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Managing the Challenges of WTO Participation: 45 Case Studies

45 case studies from economies around the world, each of which illustrates how governments, business and civil society manage their country’s participation in the World Trade Organization.

Published in 2005

   Disclaimer: Opinions expressed in the case studies and any errors or omissions therein are the responsibility of their authors and not of the editors of this volume or of the institutions with which they are affiliated. The authors of the case studies wish to disassociate the institutions with which they are associated from opinions expressed in the case studies and from any errors or omission therein.

This compilation of forty-five case studies documents disparate experiences among economies in addressing the challenges of participating in the WTO. It demonstrates that success or failure is strongly influenced by how governments and private-sector stakeholders organize themselves at home. The contributors, mainly from developing countries, give examples of participation with lessons for others. They show that when the system is accessed and employed effectively, it can serve the interests of poor and rich countries alike. However, a failure to communicate among interested parties at home often contributes to negative outcomes on the international front. Above all, these case studies demonstrate that the WTO creates a framework within which sovereign decision-making can unleash important opportunities or undermine the potential benefits flowing from a rules-based international environment that promotes open trade.

> Introduction

> Acknowledgements

This publication was made possible with funding from the Australian Agency for International Development (AusAID).

> Abbreviations

Case Study 1: The World Trade Organization (WTO)

• First Online: 01 January 2014

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• Björn Alexander Lindemann 9  

Part of the book series: Ostasien im 21. Jahrhundert ((OSTAS))

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The General Agreement on Tariffs and Trade (GATT), the predecessor of the WTO, was signed in 1947 and entered into force on January 1, 1948 on a provisional basis (Barton et al. 2008: 27-60; Lanoszka 2009: 17-76). Although officially only an international treaty, the GATT evolved into a “de facto world trade organization” (Hoekman 2002: 44) that provided a negotiating forum for its contracting parties and a set of rules for conducting international trade. The WTO, established on January 1, 1995, includes the GATT agreement and is a formal, rule-based international organization with numerous rules and obligations that generally apply to all its members.

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Lindemann, B. (2014). Case Study 1: The World Trade Organization (WTO). In: Cross-Strait Relations and International Organizations. Ostasien im 21. Jahrhundert. Springer VS, Wiesbaden. https://doi.org/10.1007/978-3-658-05527-1_4

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1 The Case For a Multilateral Trade Organization

Robert E. Baldwin was Hilldale Professor of Economics, Emeritus, at the University of Wisconsin–Madison. He received his Ph.D. in Economics from Harvard in 1950 and taught at Harvard and the University of California at Los Angeles before moving to Wisconsin in 1964. He served as Chair of the Economics Department at UW-Madison in 1975–78 and Chair of the Social Systems Research Institute from 1986–1989. Baldwin published over a hundred theoretical, empirical, and policy-oriented articles in various professional journals and conference volumes in the fields of international trade and economic development. He was Chief Economist in the Office of the U.S. Trade Representative in Washington in 1963–64 and served as a consultant on trade matters in the U.S. Department of Labor (1975–1976), the United Nations Conference on Trade and Development (1975), the World Bank (1978–79), and the Organization for Economic Cooperation and Development (1988, 1993, and 1997). He had also been a consultant to the Committee for Economic Development, the U.S. Chamber of Commerce, and the Atlantic Council. In 1991–1992, he served as Chair of the Panel on Foreign Trade Statistics for the National Academy of Science’s Committee on National Trade Statistics, and was President of the Midwest Economics Association in 1995. He was a Research Associate at the National Bureau of Economic Research. In addition, he was a member of the Council on Foreign Relations and was on the Advisory Committee of the Institute for International Economics. He was a Fellow of the American Academy of Arts and Sciences. He served on an international panel of experts to advise the Director-General of the World Trade Organization, Mike Moore, in 2001–2003. He was a member of the Executive Committee of the Program for International Studies in Asia and served on the International Advisory Board for Ukraine for the Economics Education and Research Consortium. Sadly, Professor Baldwin passed away in April 2011. He will be greatly missed.

• Published: 21 November 2012
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The General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), are generally regarded as the most successful international economic organizations established in the post-World War I period. The most important accomplishment of the GATT/WTO has been a significant reduction in the levels of tariffs and non-tariff trade barriers that emerged during the great depression of the 1930s. This article highlights the successful empirical record of the GATT and the WTO in the areas of trade liberalization and dispute resolution. It also explores theories of political economy to explain why countries need to form trade agreements at all (and why they do not commit readily to unilateral trade liberalization, despite the promise of its benefits). The article first considers the terms of trade externalities and the approaches used to offset market imperfections and long-term protectionism, before concluding by discussing negotiating techniques and results.

1.1 Introduction

The General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), are generally regarded as the most successful international economic organizations established in the post-First World War period. 1 Most agree that the two other most prominent international institutions established in the period, namely the International Monetary Fund and the World Bank, have both fallen short of fulfilling the roles for which they were created. The most important accomplishment of the GATT/WTO has been a significant reduction in the levels of tariffs and non-tariff trade barriers that had emerged during the great depression of the 1930s. Average tariff levels on manufactured goods in most industrial countries have fallen from 40–50 per cent in 1948 to about 3–5 per cent today through a series of eight multilateral negotiating rounds.

A second major accomplishment of the GATT/WTO has been the establishment of a reasonably successful self-enforcing system of settling disputes among members in which panels of trade experts and, more recently, an appellate body, render judgments concerning the consistency of particular trade measures with GATT/WTO principles. Adherence by members to the two basic principles of GATT/WTO, namely that in the absence of a free-trade agreement or customs union the most favourable tariff treatment extended to one country must be extended to all countries (the most-favoured nation principle), and that foreigners must receive the same treatment as domestic citizens (the national treatment clause), has also proved to be very successful in reducing tensions among trading countries.

Thus, one approach to making the case for a multilateral trade organization is to provide a historical description of the various trade negotiating efforts of GATT/WTO members that have led to the significant liberalization achieved. Another approach is theoretical, namely to investigate the trade policy actions that welfare-maximizing governments, who preside over large countries, will take, as well as their effects on world welfare. The following two sections present the theoretical cases for trade agreements, while Sections 1.4 – 1.6 review the main trade-liberalizing and dispute resolution accomplishments achieved under the GATT/WTO framework. Section 1.7 briefly summarizes the main points of the chapter.

1.2 Terms of Trade Externalities

As Bagwell and Staiger 2 have pointed out, a problem that arises when large countries set tariff rates so as to maximize national welfare is that they become involved in pursuing ‘beggar-my-neighbour’ trade policies. This occurs because the imposition of a tariff by a large country gives rise to an externality that reduces the national welfare of other countries and increases economic welfare in the tariff-setting country. This is because the prices received by foreign exporters fall as a consequence of tariffs being imposed on their exports, i.e. the terms of trade of foreign exporters decline, and the terms of trade of the tariff-imposing country improve.

Consequently, in unilaterally setting its tariffs, a large country engages in beggar-my-neighbour activities by imposing import duties on imports whose supply prices can be influenced in this manner. However, other large countries will also engage in beggar-my-neighbour policies in the process of maximizing their national welfare, and will impose tariffs on their imports of products from the initial tariff-raising country. By lowering the supply prices of these imports, this retaliation process offsets the terms of trade improvement for the initial beggar-my-neighbour country so that on balance no one tends to gain. It is usually assumed that a Nash equilibrium position is eventually reached when further increases in tariffs no longer reduce the economic welfare of other countries. However, the distortions brought about by the retaliatory tariff-raising process result in the economic welfare of all the participants being reduced below their free trade levels.

The essential point can be seen from a simple supply and demand diagram. 3 In Figure 1 let the curve D M be the net import demand curve of a large country (country 1) for a particular product (shoes, for example) and S x be the net export supply curve of other countries for this product. In the absence of any tariff, the equilibrium price paid by the importing country (and received by the exporting countries) for the product will be Op, and the volume of trade will be Oa. 4 Now assume that importing country (country 1) imposes a specific duty equal to p’p’’ on its imports of the product. The import supply curve will shift upward by this amount to S X+T  , with the price paid by the importing country rising to Op’ and the volume of trade declining to Oh. The price paid by the importing country does not increase by the full amount of the duty but only by pp’, since the cost of producing the export good falls from Op to Op’’ as demand is reduced from Oa to Oh. The tariff revenue collected by the importing country equals the area p’cep’’. Thus, part of the burden of the tariff falls on the exporters of the good, namely the area pdep’’. The other part of the tariff, an amount equal to the area pp’cd, is borne by consumers in the importing country who pay a higher price for the traded good. The government of the importing country gains revenue equal to the area p’cep’’, which exceeds this amount by pdep’’. This sum, which is assumed to be distributed to the consumers of the taxed product through a costless lump-sum redistribution process, represents a gain in national welfare for the tariff-imposing country. 5

Terms of trade effects

The sequence of events will not end here, however. Other large countries will take retaliatory action in an effort to increase their national welfare. Since the imports of these countries include the exports of the initial tariff-imposing country, this latter country faces decreases in the prices of its exports, which offset the improvement in its terms of trade when it alone imposes import duties. The end result of this beggar-my-neighbour process will be welfare levels for all the participating countries that are lower than their initial free trade levels.

A trade agreement provides the means by which welfare levels can be restored to their free trade levels. If countries engage in negotiations with each other to reduce their tariffs on a reciprocal basis, both further adverse terms of trade effects will be avoided for any particular country, and trade and welfare levels will move back toward their free trade levels.

1.3 The Political Economy and Commitment Approaches to Trade Agreements

Although there is no dispute over the logic of the terms of trade argument, there is disagreement over its practical relevance for trade agreements. In tariff-setting discussions among policymakers, one does not typically observe any reference to the terms of trade. Instead, in providing protection to particular sectors, policy makers cite such justifications as equity considerations, e.g. protecting employment and income levels of unskilled labour, offsetting unfair practices on the part of foreign countries, such as dumping, and responding to the pressures of politically powerful industries such as the textile sector. In other words, governments pursue political objectives in their tariff-setting actions.

Bagwell and Staiger recognize the importance of political economy considerations in the real world tariff-setting process. The only structure they place on government preferences is the weak condition that, with domestic prices held constant, welfare increases with an improvement in the terms of trade. They then proceed to show that with such preferences a political economy approach to trade agreements does not offer any separate political purpose for a trade agreement.

Another argument for trade agreements stresses the difficulty that governments have in making policy commitments to the private sector, and suggests that trade agreements may provide a way to enhance policy credibility. Suppose that a government sets its trade policy after producers make their production decisions. As Bagwell and Staiger explain:

In this case, the governments may have an incentive to surprise producers with a level of protection that it would not choose ex ante, when producers selections are still unsettled. The government's preferred ex ante and ex post tariff decisions differ, since, once producer decisions are determined, the government recognizes that its choices only affect consumption decisions. Of course, if producers understand the government's incentives, they will alter their production decisions in anticipation of the government's actions, and production decisions are therefore distorted. This production distortion is the real cost of trade-policy flexibility, and the identification of this cost suggests that a trade agreement would increase ( ex ante ) government welfare if it enables the government to commit to its ( ex post ) preferred tariff. 6

1.4 Offsetting Market Imperfections and Long-term Protectionism

Unlike the theoretical world we often postulate, the real world in which economic agents operate is characterized by such conditions as the lack of perfect knowledge and the lack of perfect mobility among productive factors. As a result of these conditions, underlying market opportunities among countries go unexploited that could increase collective economic welfare across countries. However, the formation among countries of international institutions such as the GATT and the WTO can serve to offset the consequences of these market imperfections. For example, with the establishment of government offices to collect and process relevant data needed to conduct trade-liberalizing negotiations, mutually beneficial trading opportunities can be revealed and exploited. These include not only income-increasing opportunities arising from current market imperfections, but welfare-increasing opportunities associated with protectionist measures taken in previous periods. Thus, as the preamble to the General Agreement of Tariffs and Trade states, ‘relations within the field of trade and development should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, developing the full use of the resources of the world and expanding the productions and exchange of goods’.

1.5 Negotiating Techniques and Results

In the early days of the GATT, members first exchanged lists indicating the goods on which they were willing to offer tariff reductions and the goods on which they were seeking reductions from other countries. They then negotiated bilaterally with the principal suppliers of the goods on which they sought tariff reductions. The goal was to achieve a balance of concessions made and received.

While this procedure worked reasonably well in the early rounds of GATT negotiations, it was hampered by the fact that the volume of imports for which one country was the principal supplier to another country could differ widely from the volume of imports for which the second country was the principal supplier to the first. This limited the depth of the average tariff cut at which it was possible to achieve a balance of concessions received and granted to others. For example, while the average cut in all duties achieved in the first GATT round of negotiations in 1947 was 32 per cent, subsequent trade-liberalizing rounds utilizing the same principal-supplier approach reduced average duties by only 1.9 per cent in a second round in 1949, by 3.0 per cent in a third round in 1950–51, by 3.5 per cent in a fourth round in 1955–56, and 2.4 per cent in a fifth round held in 1961–62.

Thus, in the following round of negotiations, the so-called Kennedy Round (1964–67), the United States proposed that, as a means of achieving a meaningful average tariff reduction, the major trading countries reduce their industrial tariffs by 50 per cent across the board, with a minimum number of exceptions. This proposal was essentially accepted by other GATT members and, as a result, average duties were reduced in the trade negotiations by 36 per cent.

While this result left average tariffs on industria goods roughly the same among the major participants in the negotiations—the United States, the European Community and Japan—the dispersion of the rates around the means differed widely. This was because the Common External Tariff of the EC was formed by averaging member country rates, a procedure that resulted in a concentration of rates in the 10 to 15 per cent range. The United States had over 900 tariff line items over 30 per cent, whereas there were only a handful of such rates in the EC's tariff schedule. Community members argued that this was unfair because an equal cut in high US and middle level EC rates would increase US exports to the Community much more than EC exports to the United States. It was simultaneously argued that cuts in the larger number of low-duty US rates were not worth much in terms of increased exports for the EC, because these low duties were already only a minor obstacle to trade. Furthermore, an equal cut would increase imports into the EC from third countries more than such imports into the United States. In other words, exports from third countries would be diverted (in relative terms) from the United States to the EC.

While the US did not buy these arguments, it agreed in the following round of negotiations, the Tokyo Round (1973–9), to a tariff-reducing formula that cut high duties by a greater percentage than low duties after it found from test runs on a representative sample of US and EC imports that the EC proposal actually resulted in a smaller balance-of-payments deficit.

The tariff-cutting formula for industrial products accepted by all participants in the Tokyo Round negotiations was proposed by the Swiss, namely:

where Z is the new tariff rate, A is a constant and X is the current tariff rate. The constant was set at 14 for the US and 16 for the EU. Thus, a US duty of 20 per cent was reduced to 14x20/(14 + 20) = 8.23 per cent. The United States was somewhat constrained by this formula, in that it could not cut duties more than 60 per cent, but it was able to raise its average rate of reduction to the levels achieved by other industrial countries by utilizing its statutory power to reduce duties of 5 per cent and below by up to 100 per cent. Taking into account the various exceptions to applying the Swiss formula, the average reduction in tariffs on industrial products in the Tokyo Round was about 35 per cent for both the US and EC. 7

Besides achieving a significant average duty reduction in the Tokyo Round, GATT members also negotiated a series of detailed codes covering non-tariff measures that set forth permissible and non-permissible GATT-consistent behaviour. The main subjects covered were subsidies and countervailing duties, anti-dumping practices, government procurement policies, valuation and licensing practices, and technical barriers to trade (standards). Signing the codes was made voluntary on the part of the participants in the negotiations.

The most successful post-World War II multilateral trade negotiation, as measured by the depth and scope of liberalization, was the Uruguay Round (1986–93). Three new subjects not covered in previous negotiating rounds were introduced: trade in services, trade-related intellectual property rights, and trade-related aspects of investment measures. In addition, a special effort was made that brought agriculture and textiles/apparel under GATT discipline. The negotiations also covered such traditional topics as tariff liberalization, subsidies, dumping, government procurement policy, technical barriers to trade, dispute settlement, and institutional reform.

An important feature of the framework agreement negotiated for services is that it covers not only cross-border trade in services, but services supplied by foreign firms within a country to consumers in that country and services supplied by domestic firms to nationals of other countries who are visiting the country. The General Agreement on Trade in Services (GATS) commits WTO signatories to a set of general principles which includes most-favoured nation treatment, transparency with regard to domestic laws affecting trade in services, and the progressive liberalization of traded services.

In fashioning policies covering intellectual property, namely creations of the mind such as inventions, literary and artistic works, and symbols, names, images, and designs used in commerce, society must balance two output-creating forces. One is the output gains that comes about from distributing an existing body of knowledge as widely as possible. The other is the output gains that arises because inventors and other creators of intellectual property are granted temporary monopolies that prevent others from copying their intellectual creations before they have had a chance to reap the monetary gains that make their creative efforts worthwhile. The Uruguay Round Agreement on the Trade-Related Aspects of Intellectual Property attempted to overcome some of the drawbacks of the existing system. For example, all countries are now required to provide copyright, trademark, and patent protection on goods and services for a specified number of years. However, developing countries and the least developed countries were given extra time to implement this requirement. In addition, countries are required to establish civil judicial procedures whereby individuals and firms can seek to enforce their intellectual property rights. Criminal procedures must also be put in place to deal with wilful trademark counterfeiting or copyright piracy on a commercial scale. In a notable ruling in 2009, a WTO dispute-settlement panel ruled that China violated WTO rules by barring copyright protection for movies, music, and books that have not been approved for publication or distribution in China.

1.6 Dispute Settlement Procedures

Equally important to achieving a significant degree of trade liberalization by establishing a multilateral trade organization is the goal of successfully resolving disputes that arise among GATT/WTO members as they apply the basic rules of these institutions. Most of these rules were agreed to by 1947 and set forth in the Articles of the General Agreement on Tariffs and Trade. New rules were added when the World Trade Organization replaced the GATT in 1994 and a new agreement covering trade in services was approved. GATT/WTO rules were also routinely modified in the various rounds of trade negotiations.

The basic rule governing trade is set forth in the first Article of the GATT and the WTO as the most-favoured nation principle. It states that the most favourable treatment with respect to any charges imposed on imports or exports by a country shall be the treatment granted to all other countries. However, there is an exception to this rule if a country enters into a free trade agreement or customs union with another country. Thus, trade is free among members of the European Union or members of the North American Free Trade Agreement, namely the United States, Canada, and Mexico. Since the early 1990s, free trade agreements have become a very prominent feature of the multilateral trading system. As of July 2010, 574 regional trade agreements have been notified to the GATT/WTO. It is not as yet clear just what the long-run effect of this trend will be on the degree of liberalization achieved under the GATT/WTO system.

Among the other rules of the GATT/WTO are:

when governments can levy anti-dumping and countervailing duties on foreign exports to offset dumping by foreign firms and subsidization by foreign governments;

when governments can withdraw tariff concession because an industry is seriously injured;

the conditions under which governments can grant subsidies to their domestic industries;

the permissible procedures for valuing imports for the purpose of levying import duties;

when governments can impose quantitative restrictions on imports; and

the extent to which purchases from domestic firms are provided with a price preference compared with purchases from foreign firms when it comes to purchases by government agencies.

If a GATT/WTO member believes that benefits to which it is entitled from the GATT/WTO agreements are being nullified by an action on the part of another member (perhaps because this other member believes the country is not following the rules of the organization), the country may request a formal consultation from the country taking the action. If the dispute is not resolved through consultation, the two disputants may then request that a panel of experts be appointed to investigate the case and render a decision. The members of the panel must be agreed upon by both disputants. If, after their investigation, the panel rules in favour of the party initiating the case, the GATT/WTO can then authorize the winner of the dispute to impose sanctions on the losing party.

Unfortunately, prior to the Uruguay Round Agreement in 1994 this procedure was deeply flawed because decisions by GATT members required unanimity. Thus, the losing party in a panel report could block adoption of the report and even block the winning party's request to retaliate if the losing party did not comply with a panel report that was adopted. The Understanding on Rules and Procedures Governing the Settlement of Disputes reached in the Uruguay Round significantly changed the previous dispute settlement process. Most importantly, the principle of ‘automaticity’ was introduced into the new Agreement. Now, formation of panels, adoption of their reports, and, if a panel ruling is not complied with, retaliations are all automatic. These changes in themselves greatly strengthen the dispute settlement process.

There are several other ways in which the process has been strengthened. A unified system to settle disputes arising under the various agreements replaces the various different procedures for settling disputes under the Tokyo Round agreements. This system even applies to disputes arising over issues on which there are no legal obligations under the GATT. Time limits have also been established for carrying out the various steps in the settlement process. For example, panels appointed by the Dispute Settlement Body to render a decision on the merits of a complaint must normally report their findings within six months and in no longer than nine months. Another important change is the creation of an Appellate Body to review panel decisions that are appealed. This body has seven members who are appointed for a four-year term. The decision of this body must be made within 60 and 90 days.

It should be noted that panel rulings are not self-executing. If a country chooses not to change its laws or regulations to conform to a panel ruling, the penalty it will incur will be the possibility of retaliatory actions by its trading partners. However, such a country is likely to find it more difficult to persuade other countries of the merits of the cases it brings before the Dispute Settlement Body.

1.7 Summary

The strongest case for a multilateral trade organization can be made simply by chronicling the history of the GATT and WTO in achieving trade liberalization actions since 1948. The increased communications among countries that resulted from establishing the GATT and WTO has revealed a steady stream of mutually beneficial trading opportunities that have been exploited through a series of eight multilateral trade negotiations. This liberalization has covered both tariffs and non-tariff trade barriers and involved a variety of trade-liberalizing techniques. Significant progress has also been made over the period in developing dispute resolution methods that have served to strengthen the multilateral trade system.

There are also theoretical reasons why countries form trade agreements. Consider a situation in which goods are produced under increasing cost conditions and countries are large in the sense that their purchases of goods from other countries affect the international prices of these goods. Under these conditions, welfare-maximizing governments are likely to become involved in beggar-my-neighbour trade policies. This occurs because by imposing tariffs on foreign imports and reducing output in these industries each large country can improve its terms of trade, that is, reduce the prices at which it purchases imports relative to the prices at which it sells its exports. The net result of each country taking actions to improve its terms of trade will be a situation in which world welfare declines below its free trade level. At this stage governments realize that forming a trade agreement and reducing import duties on a reciprocal basis can increase the volume of trade without worsening their terms of trade.

A separate approach to the theory of trade policy can be made if it is posited that the purpose of a trade agreement is to tie the hands of member governments against private agents in the economy, and thereby offer an external commitment device. 8 There exists the possibility that an anticipated trade-policy-lobbying relationship between the government of a small country and producers in one of its sectors could distort the equilibrium in allocation of resources in the economy toward the sector with the active lobby. The government will be compensated by the lobby for the ex post distortions its trade policy choices impose on the economy. But the lobby will not compensate the government for the ex ante distortions in the sectoral allocation of resources created by the anticipation of the government's relationship with the lobby, and this provides an opening for the government to wish to tie its hands ex ante against the possibility of being influenced by ex-post lobbying. A possible commitment role for a trade agreement is thereby identified.

Bagwell, Kyle , and Robert W. Staiger . 2000 . GATT-Think. NBER Working Paper 8005. Cambridge MA: National Bureau of Economic Research.

Bagwell, Kyle , and Robert W. Staiger . 2009 . The WTO Theory and Practice. NBER Working Paper 15445. Cambridge MA: National Bureau of Economic Research.

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Johnson, Harry G.   1953 –4. Optimum Tariffs and Retaliation.   Review of Economic Studies 21 (2):142–53.

Winham, Gilbert R.   1986 . International Trade and the Tokyo Round Negotiation . Princeton: Princeton University Press.

The GATT took effect in 1948 with 23 countries signing the Agreement. The WTO was established in 1995 with 113 countries signing the Uruguay Round Agreement.

Bagwell and Staiger 2000 , 2009 .

Harry Johnson presented the first formal explanation of the terms-of-trade argument in general equilibrium terms (Johnson 1953–4 ).

The consumer surplus initially received by the importing country is equal to the area fbp.

The change in national welfare for the tariff-imposing country equals the sum of the change in its consumer surplus, namely minus the area p’cbp, and the increase in its tariff revenue, namely p’cep’’ or an amount equal to pdep’’ minus cbd. The decrease in national welfare for the exporting countries equals the change in their producer surplus, namely minus pbep’’.

Bagwell and Staiger 2000 , 21.

Winham 1986 , 267. The EC consisted of nine countries by the end of the Tokyo Round, with Denmark, Ireland, and the United Kingdom becoming members in 1972.

The wording of this paragraph closely follows Bagwell and Staiger 2009 , 12–13.

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World Trade Organisation agreements and devolution: a case study analysis

There is ongoing disagreement between the Welsh and UK Governments on the extent to which the World Trade Organisation (WTO) rules (Agreement on Agriculture) is a reserved matter. This blog post outlines various international models of engagement between central and sub-national governments on trade negotiations and agreements to provide examples of the arrangements from elsewhere.

Currently the European Commission represents all EU Member States at the majority of WTO meetings. However post-Brexit, the UK will negotiate its own schedules with the WTO. The level of involvement of the devolved administrations has become a contentious issue as part of the wider debate around UK frameworks and legislative competence post-Brexit.

The UK Government’s Agriculture Bill contains a clause which relates to WTO Agreement on Agriculture (clause 26). It gives powers for the Secretary of State to determine the classification of financial support across the UK and set limits of spending including individual ceilings of support across the devolved administrations. Further information on WTO rules and agricultural support can be found in a blog post by Dr Ludivine Petetin .

Clause 26 of the Agriculture Bill applies across the UK but currently does not require legislative consent from the devolved legislatures, reflecting the UK Government’s position that WTO provisions are entirely reserved. The Welsh Cabinet Secretary for Energy, Planning and Rural Affairs, Lesley Griffiths, has emphasised the strong relationship between WTO powers and devolved responsibilities on agricultural support. She told the Assembly’s Constitutional and Legislative Affairs Committee on 5 November that the UK Government’s position on WTO was a ‘red line’ and said she could not recommend that the Assembly gives consent to the Bill if the UK Government did not change its position. The Scottish Cabinet Secretary for Rural Economy, Fergus Ewing, has responded to the UK Agriculture Bill with similar concerns around the lack of legislative consent required for the WTO provisions.

Case studies

This post describes three models for the involvement of devolved governments in trade negotiations:

• Limited role for sub-national governments; central government has exclusive power (Example: United States of America);
• Central government is responsible for negotiating trade deals, but detailed consultation takes place with sub-national governments (Example: Canada); and
• Sub-national representatives are involved directly in negotiations, in areas that are within their competence (Example: Belgium).

A detailed look at these examples is provided below. While all these countries are different to the UK in terms of their constitutional arrangements, the models may provide perspectives on a potential role for Wales in future UK trade policy.

1. Limited role for sub-national governments; central government has exclusive power (Example: the United States of America)

In the United States, state governments have almost no role in international trade negotiations. The US Congress has exclusive power to ratify trade agreements negotiated by the President and to enact legislation to enable their implementation. Although Congress is responsible for the protection of state interests, there are few institutional mechanisms to include sub-national governments in decisions. As a result, most American states have very little bureaucratic capacity to influence international trade policy.

The President nominates a US Trade Representative (USTR) to coordinate and conduct negotiations on their behalf. While the USTR has control over US trade negotiations, the Intergovernmental Policy Advisory Committee (IGPAC) provides advice to inform their decisions. This is one of the only ways for states to directly influence national trade policy.

The IGPAC is a trade advisory committee that provides general policy advice and guidance to the USTR on issues involving trade that relate to the responsibilities of state governments. The IGPAC is composed of members who have expertise in general trade, investment and development issues. Members are appointed from US states and localities, and other non-federal government bodies, and their role is to communicate state interests and priorities. Membership of the IGPAC is limited, however, and members only have access to documents and negotiation material at the discretion of the USTR.

Alongside the Committee, there is significant influence from other organisations such as firms and other lobbyists. In addition, some states look to influence US trade policy through Congressional committees, as Congress has significant oversight authority to monitor the President and USTR’s actions.

2. Central government is responsible for negotiating trade deals, but detailed consultation takes place with sub-national governments (Example: Canada)

The federal government is responsible for negotiating trade deals on behalf of Canada, but detailed consultation takes place with the Canadian provinces before trade negotiations get under way. Then, during the negotiations, representatives from the provinces are present to contribute to the negotiations.

The Canadian constitution is clear that, where obligations extend into areas under the remit of the provincial governments, compliance rests solely within provincial jurisdiction. However, provincial governments are not accountable if they fail to comply. As the provincial governments do not have to comply, while the federal government has no obligation to consult the provinces, in practice they work closely with them to try to ensure that any obligations Canada makes are subsequently fulfilled by the provincial governments.

In particular, the Comprehensive Economic and Trade Agreement (CETA) negotiations in relation to agriculture may be especially relevant to discussions about Wales’s role in negotiations about the UK’s relationship with the EU. The Canadian provinces were included in negotiations on the CETA between Canada and the European Union. Canadian provinces were able to influence the language of the CETA in a number of key areas, and the federal government sought to accommodate the interests of different provinces, given their responsibility for ensuring compliance with key aspects of CETA, such as agriculture.

The CETA negotiations directly involved all 10 provincial governments and three territorial governments across Canada. They were consulted on the terms of the joint reports and the negotiation mandate. The provincial and territorial governments had access to overview briefings throughout negotiations, and provincial representatives maintained informal relations among themselves, and with the Canadian envoys.

Alberta is an example of how a provincial government influenced the CETA. The provincial government wanted to lower barriers and increase exports of grains to Europe, and this was ultimately reflected in the CETA agreement.

3. Sub-national representatives are involved directly in negotiations, in areas that are within their competence (Example: Belgium)

The constitutional arrangements in Belgium are complex, with the three tiers of governance—federal, regional and community—each responsible for their own area of competence, although there are some overlaps. According to the Belgian constitution, the federal, regional and community governments are responsible for the policies that are assigned to them by the constitution. Apart from a few general policies relating to foreign trade that sit at the federal level, regions and communities are responsible for international affairs related to their respective competences. The Directorate General for Co-ordination and European Affairs brings together federal, regional and community representatives to discuss and agree a common position and mandate for trade negotiations and the agreed Belgian position is then communicated to the Council of the European Union by the Federal Minister of Foreign Affairs. Where trade agreements deal with issues within the jurisdiction of the different tiers of government, all levels of government where competence lies must give their consent to the agreement. In addition, regional parliaments must also ratify such agreements.

Once again, the CETA trade agreement is a good example of how this can work in practice. The agreement required the ratification of each EU Member State, but it was temporarily blocked by Belgium in October 2016 because the regional parliament of Wallonia prevented the Belgian federal government from granting permission to proceed. The Wallonian parliament eventually gave its support to the deal, and while the CETA agreement was not changed, the Wallonian representatives ensured that 36 guarantees and clarifications were added on issues relating to agriculture and investment.

Article by Katy Orford and Peter Hill , National Assembly for Wales Research Service.

Source: Wales Centre for Public Policy, Sub-national government involvement in international trade negotiations

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Petros C. Mavroidis & Mark Wu, The Law of the World Trade Organization (WTO): Documents, Cases & Analysis (West Acad. Publ'g 2d ed. 2013).

Abstract: This volume discusses the law of the World Trade Organization (WTO), the global forum for trade liberalization. It discusses in exhaustive manner the legal framework governing international trade that evolves out of the treaty regime and elaborates upon the major case law issued by the WTO. It further includes references to academic scholarship critiquing the caselaw, as well as discussions of the economic and political science theories of how WTO law is shaped.

Rethinking Schools

World Trade Organization Case Studies

Who benefits or suffers from the World Trade Organization’s version of “free trade” is seen most clearly in the WTO’s rulings. The following cases are excerpted and adapted from the International Forum on Globalization publication Invisible Government – The World Trade Organization: Global Government For The New Millennium? by Jerry Mander and Debi Barker. See Resources, p. xx.   United States Regulations on Reformulated Gasoline Cleanliness Challenge by Venezuela and Brazil against the United States. [Cases WT/DS2 and WT/DS4]

The WTO’s first ruling dealt a direct blow to a 1993 U.S. Environmental Protection Agency (EPA) rule which required gasoline refineries to make cleaner gas in an effort to reduce air pollution. The EPA had opted for a program that allowed gradual improvement based on past performance. Where past performance could not be reliably ascertained, a refinery’s baseline was set to match the actual 1990 performance data of all oil refineries. Thus, some domestic and foreign producers were treated identically, some domestic producers were held to higher standards than foreign suppliers, and some to a lower one.

The rule was set to expire in 1998, giving refiners five years to bring baseline standards up to a single cleanliness target. However, in 1996 a WTO dispute panel, and later an appellate body, decided the U.S. rules could be “discriminatory” because the gradual phase-in violated GATT’s National Treatment rule, despite the fact that the EPA rule was being applied equally to some U.S. producers. As a result, the EPA, which administers the Clean Air Act, has been forced to rewrite its standards to allow dirtier gasoline. One of the end results will be an increase in health problems in the United States. The Shrimp-Turtle Case Challenge by India, Malaysia, Pakistan and Thailand against the U.S. [Case WT/DS58]

The U.S. Endangered Species Act (ESA) requires domestic and foreign shrimp fishers to catch shrimp by methods that do not kill endangered sea turtles. ESA bans shrimp products from countries that do not use “turtle excluder devices” (TEDs). In 1998, the WTO ruled that U.S. laws created to protect turtles violated WTO rules, including the principle of National Treatment. One proposed solution was that the United States will be allowed to target only individual shrimpers’ boats. The likely outcome of that will be to encourage “shrimp laundering,” where shrimp harvested on boats without TEDs are transferred to boats with TEDs and passed off as “turtle-friendly” for import purposes.

This solution also means that many expenses – such as hiring more border inspection personnel, and training officials to inspect boats – become the burden of countries that wish to protect environmental standards. Previously, the burden of proof was on the exporting commercial interests.

Many environmentalists, especially those from Third World countries, point out that this dispute does not get to the heart of the matter. It fails to address the non-sustainability of industrial shrimp fishing. Small-scale fishing operations in both the North and the South have been harvesting shrimp for many years with little damage to other aquatic life. Sea turtles became threatened only when large, industrial fishing vessels came onto the scene. Although TEDS may save turtles, the continuation of industrial trawling is what destroys millions of marine species, along with the livelihoods of millions of traditional families dependent on small-scale fishing. The Banana Case Challenge by the United States, joined by Guatemala, Honduras, Mexico and Ecuador, against the European Union [Case WT/DS31]

In September 1997, a WTO panel ruled that the European Union (EU) was giving preferential access to bananas produced by former colonies in the Caribbean. This arrangement had been previously negotiated between the EU and its former African and Caribbean colonies under the Lomé Treaty.

The United States, which does not produce any bananas, brought this case against the EU on behalf of the U.S.-based Chiquita corporation, formerly known as United Fruit. Chiquita produces bananas in Latin America on huge plantations that are notorious for exploiting cheap farm labor and using environmentally damaging techniques. In the Caribbean, which Europe is favoring, banana producers tend to be small-scale farmers who own and work their own land (an average of three acres), often incurring higher production costs.

This was a very divisive case within the WTO because of its economic, social justice, and environmental dimensions. At one point the United States began implementing a threat to impose sanctions on more than $500 million of EU exports, nearly setting off a trade war. The EU eventually said that it would comply with the ruling but it is still negotiating with the United States over settlement terms. Beef Hormone Case Challenge by the U.S. and Canada against the European Union [Cases WT/DS26 and WT/DS48]

The European Union has banned the non-therapeutic use of hormones in its food industry, citing many studies that indicate that hormones, particularly implants of pellets containing estradiol, can cause cancer. Following the challenge by the United States and Canada, and citing the onerous provisions of the SPS Agreement and other WTO rules, the WTO ruled against Europe’s ban.

The WTO panel demanded scientific certainty that hormones cause cancer or other adverse health effects, thus ignoring the precautionary principle – “better safe than sorry” – as a basis for food safety regulations. This ruling has frightening implications for the ability of governments to set high standards to protect public health. It means that European consumers and governments are forced to accept imports of beef raised with hormones or be penalized with harsh trade sanctions.

Public opinion in Europe is strongly demanding defiance of this WTO ruling. The United States and Canada have produced lists of exports important to Europe, including luxury items such as prosciutto, cheeses, and Dijon mustard, among other things, on which they intend to slap 100% tariffs if the EU fails to comply. These retaliatory measures would total more than $125 million. The Chilling Effect

More and more frequently, proposed national laws are never put into effect, or are weakened, because another nation threatens a WTO challenge to the proposed law or its implementation. Poor countries are especially vulnerable to such threats by more affluent developed nations, which have more resources, both legal and monetary, to take a case to the WTO. Here are some key examples: Gerber vs. Guatemala’s Infant Health Law

In this well-known case, The Agreement on Trade Related Intellectual Property Rights (TRIPS) was used to thwart a law designed to protect infant health in Guatemala. In accord with recommended United Nations Children’s Fund (UNICEF) guidelines, Guatemala had banned claims on packaging that equated infant formula with healthy, fat babies. Gerber Products Co., the world’s premier seller of baby food, got the U.S. State Department to threaten a WTO challenge of this regulation, arguing that Gerber had an “intellectual property right” under the WTO TRIPS agreement. Under threat of challenge, Guatemala revised its law and now allows labeling that actually violates UNICEF guidelines. AIDS Drugs Denied to HIV-Infected in Thailand and South Africa

In another case, the U.S. pharmaceutical industry is attempting to stop South Africa and Thailand from developing their own versions of AIDS drugs that can be sold at a fraction of the usual price. The TRIPS agreement guarantees a 20-year patent for drugs. However, over objections from industrialized nations, Article 31 of TRIPS provides a way for countries to override the patent through a “compulsory license” clause, which allows a government to grant local companies a license to produce a drug in cases of health emergencies.

South Africa and Thailand, both hard-hit by AIDS, have used this clause to begin to manufacture AIDS-related drugs. For example, U.S.-based Pfizer used to charge $14 for a daily dose of fluconazole, an antibiotic that can fight off a fatal form of meningitis contracted by one in five AIDS sufferers in Thailand. Three Thai companies began making the drug at a cost of just over $1 per daily dose.

The U.S. threatened Thailand with trade sanctions under the WTO. Twenty-five percent of Thai exports go to the U.S. The Thai government then banned compulsory licensing even though it has a genuine health emergency.

The U.S. pharmaceutical companies claim that the drugs are so expensive because they have spent enormous sums of money on research and development. They neglect to mention that some of the most important AIDS drugs were discovered by researchers with the U.S. National Institutes of Health and by researchers in other facilities whose budgets are supplemented with government grants. Their discoveries were then handed over to corporations that produce the drugs and reap the profits. Patents on Plant Varieties: Advancing the U.S.-Style Patent System Challenge by the U.S. against India [Case WT/DS50]

India’s current law deliberately excludes plants and animals from patenting in order to maintain local control over these life forms. This helps to maintain low prices for some products such as pharmaceuticals. Under the current Agreement on Trade Related Intellectual Property Rights (TRIPS), however, “developing” countries must, by the year 2005, allow foreign companies the right to patent local plant varieties.

The basic complaint by the United States was that India had violated its TRIPs obligations by not moving fast enough toward compliance. The WTO agreed, even though its own deadline for compliance is 2005. As a result of this WTO ruling, India was forced to grant market monopolies to corporations on the basis of patents given by other countries.

The Burma Case: Human Rights Affected by Finance and Investment Challenge by the European Community (EC) and Japan against the United States. [Case WT/DS88/1]

In 1996 Massachusetts enacted a law that bars companies that do business with the brutal military regime in Burma (Myanmar) from bidding for large public contracts in the state. The European Community argued that, under WTO rules, including the Agreement on Trade-Related Investment Measures (TRIMS), the Massachusetts restriction is unfair “to the trade and investment community,” and that it breaches current WTO rules on government procurement.

Massachusetts questioned whether doing business with a brutal military regime is fair. Similar economic sanctions were used in the anti-apartheid movement in the United States in the 1980s and have been credited for hastening the transition to democracy in South Africa. Should the Massachusetts law be struck down, the efforts of any social justice movement advocating government sanctions against criminal regimes will be severely hampered.

The mere existence of this WTO challenge has already squelched other efforts to use economic sanctions to uphold human rights. For example, hoping to avoid trouble in the WTO, in 1998 the U.S. Administration actively lobbied the Maryland state legislature to stop the adoption of a selective purchasing law against Nigeria. The proposal subsequently lost by one vote. Looking Ahead

These are some of the more controversial provisions that are currently being considered, or may soon come under consideration at the WTO. Free Trade in Wood Products

A “free trade agreement on wood products,” is being pushed aggressively by the United States under the Advanced Tariff Liberalization (ATL) initiative. Although forest protections are already being eliminated under current WTO rules, the ATL and additional rules being introduced into other WTO agreements would further accelerate the elimination of all tariffs on wood products worldwide. Forest protection groups protest that such an agreement would result in a sharply increased rate of deforestation, declining health in global forests, a significant decrease in environmental protections for forests, and an increase in invasive species. Free Trade in Water

Currently, trade in bulk fresh water is covered by GATT. Already, several corporations around the globe have begun prospecting for fresh water reserves and have made agreements with various countries to begin drawing water from lakes and rivers to be transported across oceans in scrubbed out oil tankers or giant floating bladders. Some nations, led by the United States, are now proposing that another WTO agreement, the General Agreement on Trade in Services (GATS), should specifically offer foreign corporations further rights and access to domestic water and water systems, including the commercial operation of municipal drinking water systems. The Computer Industry and E-Commerce

The computer industry in the United States and other “developed” countries is calling for WTO negotiations to establish global rules on e-commerce, the selling and purchasing of products on the Internet, in the hope of forcing countries to give up their right to tax or otherwise regulate commerce on the web. This would provide an advantage to large corporations for two reasons: (1) businesses that have physical locations (your local bookstore, market, etc.) would still have to pay local, state, and national sales taxes, and (2) full-time Internet access can be too expensive for smaller businesses and individuals. In addition to the access charges, which are projected to increase due to the industry’s push to deregulate, it is expensive to advertise a website and to provide security for financial transactions, not to mention the costs of adding a shipping and handling department to fulfill electronic orders. Thus, small proprietors are less able to compete.

Last Updated Spring 2002

Back to “Rethinking Globalization”

Case study: World Trade Organisation (WTO)

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The World Trade Organization (WTO) “is the only global international organization dealing with the rules of trade between nations.” Its aim is “to ensure that trade flows as smoothly, predictably and freely as possible.”

The WTO was formed in 1995 to supervise and liberalise international trade. It was established after member states signed the Marrakech Agreement in 1994, replacing the original General Agreements on Tariffs and Trade (GATT) as the international regulator on trade issues.  The WTO has 153 member states, whose trade transactions account for over 97% of the world total.

The WTO has six main functions:

• Administering trade agreements
• Acting as a forum for trade negotiations
• Settling trade disputes
• Reviewing national trade policies
• Assisting developing countries in trade policy issues, through technical assistance and training programmes
• Cooperating with other international organizations

The WTO is composed of a secretariat, two governance bodies and the Dispute Settlement Body. The Secretariat, based in Geneva, is independent from WTO members and has no decision-making powers, but, among other duties, monitors and analyses developments in world trade and organises ministerial conferences. The General Council is made up of representatives from all member states, and meets regularly to carry out the WTO’s functions. The Ministerial Conference, the top-most decision-making body composed of all members of the WTO, usually meets every two years and takes decisions on all matters relating to the multilateral trade agreements. The Dispute Settlement Body is the body which rules on trade disputes between members.

The WTO operates according to several principles. One is the Most Favoured Nation principle, which mandates that countries may not provide ‘favoured’ nations with exceptional trading privileges, but that they treat all participating nations equally. Another is the principle of common but differentiated responsibility, which means that member states should be subject to differing obligations and timelines for implementation of agreements based on their level of economic development.

We selected the World Trade Organization as one of our case studies because it is a regulator and adjudicator in issues of global trade, which affect opportunities for access of countries and enterprises in both developing and developed countries to energy (including from different sources) and technology, both of which are important to tackling climate change.

On the Publications tab above, we will release findings from this project about the WTO's accountability capabilities and how the WTO is preparing itself to tackle climate change. On the External documents and links tab, we will post key documents about these issues collected during the course of our research.

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ITC and KESK join efforts to promote climate smart solutions and innovative construction technology in Iraq

Erbil, 21.05.2024 - International Trade Centre (ITC), joint agency of UN and World Trade Organization fully dedicated to supporting small businesses of developing countries to trade, and KESK , Iraq’s pioneering green tech company announced their partnership for making smart green solutions trustable, accessible, and affordable.

This partnership is part of ITC’s recently launched European Union (EU) funded Building Equitable and Inclusive Transformation ( BEIT ) project, jointly implemented with the United Nations Human Settlements Programme (UN-Habitat) and the International Labour Organization (ILO).

BEIT aims to generate quality jobs through the development of affordable and sustainable housing in Iraq. Specifically, ITC will bolster the capabilities of local businesses, particularly micro, small, and medium-sized enterprises (MSMEs) in the sector, with a focus on young entrepreneurs, enabling them to integrate green and innovative practices into their operations, as established in the United Nations’ 2030 Agenda for Sustainable Development.

Eric Buchot, Representative, Head of ITC Country Programme in Iraq, and Basima Abdulrahman, Founder and CEO KESK signed the letter of intent.

Emphasizing the strategic importance of the collaboration, Eric Buchot said, " Working together with KESK, we aim to promote climate-smart solutions and housing retrofits for middle income households in Iraq, reinforcing the capabilities of local businesses, especially young entrepreneurs.”

"We are thrilled to partner with the International Trade Centre, a collaboration that will empower Iraqi businesses, especially our youth and small enterprises, to embrace sustainable and innovative construction technologies. This partnership aligns perfectly with our mission at KESK to build a greener future for Iraq. Together, we are setting a foundation for resilience and prosperity through environmentally conscious solutions that are critical for our country's development," said Basima Abdulrahman, Founder and CEO of KESK.

This collaboration marks a significant step towards supporting Iraqi youth through training, mentorship and resources in the housing and construction sector.

Media contacts

KESK Nohra Philip info [at] keskco.com

International Trade Centre Waqas Rafique, Public Information Officer wrafique [at] intracen.org (wrafique[at]intracen[dot]org)

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A Process for Using LLMs in a National Security Research Organization

This article originally appeared in Forbes Technology Council .

Every company must forge a path to balance the disruptive risks and opportunities posed by large language models (LLMs). But for an organization like ours, working in national security, the stakes and complexity are considerably higher. CNA is an independent nonprofit that produces analysis for the military and for homeland security agencies. Our success over more than 80 years has depended upon government confidence in our research quality and in our ability to manage risk to our networks and privileged information. To balance the heightened risks posed by using LLMs with the need to get the latest tools in the hands of our researchers quickly, we engaged in a collaborative and flexible four-step process:

• Understand requirements and risks

Establish policy and guidance

Enter into a contract with employees, collect feedback and adjust, understand requirements and risk.

Our scientific and professional staff consistently demand the latest tools and technology, and they pressed us to incorporate LLMs into CNA’s infrastructure. Researchers wanted to use LLMs to summarize long reports, speed up programming, and quickly generate outlines. Professional staff wanted to rapidly produce draft position descriptions, policies, and company-wide communications. The trick was to address these demands while maintaining a secure, safe, and compliant infrastructure.

We tasked a team in our Global Information Security group at CNA to develop processes to assess risk. The public servers that LLMs run on concerned us most. As a partner in U.S. national security, CNA operates under many rules that govern our information technology infrastructure and security—especially what we can put into the public space. LLMs potentially create risks, especially to proprietary and sensitive data.

LLMs also introduce risks that could affect the analytical quality that sustains our reputation. One risk is that they can “hallucinate” or make things up. For example, LLMs claimed CNA had published a specific piece of work, returning a title and author, when an exhaustive search of our document repository showed that such a report doesn’t exist. Another is that LLMs are trained on internet data, which introduces bias and false information. A third research risk is that many LLMs do not provide complete citations for generated text, raising concerns about plagiarism.

We needed a collaborative approach bridging research and technology to address these risks. We formed a four-person executive team—the chief information officer, chief research officer, and two executive vice presidents. The team settled on four technical governing policies compliant with current government information technology regulations and security requirements:

• LLM governance policy, a new framework to harness the benefits of AI while managing risks
• Acceptable use policy, updated to describe acceptable and unacceptable employee behavior on CNA's network
• Bring your own device policy, updated to allow greater flexibility while ensuring safeguards to manage security risks
• Software/custom code development policy, updated to standardize secure software development for all CNA-developed code

In addition to these policies, we developed guidance that provides general direction to users and lays out validation and accountability requirements for LLM-generated content. Key principles include:

• LLMs are tools that can help with some aspects of the research process and corporate tasks.
• LLMs do not replace critical thinking by a human.
• LLM users may not enter into an LLM any classified or Controlled Unclassified Information (CUI), nor any proprietary, privileged, protected health information, personally identifiable information, or business sensitive information.
• LLM users are responsible for any LLM-generated content, which must be validated by a human. This includes checking for biases and factual or statistical errors.
• LLM use must be transparent, described in the methodology section of reports and briefings and acknowledged in footnotes—including the name of the analyst who verified the results.
• LLMs cannot be authors.

Together, our technical governing policies and research guidance mitigate both technical and research risks, reducing the likelihood of an information spill and helping users apply LLMs in a responsible manner.

Establishing sound technical policies and research guidance is necessary for success, but it isn’t enough. We needed employees to acknowledge their responsibility for reducing risk through a formal LLM access request process.

To access LLMs, employees first read the technical governing policies and guidance. They then complete and sign an LLM Request and User Agreement Form. On the form, an employee specifies all LLM tools they plan to use for CNA work, whether on a company computer or personal device. The employee’s manager signs and approves the form, and the CIO’s information security team reviews it for technical risks before sending the approved tools list to the information technology team to allow user access. The process creates a record of requests and insight into which tools are most requested.

To encourage cross-organizational collaboration, we provide authorized LLM users with a collaboration space inside a Microsoft Teams channel, where they learn from each other, sharing what works and what doesn’t. We also collect feedback on the LLM user experience through regular surveys and small group discussions. So far, 94 percent of users find LLMs to be useful, and 80 percent will continue to use them. Still, 75 percent identified drawbacks, including wrong code, incorrect content, opinionated language, and nonsense answers. Many felt limited by the inability to upload proprietary documents or PDFs. In focus groups, staff asked for guidance on prompt development—to get the most effective answers to the questions they ask of LLMs. And they told us they wanted LLMs that could operate inside CNA’s firewalls. We are incorporating this feedback into program improvements underway now.

Developed in just under six weeks, our approach to access has enabled employees to stay curious, explore further, and witness firsthand the incredible power of language models within deliberate bounds. Since the regulations that organizations like ours work under cannot keep pace with the disruptive changes created by LLMs, leaders must learn to prudently manage risk. Cross-discipline collaboration at the leadership level has allowed us to find this critical balance between opportunity and risk in harnessing LLMs to further our mission.

Rizwan Jan is Vice President and Chief Information Officer and Kim Deal is Chief Research Officer at CNA.

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