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By Professor Peter Drahos
Free traders are accusing the Trump administration of destroying the rules-based trading system. His threat to pull the US out of the World Trade Organization (WTO) is the latest piece of evidence used to suggest he is Shiva the Trade Destroyer.
However, you cannot destroy what does not exist. The view of the WTO-led trade system as a rules-based order is a fantasy, propagated in the 1980s and 1990s when the US backed its creation in order to protect its technology monopolies.
The WTO arose out of the Uruguay Round (1986-1994) of trade negotiations. Fundamental to the creation of the WTO was the desire of the US government and US multinationals to globalise intellectual property protection. Dominance of high technologies in fields such as computing, biotechnology, nuclear power and aeronautics were (and remain) fundamental to US economic and military interests.
So far as the US was concerned, the central mission of any new trade organisation would be the global enforcement of intellectual property monopolies belonging to US companies. Other countries were given a simple message – no deal on intellectual property, no new trade deal. The US would simply continue using its tools of trade coercion to enforce its intellectual property agenda.
During the Uruguay Round, a number of developing countries led by India and Brazil argued that intellectual property monopolies had no place in an organisation supposedly dedicated to free trade. All of these countries were targeted by the US using its section 301 process.
Under the rules of the General Agreement on Tariffs and Trade (GATT) in the 1980s, the US could threaten the export markets of resistant countries and block the formation of any GATT dispute panel that might pronounce on the legality of US trade threats and sanctions. Under Reagan, the US could and did coerce other countries as it saw fit.
By the end of the Uruguay Round, developing country resistance had been broken and the US got most of what it wanted in the form of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) deal.
US trade lawyers were given the job of praising the new ‘rules-based order’, especially the ‘jewel in the crown’ – the WTO’s dispute resolution mechanism. The thinking was that the WTO’s dispute mechanism would favour the US because it allowed for carousel retaliation – if a country was found to have breached TRIPS in ways that affected the interests of US firms, the US could retaliate against that country in any other sector of its choosing.
As was well known in trade circles, once the US destroyed another country’s export markets through trade sanctions those markets just did not come back.
However, the WTO did not quite work out as the US had hoped. Citizens in the US and around the world pretty quickly worked out that the WTO was simply an instrument of monopoly protection with bad consequences for them, especially in the area of pharmaceuticals where US companies were price-gouging machines.
Opponents to the WTO began to organise, and in events like the ‘Battle in Seattle’ meeting of the WTO in 1999 they took to the streets and made life a little less cosy for the trade negotiators holed up in five star hotels.
In the WTO itself, with strong leadership from Brazil and India, developing countries resisted US plans to increase protection of its technology monopolies. In a rare victory in 2001, developing countries managed to obtain a declaration on TRIPS and public health which, in essence, said that public health was more important than patent profiteering.
The fact that it took years of negotiation to obtain a declaration of the morally obvious tells you all you need to know about the WTO.
The US response was to drift away from the WTO. It pursued free trade agreements with rules requiring more and more protection of its intellectual property monopolies. The US has been rolling out those agreements ever since. Countries sign them for much the same reason people agreed to deals with Al Capone: they fear the consequences of not signing.
Trump does not represent some historical moment of the end of globalisation. He is simply the spear carrier for its aggressive extension. Like all previous US presidents, he is using trade enforcement tools to increase protection for US intellectual property well beyond any measure of economic efficiency.
If he is successful, citizens in the US and elsewhere will see even higher pharmaceutical prices, stronger publishing cartels, and less competitive markets as data and algorithms are hidden behind patent and copyright walls.
Does it matter if Trump pulls the US out of the WTO? Those who think it does do not understand the genesis of the organisation. It was created to serve US technology-based hegemony.
My own view is that it would be no bad thing if the US left the WTO. It would produce some clarity of thought about the kind of trade organisation and rules we really need for a world filled with inequality, poverty and ecological crises. We need to write trade rules as if people rather than corporations mattered.