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At an international conference in Paris inJuly 2007, former Mexican trade ministerLuis Ernesto Derbez remarked that the envi-ronment would determine the future of themultilateral trading system. This was a sur-prising assertion from someone once knownas a mainstream supporter of free trade andthe international system of rules that governit. One interpretation of his remark is thathumanity is facing a series of grave chal-lenges—including climate change, loss ofbiological diversity, threats to water sources—that go well beyond the partisan interests ofindividual states. Addressing these challengeswill call on all the institutional ingenuity thatsociety can muster and will require harness-ing these institutions to the broader task thatthese challenges represent. This includes theinstitutions of international trade—just when,more than ever, they are under scrutiny andattack from many quarters.1

This chapter will explore how in the last

decade the debate on trade and the tradingsystem has moved from a narrow focus ontrade policy and mechanisms to a broaderfocus on how the system might best con-tribute to the search for sustainable develop-ment. It focuses on the governance of tradeand explores what might be done to this gov-ernance to bring about the shift that theMexican minister suggested is needed.

International Trade:Help or Hindrance?

Ever since David Ricardo explained the Lawof Comparative Advantage in 1817, it hasbeen an article of faith that internationaltrade is a good thing. Trade contributes toprosperity not only by rewarding the suc-cessful trader but by expanding the size of theoverall economic pie so that, with good gov-ernance, there should be adequate slices foreveryone. (See Box 14–1.) Trade contributes

C H A P T E R 1 4

Mark Halle

New Approaches to Trade Governance

Mark Halle is Director, Trade and Investment, at the Geneva Office of the International Institute forSustainable Development.

to peace by building both mutual depen-dence and a better understanding of the trad-ing partner’s character, culture, andmotivations. Conflict among partners thatshare commercial interests would disrupttrade and hurt their shared economic inter-ests, so they also share a strong incentive tokeep the peace.2

Before looking at some of the small printthat suggests a more sober view of trade lib-eralization and its track record, it is appro-priate to acknowledge how much of tradetheory actually translates into real benefitsin practice. International trade has expandedmassively since World War II and hasaccounted for a significant share of the eco-nomic expansion that the world has experi-enced. The gradual lowering of trade barriersin the second half of the last century accel-erated both economic growth and the pro-portion of that growth attributable to trade.

With the expansion of trade, pressure grewto enshrine the rules that would facilitateopen trade and prevent backsliding into pro-

tectionism. In a very real sense, it can beargued that the codification of trade rulesand the creation of institutions to governinternational trade were a response to tradeexpansion, not the cause of it. The rules andinstitutions were put in place to ensure thatthe trading system is as free of conflict aspossible. As the perception grows that grossinequalities—or collateral damage to otherareas of public policy, such as the environ-ment—can also lead to conflict, the multi-lateral system is under increasing pressure toaddress these through the codification ofpractice and the creation of new ways to pre-vent such conflict.

Much of the trade expansion since WorldWar II can be attributed to successive roundsof multilateral trade negotiations in the Gen-eral Agreement on Tariffs and Trade (GATT)and its successor, the World Trade Organi-zation (WTO). These trade negotiations havegradually, round after round, reduced and“locked in” successively lower tariffs and quo-tas, making them today a small fraction of

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STATE OF THE WORLD 2008


Governance can be understood as the mechan-isms used to ensure that a system or regimeadvances smoothly and effectively toward thegoal it has set for itself and can deal efficientlyand justly with the issues that arise along theway. The basic characteristics of good govern-ance include:

• Transparency: People affected by decisions havetimely access to accurate and up-to-date infor-mation on the issue, as well as information onthe positions and proposals of the different parties.

• Participation: The right to take part in thedebate or decisionmaking process links to theextent a stakeholder has interests at play orwill be affected by the decisions.

• Accountability: Decisionmakers and the regime

itself are answerable for their actions, decisions,and compromises in terms of the stated goalsand objectives as well as any statements anddeclarations they make about their actions anddecisions. Accountability includes access to jus-tice for those with a legitimate grievance. In thecase of the trading system, accountability seeksan accommodation with the claims of justicemade by those who believe the trading systemshould support sustainable development.

Where the vision for society is well articu-lated in goals, objectives, and priorities and isbroadly known and supported, the exercise ofgood governance is comparatively easier.Wherethe goals and objectives are vague, good gover-nance can be near impossible.

Source: See endnote 2.

Box 14–1. Good Governance

what they once were. Further, true to tradetheory, a good deal of the growth in tradestems from unilateral decisions by countriesto eliminate obstacles without seeking con-cessions from their trade partners in return orfrom the disappearance of trade barriersthrough regional integration arrangements.3

Trade’s contribution to peace is also welldocumented. Violent conflict is significantlyless frequent between countries that enjoyrobust trade and operate open economies. Inregion after region around the world, theremoval of trade barriers has been matched bythe evaporation of armed conflict.4

So why does every successive step in tradeliberalization appear to be a long, agonizingprocess in which microscopic advances are fol-lowed by long periods of deadlock, wherehopes are continually dashed as endless lastchances are missed? Why is it that, after sixyears of negotiation, the current Doha Roundof WTO negotiations is stalled, with anincreasingly large proportion of experts andobservers wondering if it can be revived andconcluded at all in the next few years? Whydoes the WTO—an institution built on theunimpeachable principles of non-discrimina-tion, transparency of the conditions applyingto trade, and peaceful settlement of disputes—face so much hostility?

The remainder of this chapter exploresthis basic paradox: Why does such a benefi-cial thing as trade excite such disapproval?

The Goals of the MultilateralTrading System

Ask a WTO delegate what the goal of tradeliberalization is and the likely answer willhave a good deal to do with stimulating eco-nomic growth. If trade stimulates growth,then liberalizing trade increases the volume oftrade and therefore stimulates more growththan would occur otherwise. Economic

growth, however—like trade liberalization—is a means to an end and not an end in itself.(See Chapter 1.) What goal, then, is the traderegime dedicated to reach, against which itmust inevitably be judged?

At its origins in 1947, GATT had a highlyutilitarian purpose, based on the need to raisestandards of living and to ensure full employ-ment by “developing the full use of theresources of the world” and expanding trade.The WTO, established on 1 January 1995, isan altogether different animal. Its agreementsfocus less on what happens to manufacturedgoods at the border than on the trade impactsof domestic policy. Further, the key agree-ments that make up the WTO package—including a revamped GATT—are part of a“single undertaking.” GATT member coun-tries that became the initial WTO membersand the countries that joined the organizationsince then are all bound by these rules (withminor exceptions). Countries are either inor out of the multilateral regime, and it isincreasingly impossible to remain out of it.Being part of the system requires acceptingthe decisions of the WTO’s dispute settlementsystem, which are not only binding butenforceable in the most extreme cases througheconomic sanctions.5

No doubt thanks to the high politicalprofile of the environment at the 1992 EarthSummit in Rio, the Marrakesh Agreementsthat established the WTO articulated anambitious and both socially and environ-mentally responsible goal for the trading sys-tem. The governments who signed on agreedin the Preamble “that their relations in thefield of trade and economic endeavour shouldbe conducted with a view to raising stan-dards of living, ensuring full employmentand a large and steadily growing volume ofreal income and effective demand, andexpanding the production of and trade ingoods and services, while allowing for the




optimal use of the world’s resources in accor-dance with the objective of sustainable devel-opment, seeking both to protect and preservethe environment and to enhance the meansfor doing so.”6

They further recognized the particularneed for a trading system that boosts thedevelopment efforts of the poorer countriesby noting “that there is need for positiveefforts designed to ensure that developingcountries, and especially the least developedamong them, secure a share in the growth ininternational trade commensurate with theneeds of their economic development.”7

So the goal of the multilateral, rules-basedtrading system managed by the WTO is toharness trade to the task of achieving sus-tainable development, ensuring that tradeopenness provides a boost to development inthe less-advanced countries, and recogniz-ing the distinct needs of countries at differ-ent stages of development.

Unfortunately, while the trade disciplinescontained in the WTO texts are binding,enforceable, and set out in precise language,the legal status of the Preamble agreed to inMarrakesh was at first unclear. One leadingnegotiator of the agreement has remarkedthat the Preamble was used to “park”notions held to be important by one gov-ernment or a group of countries but aroundwhich no consensus could be built. Mosttrade lawyers would argue that the Pream-ble sets tone and context and has exhorta-tory value but is unenforceable. This view isnot shared by the WTO’s own dispute set-tlement system, however. The AppellateBody, for one, has made clear in a few land-mark cases that the Preamble is to beregarded as part and parcel of the legalagreements that bind members.8

It is important to note here that the envi-ronmental community has been among thosemost suspicious of the multilateral trading

system and has often been in the front linesof protests against the North American FreeTrade Agreement (NAFTA), the WTO, theFree Trade Area of the Americas, and others.There are several reasons for this.

Extension of free trade reinforces the rel-ative strength of the corporate sector andespecially the multinational corporations.This leads to the perception that the tradingsystem is an ally of the corporate sector,which the environmental community con-tinues to distrust.

The trade rules embodied in the WTOappear stronger—and the compliance mech-anisms much stronger—than the equivalentenvironmental rules, whether at the nationalor international level. When there is overlapand contradiction between the two sets ofrules, it is not unreasonable to expect that thetrade rules will prevail, especially given thateconomic policy generally has stronger polit-ical support than environmental policy does.

Attempts to extend trade policy to coverservices (such as water supply, forestry, pro-tected area management, and so on) smack ofan attempt to privatize what the environ-mental community regards as public goods.As WTO rules on nondiscrimination appearto question domestic policy decisions such asthe setting of environmental standards or theadoption of environmental labels, they appearto threaten hard-won environmental progressand to question the ability of the state to actin accordance with the public good.

Finally, early trade dispute cases decided byGATT appeared to attack the ability of statesto harness the power of the market to advanceenvironmental goals. One famous case sug-gested that the trade rules did not allow theUnited States to distinguish between tunacaught with massive associated dolphin deathsand “dolphin-safe” tuna, because the twowere “like” products under the trade rules andno discrimination between them was allowed.9




Foundations of the WTOGovernance Crisis

Governance crises can arise when the gapbetween what is declared and what is deliv-ered grows too big. This is the case with theWTO if the text of the Preamble is taken torepresent a legitimate articulation of the orga-nization’s overriding goal. The results of theUruguay Round of trade negotiations, whichran from 1986 to 1994 and led to the estab-lishment of the WTO, were sold hard todeveloping countries. While it was recog-nized that some countries would benefit morethan others, the promoters insisted that allcountries would be winners. And in recog-nition of the adaptation challenges they mightface, developing countries were given addi-tional time to implement the new agree-ments. That, it was felt, should be enough.No one accurately assessed the difficultiesdeveloping countries would face.10

It soon became evident that not only weremany countries having a hard time adaptingto the new requirements, some clearly feltthey were losing out. It began to emergethat although trade openness could bringbenefits, it tended to do so only where cer-tain basic conditions—institutions, capacity,an efficient customs service, an independentjudiciary, a solid banking system, and so on—were in place. Developing countries receivedscant sympathy when they sought to useWTO mechanisms to obtain help in theseareas. The gap between rhetoric and realitywas proving hard to bridge.

Despite this, many major trading powersfelt they were on a roll and should push fur-ther. Less than two years after the WTOopened for business, the Singapore ministe-rial meeting in December 1996 adopted anew agreement on information technologyand agreed to “study” four new topics—investment, competition policy, trade facili-

tation, and transparency in government pro-curement—with a view to including them ina later round of negotiations. An attempt tolaunch that new round collapsed in Seattle inlate 1999, but two years later and with noneof the developing-country concerns addressedadequately, WTO members agreed in Doha,Qatar, in November 2001 to launch a com-prehensive new round of trade negotiations.11

Most developing countries went along inlarge part because the new round was pre-sented as a “Development Round,” with thegoal of delivering a result genuinely positivefor poorer countries and correcting someproblems inherited from the Uruguay Round.By implication, at least, this suggested recog-nition of the fact that the promise of theUruguay Round had proved hollow for manycountries. As WTO Director-General PascalLamy told the U.N. Economic and SocialCouncil in July 2007: “Trade opening andrule-making are indeed major goals of theWTO. But today a number of the currentsubstantive rules of the WTO do perpetuatesome bias against developing countries.” Hecited the rules on subsidies in agriculture,for example, which tend to favor industrialcountries, along with high tariffs that manyof those countries apply to agricultural andindustrial imports, in particular from devel-oping nations. “A fundamental aspect of theDoha Development Agenda,” Lamy noted,“is therefore to redress the remaining imbal-ances in the multilateral trading system andto provide developing countries withimproved market opportunities.”12

More than six years after it was launched,the Doha Round has come to a standstill, andprospects for an early conclusion appear dim.While few participants question either therobust foundation of trade theory or the ben-efits of open, rules-based trade, several prob-lems are increasingly evident.

Trade openness does not, on its own, bring




the benefits that trade theory suggests, asthey depend on the right conditions being inplace. The trading powers have until recentlyshowed little interest in helping poor coun-tries achieve these conditions.

Concerns for equity, environment, anddevelopment are largely incompatible with thehard-ball, mercantilist approach to tradenegotiations and the culture that thisapproach consolidates.

Since trade policy and the trade rulesshifted their principal focus from border mea-sures to domestic policy and expanded theirreach beyond trade in goods, the relationshipbetween trade policy and public policy inter-ests in these areas can no longer be ignored.

Developing countries are increasingly awareof their power and authority and will no longeraccept promises of future benefits. They wanttangible results, if not down payments in theform of up-front concessions from richer trad-ing powers as a proof of good faith.

So where does this leave the WTO? Andis the present impasse a governance crisis? Interms of transparency and access to informa-tion—two of the basic criteria of good gov-ernance—the WTO rates well, at least as faras its members are concerned. The creationof the WTO led to a massive increase in pub-lic interest in the trading system, and both for-mal and informal access to accurate,up-to-date information on virtually everyaspect of the system’s operations is now avail-able to anyone who wishes to receive it.

Participation presents greater challenges.There is widespread agreement that the mas-sive expansion not only of the WTO mem-bership (over 150 countries, twice the size ofGATT when the Uruguay Round waslaunched) but of the number and complex-ity of the agreements and negotiations haspresented poorer countries—especially thesmaller ones—with considerable difficulties.In the normal course of events, some 25 for-

mal meetings take place each week at WTOheadquarters. But as many as 19 developingcountries, for financial reasons, have no rep-resentation in Geneva at all; others have justone or two staff covering all U.N.-relatedevents in Geneva.13

This is especially difficult for negotiations,since the interests of developing countriesdo not divide easily along North-South orregional lines or even according to any par-ticular pattern of interests. And yet it is impos-sible to envisage delicate negotiation ofbinding and enforceable economic agree-ments with 150 players in the room. Someform of representational presence must beused, but it is far from clear how that mightbe organized. The Doha Round has seenconsiderable experimentation with interestgroupings, with some positive impacts ontransparency and inclusiveness but so far with-out appearing to find the magic solution. Tosome extent, then, the crisis of the WTO isrelated to the governance challenge of ensur-ing adequate participation of stakeholders.

This is particularly true beyond the WTO’sprimary constituency in the trade policy com-munity—in the wider group of stakeholdersin civil society, among consumers and othergroups whose interests are centrally affectedby the shape and nature of the trading sys-tem. While some civil society organizationsare having a clear impact on the policydebate, the level of participation and themechanism to make constructive participa-tion possible are far less than optimal forwell-governed trade policy.




There is widespread agreement that the massive expansion of the number and complexity of the agreements andnegotiations has presented poorercountries with considerable difficulties.

The real challenge, however, relates tothe third pillar of good governance: account-ability. At one level, of course, the WTOboasts of its fine record with accountability.It is very much a member-driven organiza-tion, and each member is accountable tolegislative bodies back home. The crisisrelates to the WTO’s track record in advanc-ing the goals that the founders establishedfor the system, as set out in the Preamble.There is a very real sense in the WTO com-munity—not to mention the wider tradepolicy community—that the formal struc-tures available do not guarantee account-ability in terms of the objectives set for thesystem. And it is precisely this failure that hasled governments and interested observersto question how the WTO works and howcommitted its most powerful members areto finding solutions compatible with theoverall goal. Indeed, the WTO has no mech-anism to assess fidelity to and progresstoward its stated goal. (Although the WTOCommittees on Environment and Develop-ment were invited to monitor the impact ofDoha Round proposals on sustainable devel-opment, they have not done so.)14

An interesting and important exceptionis the Appellate Body, the WTO’s highest“court,” which rules on appeals against thefindings of Dispute Settlement Panels. Asnoted earlier, it has invoked the WTO Pre-amble as evidence that the founders intendedthe system to support sustainable develop-ment, even if the commitment is cast inimprecise terms. It is clear that the AppellateBody has adopted a central position in rulingon the character, purpose, and direction of thesystem. Beyond that, however, there is littlesign that WTO members collectively feel anyobligation to correct past decisions that havedamaged the prospects for development orthe environment.15

Civil society has also played an important

role in insisting that the WTO be held toaccount for the impact of its rules and deci-sions on wider public policy objectives.Although civil society has been notable forcriticizing the WTO for its shortcomings andin part for opposing any progress toward fur-ther trade liberalization, it is clear that the netimpact of civil society input has been to placethe multilateral trading system squarely infront of its responsibility to deliver resultsthat support sustainable development.16

The Challenge of RespectingWTO Goals

How might the governance challenge best beaddressed? It is by now a platitude to decrythe negotiated tradeoffs that characterize theWTO culture. It is a culture that saturates theorganization, that pervades its operations,and that has done a great deal of damage tothe cause of open trade. At its root, the notionis defensible. Whereas lowering trade barriersis by and large favorable over the medium andlong term and for most players, there is oftena price to be paid by some countries in theshort term. This often involves selling par-ticular economic interests short in favor of asolution that is overall better for others (suchas consumers) in the short term and for all ormost in the longer term. Lowering subsidiesfor French farmers may cause them adjust-ment problems, for instance, but it may alsolower food prices for the consumer or boostthe French service industry. Yet the immedi-ate interests are often politically influential, sothe tradeoffs that go on at the WTO serve asa political currency whereby trading partnersmake concessions in order to provide thepolitical justification for the penalty imposedon the interests that lose out.

If negotiating tradeoffs is an effective wayof convincing countries to make politicallyunpopular but economically necessary con-




cessions, it is not generally a good way toserve wider goals such as equity, poverty alle-viation, or environmental responsibility. In anycommercial negotiation, commercial powerconfers negotiating advantage, so the pow-erful trading countries and blocs have greaternegotiating power. This suggests that they willalways—or almost always—prevail in a stand-off with weaker parties. Further, in any nego-tiation involving commercial tradeoffs, theresult may be more open trade, a larger eco-nomic pie, and a greater range of opportu-nities for traders; it will not automatically doanything to correct the inequities built intothe trading system. If both sides make equalconcessions, their relative position on thetrading totem pole will remain the same. If theEuropean Union is negotiating with thecountries of the Southern Africa CustomsUnion, a successful outcome is unlikely toinclude a shift in the balance of commercialadvantage in favor of the latter.

A second reason that wider goals areignored relates to how trade policy is devel-oped at the national level. Interest in main-taining a particular tariff or subsidy will beconcentrated in a relatively small group ofplayers (truckers, for instance, or dairy farm-ers) who will usually be well organized todefend an interest they deem crucial to theircommercial success. An equally valid inter-est—for example, closing the gap betweenrich and poor countries, protecting the envi-ronment, or even lowering prices for the con-sumer—is likely to be far more dispersed andless well organized, at least in terms of affect-ing trade policy. Thus when national traderepresentatives set their negotiating prioritiesand parameters, the weight of immediatecommercial interests will always trump lessimmediate or well organized concerns. Soeven if rapid, trade-led economic developmentin Central America is an essential compo-nent of any sensible strategy to limit immi-

gration pressure in the United States, forinstance, and even if that development mightbest be served by giving Central Americaunfettered access to U.S. markets for theirgoods and services, in reality the partisaninterests of U.S. textile workers and fruit pro-ducers will tend to prevail.

Finding the right balance among com-peting interests in formulating trade policyand negotiating positions is hard enoughwithin the confines of trade concerns alone.But ensuring that trade and sustainable devel-opment are mutually supportive is consider-ably more difficult, since it involves thetraditionally complex question of policycoherence. It is an inescapable fact that pub-lic policy is a hierarchy. Macroeconomic pol-icy, including trade policy, travels first class,whereas the policies that relate to the envi-ronment and development travel coach—andoften stand-by. The current crisis suggeststhat there may not be much progress ontrade liberalization unless governments beginto demonstrate that they take the environ-ment seriously.

Taking the EnvironmentSeriously in the WTO

It is now abundantly clear that developingcountries will not accept an outcome frommultilateral trade negotiations that does notconfer on them—or at least the more vocal ofthem—tangible trade benefits and that doesnot go some way toward correcting existinginequities and imbalances. Although it is hardto imagine an outcome in which all countrieswill benefit, any acceptable outcome will haveto offer clear benefits to developing countriesin some form, even if not directly due totrade openness. Development has nowbecome a genuine trade imperative.

If the environment has not achieved thissame position, it is nevertheless remarkable




how this concern has progressed towardacceptability in the trading system. The earlyfear that the powerful new WTO would chal-lenge and roll back decades of environmen-tal achievement at the international level hassubsided, replaced in both the trade and envi-ronmental communities with the far health-ier view that each concern relates to andaffects the other and that both need to findways to be mutually supportive. This includesthe need to ensure that environmental stan-dards do not become an unwarranted obsta-cle to market access by developing countries,but also that they are not unnecessarily chal-lenged over their effect on trade. There isgrowing respect in the trade community formultilateral environmental agreements andeven for their need to use trade measures toensure compliance. The trade communityasks only that the distortions to trade be nogreater than necessary to achieve the pur-pose for which they are used.17

There remains, however, the problem thatthe trading system serves an outdated andfailed economic paradigm, that it favors thecorporate sector at the expense of publicpolicy goals, and that its rules have shifted thebalance of benefit further toward the pri-vate sector.

Responding to the Crisis at the WTO

Although the WTO agreements have boostedworld trade and benefited some countries,they have fallen well short of the promise toreduce the gaps between the rich and poor,between the powerful and the weak, andbetween those who pursue immediate gainand those who fight for a fairer world. Indeed,the WTO—and trade liberalization morebroadly—has come to be regarded as thevanguard of an economic paradigm aboutwhich there are increasing doubts. The orga-

nization is perceived by an important andhighly vocal segment of society as a centralpart of the effort to impose the “WashingtonConsensus” on the rest of the world—aneconomic system based on a blind belief in themarket and predicated on eliminating as manyconstraints on corporate opportunity as pos-sible. Whereas WTO agreements are by andlarge unfairly accused of advancing an unpop-ular economic paradigm, that has not pre-vented the public perception of the WTO asthe vanguard of this paradigm.18

The crisis at the WTO reflects both grow-ing doubts about staying on a path that hasfailed to deliver on its promise and the grow-ing insistence of the developing world thattrade liberalization must not aggravate thedevelopment problems of poorer countries.The system is responding to this crisis with abroad debate on how to achieve better coher-ence among different policy areas and activeanalysis of how the system can deliver genuinedevelopment benefits, including the correctionof past inequities. There is a clear sense thattrade liberalization must not undermineprogress toward broadly supported public pol-icy goals such as poverty alleviation, a healthyenvironment, social justice, or human rights.

Since it has become clear that countries donot automatically benefit from trade openness,a major effort is under way to put in place theconditions that would make such openness amore positive experience. Since 1997 sixintergovernmental agencies, including theWTO, have operated the Integrated Frame-work (IF) for Trade-Related Technical Assis-tance for Least Developed Countries,demonstrating growing cooperation amonginternational institutions sharing an interestin a common theme. To date, the IF is activein 33 of the world’s poorest countries, help-ing to integrate trade with national develop-ment plans and poverty reduction strategies,setting priorities for trade-related technical




assistance, and advising on governance reformto enhance participation in the world econ-omy. This approach directly addresses oneof the development-oriented goals in theWTO Preamble.19

More recently, the WTO has developed awork program on Aid for Trade. Targetingdeveloping countries, particularly the leastdeveloped ones, this aims to help govern-ments put in place the capacity and institu-tions needed to benefit from more opentrade. Aid for Trade is seen by many devel-oping countries as very much part of the“down payment” they expect if they are tosign up to any package emerging from theDoha Round.20

Efforts are also being made in the Dohanegotiations to link a country’s obligations torespect certain disciplines with its actual abil-ity to do so. In the ongoing discussions abouttrade facilitation (the removal of administra-tive barriers to trade), countries will agreeto take on the full set of obligations only if andwhen they have the necessary institutionsand human capacity in place. Where they donot, they will receive technical assistance—perhaps through Aid for Trade programs.

The issue of how trade rules link with andaffect other public policy goals is also debatedin the WTO’s Trade Policy Review Mecha-nism. This unit undertakes regular, indepen-dent studies of member countries’ tradepolicies and the extent to which they respectthe requirements of WTO membership.

This may not be enough. The world mayneed to develop a set of screens and tests onsustainable development, along with a mech-anism to settle areas of apparent or real incom-patibility. All new trade rules, and to someextent also existing ones, would be subjectedto these to ensure that their impact on sus-tainable development was positive. A forum toseek positive resolution in the case of incom-patibility would also be needed, probably sep-

arate from the formal dispute settlementmechanism. The Council for EnvironmentalCooperation set up under NAFTA wasintended to do something like this, althoughit has never lived up to expectations.

Beyond the interagency level of coopera-tion on the Integrated Framework, there is agreat deal of experimentation going on withforms of collaborative governance that gobeyond strict government-to-governmentinteraction. These involve public-private part-nerships or public policy partnerships thatgather concerned stakeholders in “account-ability compacts.” The Extractive IndustriesTransparency Initiative, the World Commis-sion on Dams, and the Forest StewardshipCouncil are good examples of these.21

Despite the encouraging developmentsand proposals just described, some of theproblems that have become evident go wellbeyond the multilateral trading system itself.The crisis of the WTO also reflects the grow-ing malaise caused by the perception thatglobal change—and particularly economicliberalization—has outrun the world’s abilityto govern for the general good of humanity.As it becomes increasingly clear that the dom-inant economic paradigm is making poverty,social injustice, and environmental degrada-tion worse, the institutions that serve that par-adigm come to be mistrusted.

Thus a cloud of uncertainty hovers over allattempts to push on further down that sameroad. The multilateral rounds of WTO nego-tiations and the additional concessions beyondWTO rules that powerful trading powerswrest from their partners through regionaland bilateral free trade agreements or sec-toral agreements of one kind or another allbegin to look like “more of a bad thing.”Progress is not progress if the world is head-ing in the wrong direction.

Yet correcting this, or finding an alterna-tive, is made doubly difficult by the lack of an




agreement on the paradigm that might offera broadly preferable alternative. Critics of thecurrent system know that they want a reliableand functioning economy whose quantita-tive and qualitative growth offers steadilyincreasing opportunity. They want to correctthe inequities that characterize today’s world,reducing the gap between rich and poor coun-tries and between rich and poor within coun-tries and building respect for human rights andsocial justice. And they want to live within thelimits imposed by Earth’s ecosystems andnatural resources. In short, they want to movetoward sustainable development and wouldlike the WTO and the other elements of themultilateral trading system to be a force in thatdirection. They want the WTO to considerthe goal set out in its Preamble not as a state-ment of broad intention but an imperative, abenchmark against which it is judged andagainst which all proposals to expand its dis-ciplines are evaluated.22

In terms of both the collapsing paradigmand the need for the trading system to servea wider goal, the notion of sustainable devel-opment may well mark the way forward.Indeed, it may be the only acceptable wayforward. The goal is there in the Preamble.The need to meet it is reinforced in the Dohamandate, and a space has been created inwhich itineraries toward the goal might bereviewed. All that is missing is the politicalwill to occupy this space and the tools tomake the sustainable development paradigmoperational.

Accepting That the World Has Changed

One reason for the lack of resolute decisionsis that the world is in a state of deep confu-sion triggered by the deep and fast-pacedchanges in the balance of power—undoubt-edly the most profound power shift since the

emergence of a world order based on sover-eign nation states almost four centuries ago.Even if the impact on the WTO and other ele-ments of the international system may not yetbe fully clear, the rise of China and India hassent out shock waves that have not yet beenadequately absorbed. And several other coun-tries are flexing their muscles as well—Argentina, Brazil, Mexico, South Africa, andViet Nam. In all likelihood the entry of Rus-sia and most of the remaining former Sovietrepublics into the WTO will trigger furtherseismic changes, and it is far from clear howthese changes can be handled, much less har-nessed to sustainable development. The dom-inant position of the United States and theEuropean Union, which have been substan-tially able to dictate trade rules, is fading andwill never again be recovered.

The apparent redistribution of poweramong nation-states is happening in parallelwith the emergence of a global public domainthat demands governance for which organi-zations based on nation-states are provinginadequate. Indeed, the intergovernmentalorganizations of the United Nations, theWorld Bank Group, and others are organizedaround a postwar order that no longer ade-quately represents reality. This must give wayto a new order focused on optimal steward-ship of global public goods. Designing theright institutions for global economic gover-nance will mean rethinking the role and pri-macy of the nation-state as traditionallyunderstood. It will require reaching a geopo-litical settlement no less significant than theorder that emerged from the chaos of WorldWar II, but one built on the central recogni-tion of interdependence. And it will involveunderstanding and finding the right role fora series of new actors in global governance,most prominently corporations and civil soci-ety organizations and networks.

The challenge of global economic gover-




nance is that of managing multidimensional-ity. Climate change policy cannot be left toenvironment ministers, because getting itright involves energy policy, investment pol-icy, foreign policy, and many other sectors.Similarly, trade policy cannot be left solely totrade ministers.

Perhaps the model in this respect is theEuropean Union (EU). For all its faults, theEU has proved adept at advancing a model ofgovernance capable of addressing multidi-mensional problems—at least those that areof central concern to its member states. It hasyet to demonstrate that it can take a multi-dimensional approach to emerging tradingpowers or to the challenges of global eco-nomic governance. But it also represents amodel in another important respect: theacceptance of devolved authority. One prob-lem with the present paradigm is the ambi-guity of most states in terms of the authoritythey have devolved. This is certainly true ofthe WTO, still stuck in the outdated nationalsovereignty model that characterized theworld of GATT.

This is not only an issue with richer trad-ing countries. The much-vaunted G-20 groupof developing countries in the WTO, whichhas proved a powerful force in countering thetraditional dominance of the rich nations, isalso torn by issues relating to national sover-eignty and domestic politics. And its membershave yet to demonstrate that they can leaddeveloping countries to overcome a tendencytoward “Third Worldism”—an automaticresistance to change because the proposalscome from richer countries. It will be criticallyimportant that the emerging powers demon-strate, along with a growing sense of confi-dence, a positive capacity to take the initiative,to be creative, and to help shape the neworder. They have already demonstrated aninterest in a system characterized by greaterfairness. The question is whether they can take

this further.23

Can they contribute to a system designedfor citizens, not consumers? Can they helpdesign a system that can mediate effectivelyamong unequal powers or in a situation ofenormous complexity and diversity? Can theyhelp craft a system dedicated to the joint goalsof promoting political stability and advancingjustice? A great deal depends on how theissues are framed. The goal is to move froman economics framed in terms of efficiency toone framed in terms of justice—both proce-dural justice and outcome justice. Futureprogress in extending the trading system willdepend on the ability to demonstrate thattrade liberalization does indeed advance thesewider objectives—social justice, human rights,equity, and a healthy environment.

In a very real way, a sustainable futuredepends not only on dealing with such emi-nently global issues as climate change (see Box14–2) or the collapse of biodiversity. Itdepends on creating a society where nobodyis excluded. The challenge is to design a trad-ing system that will harness the power oftrade to do good to a system that is charac-terized by a search for fairness, stability, medi-ation, the promotion of environmental values,and the imperative of inclusiveness. Thisrequires a trading system that is accountableto the goals set for it and that is genuinelymonitored to ensure it is proceeding optimallytoward those goals. It requires a system thatcontributes as solidly as it can to the promo-tion of the public good, not simply to privateinterests, and that balances the power of themarket with the need for a solid framework




Designing the right institutions for globaleconomic governance will mean rethinkingthe role and primacy of the nation-state as traditionally understood.

of public policy. In short, the world’s tradingsystem needs to go back to the goal set outin the Preamble to the WTO Agreements—the optimal use of the world’s resources inaccordance with the objective of sustainabledevelopment. Only this time it needs to betaken seriously.24

What Is at Stake?Today’s world is characterized by unfairness,but in any unfair system there are those whobenefit. Nothing prevents countries fromhunkering down behind their trade barriersand hanging on to what they have. Nothingprevents governments digging in their heelsso that the only advances made in trade lib-eralization are those imposed on weaker coun-tries by the more powerful. Nothing preventsthe world from moving back to a period ofgreater protection, greater conflict, andgreater suspicion of other countries. Thingsneed not necessarily get better. They couldwell grow worse. Indeed, that would normallybe the default result in an environment wherereaching international agreements is increas-ingly difficult.

Were it not for the fundamental shift inpower, the genuine threats to the future ofhumanity, and the growing disillusionment ofvoting publics with their political leaders, thispath might well be the one followed. Itappears, though, not to be a realistic optionbeyond the short term, because the world isalso moving toward a situation where it is nolonger susceptible to domination by one ortwo powers and must therefore search inearnest for compromise.

A good deal of the efforts of the emergingpowers in the trading system are aimed ateliminating trade distortions that benefit richcountries rather than simply protecting theirvulnerable economic sectors from foreign com-petition. Along with global economic rules,there is developing what might be termed the“global public domain,” a recognized space inwhich notions of shared value in protectingglobal public goods are balanced with thenotion of commercial advantage.

This approach is not a statement of “noconfidence” in markets. It is simply a recog-nition that markets function optimally in lightof the goals to be reached when they operatewithin a framework of agreed public policy.




There is no magic, single solution to the chal-lenge of controlling greenhouse gases. It is a challenge of energy policy and of managing thetransition to sustainable energy sources. This inturn has a great deal to do with the technologicaltransition, access to invention, and intellectualproperty. It has to do with investment policy andthe nature of investment agreements and the set-tlement of investment disputes. And it has to dowith trade policy—the trade rules and how thetrading system deals with issues at the frontierbetween trade policy and related policy areas. Inshort, the issue cannot be dealt with by treatingeach of the pieces separately from the overall

picture of which they are but a part.The same is true of what Paul Collier calls “the

bottom billion”—those who are not benefitingfrom global growth, from trade liberalization, oreven from much development assistance and whocontinue to survive on less than a dollar a day.Thepresent economic approach offers them very little,and the new economic elites in the emerging coun-tries often appear not to pay them much atten-tion either. Yet a sustainable future depends onincluding them in national economies and societiesand on lifting them out of their present misery.

Source: See endnote 24.

Box 14–2. Multidimensional Problems

The role of states is no longer to direct theeconomy but to put in place a favorable pol-icy framework and adequate checks and bal-ances. Within this context, the notion ofcompetition for personal or national advan-tage is replaced by a “competition for thegood,” where the rules of the global economyare not allowed to undermine the ability ofstates to act for the public good

When comparing the WTO and the rest ofthe multilateral system to this vision, it is clearthat they fall short. But the system has increas-ing difficulty in moving forward preciselybecause the global community insists on some-thing closer to that vision and has dwindlingpatience with the WTO’s shortcomings.

Who, then, will lead us to the “promisedland” hinted at in the WTO’s own statementof purpose? Interestingly, it is not in the for-mal trade policy community that the newmovement is evident. It is not the WTO del-egates in their representational capacity whoare acting in an innovative way. The labora-tories for new thinking on trade governanceare in spaces created outside traditional insti-tutions, in which new proposals are articu-lated, reviewed, and debated. Some of themost creative thinking is taking place in orga-nizations like the Evian Group—a forum thatgathers a mix of WTO delegates and staff, aca-

demics, and civil society representatives. It isfound in dialogues organized on these issuesby the International Centre for Trade andSustainable Development in Geneva, whichoffers senior trade officials a safe space inwhich to experiment. It is in events orga-nized by the Royal Institute for InternationalAffairs in London or its equivalent in SouthAfrica, Brazil, India, and China, where newideas are incubated, tested, and refined.25

The ideas, approaches, and proposals thatemerge in such forums and meetings maketheir way into the political processes, build alevel of trust, and begin to filter into thereform ideas that sooner or later design andinstall the institutional structures that willallow the world to address new challenges asglobal change accelerates. It is no different fortrade than it is for climate change or biodi-versity conservation. In each of these areas, weare building toward what we hope will be atipping point, a massive collection of politicalwill that will tip the balance in favor of posi-tive action. Each contribution may appearinsufficient, but the accumulation can make abig difference. It has done so before in onefield after another. There is no reason why itcannot happen when addressing the challengeof governing trade for the good of humanity.




Sunshine Working Group Web site, at www.corporatesunshine.org/faq.html, viewed 25 Septem-ber 2007.

49. Ceres, “Major Investors, State Officials, Envi-ronmental Groups Petition SEC to Require FullCorporate Climate Risk Disclosure,” press release(Washington, DC: 18 September 2007).

50. Felicity Barringer and Danny Hakim, “NewYork Subpoenas 5 Energy Companies,” New YorkTimes, 16 September 2007.

51. William Baue, “Lighthouse G3: Third Gen-eration GRI Guidelines Shine a Beacon for Sus-tainability Reporters,” SocialFunds.com, 30September 2005; “2500 Comply with GRI Searchof 15,008 CSR Reports for ‘GRI Adherence’Yields 2,492 Reports,” CorporateRegister.com,viewed 25 September 2007; Halina SzejnwaldBrown, Martin de Jong, and Teodorina Lessi-drenska, The Rise of the Global Reporting Initia-tive (GRI) as a Case of Institutional Entrepren-eurship, Working Paper No. 36 (Cambridge, MA:Corporate Social Responsibility Initiative, KennedySchool of Government, Harvard University, May2007).

52. “Carbon Disclosure Project and Wal-MartLaunch Climate Change Partnership; PresidentClinton to Speak at CDP Fifth Global AnnualForum Today; Latest Findings on Corporate Cli-mate Data to be Announced,” Carbon Disclo-sure Project, 24 September 2007; McKinseyGlobal Institute, op. cit. note 10.

53. Matthew Kiernan, Innovest, discussion withauthor, 30 August 2007.

54. Anne Moore Odell, “Principles for Respon-sible Investment Quadruples Assets in First Year,”SocialFunds.com, 1 June 2007.

Chapter 14.New Approaches to Trade Governance

1. Luis Eduardo Derbez, Keynote Address,Emerging Powers in Global Governance Confer-ence, Institut du Développement Durable et des

Relations Internationales and International Insti-tute for Sustainable Development (IISD), Paris, 5July 2007.

2. Jagdish Bhagwati, Arvind Panagariya, andT. N. Srinivasan, Lectures on International Trade,2nd ed. (Cambridge, MA: The MIT Press, 1998);Edward D. Mansfield and Brian M. Pollins, eds.,Economic Interdependence and International Con-flict: New Perspectives on an Enduring Debate (AnnArbor: University of Michigan Press, 2003); OliBrown et al., eds., Trade, Aid, and Security : AnAgenda for Peace and Development (Sterling, VA:Earthscan, 2007); Robert O. Keohane and JosephS. Nye, Power and Interdependence, 2nd ed. (Glen-view, IL: Scott Foresman and Company, 1989).Box 14–1 draws on U.N. Economic and SocialCommission for Asia and the Pacific, “What IsGood Governance?” at www.unescap.org, undated;see also Philippe Sands, Lawless World (London:Penguin Books, 2006), Chapter 1.

3. Sylvia Ostry, The Post–Cold War Trading Sys-tem: Who’s on First? A Century Foundation Book(Chicago: University of Chicago Press, 1997);Jagdish Bhagwati, Free Trade Today (Princeton, NJ:Princeton University Press, 2002).

4. Bhagwati, Panagariya, and Srinivasan, op.cit. note 2; Mansfield and Pollins, op. cit. note 2;Brown et al., op. cit. note 2; Keohane and Nye, op.cit. note 2.

5. Preamble to the General Agreement on Tariffs and Trade 1947 agreement, atwww.wto.org/english; Gary P. Sampson, TheWTO and Sustainable Development (Tokyo: UnitedNations University Press, 2005).

6. Quote cited in World Trade Organization(WTO), “Relevant WTO Provisions: Text of 1994Decision,” at www.wto.org.

7. WTO, The Legal Texts: The Results of theUruguay Round of Multilateral Trade Negotiations(Cambridge, U.K.: Cambridge University Press,1994).

8. Ambassador Nobutoshi Akao, Japanese nego-tiator in the Uruguay Round, discussion with



Notes

author; see also Howard Mann and StephenPorter, The State of Trade and Environment Law:Implications for Doha and Beyond (Winnipeg, MB:IISD, 2003), and Sands, op. cit. 2.

9. Mann and Porter, op. cit. note 8.

10. See Sylvia Ostry, “The Uruguay RoundNorth-South Grand Bargain: Implications forFuture Negotiations,” in Daniel L. M. Kennedyand James D. Southwick, eds., The Political Econ-omy of International Trade Law (Cambridge, U.K.:Cambridge University Press, 2002), pp. 285–300.

11. Robert Wolfe, “Crossing the River by Feel-ing the Stones: Where the WTO is Going afterSeattle, Doha and Cancun,” Review of Interna-tional Political Economy, August 2004, pp.574–96.

12. Statement by Pascal Lamy, Director Generalof the WTO to the High-level Segment,Substantive Session of U.N. Economic and SocialCouncil, Geneva, Switzerland, 5 July 2007; see alsoFaizel Ismail, “A Development Perspective on theWTO July 2004 General Council Decision,” Jour-nal of International Economic Law, June 2005, pp.377–404.

13. For membership information, see www.wto.org.

14. For invitation to committees, see WTO Min-isterial Declaration, WT/MIN(01)/DEC/1, 20November 2001, WTO, paragraph 51.

15. See Mark Halle, “The WTO and Sustain-able Development,” in Yasuhei Taniguchi, AlanYanovich, and Jan Bohanes, eds., The WTO inthe Twenty-first Century—Dispute Settlement, Nego-tiations, and Regionalism in Asia (Cambridge,U.K.: Cambridge University Press, 2007).

16. See Susan Ariel Aaronson, Taking Trade to theStreets: The Lost History of Public Efforts to ShapeGlobalization (Ann Arbor: University of MichiganPress, 2001)

17. Sampson, op. cit. note 5; Halle, op. cit. note15.

18. Dani Rodrik, Harvard University, “Good-bye Washington Consensus, Hello WashingtonConfusion?” prepared for Journal of EconomicLiterature, January 2006; William Finnegan, “TheEconomics of Empire—Notes on the WashingtonConsensus,” Harper’s Magazine, May 2003.

19. For details of the Integrated Framework, seewww.integratedframework.org.

20. World Trade Organization, Recommenda-tions of the Task Force on Aid for Trade, Geneva,27 July 2006.

21. For information on these partnerships, seewww.eitransparency.org, www.dams.org, andwww.fsc.org/en.

22. See Robert Wolfe, “Decision-Making andTransparency in the ‘Medieval’ WTO: Does theSutherland Report Have the Right Prescription?”Journal of International Economic Law, Septem-ber 2005, pp. 631–45, and Robert Wolfe, Can theTrading System Be Governed? Institutional Impli-cations of the WTO’s Suspended Animation, Work-ing Paper No. 30 (Waterloo, ON: Centre forInternational Governance Innovation, September2007); Oxfam, “WTO: Open Letter on Institu-tional Reforms in the World Trade Organization,”Oxford, U.K., October 2005; Dani Rodrik, Har-vard University, “The Global Governance of TradeAs If Development Really Mattered,” preparedfor the U.N. Development Programme, October2001; Philip I. Levy, “Do We Need an Undertakerfor the Single Undertaking? Considering theAngles of Variable Geometry,” October 2004.

23. See Robert Wolfe, “Comment: Adventures inWTO Clubland,” Bridges, June-July 2007, pp.21–22.

24. In Box 14–2, “bottom billion” from PaulCollier, The Bottom Billion (New York: OxfordUniversity Press, 2007).

25. For information on these organizations, see www.eviangroup.org, www.ictsd.org, andwww.chathamhouse.org.uk/research/eedp.



Notes

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