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TWN Info Service on WTO and Trade Issues (Dec17/06)
6 December 2017
Third World Network
 
Contemplating the unthinkable, a WTO without the US
Published in SUNS #8590 dated 6 December 2017

Geneva, 5 Dec (Chakravarthi Raghavan*) - As Ministers and representatives of WTO member countries gather in Buenos Aires this week for the biennial 11th Ministerial Conference, an issue that is confronting them is the current stance of the United States, under the Trump administration, to the multilateral trading system (MTS) incorporated in the WTO, and in particular the workings of the WTO's integrated dispute settlement system (the Dispute Settlement Understanding, DSU), and its Appellate Body.

Global civil society, media and public interest groups are exercised, and rightly, over the high-handed behaviour and action of the host for MC11, the government of Argentina headed by President Mauricio Macri, in denying accreditation and access to the conference for nearly 60 individuals from about 20 organisations, several of them very respected academic researchers.

To add insult to injury, the host (citing its intelligence services, whose abilities, mindset and actions do not appear to have changed much since the days of military dictatorship in the 1970s by a junta headed by army head, General Jorge Rafael Videla) has libelled those excluded as having made "explicit calls for violence on social media."

[See SUNS #8587 dated 1 December 2017/(http://www.twn.my/title2/wto.info/2017/ti171201.htm) and SUNS #8589 dated 5 December 2017/(http://www.twn.my/title2/wto.info/2017/ti171204.htm).]

These are very serious issues involving multilateral diplomacy, good faith negotiations, host country norms and behaviour, and total transparency and integrity of the international organisation and its officials in handling the issue and ensuring it is resolved for the conference to pay undistracted attention to substantive issues.

Nevertheless, the nations at large, and their public, need to focus on the issues and the threats to multilateralism in general, and international trade relationships anchored in the World Trade Organisation and its Multilateral Trading System (WTO-MTS).

Within the WTO and its annexed agreements that constitute the MTS, the DSU and its unique nature are crucial, and any impairment of the DSU and its bodies, blockages to the smooth functioning of its processes on account of the US stance on the working of the DSU, have the potential for destruction of the MTS itself.

Advancing some specious reasons, the United States has blocked the start of a process for filling three vacancies in the 7-member Appellate Body (AB), and is now well-set to de facto make the AB process non-functional.

At the meeting of the WTO's Dispute Settlement Body (DSB) on 22 November, the United States has once again rejected, thus withholding consensus, proposals for the simultaneous launch of the selection processes to fill three vacancies at the seven-member Appellate Body (AB). Appeals on issues of WTO law are decided at the AB by a three-member division bench of the AB, with members chosen at random. An AB member from a nation, party to the dispute, usually does not sit on the division bench hearing the appeal.

With the US blocking the filling up of vacancies, effectively it will become impossible for the AB to hear and dispose of appeals. From 1 January 2018, the AB will have only four members.

The US has been giving as the reason for its objection the continued service of former AB members to complete work on appeals they had been hearing while they were members (a procedure that has been in vogue at the AB, under its working procedures that become effective after the Dispute Settlement Body was notified and without objection till now from the US).

In actual fact, it is clear from various remarks of the US administration officials (President Trump himself, and officials at US Commerce Department, USTR etc), that the US is aggrieved that the AB has not been accepting the US arguments and positions, particularly in appeals involving anti-dumping agreement rules, and the US resort to "zeroing" in judging imports from competitors as involving "dumping", are being struck down as WTO-illegal.

The US position appears to be "my way or the highway".

In effect, the US appears to be determined to "freeze up" the WTO's Dispute Settlement System (with its provisions for adoption of panel and AB reports by negative consensus, a provision that was promoted and insisted upon by the United States in the final stages, in September-December 1993, of the Uruguay Round negotiations and its conclusion at official level with adoption of the draft WTO treaty and its annexed agreements).

Under the old GATT 1947 regime and its dispute settlement system, panel rulings and recommendations had to be adopted by consensus. And in the 60s and early 70s, the United States felt frustrated when two panel rulings, in disputes brought by the US against the then European Economic Community (EEC), on agricultural trade issues were blocked from adoption by the EEC (now the European Union at the WTO).

One of these disputes related to what became known as the Italian pasta dispute (EEC preferential treatment for Italian pasta producers using EEC supported/subsidised wheat produced in the EEC, as against imported US wheat); the second related to French millers using subsidised French wheat (in preference to imported US wheat) to produce wheat flour for supplying bakeries etc.

With this in mind, it was the US that insisted, during the final stages of the Uruguay Round (UR) negotiations in Oct-Nov 1993, that while decision-making in the DSU should be by consensus, in respect of the dispute settlement process, from setting up panels to adoption of panel reports, the negative consensus rule should apply.

The EU at that time was extremely reluctant, but finally yielded and agreed, with a stipulation that panel rulings could be appealed on issues of law to an Appellate Body. The 7-member AB structure, with each appeal being heard and rulings handed down by a division bench of three AB members was the agreed upon outcome. And it was the US and EU that promoted the AB practice of the members of the division bench hearing an appeal, consulting other members of the AB not hearing the appeal, to ensure collegiality (a concept alien to normal Anglo-Saxon or Napoleonic Continental jurisprudence).

During the final stages of the Tokyo Round, the US and the European Communities had put together a draft code on IP (intellectual property) protection, met the then GATT DG, the late Olivier Long, and handed over the draft to him, asking him to put it through a "green room." Long, a Swiss liberal ideologue, read through the draft and reportedly gave it back to the two, with the remark that they should promote it themselves and table it before the GATT Contracting Parties (CPs).

According to one of his top aides at that time, Long felt that what eventually became the TRIPS (trade-related aspects of intellectual property rights), was not a "liberalising" instrument but one to restrict international trade, by ensuring global monopolistic rights. He reportedly told the two, "I have not become GATT DG to wind it up!"

When the TRIPS and Services trade became issues for multilateral trade negotiations (MTNs) during the Uruguay Round negotiations, launched at Punta del Este in 1986, initially the US thought its aims could be achieved by simply defining "trade" in GATT to encompass "trade in goods, intellectual property and services."

However, GATT legal experts said that such an amendment would not be feasible, since the preamble to the GATT showed that what had been envisaged was "production and exchange of goods," and IP and Services are intangibles and could not be brought under the term "goods".

And since, under services trade, the US looked for the ability to set up production of services in any country and supply of that service to consumers of that country, or as inputs into local production processes, it was an "investment" issue, and not goods crossing borders. This forced the US to agree to an institutional framework encompassing trade in goods, services and protection of IP rights.

The US realised (and/or allowed itself to be persuaded) that such an institutional framework, with its own integrated dispute settlement system (enabling cross-retaliation, by denying market access in goods to an offending developing country, violating or restricting IP rights or services trade), would be the most effective way to safeguard and expand market access rights of its corporations.

Thus, the US which was unable to ratify and bring the Havana Charter for the ITO (International Trade Organisation) into being, agreed upon the WTO. Unlike the Havana Charter, the WTO treaty did not require its provisions to be self-executing in US domestic law (through ratification of treaty), but only obligated its signatories to ensure through implementing legislation compliance of domestic law with obligations under the WTO and its agreements.

At that time in 1993-1994, when the draft WTO treaty and its annexed agreements, including the integrated DSU were put into shape, the US made no secret of its success. And most developing country members, who reluctantly admitted they had gained little from the UR agreements, nevertheless pointed to the DSU as a win of sorts for themselves (Raghavan, 2014, "Third World in Third Millennium CE", Vol 2, pp 108-178).

And in early rulings, in disputes raised by the US itself against key developing countries -  Indonesia car dispute, India QRs, India TRIPS issues, Brazil subsidies to aircraft exports (Raghavan 2014, 188-204; also Raghavan, 2000, "The WTO and its Dispute Settlement System: Tilting the balance against the South", TWN T&DS No. 9), the AB began giving "interpretations", a role exclusively reserved for the MC (Ministerial Conference) and in between conference sessions to the General Council. At that time, the US supported and applauded the AB.

It is only now, when rulings on AD (anti-dumping) are going against the US that this outcry has begun. Even before the entry of Trump into the White House, the US under previous administrations was aggrieved and did not implement any of the recommendations. However, the opposition to the WTO and the AB was not so open nor did the US threaten to quit the WTO as now.

Only those not aware of this background can allow themselves to be fooled by the current US stance, and try to accommodate it vis-a-vis the AB or a catch-all rule for every WTO member, except the US, to comply!

Hence, it is time perhaps that the WTO members (other than the US) begin to apply their minds to this issue of the MTS sans the US, and bring the issue out into the open and raise a debate. The US attitude to dispute settlement is an excellent basis for doing so, given that the DSU is at the heart of the current MTS and this is the one feature which distinguishes it from other multilateral institutions and the reason why agreements such as the TRIPS was negotiated in this forum. Again it is the reason why labour rights etc. are being sought to be brought into the WTO, namely to use trade sanctions for enforcement of obligations under the MTS.

****

For any informed thinking and debate on this, it is useful to place the issue in the context or against the background of the seven-decades-old post-war world order, rooted in the UN Charter and the international economic system envisaged in the Bretton Woods Agreements that preceded the UN Charter.

This post-war world order was conceived and conceptualised by President Franklin Delano Roosevelt (commonly known as FDR) in his mid-Atlantic Ocean meetings with Winston Churchill in 1940, resulting in the Atlantic Declaration, and subsequent war-time meetings of FDR, Churchill and Soviet Union's Joseph Stalin (the Casablanca, Cairo, Teheran, Yalta meetings) and culminating in the 1945 UN charter (and the Bretton Woods agreements for an international monetary and finance system agreed a year earlier - Raghavan 2014, "Third World in the Third Millennium CE", TWN Penang, Vol 1, pp 3-50).

Hitherto, over this 72-year period, the US has been the hegemon of this order, and for most of its time, the benevolent hegemon fashioning and influencing it to benefit its own interests and that of its capital and corporations, but also enabling the rest of the world to benefit. However, since the election of Donald Trump to the US Presidency, while following an erratic course over this past year, the US is threatening to become an outlier, if not an outlaw of the world order and its rules-based international systems.

Nowhere has this been more glaring, forcing the Rest of the World to come to grips with this situation, but not knowing whether it is a temporary aberration on the part of the US or a more permanent one, than in the rules-based Multilateral Trading System anchored in the nearly 23-year-old World Trade Organisation (that replaced the GATT 1947, the postwar multilateral instrument governing international trade relations from 1948 until the WTO was established in 1995).

The Havana conference began on 21 November 1947, less than a month after GATT 1947 was signed. The ITO Charter was finally agreed in March 1948, but ratification in some national legislatures proved impossible. The most serious opposition was in the US Congress, even though the US government had been one of the driving forces behind the negotiations and the outcome in the Havana Charter for an ITO. In 1950, the United States government announced that it would not seek Congressional ratification of the Havana Charter; and the ITO was effectively dead, while the GATT 1947 that came into being in 1948 (ahead of the conclusion of the Havana conference) as a provisional arrangement, remained provisional, but became the multilateral instrument governing international trade relations from 1948 until the WTO was established in 1995.

Over 50 countries had participated in negotiations at Havana to create the International Trade Organization (ITO) as a specialized agency of the United Nations. During the preparatory process, some 15 countries had begun talks in December 1945 to reduce and bind customs tariffs, wanting (at the end of World War II)  to give an early boost to trade liberalization, and begin to correct the legacy of the protectionist measures of the interwar years.

These talks continued as part of the preparatory process for Havana, with the group expanding to 23 by the time the multilateral instrument (a framework package of trade rules and some 45,000 tariff concessions affecting $10 billion or about one fifth of the then world trade) was agreed upon. The tariff concessions came into effect by 30 June 1948 through a "Protocol of Provisional Application", and the General Agreement on Tariffs and Trade (GATT) was born, with 23 founding members (officially "contracting parties"). And the GATT, brought into force provisionally in 1948, remained as such till 1 January 1995, when the WTO came into being.

The United States has been the biggest beneficiary of the WTO (as a result of the WTO and its trade liberalising MTS encompassing not only goods trade, but also trade in services, GATS, as also the trade-restrictive TRIPS, providing global monopolistic protection for Intellectual Property Rights).

The rules of the WTO system, including its integrated dispute settlement system were largely, though not exclusively, fashioned and influenced by the United States, accounting at that time for about one-third of this world trade. The WTO treaty, with all its annexed agreements including the Dispute Settlement Understanding, was negotiated, mostly, but again not exclusively, in direct talks with the European Union in the second half of 1993; and this was forced down on a majority of participating nations in the Uruguay Round. Any compromises reached, including some ambiguously worded language in accords on Anti-Dumping and SCM (subsidies and countervailing measures) agreements were those evolved and accepted by the US in its negotiations with the EU.

In effect, the rules of the WTO's MTS reflected the balance in the economic and trade power relationships of that era and against the background of then prevalent international political and security balance and power relationships among the nations of the world. Since then, these power relations (in political, security, money and finance, and trade areas) have changed, with new power centres and actors, not as powerful as the US, but nevertheless rising powers, emerging.

In this emerging multi-polar world, the United States now accounts for about 13 percent of world trade in goods and services (compared to its one-third weight in the immediate post-war years). To think it could now achieve better terms, accounting as it now does only for 13 percent of that world trade than when it had accounted for 30 percent, is a chimera. However, at the moment, the US is chasing this chimera, flexing its muscles to exercise power in an effort to enhance its position in the MTS - setting off the inevitable clash with the other emerging powers.

This has made the US an outlier in the MTS, threatening through its leaders to withdraw from the WTO and the MTS, if it cannot have its way. In this process, it has brought the WTO and its MTS face-to-face with a crisis, threatening to freeze and paralyse the system.

In this situation, and not knowing whether the US stance is a temporary aberration or a more permanent change, the Rest of the World (RoW) is now forced to begin to think the "unthinkable": contemplate a WTO and its MTS without a United States. Learning from the lessons of the inter-war years and the history of the League of Nations, RoW is understandably anxious to avoid such a situation.

However, the US stance is forcing the RoW to begin to think the unthinkable, lest there be a complete breakdown of the post-war order, and the resultant inevitable impetus to centrifugal forces and conflicts in the world.

However wrenching such an MTS minus the US would be, the alternative facing the RoW, if the US continues on its current path, is a complete paralysis of the MTS and the unleashing as a consequence of centrifugal forces, disrupting and sundering existing trade relations, giving an inevitable impetus to trade and other conflicts in the world.

At some point, at MC11 or immediately thereafter, perhaps it may be time for the RoW, members of the WTO, to call the US bluff in this WTO poker game. The RoW should take recourse to Art. X of the Marrakesh Treaty, carry out a suitably worded amendment to the DSU (to overcome the US blockage), and if the US does not agree or accept such an amendment when it becomes effective, invite the US to withdraw from the WTO. Such a move, hopefully, will concentrate minds among Congressional leaders and US corporate and other interests, benefiting from the WTO, and bring about a change in the US.

The United States withdrawal from the WTO will mean the US will lose the rights it now enjoys - such as protection for its Big Pharma and its monopolistic practices, or franchising rights (such as now enjoyed by the Trump organisation or Ivanka Trump for her trade-mark designer clothes), and the access the US banking and non-banking financial sectors now enjoy for providing such services.

It is not something that the RoW seeks, but rather than allow the entire system to be wrecked by the current obduracy and outlier positions of the US, it is better to have a WTO multilateral system minus the USA. Such a system, willy nilly will be multipolar, and cannot be dominated by an EU, China, Russia or India.

If at a future point, the United States wants to be back in, this should be made possible and made easier (than what the Chinese faced in attempting to rejoin the GATT), but on the clear understanding that the US will abide by the rules, including implementing adopted panel and AB rulings.

(* Chakravarthi Raghavan, Editor-Emeritus of the SUNS, who contributed this comment, has benefited from comments and suggestions on earlier drafts by: Mr. Bal Krishan Zutshi, former Indian ambassador to GATT (1989-94) during the Uruguay Round negotiations and its conclusion in the WTO Treaty; and Mr. Rammanohar Reddy, Reader's Editor of Scroll.in and former Editor of the Economic and Political Weekly, India.)

 


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