Global Trends by Martin Khor

Monday 24 January 2005

Contentious report on WTO’s future

Last week the World Trade Organisation released a report on its future, with two notable aspects.  It lambasted the growth of bilateral and regional trade agreements.  It also made many proposals, some controversial, on how to reform the way it works.

The World Trade Organisation last week launched a report on “The Future of the WTO”, which attacks regional and bilateral trade agreements, and proposes reforms to the way the institution works.  

The report was authored by a consultative board set up by the WTO Director General Supachai Panitchpakdi and chaired by Peter Sutherland, a former Director-General of the WTO, and presently Chairman of Goldman Sachs International and British Petroleum.

The report addresses the WTO’s role in globalisation and looks at preferential trade arrangements (PTAs), the WTO’s relations with other agencies and  civil society, its  dispute settlement system, the decision-making process, and the role of the Director General and the Secretariat.

The other authors are Jagdish Bhagwati (Columbia University economist), Kwesi Botchwey (African Development Policy Ownership Initiative), Niall FitzGerald (Chairman of Reuters), Koichi Hamada (Yale University economist), John Jackson (Georgetown University law professor), Celso Lafer (Sao Paulo University law professor) and Thierry de Montbrial (French Institute of International Relations).

The report has two main themes.  Firstly, the WTO’s multilateral system is seriously threatened by regional and bilateral trade agreements, which the report terms preferential trade agreements (PTAs).   Secondly, the WTO should change some of its present working methods.

Lambasting the increase in PTAs, the report warns that the practice of the WTO’s most-favoured nation (MFN) principle is no longer the rule, but almost the exception.

(According to the MFN principle, each WTO member country must give to all other WTO members the same best treatment (for example on import tariffs) it gives to any member.)

 “The term might now be better defined as LFN, least favoured nation treatment,” it says, lamenting the ‘spaghetti bowl’ of customs unions, common markets, regional and bilateral free trade areas, preferences and trade deals.

It says that the recent proliferation of PTAs have led to confusion and administrative costs;  PTAs are more likely to be stumbling blocks rather than building blocks to the multilateral system;  and there is a diversion of negotiating resources from the multilateral process into PTAs.

The report criticises that non-trade objectives have been injected into PTAs, citing the one-sided provisions on intellectual property;  labour and environmental protection undertakings;  and restrictions on the use of capital controls. 

The report fears that such requirements will become templates for further PTAs and the forerunners of new demands in the WTO.   It says if these cannot be justified at the WTO’s front door, they should not enter through the side door.

Many of the report’s proposals on the way the WTO works are controversial. These

include the use of the “plurilateral” approach for suggested new agreements when consensus among members for such rules is not possible; setting up a new small powerful committee in the WTO (with some being “permanent members”), and expanding the powers of  the Director General and Secretariat.

The report raises the desirability of the plurilateral approach, which enables some members to negotiate new treaties and ambitious commitments when others are not willing.  The  remaining members can take part in negotiations of a plurilateral agreement but later opt out, or else they are excluded from negotiations but can later opt in.

This approach had been proposed by the European Union in 2001 and 2003 when it found opposition to its proposal to launch negotiations for four new treaties on the so-called Singapore issues (investment, competition, government procurement and trade facilitation).

This plurilateral approach had been repeatedly rejected by many developing countries, most notably when 45 countries (in a statement on the Singapore issues) said in December 2003 that the plurilateral approach was not appropriate in a multilateral organisation like the WTO.

The report recognises that there are drawbacks to this approach, but  nevertheless proposes that its possible use in the WTO be re-examined, by an expert group.

Calling for more political involvement in the WTO, the report proposed that Ministers should meet annually (instead of every two years) and that a summit of heads of government should also be held in the WTO every five years.

It proposes a “consultative body” of Ministers or senior officials be set up to guide the negotiators.  This powerful body would have only 30 members, to be effective, and some major trading nations would be permanent members, whilst other members would rotate.

This is like a United Nations’ Security Council type of system, where powerful countries have a permanent seat and even a veto power, whilst other countries take turns to be members.  Since the developing countries resent this system of domination by the major powers in the Security Council, they are not likely to agree to setting up a similar structure in the WTO.

The report laments the “member-driven” nature of the WTO and makes many proposals to give the Secretariat a bigger role.  This touches a sensitive spot, for most governments are wary of giving too much power to the Secretariat, and many developing countries perceive the Secretariat to be partial towards the major developed countries.

The WTO has had the poor reputation of having two failed Ministerial conferences (Seattle in 1999 and Cancun in 2003) out of its last three.  Many observers and governments believe the undemocratic decision-making process (such as the drafting of texts by a few appointed “facilitators” and the convening of exclusive “Green Room” meetings to which a few countries are invited) has played a big role in these failures.

The report recognises that “much criticism” has been directed at the way such Ministerial meetings have been run.  But it does not propose changes to the basic ways in which Ministerials have been run.  It endorses the use of “facilitators” appointed by the Director General or conference Chairman (rather than selected by the members) and the convening of the “Green Room” meetings.

Instead, it advocates a leading role for the Secretariat at Ministerial conferences, with the  Director General and staff to be given the standing to be “at the centre of negotiations,” including making drafting proposals.

This idea is bound to be unpopular with many developing countries. They have been critical of the interfering role of previous Directors General and some staff, who they claim had been partial to the major developed countries.  They are unlikely to agree to legitimising and strengthening the  Secretariat’s functions. 

On the role of the Secretariat, the report bluntly criticises the attitude that the WTO is a member-driven organisation and the Secretariat’s role is solely one of support and not initiative.

It proposes a much greater role for the DG and a deputy to chair negotiating groups.  The report goes so far as to say that if members are not prepared to defend and promote the principles they subscribe to, then the Secretariat must be free or even required to do so and that it should also be the “guardian” of the WTO treaties.

These proposals will not go down well with most.  WTO members often have different interpretations of the rules or how they can be implemented, and these differences are sometimes the subject of heated debate and negotiations.  It would indeed be a major leap of faith for members to make Secretariat staff the guardian of the treaties.