Transforming Nations

How the WTO Boosts Economies and Opens Societies

Peter D. Sutherland

From Foreign Affairs, March/April 2008

Article preview: first 500 of 4,120 words total.

Summary:  The World Trade Organization has changed the world in the past decade by welcoming China and transforming national fortunes in Cambodia and Saudi Arabia. It provides the catalyst that political leaders need to reform.

PETER D. SUTHERLAND is Chair of BP p.l.c. and Goldman Sachs International. He was Director General of the GATT from 1993 to 1995 and Founding Director of the WTO.

No visitor to Phnom Penh, Beijing, or Riyadh these days can fail to sense change, optimism, and new economic dynamism. Cambodia, China, and Saudi Arabia are on the move, and mostly for the better. Why? For one thing, because all three countries -- along with Croatia, Georgia, Taiwan, Vietnam, and many others -- have joined the World Trade Organization (WTO) in the past few years.

The power of the WTO to aid national transformation is easily forgotten. All too often, many developing countries measure their success in the WTO's Doha Round of trade negotiations by the extent to which they avoid obligations to open up their economies. And in polite conversations in Geneva, the potential of WTO disciplines to encourage radical market, institutional, and regulatory reform is a politically incorrect topic. It is the countries that have joined the WTO over the past decade that have drawn the most benefit from global trade rules. Older members, which did not need to negotiate their entry, have probably gained the least.

The WTO has changed the world in the past decade by welcoming China. And if it has changed national fortunes, in Cambodia and Saudi Arabia, for example, it is thanks to its accession procedures. Compared with the terms of bilateral free-trade areas, the terms of WTO membership amount to a revolution. The process is now lengthier than ever. China applied to the WTO's predecessor (the General Agreement on Tariffs and Trade, or GATT) in 1986 and joined the WTO in 2001, Cambodia applied in 1994 and joined in 2003, and Saudi Arabia joined in 2005 after 12 years of preparation and negotiation.

Why do governments put themselves through such trials to enter what was once tagged a rich man's club? The answer might simply be to get rich. This is trite, and it cannot explain the efforts by China or Saudi Arabia, where the opportunities for getting rich have long existed. In fact, a better explanation is that at a certain point political leaders understand that fundamental change is necessary, or unavoidable, and that it cannot be achieved without support from the outside. They need a catalyst; the WTO provides it. Change often means confronting vested interests, reducing the role of the state, reforming institutions, and taking on corruption. Change also means shaking up the private sector by encouraging competition, setting entrepreneurs free from government controls, and ensuring efficient and affordable services. In an era of broadening and deepening globalization, small or struggling economies thrive only in an environment that generates opportunity and supports entrepreneurship. Much of what the WTO does is, in fact, about helping achieve good or better governance.

Nowhere is the WTO's power to transform nations more evident than in its accession process. In the early years of the GATT, little was asked of new entrants; even the GATT's founding members remained knee-deep in high tariffs and quotas. They and other industrialized members did negotiate tariffs downward, lift nonagricultural import quotas, dispense with preferential treatment, and sign ...

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