An Offer Developing Countries Could Not Refuse - How Powerful States Created The World Trade Organisation

An offer developing countries could not refuse:
how powerful states created the World Trade

Organisation
Igor Abdalla Medina de Souza
Ministry of External Relations of Brazil, SQS 207, Braslia DF, E 211, Brazil.
Drawing on Michael Barnett and Raymond Duvalls concept of institutional power, this
article presents the empirically ascertained asymmetries created by the World Trade
Organisation (WTO) to investigate the Uruguay Round from a power standpoint. The
argument is that developing countries, especially least developed nations, only accepted
the WTO as a choice for the lesser of two evils. They are worse-off with the WTO trade
regime, in contradiction to the positive-sum view of normative settings laid out by mainstream International Relations (IR) since the 1980s. The concept of institutional power is
broken down into the sub-categories of go-it-alone power, market power and forumshifting power to demonstrate how the United States and the European Communities
relied on their huge markets to shift the forum in charge of intellectual property and
impose on developing countries a choice between accepting the WTO Agreement and
being denied access to the worlds two largest markets. Developing countries thus
rationally became members of an organisation that entails absolute losses to them. The
argument that institutions such as the WTO are desirable because they are agreed to does
not reect the realities of power and is ultimately an ideological stance that precludes
mainstream IR from grasping how institutions (re)produce inequalities.
Journal of International Relations and Development (2015) 18, 155181.
doi:10.1057/jird.2013.18; published online 9 August 2013
Keywords: developing countries; institutional power; international institutions;
neoliberal institutionalism; Uruguay Round; World Trade Organisation
Introduction
From the time International Relations (IR) scholars converged around the concept of
regimes, normative and institutional settings have been viewed by the mainstream
of the discipline as Pareto-improving devices employed by utilitarian states to full
their interests. This article challenges such a positive-sum account by analysing the
creation of the World Trade Organisation (WTO). The investigation of the Uruguay
Round is informed by the concept of institutional power developed by Michael
Barnett and Raymond Duvall, particularly their proposition to the effect that
institutional power is in effect when actors exercise indirect control over others,
such as when states design international institutions that work to their long-term
Journal of International Relations and Development, 2015, 18, (155181)
2015 Macmillan Publishers Ltd. 1408-6980/15
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Journal of International Relations and Development

Volume 18, Number 2, 2015
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advantage and to the disadvantage of others (Barnett and Duvall 2005a: 3). The
empirical scrutiny of the Uruguay Round from a power standpoint, though virtually
absent in IR literature, reveals how the United States (US) and the European
Communities (EC)1 designed the Agreement Establishing the WTO (hereafter WTO
Agreement) at the expense of developing countries, many of which are demonstrably
worse-off with the new trade regime.
Stiglitz (2003: 7) reported that the World Bank estimated a permanent decrease of
2 per cent in the GDP of Sub-Saharan Africa, stating that the result [of the Uruguay
Round] was that some of the poorest countries in the world were actually made
worse-off. But Stiglitz is an exception. The commonsensical approach turns
absolute losers into winners through ex post facto rationalisations of the decision to
join the WTO, either in the form of gains in the long run or the idea that absolute
losers changed their interests because they learned during negotiations (Sell 1995).
Analysts often appeal to the abstract language of efciency to conclude that the WTO
Agreement was actually in the interest of absolute losers. The pitfalls of that
approach are all too evident. It simply assumes what it was supposed to explain
namely, that absolute losers are actually winners. The widespread trained inability2
to ascertain the effects of power seems to place blinders even on analysts committed
to the cause of development. As the Overseas Development Institute (ODI) (1995:
34) reasoned (italics added):
For Africa, as was true for most developing countries in earlier Rounds, the
changes are at best irrelevant. The difference is that African countries have signed
the agreement and accepted the argument that the reductions and the increased
regulation of the system which have been agreed will eventually lead to benets.
the central gain as perceived by developing countries, especially the apparent
losers in Africa and other least developed countries who gain little from the
quantiable changes, is certainty: of what the rules are, of no arbitrary changes in
market access, of the criteria for actions like anti-dumping or the required
standards on intellectual property, and, in the nal resort, on dispute procedures.
They have less power to demand or participate in bilateral negotiations. They
ratied the WTO, and most did so sooner than the US, EU, or Japan, in the belief
that these outweighed the losses on food costs, loss of preferences, increased costs
of technology, and restriction on trade barriers.
The argument advanced in this article is that developing countries did not foresee
that benets would outweigh losses. Quite to the contrary, apparent losers in Africa
are nothing but absolute losers. Given developed countries egregiously distortive
policies in vital areas to least developed countries (LDCs) such as agriculture and the
latters lack of legal capacity to challenge powerful countries successfully in the new
dispute settlement understanding (the opposite is true, in that developed countries
have made effective use of the system), the alleged benets from certainty arguably
turn into additional liabilities. After the US and the EC withdrew from the General

An offer developing countries could not refuse
157
Agreement on Tariffs and Trade (GATT) 1947, developing countries faced a choice
between membership in the WTO and outright exclusion from the world trade
system. As other developing countries yielded, a bandwagon dynamic increased
the costs of exclusion because recalcitrant states would be disadvantaged in terms
of market access to developed countries. Developing countries joined the WTO
because powerful countries imposed on them a choice between X (joining the
WTO) and Y (costs of exclusion) when they actually preferred Z (status quo,
i.e., GATT 1947).
Alternatively, the hypothesis that developing countries learned, in that their
preferences became increasingly liberal as the Uruguay Round unfolded, does not
account for their systematic complaints regarding the unbalanced nature of the WTO
Agreement. In addition, parts of the WTO Agreement, most notably the Agreement
on Trade-Related Aspects of Intellectual Property Rights (TRIPS), cannot be justied
by liberal principles. As Steinberg (2002: 366) noted, selective liberalisation was
imposed imperially and most developing countries did not want to enter into those
agreements yet they did. Developing countries decision to join the WTO in spite
of absolute losses was the choice for the lesser evil. This argument challenges not
only the liberal view on institutions, but also neorealism in two different ways. First,
institutional power allows powerful countries to attain their goals indirectly, avoiding
the legitimating problems that beset overt power exercises. After all, developing
countries decision to join the WTO was technically voluntary. As subtle as the
distinction may sound, this nuance is a main factor enabling global governance to be
portrayed as a benign process. Second, power differentials go beyond relative gains
to impose absolute losses. Stiglitz (2003: 210) captured this logic when he contended
(italics in the original):
That we bargained hard was understandable, and that the combination of hard
bargaining and our economic strength would lead to a trade agreement that was
unfair that gave us more benets than it gave to others was predictable.
But it was so unfair, so unbalanced, that some of our gains were at the expense
of others the poorest region in the world, sub-Saharan Africa, was actually
worse-off.
The mainstream IR approach to the WTO is symbolic, in that the trade regime was
precisely the reference point for the conceptualisation of regimes in the 1980s
(Kratochwil and Ruggie 1986: 769). As the special edition of International
Organization (IO) on legalization and world politics (Goldstein et al. 2000)
indicates, liberal IR theorists and likeminded scholars in International Law overlook
the constitutional asymmetries entrenched in the WTO. In fact, IR scholars refrain
from inquiring into how powerful countries inserted strong intellectual property rules
in the WTO, redening property rights at a time when immaterial assets are located at
the heart of globalisation. Nor do they problematise why negligible liberalisation
was attained in areas in which developing countries have a competitive edge,

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especially agriculture. Smith (2004) has aptly noted that mainstream IR helps to sing
our world into existence by systematically ignoring that by far the most violence
on the planet is economic in origin (50506). This article aims at providing a
contribution to the effort of widening the horizons of mainstream IR in order to
include normative issues from international political economy.
The remainder of the article is structured in four sections. The second section
depicts the IR mainstream view on institutions and conceptualises institutional
power, which is divided into the sub-categories of go-it-alone power, market power
and forum-shifting power. The third section relies on expert assessments of the
WTOs asymmetrical effects on areas such as agriculture, intellectual property and
dispute settlement to make the case for the analysis of the Uruguay Round from a
power standpoint. The fourth section highlights how the US co-opted the EC to
launch the Uruguay Round so as to insert the new issues (investment, intellectual
property and services) in the trade regime. The transatlantic partners eventually
exited from the GATT 1947 and imposed upon developing countries a choice
between accepting the WTO Agreement and being denied access to the worlds two
largest markets. The fth section presents conclusions.
The hidden dimension of institutional power

In the 1980s, the convergence of IR scholars around regimes was visible in the
special edition of IO in which regimes were dened as principles, norms, rules and
decision-making procedures around which actor expectations converge in a given
issue area (Krasner 1982: 185). Following up the IO edition on regimes, the founding
father of neoliberal institutionalism Keohane (1984) contended that institutions are able
to solve collective action problems derived from international anarchy. Institutions are
useful for rational egoists iterating under anarchy inasmuch as they reduce transaction
costs and uncertainties generated by the asymmetrical distribution of information,
enabling states to move from sub-optimal outcomes to Pareto-optimal ones in
situations similar to that of the prisoners dilemma.3 In a broader context, neoliberal
institutionalism rationalised the international order by focusing on its general
desirability when the thesis of hegemonic stability could hardly do the job in the
absence of a clear hegemonic state. While the realist argument of hegemonic stability
focused on the supply of normative settings, neoliberal institutionalists concentrated on
the demand for regimes (Keohane 1982) to favour the existing order to the detriment of
other political objectives such as distributive justice.
The realist response claimed that concerns about relative rather than absolute gains
imposed further obstacles to the cooperation among states under anarchy a
corollary of the typically realist assumption that todays friend may be tomorrows
enemy. Interestingly enough, realists incorporated the view of institutions as sources
of absolute gains to all parties involved (Gruber 2000), transferring the cornerstone

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of the debate to the signicance of distributional conicts (Grieco 1993). Since they
also considered states to be utilitarian actors that would never agree to be members of
institutional arrangements that make them worse-off, realists refrained from considering the possibility of absolute losses. In this manner, realists ended up
consolidating the positive-sum view on institutions responsible for the normative
bias favourable to the institutionalisation of international relations. In technical terms,
realists claimed that the achievement of Pareto improvements should not overcome
the question of which point would be adopted in the frontier, but the positivesum view on regimes was never contested. In the words of realist scholar Krasner
(1991: 337, italics added):
This is not to say that institutional arrangements were ever irrelevant: indeed, they
were necessary to resolve coordination problems and to establish stability.
Without regimes all parts would have been worse off. There are, however, many
points along the Pareto frontier: the nature of institutional arrangements is better
explained by the distribution of power capabilities than by efforts to solve
problems of market failure.
As the end of the Cold War brought about more ambitious restatements of liberal
internationalism, Moravcsik (1997, 1998) provided an outlook on European integration that absorbed the role of interest groups in the creation of institutions. Even if
Moravcsik (1998) has shed light on part of the power play underlying institutions,
once state preferences are dened, institutions are still viewed as Pareto-improving
devices (79). This view has been consolidated by liberal interdisciplinary research
agendas.4 In the IO special edition on legalization and world politics, the positivesum account seems to allow leading liberals such as Robert Keohane, Andrew
Moravcsik and Anne-Marie Slaughter to skip constitutional asymmetries in the WTO
to concentrate on more supercial issues connected to the new dispute settlement
understanding (DSU), so much so that the organisation is conceived as an apparently
neutral instance of highly legalised arrangement. Against this backdrop, Barnett and
Duvall (2005b: 45) remarked that the liberal discourse on global governance
masks the presence of power:
With only slight exaggeration, much of the scholarship on global governance
proceeds as if power either does not exist or is of minor importance. We suspect
that this state of affairs exists because of how post-Cold War politics, organized
around liberalism and globalization, imprinted the meaning, practice, and denition of global governance. To the extent that global governance entails only the
mechanisms of coordination, it could appear to be merely a technical machine, but
in fact there are strong values running this machine. Liberalism is the spirit in the
machine.
Barnett and Duvalls critique of the narrowness of the concept of power in IR and
the fourfold typology they developed, particularly the category of institutional

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power, informs this articles investigation of the Uruguay Round from a power
standpoint. Barnett and Duvall (2005a: 40) pointed out that the study of power in IR
has been associated with the realist school, but realists have failed to transcend the
cruder view of compulsory power where one state compels another state to do
something it does not want to do by using or threatening to use material resources.
Barnett and Duvall thus created three additional categories of power: institutional,
structural and productive. The dimensions of compulsory and institutional power
t the rationalist model in which preconceived actors interact strategically, whereas
the dimensions of structural and productive power act in the constitution of social
agents. Structural power is akin to Marxist world-system analyses focusing on the
mutual relations of constitution produced by the global capitalist economy.
Productive power acts beyond (or is post-) structures in a Foucauldian tone and
entails more generalised and diffuse social processes that produce and give meaning
to social identities and capacities (ibid.: 5456).
Barnett and Duvall (2005b) conceptualised institutional power in reference to the
indirect ways in which one actor controls others by deploying the formal and
informal institutions that mediate A and B, as A, working through the rules and
procedures that dene those institutions, guides, steers and constrains the actions
(or nonactions) and conditions of existence of others (51).5 The outcomes of the
Uruguay Round suggest that there is a direct relationship between agency and the
payoffs to different groups of countries from the WTO. While the US, the EC and, to
a lesser extent, other developed countries steered negotiations and now prot from
the outcomes of the Uruguay Round, larger developing countries have at best
negligible gains and LDCs, which were by all practical means absent from
negotiations, undergo absolute and unambiguous losses. Institutional power provides
an umbrella to accommodate contributions from scholars who propose that institutions may contradict the positive-sum account laid out by mainstream IR. The
concept of institutional power is broken down in the remainder of this section into the
sub-categories of go-it-alone power, market power and forum shifting power in
order to set the stage for the investigation of the Uruguay Round.
Go-it-alone power
Gruber (2000) has advanced the counterintuitive argument that states may rationally
and voluntarily enter into arrangements that make them worse-off because other
actors have the power to manipulate their choice set. As powerful states reach
agreement, their ability to go it alone, acquiring gains regardless of others, enables
them to remove the status quo from the choice set of weaker states. Powerful states
thus present a fait accompli to potential new members, whose decision to engage in
the new organisation is a choice for the lesser evil. Once they work as an enacting
coalition, powerful states (A and B in Figure 1) are able to change the choice set of
the loser (C), who decides between membership and marginalisation from the

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(-1, 0, 0)
B rejects terms of As SQ (noncooperative status quo
offer
persists)
A
B
A proposes new
cooperative
C rejects
offer
(1, 3, -3)
(A and B realize mutual gains;
C bears costs of exclusion)
C
B
accepts
C
accepts
(3, 5, -1) Stage

One
(all three players cooperate
Cs losses notwithstanding)
Figure 1 Cooperation as a game of winners and losers Stage 1.

Source: GRUBER, LLOYD; RULING THE WORLD.
2000 Princeton University Press. Reprinted by permission of Princeton University Press.
institution designed by the winners. The loser will rationally turn to the undesired
institution as soon as the costs of exclusion outweigh the costs of membership, even
if there are no side payments or issue linkages involved. Go-it-alone power
overlaps with the kind of agenda-setting argument developed by Bachrach and
Baratz (1962). As for Barnett and Duvalls framework, Gruber (2005:105) himself
did not fail to locate go-it-alone power inside institutional power, for its beneciaries
act diffusely and the underlying preferences of the losers remain unchanged. As he
noticed:
[e]fforts to exercise direct leverage in the Barnett-Duvall sense of compulsory
power typically impose high costs on the compeller and compellee alike and thus
are riddled with credibility problems. Rather than applying direct pressure and
dealing with these problems, an A who wants to alter the behavior of a B is
far more likely to engage in indirect methods, chiey those involving the
manipulation of Bs choice set. Being indirect, these methods leave it to B to
decide how to respond, and so Bs decision, though limited to a circumscribed set
of options, remains strictly voluntary.
There is a bandwagon dynamic in powerful countries removal of the status quo
because the incorporation of other states increases the costs of exclusion (Gruber
2001). The action of A and B to remove the status quo from the choice set of C
entails consequences to a fourth actor D from the moment C decides to be a member.
As it is more costly for D to resist, D may also agree, which would in turn mean
payoff losses to a fth actor E and so on. This illustrates how an asymmetrical

162
(-1, 0, 0, 0) SQ
B rejects terms of As offer
(noncooperative status quo persists)
A proposes new
cooperative arrangement
D rejects offer
(1, 3, -3, -1) SQ

(A & B realize joint gains;
C & D bears costs of exclusion)
C rejects offer
D accepts
(2, 4, -4, -2)

(A & B enjoy mutual gains;
C alone bears costs of exclusion)
B accepts
D rejects offer
(3, 5, -1, -4) SQ

(A & B realize mutual gains;
D alone incurs costs of exclusion)
C accepts
D accepts
(4, 6, -2, -3) 2nd-Stage

Equilibrium
(all four players cooperate, though
C & D suffer losses relative to SQ)
Figure 2 The cooperation game Stage 2.

Source: GRUBER, LLOYD; RULING THE WORLD.
2000 Princeton University Press. Reprinted by permission of Princeton University Press.
arrangement such as the WTO Agreement may spread, despite its detrimental
consequences to some, perhaps most and even the virtual totality of the states involved.
Once the US and the EC reached bilateral agreement, they easily gathered the support
of other developed countries in forums such as the Quad,6 G7 or the OECD. The next
step was to ensure the endorsement of large developing countries, but opposition of
these countries in areas such as intellectual property at times prompted more forceful
strategies, including bilateral economic coercion. Once a developing country ipped, it
accelerated the bandwagon dynamic set forth by developed nations by favouring a
multilateral application of the standards agreed to bilaterally. When negotiating
packages were eventually presented to LDCs, the economic and diplomatic costs of
exclusion from the new world trading system were so great as to compel them to yield
even if they unmistakably expected absolute losses (Figure 2).
Market power
Few years before the publication of Hans Morgenthaus Politics among Nations,
the writings of another German migr in the US of the 1940s drew attention to the
vicissitudes of power politics. Albert Hirschmans National Power and the Structure
of Foreign Trade provided an insightful examination of Nazi Germanys trade
policies. Since trade among sovereign entities may be interrupted, a powerful state
may direct its commerce towards weaker nations to create ties of dependence. That
trade with Germany amounted, respectively, to 52 and 59 per cent of Bulgarian
imports and exports, but only 1.5 and 1.1 per cent of German imports and exports
in 1938 meant that it was much more difcult for Bulgaria than for Germany to shift

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trade or to dispense entirely with the trading partners market (Hirschman 1945/1980:
31). The asymmetrical opportunity costs of trade interruption granted leverage to the
Nazi leadership to guide Bulgaria to the courses of action compatible with
Germanys political objectives. In a broader picture, the conceptual framework
advanced by the German economist is a continuation of the school of thought that
goes back to Friedrich List and Alexander Hamilton and ended up with alternative
approaches such as the theory of dependence created mainly by Latin American
scholars of the early 1960s. As Hirschman (1945/1980: 40) contends:
The important point is that power elements and disequilibria are potentially inherent
in such harmless trade relations as have always taken place, e.g., between big and
small, rich and poor, agricultural and industrial countries relations which could
be fully in accord with the principles taught by the theory of international trade.
Hirschmans conceptual framework overlaps the dimension of compulsory power,
for the mobilisation or threat of mobilisation of material resources is triggered in the
exercise of market power.7 However, many forms of pressure acquire a rather subtle
content. Because of their potential to exercise market power, powerful countries are
able to invisibly weight decision-making processes, generating asymmetrical or even
non-Pareto-improving outcomes (Steinberg 2002). Because market opening and
closure, the currency of trade negotiations in the post-war era, entail different effects
depending on the size of national economies, market power extends its reach from
German bilateralism to the evolution of the multilateral regime established in 1947.
The market size of the US and the EC has enabled them to dominate the trade regime.
The ever-present possibility of veto by the transatlantic partners in terms of access to
their markets is a signicant factor in explaining weaker countries institutional
choices. Even when not explicitly threatened by the US and the EC, weaker countries
act in the shadow of market power. As Steinberg (2002: 348) proposes:
Using market size as a measure of trade bargaining power, the EC and the United
States are the worlds greatest powers. As rough indicators, consider that in 1994
(the year in which the Uruguay Round was closed) retained merchandise imports
into the EC and the US accounted for approximately 40 per cent of all retained
merchandise imports in the world, and the EC-US combined 1994 gross domestic
product (GDP) represented nearly half of the worlds total GDP. By this measure,
the combined power of the EC and the United States is enormous in the trade
context. And to the extent that the EC and the United States can cooperate, they
wield great inuence in multilateral trade negotiations.
Forum-shifting power
The increasing number of international organisations characteristic of US hegemony
following the Second World War allowed the transplantation to the international
sphere of a noticeable feature of the US legal system: the practice of plaintiffs to

164
transfer cases to jurisdictions in which they believe they have the best chance. In their
analysis of global regulation, Braithwaite and Drahos (2000) depicted the recurrent
practice of forum-shifting employed by the US to break the resistance of weaker states.
Forum-shifting encompasses three interrelated strategies: moving an agenda from one
organisation to another, exiting an organisation and pursuing the same agenda in more
than one organisation. Complementarily, there is also what might be termed forumblocking strategy, which takes place when a state ensures that an international
organisation does not become a forum for an agenda that threatens its interests.
Empirically, the US employed forum-shifting strategies to insert into the WTO
intellectual property protection (TRIPS) and deregulation for telecommunications
(General Agreement on Trade in Services (GATS)), which were previously dealt with
by the World Intellectual Property Organisation and the International Telecommunication Union, respectively. As Braithwaite and Drahos (2000: 568) noted, only powerful
actors can employ forum-shifting strategies successfully:
Forum-shifting is a strategy that only the powerful and well-resourced can use.
Since it is a strategy available only to powerful actors, it follows that a weaker
opponent may be robbed of victory by it but can never use it to obtain an advantage.
Actor rationality would seem to dictate that weaker actors oppose forum-shifting.
Shaffer (2005: 13335) asserted that developed countries break developing countries coalitions by playing countries off each other by engaging in simultaneous
bilateral and multilateral negotiations. This is also a forum-shifting strategy. Steinberg
(2002: 349) has elaborated on a more aggressive exit tactic that happens when powerful
countries withdraw from a deadlocked forum, step into anarchy and then reconstitute an
organisation under different terms. He has also identied a pattern in GATT trade
rounds, which initially begin with inclusive proposals and law-based bargains. At late
stages, when powerful countries gather enough information on other states preferences, they push forward power-based bargains that may produce non-Pareto-improving outcomes, especially if powerful countries exit in order to reconstitute the regime
into a more favourable setting. This was precisely the case of the Uruguay Round,
which not only attracted a large number of states in an inclusive mandate, but also
ended up with a rough display of power in that the US and the EC exited from the
GATT 1947 to create the WTO. No wonder that Steinberg (2002: 367) reports that
some developing country negotiators now consider their countries to be worse off as a
result of the Uruguay Round agreement than they were under the status quo ante.
The case for inquiring into the role of power in the creation of the WTO
The WTO Agreement codies the outcomes of the Uruguay Round into a daunting
document running to some 30,000 pages. Under the umbrella provided by the
Agreement Establishing the WTO, there are four annexes: Annex I lays out rules on

165
goods (including agriculture, textiles and clothing), services and intellectual property, while Annex II outlines the DSU.8 The agreements on goods, services and
intellectual property are divided into basic principles (respectively, GATT, GATS
and TRIPS), additional agreements and schedule of commitments for individual
countries, both of which have to be agreed for TRIPS. Annexes III and IV deal,
respectively, with trade policy reviews and plurilateral agreements not signed by all
WTO members. In view of the single undertaking, members are bound by all
multilateral commitments embodied in the WTO Agreement. This section empirically assesses the WTO Agreement in order to make the case for investigating the
Uruguay Round from a power standpoint. It highlights the asymmetrical effects of
the new trade regime, which is constructed upon loose rules on agriculture, selective
liberalisation in manufactures and services, strong rules on intellectual property and
increased demands of legal capacity to litigate in the DSU.
Harrison, Rutherford and Tarr estimated that the world as a whole gains
substantially from the reforms of the Uruguay Round, but the gains are concentrated in developed countries, especially the United States, European Union and
Japan (Harrison et al. 1995: 216). While the US, the EU and Japan are expected to
gain, respectively, US$ 13,9 39 and 17 billion, with residual income increases
accruing to larger developing economies, they stress that the most important
conclusion of our assessment is that there are likely to be some losers from the
Uruguay Round (ibid.: 242). Stiglitz and Charlton (2005: 47) reported that 48 LDCs
lose a total of $600 million a year as a result of the Uruguay Round. Davenport and
Page (1994) stressed that Africa was expected to undergo permanent welfare losses
because, "almost all the individual Sub-Saharan countries lose", (63). These estimations
are all the more signicant in that they do not take into consideration the new issues,
precisely the areas in which developing countries lose the most. Even if they painted a
dark picture, early estimates on the Uruguay Round proved to be overly optimistic, also
because they largely overlooked implementation costs. While in earlier GATT rounds
countries committed themselves to negative obligations, now they are required to
perform positive obligations (Ostry 2002) such as undergoing costly institutional
reforms. In fact, the implementation of the WTO Agreement costs each developing
country an average of $150 million annually more than the entire annual
development budget in many LDCs. Finger and Schuler (2000) dismiss the claim that
reforms will render such economies more efcient in the long term, stressing instead
that WTO regulations reect little awareness of development problems and little
appreciation of the capacities of the least developed countries (511).
Goods
While GATT trade rounds lowered tariffs in manufactured products, the regime was
unable to regulate trade in areas where developing countries have comparative

166
advantages. Textiles were regulated by the Multiber Arrangement (MFA),

through which developing countries negotiated quotas on exports to developed
countries (there were no such restraints on other developed countries) (Stiglitz and
Charlton 2005: 44). Although the promise of the Uruguay Round to liberalise trade
in agriculture and textiles brought developing countries to the table, this promise
was not fullled. In fact, Hathway and Ingco (1995) stated that the nal
agreement is shaped largely by the fact that it was negotiated by the US and the
EU apart from Japan, the highly protected markets in OECD countries were
liberalised little if at all (23). While some countries in Asia benet from the
opening in Japan, for Latin Americans the gains are insignicant and African
exports are expected to decrease.
Finger and Schuknecht (1999: 12) remarked that while the major part of what
developing countries gave is due now, the major part of what they receive will not be
delivered until 2005, or is yet to be negotiated. While the phase-out of the MFA was
not due before 2005, the reduction of domestic support to agriculture in most OECD
countries is yet to be negotiated. Rules on agriculture and textiles are looser when
compared with other areas such as intellectual property, yet developed countries
often violate these rules. Developed countries still provide around $1 billion in
agricultural subsidies per day. Subsidies for cotton alone in the US are reportedly
responsible for a decrease of 12 per cent of the entire income of some African
countries such as Benin (Stiglitz and Charlton 2005: 62). US farmers produce much
more cotton than they would without subsidies, thereby dislocating African
farmers, who in turn produce much less in one of their few competitive markets.
In 2003, the creation of a Brazil-led group of 20 developing countries10 that unied
positions in agriculture led to the collapse of the WTO ministerial meeting in
Cancun, where developed countries refused to make any signicant liberalisation in
the sector. After Cancun, the US employed forum-shifting strategies to press Latin
American members of the G20 to leave the coalition by offering to negotiate
bilateral trade deals (Shaffer 2005: 134). As the Doha Round remains paralysed,
nearly 50 per cent of the EU budget is still spent on the Common Agricultural
Policy (CAP).
Low aggregate tariffs for non-agricultural products in developed countries hide
peaks and escalations designed as disincentives to industries in developing
countries. In fact, tariff peaks in OECD countries are still placed on the goods
most intensely exported by developing countries, such as textiles and clothing
(Stiglitz and Charlton 2005: 5051). While least processed food faces tariffs of 3,
35 and 15 per cent, respectively, in Canada, Japan and the EU, tariffs on fully
processed food are at 42, 65 and 24 per cent, placing a very high effective tariff
rate on value added in food processing. As Stiglitz and Charlton asserted, tariff
escalation and tariff peaks are manifestly unfair and have a particularly pernicious
effect on development by restricting industrial diversication in developing
countries (ibid.: 51). The average OECD tariff on imports from developing

167
countries is four times higher than on imports from inside the OECD (ibid.: 47).
Further damage was created by the Uruguay Round through the severe
restriction on developing countries ability to apply industrial policies, most of
which historically played a critical role in the development of todays developed
countries (Chang 2002).
New issues
Given that the focus on property rights was the motor behind neo-institutionalism in
economics (North 1981), it is somehow surprising that neoliberal institutionalists in
IR overlook the unbalanced nature of the TRIPS agreement in their writings on
the WTO. The very insertion of the new issues into the WTO regime through the
trade-related formulae is the outcome of developed countries power both the
more extreme instances of institutional power and compulsory power in the form of
open economic coercion (Sell 1995; Shaffer 2005). This is so because the most
remarkable feature of the new issues, particularly intellectual property, is that no
other set of norms splits so clearly the interests of developed and developing
countries. In a comprehensive study of TRIPS, Pugatch (2004: 47) remarked that the
distinction between developed and non-developed countries in that area is both
theoretically and empirically valid. TRIPS provides for much stronger protection in
all areas of intellectual property than developed countries historically provided in
stages of development similar to those of todays developing countries (Chang
2002). Losses for developing countries are twofold, in that TRIPS both forces wealth
transfers and creates monopolies in developing countries, which increase domestic
prices and curtail access to essential products such as pharmaceuticals. Monopolies
also create deadweight losses, in that they produce much less than competitive
market enterprises in order to sustain high prices, leaving productive resources
unused where nal products are often badly needed.
TRIPS changes the terms of trade between developing and developed economies. As net importers of intellectual property, developing nations now have
to make greater payments for the use of intellectual property rights. TRIPSs
required wealth transfers from developing countries to the US are estimated at
$5.8 billion every year (Maskus 2000: 142). In India, where only 30 per cent of
the population can afford modern medicines, TRIPS has increased prices between
5 per cent and 67 per cent, with annual welfare losses ranging from $162 million
to $1262 million (Balasubramaniam 2002: 97). Some commentators have argued
that TRIPS not only decreases welfare in developing economies, but also in
the world considered as a whole (Panagariya 1999). The case of HIV/AIDS
medicines in South Africa is the most well-known example of TRIPSs damaging
effects. Public outcry triggered by the refusal of the WTO and the US to review
the rules was so widespread that in 2003 LDCs were allowed to import generic
drugs from other developing countries. After the Uruguay Round, the US has

168
imposed even harsher standards by forum-shifting and negotiating TRIPSplus provisions in bilateral agreements with numerous developing countries
(Sell 2011: 452).11
Even if developing countries have increased their share of trade in services over
the last decades, the GATS agreement negotiated at the Uruguay Round concentrated
on the areas of interest to developed countries, such as nancial services (Stiglitz and
Charlton 2005: 52). However, there was no effective liberalisation in sectors such as
construction, shipping and health services, in which developing countries have
comparative advantages. Financial liberalisation has been relentlessly pushed by the
US in spite of the potentially destabilising effects on the nancial markets of
developing countries; several of the largest developing countries have undergone
nancial crises since the conclusion of the Uruguay Round (Mexico in 19941995;
Thailand, Indonesia, South Korea and other Asian countries in 1997; Russia in 1998;
Brazil in 1999; Argentina in 20012002; and Turkey in 2001).
The DSU
When compared with the GATT system, the Understanding on the Rules and
Procedures Governing the Settlement of Disputes (DSU) is commonly thought of as a
highly legalized (Abbott et al. 2000) or hard law (Abbott and Snidal 2000)
arrangement. Its more legalised nature and the absence of the de facto veto power are
believed to reduce the bias towards powerful states (Goldstein and Martin 2000: 629).
Liberal theorists often miss that much of the consequential action in the new dispute
settlement system takes place in the shadow of law. Moreover, power is frequently
exercised not despite but through law. In fact, Shaffer (2005) has shown how the US
and the EC have exercised institutional power by deploying WTO rules through
litigation and negotiating. As commentators of domestic law have long noticed,
material imbalances between litigants tend to be reected in judicial outcomes. The
possibility of hiring better lawyers is just the most obvious advantage of resourceful
parties in legal processes. Asymmetries are exacerbated in international litigation
because the legal forum is distant, political processes are more complex and legal
expertise is less widespread and hence more expensive (Shaffer 2003: 159).
In the most carefully designed empirical analysis of the DSU to date, Busch and
Reinhardt (2003: 72130) have argued that developing countries are worse-off with
the new system because of their limited legal capacity. Statistically, developed
nations are signicantly more likely to secure their desired outcomes, while at the
same time the number of complaints led by wealthier countries against developing
nations has increased dramatically. Following Hudecs (1993) method of evaluating
the outcomes of the GATT/WTO disputes in terms of policies rather than rulings,
Busch and Reinhardt have argued that not only are negotiated political settlements
the norm in the GATT/WTO system, but settlement before the ruling is more likely to

169
change political outcomes. The US and the EC often shift the WTO forum and
negotiate bilaterally in the shadow of a potential claim in the WTO (Shaffer 2005:
136). Weaker countries may prefer not to bring a legal challenge, or they may simply
concede because of the uncertainty of the substantive law, the costs of legal
procedures, the possibility of non-compliance and the lack of retaliatory power. As
Busch and Reinhardt (2003: 7212) pointed out:
The new premium on legal capacity under the DSU is likely less burdensome for
most of the advanced industrial states, which generally maintain large, dedicated,
permanent legal and economic staffs tasked with WTO and trade law matters. For
these countries, the move from a power-oriented to a more rule-oriented system
contains little additional ambiguity. But for poorer countries, such a move simply
substitutes (or compounds) the traditional source of weakness namely, the lack of
market size and thus retaliatory power with a new one: legal capacity.
Since juridical rules are not xed in meaning, the US and the EC have exercised
institutional power and shaped WTO jurisprudence because they participated as a
party or third party in most of the cases that ended up in an adopted panel or
Appellate Body decision (Shaffer 2005).12 As most of major transnational companies
have their headquarters in developed countries, the construction of publicprivate
partnerships to litigate in the WTO explains why the US and the EC have prevailed in
the DSU (Shaffer 2003). Large and well-organised interests make big companies
better informed, and because they have high per capita stakes they will not hesitate to
make use of the best resources to engage in complex and prolonged litigation. The
average fee for a market access case in the WTO reaches $500,000, with reported
fees in excess of $10 million (Nottage 2009: 3). In addition, the meagre market power
of some developing countries makes them unable to cope with non-compliance or to
retaliate successfully.13 Only large developing countries, especially Brazil and India,
have used the system effectively, whereas the vast majority of developing countries
are largely absent from the process (ibid.: 2).
Revisiting the Uruguay Round from a power standpoint

Launching the Uruguay Round
The Uruguay Round was initially shaped by the events of the early 1980s, when
the second oil crisis had signalled the end of post-World War II prosperity. The
memory of the 1930s and the rise to power of the free-trade-oriented Reagan
administration in the US provided the initial push for a new round of trade
negotiations (Table 1). In fact, the main actor behind the new round was the US
government. The perception that the US was losing the dominant position in world
economy allowed for the construction of a consensus among business representatives, members of civil society and government ofcials towards the employment of

170
Table 1 The prenegotiation phase of the Uruguay Round
Date
Event
Meaning for the Uruguay Round
January
1981
November
1982
March
1985
May 1985
Inauguration of the US Reagan

administration
GATT ministerial meeting
US initiator of the new round
The EC announced support for the

new round
G7 in Bonn follows a previous OECD
agreement supporting the new
round
June 1985 GATT councils meeting
September GATT ministerial meeting Punta
1986
del Este
US and EC disagree over agriculture

Formation of the USEC classic GATT enacting
coalition
Developed countries unied for the new round
(triggering GATT Director Generals open support
and the co-optation of key developing countries)
Hardliners oppose new round over new issues
Establishment of the Uruguay Round (mandate
includes agriculture and new issues)
US power resources to insert into the trade regime the so-called new issues:
services, investment and intellectual property. US-based transnational companies
such as Pzer created networks to gather the support of the US government for the
cause of intellectual property protection abroad (Drahos 2003). These networks
triggered the creation of expert groups whose conceptualisation efforts ended up in
setting the basis for policymaking (Drake and Nicolaidis 1992; Prakash and
Sell 2004).
The insertion into a GATT round of intellectual property, whose defenders are
historically connected to trade protectionism (Machlup and Penrose 1950), reveals
how the conceptual battleeld steers debates towards powerful actors. The focus on
counterfeit goods paved the way for the deployment of a forum-shifting strategy,
in that the US moved intellectual property away from the World Intellectual
Property Organisation to the GATT system. Other nations proposed that the issue
be dealt with by UNESCO or UNCTAD, which had done more analytical
work on the trade implications of intellectual property than any other UN system
organisation (Braithwaite and Drahos 2000: 566). They based their claims on
alternative conceptual links between intellectual property and knowledge production
or technology transfer. While the US blocked the issue in UNCTAD and UNESCO
(from which it withdrew in 1984), the GATT regime appeared to the US as the most
attractive forum because powerful countries have historically dominated the trade
regime. Having achieved domestic consensus over the issues to be included in the
new round, the US turned to the EC, its traditional agenda-setting partner. As Curzon
and Curzon (1973: 31415) put it:
While it is clear that the United States and its domestic legislation imposed the
timetable of GATT tariff rounds, it was nevertheless the interaction of United
States and European trading interests that determined the issues involved. The

171
growth of European power in GATT, from the creation of the EEC onward, meant
that by the 1960s the United States was no longer alone in its role of initiator
and vetoer in trade cooperation matters. Its position was now shared by the EEC,
and they became jointly responsible for the success or failure of international trade
from then on.
Nevertheless, agriculture split the US and the EC. As a major agricultural exporter,
the US worked for the effective inclusion of the issue in the GATT, whereas the EC
was initially against the new round because its member states refused to make
concessions in the CAP (Winham 1989: 48; Croome 1999: 6). Following Grubers
concept of go-it-alone power, while the US was clearly the initiator of the Uruguay
Round, the formation of the classic GATT USEC enacting coalition was jeopardised by disagreement on agriculture. The 1982 GATT ministerial meeting in
Geneva exposed USEC divergences. The inclusion of agriculture in the resulting
work programme showed the resilience of the US position. The US pressed
continuously after 1982 to secure European support for a new round. US negotiators
argued that the EC shared the interest in the new issues and also that there was in any
case the need to reform the CAP (Winham 1989: 49). The EC members reached an
internal agreement and issued a declaration in March 1985 stating adequate prior
international consensus for a new round. In the May 1985 meeting in Bonn, the G7
ratied an earlier OECD agreement towards a new round. After the decision to
launch the round had been made by the US and the EC, the next step was to ensure
the endorsement of other developed countries.
GATT Director General Arthur Dunkel decided to make explicit his support for
the new round after consensus had been achieved among developed countries
(Croome 1999: 17). The disproportional inuence of developed countries on the
GATT secretariat provided them with a valuable platform for institutional power
strategies. As a matter of fact, the actions of GATT secretariat ofcials in promoting
and setting meetings, tabling formal or informal negotiating texts and presenting their
own views has been largely inuenced or even suggested by the representatives of
the most powerful countries (Steinberg 2002: 356). Striking evidence of this is the
fact that every GATT or WTO Director General has been a US national, European or
Canadian from 1947 until 1999, much in the same way of the IMF and the World
Bank, whose Managing Director and President are still chosen between European
and US citizens, respectively.
A group of 24 developing countries,14 soon labelled the hardliners, voiced
concerns about developed countries attempt to include the new issues in the trade
regime. They imposed several conditions for the new round in the June 1985 meeting
of the GATT council. Developed countries attempt to co-opt key developing nations
became clear when Sweden hosted ministers from 24 countries few days after the G7
Bonn declaration. The strategy soon bore fruit. Before the July 1985 meeting of the
GATT council, the foreign ministers of the Association of South-East Asian Nations

172
announced their support for the new round. However, many hardliners resisted.
Although decisions in GATT were traditionally consensual, consensus was not a
legal requirement. The US announced that in view of the councils failure to reach
consensus it would request a meeting of the GATT highest instance, the section of
contracting parties. As the required number of members accepted the special session,
it was agreed on 2 October to initiate a preparatory process (Croome 1999: 19).
A newly established preparatory committee made recommendations for a ministerial
meeting to take place in Punta del Este in September 1986.
In March 1986, 13 US major corporations created the Intellectual Property
Committee (IPC),15 an ad hoc coalition that described itself as dedicated to the
negotiation of a comprehensive agreement on intellectual property in the current
GATT round of trade negotiations. The IPC promoted contacts and sent delegations
to Europe and Japan, urging senior executives to put pressure on their governments to
support the inclusion of intellectual property in the GATT (Drahos 2003: 67). The
action of the US and the EC to isolate the leaders of the hardliners reduced the group
from 24 to 10,16 but in June the hardliners sponsored a draft ministerial declaration
making no concessions on the new issues. As the hardliners effectively blocked the
work of the preparatory committee, developed countries negotiated outside the
GATT ofcial forum with 20 developing countries they knew were in favour of the
new round. In a radio address on 13 September, Reagan called for a new round that
would include services, investments and intellectual property (Croome 1999: 23).
Before the ministerial meeting, a group of 14 developed and developing countries17
met in the Australian city of Cairns to unify their positions on agriculture. The
Cairns group, which included one member of the Quad (Canada), was readily
supported by the US.
During the ministerial meeting, US negotiators made it clear that they would walk
out if the new issues were not included in the round and threatened to call for
a vote to isolate the developing countries that still resisted. After erce
negotiations on many subjects, especially agriculture and services, a breakthrough
was eventually reached when the US and India agreed to launch negotiations
on services but to separate it from that of goods. In agriculture, agreement was
only reached at 2 am on the day of the scheduled closure (20 September), largely
because of the perception that the breakthrough in services gave the momentum
to close negotiations. The broad wording allowed the French to accept the inclusion
of agriculture at the same time that enabled all parties to keep their previous
positions. The attempt to forge a compromise language also reected the fact
that no country wanted to be blamed for the failure in launching the round, especially
because of the perception that the alternative would be increased protectionism,
particularly by the US. The resulting text contained a negotiating mandate on
intellectual property rights. By noon, the plenary of the ministerial meeting
agreed on the Uruguay Declaration, which launched the Uruguay Round on 20
September, 1986.

173
Closing the Uruguay Round

As the Uruguay Round approached the established deadline in 1990, it was clear
that the Uruguay Declaration had not solved disagreements over agriculture and
the new issues. Nevertheless, external events changed the environment of the
round. The end of the Cold War allowed the US to adopt a more aggressive
attitude, and the State Department dropped its opposition to compulsory power
strategies (Table 2). The US, which claimed over half of Latin American exports
and one-third of exports from East Asia (Sell 1995: 322), used the leverage given
by its market power to employ open economic coercion aimed at intellectual
property protection (Table 3). Countries not directly targeted, such as Singapore
and Hong Kong, anticipated the threat and reformed their intellectual property
systems (Drahos 2002: 15). Coercion was combined with forum-shifting strategies, through which the US played countries off each other by engaging in
bilateral negotiations. In fact, the US signed agreements with countries such as
Indonesia, Taiwan, Saudi Arabia and Colombia (ibid.: 14) and threatened to deny
benets to some countries that it offered to others. Once a developing country
yielded, it supported multilateral application so as not to be disadvantaged over
others (Shaffer 2005: 134). As TRIPS began to be discussed in detail from 1990,
the consensus initiated with USEC negotiations came to include Japan and
Canada, then other developed countries and nally developing countries in the
so-called 10+10. LDCs were not a part of any of the groups that mattered
(Drahos 2002: 12).
As the US and the EC still feared that the GATT consensus tradition could block
progress in TRIPS and GATS (services), they designed a joint strategy to force
developing countries to agree to all Uruguay Round commitments. Referred to
internally in the US trade representative ofce as the power play, the plan had the
support of the State Department. It was presented in October 1990 to European
negotiators, who agreed to back it (Steinberg 2002: 360). The plan was later to be the
basis of the single-undertaking, which in the beginning of negotiations meant that
Table 2 Late stages of the Uruguay Round
Date
Event
Meaning for the Uruguay Round
December 1988
December 1990
December 1990
GATT ministerial meetings Montral/

Brussels collapse
EC agrees to US power play plan
December 1991
November 1992
July 1993
December 1993
Draft nal act (Dunkel draft)

Blair House Accord
G7 meeting in Tokyo
Closure of negotiations in Geneva
Members of the Cairns Group resist to

dilute agricultural liberalisation
USEC create a plan to close the Uruguay
Round (single undertaking)
Single undertaking is incorporated
USEC determine to go it alone
Quad reaches agreement
USEC exit from GATT 1947 and
recreate the trade regime

174
Table 3 US trade action against key developing countries 19881993
Members of the hardliners or active in the 10+10
TRIPS negotiating Group or both
Years between 1988 and 1993 in which the

country was the subject of a petition, listed
investigated or had penalties imposed under
US 301 or Generalised System of Preferences
programme
Argentina
Brazil
Chile
Cuba
Egypt
Hong Kong
India
Indonesia
Malaysia
Nicaragua
Nigeria
Peru
Singapore
Tanzania
Thailand
Uruguay
Venezuela
Yugoslavia
19881993
19881993 (1988*)
19881993
19891993
19891993 (1992*)
1989, 1990
1989, 1990, 1993
1992, 1993
19891993 (1989*)
19891993
19891991
Source: Drahos (2002: 15).

*Year in which penalties were actually imposed.
members would vote on every part of the WTO Agreement, although it evolved to
mean that no country could opt out of any part of the Uruguay Round Final Act
(Finger and Schuler 2000: 513). The manoeuvre was intended to make all multilateral agreements of the Uruguay Round binding on all signatories (Steinberg 2002:
360; Ostry 2002: 287). Dunkel embedded the plan in the December 1991 draft nal
act. However, at that time, disagreement over agriculture still precluded the enacting
coalition from closing the Uruguay Round. The contention over agriculture between
the US and the EC continued for years, contributing to the failure of the ministerial
meetings in Montreal (1988) and Brussels (1990). In both occasions, the Latin
American members of the Cairns Group abandoned the meetings because of the
negotiations on agriculture.
Prospects grew even gloomier in 1991 because the US authority to negotiate was
to expire in June. It was at that point that Dunkel performed a critical role. He crafted
in December 1991 a draft nal act (the so-called Dunkel draft), with possible
agreements in several areas, especially agriculture. To be sure, the Dunkel draft
provided signicant agricultural liberalisation in terms of tariffs and subsidies
(Hathway and Ingco 1995: 34). The US and the Cairns Group endorsed the text

175
but stated that it amounted to their nal compromise. Even before its publication, the
French refused the proposal and threatened to block EC approval of all Uruguay
Round agreements (Hathway and Ingco 1995: 5). At this juncture, because of the
European perception that Dunkel leaned to the US, he lost much of his capacity to
mediate transatlantic disagreements. Transatlantic relations were also soured because
the US obtained two panel rulings stating that the European policy on oilseeds was
incompatible with GATT obligations.
Representatives of the US and the EC met at the US government visitors
residence and eventually reached agreement on 20 November, 1992. The Blair
House accord made concessions to the EC, in that it decreased the reduction in the
volume of subsidised exports from 24 to 21 per cent and precluded complaints
against the CAP in the GATT panel system for 6 years (ibid.: 6). The Blair House
accord reected a more overt determination of the US and the EC to go it alone. The
Cairns Group was disappointed, but in the end reluctantly accepted it. The surprise
came when the French refused the accord by claiming that the Commission had
exceeded its mandate. They still opposed limits on export subsidies and wanted a
permanent immunity to the CAP in the GATT panel system. By the end of 1992,
deadlock in agriculture was aggravated by the effective loss of authority of the EC
delegation after Frances refusal of the Blair House accord. In addition, the
negotiating mandate of the US delegation was due to expire and prospects were also
dimmed by the emphatic rejection of the Blair House accord by all major contestants
in the French general elections.
However, the year 1993 brought a new political atmosphere in which the
conclusion of negotiations could be envisaged. The inaugurated Clinton administration asked for and obtained an extension of negotiating authority only until 15
December, 1993, in order to force a quick completion of the round (Schott 1994: 7).
In addition, Peter Sutherland, an Irishman originally appointed by the EC, succeeded
Dunkel as GATT Director General on 30 June. The July G7 summit meeting in
Tokyo resulted in a breakthrough, as the Quad countries agreed on a broad package
of products to be liberalised. The environment also improved on 17 November with
the US approval of the North American Free Trade Agreement, whose conclusion
brought optimism to multilateral negotiations and released US negotiators to
concentrate fully on the Uruguay Round. Nevertheless, negotiations in Geneva were
still conditioned by transatlantic agreement on agriculture. On 6 December, the US
chief negotiator Mickey Kantor and his EC counterpart Sir Leon Brittan reached
agreement on agriculture by allowing higher levels of export subsidies during the
implementation of the Uruguay Round (Hathway and Ingco 1995: 67). After nearly
a decade of impasse, the enacting coalition was nally able to go it alone and close
the Uruguay Round.
Only hours after having agreed in Brussels, Kantor and Brittan arrived in Geneva,
where they were greeted by hundreds of journalists. The triumphal atmosphere did
not preclude Mexico from objecting to limited tariff reductions in textiles and

176
clothing on behalf of Latin Americans. Egypt, on behalf of Africa, was more

pessimistic, since net food importers would face higher costs and lose preferential
shares in the US and the EC. Bangladesh voiced similar concerns in the name of
LDCs. Brazil, Chile, Hong Kong, India and Pakistan delivered discouraging
assessments. As if the nature of the game was not yet clear, the EC and the US
exited from the GATT 1947 after joining the WTO (which includes the GATT 1994).
This gesture realised the enacting coalitions removal of the status quo from the
choice set of other countries. The US and the EC stepped into anarchy by terminating
obligations such as the most favoured nation towards the countries that would not
join the WTO (Steinberg 2002: 360), dramatically increasing the costs of exclusion
(which grew even greater as other countries accepted the WTO). According to the
reinterpretation of the single-undertaking sponsored by the US and backed by the
EC, because the GATT 1947 was no longer available, the refusal of any WTO
multilateral agreement implied prohibitive economic and diplomatic costs in the form
of outright exclusion from the world trade system. The Uruguay Round was nalised
on 15 December, 1993. The Agreement Establishing the World Trade Organization
would be signed in Marrakesh in April 1994 and entered into force on 1 January,
1995, when the WTO ofcially came into being.
Conclusion
Although the positive-sum view on institutions matches the legal principle volenti
non t injuria, which translates into the commonsensical wisdom that no injury is
done to the one who consents, it is ultimately just an ideological stance that blinds IR
scholars to the fact that international institutions are often presented as offers
developing countries cannot refuse. The mainstream IR approach to the WTO
renews Stranges (1988) remark that late regime theorists tended to take the way
things are managed in the international market economy as given, without inquiring
too much into the underlying reasons of why it was certain principles, norms and
rules and not others that prevailed (21). The WTO trade regime reects the agenda
of the worlds two largest trade entities (and their most powerful constituencies),
providing loose rules on agriculture and textiles, selective liberalisation in manufactures and services and strong rules on intellectual property. The argument advanced
in this article poses a normative challenge to IR mainstream theories, particularly the
liberal strands that frequently invoke the humanist heritage of the Kantian thought to
take for granted the desirability of the multilateral trade regime. As Jahn (2005: 192)
pointed out:
Trade and other forms of transnational interaction can be means to a moral end
only if they are entered into voluntarily by all parties private interests within
liberal capitalist states continue to pursue the opening up of markets abroad, and
they continue to enlist their governments support, through multilateral and

177
bilateral arrangements conditional aid, International Monetary Fund, and the

World Trade Organization. While the latter agreements are formally voluntary,
in light of the desperate economic dependency of many developing countries, they
are to all intents and purposes imposed.
Despite the widespread portrayal of global governance as a benign and voluntary
process, the case of the WTO highlights how powerful countries are able to
manipulate the choice set of developing countries. The US and the EU relied on
their huge joint market power to apply a whole array of forum-shifting strategies and
at times economic coercion to design the asymmetrical rules of the trade regime.
After the US and the EC exited from the GATT 1947, exclusion from the WTO
would imply prohibitive costs for developing countries. The indirect nature of
institutional power certainly obscures the role of power in the creation of the new
trade regime, but mainstream IRs blindness to the asymmetries entrenched in the
WTO raises normative issues, in that the silence of the liberal core of the discipline
may well have contributed to sing the pernicious effects of the WTO trade regime
into existence.
Acknowledgements
The author would like to thank Friedrich Kratochwil for overall academic support. Craig Murphy and Erin
Hannah made valuable comments on earlier drafts. Thanks also to three anonymous reviewers and the
editors of JIRD. Of course, remaining errors are my own.
Notes
1 The European Communities (EC) was the legal entity that negotiated during the Uruguay Round.
It was an original member of the WTO as of 1 January, 1995. Since 30 November, 2009, the European
Union is formally recognised as a member of the WTO.
2 The term is Albert Hirschmans and refers to the argument that professional expertise enables analysts
to highlight some issues while making the appreciation of other issues unlikely.
3 Keohane (1984, 1988: 73, 380) admits that some regimes may entail losses of welfare, but he limits
their reach to third parties not involved in the normative arrangement.
4 Anne-Marie Slaughter has been the most active scholar in the promotion of IR/IL liberal
research agendas. In the case of the WTO, Slaughter (2000) proposed that scholars concentrate on
an important current policy problem: what, if any, reforms are needed to improve the World Trade
Organization (WTO) dispute resolution process? (152).
5 Although institutions are considered broadly to include more informal arrangements, it should be
noticed that the role of institutions such as sovereignty are excluded from the concept of institutional
power inasmuch as they entail the constitution of actors, falling then into the categories of structural
and productive power.
6 The Quad countries formed the leading group in setting the agenda of the WTO. It was composed of
the US, the EC, Canada and Japan and thus encompassed all G7 members.

178
7 Gruber (2005: 12627) argues, erroneously in my understanding, that market power is entirely
subsumed in the concept of institutional power. Barnett and Duvall (2005a) also locate market power
in the category of institutional power, but stress that aspects of Hirschmans argument, of course,
emphasise direct relations of dependence between two countries, and hence, compulsory power (52).
8 It is interesting to notice that, despite the unprecedented scope of the Uruguay Round in terms of
reforming the trade regime, the agenda did not originally comprise the establishment of a new trade
organisation, which was proposed by Italy, Canada and the EC in 1990. In 1991, the EC, Canada and
Mexico drafted a proposal for a trade organisation.
9 Schott (1994: 17) presents a collection of estimates for US gains that range from $14.8 to 126 billion
in annual GDP.
10 Argentina, Bolivia, Brazil, Chile, China, Colombia, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala,
India, Mexico, Pakistan, Paraguay, Peru, the Philippines, South Africa, Thailand and Venezuela.
11 Australia, Bahrain, Cambodia, Central American countries, Chile, Colombia, the Dominican
Republic, Jamaica, Korea, Laos, Latvia, Lithuania, Morocco, Nicaragua, Oman, Panama, Peru,
Singapore, South Korea, Trinidad and Tobago and Vietnam.
12 As of November 2012, the US or the EU have participated as a complainant, respondent or third party
in, respectively, 319 and 283 cases.
13 As Antigua and Barbuda stated in its request for retaliation against the US (DS285, US Gambling),
ceasing all trade whatsoever with the United States (approximately $180 million annually, or less
than 0.02 per cent of all exports from the United States) would have virtually no impact on the
economy of the United States, which could easily shift such a relatively small volume of trade
elsewhere (Nottage 2009: 6).
14 Argentina, Bangladesh, Brazil, Burma, Cameroon, Colombia, Cte dIvoire, Cuba, Cyprus, Egypt,
Ghana, India, Jamaica, Nicaragua, Nigeria, Pakistan, Peru, Romania, Sri Lanka, Tanzania, Trinidad
and Tobago, Uruguay, Yugoslavia and Zaire.
15 Bristol-Myers, DuPont, FMC Corporation, General Electric, General Motors, Hewlett-Packard, IBM,
Johnson & Johnson, Merck, Monsanto, Pzer, Rockwell International and Warner Communications.
16 Argentina, Brazil, Cuba, Egypt, India, Nicaragua, Nigeria, Peru, Tanzania and Yugoslavia.
17 Argentina, Australia, Brazil, Canada, Chile, Colombia, Fiji, Hungary, Indonesia, Malaysia,
New Zealand, Philippines, Thailand and Uruguay.
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About the Author

Igor Abdalla Medina de Souza holds a Ph.D. from the European University
Institute (Florence, Italy). He is a career diplomat of the Ministry of External
Relations of Brazil. He holds bachelor degrees in Law and Economics and a masters
degree in International Relations from the Catholic University of Rio de Janeiro, in
which he taught International Political Economy. He is currently working on a book
manuscript related to his doctoral thesis about post-Cold War liberalism.
Disclaimer
The views expressed in the article are the author's own.

An Offer Developing Countries Could Not Refuse - How Powerful States Created The World Trade Organisation

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An offer developing countries could not refuse:

how powerful states created the World Trade

Journal of International Relations and Development

Igor Abdalla Medina de Souza

Journal of International Relations and Development

The hidden dimension of institutional power

Igor Abdalla Medina de Souza

Journal of International Relations and Development

Igor Abdalla Medina de Souza

(3, 5, -1) Stage

Figure 1 Cooperation as a game of winners and losers Stage 1.

Journal of International Relations and Development

(noncooperative status quo persists)

(1, 3, -3, -1) SQ

(2, 4, -4, -2)

(3, 5, -1, -4) SQ

(4, 6, -2, -3) 2nd-Stage

Figure 2 The cooperation game Stage 2.

Igor Abdalla Medina de Souza

Journal of International Relations and Development

Igor Abdalla Medina de Souza

Journal of International Relations and Development

advantages. Textiles were regulated by the Multiber Arrangement (MFA),

Igor Abdalla Medina de Souza

Journal of International Relations and Development

Igor Abdalla Medina de Souza

Revisiting the Uruguay Round from a power standpoint

Journal of International Relations and Development

Meaning for the Uruguay Round

Inauguration of the US Reagan

US initiator of the new round

The EC announced support for the

US and EC disagree over agriculture

Igor Abdalla Medina de Souza

Journal of International Relations and Development

Igor Abdalla Medina de Souza

Closing the Uruguay Round

Meaning for the Uruguay Round

GATT ministerial meetings Montral/

Draft nal act (Dunkel draft)

Members of the Cairns Group resist to

Journal of International Relations and Development

Years between 1988 and 1993 in which the

Source: Drahos (2002: 15).

Igor Abdalla Medina de Souza

Journal of International Relations and Development

clothing on behalf of Latin Americans. Egypt, on behalf of Africa, was more

Igor Abdalla Medina de Souza

bilateral arrangements conditional aid, International Monetary Fund, and the

Journal of International Relations and Development

Igor Abdalla Medina de Souza

Journal of International Relations and Development

Igor Abdalla Medina de Souza

About the Author

The views expressed in the article are the author's own.

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