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WHY THE “NEW ISSUES” SHOULD NOT BE ON THE NEGOTIATING AGENDA

At Doha, probably the most contentious matter is whether a decision is taken to launch negotiations on “new issues”.   The draft Ministerial Declaration in paras 20-23 has Ministers committing the WTO to negotiate new agreements on the “Singapore issues”:  investment, competition, transparency in government procurement and trade facilitation.

The EU and Japan have been pushing very hard for this.  The US has also more recently come along, though it is not insisting.  But most Africa, Asian and Carribean countries in Africa, are opposed to negotiations. They want the “study process” in the working groups to continue, with no commitment that this would result in negotiations.

In fact these countries are greatly upset that the draft Declaration presents only the views of the proponents of the new treaties, whilst their own positions have not been included, even as options.  Ideally, the different positions should all have been included in the text, in square brackets.

Since even WTO officials admit that the Members are “split down the middle” on this issue, it is incredible that the text reflects basically the views of only one side, thus placing the others at a great disadvantage.

Most developing countries and NGOs are worried that the new treaties would create onerous obligations that would be very detrimental to developing countries. The new issues are aimed at opening their markets for foreign firms and their products to enter and to operate with minimal government regulation;  as a result, local firms (that are very small and weak compared to the foreign giants) would find it hard to survive.  Their loss of business or closure would cause significant job losses.

Moreover, governments would lose a large part of their present right to make domestic policies in key economic and social areas, and national sovereignty would be compromised.

The proposals for bringing in the new issues are inappropriate because:

** The WTO is a multilateral trade organisation that makes and enforces rules. It should stick to its mandate for dealing with trade issues.  ** Principles (such as transparency, national treatment) and operations, that were created for a regime dealing with TRADE issues may not be suitable when applied to NON-TRADE issues.

** Developed countries would like to bring many non-trade issues into WTO, not because it would strengthen the trade system, but because they want to make use of the enforcement system of WTO involving trade sanctions.

** If these non-trade issues are brought into WTO, and WTO principles as interpreted by developed countries are applied to them, developing countries will be at great disadvantage, and would lose a great deal of their economic sovereignty, and their ability to make national policies of their own regarding economic, financial, social and political issues.

** The new issues would occupy the prime time of diplomats, diverting scarce time and huiman resources from resolving the problems of “implementation.”

** As the new issues heavily favour the developed countries, the WTO system would become    even more imbalanced and inequitable.

During the Uruguay Round, the developed countries already brought in new issues: intellectual property, services and investment measures. These new agreements are already causing many serious problems, giving rise to the “Implementation Issues.”

Prof. Jagdish Bhagwati, the doyen of free-trade economists, and advisor to the GATT director general Arthur Dunkel during the Uruguay Round, has recently published in the Financial Times that it was a great mistake to have introduced intellectual property into the WTO as it is not a trade issue, is monopolistic and rent-making, withour reciprocal benefits for developing countries.

The introduction of rules on these new issues is the essence of what the developed countries mean by launching a “comprehensive New Round.” The New Round may not be mentioned by name (due to its unpopularity).

But its elements (such as single undertaking and a Trade Negotiations Committee) are very     . much present in the draft’s last section (paras 38-45).

A brief analysis of some of the new issues follows.

INVESTMENT (Para 20)

Proponents of an investment agreement would like global binding rules that allow freedom of foreign investors the rights to enter countries without conditions and regulations, to operate in host countries without most conditions now existing, and be granted “national treatment”.  Performance requirements and restrictions on movements of funds would be prohibited. There would also be strict standards of protection for investors’s rights, in relation to “expropriation” of property.  (A wide definition could be given to expropriation, such as measures that lead to the firm’s loss of future profits, as in NAFTA).

Due to the unpopularity of this extreme model, the major proponents are now offering watered-down versions, such as a GATS type approach; a plurilateral apporoach; and a two-stage approach (discuss for two more years then upgrade to negotiations automatically).

These step-by-step approaches (which are contained in para 20) are aimed at getting Members  to agree to the concept that investment rules belong to the mandate of WTO; and then to draw them into an agreement which appears not to be so harmful and where there is some space to make choices; and then later on to pressure them to liberalise more and more in terms of sectors and depth of policy measures.

The watered down versions are only shifts in tactics and not in the ultimate goals. Once an initial agreement with limited scope and commitments is obtained, pressure will be applied to widen the scope and deepen the commitments in subsequent rounds of negotiations.

An international agreement on investment rules of this type is designed to maximise foreign investors’ rights whilst minimising the authority, rights and policy space of governments.  This has serious consequences in terms of policy making, affecting a country’s ability to plan in relation to local participation and ownership, balancing of equity shares between foreign and locals and between local communities, the ability to build capacity of local firms and entrepreneurs, etc.  It would also weaken the bargaining position of government vis-a-vis foreign investors.

COMPETITION (Para 21)

The main aim of the proponents is to establish competition laws and policies in developing countries that would enable foreign firms to “freely compete” with local firms in developing countries.  Advantages to local firms (in terms of government policy or private-sector practices) would be considered unfair competition.

This would be done through applying the “core principles” of WTO (transparency and national treatment) to competition policy, to bring about “effective equality of opportunity” for foreign firms.

Competition policy, suitably applied, is beneficial.  But each country must have full flexibility to choose its own model, suited to its conditions and stage of development.

Competition law/policy should complement other national objectives, eg industrial policy, or the need for local sectors to compete in the context of liberalisation. Therefore the traditional or the UK and US models of competition may not be appropriate for a developing country. On the other hand the Japan model of the 1950s-70s may be more appropriate but may not be allowed under the EU proposed framework of applying WTO principles to competition policy.

The EU proposal for competition policy to provide “effective equality of opportunity for competition” in the local market for foreign firms, and to apply national treatment to competition law/policy would restrict the needed flexibility for developing countries.

Competition can be viewed from many perspectives.From the developing countries’ perspective, it is important to curb the mega-mergers and acquisitions taking place which threaten the competitive position of local firms in developing countries. Also, the abuse of anti-dumping actions in the West is anti-competitive against developing countries’ products.  The restrictive business practices of large firms also hinders competition.

However these issues are unlikely to find favour with the major countries.

If negotiations begin, the EU interpretation of competition could well prevail, especially given the unequal negotiating strength.

The likely result is that developing countries would have to establish national competition laws and policies that are inappropriate for their conditions. This would curb the right of governments to provide advantages to local firms, and local firms themselves may be restricted from practices which are to their advantage.

Para 21 of the draft commits the WTO to negotiate an agreement in two years (similar to the two-stage approach in investment). In effect, since negotiations are already “locked in”, the two year discussion is actually the start of negotiations already. 

But most developing countries are not ready to accept that an agreement is necessary nor desirable. The complex issues have not yet been adequately explored, and thus they want the study process to continue, without any commitment to a negotiation.

GOVERNMENT PROCUREMENT  (Para 22)

The 1996 Singapore Ministerial established a working group to study transparency in government procurement practices, and “based on this study, to develop elements for inclusion in an appropriate agreement.”  The decision does not specify that there must result an agreement; it only commits Members to study the subject of transparency and develop elements to include in an appropriate agreement.

Whilst the study is only mandated to cover transparency, the major

countries made clear their ultimate goal to fully integrate the huge worldwide government procurement market into the WTO. At present, WTO Members are allowed to exempt government procurement from WTO market access rules.

Due to the unpopularity of this with developing countries, the majors devised a two-stage process: first, to draw in all Members into an agreement on transparency; then extend the scope to market access and national treatment for foreign firms.

If the integration of procurement into WTO eventually takes place, governments in future will not be allowed to give preference to local companies to supply goods and services or to obtain concessions for projects. The effects on developing countries would be severe.

Government procurement has very important economic and social and even roles. The level of expenditure, and the attempt to direct the expenditure to locally produced materials,?is a major macroeconomic instrument.  Preference is given to locals to boost the participation of citizens in the economy.  Preference may also be given to certain disadvantaged groups or ethnic communities to redress social imbalances.

Should government procurement be opened up through the national treatment and MFN principles, the scope and space for a government to use procurement as an instrument for development and ethnic balance would be severely curtailed.

Thu, it must be very clear that if there is to be a transparency agreement, there must be a legal guarantee that it would not be extended to market access issues.  An appropriate agreement may also take the form of a non-legally binding guideline, and should be confined to notification of certain types of procurement exceeding a certain level, and not go beyond that. 

The clarification of suitable elements is far from completed as there is no consensus in the working group. Thus the study process should continue and negotiations should not begin.

 


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