TWN Info Service on WTO and Trade Issues (Jun16/20)
29 June 2016
Third World Network

No credible WTO answers on "investment" in "trade in services"
Published in SUNS #8269 dated 24 June 2016

Geneva, 23 Jun (D. Ravi Kanth) - The Secretariat of the World Trade Organization was unable to provide a credible answer to the members of the African Group and Bolivia last Friday (17 June) as to why the Director-General Roberto Azevedo has decided to include investment in the division on Trade in Services without consulting members and without a prior General Council decision, several African trade diplomats told the SUNS.

On behalf of the African Group, Morocco raised the controversial issue of the Director-General, including work on investment in the division on Trade in Services during the regular meeting of the Council for Trade in Services on 17 June.

The African Group, said Morocco, is concerned over the "serious systemic implications" arising from the WTO Director-General Azevedo's decision to expand the Trade in Services division to include investment.

At the Fifth ministerial meeting of the WTO at Cancun in 2003, efforts to launch negotiations on the three controversial "Singapore" issues - investment, trade and competition policy, and government procurement - were shot down due to massive opposition from the developing countries, and the entire meeting collapsed, unable to reach any consensus on the draft declarations placed before it.

Instead, the Cancun Ministerial remitted all the documents before it to the General Council (GC), mandating it to convene at senior officials levels and take decisions to conclude the negotiations on the Doha Work Programme's Single Undertaking.

The GC, 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 Framework Agreement, the GC decided to keep the three "Singapore issues" outside any work at the WTO during the Doha Round.

The paragraph G of that 2004 General Council decision unambiguously stated that: "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."

Against this backdrop, the African Group said emphatically (at the CTS meeting on 17 June) 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."

The paragraph 29 of the Nairobi Ministerial Declaration maintained that: "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", "clarification as to the mandate under which this change [change to include investment in the Services division] and "written and evidence-based justification for this name change."

Further, the African 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.

To start with, Uganda, for example, asked how the change was arrived at and what were the factors that triggered the change, according to an African trade diplomat who asked not to be quoted.

Uganda also asked if investment is included in the services division, why not include "poverty reduction" in the same division. Uganda said WTO is a Member-driven organization in which Members' rights have to be protected first before taking any decision.

Bolivia asked whether the Director-General had consulted members before taking this decision and the basis for the name change. In the 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 Trade in Services Division ought to have been done in a transparent manner, Zimbabwe said.

Further, Zimbabwe asked how could a controversial issue like "investment" 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.

According to paragraph 34 of the Nairobi Ministerial Declaration, members 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 is 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 division by which the WTO is giving preference to only one mode of supply, in the title, over the other three modes.

Under the General Agreement on Trade in Services (GATS), trade in services are defined in terms of four modes of supply, such as: (i) Mode 1 involving cross-border trade (the supply of services from one country into other country), (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, a senior WTO official of the services division, Abdel Hamid Mamdouh, said changing the name of the division has "created lot of excitement," said a trade official who was present at the meeting.

Mamdouh said changing of the name of the division "was an exercise of transparency and signposting just to make it clearer which Division in the WTO is handling investment." He said "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 countries who are in the room have already been collaborating on a lot of 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 wish to have more information, they are welcome to come and meet him in his office "over coffee and chocolates."

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

Chakravarthi Raghavan, Editor-Emeritus of the SUNS, adds:

After the Doha Declaration of November 2001, even before any work could begin or negotiating groups set up at Geneva as the then DG, Mr. Mike Moore sought to do, the details of the actual work to be done under the various items for negotiations, and the staff and expenditure etc, including that of the media division on this, had first to be put up to the Budget Committee. There was several weeks of delay, due to inability of secretariat, purportedly due to baggage being misplaced by the airline, to provide official minutes, and transcript, of the final open session of the Doha MC; and the Budget Committee found itself unable to process the requests without official minutes and transcript of that final session at Doha, 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 existing staff resources reassigned, additional staff and resources needed with actual work plan etc were set out.< br />
The insistence of the Budget Committee at that time, was partly due to the way the WTO website on 14 November, posted a purported summary of the final meeting (with links to documents for downloading); that summary had said the final declaration was adopted at the open session, and the Qatar Chair read out, after the adoption, his understanding.

Under GATT practices, carried over into the WTO, any explanations and declarations of the Chair of a meeting before declaring as adopted the declaration or decision placed before it, in effect qualifies and conditions that declaration or decision. Any understandings or statements made, after adoption, by the Chair and/or of Members joining the consensus, have no legal implications for the decision or declaration.

That initial summary was contrary to what had happened in open session, and webcast live, and recorded by several delegations in Geneva. 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 (ignoring then DG's efforts to kick-start the negotiations in December), it was only after full minutes and official records of the Doha meeting were produced, that the Budget Committee clearance for staff and budgetary resources and budget line was obtained, and GC decisions on TNC and its remit, negotiating bodies, their guidelines etc, came on 18 February 2002.

The General Council in its 2004 July Framework decision, relaunching the Doha Work Programme negotiations as a Single Undertaking, modified the Doha Work Programme (adopted by the Ministerial Declaration at Doha, in November 2001), in these terms in Para 1 (g) of that July Framework:

"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."

Para 47, in its first sentence, also sets out the mandate for "... the conduct, conclusion and entry into force of the negotiations shall be treated as parts of a Single Undertaking".

Para 45, in its third sentence, has also set 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 2004 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 a Ministerial Conference), and since DWP has not been concluded (as per procedure and mandate set out in paras 45 and 47 of that Doha Declaration), the question remains under what authority or mandate has the divisions of the secretariat, been "doing the work they are already doing". And this is not an issue to be settled informally between the head of the division and African delegations or delegate over "coffee and chocolates" in his room, but something to be settled and recorded in official minutes of the CTS and the GC.

In conclusion, WTO members thus 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 meeting, 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 the SUNS.