TWN Info Service on WTO and Trade Issues (Jul18/20)
27 July 2018
Third World Network

EU for "reforms" to end MFN, consensus decision-making at WTO
Published in SUNS # 8729 dated 25 July 2018

Geneva, 24 Jul (D. Ravi Kanth) - The European Union has called for modernizing the World Trade Organization by undertaking comprehensive reforms in the negotiating, dispute settlement, and monitoring functions of the WTO, and for "plurilateral processes" for framing new rules, trade envoys told SUNS.

Brussels has underscored the need for introducing "differentiation" among developing countries for availing special and differential flexibilities, said a trade envoy, who asked not to be quoted.

In a non-paper "for modernizing the World Trade Organization" issued sometime last month, the EU said it disagrees with the "path recently followed by the US to solve trade challenges."

However, said the EU, there is a need to address "the root causes of the current crisis, namely gaps in the [WTO's] rulebook leading to distortions."

The EU said the recent US actions such as blocking the appointment of members to the WTO Appellate Body that serves as the final arbiter in trade disputes, and the additional tariffs imposed by the US on imports of steel and aluminum or the additional tariffs on products from China, constitute "the more immediate threat."

But, WTO members should "not lose sight of the root causes of the current crisis" for continued trade-distorting policies being implemented by some major trading nations, it argued.

These "distortions", according to the EU, are "associated with non-market policies and practices in major trading nations that WTO does not seem to address adequately."

Effectively, the EU is echoing the charge constantly hurled at China by the United States Trade Representative Ambassador Robert Lighthizer that the WTO's rulebook is incapable of addressing the non-market policies followed by China.

The EU maintained that it will accelerate "efforts and show its intention to invest political will and capital in ensuring the WTO remains vital, relevant and effective" to face the challenges of the 21st-century trade realities.

The trade realities of the 21st-century, according to the EU, called for making the WTO system "flexible enough to accommodate different sets of ambition among its membership," and enable plurilateral negotiations for accomplishing different sets of rule-making goals.

Further, the realities underscored the need for enforcing the rules "effectively and efficiently" with requisite "checks and balances" in the WTO system, the EU said.

After having worked with the US and Japan as part of the "trilateral" process for the past seven months since the WTO's eleventh ministerial meeting (MC11) in Buenos Aires, the EU said it had formulated the proposals seeking to modernize the WTO as well as "creating a circle of like-minded Members that will eventually lead to multilateral reforms."

Although many of the proposals in the EU's non-paper are targeted against China and other developing countries, the EU said China must remain "at the table from the beginning of the negotiations" for modernizing the WTO.

Last week, after a meeting with China's premier Li Keqiang in Beijing, Donald Tusk, president of the European Council on Monday called for reforms of the WTO, with new rules on industrial subsidies and intellectual property rights, according to a report in the Financial Times on 17 July.

In response, the Chinese premier Keqiang said: "as I said at the beginning of my meeting with Mr. Tusk and Mr. Jean-Claude Junker (president for the European Commission), our negotiations are not targeted at any third party and cannot be influenced by any third party."

"Leaving behind any other country - let's not even talk about leaving behind the US or a country located between the European Union and China - is unfeasible. Because this is a multilateral trade agreement," the Chinese premier maintained.

Brussels maintained that "the accession of China in the WTO and its failure to converge towards the market economy model has revealed gaps in the WTO rulebook that need to be addressed now."

"These gaps relate mostly to the way a government exercises its powers to either give preferential treatment to its domestic operators, i.e., through subsidies or skewed regulatory practices and policies or to obtain the competitive advantages of foreign operators for its own use (i.e., through forced technology transfer or failure to protect intellectual property)," the EU argued.

The EU sought approval for a negotiating mandate from its member states to "develop new rules to address current gaps in the rulebook with regard to level playing field issues such as subsidies and state-owned enterprises; investment market access; regulatory barriers to services and investment, including rules on technology transfer."

The EU said "it has not been possible to advance negotiations in the WTO for a number of years, with the exception of the Agreement on Trade Facilitation and agricultural export subsidies" because of the lack of flexibility within the system.

Consequently, the "like-minded Members" were unable to go ahead with rule-making within the WTO as a group, the EU lamented.

Therefore, "plurilateral processes should be encouraged, whether the benefits of such rule-making apply to all or only to the like-minded members," the EU maintained.

The EU said it wants to "inject flexibility in the negotiating process, by facilitating the conclusion of agreements among willing Members which would form part of the broader WTO framework."

"The initiatives launched in Buenos Aires with joint statements by large groups of Members committing to explore negotiations in some specific areas are a good step in the direction of increased flexibility in negotiations," the EU said.

Brussels said that it will "continue to support exploratory work toward negotiations on a broad range of issues relating to the reduction of trade costs, in particular in the areas of the joint statements endorsed in Buenos Aires in December 2017 (such as the statements on e-commerce, domestic regulation as well as investment facilitation as signed by the European Union)."

In order to further improve the "WTO's negotiating function," members must also address "the question of development and special [and] differential treatment," the EU argued.

"Since the creation of the WTO, the rapid economic growth among developing countries has led to the emergence of significant differences in economic development," the EU said.

Acknowledging that "special rules may be necessary to address specific development needs," the EU said "a re-examination of the way development flexibilities operate and who can benefit from them is warranted, in order to ensure appropriate, targeted assistance and ambitious disciplines."

Consequently, the EU said it will work towards developing "a new approach to development and special and differential treatment based on a case-by-case, needs-driven analysis."

In short, the EU wants to dismantle the current architecture for availing special and differential flexibilities by developing countries and introduce "differentiation" among developing countries to decide who can avail of special and differential flexibilities on a case-by-case basis.

The EU also emphasized "developing country Members to move toward undertaking greater commitments."

For strengthening the WTO's effectiveness, the EU said "the dispute settlement function of the WTO" which is currently "at grave danger", must be strengthened and preserved.

The EU said it put forward a comprehensive proposal to "address the concerns raised by the WTO Member blocking the Appellate Body appointments to the extent that they have merit while preserving and further strengthening the main features and principles of the WTO dispute settlement system."

The EU said its comprehensive proposal "will - in a first stage, and in order to unblock the appointments - aim at improving the efficiency of procedures, at creating conditions for a better interaction between the Appellate Body and the WTO Members while at the same time strengthening the independence of the Appellate Body."

"In a second stage, substantive issues concerning the application of WTO rules would be addressed," the EU argued.

As part of transparency and strengthening the regular committees of the WTO , the EU called for enhancing "transparency by increasing incentives for Members to comply with notification requirements and by challenging wilful non-compliance".

It called for using "regular committees better to address trade issues by empowering the WTO Secretariat."

The EU claimed its proposals are "comprehensive and far-reaching, aiming to revitalise the organisation and bring the WTO back to the centre of trade policy-making."

The EU's non-paper did not mention what needs to be done for addressing "development," said a trade envoy who asked not to be quoted.

If anything, the EU's non-paper intends to strengthen the "system designed by the US, the EU and other trade majors over the course of the GATT and consolidated in the Uruguay Round negotiations that established the WTO," the envoy said .

Another developing country trade envoy said Brussels' non-paper is "replete with imbalances and inequities that prejudice interests of many developing countries."

In conclusion, the EU's non-paper seeks to terminate the principle of "consensus" on which the 164-member WTO functions.

After foisting the Doha Round of trade negotiations in 2001, and failing to address the developmental concerns raised by developing countries, and implement its own commitments under the WTO treaty to reverse course and end subsidies distorting agricultural trade, the EU is now pursuing a dangerous course to transform the WTO by excluding the majority of developing and poorest countries from the decision-making process.