Undemocratic decision-making could wreck WTO

The manoeuvrings that have come into play in the race for the WTO Director-General's post are not dissimilar to the horse-trading that characterized previous GATT and WTO leadership battles. Such machinations are in turn reflective of the lack of democracy and transparency within the multilateral trade organization as it continues to seek an expansion of its ambit under a distinct market-driven globalization framework.

by Chakravarthi Raghavan

GENEVA: After a fortnight of reflection, the "suspended" meeting of the General Council of the World Trade Organization was to meet in the week of 17 May, perhaps on 19 May, to find a way out of the deadlock over the choice of a Director- General. [The 19 May meeting was eventually cancelled or postponed by Council Chair Amb. Ali Mchumo of Tanzania. EC Amb. Roderick Abbot told a media briefing on that day that Mchumo is still trying to get Michael Moore elected by consensus by persuading supporters of Supachai Panitchpakdi to "back off." There is talk that a Council meeting is to be scheduled towards the end of the week of 24 May.]

At the 6 May Council meeting (a continuation of a meeting that began on 14 April, but with the secretariat not having a separate record to even say how many members were there at the 30 April sitting), a meeting that came after three meetings of heated discussions that probably exacerbated the deadlock, Mchumo opened the proceedings by appealing for "calm and friendly consideration", and after six hours suspended the meeting again for "reflexion" and talk of further consultations, the scope of which many key members questioned.

After that 6 May meeting, the Mexican ambassador, Alejandro De La Pena, told journalists that the problem before the Council was one of failure to clearly specify procedures and processes well in time before a vacancy arises for an office and candidatures are likely. "We are now making a spectacle of ourselves and we as members ought to be ashamed," he said.

And Mchumo and the WTO membership are being advised to drop both candidates contending for the job on the ground that neither can be elected by consensus, and bring in outsiders (some of whom have been waiting in the wings for the "call" for many weeks, and others who have been perpetual candidates for the office).

A solution will probably be found through the process of exhaustion which appears to be part of the WTO culture of "consensus decision-making," and the compromise may be one more patchwork for which trade diplomats have become "famous" - "notorious" is probably a better description of how the public outside is seeing these things.

Beyond procedures and processes

But an analysis of past experience suggests that the problems of the WTO now go beyond the issue of "specified procedures and processes" for naming a Director-General, and it is time for the members to face up to the issues which they have long ducked.

These issues include those of democratic decision-making in an organization and reconciling the "power" of the few and that of the many. And this is in an era when the "trade" organization and its "rule-making" and "enforcement" powers are being sought to be used by a few to force every nation to adopt, under the slogan of "globalization", one particular way of functioning of the market economy - the US way - and the norms and "market cultures" that go with it, including the culture of corporations buying power and influence by funding elections.

Otherwise, even if members solve the leadership issue, they will find that while the WTO entered the countries, "almost like a thief in the night" - with its remit now going beyond the traditional border trade but embracing how countries run their business and economy - the non-corporate and non- business public are trying to figure out ways of "driving out" or "confining" the thief, and the perception of a "non- transparent and undemocratic" "outside body" is a powerful appeal to arouse the public.

The history of GATT and its leadership serves to highlight these problems.

GATT came into being in 1947, as an offshoot of the Havana Conference and its charter, a provisional arrangement through a protocol, to quickly put into place a framework for negotiating reciprocal tariff cuts to be applied on a most- favoured-nation principle, and some ancillary provisions to ensure that concessions are not negated through other trade measures. Everyone thought that the Havana Charter would soon be entering into force.

That Charter was negotiated after the Bretton Woods agreements for the International Monetary Fund and the International Bank for Reconstruction and Development (IBRD), both of which were based on the one-dollar-one-vote principle of corporate shareholding. That power structure and shareholdings ensured that the powerful, being rich and having contributed most to the capital (rather, the capital allocation itself was aimed at ensuring that power), exercised their power in a "democratic" way of voting if needed. And within that majority corporate power, the US (the richest and only "surplus" nation in the world at that time) got built in a veto power: key decisions of the IMF and the IBRD required a qualified majority of 85%, and without a US yea, that majority could never be attained. US power in decision-making was maintained within the trappings of "democracy".

The head of the IMF has traditionally come from Europe, and that of the World Bank from the US - but both have behaved like chief executive officers of Wall Street firms, looking after the interests of the single largest shareholder.

The same nations, which then negotiated and brought into being the UN Charter, provided for different structures: a General Assembly of sovereign nations with equal votes, a Security Council with five permanent members having veto power, and an independent secretariat, headed by a Secretary- General, chosen by the Assembly on the recommendation of the Security Council (thus ensuring exercise of dual powers). For a long time, the successive holders of the office of the Secretary-General understood their powers and limitations, but more recently some began to think they were heads of state and ran into problems - ending up by giving a false public image of power and finding they can only wield any by being instruments of the US.

Different path

When it came to negotiating the Havana Charter, a conference summoned by the UN Economic and Social Council (ECOSOC), the nations of the world were aware of the "trade power" and "influences". The US and its large market still mattered for others, but US "trade weight" in the world was not that great. The nations of the world at Havana (most of the now developing world were not there, being colonies whose economic fate was decided by metropolitan European imperial nations, whose empires in Asia and Africa the US was anxious to break up) had the Bretton Woods and the UN (and the older International Labour Organization (ILO)) governing and voting structures, but chose a different path to reflect the needs of a trading institution. They evolved their own to deal with a different range of issues and problems. The International Trade Organization (ITO) to ensue out of the Havana Charter was to have a remit not only over governmental trade measures (across borders) but also over private corporate power.

The ITO's governance structure involved an executive committee (elected) to manage the day-to-day affairs, and a conference of members as the ultimate governing body. The executive committee was also envisaged to provide rulings on trade disputes, and for the membership to adopt it, with issues of legal interpretation to be referred to the International Court of Justice at The Hague.

The US corporations did not like the Havana Charter and its ITO - and the fact it could act as a curb to their activities - and killed the Charter (by lobbying the US Senate), though it took nearly a decade for others to recognize it.

But the principal trading nations, more so in Europe, sought a way to quickly bring into being a multilateral trading framework and, through a protocol, brought into being as a provisional instrument (not needing US congressional ratification) the main trade chapters of the Havana Charter - to provide for exchange of tariff concessions, and with provisions to ensure that tariff concessions are not taken away by other trade policy measures.

Being an executive agreement rather than a regular international treaty, where existing trade laws were "grandfathered" and new tariff cuts and so on being dependent on governments accepting them and taking their own measures to implement them, decision-making by consensus of all began in a sense. But it was a cosy club membership of sorts, where governments and their representatives negotiated in mutual trust, and each knew what the other meant when it committed itself and could depend on it to carry out its commitments.

The few developing countries were largely left alone, albeit with some "benign neglect" - allowed to benefit from any MFN concessions, but without too many demands being made on them.

GATT secretariat

The rather smooth functioning of GATT in the early days owed itself not only to the fact that the representatives were those who had been at Havana but to the secretariat too.

The secretariat (it was not even recognized or mentioned in the General Agreement) was given no role except that of servicing the negotiations and meetings. At its inception, the GATT secretariat consisted of the UN staff who serviced the negotiations for Havana, and then the secretariat of the Interim Commission for the International Trade Organization (ICITO). Sir Eric Wyndam White, a British national who was a lawyer by profession and a director of the secretariat since the beginning of the ITO negotiations, became the head of the secretariat, with Jean Royer, a trade diplomat of France, as his deputy.

Both were "pragmatists" in the better sense of the term. White kept lawyers at arm's length, knowing that trade issues are not so much legal issues as they are issues of political economy and political judgements. And most of those who came to represent their countries at the Contracting Parties meetings were those who had been involved at Havana.

But by the early 1960s, the developing countries were disillusioned with the trickling down of benefits at GATT and the neglect of their interests by the Bretton Woods institutions, and set in motion the processes at the UN that led to the formation of UNCTAD in 1964.

This was sought to be headed off at GATT through the Haberler Committee report and the plan of action, which remained, like others, a pious hope and a best-endeavour move.

White left in 1968 and, by an agreement between the US and Europe, Olivier Long of Switzerland, an economist who made his mark though in successfully running and concluding the peace conference between France and Algeria at Evian, was named to head GATT. He was chosen for those very skills. He was a free trade ideologue, but still one who understood the trade institution and its limitations.

So much so that towards the end of the Tokyo Round, when the EC and the US cooked up between themselves an agreement in the intellectual property area to cover the so-called "trade in counterfeit goods", they gave the draft to Long and asked him to get a "green room" meeting and put it through. Long was reported by some of his aides to have read the document and given it back to the US and EC representatives with the remark that he had not become the head of GATT to wind it up.

At the end of the Tokyo Round, when the Americans decided they needed to replace Long, the US and the EC picked Arthur Dunkel, who was an official in the Swiss government dealing with UNCTAD and GATT at that time. He was not even the seniormost official in Swiss bureaucracy, and was no politician.


In all these cases, the choice of the head of the secretariat was made by the US and the Europeans, and formally adopted by the GATT Contracting Parties, with GATT as provision treaty and informal governance. Dunkel was picked and formally elected by the GATT CPs (and officially appointed by the ICITO still) for a 3-year term in 1980, with an automatic three-year renewal. The troubles in naming a DG began with efforts to use the same methods to renew his term in 1986.

Dunkel probably changed the secretariat and its shape. In the era of Reagan-Thatcher economics and efforts to push back Keynesian economics, he began slowly to look at an international economic system supervised and run by the IMF, the World Bank and GATT. He also began speaking of GATT's real constituency being not its member-governments, but business (which by this time meant big corporations). The public did not figure in neo-liberal, neo-classical equations.

The initial efforts to expand GATT's jurisdiction through the US-sponsored 1982 Ministerial meeting (and attempts to bring into the GATT remit services, investment and intellectual property) ran into trouble within the EC itself.

But with some "quiet diplomacy", Dunkel managed to keep everyone on board, until the Americans began pushing for a new round with all the issues on the 1982 work programme.

Initial US efforts from 1984, with the EC in two minds, ran into trouble: Brazil and India mobilized the developing countries at GATT and at UNCTAD to demand that their unresolved issues be tackled first. Dunkel's suspected role in breaking this unity - by encouraging some of the developing countries (Singapore and other ASEAN countries, Colombia and some others in Latin America, and some Caribbean countries) to act separately, forming the so-called cafe ole group, to isolate Brazil, India, Egypt and others - led to the first signs of trouble in the DG election.

Early in 1986, the US and the EC had agreed on a new term for Dunkel, and Japan's Amb. Kazuo Chiba, who chaired the CPs, was asked to initiate the consultations and ensure the appointment of Dunkel for another term, pushing it through as a "routine affair". Chiba began consultations in March 1986, with the intention of completing the process by April and re- electing Dunkel for a new term at the end of September.

The way this was sought to be done brought to the fore the way GATT was organized and run - by and on behalf of the US and the EC, with some involvement of Japan, their decisions pushed through after some perfunctory consultations with a few Nordic and a few Third World nations.

At the meeting of the GATT Council of 13 March, where the issue was brought up, Egypt (which had not been consulted) raised the question of how the consultations had been held and the issue of procedures and precedents in selecting a GATT DG, and demanded transparency and wider consultations þ issues that were never even mentioned in the GATT press briefings on the Council.

Once the issue was out in the open (at the GATT Council to members), the demand for consultations to evolve agreed procedures was insisted upon (by Brazil, India, Egypt and several others).

There was even talk among some that Dunkel should be denied a new term because of his attempts to promote a new round with new issues as the US wanted, and his suspected role in encouraging the new cafe ole coalition.

Apart from the attempts to launch a new round of negotiations, at that time negotiations were also on to continue the Multi-Fibre Arrangement (which was due to end in July), and these negotiations, most of it in the "Green Room", for a new protocol for "GATT derogation" for this trade were chaired by Dunkel.

But ultimately the key developing countries (including Brazil, India and Egypt) decided it was not in their interests to take on the US and others on this issue at that stage, but they needed to focus their efforts on both the new negotiations and the MFA issues.

They settled on getting the CPs to set agreed rules for the selection of a DG as a price for a new term for Dunkel, and the 1986 decision of the CPs was the outcome.

New DG wanted

The next chapter in the succession problem and decision- making in GATT came in 1993, when the US found it was not in its interests to push for another term for Dunkel until the Uruguay Round was completed.

For, with some US acquiescence, Dunkel - in his capacity as chairman of the Trade Negotiations Committee (TNC) and acting in purport of the mandate given to him at the failed Ministerial meeting of 1990 to conclude the Uruguay Round - had chaired and conducted informal negotiations among key countries in various areas, and formulated the compromises, with some texts of his own (formulated in consultations with the chairs of these different negotiations), into a text, and had tabled it to the TNC.

But instead of the normal GATT caveat that things would need consensus for adoption, he announced that reopening and changing any part of the text would need consensus. This had been done with the acquiescence of the US negotiators, who knew they could not get their own act together back home with the different lobbies.

But by late 1992 (US presidential election year), and certainly when Clinton won the White House, the US negotiators knew they needed to have the texts reopened and changed. So did the EC, which wanted changes in the agriculture text. Both probably came to the conclusion that any changes and compromise would need a new man at the helm.

After Clinton took over, the US negotiators needed for themselves changes in not only agriculture but also anti- dumping, subsidies and so on, and were strongly opposed to an overarching framework, at that time called the Multilateral Trade Organization, on which the EC was insisting.

So the headhunt began for a new DG in February 1993 (SUNS #3040), though Dunkel by March 1993 had begun again to talk of the Draft Final Act text of his (which was the focus of anti- GATT campaigns by pejorative use of DFA as the Dunkel text) needing changes.

When the new DG headhunt began, with India's Amb. Balkrishna Zutshi conducting consultations, the EC favoured Peter Sutherland (and the US and the EC began consulting on a candidate they could agree upon, but realizing the presence of the 1986 CPs decision this time around).

Other names were also floating around when Zutshi set in motion the process in March, with a request to countries to give him names by the end of March. He then went off to India for consultations till the first week of April.

Even by end-April, no names were officially put forward, though several were figuring in press reports, with Sutherland (then heading a big private corporation on a million-dollar-a- year job) prominently mentioned, but reportedly demanding both conclusion of the round to result in an MTO, and the MTO being equated with the IMF and World Bank (and his getting the same emoluments as the two executive heads there).

But the Americans did not commit themselves to an MTO, and others resisted a post-round institution joining the IMF/World Bank galaxy to run the developing world.

Sutherland took himself off the race but then put himself back. Two Latin Americans also put in their candidacies - Julio Lacarte Muro of Uruguay and Luis Fernando Jaramillo of Colombia (a former trade minister who was then his country's PR in New York and Chair of the Group of 77).

Problems arose over the demand of developing countries that the candidates appear before them to outline their views. The EC refused and ultimately settled for Sutherland coming to Geneva and meeting people informally at an EC-organized reception.

Ultimately, Jaramillo took himself out and Lacarte, who had strong support among the Latin American countries but not outside, finally bowed out as well, and Sutherland was named (SUNS #3082, 3083,3085). Encomiums were given to praise Lacarte, and he was named to chair the "legal drafting committee" or the "fourth-track process of the Dunkel text", which ultimately resulted in the Dispute Settlement Understanding. Subsequently, in the WTO, Lacarte was named to the Appellate Body. The entire process of naming the Appellate Body became itself a testimony to how consensus decision- making is manipulated, with the US-cleared candidates' names placed for approval to the others.

But Sutherland, in pushing the Uruguay Round to a finale, showed that the real power of the office lay in its influence as an "honest broker" between warring parties, and in that role demonstrated his essential "fair-mindedness" and championing of the underdog.

Seeking Sutherland's successor

In the successor race, with Sutherland at one time showing an inclination to continue, the EC had opted for Renato Ruggiero. Pitched against him were Mexican President Salinas (backed by the US) and South Korea's Kim Chul Su. But the Mexican peso crisis and the subsequent scandals surrounding Salinas and his brothers, made him non-viable and forced him out of the race. The Americans backed Kim to deny Ruggiero the job. But finally, against EC advice, Ruggiero went to Washington to talk to the likes of Mickey Kantor and make his bid.

But there were a number of straw polls in which the Chair of the WTO Council, Amb. Kesavapani of Singapore, and Mounir Zahran, Chairman of GATT 1947 (which was coexisting with the WTO for at least a year), figured, and these were made known to the CPs. The final straw poll in favour of Ruggiero was even announced in a GATT Press Release. Although Kim said he would withdraw only if Ruggiero had an 80% majority, the US ultimately persuaded him to withdraw, and he got the job of a deputy DG.

In the process, the US got more, by persuading Ruggiero to name an American to head the Legal Division and a Canadian to head the Appellate Body secretariat, apart from other changes. Ruggiero also began criss-crossing the world promoting many things the Americans wanted - including financial services liberalization, telecom liberalization, and finding ways to accommodate the US' new agendas, the secretariat playing an even more partisan role in the dispute panel processes, and the so-called advocacy role in pushing issues like investment, financial services and so on.

The US is this time backing Moore of New Zealand (it was said to be primarily responsible for persuading Auckland to nominate him) and the US mission here has been orchestrating his campaign.

It is these questions - and the prospect that with such a decision-making process, under Moore the secretariat would become even more partisan - that have forced many developing countries to take a stand. And if the two candidates are now dropped, before another is "parachuted" in, if developing countries do not bring about changes in procedures and the way the secretariat will be run, they can only blame themselves.

While decision-making by consensus gives the appearance of "equal power of veto" to everyone, it is really an illusion, since that power is exercised by the US, with help from the secretariat and the chairs of bodies that do not bring anything to which the US is opposed before any body, to spare the US the odium of vetoing - an attempt to transplant US power at the Fund to the WTO. If it succeeds, the WTO will be the real casualty. (SUNS4435)

* Chakravarthi Raghavan is the Chief Editor of the South-North Development Monitor (SUNS) in which the above article first appeared.

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