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‘Rethinking Global Governance on Trade and Investment’ Conference: Insights on WTO Reform Proposals

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On this blog, my colleague Vineet has introduced the titular conference and detailed out the major take-aways from the second panel from that day, which focused on investment law (particularly, ISDS) reform. The first panel concerned itself with reform of the World Trade Organization (WTO); here I cull out some of the insights gained from discussions between the following esteemed panellists: Edwini Kessie (WTO); Mr. Pradeep Mehta (CUTS); Ms. Ursula Hoenich (European Commission); Dr. Mislav Mataija (European Commission); Dr. Fabio Morosini (Federal University of Rio Grande do Sul); and Mr. Hosuk Lee-Makiyama (ECIPE). The panel was chaired by Prof. Bart Kerrmans (KU Leuven), and discussions zoned into contemporary issues pre-selected by the organizers, including: the blocking of reappointments of Appellate Body (AB) Members; the debate about ‘developing country’ status; the problem of under-notification of agricultural subsidies; and, more generally, the role and responsibilities of developed and developing countries in the process.

First things first. The phrase “WTO reform” can mean (and has meant) different things to different people, and this is simply because the vast array of agenda that can be made to fit into it. And though the ongoing ‘trade wars’ between the US and China have resulted in more attention to some issues – the AB blockade, for example – reforms, on a variety of subjects, have been mooted since the point of the organization’s inception. And while attempts to reform (and the problems that necessitate these reforms) are nothing new for the WTO, the current situation is unprecedented in the sense that never before has a major WTO member seriously considered leaving; and whether we give the situation the apocalyptical name of “existential crises” or simply call it a “global challenge”, is immaterial beyond posturing. There are real problems that need to be addressed. The EU, for example, has highlighted its grievances with: unfair trading practices (and the fact that the current rules seem insufficient or incapable of dealing with them); unilateral retaliatory measures; and the AB blockade (which, according to the EU, is a culmination of long-standing problems).  

Now, an overarching issue, one that permeates each and every other problem, is that of the snail-slow pace of multilateral negotiations. After the 1995 Uruguay Round results (which gave birth to the WTO and its main agreements), the organization has achieved precious little: the trade facilitation agreement (TFA), the environmental goods agreement (EGA), and the expansion of the information technology agreement (ITA) have collected added very little to substantially reducing trade barriers or increasing volume of trade. In such a situation, some have suggested the ‘plurilateral approach’. But this defeats the entire point of holding so strongly onto the consensus principle. Two points need to be noted here: first, that it was simply easier to push for “agreement” during the GATT era when only 23 negotiating partners existed (and that too under a fair bit of hegemonic influence); it is much harder to get a deal through in today’s exploding, multi-polar word; and second, the 164-strong WTO has members that operate at different speeds, not very much unlike the EU. So, while the famous 2004 Sutherland Report noted that there were some defects in the consensus principle, no good alternative could be identified. As such, voting on issues would anyway be in the interest of developing countries, simply because of their large numbers in the organization; developed countries, on the other hand, would prefer something on the lines of ‘weighted voting’ as there is in the International Monetary Fund (IMF) – even though, the share of global trade from developing countries has gone up from 25% to about 40-50%, and so they too would have decent voting influence.

Interestingly, there does not seem to be a clear dividing line, any longer (in terms of priorities), between developed and developing countries. They do not fall cleanly into separate priority groups. For example, in August of this year, two developing countries (in addition to one developed one) challenged India’s (another developing country) sugar subsides. And second, and even more importantly, in March of this year, following a meeting with US president Donald Trump, Brazil’s Jair Bolsonaro declared that his country would no longer claim the ‘developing country’ status at the WTO (in exchange of US’s help in Brazil’s accession to the OECD). This surely is unprecedented: a large developing country surrendering its flexibilities almost over-night; this was certainly unexpected.

And in this content, perhaps the most contentious issue (in terms of development) is the question: what is a developing county? Until now, the designation was a country’s prerogative: it was essentially self-declaratory. However, in the beginning of this year, the US submitted a communication to the WTO’s General Council, arguing that the status quo was unsustainable, and that objective criteria should in inserted into the determination of which country requires S&DT flexibilities. Some, like the EU, seem to agree. In its 2018 white paper on WTO reform, the EU echoed the sentiment that it did not make sense (any longer) to give bloc-exemptions to 2/3rd of the WTO’s membership: it said that it would be in favour of longer implementation times over full exemptions, since, according to it WTO rules should be universally implemented. At the same time, other’s claim that S&DT provisions don’t amount to much since, if they did, least developed countries (LDCs) would be faring much better than they currently do. In the words of one of the presenters: “S&DT provisions are like the handicap system in golf, but in 20 years, you cannot expect Benin to become Great Britain.” This debate intersects with the question of the Doha Round. Some call it “dead”, while others say it is in a “deep coma”. Regardless, developing country grievances, especially concerning early implementation issues, remain unaddressed and it seems less plausible that any multilateral progress will be made, on any issue, without first placating them. To be sure, in their response to the US communique, a group of developing countries called S&DT “a treaty guarenteed non-negotiable right”. It does seem too embedded in the system to simply remove, but no doubt, proper segregation will be beneficial to all countries. And in any case, the days are gone when developing countries could get by with just taking on minimal obligations. It is time for everyone to display political will and good-willed compromise.

A related issue is that of subsidies and subsidy negotiations. The US has raised several concerns about under-notification of subsidies, sometimes even claiming that there is no point in further engaging in subsidy negotiations (with an aim to create new rules) if WTO members do not respect their current obligations. But this hostage-ing of the debate by “coupling” issues (something the US does with the AB as well) is a problem: there is no reason why multilateral progress cannot go hand-in-hand with improvements in the system. At the same time, subsidies given to rich farmers in developed countries seem to go on unabashed. In the past, rich countries have benefitted from “enforceable S&DT” under the Textiles Agreement, and to some extent, even under the Agreement on Agriculture via the “green box”. It was also pointed out during the conference that the per famer subsidy of the US is 267 times that of India, and that these subsidies, for less rich countries, are not a luxury but a necessity. This is of course not to take away the menace of opaque and sluggish bureaucracies in developing countries which often cause unnecessary obstacles in negotiations.

Finally, on an institutional point, the AB blockade continues to cause anxiety in the WTO. Despite legal intricacies, the political economy of the issue should not be lost: the US is only superficially targeting the WTO; its main aim is China, and it is challenging India (an otherwise important geopolitical partner) for optics. If the blockade continues, there is a risk of losing both, the appeal mechanism, as well as the binding system of dispute settlement (and one that has worked rather well and has been used extensively), since panel reports, in the absence of an AB, could be “appealed into the void”. While nobody can accuse the AB for being “slow”, the official (stated) reason for delay is usually the lack of staff; and this connects to another institutional problem: that recruits of the legal divisions start at a higher pay-grade than their non-legal counterparts, and this is, understandably, perceived as unfair. To break this deadlock, the ‘Walker process’ is underway and around 12 proposals have been mooted, none of which have met the US’s acceptance. This is a problem because nobody knows what the US’s position or priorities are. What is noteworthy is the fact that the US’s concerns have evolved: from simply objecting to Rule 15 (AB term extensions) to now having a bee-hive of complaints including judicial over-reach, time-frames etc. Short term solutions consist largely of the EU-Canada interim appeal mechanism based on DSU Art. 25. This is consent based; exists only as long as there is no AB; seeks to safeguard litigant and third party rights; and strongly mirrors the AB process. Long term solutions include those that would improve the legitimacy of the AB, for example the proposal to increase the numbers of AB members, which would take care of the “representation” problem (that has never been an AB member from Saharan Africa).

The WTO, along with its dispute settlement system, has been a force for good in the past, and developed as well as developing countries have an interest in ensuring gits long-term survival. While the rules are in need of modernisation, its grounding structure – the WTO – must live on. The two dates to watch out for are: 10th December 2019, when the three remaining AB members will be reduced to one (rending the body incapable of functioning), and 11th June 2020, when the next ministerial conference (in Astana, Kazakhstan) wraps up.

This is a post by Akhil Raina, a Global India (Horizon 2020) Marie-Curie Fellow and doctoral candidate at the Leuven Centre for Global Governance Studies (KU Leuven).