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South may be ensnared into New Round, more obligations

by Chakravarthi Raghavan

Geneva, 21 Dec 2000 -- A year-long process of ‘confidence-building’ measures at the World Trade Organization is facing uncertainty in the New Year, with the majors changing tactics to pursue their objective of capturing the economic (and trade) space and markets of developing countries for their corporations.

The moves of the majors - the EC, Canada, Japan and the US—at the WTO and elsewhere, seems to be proceeding on the basis that next year, the developing countries could be ensnared into a new round in the preparatory processes for the 4th Ministerial Meeting and at the meeting itself.

But some of these moves, which unlike in the past, are being closely watched and monitored in developing countries seems likely to further erode the already low level of confidence among the public and enterprises of developing countries in the WTO system, its fairness and ability to bring benefits to the developing world.

In turn, this will entail further loss of legitimacy, and will lead even in the medium-term of governments being unable to enforce and carry out trade rules and commitments, notwithstanding trade sanctions or threats. In the last century, and living memory of many still, Gandhi India, Martin Luther King in the USA, and Nelson Mandela in South Africa showed the power of ideas and civil disobedience in bringing down the powerful.

A year ago, on 17 December 1999, the WTO secretariat and leadership, and the major trading nations, reassembled in Geneva at the General Council in a state of shock (almost like shell-shocked soldiers in a war) after the shambles of the Seattle Ministerial meeting and its collapse. In this state, they set in motion a process of ‘confidence-building’ among the members and in the outside world. But since then they have been undermining it.

At least in retrospect, it is now apparent that the majors and the WTO leadership had in fact no intention of making any serious changes - either to the decision-making process, real transparency of the decision-making process to the members and to the public, nor any changes to bring about equity within the system to ensure equitable benefits for all.

The Seattle meeting, both in the preparations before it and at the meeting itself, was riven by deep differences among the majors trading entities (Canada, EC, Japan and the US, the Quad countries) and between them and the developing nations, big and small.

For a rules-based system and organization, the meeting itself had been constituted and called to order in disregard of rules, was run in disregard of rules again, and ended even more in disregard - with the final statements of Chair of that meeting changed in the official summary records in a way that increased the public feeling of illegitimacy of the system.

In the post-Seattle meetings of the General Council, first in December 1999, and later in February 2000, it was announced that the organization was embarking on ‘confidence-building’ measures to improve internal transparency and democratic decision-making, and steps to address the ‘implementation issues’.

This broad ‘rubric’ covered proposals of developing countries for measures, some immediate andothers within a year or so, needed to address the grievances of developing countries, their parliaments, enterprises and public, about the WTO system and its failure to deliver on the ‘promises’ based on which their countries had signed on to the Marrakesh agreement and its offspring, the WTO.

As in the runup to Seattle, since then too the majors and the WTO leadership and secretariat, appear to have hoped that ‘implementation’ issues could be talked out and rolled on to the new round and buried.

However, through the year, a large number of developing countries, and particularly the Like-Minded Group, the African Group, and the ACP countries, and several others too in varying ways, continued to raise inside and outside the ‘implementation’ issues as adamantly as the Cairns group on agriculture talks and the US and EC in services, in effect putting the developed world and the WTO leadership on the defensive and forced to respond on implementation.

But the major industrialized nations have given little ground in terms of actual decisions and commitments, despite the over 300 hours that the General Council Chair, Amb. Kare Bryn of Norway said he had personally spent in consultations on the implementation questions.

The EC and Canada have used different language to insist that these issues could only be dealt with in new negotiations, while the US has at the meeting on 15 December talked of the need to find a ‘different process’ than the implementation mechanism agreed upon in May.

In private one or two developing country members of the Cairns group have even been privately talking of the ‘implementation’ issue having become a ‘cancer’ in the system that has to be quickly eliminated, by getting it off the WTO special mechanism or General Council agenda.

While talking (but blocking decisions) on them at the level of trade ambassadors in the General Council and subordinate bodies, efforts were made through regional meetings to sneak in endorsements for the idea of a ‘new round with a broad-based agenda’, where and where alone (it was argued) developing countries’ concerns could be addressed.

The ‘broad-based’ agenda are seemingly neutral language, but in fact are code words for a new round of negotiations on the mandated and built-in agenda of the WTO, as well as the issues of the North— investment, competition policy, labour and environment issues, government procurement and trade facilitation (code words for opening up developing markets to TNCs by removing or diluting procedures that come in the way of transfer pricing and other corporate activities.

In these regional meetings, (like the September workshop of the African Trade Ministers at Libreville) and the several meetings of ACP countries at their meetings with the EC, efforts were made to sneak in such formulations to get a new round launched.

But these failed.

Even the manoeuvres at the end of the year, about the venue of the next ministerial—Qatar or Chile or Geneva (if a suitable host developing country that could use its chairing that meeting to advance the cause of a new round with broad-based agenda) -- seemed related to these.

At the end of the year while the developing countries have barely managed to keep the ‘implementation issues’ on the table, and got a commitment of sorts that these would be pursued in the New Year, the majors regrouped and seem set to ensnare the developing world in a new round of multilateral trade negotiations, and hoping to sneak in the ‘new issues’ of investment and competition policy as negotiating issues for a ‘plurilateral agreements’ and bringing labour and environment issues on the agenda of the WTO ‘for clarifying’ their relation to the WTO system and rules.

The majors, particularly the Europeans and the European Community Trade Commissioner, Mr. Pascal Lamy, have been using words about how they have got the message of the developing (at Libreville and the ACP meetings) and were taking steps to meet the concerns of developing countries and win their confidence and support for a new round.

The EC Commission itself has formulated its position paper for the new round, and last week submitted it to its 113 committee in Brussels (so named after the rule in the Rome treaty of the EC, the committee of representatives of the EU members) and this is expected to be considered and endorsed by the EU Council of Ministers at their meeting in January or February.

The new stance, it is said, will meet the concerns and objections of several developing countries over the ‘new issues’ (of rules on investment and competition) and propose instead that the negotiations on these should be open to all members, but aimed at evolving a plurilateral agreements.

This, it is argued, will meet objections of several developing countries to negotiate WTO rules on these issues, or negotiate them as part of a new round and a ‘single undertaking’.

As many of the members as want could participate in the talks of the new issues, and at the end of the day it could become plurilateral agreements which members may or may not join, the EC has been explaining to trade diplomats here and at Brussels.

But the new language seems merely to be old wine in new bottles, with a false appellation of origin.

In many ways it seems to be an attempt to repeat the history of Punta del Este declaration that launched the Uruguay Round, and the ‘incremental way’ in which developing countries were snared into taking on new issues and entering into ‘cumulative’ commitments reducing their domestic economic space in favour of foreign corporations.

It was done by getting an issue with a narrower focus on the agenda of negotiations, and then at subsequent ministerial meetings expanding the mandate, misusing the original Punta del Este concept of a ‘single undertaking’ (meaning beginning and ending negotiations on all issues at the same time), to first make everyone accept the outcome of every agreement, and then using the Dispute Settlement process (secretariat-guided panel and appellate body process and interpretations) to create cumulative obligations reducing rights of developing countries.

A brief recapitulation of that past is perhaps useful (even if a senior WTO official recently said that those old North-South controversies are no longer there at the WTO).

In 1982, the United States brought up the idea of bringing into GATT Services, Investment and Intellectual Property Rights. The initial US proposition was for a ‘simple amendment’ to GATT, by changing the word ‘goods’ in the General Agreement provisions, by adding ‘Services’ (and by implication the investment and IPRs too).

Later, it became clear to the US that in fact this may even work to the disadvantage of the US, and thus the idea of negotiations on these issues, and formulation of agreements was mooted.

Developing countries, aggrieved by the way their issues on the agenda of the Tokyo Round fell off the table, and were pushed into a work programme, resisted the new round - with India and Brazil leading the fight.

Then in 1986, Singapore saw some merit in negotiating a new round with issues (Services) mooted by the US and others, on the basis that there would be a trade-off and developing countries would get market access.  Singapore then ‘sold’ this idea, at the level of ASEAN Heads of States/Governments at a meeting in Japan.

[Variants of these are now surfacing, name-wise, as a new round for market access and a new development round, with again talk of a trade-off, and a round with many issues giving something for everyone, but the content is the same.]

These and other elements of bilateral persuasion and pressure by the US led to a split in the position of the Group 77, which had been articulating its views forcefully as a group at UNCTAD (and at the then GATT).

In mid-1986 (encouraged by then GATT Director-General Arthur Dunkel), a split took place in the developing country group - with one led by Brazil and India taking a hard line, and another group of other developing countries with some of ‘smaller’ industrialized countries came together, with Colombia and Switzerland as the two publicly identified leaders, and formulated a paper (for the Punta del Este preparatory process) which was presented as the Colombia-Switzerland text and became more popularly known as the 'cafe-au-lait' paper.

This put all the negotiating proposals in the area of goods, and the new subjects - services, investments and intellectual property issues - as negotiating agenda items.

It was in that context that several developing countries in that group expressed the concern that as in the past, the issues of the developing countries (the MFA, Tropical Products, the comprehensive safeguards etc) would be on the agenda, but as in the past would be shoved on to the next work programme, after developed countries reached agreements on their own.

Another issue that was also raised by these countries was that at the end of the Tokyo Round, when the issue of incorporating the various separate agreements (the Tokyo Round codes) into the GATT framework came up in 1979, it was agreed that the rights of contracting parties to the GATT and that framework would not be affected. Everyone thought at that time that the most-favoured-nation treatment which was thus reaffirmed would ensure that any benefits among parties to the Tokyo Round codes would automatically be extended under the MFN rule to everyone else.

In practice this did not happen - one of the reasons being that the GATT remained a provisional agreement (among governments), while several Tokyo Round Codes became treaties.

It was in this context that the ‘single undertaking’ concept made its way into the ‘cafe-au-lait’ paper.

However, with Brazil, India and a few others (the Group of 10 developing countries) resisting the inclusion of new subjects like services, there as deadlock right up to Punta del Este.

At that time, the EC and Brazil and India reached a compromise, the socalled ‘common platform’ approach, to which the US agreed in negotiations involving the ministers of these four, at Punta del Este.

This resulted in the negotiations on goods being decided by the GATT Contracting Parties at Ministerial level (as in the past), the Ministers of GATT members meeting separately and launching the Services talks, and deciding that at the end of the negotiations “when the results of the Multilateral Trade Negotiations in all areas have been established, Ministers meeting also on the occasion of a Special Session of the Contracting Parties shall decide regarding the international implementation of the respective results.”

In putting the compromise into an official text for adoption, the secretariat kept the basics of the old cafe-au-lait paper for goods (with investment and intellectual property, the latter presented as a problem in trade in counterfeit goods), with the negotiations to be treated as a ‘single undertaking’ in Part I, a separate formulation on services negotiations in Part II, and the final para on implementation of outcomes under Parts I and II standing alone, and the Trade Negotiations Committee (TNC) was made to run both.

Subsequently, twice at the TNC, in 1987 and in 1988, the meaning of the ‘single undertaking’ was spelt out clearly: in 1987 and in 1988, by Mr.S.P.Shukla then India’s ambassador to GATT, and in 1987 by Brazil’s Paulo Nogueira Batista (who has since passed away), and the EC’s Amb Tran Van-Thinh.

All agreed that the single undertaking only meant that the negotiations in goods in all areas must start and end at the same time, and that this was also a political concept applicable to the services talks, and nothing more.

One of the problems at the GATT as in other international institutions and negotiations is the lack of institutional memory even in governments and that over time as one set of ambassadors and officials leave and another comes in (and sometimes a change of government back home with new policies), the representatives in these institutions feel that their predecessors were ‘confrontational’ with the US and EC and did not achieve any thing, and that through a ‘cooperative’ stance they can do better. And some, more recently in private, have said they were wrong and have cautioned the developing country negotiators.

Between 1987 and 1989 April (Mid-term review meeting at Geneva, at level of ambassadors and senior officials), there had been a complete deadlock on TRIPs issues, with developing countries insisting that there was no mandate to negotiate standards and norms at the Uruguay Round. A compromise of sorts was brokered (by GATT DG Arthur Dunkel, who ignored the developing country views and formulated a compromise based on US-EC views) and pushed through. It was then said that like the outcome on goods and services, the final institutional outcome on TRIPs too would be decided at the end.

This ‘incremental’ approach at the mid-term review thus resulted in adding TRIPS talks on the same level as the Goods and Services Negotiations, and in retrospect has proved disastrous for the developing world.

Then at Brussels, the EC brought up the Multilateral Trade Organisation as an institutional set up issue (the real hidden secretariat agenda of the Round in the negotiating group on Functioning of the GATT System).  And in the post-Brussels talks to conclude the Round, first via the Dunkel text and then the Sutherland process, the MTO became the institutional outcome (that was never conceived of as a negotiating issue), and made into the Marrakesh agreement, with every agreement put into it as annexes, and everyone asked to accept everything or reject everything. This too was presented as a ‘single undertaking’.

At that time in selling the MTO and the Dispute Settlement system to developing countries, the EC presented it as something to tame and discipline the US and its unilateralism (Section 301, Special 301 and Super 301 of its trade laws). Canada and the EC presented it to the US, and got it to agree as the only way to prevent UNCTAD and the UN getting involved or negotiating trade issues, and forcing developing countries to accept everything.

[All these were reported in the SUNS and set out in some details in SUNS #4549 of 11 November 1999]

In a more recent communication to this writer, after Prof.Helleiner had raised the single undertaking issue at his Prebisch lecture (and outlined in greater detail in an earlier working paper of the Helsinki-based Wider Institute), Mr. Shukla has said that the period between the collapse of the Brussels ministerial meeting in December 1990 (he was at Brussels as Commerce Secretary of India) and the Marrakesh ministerial in 1994 which ushered in the WTO was marked by four developments of significance.

First there came the proposal to set up a new organization, then christened as the MTO, to provide institutional underpinnings for the outcome of the UR. More important, it was intended to provide a ‘solution’ to what the majors of the system considered to be the problem of amending GATT, particularly, for the purpose of imposing new obligations or conditions on member countries, unwilling to accept them, and yet retaining their right to continued enjoyment of MFN rights.

The recourse to the amendment route prescribed in GATT, Shukla said in the communication, was admittedly difficult. Indeed, the Punta del Este compromise of a separate track of negotiations for services, outside the judicial framework of GATT, was agreed to by the majors of the system, because they knew that they would fail if they were to adopt the amendment route to bring services within the ambit of GATT. The question of how to treat the results of the two tracks of negotiations was kept open, to be revisited at the end of the Round.

Meanwhile, says Mr. Shukla, “the capitulation of developing countries in TRIPs undermined the possibility of a fresh, legal-cum-political challenge similar to the one earlier launched by some of them on the services issue. This emboldened those who were bent on expanding the ambit of GATT. Within a year’s time, the idea of MTO surfaced. It was not warranted by the Punta del Este mandate. Nor did it originate in the course of negotiations proper. It was developed by an outside expert and was hurriedly implanted in the negotiations in its penultimate stage, with the support of industrial countries, particularly Canada and the EEC.....

“While the idea of MTO was being pursued, the connotation of the original idea of  treating negotiations as a ‘single undertaking’ was changed subtly to mean that all the results of all negotiations will be applicable as a ‘single whole’, to all contracting parties, ignoring totally the legally separate character of the two tracks of negotiations on goods and services and turning a blind eye to the qualitative change brought about in the negotiating mandate for TRIPs in the meanwhile. At another level, the concept of ‘integrated’ dispute settlement mechanism was also being pushed. All these moves culminated in the emergence, towards the end of 1991, of a full-fledged proposal on establishing the WTO, which heralded the paradigm shift.”

If the Marrakesh agreement resulted in this paradigm shift, subsequent interpretations by the WTO’s appellate body (the director of whose secretariat was one of the Canadian negotiators in the final stages) has made the ‘single undertaking’ concept of everyone having to sign on to every agreement, into a more serious legal concept pushed down (through the negative consensus rule) on the WTO members who have thus taken on new obligations without negotiating them.

The new EC approach about ‘negotiating’ the investment and competition issues in a new round for a ‘plurilateral agreement’ and the labour and environment issues ‘for clarifying’ the WTO rules respectively visavis labour standards and the multilateral environment agreements is no more than an attempt at repeating the UR history of incremental approach that could be changed at subsequent Ministerial Conferences.

Amending the WTO is in fact legally more complicated than the old GATT.  Hence the new approach, which would again do away with a difficult amendment process, and create new obligations, with some help in the future from the WTO secretariat and the dispute settlement system.

Can history be repeated? Perhaps, more so because developing countries and their officials have no institutional memory of the past or even the post-Marrakesh present.

However, as Prof. Helleiner reminded in his Prebisch lecture, it will not be easy to repeat that history, where developing countries joined the Marrakesh Agreement without an adequate assessment.

And civil society and domestic constituencies everywhere are not very powerful against the market power and military power of the US and Europe. But the civil society are now better informed and educated, and can counter the market power with the power of ideas.-SUNS4810

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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