TWN Info Service on WTO and Trade Issues (Jun20/05)
8 June 2020
Third World Network

US and China at loggerheads over management of trust funds
Published in SUNS #9132 dated 5 June 2020

Geneva, 4 Jun (D. Ravi Kanth) – The United States and China remain at loggerheads at the World Trade Organization over the administration and management of discretionary or trust funds, trade officials told the SUNS.

At a virtual meeting of the WTO’s Committee on Budget, Finance, and Administration (CBFA) on 3 June, the US raised several concerns about the way in which the trust funds are being deployed.

China strongly defended the use of trust funds at a time when there is a serious crunch for budgetary resources due to austerity measures, said trade officials, who asked not to be quoted.

At the virtual meeting of the budget committee on 3 June, the US said that the WTO Secretariat’s paper on the “coherence in the establishment and management of WTO Trust Funds” addressed some transparency-related aspects.

However, there are issues linked to transparency such as how these trust funds are accepted and how they are deployed, the US said, according to one trade official, who asked not to be quoted.

In a restricted document (WT/BFA/W/522) on coherence in the establishment and management of the WTO Trust Funds, the WTO Secretariat argued that 13 trust funds are being managed by the Secretariat.

According to the Secretariat, “from the analysis of these (13) funds, internal consultations within the Secretariat and based on feedback from Members, a significant portion of these funds (especially when measured by total funds and expenditures) are already subject to reasonably well documented and established procedures for planning and governance, transparency and reporting, and monitoring and evaluation.”

The Secretariat argued that “the most obvious among these established funds are the Global Trust Fund (GTF) managed by the Institute for Training and Technical Cooperation (ITTC) and the Standards and Trade Development Facility (STDF), a quasi-independent entity with its own governance and oversight mechanisms set out in the STDF Operational Rules.”

“While the specificities for how the GTF (Global Trust Fund) and the STDF (Standards and Trade Development Facility) are managed are unique, they share important elements such as (1) implementation plans based on consultations with beneficiaries and contributors and subsequently approved by oversight bodies; (2) transparent and regular narrative and financial reporting; and (3) periodic and independent monitoring and evaluation.”

The Secretariat said that “questions about coherence in oversight, transparency and reporting are mostly directed at a newer generation of trust funds that have emerged over the past several years and which do not fall under the formal management and administration structures of the Institute for Training and Technical Cooperation (ITTC) nor the STDF Policy Committee and Working Group.”

These new funds “would include the larger multi-year initiatives that cover a range of activities like the Trade Facilitation Agreement Facility and the China Development Cooperation Research Initiative (CDCRI)”, as well as “the smaller, more narrowly defined project-oriented funds like the Cotton, LDC Graduation, and Natural Disaster Research Funds.”

According to the Secretariat, “members seem also interested in the following general principles”.

They include:

a. The WTO should avoid an unnecessary proliferation of trust funds, especially small value short duration initiatives. Members making contributions should work through existing trust funds where possible.

b. Trust fund oversight should be linked to an appropriate committee, but there should be separation between the division/staff responsible for managing a trust fund and the division/staff servicing technical policy and negotiating committees.

c. Members should not micro-manage voluntary contributions or trust fund activities. However, there should be clear mechanisms for sharing information.

The Secretariat said that “based on consultations within the Secretariat and historical documents, the GTF (Global Trust Fund) and ITTC (Institute for Training and Technical Cooperation) were established for and organized principally to support technical assistance.”

“The more recently established trust funds and narrowly targeted project-based trust funds often do not fit into the established TA (technical assistance) model at the WTO, although there are general practices that can be learned from the experience of ITTC and its management of the GTF and then applied to the new types of funds,” the Secretariat argued.

Aside from the Secretariat’s document on trust funds, members also discussed the Secretariat’s report on grading structure for 2018 and 2019, a report on the internal audit presented by the chief of the audit, and budget and finance report for the first quarter of this year among others, said participants, who asked not to be quoted.

Surprisingly, at the meeting, the EU did not raise the issue of funding for the Multi-Party Interim Appeal Arbitration Arrangement, said another participant, who asked not to be quoted. (See SUNS #9123 dated 19 May 2020: “Trade: A witch’s brew at the WTO”.)

During the discussions at the budget committee, the US and several members took the floor to express their differing views on the discretionary/trust funds.

The US suggested that it is merely questioning the proliferation of trust funds, including issues of accountability and the independence of the Secretariat.

The US also claimed that the Chinese funds have become a law onto themselves, said trade officials, who asked not to be quoted.

Some members also highlighted the importance of adhering to the Financial Regulation 19 concerning the rules governing the trust funds and how they ought to be deployed, the trade official said.

The US as well as some members sought to know the current level of expenditure for the Appellate Body (AB), given the CHF 100,000 limit that was placed by the General Council last year.

There was considerable confusion on the Secretariat’s estimates and the actual estimates in the Secretariat’s outlay, the trade official said, arguing that the actual figures on the expenditures incurred will only be known in the next three months.

In sharp response to the US questions, China said it is wrong to put the discretionary/trust funds in the same basket as other funds.

China said the trust funds are useful at a time when there is a serious crunch for funds due to austerity policies, said a trade official, who asked not to be quoted.

China told the US that nobody can tell them that it cannot contribute to trust funds, arguing that they are essential for developing countries, the trade official said.

During the discussion on trust funds, around 10 countries took the floor and many of them concurred with the Secretariat’s paper.

But some countries said that there are a few other issues that need to be decided about the trust funds.

Members took note of the Secretariat’s document on the trust funds, but several added that the issue needs to be revisited in the full context of Financial Regulation 19, the trade official said.

On the funds for the AB, China said it is important to have transparency, but don’t deprive the AB members what is due to them, the official said.

During the discussion on the AB, India, South Africa, Singapore, Italy, Germany, the Netherlands, the US, and China made their interventions, the participant said.

Members also discussed the Secretariat’s paper on the “Procedures for selection of projects to be funded through the China Development Cooperation Research Initiative.”

The Secretariat explained that “the Director-General Azevedo signed a framework agreement with the Chinese Government in Beijing in May 2017 to formalize their cooperation under the South-South Cooperation and Assistance Fund (SSCAF).”

“China committed to make available to the WTO a contribution of USD 8 million to help developing countries, especially least developed countries, better integrate into the multilateral trading system and enhance their ability to benefit from the development of global value chains and promote the achievement of SDGs,” the paper argued.

According to several sources, the agreement was signed by the director-general without formal approval from members.

The director-general had signed the agreement initially for supporting the technical workshops on investment facilitation (IF), but in the face of intense criticism, the assistance for IF technical programs were dropped, said a source, who asked not to be quoted.

China said that there is nothing controversial about these funds for the China Development Cooperation Research Initiative, arguing that they help the Secretariat when the normal budget falls short of regular funds, the source said.