TWN Info Service on WTO and Trade Issues (Feb12/07)
18 February 2012
Third World Network

From bicycle to snowball approach to policy
Published in SUNS #7300 dated 2 February 2012

Geneva, 1 Feb (Chakravarthi Raghavan*) - This year "Davos doesn't deliver", declared a headline over an opinion piece in the Wall Street Journal Monday authored by the Journal's money and investment editor.

"One of the meeting's attractions to its participants," the article said, "has been imbuing the self-styled ‘global elite' with the sense that they were helping to tackle the globe's problems... Not this time. With Europe's economic crisis dominating the backroom discussions, and often taking center stage in the cavernous Conference Center, captains of industry, titans of finance and top academics found themselves forced to grapple with unusual feelings of impotence."

China these days is very much on the minds of politicos, and financial and economic writers.

So much so, the Beijing correspondent of the Financial Times (report of January 24-25) even went to "consult" (interview) what the abbot of the temple in the Chinese city of Suzhou -- who the report describes as resident "master" and "an unnervingly accurate soothsayer" -- could say on the 2012 Common Era - the year of the "black water dragon", a year of "uncertainty and changes", according to the traditional Chinese lunar calendar.

Quelle Surprise! The abbot, we are told, predicted a gloomy economic and financial outlook for Europe and the US, with negative effects on Chinese imports and exports. And for good measure, the FT reminds us that 1988, the year of the dragon, "prepared the world for the demise of Soviet Communism next year", while the dragon year of 1976 saw the death of Mao.

As trade diplomats and trade officials came back to their daily chores in Geneva from the year-end seasonal holidays and New Year, they face several uncertainties (not merely because of the Chinese calendar).

Many of the uncertainties have their source in the continuing serious global financial crisis and its deadening hand on the real economy. This combined with the reality of the major role played by corporate finance capital in the electoral process, ensures nothing will be done at least this year to tackle the root causes of the financial crisis, with criminal fraudulence at its heart.

Though the multilateral trading system is conjointly linked to the global money and finance systems, there is little or nothing that can be done, by way of answers or solutions, through the trading system to resolve or even alleviate the negative effects of the financial crisis on the real economy.

All that trade diplomats and their trade establishments back home can do is to focus on their normal WTO work, marking time, so to say, on the deadlocked Doha talks. They can at this point of time, neither put life into it nor bury it.

In terms of the WTO, the major developed countries have now reneged on all their international treaty commitments at Marrakesh - for major reforms to their subsidised and highly protected agricultural sector and eliminate heavy subsidies, as well as commitments in other areas of trade.

Placing their trust in the solemn treaty commitments of the major developed economies, and their good faith implementation (a basic principle of public international law), the developing countries paid a high price in advance by accepting various disciplines on their own trade in goods, in TRIPS, and in trade in services too, only to find the developed countries repeatedly reneging on their promises and commitments. In retrospect, at least it is clear that the majors, even when they were signing the Marrakesh treaty in April 1994, had no intention of carrying out their own obligations.

Not only have they reneged on the treaty commitments of Marrakesh, but also on the conditions and promises of the Doha work programme, launched as a single undertaking in 2001. The agricultural mandate for elimination of subsidies was touted for a while as a crucial item on the "development agenda", though soon after launching the Doha talks, Mr. Pascal Lamy (as EC Trade Commissioner) had gone to India to make clear that Europe cannot end agricultural subsidies as it was needed to keep its farmers in the countryside.

The mandate has now been stood on its head, more so after the 2005 Hong Kong Ministerial Conference (MC6), with Lamy as WTO Director-General and TNC (Trade Negotiations Committee) chair, and even more, after the December 2008 agriculture negotiation chair's modalities text. In the various Lamy-led efforts since then at compromise to conclude the Doha Round, the mandate is presented as talks for the major emerging economies - China, India, Indonesia, South Africa etc - to provide market access for the US.

Also, after Hong Kong, the United States, Europe and other advanced industrialized countries want the major emerging economies (Brazil, China, India, South Africa and a few others) to enter into plurilateral negotiations and agree to provide "market access" in services trade, including financial services.

With Doha at an impasse, all the original cheerleaders have walked away, but some of them are promoting the view that the impasse shows that trade negotiations involving the entire membership is no longer manageable, and hence there must be negotiations among the few resulting in plurilateral agreements, ala the ITA (Information Technology Agreement) model where countries accounting for 90 percent of production and trade have participated and joined, with others given MFN (Most-Favoured-Nation) treatment - very nominal since they have no production or exports.

A more recent idea being floated is that if major developing countries will not participate in the plurilaterals and provide market access in services to the US-EU service industries, the major developed countries (the US, the EU, Canada, Japan, Switzerland, Australia etc), accounting for about 60 percent of services trade, will enter into a services free trade agreement (as per Article V of GATS).

This last, for liberalising the services trade between or among the parties in terms of Article V has to involve, among others, substantial sectoral coverage (defined in a footnote to mean number of sectors, volume of trade affected and modes of supply) - something which the US and others who have been trying to entice major developing countries to join in terms of the Hong Kong plurilateral talks call, have not been willing to do vis-a-vis Mode 4 (movement of natural persons).

Whether it be "plurilateral negotiations" in terms of the Doha Round and the Hong Kong Declaration (for voluntary participation) or the more recent one for a GATS Article V agreement (outside the Doha single undertaking), there is no additional benefit to the demandeurs unless they can coax and browbeat major developing countries and make them join.

The demandeurs claim to account for 60 percent of global services trade, the bulk of it under financial services (modes one, two and three but not four), have already liberalized these trades, and merely scheduled them under GATS and its 1998 Financial Services agreement.

They gain something only if the major developing economies can be roped in and persuaded not only to liberalise the services trade but also to forget about the agricultural chapter of the Doha talks and its single undertaking. Major developing countries have however refused to fall into this trap.

So the threat that if the major developing countries don't agree to join, those (Australia, the US, the EU etc) promoting the plurilateral track will conclude a separate Article V agreement, may impress some in the media, but not those who are aware of the actual realities.

Now in its eleventh year, not only have the cheerleaders of the Doha Round all walked away, some publicly and others quietly, but some of them are also advocating winding up Doha as a failure or put it in cold storage somewhere, and take on new agendas. But there are no takers among the developing countries who are no longer amenable to be pushed around.

It is perhaps symptomatic that even the usual meeting of select trade ministers and the WTO chief Pascal Lamy, convened and hosted by the Swiss trade minister more or less on the sidelines of the World Economic Forum events at Davos, ended with no statement or summing up from the chair nor any media briefings and the like by the Swiss chair and Lamy.

Trade diplomats from some participating countries said that this was according to a pre-arranged script, and explained that as shown at the WTO's 8th Ministerial Conference (MC8) last December, the Doha Round is at an impasse, with positions of major protagonists far apart and unchanged. Statements reflecting all divisions would serve no purpose, and partial views may create further complications and controversies.

In this situation, Mr. Lamy has floated at MC8 his idea of a multi-stakeholder panel, though he has been vague on its details.

This is seen as an attempt at repeating old GATT history - the setting up of the Leutweiler panel by then GATT Director-General, Arthur Dunkel, and its report in 1985.

In 1982, the US, at a GATT Ministerial, failed in its attempt to launch a new round, including for bringing services into the GATT and trade in high technology goods (a precursor of the Uruguay Round TRIPS).

Ultimately, a compromise of sorts was reached, for a two-year study programme on services, with interested countries on a voluntary basis exchanging their experiences. While such meetings took place in the GATT building at Geneva, they could not even be presented as GATT meetings!

After this exchange, the US and Japan wanted a new trade round, but this did not get much support.

At that stage, Arthur Dunkel, as GATT Director-General, appointed a group of high-level experts headed by Mr. Fritz Leutweiler (who had relinquished his job as head of the Swiss National Bank and the Bank for International Settlements). After setting up the panel, Dunkel informed the GATT Council (but had neither consulted it before, nor sought its prior approval, or for that matter sought approval for budgetary expenditure). The Council merely took note of his information (but did not endorse it).

The panel produced a report, supporting negotiations on services, but ahead of it calling for an end to discrimination against the developing world, ending MFA (Multi-Fibre Agreement) etc. In doing so, the Leutweiler panel called for an end to the GATT provisions for "special and preferential treatment" to developing countries, and integrating these countries "more fully into the trading system" (another US demand in 1982).

The panel underlined that far from receiving special and differential treatment, the developing countries have been subject to discriminatory measures directed against them. But the industrial countries' failure to implement their obligations under Part IV of GATT was used to recommend its abolition!

When the report was published, the general membership of GATT remained cool or hostile.

Instead of placing it before the GATT Council, Dunkel took printed copies of the report to the Spring meetings of the Fund-Bank interim/development committee meetings, where he circulated the report. (He had arranged with the Managing Director of the IMF and the President of the World Bank for the report to be endorsed at that meeting).

However, when he got up to speak at the meeting, Indian Finance Minister Mr. VP Singh (Governor of India at Fund/Bank meetings) asked him whether the Leutweiler report was a GATT report, and Dunkel admitted it was not.

Thereupon, Mr. Singh asked how the report had then been issued and circulated to the meeting with the GATT logo, in effect misleading the finance ministers. Dunkel then apologised, whereupon he was told he could place the report outside the meeting room, but could draw on it in his speech.

At the end of the discussions, a draft communique was placed before the development committee, with a paragraph commending the report and its recommendations; India objected and wanted changes, whereupon the then development committee chair tried to brush it aside as "unprecedented" and contrary to past practice and traditions, implying that in terms of the Fund-Bank voting power, the draft reflected the overwhelming view (since the US, Europe, Canada and Japan supported it).

Mr. Singh however refused to be brushed aside, and said there could always be a beginning, but if no changes would be made, the communique should have a footnote that the Governor of India dissented from it. Thereupon, the Governors from the Latin American region, Brazil, Argentina and others, joined and said they also dissented like India, and it should be noted.

The meeting was suspended, and a smaller group was set up to work out a compromise, resulting in no endorsement for the Leutweiler report or its recommendations, but with the Fund-Bank meeting calling for "liberalisation of trade".

Subsequently, when Dunkel brought the report to the GATT Council for discussion, it was noted by leading developing countries as a report commissioned by the GATT Director-General through his consultants (and not a GATT Report).

There was criticism from Brazil and others at the report having been taken first to the Washington meetings for discussion, before bringing it before the GATT Council, and for expenditure having been incurred without prior approval of the budget committee.

Members expressed preliminary views, but added that they would refer the report to their capitals, reserving their positions meanwhile (28 March 1985 and 2 May 1985, in Chakravarthi Raghavan, "From GATT to the WTO" 1999, SUNS CD-Rom).

In mooting his "multi-stakeholder panel" idea, perhaps Mr. Lamy is hoping to repeat, but successfully, the Dunkel precedent in the Leutweiler report, and take the report to a G-20 summit meeting (where summiteers from developing countries might be wooly-headed enough to acquiesce), and then come to Geneva to face the WTO General Council with it.

In the process, Mr. Lamy might be attempting to find a way to bury the "embarrassment" of the Doha Round that he as EC commissioner, with help of then USTR Robert Zoellick, forced on developing countries. Right from the beginning, and it became clear at MC1 (Singapore, 1996) and MC5 (Cancun, 2003), and MC6 (Hong Kong, 2005), the EC was trying to find a way to load the WTO agenda with many issues so as to gain time and put off as long as possible further reforms in their agriculture sector (mandated by Article 20 of the Agreement on Agriculture).

In fact after Doha, Mr. Lamy went before the European Parliament, in a formal session, followed by informal discussions (where they forgot to clear the room, and many NGOs were present, but not the media) and reportedly told the MEPs that he had gained for them 10 years (that the Doha Round might need to complete) to enable them to adjust agricultural policy, and shift subsidies to what subsequently came to be described as the "green box".

He also, as trade commissioner, went to India where, according to Devinder Sharma, a civil society activist focussing on agriculture and the hunger campaign, Lamy made clear to Indian industrial and other groups that Europe had to find a way to keep farmers in the country-side, and they need to be realistic that agriculture support can never be ended. If developing countries still persisted with the Round, perhaps they share some blame too.

As WTO Director-General, Mr Lamy has continued on this path, but was somewhat checkmated at Hong Kong when, at Argentina's insistence, a kind of parallelism was established as between the agriculture and NAMA talks, though this equivalence has been muddied by the December 2008 modalities papers of the chairs of the two negotiating groups, and the continuing attempts to sell to developing countries, particularly the majors (Argentina, Brazil, China, South Africa etc), that since their applied tariffs are already low, they would benefit by "binding them" in the Doha Round - as ordained by the neo-classical economic theories (cited only in the trade system and on Wall Street).

Mr. Lamy, as TNC chair, missed the bus in concluding the Doha Round when, at Potsdam in 2006, he obliged the US by abruptly adjourning the talks amongst the agriculture G-6, and thus enabling the US not to have to say ‘no' on the cotton subsidy issue. He not only adjourned that meeting, but also announced the suspension of the Doha talks, only subsequently reporting to an "informal TNC", and later getting the General Council to take note of it.

Publicly, Mr. Lamy has been talking of the WTO system having to deal with the 21st century agendas - environment, climate change, and financial issues (like currency values). In the process, he could also hope that ala Leutweiler report that called for ending S&D to the developing world on the ground that the developed countries were not implementing GATT Part IV, his multi-stakeholder panel could come up with recommendations for making agriculture once again an exception to normal WTO/GATT rules, formalising and legalizing the so-called "green box subsidies".

Commenting in a communication to this writer, on Mr. Lamy's remarks at MC8 about a "multi-stakeholder panel", Mr. Paul Rayment, former chief economist of the United Nations Economic Commission for Europe (UN ECE), suggests that perhaps there is a common thread running through such ideas as stakeholder groups, focus groups, plurilaterals, etc.

One puts together a carefully chosen group of "the great, the wise, the virtuous" (according to one's preferred definition of what is great, wise and virtuous). Such a group is then asked to consider a problem and to produce what it knows will be the preferred solution, and then outsiders are challenged to go along with the result or be condemned as "reactionaries, obstructionists, protectionists, or whatever the fashionable adjective might be."

This, Rayment suggests, "is the snowball rather than the bicycle approach to policy - get the momentum going and eventually the outsiders will feel they cannot afford to stay outside the group. Group dynamics or simple dynamic economies of scale!" Or it could become the OECD's spider-web approach to ensnare.

After the failure at the Cancun Ministerial, Mr. Ram Manohar Reddy, then Deputy Editor of the Hindu, said (see SUNS #5429 dated 30 September 2003): "The question now is not if the Doha round can be saved; it is instead, does the WTO have a future in its present form? It does not. The only way the WTO can contribute to ‘a rules-based multilateral trading system', as it did until the mid-1990s, is if the all-powerful role in which it was cast in the mid-1990s is taken away from the organisation. That would mean a more narrowly defined remit for the WTO, which does not interfere in domestic policy. That may go against the dictates of globalization, which sees no area of domestic policy as outside the influence of global economic forces. It may even seem impossible because a WTO with its powers shrunk would not be in the interests of the US and the EU, both of whom in the late 1980s saw the organisation as a vehicle to further their economic interests across borders. But do the members of the WTO have any choice other than to change direction at the organisation?"

If Mr. Lamy does set up his panel, it would do well to consider and adopt this sane advice. But if Mr. Lamy is bent upon repeating history, he might read what Karl Marx who followed and expanded on Hegel's dialectics has written. In the 18th Brumaire of Louis Bonaparte, Marx wrote: "Hegel says somewhere that all great events and personalities in world history reappear in one fashion or another. He forgot to add: the first time as tragedy, the second as farce."

(* Mr Chakravarthi Raghavan, the Editor Emeritus of the SUNS, contributed this comment.)