Who's afraid of the WTO? - World Trade Organization

Challenge, Jan-Feb, 1998 by Kent Jones

International trade policy has always been linked in some way to a country's control over its domestic economic environment, so it is not surprising that the World Trade Organization (WTO) and other trade liberalization agreements are seen in some quarters as a threat to various members' sovereignty. Such agreements, by their very nature, commit the signatories to loosen their control over market access by foreign firms and investors, and it is therefore unavoidable that they require the sacrifice of some measure of national sovereignty. As soon as foreign competition is allowed to penetrate a country's borders, either through import competition or export opportunities, the government's control over the economy necessarily diminishes.

Openness to global competition, it is argued, should not force countries to compromise on their own environmental, health, safety, and labor standards. In this context, market forces are alleged to impose severe competitive pressures on industries, in turn putting pressure on governments to weaken domestic standards. It is feared that the resulting ratcheting down of regulations, driven by competition from countries with the weakest controls, leads to a "race to the bottom" by all countries in order to keep their firms competitive in open global markets. The loss of domestic control is, by this reasoning, a cost of freer trade, and imports from more weakly regulated countries are a manifestation of "social dumping."

This article sets out to make three points on the issue of trade and national sovereignty. First, increasing economic integration among countries is a fact of life in the world economy, and policies that seek to insulate a country from world markets carry a heavy economic cost in themselves. Second, while a country's social regulations may sometimes come under pressure from international trade and competition, as a practical matter a country's autonomy over its own regulatory environment is rarely compromised by trade itself. Third, and most important, comprehensive solutions to problems among countries of conflicting national social and environmental standards will be possible only through the construction of new international institutions - not a grafting of new rules onto existing trade agreements and institutions such as the WTO.

Sovereignty as an Economic Issue

Bernard Crick, writing in The International Encyclopedia of the Social Sciences, defines sovereignty as part of a theory of politics that requires every government to have within it a source of absolute power of final decision and the ability to enforce these decisions. He goes on to observe that: "Political theory has perpetually oscillated between stressing one or the other of the two primal functions of government - survival and betterment. Sovereignty sees the world in the light of survival alone and is most appropriate as a theory when the world of settled expectations seems urgently threatened."(1)

It is not surprising, then, that the issue of sovereignty arises as economic interdependence is progressing rapidly; apparently threatening established economic policy. At the same time, the issue also reveals the difficulty governments have in simultaneously pursuing differing goals of "betterment." Should the country focus on economic efficiency through open trade, and thereby increase its welfare by the traditional measurement of the standard of living? Or should government policy seek, through regulation, to generate public goods such as a cleaner environment and to guarantee social benefits and standards for its citizens?

It is important to recognize that countries can pursue both goals, and that one may in fact reinforce the other: Richer trading countries also typically enjoy higher environmental quality and more social programs. Yet the economic adjustment and restructuring often required in an open trading environment, which is in itself the vehicle for economic betterment, can nonetheless upset "the world of settled expectations." The central question is whether sovereignty over social policies is really sacrificed in the process.

We must first ask: sovereignty over what? Legal and political sovereignty generally refers to the government's ability to enforce its own laws and maintain existing political structures within its own borders. Any voluntary sacrifice of this type of sovereignty would typically require explicit transfers of power to a supranational authority; for example, members of the European Union have transferred certain policy and legal authority to centralized institutions. But trade agreements and membership in the WTO do not involve a significant sacrifice of legal or political sovereignty, since such international institutions have no control or enforcement power over national legislatures. On the other hand, member countries do yield some trade policy autonomy by participating in international trade agreements; for instance, the North American Free Trade Agreement (NAFTA) does subject some legal decisions (especially in unfair trade law) to binational panels. But there is otherwise no sacrifice of national lawmaking or enforcement powers.