TWN Info Service on WTO and Trade Issues (Oct12/03)
10 October 2012
Third World Network

Expert panel addresses key issues in stalled Doha talks
Published in SUNS #7448 dated 1 October 2012

Geneva, 28 Sep (Kanaga Raja) -- An expert panel session at the World Trade Organisation (WTO) Public Forum addressed some key issues in the Doha negotiations, such as potential scenarios for the stalled talks in the next year or two, the new trade narrative of global value chains being espoused by some, and the issues of trade facilitation and a plurilateral services agreement being pushed by some developed countries.

The session, held on Wednesday, the final day of the three-day Public Forum, was organised by the Our World is Not for Sale network, the International Trade Union Confederation, the Third World Network, and the South Centre.

The speakers on the expert panel on "Doha and the Multilateral Trade System: From Impasse to Development?" were Ambassador Jayant Dasgupta of India, Ambassador Angelica Navarro of Bolivia, Ambassador Faizel Ismail of South Africa, Andrew Cornford of the Observatoire de la Finance, and Deborah James of the Centre for Economic and Policy Research (CEPR), who is also the coordinator of the Our World is Not for Sale network.

The session was moderated by Martin Khor, Executive Director of the South Centre. Kicking off the session, Khor said that the background to this session was to look at what the future holds for the WTO and in particular, in relation to the development dimension and the interest of the developing countries.

He provided a comprehensive round-up of the negotiations from the Uruguay Round to the current Doha Round.

He said that the theme of review and reform of the WTO to make it more development-friendly versus ‘let's push ahead into new issues and expand the power of the WTO' has been an underlying theme ever since the formation of the WTO.

He added that in Doha (in 2001), where the Doha Development Agenda (DDA) was launched, this again came into conflict, with developing countries having many implementation issues and special and differential treatment (S&D) issues on the agenda, whereas the developed countries wanted to keep pushing the ‘Singapore issues' into a negotiation mode.

He said that in the DDA, implementation and S&D issues were given the most prominence in terms of the sequencing, which is to be finished first, before going into the in-built issue of agriculture and then into TRIPS, with the Singapore issues to be launched at the next ministerial.

Developing countries, which had to pay a heavy price in the Uruguay Round to bring agriculture - which had been left out of the trading system for many decades - back into the system and its disciplines, had again to pay a price at Doha for making the disciplines on agriculture more effective. Today, there is still no solution to agriculture, where the subsidies remain and have even increased, he added.

In the last two years, "we have seen many attempts to revive the round but they have not succeeded. There are now attempts to have plurilateral discussions particularly in services," he said, also noting a proliferation of bilateral agreements.

"We are now faced with a trading system in which the changes in the rules - whether they should go on, they should not go on, whether there should be reform to make it development-oriented or the rules should be reformed in order to have more market access and new trade flows and where the link between multilateralism and plurilateralism is - are all issues that we are facing, including what are called the twenty-first century issues."

"Are they the unfinished development issues of the past or are they the new issues that some members have tried to push but failed to push, but continue to push, including investment, (government) procurement and so on," Khor asked.

On the current status of the Doha Round negotiations, Ambassador Dasgupta of India said that apart from trade facilitation (TF), there is just no movement in any area in the negotiations currently. "Trade facilitation is being pushed very aggressively and relentlessly by the developed countries. The arguments which have been put forward are that they are good for the developing countries; perhaps, the implicit message is that ‘you don't know what is good for you. We are telling you this is good for you, so please go ahead and accept it'".

He said the attempt is to balance TF off against three issues - first, Least Developed Country (LDC) accession, then the 28-Agreement specific proposals of Cancun, and finally the S&D monitoring mechanism relating to all the WTO agreements signed at Marrakesh in the Uruguay Round.

"Now, what we have to see is whether within trade facilitation, there is adequate balance between the demands of the developing countries - if there are any - and whether trade facilitation as a package can balance what is being given outside by way of the Agreement-specific proposals, S&D monitoring mechanism and the LDC accession package."

The Indian envoy noted that the LDC group had said that in the case of the LDC accession package, there are 33 LDCs who are existing members of the WTO. There are three whose accession is almost complete because they have made their offers, and it is almost 100% binding of all their tariff lines in NAMA (non-agricultural market access) and agriculture. Apart from these three, there are six or seven others who are waiting in the queue, but whose accession may take place after 10 years or 15 years.

"So, if you look at the accession package, it is not going to benefit either the 33 existing members who are already there or the three who are about to accede within the next few months or maybe one year. And what it is going to provide is perhaps some degree of flexibility over the next 15 years or 20 years for the rest of the LDCs to accede at some point in the future."

He said that TF, very broadly speaking in academic literature including in the World Bank studies, incorporates both export facilitation and import facilitation. Export facilitation has been found to contribute the maximum to global trade gains, and it is all about improving the infrastructure, whether it is ports, roads, railways, or computerisation.

He added that the World Bank study, which is often quoted - of course, out of context and in a very partial manner - says that there will be $377 billion of additional trade gained from TF. But of that, the majority comes from export facilitation, for which since the developed countries are already at a high level in terms of their computerisation, human resource development, and putting more men on the job, they can adhere to whatever norms are laid down. So, they don't have to pay anything; they don't have to really improve their infrastructure. It is the developing countries who need to improve their infrastructure for export growth, and that will not be paid for by the developed countries. That has been made clear.

So, it is basically import facilitation and which the World Bank study has concluded will account for just $33 billion against $377 billion overall. So, only $33 billion of additional trade will result against global trade volume of $14.5 trillion today. It is next to nothing, the Indian envoy said.

Ambassador Dasgupta said that import facilitation is going to be done mainly by the developing countries because the developed countries have already done it. Now, if the developing countries are to do it, they will have to improve their infrastructure relating to imports - port handing facilities, customs, more people on the job, computerisation etc. And obviously, their imports are also going to increase as a consequence.

That has to be balanced against some kind of compensatory mechanism through which they get additional exports and for all this expenditure which they incur on infrastructure, they need to be paid, and be assisted, but that is not forthcoming.

On the 28 Agreement-specific proposals and S&D monitoring mechanism, he said the two most important proposals out of the 28 Agreement-specific proposals were duty-free quota-free (market access for LDC products) and an LDC waiver on services, which have been taken out and on which, it has been very clearly mentioned, "there will be no go, it is just not possible."

The Indian envoy also pointed to some initiatives being taken by many major developed countries, one being the Trans-Pacific Partnership (TPP), and the second, the International Services Agreement (ISA), as well as a host of bilateral or regional agreements on which they are embarking. How is the ISA, for instance, going to militate against the conclusion of the Doha Round? How is it going to work against it? If you look at a plurilateral agreement of about 20 countries representing about 70% of global trade, if that kind of agreement gets signed, and it will be because most of them are involved with each other in FTAs already, it will mean a very high level of ambition and that level of ambition will be sought to be then transposed to the WTO, and the developing countries and the rest of the membership forced to accept it.

Pointing to agriculture and NAMA, he said that under NAMA, there are two agreements which are in the offing - one is the Information Technology Agreement 2 (ITA2), in which a very ambitious list of 357 tariff lines has been drawn up and it will include any conceivable device which has an electronic chip, the second being an agreement amongst the APEC countries very recently on environmental goods.

"So, Information Technology Agreement, environmental goods, which of course includes AC pumps, motors, the original list had included refrigerators, air conditioners and various other things, which I am sure will make a very slow but sure entry through the back-door into that list. And that will take care of the industrial goods segment of the sectoral demand for NAMA."

"So, where does that leave us? That leaves us with agriculture sitting squarely in our lap and that will not lead to any conclusion because there are problems in the developed countries about accepting cuts on subsidies and on providing greater market access," he stressed.

On Global Value Chains (GVCs), he said that this has existed ever since the dawn of civilisation. "The whole issue is how do we move up the GVC, how do we provide more employment, more growth, [and] better benefits to our own people? That is a question which UNCTAD has addressed at great length over the past ten years, but nobody is paying heed to that, because the new mantra is ‘global value chains are the latest thing', as if it has, you know, appeared out of nowhere yesterday."

On what happens after the Bali ministerial conference (in December 2013), Ambassador Dasgupta asked, suppose in one scenario, TF gets harvested, some kind of environmental goods list gets harvested, some kind of ITA2 gets finalised and concluded, what after that?

"After that, we apprehend there will be these new issues which will start getting discussed in some form or the other here in the WTO and they will form the agenda for the new round of discussions which will be on a sectoral basis. This is not part of a single undertaking."

He stressed that the WTO is really faced with a crisis of reconciling the different demands and ambitions of countries which have upwards of $80,000 per annum of per capita income and countries which are at $500 per capita income per annum or below.

"How do we reconcile these? How do we reconcile the development needs, the aspirations, the pressing need of providing employment? ... That is something which we all need to have in mind, and we need to look at trade not only from the mercantilist angle of more profits, more zeros etc. We need to look at it through the prism of social justice," he said.

Ambassador Navarro of Bolivia said: "We are firmly in favour of fair, balanced multilateralism where everyone has a say on an equal footing. We have what we have today and we have to think about what the future holds. Unfortunately, the situation today and its future look negative.

"We started this century with a mirage, the idea of development and re-balancing the trade system, at the centre of the World Trade Organisation. Finally, there was to be a new negotiating round for which we developing countries were not necessarily prepared but we were promised a series of illusions."

More than ten years later, she said, "we realised that those chimerical promises were nothing more than a means to ensure greater opening of our markets. In other words, markets were the idea, and we were to accept multinational corporations and companies from the most powerful of the world's countries."

"However, masks have fallen and we are now facing what many call an impasse in these negotiations," she added. "We would prefer to call the current situation the lack of a political will to ensure the multilateral trade system is adjusted in favour of the poorest."

As to why this is the situation, she said that this is because some have an attitude which means that they want development to be development in name only, and that means "lip service" is paid to development now and again, but no more is done.

As to the main issues for the twenty-first century, the Bolivian envoy said that it is clear from the point of view of her country, "first of all, development, secondly, development, thirdly, development."

In the twenty-first century, "we cannot have a development round based on free trade exclusively. It must promote trade that contributes to balance among countries and regions and Mother Nature," she said, adding that there is need for indicators that provide a way of actually ensuring that trade rules are in keeping with sustainable development.

"Trade agreements must not impose conditions that have adverse effects on human rights and the environment, and must not bring an end to the values of our societies."

"The Doha Development Round is not a goal. It is rather a way of beginning to introduce some balance into the system, and we therefore must ensure that development is covered by the DDA. This is because if properly determined, it can help countries move forward," she said.

Ambassador Faizel said that one of the favourite concepts being propagated (as a way out of the crisis in multilateralism) is that of Global Value Chains (GVCs).

He pointed to three research agendas in this area. The first is being used by TNCs, which argue that this is good for development and growth. The debate has been about the movement of capital across the world and how does this advance the development of particular countries, as well as how does it help countries to move up the value chain and what share of value added they get. This has been debated, with UNCTAD putting out a number of reports on the need to diversify, upgrade and increase the share that poorest countries have on the value added.

The second way in which the idea of GVCs is being used is actually reflected in the politics today. There is a backlash by people around the world who feel that they are losing from the spread of globalisation and the expansion of TNCs. Interestingly, he said, a massive backlash is taking place today in the North - in the United States and Europe - where people are saying that their jobs are being pushed out, and they are talking about re-shoring and in-sourcing, and bringing back jobs, rolling back globalisation and "putting the genie back in the bottle."

The third way the concept is being used is an ideological one, he added, and much of that permeates the corridors of the WTO where people who are concerned about the lack of support or increasing hostility to liberalisation that is being seen in many countries around the world, and there is an interest in reviving support for trade liberalisation.

Many proponents of GVCs are arguing that the logic of globalisation and GVCs suggest that the most efficient way to improve your chances of participating, of gaining from globalisation is to reduce barriers and increase efficiency of these GVCs, and participate in these GVCs. They hope this argument will have the effect of gaining support for liberalisation and improving the possibilities for the round itself, and for the impasse to be broken, he said.

"I think this argument is flawed... and does not offer us a way out of the current crisis," said Ambassador Faizel.

On the way forward, he said that there is need to begin a different dialogue. One of the key principles to base the system on is fair trade, equal opportunities, and levelling the playing field. The second principle should be about capacity-building. Many countries don't have the capacity to produce and export, and they need to be assisted. Thirdly, the rules should be fair and allow everyone to act in ways that promote their development. It should not close off opportunities for development and policy space. It should be inclusive and allow for the participation of countries.

"And the course that some of the proponents of global value chains, and certainly some of the major players in this system are taking today, the plurilateral route, the so-called variable geometry route, these are going to marginalise even more many of the developing countries and particularly the smaller countries from the system, because the whole idea is based on starting with a few countries and then imposing the will of the few on the rest."

"This is not a correct principle for multilateralism," the South African envoy stressed. This narrative of GVCs does not add anything really new to the debate. It really talks about more of the same - more about trade liberalisation.

"It's a wrong analysis of reality because it talks of the market as if it's a self-regulating machine. It doesn't provide a correct policy response to the current crisis we have of globalisation, in the WTO the crisis of Doha, and the crisis of multilateralism. Therefore, we need a discourse, a new dialogue amongst developing countries, between developing and developed countries, between NGOs and governments, academics and intellectuals, about how we would want to rebuild this multilateral system which was constructed ... by a few people in the interest of the few. How do we construct this in a way which serves the interests of all," he concluded.

In his presentation, Mr Cornford addressed the topic of GATS rules and international trade in banking services.

He said that negotiation of the GATS rules for banking was completed in the early 1990s, though countries' commitments only became part of the agreement after negotiations were completed at the end of 1997. While the GATS rules and commitments were actually being negotiated, the overwhelming presumption of policy makers in advanced countries was that "benefits" from the liberalisation of cross-border financial transactions and of restrictions on the commercial presence of foreign banks would accrue not only to their own financial institutions but also more generally to other economies.

It was this presumption which largely shaped the outcome of the Uruguay Round negotiations on financial services despite reservations expressed principally by some developing countries. As a result, the GATS rules have much more to say about what should be the limits on countries' regulations, where these are a potential impediment to international trade in financial services, than about the contents of the right to regulate and the development of the statistical data required for valuing offers and commitments, compensation in disputes, and procedures for safeguard actions.

"Since the early 1990s, the international banking landscape has undergone far-reaching changes. Some of these changes have important implications for regulation, especially in the light of experience during the financial crisis. Of special importance here are transactional innovations, which have required substantial revision of the Basel rules for banks' capital and risk management; greater acknowledgement of the connections between financial stability and macro-economic policy, which is leading to the development of guidelines for macro-prudential policy; and the greater role in international financial markets of Large Complex Financial Institutions, whose size and the diversification of whose activities have the consequence that their failure is capable of posing systemic threats to financial stability."

Moreover, he added, the large and potentially destabilising capital flows experienced in connection with the crisis has led to further rethinking concerning the role of capital controls as a protective measure and of the relation between such controls and prudential measures.

He noted that the bail-outs of large banks in the United States and some Western European countries since the beginning of the financial crisis, arguably the largest programme of sectoral support by governments in modern history, have implications for policy towards the granting by countries of market access to foreign banks that have benefited directly or indirectly from such support.

"The scale of the subsidisation which this life-support has entailed is markedly at variance with assumptions about the overall soundness of the financial sectors of developed countries prevalent in the early 1990s, which, understandably, were part of the mind-set of the negotiators of the GATS rules.

"So far, negotiations and other work on banking services in the WTO have seemed little affected by the need for fundamental rethinking in the light of the experience of the financial crisis. However, international initiatives currently being developed in other international institutions are likely to produce a substantially reformed Global Financial Architecture."

Cornford went on to highlight a number of specific concerns that have been raised by the Stiglitz Commission, UNCTAD, Barbados at the WTO, and NGOs such as Public Citizen (PC).

Also, in June 2012, Ecuador submitted a proposal that the WTO should monitor and review developments related to the global financial crisis owing to the importance indicated by the crisis of a safe regulatory framework assuring WTO member states of the availability of policy tools to prevent intensification of the crisis. Ecuador's main concern is systemic - that member countries should have the capacity to safeguard the stability of their financial systems on the basis of a clear, agreed understanding of WTO regulations.

From the point of view of developing countries, the increased emphasis under macro-prudential policy on the links between the stability of the financial sector and macroeconomic stability, more generally leads logically to greater acknowledgement of the links between macro-economic stability and development policy, since in such countries there is an integral connection between such stability and the achievement of development objectives.

Such links are evident in the particularly severe threats which macro-economic instability poses to the livelihoods of people with very limited means and limited or non-existent access to social safety nets, and to the disruption of the investment required for structural transformation.

"This acknowledgement is reflected, for example, in thinking about the appropriate policy response to the large and potentially destabilising capital inflows experienced by some emerging-market countries since the outbreak of the financial crisis. That prudential measures and capital controls are closely related substitutes for the purpose of avoiding macroeconomic instability from this source is now much more widely accepted."

In the text of his presentation, Cornford also drew attention to data and measurement problems under GATS rules. In several areas, the absence not only of statistical data but also of generally established measurement procedures is likely to prove a serious impediment to application of the GATS rules to international trade in banking services.

For example, the resulting problems include valuing countries' commitments, especially under Modes of Supply 1 and 3, the assessments of trade in banking services prescribed under Article XIX, and estimating the effects of emergency safeguard measures and subsidies (once rules concerning these subjects have been negotiated) as well as the effects of the modification of schedules. In the case of schedule modification, not only statistical data but also guidelines as to how measurement should be carried out are lacking.

Statistical and methodological problems were the inevitable consequence of the much more widespread and intrusive extension of multilateral trade rules into subjects covered by countries' domestic regulatory regimes which resulted from the negotiations on international trade in services in the Uruguay Round. When the GATS was negotiated, policy makers from major developed countries did not consider deficiencies of statistical data a serious obstacle to the undertaking of commitments as to the liberalisation of cross-border services transactions owing to the widespread conviction in such countries that liberalisation would benefit the countries granting improved market access as well as those seeking it.

"This view was not necessarily shared by the developing countries potentially facing substantial losses of policy sovereignty. However, the issue was sidelined during the Uruguay Round negotiations, and only in 2002 was a manual published on statistics for international trade in services."

However, Cornford said, this manual does not address the important practical problems of developing statistics for international trade in banking services.

Cornford also highlighted some possible ways forward, noting that many critics of the GATS suggest revising particular GATS rules.

Public Citizen has proposed that the contentious second sentence of the Prudential Defence Measure of the Annex on Financial Services ("Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Members' commitments or obligations under the Agreement") be replaced with: "For greater certainty, if a Party invokes this provision [the Prudential Defence Measure] in the context of consultations or an arbitral proceeding initiated under the Dispute Settlement Understanding, the exception shall apply unless the Party initiating a dispute can demonstrate that the measure is not intended to protect consumers, investors, depositors, policy holders, or persons to whom a fiduciary duty is owed by a financial services supplier, or is not intended to ensure the integrity and stability of the financial system".

The intention here is that the burden of proof in cases in which recourse to the Prudential Defence Measure is challenged would be more explicitly the responsibility of the challenger, said Cornford.

According to Cornford, a more ambitious revision of the GATS rules which would reflect the thrust of many of those supporting revision would be to include a concrete spelling-out of the scope of governments' right to regulate the financial sector in the Annex on Financial Services - a revision which would also require a note to Article XVI. 2 cross-referencing its implications for the Article's specification of limitations to market access to be included in countries' schedules.

Such a revision would have to be made in accordance with Article X. 5 of the Marrakesh Agreement, which states the following: "Except as provided in paragraph 2 above [which references the provision concerning Most-Favoured-Nation Treatment in Article II: 1 of the GATS], amendments to Parts I, II and III of the GATS and the respective annexes shall take effect for the Members that have accepted them upon acceptance by two thirds of the Members and thereafter for each member upon acceptance by it."

"However, that revision is possible under WTO rules does not imply that it would be anything but extremely difficult to achieve the required degree of consensus concerning such a change among member countries."

Another possible way forward, he said, would be simply to rely on hope that negotiations on banking services will be consigned to a back burner (possibly as part of a similar fate for other issues which have been negotiated as part of the Doha Round). This might be described as the strategy of "letting sleeping dogs lie".

However, such hope may reflect excessive optimism as to the likelihood that the dogs will indeed not be awakened owing to the zeal of countries determined to push financial liberalisation through the WTO. There is thus a strong argument that the likely continuation of such pressures justifies recourse to an explicit multilateral decision rather than reliance on the more passive process of consignment to a back burner.

One possibility might be a decision to suspend negotiations on financial services sine die. This would end pressures on developing and emerging-market countries through (plurilateral or multilateral) negotiations to undertake commitments to liberalisation which not only might be against their perceptions of their best interests but which might also actually compromise introduction of domestic banking reforms that are an appropriate response to the experience of the financial crisis.

Such a suspension might leave in place for some countries what are now inappropriate commitments undertaken during the Uruguay Round negotiations. In favour of such a suspension, it is reasonable to assume that regulatory changes inconsistent with these commitments which could nonetheless be defended under the existing Prudential Defence Measure would not be subject to challenge under Dispute Settlement.

An alternative approach, would be for countries themselves to include in the head-notes to their schedules those parts of their regimes of prudential regulation which they believe should not be subject to challenge. Agreement to so proceed should be easier than agreement on revision of the GATS rules.

Inclusion in countries' schedules of text from national prudential regulation would make the already lengthy GATS agreement unwieldy. However, inclusion of actual text in the GATS could be replaced by the more concise solution of specification of hyperlinks to the address where the relevant text would be available, he concluded.

Ms James of CEPR, referring to WTO Director-General Pascal Lamy's WTO panel on defining the future of trade, said "we have seen this show before", adding that back in the 1980s, when negotiations to launch the Uruguay Round were at an impasse, then Director-General Arthur Dunkel did a very similar tactic by convening a panel - the Leutweiler panel - to write a report, but he could not get the membership to support it financially and he had to go to the City of London, so that the financial sector could pay for it.

They came out with a report and ultimately led to the launch and conclusion of the Uruguay Round that "gave us the WTO and the very big asymmetries that we have all been living with for the last 15 years."

"So, we don't want to see that happen again. But we believe that the Lamy panel is part of a strategy on behalf of the developed countries, but also the Secretariat to actually move forward this new trade narrative ... talking about the global value chains and the need for trade facilitation and the plurilateral services agreement as the lubricant for those global value chains," she added.

"We expect a panel report sometime next April that will be written by the Secretariat. You can imagine those luminaries on that panel ... are not going to share a Google document," she remarked, adding that it is going to be written by the Secretariat and it's going to have their perspective, and "that is going to be used then to narrow the debate about what is possible."

"And that's why I think it's so important to have these alternative voices of actually people who are representing the folks who are going to be affected by the negotiations, and not just you know, the CEO of GE (General Electric) looking at how they can make more money out of changing WTO rules, but looking at fixing the existing rules that we have," she said. +