Three Case Studies
November 15, 1999
As an international human rights organization committed to social justice, Global Exchange believes that the World Trade Organization--the agreements it contains and the decisions it has made--has dangerously eroded citizens' interests in favor of commercial interests.
In ruling after ruling, the WTO's trade court has insisted that actions based on environmental, humanitarian or human rights concerns are invalid--in fact, illegal--if they in some way obstruct the free movement of commerce. The WTO courts have consistently ruled that environmental and human rights concerns are unacceptable motivations for trade policy if they interfere with the interests of commerce.
Global Exchange believes that the WTO's decisions, and the reasoning behind those decisions, are inherently flawed. Trade does not constitute simply a commercial transaction; trade is also a political exchange that affects workers' rights, the environment and communities' well being. The WTO's refusal to acknowledge this has inevitably lead to the erosion of laws meant to protect the environment, public health, living standards, and the protection of human rights.
The three case studies presented below demonstrate how the WTO courts have been used, and abused, to advance the interests of commerce above the public interest.
In the first case, a Massachusetts state law designed to punish a brutal dictatorships was attacked as WTO-illegal. The complainants argued that the law was a barrier to free trade because WTO rules prohibit the use of environmental, human rights or labor practices to be considered as criteria in awarding public contracts. The Massachusetts incident illustrates a frightening truth: Had such WTO rules existed 10 years ago, the anti-Apartheid divestment movement would have been non-existent, and Nelson Mandela might still be in jail. The WTO rules, then, have in effect removed one of the most important weapons from the human rights community's toolbox. Again, if an action interferes with commerce, regardless of what moral grounds that action is based on, it is illegal.
The second case illustrates how the WTO court has invalidated trade policies designed to advance legitimate humanitarian goals. For years the European Union has granted special preferences to the banana exports from small countries in the Caribbean. The preference has been widely recognized as the EU's implicit way of granting some kind of reparations to its former colonies and assisting the poor. But US-based Chiquita Brands International viewed this market-oriented form of humanitarian aid as a barrier to free trade, and prompted the US to file a WTO complaint. After overruling successive EU objections to the complaint, the WTO ruled that the EU system was in fact a barrier to trade. The trade court again made clear: commercial interests come before humanitarian interests.
The third example shows how the WTO has at times been manipulated to serve narrow corporate interests. The case of Gerber Food and Guatemala shows how even the threat of a WTO challenge can force small, impoverished nations to sacrifice the health of their most vulnerable citizens to meet the demands of multinational corporations. When Gerber suggested it would attempt to file a WTO complaint against a Guatemalan law designed to restrict labeling on infant formula, the Guatemalan government granted Gerber an exception, in the process endangering the lives of poor infants throughout the country.
Together, these rulings have outraged organizations that work for social justice and the protection of human rights. Global Exchange strongly supports a just, equitable and sustainable global economy in which trade and commerce improves living standards and helps all people meet their human needs. But the WTO, by advancing investor interests above public interests, is undermining the ability of people to meet their basic needs.
If commercial interests always eclipse all other concerns, environmental and human rights protections will inevitably suffer.
Burma and Massachusetts
The European Union and Japan have challenged the WTO-legality of Massachusetts' selective purchasing law on Burma. The case is still pending.
After a brutal military dictatorship took over Burma in 1988, some two dozen US municipal and county governments and the state of Massachusetts implemented policies terminating purchasing contracts with companies doing business in Burma. The selective purchasing laws were designed to keep public money from supporting a regime taxpayers find repugnant. Many of the purchasing laws were passed after Aung San Suu Kyi, Burma's dissident Nobel Peace Prize winner, called for a South Africa-style divestment from Burma.
In response to the Massachusetts law, in the summer of 1997 the EU and Japan filed a challenge against the US with the WTO. Their claim: the law violated the Agreement on Government Procurement, which compels governments to follow WTO rules; prohibits preferences for local companies; and prevents the use of environmental, human rights or labor practices to be considered as criteria in awarding public contracts.
Meanwhile, the free-trade pressure group USA*Engage challenged the measure in Massachusetts state court as a violation of the US Constitution, arguing that the law interfered with the federal government's exclusive authority to conduct foreign policy. The Massachusetts state court ruled in favor of USA*Engage in 1998, and in June of 1999 an appellate court upheld the ruling. The case is now headed for the Supreme Court. The EU and Japan have suspended their WTO challenge, pending the ruling of the domestic case. Should the Supreme Court rule in favor of the Massachusetts law, the EU and Japan would likely reopen their challenge.
Even before the case is concluded, however, the WTO challenge to Massachusetts' law has created a chilling effect on other domestic human rights policies. When Maryland was considering a selective purchasing law targeting Nigeria, the Clinton Administration dispatched US State Department Deputy Assistant Secretary David Marchick to testify before a Maryland legislative committee that was considering the legislation. Marchick warned of another WTO suit were the legislation to become law. The bill was expected to pass, but the State Department's lobbying effectively convinced the Maryland legislature to reject the proposed legislation by a single vote.
US and Caribbean Banana Farmers
The US successfully challenged an EU rule protecting the banana exports of their former colonies in the Caribbean.
The European Union has for many years provided preferential tariffs to former colonies in Africa, the Caribbean and the Pacific. The so--called Lomé Convention favored some of the poorest countries in the world, the Caribbean Island producers, which produce just 3 percent of the world's bananas and hold only 8 percent of the EU market. The Lomé agreement favored these countries by providing them with a 7 percent guaranteed market access license at a lower tariff rate. The convention was designed to benefit poor farmers in countries dependent on banana exports. In many Caribbean countries, it is small farmers rather than large corporations which harvest bananas for export, eking out a tiny profit. These nations are heavily dependent on banana exports, which account for upward of 50 percent--and sometimes as high as 91 percent--of export earnings. In order to support their former colonies, the EU created a two-tier tariff quota--essentially guaranteeing that Caribbean bananas would be cheaper than their competitors in the European market.
In 1996, the United States challenged the EU, claiming the Lomé banana regime was WTO-illegal. The US itself does not produce a single banana for trade, but it acted on behalf of Chiquita Brands International, a massive and powerful company that controls half of the EU banana market. (Perhaps coincidentally, Chiquita contributed $500,000 to the Democratic party just days before the complaint was filed.)
Although the WTO had previously granted the EU a waiver for its banana policy, the WTO ruled with the US. The EU appealed the decision. A WTO appellate body later sustained the earlier decision and clarified: the special tariff quotas that the EU provided to Caribbean banana producers had to be applied to all countries or eliminated. Of course, that would make convention meaningless.
The EU, bolstered by the 74 percent of its citizens that say they would pay more for Fair Trade bananas as opposed to standard bananas, stood firm. In 1998, the Union announced that it would remedy some of the challenged policies, but that it would maintain the quota. The US responded with punitive tariffs against the EU. The result: the EU has recently announced it has no choice but to rescind the preferences, although the US and the Europeans continue to dispute the exact terms of the settlement. However it turns out, the small banana farmers of the Caribbean are expected to be the losers.
Gerber in Guatemala
Gerber Food successfully threatened WTO action to force Guatemala to withdraw restrictions on the marketing of infant formula.
In 1983, Guatemala passed legislation to encourage breastfeeding and limit the use, and abuse, of infant formula, which has been linked to high infant mortality rates in developing nations. Guatemala's legislature followed the World Health Organization in developing guidelines that would be useful for illiterate consumers. One restriction prohibited the use of images of bottle-feeding babies in advertising or marketing. After the law went into effect in 1988, all of Guatemala's domestic and foreign suppliers of made the necessary changes to their packaging, and infant mortality rates dropped significantly. UNICEF held up Guatemala as a model in regulating the use of infant formula.
But one company, Gerber Food, refused to comply with the new regulations. The company continued to use a picture of a pudgy baby in its packaging and marketing. (Gerber allegedly violated the labeling law in several other ways as well.) The Guatemalan government for five years sought to compel Gerber to modify its labeling. In 1993, shortly before the Uruguay round of trade talks that would create the WTO, Gerber threatened the country with some sort of trade sanctions based on trademark infringement. (Though only nation-states that are members of the WTO can file challenges in the organization's trade court, challenges are usually prompted by companies in member countries.) By 1995, successfully intimidated, the Guatemalan government backed down and exempted Gerber from its infant food labeling policy.
Assuming Gerber had been able to persuade the US government to bring a WTO challenge--which is not at all certain--Guatemala's law might well have withstood such a complaint. The WTO intellectual property agreements contains a public health exception, and an epidemic of marketing-created infant mortality certainly could be considered an exception. But developing countries like Guatemala often lack the technical and financial means to defend themselves in international trade tribunals, and so can be successfully threatened by powerful corporate interests. Consequently, Guatemala was forced to sacrifice the well-being of its most vulnerable citizens to meet the demands of a multinational corporation.