| THE POLITICAL, THE ECONOMIC AND THE LEGAL:
Three dimensions needed to understand how the WTO functions in reality.
by Félix Peña
English translation: Isabel Romero Carranza
In international commercial relations, the political,
the economic and the legal, interact and affect each other in a dynamic
way. This is why it may be difficult to understand their connection using
a single-discipline approach. If reality is analyzed through the perspective
of only one of these three dimensions, there is a strong risk of not being
able to understand the complex network of factors that affect the development
of competition for international markets.
Understanding this three-dimensional link is more relevant today than
in 1947 when the GATT was created and the basic rules of the multilateral
trading system were formulated. At the time, very few participating countries
had a decisive impact on the process of creating such rules, much less
their effective implementation. The US was the main country of this system.
Nowadays, there are numerous countries and it is difficult to pinpoint
which of them have a decisive influence on the approval of new rules,
on the effective application of the rules already agreed, or of those
that are agreed in the future.
Recently, it has become evident that the basic rules of the multilateral
system of world trade are being questioned by relevant member countries
of the current WTO. One of such rules is the one that establishes the
principle of non-discrimination. It is stated in Article I of the GATT
-incorporated into the WTO - which establishes the unconditional most-favored-nation
clause as one of the cornerstones of the system. Also under question is
the rule of Article III, which requires not discriminating in the domestic
market against products from other markets with respect to domestic products.
Moreover, the application of the "America First" principle,
as per the US's view of the multilateral trading system, could lead to
a growing erosion of the effectiveness and legitimacy of various basic
rules of world trade.
All of this adds to the relevance of the Eleventh WTO Ministerial
Conference, which will be held in Buenos Aires next December. It is an
arena where member countries may seek to move forward in the development
of new ground rules, as was the case at the previous Conference held in
Nairobi in 2015. It is also expected that member countries seek to clarify
the validity of the fundamental rules of the current multilateral system
of world trade and, if necessary, promote initiatives that contribute
to their redesign, at least in what is considered necessary to achieve
a greater effectiveness of the WTO.
The multilateral system of world trade, previously institutionalized
through the GATT and now the WTO, consists of (i) legal rules agreed upon
by the participating countries, (ii) processes for the creation of new
rules, and (iii) custody mechanisms of compliance with the rules. As happens
with sports such as, for example, soccer, the rules deemed necessary and
the custody of their effectiveness are key elements to ensure a level
playing field where to compete. A rule-oriented competition protects the
interests of participants who may be weaker. (On the importance of respecting
international rules agreed by a country, refer to the ruling by Antonio
Boggiano in the famous case "Cafés La Virginia SA." before
the Supreme Court of Justice on October 13, 1994, at http://www.saij.gob.ar/,
in particular, his references to the opinions of John Jay in "The
Federalist Papers", at page 1305, and to the views of Juan Bautista
Alberdi, at pages 1305 and 1306).
In real life, the effectiveness of multilateral rules that apply to international
trade relations is often at odds with other factors that influence the
behavior of competitors, such as those related to their relative power
and economic interests. Hence, when Pascal Lamy was the Director-General
of the WTO and pointed out that geopolitics had returned to the table
of international trade negotiations, he was referring to a link that is
often underestimated when addressing international realities and, much
more so, when designing national strategies that are effective for foreign
trade -including those of companies that project themselves to the world.
It is the link between the logic of power, the logic of the economy in
all its ramifications and the logic of the rules-that is, of the law.
Actually, they interact so dynamically that it is often difficult to comprehend
their interrelation through single-disciplinary perspectives. If one tries
to grasp reality through the lens of only one of these rationales, we
risk not fully understanding its complex essence.
Today, understanding the threefold link has become more relevant, largely
because when the basic GATT rules were formulated, in 1947, very few participating
countries had a decisive impact on the rule-creation process, whereas
now there are many countries and it is difficult to pinpoint which ones
play a decisive role. It is clear that there is no longer a main rule-maker,
as was the case of the United States in those founding years.
Recently, some basic rules of the multilateral system of world trade
have been brought into question by relevant players (see the March
edition of this Newsletter on http://www.felixpena.com.ar/).
The paradox is that this is being done precisely by those who created
them. While it is premature to draw any conclusions from what is being
observed in the initial phase of President Trump's administration, the
application of the "America First" approach as per the US's
view of the multilateral trading system, formerly institutionalized through
the GATT and today through the WTO, could erode the efficacy and legitimacy
of various basic rules of world trade. At times, this would seem evident
from some of the declarations by senior officials of President Trump's
administration regarding the value that the multilateral rules of world
trade have for the US. Specifically, this is expressed through the questioning
of the principle of non-discrimination stated in Article I of the GATT
and incorporated into the WTO, which establishes the unconditional most-favored-nation
clause as one of the fundamental rules of the multilateral system of world
trade. The provision of Article III, which requires not discriminating
in the domestic market against products from other markets with respect
to domestic products, would also be called into question. This is not
a trivial issue, as was made evident at the G20 Finance Ministers' meeting
in Baden-Baden, Germany, on 16 and 17 March (see https://www.g20.org/),
when the reference to protectionism, which had been present in this arena
since 2008, had to be diluted in the final declaration. The motive seems
to have been clear: the US Treasury Secretary might have opposed the terms
of such reference.
The above underscores the practical relevance of understanding the link
between power, economics and law in the WTO system. Even more, history
reminds us that such a link has always been key to understanding international
Hence, the importance of using a multidimensional approach when addressing
the training of professionals specialized in these subjects. This is what
is being observed today in professional programs for international trade
and international commercial relations, at both the undergraduate and
However, it also highlights the relevance of the next WTO Ministerial
Conference, which will be held in Buenos Aires next December. This is
the arena in which countries will seek to clarify aspects that are essential
to the validity of the current multilateral trading system and possibly
provide initiatives that contribute to its eventual redesign, at least
in what is considered necessary for its effectiveness.
Finally, on a cautionary note, it should be remembered that the history
of the path that led to the disaster of the Second World War illustrates
the negative impact that the wearing out of the institutional framework
and the rules of world trade can have on global governance.
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Félix Peña Director
of the Institute of International Trade at the ICBC Foundation. Director
of the Masters Degree in International Trade Relations at Tres de Febrero
National University (UNTREF). Member of the Executive Committee of the
Argentine Council for International Relations (CARI). Member of the Evian
Group Brains Trust. More