of developing member states, has largely been placed at the door of the intransigence of several different alliances but most often at India and other economic powers within the Global South. The Doha Round has collapsed and while the organisation continues its day-to-day operations it is being side-lined by the TTIP, TPP and CETA.

The Global North, particularly the EU, Australia, Canada, Japan and the US, bemoan the failure of the big players in the Global South to play ball at the WTO and have decided they will simply arrange things amongst themselves. Arguably, however, this is entirely a satisfactory outcome for the Global North. The multilateralism as equality of voting within the WTO far from ensured fairness for states from the Global South but the modicum of equality it did proffer, an equality which enabled those countries unhappy with the relentless march of economies being wedged open irrespective of their economic development, enabled some (i.e. India) to halt this stride toward neo-liberal economics. In many ways the Global North was correct, the Doha Development Round was halted by the Global South but this is not a disaster for the world economy but rather a lesson that opening up decision-making to the world is not a good idea if you wish to maintain your stranglehold on economic policy. As such the US was correct in 1946, the ITO/WTO was not in its interest if built upon equality with no recognition of its exceptionalism.

As Ntina noted in her post, the TTIP (as well as the TPP and CETA) is not about free trade, the debate on tariff reduction has long since passed even though as economists such as Ha-Joon Chang have demonstrated for the vast majority of the world’s population such protectionism to protect their industries would only be in line with the forms of protectionism US Secretary of the Treasury Andrew Jackson and his UK counter-parts advocated during their own periods of industrialisation in the 1800s.¹ It is only when states become dominant in a market that entirely tariff free markets become advantageous and while the WTO continues such positioning in many ways it was a victim of its own success.

The WTO’s voting structure, its Trade Policy Review Mechanism (where all states regularly present all their trade policies and the rationales for them) and Dispute Settlement were, for some, too open and equal. Albeit such transparency and equality remained capacity-related. While extremely problematic the WTO allowed the weaker economic states to win debates and block policies they did not acquiesce to and, in particular, demonstrated that when the Global South came together in several different alliances, they could have the form of success that the New International Economic Order of the 1970s and 1980s, when the Global South had attempted to restructure global economic debates, failed to produce. Countries of the Global South win disputes at the WTO and stopped the Doha Round in accordance with the WTO’s own structures. The Doha Round negotiations purported to be for their benefit but singularly failed to take account of their economic needs.

The most obvious step for the Global North was to let the WTO fall into the shadows, to let it take care of basic disputes but to keep issues of investment and other trade related measures out of its hands. The Global North seeks to establish its own markets amongst themselves, typified by the TTIP. While the lack of transparency around the TTIP means we cannot be certain of its contents it will undoubtedly establish the world’s biggest market between the US and the EU. In essence this will set the standard for most aspects of the global market. Even if a state is not part of the TTIP this huge market will set its own standards and those states wishing to trade with it will have to comply with the standards set by the EU and US. It also allows the forms of subsidisation advocated by the EU and US a point of huge contention between the Global South and North at the WTO, and which has caused such harm to farmers in the Global South to continue without reform other than along neo-liberal economic lines immaterial to the harm that this will also wrought upon farmers of the Global North.

The Spaghetti Bowl of bilateral trade and investment treaties that have arisen in Asia used to be the bête noire of the Global North which invoked the import of the WTO to attempt to defeat their rise. Yet, this is exactly what the TTIP, CETA and TPP are, clear attempts to side-line the WTO. An organisation which was too successful in treating its members equally, allowed dispute settlement to occur on a somewhat equal basis and enabling a real debate to occur that could not be side-lined. This should not be understood as a defence of the WTO. It is a highly problematic organisation whose positive impact upon economies of the Global South is highly questionable but it was the one organisation where enough power could be mustered by the Global South to defeat new policies it had issue with. For the Global North the very success of the organisation is reason to sideline its role as a negotiating fora and to choose its friends instead in the guise of the TTIP, CETA and TPP.

Aoife O’Donoghue, Senior Lecturer, Durham Law School