TWN Info Service on WTO and Trade Issues (Jul19/07)
3 July 2019
Third World Network

South countries reject “Osaka Track” legitimising e-com pluri-talks

Published in SUNS #8937 dated 2 July 2019

Geneva, 1 Jul (D. Ravi Kanth) – India, South Africa, and Indonesia rejected the “Osaka Track” at the G20 leaders’ summit held on 28-29 June in Osaka, Japan that sought to legitimize the informal Joint Statement Initiative (JSI) group’s plurilateral negotiations on electronic commerce, participants told the SUNS.

The three developing countries, members of the G20, ensured that the final G20 declaration reflected their concerns on controversial issues such as the WTO reforms and electronic commerce, said a participant, who asked not to be quoted.

The United States had opposed language on “protectionism” or the mention of the systemic crisis it had created at the “Appellate Body” in the declaration.

The Appellate Body (AB) will become dysfunctional after 11 December 2019 due to the repeated blocking by the US of the selection process for filling vacancies at the AB.

In the face of opposition from the US to strong language on the systemic crisis at the AB, the G20 leaders merely agreed that “action is necessary regarding the functioning of the dispute settlement system consistent with the rules as negotiated by WTO members.”

The US reluctantly conceded language on keeping “markets open”, while inserting “fair” into the text.

The G20 leaders said they will strive for “a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment.”

On WTO reforms, Japan along with other developed countries of the G20 tried hard to push for a one-sided narrative, while the three developing countries insisted on “support for the necessary reform of the World Trade Organization (WTO) to improve its functions,” which would include all the three areas such as the negotiating function, the transparency and notification requirements, and the dispute settlement system based on the Marrakesh Agreement, the participant said.

The compromise language on the WTO reforms by G20 leaders could result in intense negotiating battles as WTO members remain divided on what would constitute reforms in accordance with the Marrakesh Agreement that established the WTO, the participant added.

The US and several industrialized countries want to set aside the provisions of the Marrakesh Agreement to ensure there is graduation/differentiation among developing countries for availing special and differential flexibilities in the current and future trade negotiations, and transparency and notification requirements with punitive conditions for non-compliance.

The US seems determined to let the AB fall by the wayside after December 11, while the EU wants an arbitration mechanism in the absence of the AB.

Japan, Australia, and Brazil among others are ready for a truncated Appellate Body by doing away with the principle of negative consensus.

In sharp contrast, a large majority of developing countries, including China, India and South Africa, have demanded WTO reforms with a development dimension based on the Marrakesh Agreement.

India and South Africa have proposed that the WTO reforms must be based on the consensus principle, non-discrimination, and elimination of provisions that would justify unilateral measures in global trade.

The developing countries have also called for transparency and notification requirements that do not impose burdensome requirements on developing countries (see separate story).

The G20 leaders said they “recognize the complementary roles of bilateral and regional free trade agreements that are WTO-consistent,” implying that the USMCA agreement and other agreements must be consistent with the WTO rules.

On excess capacity in the steel sector, China had opposed the continuation of the Global Forum on Steel Excess Capacity while several other G20 members said other products also should be included.

Consequently, the G20 leaders said while they “note the progress made so far by the Global Forum on Steel Excess Capacity (GFSEC), we ask relevant Ministers of the members of the GFSEC to explore and reach a consensus by fall 2019 on ways to further the work of the Forum.”

During the run-up to the finalization of the G20 Leaders’ declaration, sharp differences came to the fore between participants of the plurilateral Joint Statement Initiative Group on digital trade led by Japan and Australia on the one side, and India, South Africa, and China on the other.

“The final G20 leaders’ declaration has taken on board our core concerns on electronic commerce,” the participant said, preferring not to be quoted.

Under the slogan of “data free flow with trust” coined by Japan’s Prime Minister Shinzo Abe, the G20 leaders said the G20 countries will work toward “achieving an inclusive, sustainable, safe, trustworthy and innovative society through digitalization and promoting the application of emerging technologies.”

On the controversial issue of “cross-border flow of data,” the G20 leaders said that they acknowledge the “challenges related to privacy, data protection, intellectual property rights, and security.”

“By continuing to address these challenges,” the G20 leaders said they can “further facilitate data free flow and strengthen consumer and business trust.”

However, to address the concerns raised by China, India, and South Africa on cross-border data flows, the G20 leaders said “it is necessary that legal frameworks, both domestic and international, should be respected.”

Commenting on the plurilateral negotiations on e-commerce, the G20 leaders took note of the “Joint Statement Initiative on electronic commerce” but did not say that it would constitute WTO digital trade negotiations as the JSI participants had maintained in Davos on 25 January.

Significantly, the G20 leaders reaffirmed “the importance of the [1998] Work Programme on electronic commerce at the WTO.”

The G20 leaders also reaffirmed “the importance of bridging the digital divide” as demanded by India and South Africa, while calling for “fostering the adoption of digitalization among micro, small and medium enterprises (MSMEs) and all individuals, particularly vulnerable groups and also encourage networking and experience-sharing among cities for the development of smart cities.”

At his final press conference in Osaka on Saturday, the US President Donald Trump castigated the WTO as a “catastrophe” for the US, like the NAFTA (North American Free Trade Agreement).

Aside from the declaration, Japan made a concerted bid for pushing the “Osaka Track” on the “digital economy” at the G20 leaders’ summit.

The Osaka Track attempted to legitimize the ongoing informal JSI negotiations on digital trade that undermined “multilateral” principles of decision-making by consensus in global trade negotiations, the participant suggested.

Prior to the G20 leaders’ meeting on 29 June, Japan had circulated to all the G20 countries a “take-it-or-leave it” text on digital trade, seeking their approval for the “Osaka Track” involving plurilateral negotiations among 50 countries (the EU which represents 28 countries is taken as one), say analysts familiar with the development.

Along with the United States, the European Union, Australia, and Singapore among others, Japan pushed hard for the plurilateral negotiations on digital trade with the avowed intention of crafting sweeping rules on data flows, prohibitions on data localization requirements, and cloud computing among others.

The proposed plurilateral rules on electronic commerce in the informal JSI negotiations are based on the commitments of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), said a trade envoy, who asked not to be quoted.

India, South Africa, Indonesia and a large majority of developing countries had consistently demanded that negotiations on e-commerce/digital trade must be conducted on the basis of the 1998 work program.

The developing countries had opposed the plurilateral negotiations on digital trade, saying that they strike at the very roots of the multilateral negotiating process based on arriving at decisions by consensus.

The large majority of developing countries also repeatedly expressed their fears that they will be denied “policy space” for their digital industrialization through the proposed plurilateral agreement on digital trade.

Against this backdrop, India, South Africa, and Indonesia rejected the Osaka Track because it would fundamentally undermine the core WTO principles for arriving at consensus-based decisions, the participant said.

The Osaka Track, according to the 50 signatories, is a process for promoting “international policy discussions, inter alia, international rule-making on trade-related aspects of electronic commerce at the WTO.”

Significantly, the WTO Director-General Roberto Azevedo, who is the custodian of the multilateral trade body established under the Marrakesh Agreement of 1994, chose to support the Osaka Track at the launching ceremony, despite its overt anti-multilateral approach, said a trade envoy from a South American country, who asked not to be quoted.

However, in contrast to the Osaka Track, the G20 leaders’ declaration on “Innovation: Digitization, Data Free Flow with Trust” is a compromise text in which India and South Africa had managed to put their demands for “achieving an inclusive, sustainable, safe, trustworthy and innovative society through digitalization and promoting the application of emerging technologies.”

The G20 leaders also “reaffirmed the importance of the [1998] Work Program on electronic commerce at the WTO,” as insisted by India, South Africa, and China among others.