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TWN
Info Service on WTO and Trade Issues (Sep25/14) Trade:
Brazil outlines vision for WTO reform, rebuts EU's proposal Geneva, 22 Sep (D. Ravi Kanth) -- Brazil on 18 September offered a comprehensive assessment on how reforms should proceed in a rules-based system during a discussion on the "foundational issues" track of World Trade Organization reform. At a meeting on "foundational issues" convened by the facilitator on 18 September, the Brazilian trade envoy, Ambassador Guilherme de Aguiar Patriota, appears to have exposed the flawed arguments advanced by the European Union in changing the multilateral rules to address industrial subsidies, the most-favoured-nation (MFN) principle, and advancing closed-plurilateral negotiations, said people familiar with the discussions. In a sharp assessment, Brazil is understood to have said that members need a fully functioning and effective dispute settlement system that must deliver fair and balanced outcomes, said people familiar with the development. As the chair of the Dispute Settlement Body (DSB) currently overseeing the discussions on reform of the dispute settlement system (DSS), the Brazilian trade envoy gave his feedback on the state of the ongoing talks, suggesting that members are making efforts to hold an informal discussion on how to have a genuine conversation about restoring the system and understanding the concerns of other members. Ambassador Patriota informed members that they can count on Brazil to remain fully engaged in the discussions on DSS reform, insisting that the right time for this discussion is now, said a person present at the meeting. Commenting on the EU's proposal, Brazil apparently said that there is a strong emphasis on associating the current trade turmoil with increasingly impactful state intervention, including state-owned enterprises (SOEs), leading to overcapacity and systemic imbalances. He suggested that in the EU's paper, the massive scale of state intervention in industrial sectors is presented as a major factor creating pressures in the system, together with "weaponization" and economic coercion, said another person who asked not to be quoted. In the previous discussion, according to the Brazilian trade envoy, there was recognition of the link between trade and tariffs; now the emphasis seems to be shifting towards dependencies, the person said. The excessive and seemingly irrational focus of the EU's proposal on industrial sectors, particularly on the issue of overcapacity and industrial policies generating imbalances through massive state intervention, has seemingly ignored the problem in another sector, namely, agriculture, Brazil apparently said during the meeting. The continuing high level of support for agriculture in many farm-protective countries, particularly the EU, has been a problem for much longer, creating imbalances, trade tensions, and negative effects, Brazil said, adding that these problems predate the current concerns about industrial overcapacity by many years. Therefore, state intervention in the agricultural sector must be addressed for overcoming the persisting asymmetries in the global trading system, Brazil said, according to people familiar with the discussions. On MFN, referring to a list of what are described as exceptions to the MFN principle in the EU paper, Brazil appears to have suggested that many of them are real exceptions, emphasizing that bound tariff rates are not an exception. The Brazilian trade envoy apparently drew attention to the Enabling Clause of 1979, saying that it is not simply an exception either. Ambassador Patriota also reminded the EU and other members, who are seeking changes to special and differential treatment, that trade remedies are also not exceptions to MFN in that sense, said people familiar with the development. According to Brazil, whether it is trade remedies or the Enabling Clause, they are all instruments intended to address the nullification or impairment of rights and obligations of members and to restore compliance with the rules. Brazil also drew attention to the considerable emphasis placed on plurilateral agreements, suggesting that the idea of establishing multilateral rules through plurilateral agreements seems, to some extent, contradictory in its own terms, said people familiar with the discussions. Ambassador Patriota cited the example of the ITA (Information Technology Agreement), saying that it does not establish fundamental rules or principles. Further, the ITA merely establishes a list of goods in the information technology sector on which tariffs are reduced to zero, the Brazilian trade envoy said. He suggested that the ITA is a very concrete market-access and trade-liberalization exercise. He reminded members that the ITA does not move us away from the fundamental rules of the system, which remain overarching. In short, Brazil exposed the glaring inconsistencies in the EU's proposal, which tries to address questions concerning the fundamental principles governing multilateral trade through plurilateral agreements. "Fundamental principles governing multilateral trade should, by definition, be dealt with multilaterally, not through plurilateral arrangements - even less so if those agreements are closed and their benefits are not applied on an MFN basis," Brazil said, according to an African trade official who asked not to be identified. Furthermore, the EU's paper, according to Brazil, appears to envisage plurilateral agreements whose benefits would be limited to participants - in other words, closed plurilaterals. Ambassador Patriota apparently said that he does not see how that would solve the issues relating to the fundamental principles and rules governing the multilateral trading system as a whole. Several other members appeared to have sharply questioned the EU's proposal, said people familiar with the development. Although the meeting was supposed to discuss the US proposal on the role of the WTO Secretariat, it appears that the discussion could not take place due to the absence of the US trade envoy, Ambassador Joseph Barloon, said people familiar with the discussions. However, the US was seemingly prepared to engage with members on other issues in its proposal. EU'S PROPOSED CHANGES During the discussion on the EU's proposal (WT/GC/W/986), which was modified through a new proposal (WT/GC/W/Reform/6), the EU appeared to suggest that it was no longer seeking a change to the existing MFN rule, but instead wanted to revisit members' overall tariff commitments, said a person who asked not to be quoted. The EU had proposed two preliminary pathways in its proposal on "foundational issues": 1. "Reviewing existing MFN exceptions: ensuring they provide sufficient room to integrate economic security and supply chain resilience considerations;" 2. "Sectoral plurilateral agreements: creating pacts that combine liberalization with strict disciplines, where benefits are reserved only for participating members." Ultimately, the EU asserts that the largest players in global trade must shoulder greater responsibility. "It is especially the biggest players with a significant share in global trade ... that must assume their responsibility to contribute to a fairer global trading system, strengthening the political legitimacy of rules-based trade." The EU apparently conveyed that it would no longer press for a change to the MFN principle per se, but underscored the need to revisit the rights, obligations, and commitments undertaken by members in 1995, said another participant who asked not to be quoted. According to people present at the meeting, the EU said that revisiting the commitments had become imperative to examine how the trade balance had shifted over time and whether economic realities had changed. Several members sought to know whether the EU's latest demand to revisit members' rights, obligations, and commitments would cover only tariffs or also non-tariff barriers and measures, including agricultural and subsidy entitlements, said people who asked not to be quoted. In response, the EU said it was primarily examining the issue from a tariff perspective, while suggesting that members could also put forward other ideas concerning rights and obligations, said people who asked not to be identified. +
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