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Info Service on WTO and Trade Issues (Dec25/20) Geneva, 16 Dec (D. Ravi Kanth) — Ahead of the crucial World Trade Organization General Council meeting on 16 December, the United States on 15 December unveiled a seemingly “maximalist” agenda for reforming the WTO on its own terms. This includes raising concerns about the continuation of most-favoured nation (MFN) treatment, the “application of security exceptions” based on national priorities rather than WTO rules, and limiting special and differential treatment (S&DT) only to least-developed countries. More importantly, the US has called for transforming the multilateral trade body into a “plurilateral” negotiating mechanism based on the interests of groups of countries, limiting the WTO Secretariat’s role to only administrative tasks, and addressing more “systemic” concerns. In its six-page proposal (WT/GC/W/684) circulated on 15 December, the US said while it welcomes the “WTO reform” work being carried out by the facilitator, Ambassador Petter Olberg of Norway, on “decision-making, special and differential treatment, and level playing field,” it expressed its views on those three issues as well as on the need to include “concerns regarding the most-favored-nation principle (MFN), the role of the Secretariat, and application of the essential security exception.” Moreover, seemingly pointing a finger at the WTO Director-General, Ms Ngozi Okonjo-Iweala, who has allegedly breached her mandate, the US maintained that “the Secretariat has sought to influence the agenda for work at the WTO,” stressing that “it has advocated for specific outcomes at the negotiating table and has leveraged its tools to apply pressure to Members that hold different views.” The US said it is Washington’s view that “the WTO is unable to address certain systemic problems, such as imbalances, overcapacity, economic security, and supply chain resilience.” The US said it “has serious concerns with the trading system embodied by the WTO, given that the system has overseen and contributed to a world of severe and sustained imbalances.” Seemingly pointing a finger at China, the US said, “These imbalances are driven in part by overcapacity and concentration of production, have created dangerous dependencies and vulnerabilities for many countries and have undermined many countries’ legitimate aspirations to develop or maintain industrial capacity.” It justified its unilateral reciprocal tariffs that have wreaked havoc on the global trading system, urging “other Members to follow our lead and take actions – both within the WTO and outside the WTO – to combat such predatory economic policies.” The US maintained that the WTO “cannot serve as the forum for solving all existing and future challenges in the global trading system,” claiming that “the WTO does not fully live up to its own mission.” “Our collective reform efforts,” the US said, “should be directed at making changes that recognize the limitations of the organization and strengthen what Members can realistically achieve through the WTO.” DECISION-MAKING On decision-making, which is the cornerstone of arriving at multilateral decisions at the WTO based on the consensus principle, the US said, without naming the countries, “a few Members seem to disagree with another reasonable principle: Members that are willing to consent to a new obligation should be able to forge a new agreement among themselves.” Maintaining that “the path to plurilateral agreements is blocked, and it is a serious problem for the viability of the WTO,” the US argued that “reaching consensus among 166 Members on new, substantive agreements of any significance is very unlikely, given the wide differences in Members’ economic systems and levels of ambition.” Having been the beneficiary of multilateral trade agreements like the Information Technology Agreement, the Trade Facilitation Agreement, and the Agreement on Fisheries Subsidies, the US said “members may have wrung all they can from multilateral negotiations.” Effectively, the US appears to be suggesting that there is no room for other multilateral decisions in areas of agriculture, trade and environment, and trade-related aspects of intellectual property rights, said people familiar with the development. Yet, somewhat paradoxically, the US is now seeking a multilateral agreement on a permanent moratorium on customs duties on electronic transmissions that would benefit its tech giants like Google, Amazon, Meta, and Microsoft, among others, said people familiar with the US proposal. ONLY PLURILATERAL TALKS AT WTO The US said somewhat audaciously that “if the WTO is to have a future as a negotiating forum, it is likely to be for plurilateral negotiations.” Essentially, the US is proposing to do away with the provisions of Article IX of the Marrakesh Agreement on embarking on plurilateral negotiations as well as the incorporation of their outcomes into the Annex 4 list of plurilateral agreements, said people familiar with the development. The US goes on to argue that “finding a path forward at the WTO for plurilateral agreements whose benefits and responsibilities are limited to the consenting parties must be a priority,” stressing that “such plurilateral agreements would allow those Members that are ready to take on new commitments to do so in a reciprocal manner, while allowing other Members to join and gain the benefits of those commitments in the future, when they are ready.” According to the US, “plurilateral agreements allow like-minded trading partners committed to fair and reciprocal trade to strengthen their ties for their mutual benefit and to do so within the architecture of the WTO agreements.” It urged members to follow suit on plurilateral agreements, suggesting that “if there is no path for Members to enter into plurilateral agreements at the WTO, we must acknowledge that the WTO is not a viable forum for negotiating.” “Trade negotiations will happen, but not at the WTO,” the US stressed. S&DT The US position on differentiation among developing countries for availing of special and differential treatment (S&DT) began during the Trump administration’s first term. It had called for doing away with the self-designated framework for availing of S&DT by developing countries. Continuing the attack on S&DT based on the self-designation framework, the US said that “SDT eligibility must be reformed for the WTO to remain credible” and that it must be done “substantively and politically”, as it “is unacceptable for significant players in the trading system to benefit from preferential treatment.” Without any apparent regard to the Enabling Clause, which it had agreed to at the end of the Tokyo Round of trade negotiations in the late 1970s, and other treaty-bound rights, the US now maintains that S&DT is “also untenable for WTO rules to apply to some Members, and not others, in perpetuity.” Interestingly, the US is the sole beneficiary of S&DT when it comes to insulating its maritime sector from international competition (through the Jones Act), as well as several other S&DT benefits, said a former trade envoy, preferring anonymity. The US suggested that S&DT allows a developing country not to comply with its “WTO commitments.” However, S&DT should not “be eliminated altogether,” the US said, adding that “it may be appropriate for least-developed countries (LDCs) to benefit from certain flexibilities. However, SDT should be viewed as a tool to enable Members to achieve the capability to follow the same rules that all other Members must follow and in a timely manner.” Without naming countries like South Korea, Singapore, and recently China, which have disavowed S&DT in current and future trade negotiations, the US said it “would expect Members that preach about the importance of the rules-based multilateral trading system to be disciplined by those rules, not exempt from them,” in what appears to be a pointed criticism of countries like India that have called for preserving the multilateral trade rules. “Reform in the area of “development” must focus on transitioning all Members to follow the same rules, regardless of their economic differences,” the US said. LEVEL PLAYING FIELD Without naming China, which has been constantly attacked over its state-owned enterprises and the allegedly huge subsidies being given to these enterprises – a practice also employed by the US in agriculture and several high-tech sectors – the US argued that “the actions of Members with economic systems that are incompatible with the principles of the WTO have tilted the playing field away from free market economies and have eroded trust in the ability of this organization to ensure fair treatment in global trade.” To address the problem of so-called non-market economies, the US wants members to “focus on where the WTO can add value and incentivize reciprocity.” The US said it “explained in the General Council that “WTO Membership is a privilege that also includes notification obligations that all Members agreed to as a condition of Membership.” But the Membership, as a whole, has not accepted this basic principle.” While “transparency plays a critical role in delivering value to Members and our stakeholders,” the US said that “certain Members’ lack of transparency and chronic lack of adherence to WTO notification obligations prevent other Members from effectively using the WTO committee system to monitor compliance with WTO rules and principles, a core function of the WTO.” “A Member’s failure to comply with its notification obligations not only undermines trust in that Member; it undermines trust in the organization and the agreements negotiated at the WTO,” the US said, while insisting that “chronic and widespread noncompliance with notification obligations also makes it more difficult for Members to identify opportunities to negotiate the “reciprocal and mutually advantageous arrangements” envisioned in the WTO’s founding documents.” MFN PRINCIPLE In addition to the above reform issues, the US argued that the “MFN principle, which seeks to prevent discriminatory trade practices and promote equal treatment among trade partners, was designed for an era of deepening convergence among trading partners.” Suggesting that the Marrakesh Declaration bolstered previous GATT practices, including market-oriented trade policies, as stated by the founding Members of the WTO in the preamble to the Marrakesh Declaration, the US said: “That expectation was naive, and that era has passed.” Seemingly taking aim at China, the US said the current era is one “of deepening divergence, rooted in some countries’ unwillingness to pursue and uphold fair, market-oriented competition, some countries’ insistence on maintaining economic systems that are fundamentally incompatible with WTO principles, and many countries’ pursuit of chronic trade surpluses that have adverse economic and political consequences in deficit countries.” In order to address these “challenges, trading nations must be able to treat different trading partners differently,” the US said, hinting at the need to terminate MFN-based trade. The US, which has unilaterally brought the multilateral trading system crumbling down over the past nine months through its reciprocal tariffs, maintained that “the MFN principle is not just unsuitable for this era; it prevents countries from optimizing their trade relationships in ways that would benefit each party in that relationship.” “Put differently,” the US said, “MFN impedes welfare-enhancing liberalization” while pushing “Members to engage in one venue – the WTO – and attempt to develop a one-size-fits-all approach – If Country A lowers a tariff for Country B, and Country B lowers a tariff for Country A, both countries have to lower those tariffs for all countries, unless their agreement covers “substantially all the trade” or a waiver or exception applies.” The US offered a justification for imposing its unilateral reciprocal tariffs by stating that “given the distinction between developed and developing status is now blurred, it is time to recognize the necessity of allowing all Members to enter into mutually beneficial agreements that may not extend to every Member.” However, such “mutually beneficial agreements” perpetuate the principle of “might is right” in global trade, said people familiar with the development. ROLE OF WTO SECRETARIAT The US stated unambiguously that it “sees the role of the WTO Secretariat as fundamentally administrative, not substantive.” “In a Member-led organization,” the US said, “the Secretariat facilitates the day-to-day administration of Members’ work, which focuses on administering and monitoring compliance with WTO agreements and negotiating new trade rules.” “However,” the US said, “in recent years, the Secretariat has increasingly pursued roles – and issued social media posts and other communications – that step far beyond the neutral administration of Members’ work.” Moreover, the US maintained that “the Secretariat has sought to influence the agenda for work at the WTO,” stressing that “it has advocated for specific outcomes at the negotiating table and has leveraged its tools to apply pressure to Members that hold different views.” Continuing its criticism over the manner in which the Secretariat, under the leadership of Ms. Ngozi Okonjo- Iweala, has conducted negotiations at the WTO, the US said that “it has assigned to itself a growing role in monitoring and commenting on Members’ trade-related measures, including by judging whether those measures restrict or facilitate trade.” “These roles,” the US said, “belong only to Members, not the Secretariat,” adding that “the Secretariat also envisions itself as a trade research unit, undertaking projects that have not been authorized by Members, may be prejudicial to Members’ positions, and may utilize funds from Members. All of this erodes trust in the Secretariat as a neutral administrator.” The US called on the Secretariat “to maintain its credibility”, saying that “the Secretariat’s work must be transparent, objective, neutral, fiscally-disciplined, and guided by Members.” “For more than a decade, the United States and several other Members have been raising systemic concerns about the Secretariat’s failure to appropriately inform and consult with Members prior to undertaking certain activities that are highly relevant to Members’ work, including in the Council for Trade in Goods and its sub-bodies,” the US said. SECURITY EXCEPTIONS The US, which has recently lost trade disputes at the WTO for egregiously using security exceptions for its unilateral trade measures like the Section 232 tariffs under national security provisions, argued that “WTO panels have recently interpreted WTO rules to find that the WTO has the authority to pass judgment on actions determined by Members to be in their essential security interests.” It stressed that “litigating sovereign matters of essential security at the WTO undermines public trust in the WTO by dragging the organization into inherently political matters.” “To prevent further undermining of the WTO, Members need to adopt a shared understanding of the essential security exception that prevents second-guessing of a Member’s critical essential security decisions,” the US maintained. The US also castigated the WTO for failing to negotiate new rules while allowing members significant exemptions from existing rules. “It therefore defies belief that the WTO, which is unable to achieve its primary mission, would somehow take on new issues.” +
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