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TWN Info Service on WTO and Trade Issues (Mar19/13)
27 March 2019
Third World Network


WTO-MTS facing existential threat, needs political decisions

Published in SUNS #8873 dated 25 March 2019

Geneva, 22 Mar (Chakravarthi Raghavan*) – The World Trade Organisation (WTO) and its Multilateral Trading System (MTS) is facing an existential threat, and it is time that Members face up to this systemic crisis and resolve it at the highest decision-making levels, namely, the Ministerial Conference (MC), and the General Council (GC) when the MC is not in session.

In that role, the MC or GC must adopt authoritative interpretations of DSU Art 17.2, and also make clear that panels and the AB cannot usurp this role of “interpretation” while “clarifying” existing provisions of the WTO and the multilateral agreements.

What began seemingly as US grievances over the WTO’s dispute settlement process, and the functioning of its Appellate Body (AB), has now clearly turned out to be a case of the US holding the WTO-MTS and its membership and processes to ransom, so that the WTO and its multilateral trade accords may be rewritten, tilting the scales once again against developing countries, in order to benefit the US and arrest, if not reverse, its diminishing dominance of the world economy.

Despite its awesome military power, the US has now become uncompetitive in the trading sector (in goods, services including financial services, and intellectual property and innovation), and is adopting tactics to reverse the process, and makes no bones about this, characterising it all as “modernising” the WTO – with trade officials in some developing countries mouthing the same slogan!

Viewing the US grievances at face value when it began blocking the processes for filling AB vacancies, a number of law academics, some former negotiators and other trade specialists have put forward a variety of possible solutions. Honduras has also made several proposals at the WTO.

These range from referring the US stance on AB vacancies as a violation of its obligations, flowing from the collective and individual good faith obligation of WTO members to fill vacancies as and when they arise (vide DSU Art. 17.2), members resorting to arbitration (thus bypassing the AB process), non-US members agreeing to a separate protocol (with suitable changes to the DSU) to settle their disputes, and the US withdrawing consent to the DSU’s dispute settlement (and reverting to GATT-1947).

This last doesn’t stand a moment’s scrutiny: it ignores both Art. XV of the WTO treaty, and GATT-1994, not being a successor to GATT-1947.

With the US (judging from the disputes at the WTO hitherto) involved as a complainant or respondent in just over 47% of disputes, these suggestions, some of doubtful WTO legality, from a practical point of view would be grossly unfair to Members involved in such disputes where the US is a party, since these disputes can never get resolved.

Even if the idea behind these suggested solutions is to bring public pressure on the US and induce it to change its stance, it will not work. Since the time of Ronald Reagan in the White House, the US sincerely believes, and has adopted as an appellation of honour, what the Soviet dictator Joseph Stalin once pejoratively characterised America as “exceptional” in drumming the US communist leaders of that era out of the world Communist movement.

Since the Reagan presidency, the US (whichever party is in power) truly believes (like the sovereigns of Europe and UK in the middle ages) that it is the source of the post-war order and thus international law giver, but does not have to abide by it.

The pronouncements of the administration (and leading lights in the US Congress, Democrats and Republicans alike) leave little doubt that US “grievances” with the rulings and recommendations of the WTO’s Appellate Body is not the real issue, but merely a smokescreen.

While blocking consensus to a process for filling up vacancies, and speaking in general terms against the AB, the US has not so far put forward any suggestions or proposals of its own.

Rather, it has been adopting the old Soviet (Stalinist-era) style of saying “Nyet”, but not spelling out what it wants and will support!

The reality is that the US wants to bring about drastic changes to the multilateral trading system to ensure that its own markets can be kept closed while that of other Members, in particular those of developing countries, are opened up to US exports of goods and services.

In his latest testimony to the US Senate Finance Committee (on 12 March), the USTR Ambassador Robert Lighthizer has spelt out these intentions clearly.

The US, he said, will continue to block appointments to the World Trade Organization’s Appellate Body “in order to force members to deal with much-needed WTO reforms …. It’s the only way to get countries’ attention.” (FT report of 13 March; SUNS #8866 dated 14 March 2019, “Trade: US, working closely with DG, pushing for WTO reforms”).

In the same testimony, the USTR has also done other Members a service by naming and identifying the WTO DG, Mr. Roberto Azevedo (and thus the secretariat), contrary to his obligations in terms of Art. VI:4 of the WTO treaty to function as an independent head of the WTO secretariat and for all its members, as being closely aligned and acting with the US to achieve the latter’s aims.

The US has also suggested that the WTO DG should be able to play an active role in the WTO functions and processes.

This would be a major departure from the policy followed by the members, including in particular the US, right from the inception of the WTO-MTS, not to give any role to the DG in substantive decision-making and insist on members themselves discharging the three functions of negotiating (legislatives), administering the agreements (executive) and dispute settlement (judicial).

In the final stages of concluding the Uruguay Round (UR) agreements, then GATT DG, Peter Sutherland, went twice before a key group of 10-15 countries negotiating the details of the WTO, pleading for a role for the WTO head, akin to that of other international organisations.

His pleas were twice politely turned down, by the US and others. Only the EU was willing to provide some role (but not that of heads of other international organisations), as Mr. Sutherland himself told this writer at that time.

Even after the WTO treaty was settled at official level in 1993 (and adopted without any change at Marrakesh), Sutherland tried to reopen the issue but the US was firm in its opposition (and ensured key nations did not yield). This, among others, was also said at that time as a reason for Sutherland not wanting to continue as WTO DG and quit early.

Those who negotiated and settled the WTO treaty, wanting to have the new organisation begin without legal links to the past (Havana Charter and its ITO, and its temporary off-shoot of GATT-1947) decided that GATT-1994 (as part of the WTO) was distinct and separate from GATT-1947 (and wound up GATT-1947 in 1995-96).

It is for this reason that the WTO has been characterized as being sui generis among intergovernmental organizations.

GATT-1947, that functioned before the WTO, was just a provisional arrangement, and not an organisation – its organisational structure and secretariat existing merely as part of the UN General Assembly’s Interim Committee (ICITO) to bring into being the 1948 Havana Charter and its International Trade Organisation (ITO).

Empowering the WTO as proposed by the US now will emasculate the dispute settlement system and for all practical purposes destroy the organization.

WTO Members, and developing countries in particular, have only two choices:

1. They can yield to the blackmail tactics of the US, and once again allow the US to bend and distort the multilateral trading system to make it an even more unfair and unjust playing field for developing countries, in effect making them forever hewers of wood and drawers of water.

2. Or, they can call the US bluff, take up the issue at the highest political decision-making level (the Ministerial Conference, and in between its sessions the General Council), and tell the US that either it abides in good faith by the rules of the WTO-MTS (with all rights and obligations) or withdraw from the WTO (See Chakravarthi Raghavan, SUNS #8590 dated 6 December 2017, “Contemplating the unthinkable, a WTO without the US” & #8670 dated 26 April 2018, “Three-pronged assault on WTO-MTS by the US”.)

THE WTO TREATY AND SOUTH PAYING A HEFTY PRICE

Launched at Punta del Este in 1986 (after 3-4 years of exploratory and preparatory talks), grounded at Brussels in 1990 (barely escaping a crash-landing), refloated in Geneva in 1991 (but stalled for most of 1992, for an end to US Presidential elections, and missing several deadlines), the negotiations were concluded at official level in Geneva in Nov-Dec 1993, signed and sealed in the Marrakesh Treaty in April 1994, and coming into force in 1995.

Under the treaty, the developing countries paid a heavy advance price, undertaking commitments in the area of trade in goods (GATT-1994 and 11 other agreements listed in Annex IA plus the Trade Facilitation Agreement also now listed in Annex IA), trade in services (GATS) and trade-related aspects of intellectual property rights (TRIPS).

Developing countries gained very little under the UR accords, but felt they still had gained something through a rules-based MTS and an integrated dispute settlement system (the DSU).

In retrospect, at least it is clear that they allowed themselves, once again, to be fobbed off with promises, as in the past.

The twists and turns of nearly eight years of these talks (and three earlier years of preparatory talks) and its conclusion have been set out in detail in Raghavan (2014), “The Third World in the Third Millennium CE” Vol. 2, pp 3-179.

For nearly two years now, ever since President Donald Trump entered the White House, the US has made no secret of its disdain for multilateralism; and with Ambassador Robert Lighthizer as the United States Trade Representative (USTR), it has been busy trying to bury the multilateral trade negotiations (launched as a Single Undertaking at Doha in 2001, at the instance of the US and the European Union, through the Ministerial Declaration and Work Programme – otherwise known as the Doha Development Round or DDR).

Since then, having pocketed some of the results, in particular the Trade Facilitation Agreement (in the area of trade in goods), the US, openly and brazenly, and the EU by its actions, are not only reneging on their promises and commitments made at Doha, but also their own treaty commitments in 1994 at Marrakesh.

(If they persist on this course, there will soon come a time, in terms of international law, when developing country parties to the treaty are bound to exercise their own rights under public international law and refuse to be bound by the other parts of the treaty and agreements, including TRIPS.)

For example, under Article 20 of the Agreement on Agriculture, the US, the EU and the highly industrialised countries undertook to reverse nearly five-decades of highly protected domestic agriculture markets and heavily subsidised and dumped agriculture exports.

At Marrakesh, they solemnly committed themselves to reverse this process, made small initial steps, and sought a longer time period to continue the process of progressive and “fundamental reforms” of their agriculture sectors to achieve the objective of a “fair and market-oriented” agriculture system. They have reneged on this commitment.

Worse still, they are now trying to capture the agriculture markets of the developing world through their own highly subsidised agricultural products. Though they claim they have virtually eliminated all their trade-distorting domestic support programmes, through non-distorting “green-box” support, these programmes (in the case of cotton in the US and sugar in the EU) have been adjudged as enabling subsidised exports.

The US stance against the AB began under the Obama administration itself, when it vetoed the reappointment of the Korean member for another four-year term, underscoring his purported views (as member of a division bench) in a dispute where the US lost! But the Obama administration did not raise systemic issues.

This came to a head under the Trump administration, when the United States began blocking the process for filling vacancies on the WTO’s Appellate Body.

At a series of meetings of the Dispute Settlement Body (DSB) over the last two years, it adopted initially the “salami” tactics of voicing various complaints over the AB’s functioning, but never advancing any proposals of its own or engaging with other members in any serious “good faith” negotiations to change the DSU, including its rules or mandate of the AB. It has merely kept saying the changes proposed by others did not meet its complaints.

Some of the grievances now being voiced by the US about the DSU and AB are legitimate to some extent.

They had been raised as long ago as 1997-1998, by developing countries who had been (at that juncture), the victims of the AB, which instead of “clarifying” the existing provisions of WTO agreements “in accordance with customary rules of interpretation of public international law” (DSU Art 3:2), had engaged in interpretations, creating cumulative obligations for developing countries.

At that juncture, the US (with its own national heading the legal division, and a Canadian heading the AB secretariat) was cheer-leading these outcomes. It is only now, when it is trying to protect individual US manufacturing enterprises by misusing the WTO’s Anti-dumping (AD) and Countervailing Duty (CVD) rules, with the AB ruling against it, that the US had begun crying foul.

Nevertheless, the functioning of the dispute settlement system is a legitimate area for members to revisit (fulfilling a long-delayed DSU review that was supposedly to have been taken up in 1999 and completed). That mandate was renewed at Doha (but not as part of the Single Undertaking – thus ensuring no bargaining with other issues), but is languishing still, since till recently both the US and EU saw the system to be functioning to their advantage.

WTO members could agree to take up and complete this work expeditiously, but separating it from the systemic issue of collective and individual obligation to fill up vacancies on the AB (under Art 17.2 of the DSU). This last also requires the MC, and GC when the MC is not in session, to provide an “authoritative interpretation” of individual and collective obligations of members under Art. 17.2.

Otherwise, the US tactics will soon (before end-2019) result in the AB not being able to muster the minimum of three members to constitute a division bench to hear and dispose of appeals on points of law arising out of panel rulings.

This will not mean (as noted earlier) a reversion of the dispute settlement system to its GATT-1947 situation, as some academics have suggested.

The various provisions of the DSU, including abatement of panel rulings pending AB rulings if any party to a dispute notifies the DSB of its intention to appeal, will still be valid and operative (vide DSU Art 16.4), and panel reports cannot be adopted.

No dispute will ever be resolved, through a DSB ruling/recommendation – and the dispute settlement system will be paralysed.

Developing countries will lose, but the even bigger losers will be the US, EU and major industrialised countries and their corporations, and all their global monopoly rights under TRIPS.

Not all the combined military might of the US and its allies can prevail over others in today’s world to ensure this global monopoly to the TNCs of the US, EU and Japanese corporations.

[* Chakravarthi Raghavan, Editor-Emeritus of the SUNS, provided this comment. The DSU review and related issues will be the subject of future articles. In writing this opinion, the writer has benefited from comments and suggestions of former GATT/WTO trade officials and negotiators including Mr. Balakishan Zutshi and Mr Bhagirath Lal Das from India. All errors and deficiencies in the article are that of the author.]

 


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