“Institutional and programmatic restructuring” of WTO advocated

Contending that the prevailing mode of integration into the multilateral trade order breeds “built-in exclusion”, a former leading trade diplomat has proposed wide-ranging reforms to the structure and functioning of the WTO. Restructuring of the WTO’s framework of rules and decision-making and judicial mechanisms is needed, says ex-Indian ambassador to GATT Sriranga P Shukla, in order that the workings of the international trading system be guided by the values of democracy and equity.

GENEVA: The World Trade Organization (WTO) needs to be restructured, institutionally and programmatically, so that its structure and functioning are guided by the values of democracy and equity, and any process and framework for the integration of economies is not inequitable and has no built-in exclusion, a former trade negotiator and development political economist from India declared on 9 October.

Sriranga P Shukla, Indian ambassador to GATT (1984-1989) and one of the architects of the Punta del Este Declaration for the Uruguay Round of multilateral trade negotiations, and later Secretary to the Government of India in various economic ministries and then member of the Planning Commission, was speaking at an informal expert panel session of the United Nations Conference on Trade and Development’s (UNCTAD) Trade and Development Board (TDB) on “The crisis in MTS (multilateral trading system): What is to be done”.

[At the WTO itself, following Director-General Supachai Panitchpakdi’s presentation at the TDB on 7 October and that of his deputy, Kipkorir Aly Azad Rana from Kenya, on 10 October, where he reportedly again advocated “differentiation” and “graduation” of developing countries out of special and differential (S&D) treatment and that S&D cannot become an escape clause from reforms, groups of developing countries have been reportedly meeting Supachai. They have also been complaining that if no progress is made on the S&D issues at the WTO Committee on Trade and Development (CTD) by the 31 December deadline, there is a danger of some confrontations. The developed countries at the CTD, Third World diplomats said, were just not “engaging” and are trying to use the WTO secretariat to make them yield.

[Outside observers ask how, in a member-driven organization, the secretariat is advocating the views of the major industrial countries in other fora.

[Meanwhile, in an effort to repeat the pre-Doha processes, a mini-ministerial of the major industrial countries and some developing-country ministers is being organized by Australia at Sydney for 14-15 November. Australian media reports say that the police are worried over planned protests and demonstrations by civil society groups ala Seattle.

[Trade diplomats at Geneva say that because the majors are unable to steam-roller their way through at the WTO here, such ministerials are being organized to once again subvert the process and introduce non-transparent consultations and decision-making.]

Besides Shukla, the other panellists at the UNCTAD meeting were Bernard Hoekman, Research Manager of the International Trade Group in the World Bank’s Development Research Group, Wen Hai, Professor of Economics at the China Center for Economic Research of Peking University, and Adrian Wood, Chief Economist at the UK’s Department for International Development.

All the panellists commented on and discussed the UNCTAD Trade and Development Report 2002, whose theme was “Developing countries in world trade” (for more on  TDR 2002, see TWE #279). All of them praised the high standard of analysis in the report, as in earlier years.

While the other panellists made oral interventions and presentations, Shukla, in a prepared and structured address that he made available to participants and to media present afterwards, praised the TDR’s analysis and what he considered to be its five basic conclusions, and its “trenchant critique of the ‘actually existing’ neoliberalism”. He nevertheless faulted UNCTAD for having been “sparing” in providing “equally sharp policy prescriptions,” even making allowances for its institutional limitations as an intergovernmental body. He was surprised by the chapter on the Doha meeting of the WTO, which was descriptive but with no assessments, and that the entire Seattle meeting and its consequences were not even mentioned.

Shukla called for some basic institutional and programmatic reforms - by adopting a completely different approach to the institutional, structural and negotiating processes at the WTO; a collective assessment with the help of outside experts on the effects of the WTO and its “integration process”; and measures to cure its democratic deficits by transparent and fully participative formal negotiating procedures and decisions, and where needed by members voting, rather than the present approach of “green room” consultations and decisions where a few members are able to force their will on the others as a “consensus.”

Earlier, in welcoming Shukla, the UNCTAD Secretary-General Rubens Ricupero, who chaired the session, recalled his leadership of the informal developing-country group at the old GATT, and his moral and intellectual integrity and expertise, from which all developing-country trade diplomats, including Ricupero, had benefited.

The Director of the UNCTAD Division on Globalization and Development Strategies Yilmaz Akyüz spoke of the falling behind of developing countries in value-added and earnings, even when they were exporting more manufactured goods. He pointed to the fact that the middle-tier and more advanced developing countries were unable to get finance or access to technology and adopt investment and industrial upgrading and trade policies, and were hence unable to vacate the space for new competitors to move from primary commodities to manufacturing. The trading system, he said, would be rendered unsustainable and unviable if there is no rethinking of rights and obligations. Akyüz also referred to new barriers rather than the dismantling of protection in manufacturing in the industrial world and the huge agricultural subsidies and their effects on the developing countries all the way down the ladder.

Ricupero said that he had come back to Geneva after nearly a month in Brazil and the region, and spoke of the crisis in the region and the public questioning of the neoliberal model which the countries had adopted only to find themselves in great difficulty and crisis now. He focussed on the trade, financial and other problems faced currently in Brazil and in other countries of South America. The region still depended on agricultural exports and commodities, but these faced barriers because of the subsidies in the US, Europe and other advanced countries. It was now apparent from public and published reports that the efforts to reform the European Common Agricultural Policy have been blocked within the EU, with France making clear that no change can take place before January 2006, one year after the date set for conclusion of the multilateral trade negotiations launched by the WTO at Doha.

Referring to the Trade Promotion Authority Act of the US, Ricupero said that while the US President has won the authority to negotiate and get trade agreements through Congress without change, the reality, when one reads in detail the legislation and the side agreements, shows that some 340 products have been listed where reductions in tariffs are to be agreed to only after detailed consultations at every stage with specific committees and sub-committees dealing with each of these products. While technically the US Trade Representative and the President could still conclude agreements, in practice it would be difficult to think that the developing world could negotiate and get the US to agree, when at every stage they have to go back to particular constituencies.

The UNCTAD head invited the panellists to look at not only the overall economic theories and perspectives outlined by Akyüz but also the specific problems faced in the negotiations, and what expert negotiators of the past like Shukla could advise.

Both Wood and, later in the afternoon, Hoekman spoke of the need for industrial countries to cut agricultural and other subsidies, but focussed much more on the kind of domestic reforms and changes that developing countries must undertake to benefit from their own liberalization, a liberal welfare theory of economics in textbooks that critics, including past and present TDRs, have brought out. Hoekman also spoke of the corruption in developing countries and their governments. However, he was hard put to answer a question from the Indian ambassador Hardeep Singh Puri, who said that when governments in the developing world had privatized and disinvested the public sector and vacated the economic space for the market, the corporate scandals in industry, banking and other private sectors being disclosed made it difficult to argue that the problems lay with governments.

The TDB forum, even in informal mode, is an intergovernmental process. Thus, it is not easy for representatives of countries to pinpoint the corporate-legislative-executive linkages, electoral funding and benefits provided for corporations to show that corruption is now so universal that it needs to be tackled by each country, without pointing a finger at the other or blaming it for failure of the neoliberal model and system.

Reforming the multilateral trading system

In relation to the reform of the multilateral trading system, Shukla, among other things, called for:

   *  new accords on new issues for deeper integration to be only on the basis of plurilateral agreements;

   *  reform of the WTO’s Dispute Settlement Understanding (DSU) through specific amendments for ending cross-retaliation, and preventing new laws and obligations for deeper integration from being created by the dispute panels and Appellate Body through “judicial law”;

   *  an assessment by outside independent experts who command credibility and confidence everywhere on the outcomes of the WTO and its existing agreements, and pending that, a WTO “standstill” on any new negotiations for new agreements, and a “rollback”, after such an expert assessment, of some of the agreements like TRIPS and TRIMs;

   *      changing the current negotiating and decision-making process by introducing some form of group negotiations, and making the procedures transparent, inclusive and participatory.

The opaque “green room” procedures will no longer be sustainable, Shukla said, and “considerations of efficiency cannot be allowed to subvert democratic functioning,” he insisted.

Earlier, Shukla welcomed the TDR’s analysis of the downside of the “active” and “dynamic” participation of developing countries in world trade over the past two decades, and making a notable attempt to move away from what it calls “a casual style of empiricism,” but probing deeper into the phenomenon of apparently vigorous expansion of developing countries’ foreign trade.

Each one of what he saw as the five major conclusions of the report raised some basic questions about the praxis of liberalization of trade and investment which has been in vogue for two decades. These were:

   *  Most developing countries are still exporting resource- and labour-intensive products and have not yet been able to establish a dynamic nexus between exports and income growth.

   *      Statistics showing a considerable expansion of exports of manufactures from developing countries are misleading in that those exports, barring exceptions, relate to products of labour-intensive, assembly-type processes with little or low value-added, with the result that while developing countries’ share in world manufacturing exports has risen, their share of income from such exports has declined.

   *  Most of the value-added is appropriated by the producers of imported components and parts embodying high technology and by the transnational corporations (TNCs) organizing the international chains of production. In an environment of deregulation and liberalization of trade and investment and fierce inter se competition among developing countries for attracting TNC investment, the former have little bargaining power to set the terms and conditions for the latter to ensure indigenization of the production processes. This gives rise to the danger of enclave economies with high and persistent dependence on imported capital and intermediate goods.

   *  With a simultaneous export drive by developing countries in labour-intensive manufactures or increased competition among them to attract TNCs for location of labour-intensive processes of international production chains, the fallacy-of-composition problem surfaces, leading to non-realization or low realization of intended gains. The competition gets transformed into a competition among labour of different countries, resulting in a downward pressure on wages.

   *  A few countries have seen sharp increases in their world manufacturing value-added; however, none of the countries which have rapidly liberalized trade and investment in the last two decades is in this category!

Shukla was surprised that this trenchant critique of the “actually existing” neoliberalism had not led to equally sharp policy prescriptions, and the TDR  was “sparing” on this count. Even allowing for the obvious institutional constraint, the discussion on policy issues could have been more penetrating.

Renewed emphasis on development?

The UNCTAD Secretary-General’s overview in TDR 2002  began with a perceptive observation, an observation imbued with a deep sense of history: “It is a sign of troubled times when, in the search for solutions to the most pressing policy challenges of the day, it is considered necessary to look to earlier generations for guidance.” The chapter on the multilateral trading system, however, did no justice to this insight. The treatment of the historical setting of the multilateral trading system and the account and analysis of the developments in that system in the last decade and a half revealed a narrow perspective, steering clear of basic issues of political economy and “content with technicalities and jargon verging on banalities.” Otherwise how could the chapter seriously talk about there being a “renewed emphasis on development” in the multilateral trading system or be content with a brief reference to the Havana Charter without mentioning the cardinal features of its approach?

It was not possible to talk about a “renewed emphasis on development” only because there was a move to call the Doha agenda a development agenda, Shukla said, asking: “In what way have the development issues surfaced in trade negotiations in the WTO?

“Leaving aside the development issues proper, have the problems being faced by developing countries as a result of the agreements arising out of the Uruguay Round - the so-called implementation issues - received priority attention? Reportedly the only achievement so far has been the postponement of the deadline for work on the S&D issues.” On the minimalist expectation (of Doha) regarding the “growth on growth “ formula for textile exports, there is no agreement on the substantive issue, and not even an agreed report on what could not be done! The problem of downward trend in commodity prices has not been addressed. Other than extolling the virtues of the market mechanism, there is no collective thinking on the modalities for stabilization of these prices and ensuring remunerative prices to producers. The question of technology transfer, which once engaged a central position in development debate and negotiations, has received no consideration, “other than an innocuous and ritual mention in a preamble of [the] TRIPS [Agreement] whose primary concern is to enhance the ambit and degree of monopolistic rights of private owners of intellectual property.”

Tracing the exclusionary nature of GATT in its origins and the way developing countries have been forced to negotiate and accept asymmetric agreements, and the exclusion of the Multi-Fibre Arrangement and agriculture in GATT, leading to the current WTO agreements, Shukla said that it was “symptomatic” of the chapter on the multilateral trading system and the Doha agenda that it did not even mention the 1999 Seattle Ministerial Conference of the WTO.

“The march of the WTO from the triumph of Marrakesh to the fiasco at Seattle is perhaps treated as a bad dream, best forgotten and thus wished and washed away from the flow of history.” It deserved some analysis. The importance of Seattle is that it mobilized those “excluded” by the system and those at whose cost the expansion of the system is taking place, to challenge the trajectory of the system openly and vigorously. “The trends set in motion by Seattle are part of the historical reality” and ignoring it will have “far-reaching implications.”

Challenging the views about the “Golden Age” of Capitalism, and the many calls for developing countries to liberalize trade and capital flows, including foreign direct investment (FDI), and the competition among developing countries to attract FDI creating tensions, Shukla said that in this context, where the trade system is trying to lay down rules in the domestic sector and for harmonization of laws, “the issue of S&D treatment loses all meaning.”

The system is now “subverting the economic sovereignty of its weaker members”, at best offering them a few years’ time to come to terms with the subversion, to digest it. “In the expanded and transformed multilateral trading system, for the weaker members, the S&D virtually stands for Subversion and Domination,” Shukla said. To confront such a contingency, the weaker members may well define the optimal S&D for themselves as Selective Delinking.

At a minimum, the weaker members should work together to refashion the terms of their “ongoing, iniquitous and imposed integration with the system”, devising a transitional strategy for the eventual transition from the present unsustainable and contradiction- and conflict-ridden system to a genuinely equitable and cooperative international order.

This had to be accomplished collectively and within the system so as to minimize the adverse fallout of such a move. “The possibility of a degree of moderation, if not redress, to the ongoing process of inequitable integration can emerge only if formal democratic representation, as mandated in the constitution of the WTO, is strategically exercised by those majority members who bear the costs of integration, which far exceed the gains.”

To bring about changes, all WTO members must recognize that “when the WTO extends its mandate beyond the cross-border exchange transactions and becomes engaged in the harmonization of norms and standards for domestic policies and regulations, trade weights lose their relevance. “

In such a situation, the principle of one-member-one-vote is more appropriate than ever before, and this must be asserted by the South, but with the solidarity of the South based on a shared understanding of the specific issue at hand as well as the more general approach to the functioning of the global economic system.

There should be a revival and strengthening of the informal group of developing countries at the WTO and it should be made formal. Though there are differences among them, and among the industrial world, including between the US and the EC, the basic divisions of the South vis-a-vis the North cannot be obliterated. Since the brunt of the inequitable integration process is being borne by the countries of the South, possible correction of the WTO trajectory can happen only from their collective effort.

Full recognition should be accorded to the sub-group of least developed countries (LDCs), with the rest of the South recognizing their situation and their right to full non-reciprocal and preferential benefits. The other members of the South too should extend such benefits to the LDCs.

Standstill and rollback

The second important and formal step is for the WTO to declare a “standstill” on the ongoing process of deeper integration, so as to restore confidence in the functioning of the trade body. All new issues (such as labour standards and global investment regime) should be placed under an embargo for the time being, and further strengthening of the TRIPS and TRIMs disciplines should be postponed. The group of developing countries should take the initiative in this regard.

Such a standstill would provide an interval for a collective assessment of how the integration efforts to date have affected member countries, particularly those of the South and, among them, the poor and the least developed countries. Such an exercise cannot be allowed to become “just one more in-house exercise of the WTO secretariat”. To be meaningful and acceptable, the assessment should harness outside experts who have credibility with member states, particularly those of the South.

Before such a review is possible, a waiver on the legal compliance of new disciplines such as TRIPS and TRIMs by the specified dates, needs to be issued by the concerned WTO organs. The future of these disciplines should be decided in accordance with the findings of the assessment.

Given the demanding nature of a new discipline like TRIPS and the difficulties it engenders for developing countries, “it may be necessary to launch further action in the form of a rollback.”

The review of this discipline that surfaced during consideration of the built-in “implementation” agenda points to the same need. The assessment exercise proposed above may produce sufficient material evidence and rationale for initiating a rollback of the integration process, where necessary.

Although the options of a standstill or a rollback should immediately provide the means of restoring the confidence of the majority members in the WTO, it would also be necessary to initiate institutional reforms to make the system more equitable and truly universal.

Institutional reform

The formally democratic constitution of the WTO makes it amenable to such a possibility. Nothing should be done to erode or dent this unique aspect of the WTO in the name of so-called efficiency or the “reality of the trade weights.” On the contrary, lessons need to be learned from recent events. More accommodating and equitable forms of international negotiation and decision-making should be evolved. This will require action at a number of different levels.

The modality of the plurilateral agreements should be taken out of its present limited context and used more liberally, whenever there is a lack of unanimity among member countries or the presence of strong reservations on the part of some, on the proposed disciplines on new issues calling for deeper integration. The optional nature of plurilateral agreements is ideal in instances where, because of the different stages of economic development of the members and the diversity of their social goals and priorities, it is neither feasible nor desirable to attempt to subject all of them to a uniform discipline modelled on the systems of a few advanced countries and yoked to the interests of transnational corporations. This would permit members which are interested in the new transnational disciplines on the new issues to proceed with their project on deeper integration without having, merely in the name of a consensus, to adjust their style to match the position of others. If the new disciplines promote universal welfare, they will, in due course, attract a larger membership.

It would be legitimate for members of such a plurilateral agreement to refrain from extending the benefits of the arrangement to non-members. They should not, however, be allowed to impose it on non-members as a new conditionality for continued enjoyment by the latter of their trade rights derived from the MFN (most favoured nation) principle under GATT. In other words, the sting in the paradigm shift brought about by the WTO Agreement should be removed. No new agreement involving deeper integration should be allowed to become an integral part that is “binding on all members.”

Even though this may not call for an amendment of the WTO Agreement as it stands today, it will require an explicit understanding or a decision at the highest legislative level of the WTO, viz. the Ministerial Conference. Whether any of the agreements already annexed to the WTO Agreement under this clause would need to be converted into a plurilateral agreement or otherwise modified will have to be decided by means of a formal amendment to be considered in  the light  of  the  assessment referred to above, in the context of the standstill and rollback.

There should also be a reform of the DSU, by giving up cross-retaliation prospectively. As far as its application to the agreements already included in Annex 1 is concerned, the standstill and rollback decisions should appropriately provide for keeping cross-retaliation in abeyance.

Secondly, the provisions of the DSU would need to be formally amended to ensure that the dispute settlement and appellate panels do not continue to enjoy unfettered authority to issue new laws through judicial pronouncements furthering deeper integration. The panel and Appellate Body rulings related to compensation and suspension of trade concessions should continue to be as now, with a finality and acceptance of the rulings.

However, those rulings introducing “judicial law” should be subjected to political approval at the highest legislative body in the WTO. And there too, decisions should be made by the highest majority, i.e., three-quarters majority. Alternatively, a decision could be made by a two-thirds majority but would apply to a country only upon its acceptance of it.

The most important institutional reform is that the WTO needs to make the organization truly equitable in its approach, functioning and form. Formal equality in terms of one-member-one-vote is crucial but not sufficient to bring about this objective. Although concern over this element has been visible through the history of GATT, it has not produced results.

The WTO does not need a ritualistic reiteration of the principle of “non-reciprocal, more favourable and differential treatment” in favour of the developing countries. What is needed, on the one hand, is a formal constitution of a three-tier system and, on the other, institutional arrangements to make up for the structural deficiency in the negotiating capability of the developing countries. Negotiations in GATT/WTO have been marked by the non-participation or ineffective participation of many small developing countries, particularly the least developed countries. The maintenance of a permanent mission in Geneva is itself an onerous multilateral obligation.

There should be a WTO/UNCTAD-supported institutional arrangement to make it possible for the LDCs to keep abreast of developments, with financial support, in some form, to allow these members to engage experts of their choice to help them to formulate their position on intricate issues.

The differences in the capacity of developing countries to  take on the obligations  of a  multilateral  system  must be recognized. The LDCs should be entitled to full and unreserved benefits of the system from all members without being compelled to take on obligations. Other developing  countries  also should be prepared to extend such benefits to the LDCs without claims for counter-concessions.

In the next tier at the WTO structure should be other developing countries, which should be entitled to similar treatment from the developed countries in accordance with the Framework Agreements as concluded in the Tokyo Round. The developing countries of this tier should also be prepared to take on additional obligations in line with their development. However, they should have the assurance that the process of deeper integration would be entirely optional and that their trade rights and benefits would not be subjected to additional obligations and conditionalities.

The third tier, consisting of the industrial countries, should be free to evolve disciplines to promote deeper integration amongst themselves, without converting these into additional conditionalities for other members.

Equitable integration

“The structure and functioning of WTO should thus be guided by the values of democracy and equity. If integration is conducted within such a framework, it is less likely to be inequitable. Integration, as it is being pursued at present, breeds built-in exclusion and is occasionally confronted by elective exclusion. But the contradiction cannot be resolved by a dogged pursuit - regardless of the exclusion it breeds - of the current process of integration, nor by simply opting out of the system.

“What is needed is conscious striving for equitable integration through institutional and political initiatives calculated to resolve the contradiction and achieve harmonious international economic relations. And in that process, the solidarity of the presently ‘excluded’ will play a decisive role.”

While this strategy and the plan of action are rooted in the Southern perspective, this is inevitable because the WTO’s current impasse has a lot to do with the impact its functioning has on the South.

“If the process of inequitable integration pursued in the GATT/WTO system has to be redressed, the Southern perspective has a crucial, functional significance. The structural reforms and other initiatives here suggested are intended to contribute to the evolution of a more equitable and viable international trading system, which should be a universal concern.” (SUNS5210)            

From Third World Economics No. 292 (1-15 November 2002)