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Info Service on WTO and Trade Issues (Mar20/08) China
challenges US proposal on market-oriented conditions Geneva, 5 Mar (D. Ravi Kanth) -- China has challenged the United States on its controversial proposal to discuss "the importance of market-oriented conditions to the world trading system," without resolving the fundamental crisis over the Appellate Body (AB) at the World Trade Organization, trade envoys told the SUNS. China, India, and South Africa among others also sought to know from the US what is its real intention to trigger off a debate on a complex issue that is not part of the WTO's mandate. At the WTO General Council (GC) meeting on 3 March, China asked the US whether its proposal on the importance of market-oriented conditions is an attempt to bring industrial subsidies through the back door at the World Trade Organization. China pointed a finger at the US, the European Union, and Japan of the trilateral group for bringing "industrial subsidies" under the pretext of establishing "market-oriented conditions" at the WTO, said a trade envoy, who asked not to be quoted. (See SUNS #9079 dated 2 March 2020). China asked the US pointedly whether resources would be better spent "on resolving the crisis of the Appellate Body and pushing for possible outcomes at MC12 (the 12th ministerial conference in Nur Sultan, Kazakhstan, beginning on 8 June)" than in debating "the issues that may deserve philosophical debate but are not relevant for the outcome of the Ministerial meeting." The US, however, insisted that its proposal is aimed at discussing "the centrality of market orientation - one of the core principles of the WTO - in our collective efforts to achieve meaningful WTO reform." The deputy USTR and envoy to the WTO, Ambassador Dennis Shea, said that the US wants "a draft decision in which Members would reaffirm that market-oriented conditions are fundamental to a free, fair, and mutually advantageous trading system, to ensure a level playing field for our workers and businesses." He said that the US reckons that "any reform conversation must begin with some basic questions: What is the purpose of this organization? What values do we uphold?" He took recourse to the "Marrakesh Declaration", which established the WTO in 1995, to justify Washington's demand for promoting "participation in a world trading system based on open, market-oriented policies and the commitments set out in the Uruguay Round Agreements and Decisions." The US trade envoy argued that many accession protocols concluded over the past 25 years reflect these core principles by reaffirming a commitment to the Marrakesh Declaration or more explicitly stating that the goal of WTO accession was to achieve economic reform "based fully on market principles" or to "transition from a centrally-planned to a market-based economy." He said "in May 2018, the Trade Ministers of the European Union, Japan, and the United States agreed that non-market-oriented policies and practices create unfair competitive conditions for our workers and businesses and undermine the proper functioning of international trade." "For the United States, the WTO is and should be a place where countries come together to work towards developing and enforcing rules that promote the common goal of free and fair trade on the basis of openness and market principles," Ambassador Shea repeatedly claimed. He said those who join and swim in the same swimming pool must agree to swim in the same direction. Ambassador Shea elaborated the following market-based conditions: (i) Enterprise decisions on investments are freely determined and made in response to market signals; (ii) The prices of capital, labour, technology, and other factors are market-determined; (iii) Capital allocation decisions of or affecting enterprises are freely determined and made in response to market signals; (iv) Enterprises are subject to internationally-recognized accounting standards, including independent accounting; (v) Enterprises are subject to market-oriented and effective corporation law, bankruptcy law, competition law, and private property law, and may enforce their rights through impartial legal processes, such as an independent judicial system; (vi) Enterprises are able to access freely relevant information on which to base their business decisions. Moreover, in all of these areas, there should be no significant government interference in enterprise business decisions, the US insisted. The absence of market-oriented conditions in one or more WTO Member countries can have devastating consequences for others, the US claimed. The US argued that "commitments such as most-favoured nation treatment, national treatment, subsidy disciplines, intellectual property rules, and others are designed to ensure fair play for us all." Without naming China, Ambassador Shea said "the existence of non-market-oriented conditions tilts the playing field in the direction of those Members that seek to unfairly determine economic outcomes." "As WTO Members consider new initiatives and rules - such as on fisheries subsidies, industrial subsidies, State Enterprises, or other issues - which could be key elements of achieving meaningful WTO reform, the importance of market-oriented conditions only increases," Ambassador Shea said. The European Union, Japan, Canada, and Australia among others supported the US proposal for discussing market-oriented conditions with varying nuances, said trade envoys, who asked not to be quoted. In a sharp critique of the US proposal, China said WTO members have a common sense about "market economy" and that "there's really no need to debate about it." "It's just like we don't have to debate if we need to eat when we're hungry or bring an umbrella when it is raining," the Chinese trade envoy Ambassador Zhang Xiangchen argued. Ambassador Xiangchen said the WTO is in no position to interfere with whatever "development path" or "whatever model a member may adopt for its own economy." The Chinese envoy thanked the US for reminding members of the Marrakesh Declaration, saying that the most relevant sentence to be remembered always is: "Ministers express their determination to resist protectionist pressures of all kinds." He urged the US and other developed countries not to "forget these words on Members' relations in the fields of trade and economic endeavour from the Marrakesh Agreement Establishing the World Trade Organization: "for doing so in a manner consistent with their respective needs and concerns at different levels of economic development"." The US proposal, China said, "may look straight-forward but it is anything but straight-forward." Ambassador Xiangchen asked the US: "what are the "non-market-oriented policies and practices"? What are the "internationally recognized accounting standards"? What does it mean to "freely access relevant information"? What is a "significant government interference"?" In its intervention on the US proposal, India said it is "curious, like many others in this room, about the intention behind this proposal, which, at this stage is not clear." "Some of the terms used in [the US] proposal are not clearly defined," said India's trade envoy Ambassador J S Deepak, arguing that "the nature of State's actions and the category of enterprises falling under its scope are also not elaborated." "Because of its prescriptive nature, the proposal has stirred up the old market versus State debate," India said, arguing that the "market versus State" debate has been settled a long time ago. "State intervention in economic activities occurs in every country of the world without an exception," Ambassador Deepak said. The US proposal seems "to assume that all state interventions are bad for markets and overlooks instances where state interventions have enabled markets to function better." He also addressed several pointed questions on the US proposal, asking "do we need markets only for market's sake or we need markets that work for welfare and development?" The Indian envoy sought to know from the US whether the WTO can make "prescriptions and monitor development models and economic systems of its members who may be at different levels of development." Ambassador Deepak argued that despite pursuing "pro-market, pro-competition and transparent policies," India took recourse to "state interventions" to "address market failures, given the significant need to pursue pro-poor, pro-welfare, and pro-equity policies and bring more than 250 million people out of poverty." "As a founding member of the WTO, India believes that WTO's core objective remains promoting sustainable development, in a manner consistent with the needs and respective levels of economic development of its members," the Indian envoy emphasized. He said "state or market are only the instruments for achieving this objective and the decision of which one to choose when, should be best left to the wisdom of the Members." Moreover, the "focus of the WTO should be to use trade to create conditions of welfare and development," the Indian envoy asserted. South Africa said while it agrees "with optimal functioning of markets," the US proposal "introduces a number of terms that are not clearly defined making engagement on this issue a challenge." "It is not clear whether we have the same view of what is significant government interference?" said South Africa's trade envoy Ambassador Xolelwa Mlumbi-Peter. She argued that "countries have a number of policies that are implemented in public interest to address market failure or achieve developmental objectives, including in our case addressing historical exclusion of especially black people in the mainstream economy." She asked "whether these policies would be seen as creating non-market conditions in terms of creating a level playing field for workers and businesses even though they achieve a Constitutional mandate." Ambassador Xolelwa said the excessive faith in markets and the way they operate "lead at times to unintended consequences." "This includes market concentration, rising unemployment and inequality," she said, emphasizing that "policies and regulations are essential for their proper functioning and to promote a range of public policy outcomes." She said that "almost all WTO Members have mixed economies where Governments intervene in the economy or have State-owned enterprises who carry out specific functions to achieve a developmental mandate." Without naming the US and the EU among others, she said the following specific functions are being pursued by various members: * certain kinds of research and development incentives that support industries that develop new technologies that are then commercialized. * a range of non-tariff measures that are not based on science. * Price controls on agriculture and pharmaceutical products. * Interventions taken in the context of the global economic crisis. * Interventions for national security imperatives. She said South Africa is sensitive "to any proposal that challenges the right to regulate in the public interest," arguing that "governments need to balance a broad set of interests and concerns, including those of investors, workers, the unemployed, young people, and others, as we forge social pacts within our societies to promote sustainable growth and deeper economic inclusion." Given the differing levels of economic development, she said the Marrakesh Agreement had acknowledged a number of objectives. They include: * conducting trade and economic relations with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand; * expanding the production of and trade in goods and services; and * enhancing the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development. The Marrakesh Declaration has also recognized the need for "positive efforts to ensure that developing countries, and especially LDCs secure a share in the growth in international trade commensurate with the needs of their economic development." As countries progress at "uneven rates" due to "complex" factors, she said "these complexities necessitate the implementation of policies suitable to their development objectives and to address their specific challenges." Therefore, "the WTO should not attempt to determine the economic model of countries," Ambassador Xolelwa said. Members at the WTO "need a multilateral trading system that supports inclusive growth, and enables national authorities to pursue steps to achieve national developmental objectives and outcomes based on their peculiar circumstances," South Africa emphasized. +
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