TWN Info Service on WTO and Trade Issues (Jul19/28)
25 July 2019
Third World Network

South challenges US and allies’ narrative on WTO “reforms”

Published in SUNS #8952 dated 23 July 2019

Geneva, 22 Jul (D. Ravi Kanth) – A large majority of developing countries led by South Africa, India, and the African Group, have challenged the narrative advanced by the United States and other developed countries that seek to fundamentally alter consensus-based decision-making under the banner of WTO reforms, trade envoys told the SUNS.

The challenge to the US narrative came at an informal Trade Negotiations Committee (TNC) meeting on Friday (19 July).

The US along with other developed countries seem determined to bring about differentiation/graduation for availing special and differential flexibilities among developing countries and introduce punitive transparency and notification requirements for non-complying countries at the WTO, trade envoys told the SUNS.

At an informal Trade Negotiations Committee (TNC) meeting on Friday (19 July), the US took the floor, immediately after the first speaker New Zealand, to threaten members that the WTO will become dysfunctional without enhanced rules for transparency and notification requirements, and differentiation/graduation for availing special and differential treatment (S&DT) among developing countries in current and future trade negotiations.

“I welcome efforts to lift out of our collective rot and bring new ideas that would keep the WTO to evolve and keep pace with the rapidly changing business and global realities,” claimed the US trade envoy Ambassador Dennis Shea.

“For the US,” said Ambassador Shea, “there are two key points central to the reform effort” at the WTO.

“First, collectively we must fulfill our existing obligations and ensuring that there are built-in compliance mechanisms within the institution that establishes clear and functional incentives for good behavior and meaningful consequence for free-riding and non-compliance,” the US envoy said, according to several trade envoys.

“If there are no consequences for non-compliance for most basic of obligations such as transparency and notifications, we cannot expect compliance in other significant areas and let alone hard-fought negotiated outcomes,” the US envoy said.

The second priority for the US, according to Ambassador Shea, is that members must “realize that the unfulfilled expectation that members would over time step up to show greater responsibility commensurate with their economic growth and in doing so, contribute to the economic opportunities for those less advanced, and catching-up.”

“It is difficult to see a way forward in current and future trade negotiations without some significant changes on this important issue [of graduation/differentiation for S&DT] and we need to see contributions from those who are manifestly able to make them,” and the current status-quo for S&DT based on self-designation cannot continue, the US trade envoy said.

“The status quo only promises more gridlock in negotiations,” the US trade envoy said, insisting that “we [the US] don’t believe that deadlock or gridlock is what majority of members want from this institution.”

The US trade envoy suggested that Washington will not accept a “minimalist” outcome in the fisheries subsidies negotiations.

The US, however, stayed silent on the impasse it had created at the WTO’s Appellate Body (AB) by repeatedly blocking the selection process for filling the vacancies at the AB.

It did not even remotely mention what Washington intends to do with the continuation of the AB that would become dysfunctional after 11 December 2019 when the highest adjudicating body will be reduced to one member.

Speaking immediately after the US, South Africa’s trade envoy Ambassador Xolelwa Mlumbi-Peter expressed sharp concern over the “lack of progress on the long outstanding Doha issues of interests to many developing Members who are the majority in the WTO,” according to trade envoys, who spoke to the SUNS.

“Increasingly,” she said, “the WTO is failing to address the development divide at a time when there is a backlash against globalisation and multilateral trade agreements due to rising inequality,” she said.

“This is clearly demonstrated by the inability to make progress on the DDA and questions raised on S&DT,” the South African trade envoy argued, suggesting that there has been no progress on the implementation issues raised by the developing countries.

“In our view, the Marrakesh Agreement, Ministerial mandates and decisions should continue to serve as the basis for negotiations,” she said.

According to Ambassador Xolelwa, the multilateral trading system is facing a systemic crisis because of the AB impasse.

“Without resolution of this issue, existing rules will become unenforceable and the adoption of new rules becomes futile,” she said.

Without naming the US, which is responsible for the current impasse at the AB, she told the informal TNC meeting that “many of the concerns that have been raised by one Member [the US] have been addressed in several proposals and can provide a reasonable basis for a solution.”

“Unlocking the appointment deadlock can be addressed independently from the broader substantive issues raised in this context,” she said, emphasizing that “developing country interest in the reform of the DSM [Dispute Settlement Mechanism] should also be addressed to ensure an outcome suitable to all.”

The concerns expressed by developing countries about the dispute settlement system include “accessibility, costs and efficiency as majority of the membership is hardly ever participating in the procedures of the dispute settlement mechanism.”

More importantly and “fundamentally, the independence and impartiality of the AB needs to be safeguarded,” South Africa said.

“We do not agree with any approach that renders dysfunctional the enforcement pillar of the WTO that all Members agreed to establish, in exchange for broader reform of the WTO,” Ambassador Xolelwa said emphatically, according to trade envoys present at the meeting.

Touching on the transparency and notification requirements, she urged members “to adopt a development- oriented, inclusive and cooperative approach in view of legitimate capacity constraints facing especially developing Members.”

She rejected the “punitive” measures proposed by the US along with the European Union, Australia, and three other countries.

“It is for this reason that we have prepared a paper on “An inclusive approach to transparency and notification requirements in the WTO”,” she said.

As regards proposals for bringing differentiation/graduation for availing S&DT, the South African trade envoy reiterated “the importance of keeping development at the centre of the work program.”

“S&DT,” she said, “is necessary to allow developing Members the policy space to calibrate trade integration in ways that support sustainable development, structural transformation and growth.”

“South Africa remains sensitive to any idea or proposal that would limit the scope and application of the principle of S&DT or that alter the architecture of development as set out in the Marrakech Agreement,” Ambassador Xolelwa emphasized.

South Africa, she said, “continues to support the development objectives embedded in WTO Agreements and any discussion on the necessary reform of the WTO should fundamentally promote development and inclusive growth; place the needs of developing countries at the heart of any kind of reform and preserve the core principles of the WTO.”

Commenting on fisheries subsidies, she cautioned that the working papers circulated by the facilitators are “without prejudice to the Members’ textual proposals as well as TN/RL/W/274.Rev.6.”

“Any outcome on fisheries subsidies must ultimately deliver on the Ministerial Mandates and Decisions and must be in accordance with the letter and spirit of paragraph 14.6 of the SDGs,” the South African trade envoy said.

Without mentioning the opaque and top-down approaches that are normally adopted at the WTO negotiations, the South African trade envoy said “our ability to conclude will be based on an open, inclusive, transparent, Member-driven process that preserves the right of Members to submit proposals based on their issues of interests and negotiating mandate.”

Touching on the unfulfilled business in agriculture, she said that South Africa will “continue to advocate for substantial reform of Trade Distorting Domestic Support, notably Cotton; a permanent solution for Public Stockholding; and advancing the discussions on a Special Safeguard Mechanism.”

“S&DT,” she said, “must be integral to any outcome in agriculture, and we would seek to ensure that LDCs [least-developed countries] and NFIDCs [net food importing developing countries] are exempted from further commitments.”

In his intervention and without naming the US that has launched a series of unilateral trade measures, India’s trade envoy Ambassador J S Deepak maintained that “the WTO is facing formidable challenges due to a spate of unilateral measures that are WTO-inconsistent, and an unprecedented attack on its cherished principles of non-discrimination, decision making by consensus and special and differential treatment for developing countries.”

Commenting on the fact that the worsening impasse in filling vacancies of the Appellate Body remains, the Indian envoy observed that there is no “response from the objecting Member [the United States], in spite of a dozen proposals to address concerns related to its functioning.”

“With only three months to go after the summer break, the Membership needs to act before the Appellate Body moves from the ICU to the mortuary!” the Indian envoy warned.

Barring the fisheries subsidies negotiations, the Indian envoy said, negotiations in other areas remain dormant.

Even in the fisheries subsidies negotiations, he said, ministerial mandates must be respected.

He emphasized that “there should be appropriate and effective special & differential treatment for developing countries.”

“S&DT should not be replaced or derailed by new proposals, citing in-built flexibilities for all,” India cautioned.

“In this regard, any abridgment of the mandate to provide S&DT to developing countries including LDCs can jeopardize an outcome in this important area of negotiations,” the Indian envoy reiterated.

“Further, we need to clearly understand that any suggestion which rewards Members, who are major subsidizers and are largely responsible for the current state of affairs, by protecting their harmful subsidies and restricts policy space for others to improve the state of their subsistence fishers, will neither help the negotiations nor protect the health of our oceans,” Ambassador Deepak warned.

Emphasizing the importance of agriculture for a large majority of developing countries, Ambassador Deepak made it clear that “finding a permanent solution for public stockholding for food security should be a priority as it is critical to address fundamental issues of poverty, hunger and malnutrition and for achieving SDGs 1 and 2.”

“We also need to work meaningfully to address the historic asymmetries in the Agreement on Agriculture,” the Indian envoy maintained.

He informed members that the informal ministerial meeting of developing countries held in New Delhi two months ago had called for strengthening the WTO by promoting “development and inclusivity.”

On WTO reforms, India said “the agenda for reforms is highly unbalanced, which is making it increasingly difficult for developing countries to engage constructively.”

“It is with the objective of giving a voice to our [developing countries’] priorities, which in turn, will offer a choice to Members, that India along with some other developing members has made two submissions,” he said.

South Africa, India, and five other countries circulated a joint proposal a fortnight ago “on an inclusive approach to transparency and notifications.”

India along with many other developing countries also circulated a proposal on “WTO reforms for strengthening WTO for development and inclusivity.”

“Our paper on WTO reforms has elements related to preserving the core principles of the WTO, according priority to resolving the impasse in the Appellate Body, safeguarding the interest of developing countries, adopting a cooperative approach to transparency and notifications and preserving the centrality of development at the WTO,” the Indian envoy said.

In these challenging times, the Indian envoy said, “keeping in view the aspirations of the large majority of Members, our priority should be to balance our agenda and make it inclusive, transparent and development- oriented.”

“Foremost, we must work to preserve the system by ending the impasse on the Appellate Body appointments with a sense of utmost urgency and address the historic asymmetries in the WTO agreements,” Ambassador Deepak maintained.

Without naming the US and other developed countries that have called for differentiation, the Indian envoy said “it would also be best that we avoid divisive debates, such as the one on differentiation, which would only further undermine the credibility of the system and deepen the divide amongst members.”

In its intervention, China said while complying with transparency and notification requirements is important, “punitive measures [as proposed by the US and other developed countries], particularly financial ones, are not helpful, and will lead to negative rather than positive effects.”

China, which has complied with all its subsidy notification requirements last month, maintained that developing countries made tangible progress in offering a counter-narrative on WTO reforms to the one proposed by developed countries.

“India, China and South Africa convened meetings in May, June, and July respectively” to sensitize members about their proposals that call for “a balanced reform agenda, with development at the center.”

On behalf of the African Group, Benin reminded members that there is considerable unfinished business in agriculture such as “reaching a permanent solution for holding of the public stocks for food security purpose, as well as a special safeguard mechanism for developing countries.”

Benin called for the modalities for reducing traded-distorting domestic support in cotton.

On fisheries subsidies, Benin said “given the importance of fishing activities for several African countries, in terms of food security, caloric balance for the population, income generation, job creation, and the promotion of women’s empowerment, it is important that WTO Members really work towards achieving Goal 14.6 of the Sustainable Development Goals, on the sustainability of fisheries resources, by adopting a decision that ensures effective disciplines that prohibit certain forms of fisheries subsidies that contribute to overcapacity and overfishing.”

The African Group called for eliminating “subsidies that contribute to Illegal, Unreported and Unregulated (IUU) fishing.”

The African Group rejected attempts to finalize a plurilateral agreement “on domestic regulation in Services,” cautioning the plurilateral proponents that “inserting GATS Article VI.4 disciplines into Schedules requires consensus.”

“It is these kinds of [plurilateral Joint Statement Initiative] approaches that is causing the fragmentation of the multilateral trading system,” Benin said, on behalf of the African Group.

Commenting on the special and differential treatment, Benin said the African Group wants that “development should remain at the center of our work and the results to be achieved and S&D is a right that must be preserved, taking into account differences in levels of development.”

On the AB impasse, the African Group emphasized the “urgency of relaunching the selection process to ensure the functioning of the Appellate Body, otherwise the multilateral trading system will lose one of its fundamental pillars.”

On the issue of transparency, Benin said that the African Group, Cuba and India will present a proposal at the General Council meeting on 23 July about “the importance of transparency for the functioning of the multilateral trading system.”

“This Communication advocates a development-oriented, inclusive and cooperative approach to transparency to bring Members to comply with their obligations,” Benin said, emphasizing “for the Group, the punitive approach cannot be accepted because it does not take into account the capacity constraints faced by a number of developing countries.”

“Transparency should permeate all aspects of the functioning of the WTO, and not be limited to notifications,” Benin maintained.

On electronic commerce, the African Group called for “reinvigorating the discussions in the framework of the implementation of the Work Program on Electronic Commerce, based on the existing mandate.”

Arguing that data is undoubtedly at the heart of the digital economy, the African Group said it is “important to have a balanced discussion on the value of data, the costs and implications of the free flow of data, and how Members can leverage data to promote digital industrial policy and inclusive growth.”

In short, the battle lines are drawn for the WTO’s General Council meeting on 23 July between the developing countries on the one side, and the developed countries on the other, over issues of transparency and notifications and attempts to introduce differentiation/graduation for availing special and differential flexibilities.