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Info Service on WTO and Trade Issues (Jul26/16) Geneva, 21 Jul (D. Ravi Kanth) -- The United States on 20 July made a strong pitch for seemingly upending the unconditional most-favoured-nation (MFN) treatment or non-discrimination principle in market access for all members of the World Trade Organization. However, the US appeared to be failing to justify its case when faced with intense questioning by several members during the controversial WTO reform discussions on "foundational" issues, said people familiar with the development. During the three-hour discussion on "foundational" issues, which was conducted by the facilitator Ambassador Sumathi Balakrishnan of Malaysia, several members - Mexico, Canada, Pakistan, Barbados, Korea, and Singapore among others - severely questioned the US trade envoy Ambassador Joseph Barloon on several aspects of the US position that he presented at the meeting, said people familiar with the development. Surprisingly, China, the European Union, Brazil, and India among others appeared to have remained silent. It remains to be seen if they would again question the US in September, due to the inconclusive discussions. At the meeting, the US trade envoy is understood to have said that though there are "six" different elements in the US proposal, he will present his views on the issue of unconditional MFN and several underlying aspects of the proposal due to paucity of time, said people familiar with the discussions. Ambassador Barloon apparently said that though he wanted to discuss the role of the WTO Secretariat along with the MFN issue, he admitted that it would not be possible, according to people present at the meeting. While introducing the US proposal (WT/GC/W/998), the US trade envoy apparently said that he would avoid going into the long history of MFN, as contained in the proposal. US ACCOUNT OF MFN According to the US proposal, the unconditional MFN principle has never been an absolute rule. The US stated in its paper that it had historically employed conditional MFN, where trade privileges were extended only in exchange for reciprocal concessions. The proposal suggested that Secretary John Jay had articulated this rationale in 1787, noting that it would be inconsistent with justice that "because France purchases, at a great price, a privilege of the United States, that therefore the Dutch shall immediately insist ... without any price at all." The US proposal also maintained that even within the GATT/WTO framework, exceptions abound - from Article XXIV permitting customs unions and free trade areas, the Enabling Clause allowing preferential treatment for developing countries, to various waivers and exceptions for balance-of-payments difficulties and security interests. "Perhaps the worst kept secret in Geneva is that MFN as a core principle of the global trading system is largely honored in the breach," the paper stated. Against this backdrop, the US trade envoy is understood to have said there are so many exceptions to the MFN rule and WTO members have been increasingly trying to evade the actual rule while resorting to exceptions, said people familiar with the proceedings. QUESTIONS During the session that focused on questions/clarifications, Pakistan and Mexico apparently sought to know who would decide the "economic models" or the standards that are consistent with the WTO rules for determining the continuation of the existing MFN based on Article 1 of the GATT, which is the bedrock of the WTO's legal architecture, said people familiar with the discussions. Article I of the GATT (1994) states: "With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III,* any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties." Further, the US was asked to clarify whether, if there are kinetic changes in government policies, will the MFN principle be upended, or who is going to determine that, said people familiar with the development. Mexico also seemingly quizzed the US on several other issues in its presentation, including the US stance on the link between MFN and reciprocity, said people familiar with the development. In response to the questions posed by Mexico and Pakistan, the US apparently said, "we do not have a panacea at this point in time." The US also suggested that it does not have any blueprint at this juncture. Although the US contends in its proposal that MFN and reciprocity are a bedrock WTO founding principle, it has not been able to conclusively justify this claim on the basis of specific provisions/rules until now, said people familiar with the development. Canada apparently asked the US to clarify issues concerning MFN and Article XXIV compliance, in response to the US' seemingly questionable claim in its proposal. In its proposal, the US has argued: "While the United States pressed for an open and unconditional MFN commitment in the GATT, the commitment did not require the elimination of certain continuing preferences. Since 1947, the principle of unconditional MFN has been steadily weakened, including through the negotiation of GATT Article XXIV (which permits Members to provide more favorable treatment to customs union or free trade area partners in certain circumstances) in 1958 and the Generalized System of Preferences in 1971. Furthermore, because of increasing concerns among industrialized countries about the "free rider" problem, several codes negotiated during the Tokyo Round were negotiated as "plurilateral" agreements, applying only to the GATT members that signed them. Indeed, subsequent multilateral and bilateral trade negotiations confirm that the rigid application of an unconditional MFN obligation is not a steadfast rule of multilateral trade." However, the US seemingly remained silent and did not provide any answer to Canada's question over the interface between the MFN principle and implementation of Article XXIV, said people familiar with the development. Barbados asked if there are different economic philosophies of countries. "Would the US tell us how many and how the members are going to determine those practices are unfair or fair trade," said people familiar with the discussions. Barbados also stated that there are issues with the implementation of sanitary and phytosanitary (SPS) measures, technical barriers to trade (TBT), import licensing, and subsidies, and that there are committees that are precisely made to address these issues. Barbados seemingly asked if the US thinks that the problems in trade that they are now facing could be addressed through those forums. The US responded to the question from Barbados with a simple answer: "No". The US trade envoy appears to have said that the MFN issues are beyond those committees. Ambassador Barloon, however, said Washington has been trying to fix these issues through those committees, but the foundational issue of MFN cannot be addressed through those bodies, said people familiar with the development. Korea, in its intervention, sought to know from the US whether there would be safeguard mechanisms that could be put in place for conditional MFN to ensure that it is not used in an arbitrary manner, said people familiar with the proceedings. Singapore apparently presented a process-related structure for conducting the discussions, suggesting that they are not useful, as responses that are more considered and structured cannot happen in a discussion like this, said people familiar with the discussions. The US said that "every proposal has its own merits, and every proposal cannot go through a similar sort of procedure and process." The US apparently signaled that it is not open to a more structured discussion, said people familiar with the development. At the end of the discussion, Pakistan apparently asked whether the US would discuss the other five elements of its proposal during the discussion on foundational issues in September, when members return from the summer break, said people familiar with the development. The US, however, said it wanted only to discuss MFN and the role of the Secretariat in the foundational track, while suggesting that the other four elements of its proposal will be discussed in the appropriate tracks, said people familiar with the development. In short, the US does not seem to have any credible answers to justify its call to discontinue the core principle of non-discrimination in global trade that acted as a bulwark against the unpredictable and allegedly illegal trade policies that countries are being subjected to by Washington since April 2025, said people familiar with the development. +
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