The unravelling of the post-Seattle ‘confidence-building’ process

The trade disputes raised and referred to the WTO for adjudication by the US and the EU against developing nations over alleged violations of the Trade-Related Investment Measures (TRIMs) Agreement threaten to undermine the post-Seattle ‘confidence-building’ process.

Chakravarthi Raghavan

THE post-Seattle ‘confidence-building’ process and the special mechanism of the World Trade Organisation to tackle the ‘implementation’ questions and issues raised by developing countries seem in danger of unravelling, judged by the spate of disputes and panel requests coming up before the WTO.

The special mechanism set up to deal with the implementation issues is making little progress, with the major industrial nations, negotiating through the WTO secretariat, attempting to deal with some minor questions as ‘easy decisions’ to be agreed to now, and put off addressing all others to the future - as part of the agenda for a new round of trade negotiations.

TRIMs disputes

The question of the lack of good faith and unravelling of the confidence-building process has arisen as a result of what appears to be a concerted attempt by the United States and the European Union to raise disputes, and seek the establishment of panels, on trade policy measures of developing countries on the grounds of violation of the Trade-Related Investment Measures (TRIMs) Agreement.

The transition period for developing countries to implement the TRIMs Agreement came to an end on 31 December 1999.

However, in the aftermath of the Seattle WTO Ministerial Conference,   in picking up the pieces after the fiasco there (whether that Ministerial had ended or had been ‘suspended’, and what the effect of all this was on the various transition periods in the WTO agreements), the WTO General Council had agreed to a process and procedures on the ‘Followup to the Seattle Ministerial Conference’.

In this regard, an issue that arose was the effect of the Seattle meeting and its end on the various transition periods stipulated in the WTO agreements. Developing countries had demanded that these should be automatically extended.

In addressing this issue, the then Chair of the General Council, Amb. Ali Mchumo, had made a statement on 17 December 1999 to the effect that these issues too would form part of the ‘consultations’ on the followup and that in the meanwhile WTO members would show restraint and not take any steps that might prejudice the consultations.

On 8 May this year (after some prolonged consultations and informal negotiations), the General Council, as a followup, set up a special mechanism to deal with these and other issues. The Council agreed that the question of transition periods under the TRIMs Agreement should be addressed in the Council for Trade in Goods (CTG) and the General Council.

At the WTO Dispute Settlement Body (DSB) on 23 October, the European Communities (EC, which the European Union is officially referred to as at the WTO) brought up a request for a panel against India over its measures relating to the automotive sector. The US had brought up a similar request at the last meeting.

Also brought up on 23 October was a US request for a panel against the Philippines over its measures in place relating to the automotive sector.

India has been contending that the measures it has in place, requiring automobile manufacturers to sign a Memorandum of Understanding (MoU) as a condition for obtaining licences for import of automotive products now subject to import restrictions, are not TRIMs that are prohibited or covered by the provisions of the TRIMs Agreement.

Under the MoU, according to the EC complaint, the automobile manufacturers are required to set up ‘actual production facilities’ in India, to make a minimum investment, to achieve a certain level of ‘indigenisation’,  and to export a certain amount of automotive products.

India has also been contending that even if these were to be considered as falling under TRIMs, the 17 December General Council Chairman’s statement and the 8 May General Council decision apply, and disputes should not be raised.

In the case of the Philippines, that country had in fact sought an extension of its transition period in October 1999, and this request was still pending before the CTG. Under the CTG rules, if no consensus is reached on this, the matter should be referred to the General Council.

Nevertheless, the US has brought up a dispute and has sought a panel.

When the two cases came up before the DSB on 23 October, a range of developing countries spoke up critical of the US and EC positions and warning of their likely impact on the entire post-Seattle confidence-building process. These countries insisted on a multilateral solution to these problems.

In addition to the developing countries, Japan suggested that the bilateral consultations among the parties should lead to a mutually satisfactory solution - implying in effect that taking the issue to a panel could have other effects on the WTO process.

For its part, the US insisted, however, that it would not allow the pendency of TRIMs extensions before the CTG and the CTG processes to be used to extract concessions!

Over the Indian dispute, apart from contending that its measures do not fall within the ambit of TRIMs and, even if they do, are covered by the ‘due restraint’ appeals and decisions of 17 December and 8 May, India also warned that the WTO should not create the impression that its disciplines come in the way of the development interests of developing countries. The efforts of many developing countries to industrialise were being challenged on the basis of the TRIMs Agreement.

Pakistan expressed its concern over the disputes being raised on the TRIMs and other transition period issues. The Philippines supported India.

In the dispute against the Philippines, that country hoped that an amicable solution could be found, but underlined that procedurally the DSB could not refer the dispute to a panel. The General Council had agreed to a decision on how to deal with the TRIMs issues and time extensions as those sought by the Philippines, and the rules of procedure of the CTG required that if it was unable to decide, the issue should be referred to the General Council.

The DSB and the General Council had the same membership, and the Council’s decisions should not be allowed to be frustrated by referring the dispute to a panel.

Pakistan, Malaysia, Argentina, India and Indonesia were among those which supported the Philippines, while Japan underscored the provisions of the Dispute Settlement Understanding (DSU) about the objective of the DSU being to promote mutually acceptable solutions.

In both the Indian and the Philippine cases, consensus for the establishment of panels was refused as the requests therefor had came up before the DSB for only the first time.

The next meeting of the DSB was set for 17 November. [As a panel request is automatically accepted when it comes up before the DSB for the second time, the 17 November meeting agreed to the establishment of panels on both the US-Philippines and EC-India disputes. In the former case, the US will not proceed further towards naming the panellists, pending consultations with the Philippines and the General Council decisions on extension of time to developing countries over TRIMs. The EC-India dispute, on the other hand, is to be considered by the same panel as that set up to hear a similar complaint by the US against India. - C. Raghavan, ‘Three panels set in disputes’, SUNS #4787]

In other actions, on the US implementation of the ruling on restrictions on imports of shrimps (claimed to be a turtle conservation measure), Malaysia sought reference of the issue of US compliance with the adopted rulings, under Art.21.5 of the DSU, to the original panel.

The US in another dispute sought a reconvened Act 21.5 panel over Mexico’s implementation of the ruling on the anti-dumping investigations and decisions over imports of high-fructose corn syrup from the US.

Both the Art.21.5 references were accepted, but the parties are to agree on the procedures.                             

The above article first appeared in the South-North Development Monitor (SUNS - issue no. 4767), of which Chakravarthi Raghavan is the Chief Editor.