Challenges for developing countries in new WTO Round

by Someshwar Singh

Geneva, June 24 -- The grievances of developing countries with some aspects of the WTO agreements can be more effectively dealt with in a new round of multilateral trade negotiations, according to a report prepared for the Commonwealth secretariat.

"Trade Challenges for Developing Countries: Preparations for the New Round," by Prof David Robertson of the Melbourne Business School, argues that instead of relying on the various mandated reviews of the WTO agreements, developing countries can deal with their 'justifiable concerns' better in a new round, where 'opportunities for trade-offs and reciprocity are greater.'

The Commonwealth report makes the case for a new round of multilateral trade negotiations as it offers a 'positive response' to both recession and intensifying protectionism. For some time, the EU and other OECD countries have been promoting a new round to begin in 2000, to coincide with the reviews called for in the Uruguay Round 'built-in' agenda (mandated reviews). The information about the state of play, on which the report is based, however appears to have been overtaken.

The discussions in the formal and informal Seattle preparatory meetings of the General Council suggest that the arguments about a new round to stave off protectionism and enable the major industrial nations to carry out the obligations they have undertaken have not been accepted by many key developing countries.

This latter idea was voiced publicly at the WTO sponsored Trade and Development Symposium, among others by Mr. Paul Collier, a World Bank Director of Development Research Group, who chaired a panel session on trade, and Mr. Fred Bergstein, Director of the Institute of International Economics and a Washington establishment figure.

The idea was rebuffed at the symposium, and also in various position papers and statements at the Seattle preparatory process by a number of developing countries (including many members of the Commonwealth) who have made clear they are not willing to pay a price again for the industrialized countries to implement their commitments in the Uruguay Round. And some of them have also said they are not willing to take on new agenda issues (investment, competition policy, environment or labour standards) either to provide political cover for the EU members to go forward with their commitments to further reform of the agricultural trade or to the US for implementing the other commitments in the area of goods.

And the protests of development NGOs of the North and the South appear to have impelled the World Bank's higher echelons to back away from the Collier views and advocacy.

And the US position (as cited by the report in the remarks of USTR Charlene Barshevsky, supportive of the EC view on competition), also appears to have changed in the General Council process.

The Robertson report argues that unlike in the case of GATT, where developing countries adopted a selective approach that often meant no commitment at all, the acceptance of all agreements under the WTO has imposed on them wider commitments and obligations. These commitments are now beginning to bite and developing countries are finding they face institutional, political and resources difficulties.

For 45 years, the GATT system had pursued 'negative' integration, based on removing barriers to commerce. The WTO, on the other hand, introduced 'positive' integration in the form of agreements that 'harmonise' national systems, rather than remove barriers. For instance, the TRIPS agreement establishes a uniform system of patents rights (for owners) with obligations on countries to protect these foreign property rights, by patent registration, contact points, information, enforcement etc.

'Harmonisation' through the WTO agreements lies behind the 'link' issues, Robertson says and notes these are evident in the proposals to establish common rules on international investment, domestic competition policies and government procurement policies.

"The wish to 'colonise' other countries' policies," says the Commonwealth report, "is most apparent in environmental and social policies, where OECD governments accept the need to take account of public opinion as expressed by the loudest media voices."

The EC which has 'harmonised' national policies of its members, now wants to extend it via the WTO, though benefits of trade liberalisation don't require it. Civil Society within the US and EC are leading attacks on the IMF and World Bank and also WTO, and the governments don't explain the inter-governmental character of these institutions - and prefer to leave these agencies to take the blame rather than explain their own role in decision-making.

Developing countries' interests are often used to vindicate some NGOs' positions in international forums, such as the UN meetings on social, cultural and development issues. But environmental NGOs pose a threat to economic development and seldom suggest offering any compensation for removing growth and development opportunities.

These alliances with strong emotional appeal to populism in OECD countries can seriously constrain the development process. They are also a threat to the new trade round if their single-issue agendas are adopted. These concerns were voiced at the WTO High- Level Symposium in Geneva in March, 1999, by India, Brazil, Malaysia and others.

In its assessment, in fact, the report maintains that "trade policies are inferior instruments for resolving environmental problems and the WTO is an inappropriate forum, designed as it is for negotiations among trade experts." Environmental issues, it contends, should be directed to the multilateral environmental agreements (MEAS), set up under the UN auspices.

The Uruguay Round final act brought more changes to the multilateral trading system than realized at Marrakesh. Some UR agreements were incomplete and in some respects were little more than a framework, expressing general intentions.

For example, the 'single undertaking' required that all WTO members adopt the General Agreement on Trade in Services (GATS), but participation required the positive listing of only one service sector, without a general commitment to liberalize all trade in services. The GATS rules were acknowledged to be incomplete in article XIX, which mandated continued negotiations.

Several other articles were only hollow structures: Art V on economic integration; Art IX on business practices; Art X on safeguards; Art XIII on government procurement; and Art XV on subsidies.

While a review was mandated for the GATS in five years, the TRIPS agreement allowed developing countries 5 years to establish domestic patent offices (least developed countries 10 years). The TRIMS agreement allowed developing countries 5 years to remove certain performance requirements and exchange restraints (7 years for LDCs)

Both these agreements required extensive regulations and information services to be set up - making a review after five years essential.

A further complication has arisen from cross-referencing' among several international agreements. The TRIPS agreement has become entangled with UN Biodiversity Convention and the efforts to agree on a Biosafety Protocol, to enforce 'the precautionary principle.'

[At the last meeting of the CBD's Conference of Parties in Cartagena, an accord on the biosafety protocol was blocked by the US, which is not even a member of the CBD, and five members of the Miami Group supporting it (Canada, Australia, Argentina, Chile and Uruguay) who insisted on trade to prevail over environment. In the ongoing discussions on TRIPS and the mandated review of Art. 27.3, the US and EC have sought in addition to restrict the review to review of implementation only, while developing countries have raised the issues of TRIPs deferring to CBD and rights of host countries.]

Likewise, says the Commonwealth Report, the Sanitary Phyto- Sanitary standards (SPS) agreement was intended to safeguard national sovereignty over quarantine standards, if supported by scientific evidence, but it has become entangled with food and health standards in dispute panels (eg beef hormones).

Both the dispute settlement understanding and the SPS agreement contain provisions for review after five years (i.e. in 2000). The SPS agreement depends on standards established in organisations where developing countries have little representation. The same applies to committees on industrial and technical standards used in the TBT agreements.

The report also voices the concerns of some delegations in Geneva that from the approach of panels and the appellate body, in giving an "evolving view" of rules and obligations, without reference to the WTO General Council. Previously, GATT disputes were resolved among trade experts, by consensus and without legal opinion.

The new UR agreements are more complex (with some containing 'constructive ambiguities' in drafting to enable all major negotiators to accept them) and require careful assessments. The Marrakesh Agreement defines the WTO General Council role in interpreting the agreements, but these rules are not easily applied in the absence of a consensus, and in other cases requires a vote that has never happened in the GATT's history and would go to the heart of the present multilateral trading system based on consensus, argues Mr.Robertson.

However Mr. Robertson's views appears to blur over the clear distinctions envisaged by the signatories of Marrakesh between normal consensus decision-making and the authoritative interpretations -- and the contradictions (shown up in the banana dispute) arising from the negative consensus in adopting panel rulings, and the 'positive consensus' (because of unwillingness to resort to voting) needed to change the interpretation of a ruling by a runaway panel or appellate body.

In particular, the Robertson views do not seem to take into account that Art.9.1. of the Marrakesh Agreement while calling for continuing the GATT practice of consensus, not only provides for voting when decisions by consensus are not possible, but in dealing with interpretations (art.9.2) sets out a specific provision, both envisaging and calling for a three-fourth's majority for adoption.

Robertson suggests that the review of the DSU as part of the 'built-in agenda' would need to examine the power over legal interpretations. But since the power is already vested under Art.9.2 of the Agreement, and provides for voting, it is not very clear what is the power that need to be examined under the DSU review.

The issues raised are further complicated by bringing up the problem of NGO participation and submission of amicus briefs in dispute hearings (advocated by the US and EC). This last, he points, out would emphasise the judicial character of the dispute hearings and appeal tribunals, while the General Council is still the supreme organ of the WTO. Developing countries, Robertson notes, are increasingly using the DSU processes to mount cases, but complain of lack of expertise and costs. And if NGOs participate in them, the difficulties would be exacerbated.

If the ultimate power rests in the General Council, developing countries can express their views in major interpretive arguments, but may not have the legal capacity to pursue such matters in a legalised dispute settlement process.

Robertson refers to the moves to set up a legal advice bureau, and suggests that this should be a minimal demand by least developed countries in the new round.

The institutional issues facing the new round, he says centre on four key questions: how much 'harmonisation' of policies are WTO members prepared to accept from review of existing agreements? should aspects of UR agreements be renegotiated in the next round? how many 'link' issues offer benefits to developing countries? is the dispute mechanism becoming too legalistic and do WTO members want to accept 'evolutionary law' without reference to the General Council?

The structure of the new round agenda is getting clearer, says the report, and lists the views of the USTR in testimony in February before a Congressional Committee: agriculture, services including e-commerce, market access (including industrial tariffs, non-tariff barriers) and ITA II, a forward work programme (meaning continuing the study programme) on competition and investment, elaboration of the agreement on government procurement, TRIPs implementation and wider participation for NGOs in WTO activities on environment and labour standards.

He believes that these are broadly consistent with proposals being discussed in the General Council, and that most developing countries would have few difficulties under these major headings - except the last two.

The developing countries have justifiable concerns about aspects of the UR agreements, and these could be addressed in the mandated reviews, but are more effectively dealt with through a new round which could provide opportunities for trade offs and reciprocity.

Referring to the TRIPS agreement, Robertson underlines that these negotiations were not about trade liberalisation but protecting IPRs, and harmonisation of national policies.

"The consequence has been a redistribution of wealth from developing countries (importers of intellectual property) to OECD countries (owners and net exporters). This redistribution has resulted in resentment and reluctance to comply with obligations.

The TRIPs negotiations were heated and convoluted, with both OECD and developing countries using it as a bargaining chip in different contexts. But developing countries did not take a unified position. Some accepted it as a basis to attract investment and technology, others in exchange for better access for agriculture and textile exports. Yet others were worried about the rising costs for medicines and foods. As a result, when TRIPs obligations are discussed, most developing countries are disgruntled and reluctant to meet commitments.

In economic terms, there is a tension between maximising benefits from existing knowledge and encouraging development of new knowledge and processes. Discovering, inventing or creating new process or services is a private economic activity that needs appropriate return.

"But the marginal cost of additional use of that technology is zero. Hence knowledge should be freely available, but conflicts with the cost of discovery. But the question is what return is equitable and how much 'monopoly' should be granted to the owner of such knowledge?"

Many developing countries have not met their obligations under UR agreements, and US pressure to achieve full compliance with TRIPs before a new round is not helpful, says Robertson. Getting developing countries to meet their commitments under TRIPS and TBT agreements may require extension of transition periods. But the question is at what price?

The study notes that some 'significant gaps' have opened up between the OECD and developing countries, and it has been aggravated by the US behaviour over election of a new Director- General. This North-South division could pose serious difficulties in negotiations over rules and exceptions.

Recognition of harmonisation in WTO agreements (TRIPs, GATS etc) have aroused suspicions in developing countries about link issues. Similar is the case about 'evolutionary law' approach in the dispute settlement process and the legalism in the WTO that has introduced uncertainties about scope and effects of some agreements already in place. These suspicions need to be calmed before confidence can be established to start a new round.

And the prospect for a new round depends on how strongly the US and EU push for negotiations on environment and labour standards. On both these, the WTO membership tends to divide along north- south lines. Developing countries regard labour standards as off the agenda after Singapore, and there is a stand-off on trade and environment in the Committee on Trade and Environment.

But whether such a round opens is likely to depend to some extent on developing countries' willingness to compromise over pre- negotiations and renegotiation of the Uruguay Round commitments, and on the role that OECD countries want social issues to play in the WTO framework.

Too much baggage on the agenda could block the commencement of a new round, or overload the negotiations. Yet, establishing the agenda itself could open up a north-south divide.

But whether an agreement to open negotiations can be achieved at Seattle will depend on how much the major players want a new round and how willing they are to make concessions? (SUNS4463)

The above article first appeared in the South-North Development Monitor (SUNS).

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