TWN Info Service on WTO and Trade Issues (Jun19/07)
13 June 2019
Third World Network

G20 fail to resolve differences over WTO reform, digital trade

Published in SUNS #8923 dated 12 June 2019

Geneva, 11 Jun (D. Ravi Kanth) – Trade ministers of the Group of 20 countries, meeting on Sunday in Tsukuba (Japan), failed to resolve their differences on the proposed reforms at the World Trade Organization and rules on digital trade for removing restrictions on cross-border data flows as well as storing of data in foreign servers, participants told the SUNS.

Despite the setback suffered by major developed countries and Japan (which hosted the two-day ministerial meeting), in advancing their agenda on WTO reforms and the digital trade, there will be a renewed push for shaping the G20 agenda on these two issues at the G20 summit in Osaka on 20 June, said participants, who asked not to be identified.

At the Osaka meeting, leaders from the major industrialized countries along with the WTO director-general are expected to push for plurilateral rules on grounds that they would provide impetus for WTO reforms, participants said.

[Any plurilateral accord for such digital trade rules to find its way into the WTO rule book even as a plurilateral agreement to be included in Annex IV, needs a Ministerial Conference decision “exclusively by consensus,” under Art. X:8 of the Marrakesh Treaty. At various fora where this issue has come up, the sponsors have studiously avoided answering how this will be achieved. Any plurilateral accord outside the WTO Treaty will violate the MFN principle and thus be WTO-illegal. SUNS]

During the two-day G20 trade ministerial meeting, ministers finalized a “watered-down” statement on Trade and Digital Economy.

The statement reflected the sharp differences on the WTO reforms, including the plurilateral negotiations, and the digital trade agenda that was sought to be advanced by major developed countries.

Trade ministers of the developing countries in the G20 – China, India, South Africa, Indonesia, and Saudi Arabia among others – rejected calls for bringing graduation/differentiation for availing special and differential flexibilities (S&DT) by developing countries on a self-selection basis, and for the termination of the consensus principle for arriving at multilateral decisions.

India and South Africa voiced serious concerns about pursuing plurilateral negotiations that would undermine the multilateral framework as embodied in the WTO.

South Africa had called for re-energizing the multilateral framework on all negotiating issues, a stand that was supported by India at the meeting, participants said.

During the discussions on the controversial issues, trade ministers of major developed countries, including the United States, the European Union, Japan (the host for this year’s G20 meetings), Argentina, and Brazil among others pitched hard for plurilateral negotiations by repeatedly referring to them as the WTO negotiations, said participants, who preferred not to be quoted.

The WTO director-general Roberto Azevedo, who took part in the proceedings, supported the push towards plurilateral negotiations, saying that the plurilateral outcomes “will not undermine the multilaterals”, said a G20 participant who asked not to be identified.

China, which is taking part in the plurilateral negotiations on electronic commerce, investment facilitation, and disciplines for micro, small, and medium enterprises (MSMEs), tried to convince India, South Africa, Indonesia, and Saudi Arabia that it is important to remain inside the negotiating room for plurilaterals than opting out, the participant said.

The US, the EU, and Japan along with the UK and other developed countries insisted on introducing graduation/ differentiation for denying S&DT for several developing countries because of the new realities in the global trade.

But trade ministers from China, India, South Africa, Indonesia, and Saudi Arabia rejected divisive approaches as part of the WTO reforms.

The US blocked any mention of unilateral trade measures, protectionism, and the systemic crisis plaguing the Appellate Body in the G20 ministerial statement.

On a separate issue concerning the language on unfair trade practices and the continuation of the G20 Global Forum on Steel Excess Capacity (GFSEC), China blocked proposals from the US, the EU, and Japan, for bringing reforms at the WTO.

Consequently, the Chair for the two-day meeting, Hiroshige Seko, issued a statement on these two issues concerning the unilateral measures and protectionism, and the continuation of the GFSEC.

During the discussions on the WTO reforms as well as the digital agenda, Japan was compelled to take into consideration “all the positions” that were somewhat “tenuous”, said a participant, who asked not to be identified.

To start with, the language on the systemic crisis at the WTO’s Dispute Settlement Body, particularly the Appellate Body (AB) that would become dysfunctional after 11 December 2019 due to the US blockage for filling the vacancies at the AB, remained weak due to US objections.

Many trade ministers at the meeting called for an urgent resolution of the AB crisis but the US deputy trade representative Ambassador Dennis Shea made it clear that Washington will not agree to include language on the AB.

Reflecting the divide between a large majority of trade ministers on the one side, and the US on the other, the G20 statement merely stated that “we agree that action is necessary regarding the functioning of the dispute settlement system consistent with the rules as negotiated by the WTO members.”

India’s new trade minister Piyush Goyal, according to a Press Trust of India report on 9 June, said that “the dispute settlement mechanism, which is the mainstay of the WTO, underscores the principle of sovereign equality of all nations, which we are all committed to uphold.”

During the discussion on the proposed WTO reforms, trade ministers from India, South Africa, China and Indonesia among others stated categorically that they will not agree to “divisive” approaches to undertaking reforms, especially for introducing graduation/differentiation from availing S&DT on a self-selection basis.

According to the PTI report, India’s trade minister Piyush Goyal had said at the meeting that “India believes that the reform process should not undermine the WTO’s fundamental principles, namely, Special and Differential Treatment (S&DT), consensus-based decision making and objective of development.”

During the discussion on transparency and notification requirements, sharp differences came to the fore as between China, India, South Africa, Indonesia, and Saudi Arabia on the one side and the proponents of strong/punitive transparency and notification requirements such as the US, the EU, Japan, and Australia among others.

As a result, the final G20 statement attempted to satisfy both sides by saying: “We recognize the importance of transparency of the WTO Members’ trade related policies. We note ongoing initiatives on transparency and notifications [introduced by the US, the EU, and Japan among others] with this purpose in mind. We confirm our commitment to fulfilling our existing notification obligations [as demanded by South Africa, India, and China among others].”

On fisheries subsidies, the G20 trade ministers merely reiterated their support to agree on comprehensive and effective disciplines on fisheries subsidies as mandated in the WTO’s eleventh ministerial statement issued in Buenos Aires in December 2017.

The mandate from the WTO’s eleventh ministerial conference had required members to “agree to continue to engage constructively in the fisheries subsidies negotiations, with a view to adopting, by the Ministerial Conference in 2019, an agreement on comprehensive and effective disciplines that prohibit certain forms of fisheries subsidies that contribute to overcapacity and overfishing, and eliminate subsidies that contribute to IUU-fishing recognizing that appropriate and effective special and differential treatment for developing country Members and least developed country Members should be an integral part of these negotiations.”

According to the eleventh ministerial conference mandate, “members re-commit to implementation of existing notification obligations under Article 25.3 of the Agreement on Subsidies and Countervailing Measures thus strengthening transparency with respect to fisheries subsidies.”

But the US and major developed countries remained opposed to extending special and differential treatment for developing country members and least-developed countries.

The US and Australia had issued a proposal for capping subsidies at the current level while China also proposed capping subsidies on the lines of the WTO’s subsidies in agriculture with special and differential treatment for developing countries.

On digital trade and the demands for removing restrictions on data flows and storing of the data in foreign servers, the G20 ministerial statement revealed differences between the developing countries on the one side and the developed countries on the other.

The G20 statement reaffirmed “the importance of the [1998] Work Program on electronic commerce”, vindicating the stand taken by China, India, South Africa, and Indonesia among others.

In return for including their language on electronic commerce, the developing countries had to concede language that “we note the ongoing discussion under the Joint Statement Initiative on electronic commerce,” a participant said.

Further, India and South Africa had to agree to language that “participants in the respective Joint statement Initiatives under the WTO welcome the ongoing discussion and confirm their commitment to achieve progress.”

The Indian minister, according to the PTI report, had suggested that “we must collectively look at mainstreaming these discussions in the WTO after informal consultations. The G20 should commit to support only WTO consistent rules and avoid creating unsurmountable goals. They should remain consistent with WTO rules and not go beyond till such boundaries are re-negotiated and revised.”

The developing countries, however, managed to include language in the digital agenda by underscoring the need to “enhance investment in infrastructure focusing on ICT, including in developing countries, to facilitate their participation in the digital economy,” said a participant, who asked not to be quoted.

On the divisive issue of removing restrictions on cross-border data flows and storing data in foreign servers, the G20 trade ministers remained sharply divided. Japan, the US, the EU, and Australia failed to secure any language on this issue, the participant said.

India’s trade minister argued that “countries must have the sovereign right to use their data, for the welfare and development of its people. Advocacy on free trade should not necessarily lead to justification of data free flow.”

Indonesia’s trade minister Enggartiasto Lukita had also warned about the dangers posed by free cross-border data flows.

“From our perspective, the security of electronic transactions and the rights of businesses and consumers to have their data secured are crucial,” Indonesia’s trade minister Enggartiasto Lukita told his counterparts at the G20 meeting, according to an Indonesian official who asked not to be quoted.

Warning about “predatory practices of bigger digital platforms towards the smaller ones,” the Indonesian minister called for “the right balance between the free flow of data on one hand, and appropriate protection of certain types of data on the other hand.”

The G20 ministerial statement also included language on “capacity building for women, youth and MSMEs to benefit more from digitalization.”

It also recognized “the complementary roles of bilateral and regional free trade agreements that are WTO-consistent.”

In the face of opposition from the US for including language on unilateral trade measures and protectionism, the chair issued a statement on his own, saying that “many Ministers expressed serious concerns about the current tensions surrounding trade.”

“Ministers stressed the importance of mitigating risks, bearing in mind the adverse effects on confidence and investment sentiment among exporters and investors,” the chair’s statement maintained.

“Many Ministers affirmed the need to improve collectively the trade and investment environment [and] the importance of ensuring that trade measures be WTO consistent was emphasized by many Ministers,” the chair said.

As regards the objections raised by China to the continuation of the G20 Global Forum on Steel Excess Capacity, the chair said ministers had welcomed “the progress made so far by the Global Forum on Steel Excess Capacity (GFSEC), [and] the wide majority of members expressed their willingness to join an emerging consensus to recognize that further efforts are necessary to reduce excess steelmaking capacity and to call for the extension of the GFSEC’s duration beyond its current term and continuation of its work.”

In short, the developing countries face the escalating threat of plurilateral negotiations, particularly in electronic commerce, on the dubious plea that they would strengthen the reforms at the WTO. The WTO director-general is also a votary to the view propagated by the developed countries that the plurilateral negotiations will not undermine the multilateral trade body, several participants told the SUNS.