Info Service on WTO and Trade Issues (Apr19/18)
Geneva, 18 Apr (Chakravarthi Raghavan*) – While the World Trade Organization and its Multilateral Trading System (WTO-MTS) are facing an existential threat that needs to be tackled as the highest priority, no one should be under any illusion that the political decisions to be taken will act like a magic wand.
Hard choices need to be made. Members, other than the US, have to decide whether they want a “World Trade Order or a US Trade Order”*2, a trade order whose rules will keep changing depending on the whims of the occupant of the White House at that juncture.
In making a choice for a world trade order, they perhaps need too, to get over the League of Nations syndrome and experiences of the interwar years – when a British PM tried to appease the German Chancellor, but merely whetting the latter’s appetite.
War nevertheless came in a few months, ending with millions dead and wounded, many parts of the world devastated, and with the victors as badly affected as the vanquished.
An authoritative interpretation of Art 17.2 of the Dispute Settlement Understanding (DSU) by the WTO’s General Council (advocated in an earlier part in this series*3) may not end the impasse on filling the four current vacancies on the Appellate Body (AB) and enable it to function, and resolve disputes.
(*3 “Time for WTO to take up overdue review of DSU”, SUNS #8882 dated 5 April 2019; http://www.twn.my/title2/wto.info/2019/ti190405.htm)
In practice, it may not solve the problem. The interpretation will make it incumbent on the membership to act, both individually and collectively, and “appoint persons to fill vacancies and serve on the Appellate Body”.
Any Member, like the US at present, will be fully within its right and discretion not to agree to a particular appointment at the Dispute Settlement Body (DSB). There can be no restriction on the repetition of this process.
The duty of “appointing persons to serve on the Appellate Body” does not prohibit a Member from disagreeing in individual cases.
The concept of implementation in “good faith” will be difficult to invoke, when a Member says the candidate is “unsuitable” and does so again and again. It is not guaranteed that after the rejection of, say the third person, the next person has to be acceptable.
The US has discovered a lacuna in the DSU and is using it.
Ironically, the strength of the DSU, namely, negative consensus for adoption of rulings, but positive consensus on all other matters (a change from GATT-19 47), written into the DSU in 1993/94 at US insistence, is being applied to make the DSU ineffective and the WTO-MTS an endangered species.
The US has made no secret of its intent — a lever to force others to change WTO rules. It may continue with such tactics, denying consensus on each and every AB candidate, in order to gain other objectives, including USTR Robert Lighthizer’s aim of reverting to the GATT-1947 practice of adoption of rulings by “positive consensus”.
This is not possible except through an amendment of the DSU, needing consensus, and acceptance by all Members.
Mr. Andy Stoler (former deputy representative in the US mission to the GATT when the details of the Marrakesh treaty and the DSU were being negotiated and settled at official level in 1993, and who later became WTO Deputy Director-General under DG Mike Moore in 1999), has now put forward a suggestion*4 to meet the US grievances.
This would enable the US (and any party) dissatisfied with an AB ruling to prefer another appeal to “a panel of arbitrators” – the Chairs of the DSB, General Council (GC) and TPRB (Trade Policy Review Body), and, if one of the three is from a country involved in the dispute, to be substituted by one nominated by the DG.
This is as bizarre a suggestion as one can get to appease the US!
This is more so, since Mr. Stoler, as a US deputy representative, had contacted other key delegations to ensure (against lobbying by then GATT DG Peter Sutherland) that the WTO DG will have no powers akin to those of executive heads of other international organisations, except for particular tasks that he may be asked to undertake from time to time.
The DG is thus only empowered under Art. 8:7 of the DSU to name a chair and dispute panel members, if the two parties cannot agree.
As for Mr. Stoler’s suggestion for the three designated Chairs to be “arbitrators to rule on the AB rulings”, the only mandate currently in the WTO rule-book for these three Chairs is to hold office for a year, chair their respective meetings and conduct business, but subject to their rulings being challenged from the floor and reversed by vote!
The experience of 1995, when such a group (the WTO DG, and Chairs of the DSB, and the Councils for Goods, Services and TRIPS) undertook a function (interviewing candidates, consulting delegations on basis of criteria approved by the DSB, and ultimately presenting a slate of 7 names to be elected to the AB), they had privileged the US alone to exercise a veto.
The slate named by them that was elected was viewed by members as “US agents”.
Judging from that experience, it would be bizarre to empower the DSB, GC and TPRB chairs to act as “arbitrators” — a sort of super-AB! It must be rejected.
If there is unanimity among the rest of the members, the General Council or Ministerial Conference can and should “invite” the US to either implement DSU Art. 17.2 in good faith or withdraw from the WTO.
However, though the US appears isolated on its stand over the AB, the EU, Australia and others, are in fact using the blockage to promote their own agendas, including plurilateral negotiations on new issues and their so-called “reform agenda” to tilt WTO rules even more against developing countries and development. As a result, unless the US changes its mind, the AB will remain non-functional.
The dispute settlement system may still be able to function, in disputes where the disputants (as Vietnam and Indonesia now) agree in advance that after a panel ruling is issued they will not lodge an appeal, but accept the ruling (or agree to refer the points of law to an arbitrator they could both agree upon.)
However, in disputes involving the US (over 40% of disputes so far), or others involving the EU, it is unlikely that any developing country involved will oblige and agree to arbitration on points of law against panel rulings; it would merely give notice of appeal and abate the ruling.
The way forward may hence be by direct action of the Members. If the DSU is ineffective, it is so for the US too.
The willing Members and those affected by the US unilateral actions may apply their own unilateral measures against the US, and the US will not have the option to get relief under the DSU. This will not be an optimal solution as it may generate action-counter-action, but perhaps the only way by which the US can be tackled on this issue.
Most recently, US academic and well-known trade economist, Prof. Dani Rodrik, in his Project Syndicate column, has suggested, in relation to the US-China trade war, a policy of “peaceful co-existence” for the two.
Equally needed for others, and in particular the developing countries, is not only “peaceful co-existence” (a Cold War era terminology), but also “non-alignment” vis-a-vis the two trade giants and their “trade wars.”
They need “policy space” in their own economic and trade policies for development. They need the kind of policy space that Rodrik notes prevailed in the pre-WTO era under GATT-1947, rather than that in the current “hyper-globalization” under the WTO.
Rodrik’s may be more or less alone voice or in a very small minority in “mainstream” trade economics, where the “free trade theologians”, are loud and dominant.
However, most developing countries in fact need such policy space vis-a-vis not only the US but China too. Both now seem to be attempting to oligopolise the global data economy via WTO rules, and are aided by the WTO secretariat, as that of the IMF, the World Bank and many parts of the UN system.
Interestingly, speaking to Malaysian senior civil servants in February 2000, at the time of the Asian financial crisis, Prime Minister Dr Mahathir Mohammad charged the superpowers and giant corporations with making use of “globalization” and technology “to conquer the world all over again, this time without the use of arms.”
Leaders of international institutions, he added, stressed that globalization is aimed at helping developing countries, “but so far no developing country has benefited from globalization.” (SUNS #4125 dated 25 February 2000.)
If by a miracle, the US changes its position and cooperates in filling up the four current AB vacancies (and two more to arise before end of 2019), a complete review of the DSU must then be undertaken as the next order of priority and completed with changes to rules.
In this process, not only the US complaints, now being voiced vaguely, must be taken up, but even more so the much earlier ones voiced by developing countries who were the principal victims of rulings by dispute panels and the AB.
These must be discussed and decisions arrived at as per the Marrakesh decision to undertake a complete review of the DSU.
(The US has briefly voiced some complaints at the WTO, and expanded on them and others in the US; these are dealt with after flagging those of the developing world).
In the early years of the WTO, panels and the Appellate Body, thanks to the DSU rule for adoption of rulings by negative consensus, abused the mandate “to clarify existing provisions” and piled up new obligations on developing countries, sometimes contrary to the “ordinary meaning” of language used in agreements , and making inutile specific provisions.
For example, panels and the AB have acted contrary to the over-riding interpretative note to Annex IA of the WTO Agreement.
This Annex 1A has listed: GATT 1994 and six Understandings related to the various specified Articles of GATT 1994; the Marrakesh Protocol to GATT 199 4 (schedules of tariff concessions and bound rates of tariffs of Members, and other particulars set in the protocol, pp 37-38, Legal Texts); and 12 Agreements on various aspects of trade in goods.
This Annex 1A (p 20 Legal texts) has the General Interpretative Note: “In the event of conflict between the General Agreement on Tariffs and Trade 1994 and the provision of another agreement in Annex 1A of the Agreement establishing the World Trade Organization (referred to in the Agreements in Annex IA as the “WTO Agreement”), the provisions of the other Agreement SHALL (emphasis added) prevail to the extent of the conflict.”
In abundant caution, the DSU (Art 3.2) further makes clear that recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.
In addition, the WTO treaty (Art. 2) further stipulates that the MC or GC have exclusive jurisdiction to provide “authoritative interpretations.”
But this authority “shall not be used in a manner that would undermine the amendment provisions in Art. X.”
The WTO has various agreements in annexes 1 (1A, 1B and 1C), II and III, but no provision akin to that in 1A, on the sum total of rights and obligations of Members under the Treaty and the agreements in the three annexes.
Under “customary rules of interpretation of public international law,” when a country is a party to several agreements, it is expected to implement all of them in good faith.
Also, the specific obligations in one treaty over-rides the general in another; a subsequent agreement between the same parties on the same subject over-rides the earlier one etc. Where there is some ambiguity of language in agreements, customary interpretations allow a reference to “negotiating history” to understand “the intent”.
As noted earlier, no “negotiating history” was presented to the plenipotentiaries at Marrakesh in April 1994 and NONE was approved by them as stipulated in the Vienna Convention on diplomatic plenipotentiary conferences, unlike in the case of the earlier Tokyo Round.
At the time of Marrakesh, then GATT DG Peter Sutherland told this writer that the secretariat had collected “notes” from various divisions and had been preparing a draft negotiating history, but that this idea was given up as there was some opposition from a few countries.
Nevertheless, functioning under the mandates in the DSU, the secretariat (legal and substantive divisions of the WTO for panels, and the separate AB secretariat in appeals), required to “service” panels and AB, have briefed them, behind the backs of parties, by relying on internal notes of the secretariat, “to provide the background to the ambiguous language” used.
Based on this, rulings have been handed down, invariably against the major developing nations.
The only material on record, that could be referred to for deducing the “intent” of any ambiguous language in the agreements, are official documents de-restricted at Marrakesh.
These comprised proposals issued to participants in the Uruguay Round (UR) negotiations and minutes of meetings of UR negotiating groups, approved by their participants which were available to plenipotentiaries at Marrakesh, and these were de-restricted and made public.
The secretariat’s internal notes (and some publications of official documents, with comments drawn by authors/ editors from US internal notes made available to them) are impermissible sources for the secretariat to brief panels and the AB as comprising “negotiating history”, when servicing their meetings.
Despite all these, from the outset, contrary to “customary rules of interpretation”, the panels and the AB, in a series of disputes raised by the US against individual developing countries (and in the banana dispute against the EU), ruled that the rights and obligations in agreements were “cumulative”, even though the WTO and its agreements have no such provision.
The AB said that it would “so clarify and reconcile” the various agreements to ensure no conflict so that a Member would be obliged to observe all the obligations of all the agreements.
A veritable Daniel Come to Judgement!
These panel and AB reports, showed glaringly questionable reasoning, but were claimed to be based on “public international law interpretations,” codified in the Vienna Convention on the Law of Treaties (VCLT).
The US never ratified the VCLT, and as a result some others too did not. When the US Senate refused “advice and consent” to the VCLT, the US State Department (on international commitments, the US Supreme Court defers to the State’s view), announced that the US nevertheless abided by public international law.
Hence, the DSU (Art. 3) only mentions “customary rules of interpretation of public international law” and not the VCLT. Panels and the AB however do no t even make this distinction, but often cite the VCLT.
At the time such rulings were being handed down, the US, the main beneficiary, was the cheer-leader; and often the EU and Japan (co-complainants), joined the US in this.
Developing countries, and not only parties to the dispute, protested and voiced complaints and detailed their objections on record at the DSB. But they were ignored.
Media briefings by the secretariat (DSB meetings, as all other WTO meetings, are not open to media) most often did not even mention or detail the objections, unless prodded at briefings.
(All these have been reported contemporaneously in various issues of SUNS, and adverted to in Raghavan (2000) “The World Trade Organization and its Dispute Settlement System: Tilting the balance against the South (https://www.twn.my/title/tilting.htm). Some major complaints have been detailed in SUNS #8258 & #8259 (http://www.twn.my/title2/wto.info/2016/ti160605.htm) and (http://www.twn.my/title2/wto.info/2016/ti160618.htm.))
According to the Washington DC-based “Inside US Trade” or “IUST” of 16 April, WTO DG Roberto Azevedo, speaking on 11 April at the Peterson Institute, spoke of US-China efforts to end their trade conflicts and of the two having similar views in some areas.
One of the main goals of (current) reform efforts at WTO, he said, was to reinvigorate the negotiating bodies of the WTO, and referred in this connection to the plurilateral initiatives that groups of WTO members launched at the Buenos Aires MC11 in December 2017.
According to the IUST cited above, the rise of plurilateral negotiations, he claimed, is at least in part due to negotiation fatigue. Multilateral negotiations were not necessarily over, but Members are no longer looking for those grand bargains.
“The WTO has decided to bring an end to such rounds and act as a continuous forum for negotiation,” he is reported as having added.
However, not only has there been no such decision, but there is still a bin ding decision of the General Council in 2004 (relaunching the Doha negotiations after failure of the Cancun Ministerial in 2003) in force that makes clear that until that Single Undertaking of the Doha Work Programme is completed, no other item will be on the WTO negotiating agenda.
Only the GC or an MC can reverse it specifically, not the DG.
Azevedo’s chef de cabinet, Mr. Tim Yeend, went further than his boss, speaking at a UN Financing for Development event (a meeting with World Bank, IMF, WTO and UNCTAD), in promoting the US-EU agendas at the WTO.
He is cited as saying that trade will help to reduce poverty more, “if it can work with new areas …. increased cooperation on E-comm will help MSMEs; Investment facilitation is also helpful; Domestic regulation in services, etc.”
His views were challenged from the floor by Ms. Deborah James of the Our World is Not For Sale (OWINFS) CSO network, who said the WTO has not delivered on allowing developing countries to use trade for their development.
The issue of WTO reform, she said, included an attempt to take away from developing countries, the right to use the very policy tools that developed countries had used in their own development.
She commended in this regard a new document, co-published by UNCTAD, “A New Multilateralism for Shared Prosperity: Geneva Principles for a Global Green New Deal,” and not another misguided expansion of the WTO, disguised as “e-commerce for development.”
“These proposed digital trade rules are actually about rewriting the rules of the digital economy of the future, to allow monopolistic corporations to further capture and exploit the most valuable resource of the world, data, for free … a new digital colonialism,” Deborah James added.
Tim Yeend responded that there was no consensus or clear direction, other than that WTO members agree “we need to strengthen rules in WTO and the system by having robust trade rules.”
It was not clear from the response where and when there was a WTO consensus and mandate for “increased cooperation on E-comm …. (and) Investment Facilitation”.
All these suggest the need for WTO reforms to ensure the WTO secretariat is one serving all members, and not promoting interests of a few, and even more that it should have no role (other than the normal servicing of such meetings) in the DSU review and reform process.
[* Chakravarthi Raghavan, Editor-Emeritus of the SUNS, contributed this part 3 of a four-part series on the WTO-MTS endangered. Parts 1 and 2 were published in SUNS #8873 dated 25 March 2019 and #8882 dated 5 April 2019.]