No credible WTO answers on “investment” in “trade in services”

Several WTO member states have raised concern – and received no satisfactory response – over an apparently unilateral decision by the WTO secretariat to incorporate the contentious issue of investment in the remit of its services division.

by D. Ravi Kanth

GENEVA: The secretariat of the WTO was unable to provide a credible answer to the members of the African Group of countries and Bolivia on 17 June as to why the WTO Director-General Roberto Azevedo has decided to include work on investment in the secretariat division on trade in services without consulting member states and without a prior WTO General Council decision, several African trade diplomats told the South-North Development Monitor (SUNS).

On behalf of the African Group, Morocco raised the issue of the Director-General’s controversial move during the regular meeting of the WTO Council for Trade in Services on 17 June.

The African Group, said Morocco, is concerned over the “serious systemic implications” arising from Azevedo’s decision to expand the trade in services division to include investment.

At the fifth Ministerial Conference of the WTO at Cancun in 2003, efforts to launch negotiations on the three controversial “Singapore issues” of investment, competition policy and government procurement were shot down due to massive opposition from the developing countries. The entire meeting collapsed, unable to reach any consensus on the draft declarations placed before it. Instead, the conference remitted all the documents before it to the WTO General Council, mandating the latter to convene and take decisions to conclude the negotiations on the Doha Work Programme.

The General Council, after extensive consultations among members, convened in July 2004 and adopted the compromise July Framework agreement to put the Doha talks back on the rails. As a part of the July Framework, the Council decided to keep the three “Singapore issues” outside any work in the WTO during the Doha Round.

Paragraph 1.g of the July Framework agreement unambiguously stated: “Relationship between Trade and Investment, Interaction between Trade and Competition Policy and Transparency in Government Procurement: the Council agrees that these issues, mentioned in the Doha Ministerial Declaration in paragraphs 20-22, 23-25 and 26 respectively, will not form part of the Work Programme set out in that Declaration and therefore no work towards negotiations on any of these issues will take place within the WTO during the Doha Round.”

Questions posed

Against this backdrop, the African Group said emphatically at the 17 June meeting that the decision to include investment in the division on trade in services will have grave implications “on members’ rights under paragraph 29 of the Nairobi Ministerial Declaration where the authority to consider the need for adjustments rests with members.”

Paragraph 29 of the Nairobi Ministerial Declaration maintains: “We agree to reinvigorate the regular work of the Committees and direct the General Council to consider the need for adjustments in the structure of their subsidiary bodies in light of their relevance to the implementation and operation of the Covered Agreements.”

The African Group therefore asked the WTO secretariat to provide “details as to the rationale for the change [change to include investment in the services division]”, “clarification as to the mandate” for the change, and “written and evidence-based justification” for the change.

Further, the Group sought to know “why investment in particular has been included in the work of the services division” and “how will this interfere with the current work undertaken by the services division.”

It asked the secretariat to explain “the budgetary implications of the proposed change” and whether the WTO’s budgetary committee has given any approval for such a decision.

During the meeting, Uganda, Bolivia, Zimbabwe and South Africa, among others, grilled the secretariat on several grounds, particularly the “propriety” of the decision to include investment in the services division.

Uganda asked how the change was arrived at and what the factors were that triggered the change, according to an African trade diplomat who asked not to be quoted. Uganda also asked why, if investment is included in the services division, “poverty reduction” is not included in the same division. It said the WTO is a member-driven organization in which members’ rights have to be protected first before any decision is taken.

Bolivia asked whether the Director-General had consulted members before taking this decision, and for the basis for the name change. (The division on services was renamed the Trade in Services and Investment Division.) In normal times, any change in the name of any WTO division ought to be considered by members before a decision is taken, Bolivia said, according to a South American trade diplomat who attended the meeting.

Zimbabwe sought to know the “objective and justification for the change”, as any “change in the WTO has systemic implications that affect members’ rights.” Further, the change in the name to include investment in the services division ought to have been done in a transparent manner, it said.

Further, Zimbabwe asked how a controversial issue like investment could come into a division as members have not agreed to new issues in terms of paragraph 34 of the Nairobi Ministerial Declaration, according to an African trade diplomat.

Paragraph 34 of the Nairobi Ministerial Declaration states: “While we concur that officials should prioritize work where results have not yet been achieved, some wish to identify and discuss other issues for negotiation; others do not. Any decision to launch negotiations multilaterally on such issues would need to be agreed by all Members.”

South Africa said there is no “clarity” as to why the name was changed. It asked the secretariat to explain “under which [and whose] mandate the change of name was carried out.” South Africa exposed the dangers involved in clubbing investment with services, by which the WTO is giving preference to only one mode of services supply (i.e., investment) over the other three modes.

Under the WTO’s General Agreement on Trade in Services (GATS), trade in services is defined in terms of four modes of supply: (i) Mode 1 involving cross-border trade (the supply of services from one member country into another member); (ii) Mode 2 covering consumption abroad (in the territory of one member by the service consumer of any other member); (iii) Mode 3 involving commercial presence or investment (by a service supplier of one member, through commercial presence, in the territory of any other member); and (iv) Mode 4 involving presence of natural persons (by a service supplier of one member, through the presence of natural persons of a member in the territory of any other member).

In response to these concerns expressed by members, the director of the services division, Abdel Hamid Mamdouh, said changing the name of the division has “created lot of excitement”, according to a trade official who was present at the 17 June meeting.

Mamdouh said the name change was “an exercise of transparency and signposting just to make it clearer which division in the WTO is handling investment.” He said that “after the dissolution of the trade and finance division, investment was transferred to the services division as it was best placed to fit in there”, according to the official, who asked not to be quoted.

Mamdouh went on to say that “interest in investment has arisen and many members have asked for technical assistance and capacity-building on investment.” The WTO services division chief argued that those members of the G20 country grouping who were in the room had already been collaborating on many issues concerning investment with the World Bank and IMF. Further, decisions taken by the Director-General were never subjected to prior consultations by members, Mamdouh suggested.

As regards budgetary implications, “if nothing changes, then there is zero impact”, he added. “The services division has been shrinking, not growing,” Mamdouh argued. He told the African countries that if they wished to have more information, they were welcome to meet him in his office “over coffee and chocolates.”

“The response from Mamdouh was condescending to the African Group in tone and tenor,” a West African trade diplomat said, suggesting that his response failed to clarify the “material” issues raised in the African Group’s statement.

Chakravarthi Raghavan, Editor Emeritus of SUNS, adds:

After the Doha Ministerial Declaration of November 2001 which launched the Doha Round, even before any work could begin or negotiating groups set up (as the then Director-General Mike Moore sought to do), the details of the actual work to be done under the various items for negotiation, and the staff and expenditure requirements etc had first to be put up to the Budget Committee.

There were several weeks of delay due to the inability of the secretariat, purportedly as a result of baggage being misplaced by the airline, to provide the official minutes and transcript of the final open session of the Doha Ministerial Conference. The Budget Committee found itself unable to process the requests without these documents, and no decision sanctioning work could be reached. The Committee did so only after the official record was published and became available, and details of reassignment of existing staff, additional staff and resources needed with the actual work plan etc were set out.

The insistence of the Budget Committee at that time was partly due to a purported summary of the final session of the Doha conference that was posted on the WTO website. That summary said the final declaration was adopted at the open session and the Qatari chair of the Ministerial Conference read out his understanding after the adoption.

Under GATT practice carried over into the WTO, any explanation or declaration of the chair of a meeting before declaring as adopted the decision placed before it, in effect qualifies and conditions that decision. Any understanding or statement made after adoption, by the chair and/or members joining the consensus, has no legal implications for the decision.

That initial summary was contrary to what had actually happened in the open session, which had been webcast live and recorded by several delegations. As a result of “protests”, the WTO’s post on its website was corrected and changed, without any explanation being given but making clear that the chair had first read out his understanding, followed by the Indian minister making a statement that in view of the understanding just read out, India was able to join the consensus.

In this light (and ignoring the then Director-General’s efforts to kickstart the negotiations in December 2001), it was only after the full minutes and official records of the Doha conference were produced that the Budget Committee clearance for staff and budgetary resources was obtained, and the General Council decisions on the Trade Negotiations Committee and its remit, negotiating bodies, their guidelines etc came on 18 February 2002.

As mentioned above, the General Council, in paragraph 1.g of its 2004 July Framework decision, modified the Doha Work Programme in the following terms: “Relationship between Trade and Investment, Interaction between Trade and Competition Policy and Transparency in Government Procurement: The Council agrees that these issues, mentioned in the Doha Ministerial Declaration in paragraphs 20-22, 23-25 and 26 respectively, will not form part of the Work Programme set out in that Declaration and therefore no work towards negotiations on any of these issues will take place within the WTO during the Doha Round.”

Meanwhile, paragraph 47 of the Doha Ministerial Declaration itself, in its first sentence, states that “the conduct, conclusion and entry into force of the outcome of the [Doha Work Programme] negotiations shall be treated as parts of a single undertaking”.

Paragraph 45, in its third sentence, sets out (under the rubric “Organization and Management of the Work Programme”) the following: “When the results of the negotiations in all areas have been established, a Special Session of the Ministerial Conference will be held to take decisions regarding the adoption and implementation of those results.”

Since the July Framework decision of the General Council remains in force (unless specifically decided otherwise by the General Council, acting in between sessions of the Ministerial Conference, or by the Ministerial Conference), and since the Doha Work Programme has not been concluded (as per the procedure and mandate set out in paragraphs 45 and 47 of the Doha Ministerial Declaration), the question remains: under what authority or mandate have the divisions of the WTO secretariat been “doing the work they are already doing”?

This is not an issue to be settled informally between the head of the division concerned and African delegations “over coffee and chocolates” in his room, but something to be settled and recorded in official minutes of the Council for Trade in Services and the General Council.

In conclusion, WTO members cannot allow a decision to change the name of a division to include investment as it fundamentally violates their rights and obligations. If they fail to correct this step at the General Council, then, in future, decisions will be foisted on members on the ground that they were already there in the WTO system, according to several negotiators who spoke to SUNS. (SUNS8269)                                           

Third World Economics, Issue No. 619/620, 16 June – 15 July 2016, pp6-8