Question

How does WTO manage trade-related governance issues? Do you think WTO is safeguarding interests of developed countries and MNEs more than the interests of developing countries?

Answer 1

Strengthening the WTO Rulemaking Function

The World Trade Organization (WTO) is a relatively new international organization, established only 25 years ago, yet it has a pedigree reaching back to the end of World War II. While it appeared to have a short honeymoon in its first few years, the rapid expansion of its membership, the accession of China and the launch of the Doha Development Round in 2001 have proved serious challenges for the governance of the WTO.

This essay explores the following questions: Does the WTO have the organizational structures and underpinnings to allow it to survive in the current world economy, characterized by rising populism, increasing protectionism and rapidly changing political and economic dynamics? Can the WTO be strengthened to enable multilateralism to thrive in the future? What are the strengths and weaknesses of the decision-making and rulemaking procedures in the WTO, and how can they be improved? Does the WTO need institutional reform to its governance structures to improve negotiations and rulemaking?

The WTO was not a utopian dream designed to function only in good times. The functions of the WTO are set out in its founding charter, the Agreement Establishing the World Trade Organization1 (the WTO Agreement). The negotiation of the WTO and its dispute settlement system was not an accident or an experiment. Negotiators purposefully created an international organization — an institution — in which members can negotiate, administer and review the rules, and resolve disputes under the rules. The WTO is not a cluster of agreements with differing levels of participation serviced by different committees and secretariats, as was the case under the old, fragmented General Agreement on Tariffs and Trade2 (GATT) system. It is a unified system involving one treaty, one organization, one dispute settlement system and one secretariat.

Rulemaking under the WTO

The Uruguay Round texts were a monumental achievement: more than 60 agreements and decisions comprising more than 550 pages. These were accepted by WTO members as a single undertaking, meaning that they had to accept all of the obligations contained in these legal texts. WTO rules purport to treat all members equally, in that all obligations apply to all members, and each member has an equal voice in decision making and rulemaking through the principle of consensus. However, the reality is that the burden of implementing WTO rules fell more heavily on developing countries, and they did not reap the benefits that they expected to receive from the results, especially in agriculture and textiles. WTO members, locked in a GATT mindset, attempted too soon to launch a major round of negotiations, first, unsuccessfully, in Seattle in 1999 and then, successfully, in Doha in 2001. After several years of protracted and difficult negotiations, the Doha Development Round failed.

The WTO was not a utopian dream designed to function only in good times.

There have been modest rulemaking successes in the WTO’s 25-year history, including the Agreement on Basic Telecommunications Services (Basic Telecoms Agreement), the Information Technology Agreement (ITA), the Protocol Amending the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Amendment), the Protocol Amending the Agreement on Government Procurement (GPA Amendment) and the Trade Facilitation Agreement. Plurilateral negotiations have been under way for some time on trade in services, green goods and fisheries subsidies. The successful negotiations in the WTO have been plurilateral. The current negotiations on substantive and reform issues also involve limited numbers of members.

Strengths and Weaknesses of WTO Rulemaking

The WTO’s rulemaking strengths are also its weaknesses. The principle of equality of members — which is manifested in the consensus decision-making rule and the one-member, one-vote rule — is a good example. The Ministerial Conference, as well as all councils and committees, are open to all 164 members. The WTO is governed by the members acting in plenary all the time. While this may be an equitable way to govern an international organization, it has also led to stagnation in decision making and rulemaking.

As the WTO has grown from 128 members in 1995 to 164 members today, it has become very difficult, if not impossible, to find common ground on subjects for negotiation and, ultimately, agreement on the final texts. There is also a pronounced lack of coordination of efforts to negotiate modifications to the rules and new agreements. Initiatives arise from individual members or groups of members, and it is often difficult to achieve multilateral consensus sufficient to move a proposal forward.

WTO Culture

To understand the reasons for the difficulties with the WTO’s negotiating and rulemaking mechanisms, it is important to recognize that the WTO has an organizational culture that has carried over from the GATT. Adherence to this culture is pervasive and prevents members from taking advantage of all of the rulemaking options available to them.

Key tenets of WTO culture include the following:

· the WTO is a member-driven organization;

· multilateral negotiations must be conducted within rounds;

· multilateral negotiations must be accepted pursuant to a single undertaking; and

· all decisions must be taken by consensus.

Member-driven organization: The WTO is nothing more, nothing less than the collectivity of its members. In this respect, it resembles its predecessor, the GATT. The WTO’s power and authority rest with the members acting in plenary as the Ministerial Conference, or its delegated body, the General Council. Participation in all councils and committees is open to all WTO members. Each member has an equal say in decision making in that any member can block a consensus decision from being made. The WTO lacks formal management or governance structures; it does not have an executive board as do other international organizations, such as the International Monetary Fund (IMF) or the World Bank. The powers and the authority of the director-general, as well as the functions and responsibilities of the Secretariat, are limited compared to other international organizations. WTO members carefully guard their control over administration, decision making, negotiations and rulemaking within the organization.

Rounds: Since the GATT was agreed in 1947, major multilateral negotiations have taken place within rounds. However, Uruguay Round negotiators specifically contemplated that these negotiations could be conducted outside of the context of rounds. The WTO Agreement does not say anything about rounds; it simply says that the WTO is to be “the forum” for multilateral trade negotiations relating to matters under the WTO agreements among its members. Some WTO agreements had “built-in” agendas mandating negotiations to take place (for example, in the General Agreement on Trade in Services on domestic regulation, emergency safeguards and subsidies). The specific amending formulae in article X of the WTO Agreement also imply that members could amend one agreement. Several negotiations have been completed in the WTO, such as the Basic Telecoms Agreement, the ITA, the TRIPS Amendment, the GPA Amendment and the Trade Facilitation Agreement, that did not occur within a round.

Single undertaking: The Uruguay Round agreements were negotiated, agreed and accepted as part of a single undertaking — an all-or-nothing package. The idea of the single undertaking was developed to repair the fragmentation in the GATT 1947 system that resulted from the Tokyo Round of multilateral trade negotiations. In the old GATT system, there were different levels of obligations because of the Tokyo Round codes, each of which had different memberships.

he WTO is nothing more, nothing less than the collectivity of its members.

The WTO has already moved away from the single undertaking in several key decisions that have been taken since 1995. The ITA (1998) and the Basic Telecoms Agreement (1997) were, in effect, plurilateral understandings that were implemented by means of commitments in certain members’ schedules. The GPA Amendment and the Trade Facilitation Agreement are plurilateral agreements. There are plurilateral negotiations currently under way among WTO members on trade in services, green goods and fisheries subsidies. How these agreements would be implemented, should they be successful, has not yet been determined.

There have been several proposals for reform of the WTO negotiating machinery to allow, for example, plurilateral agreements, variable geometry and critical mass. The WTO Agreement allows for some flexibility in these respects that has not yet been fully explored.

Consensus decision making: The most pervasive myth in the WTO is that most decisions (except for certain key dispute settlement decisions) must be taken by consensus. However, the WTO Agreement rules, while providing for decisions to be taken by consensus, also provide that if it is not practicable to decide by consensus, in most cases, members can choose to vote. Except for rare cases in approving accessions, voting has not been used as a basis for decision making in the WTO.

There are procedures in the WTO Agreement for members to adopt a binding interpretation, a waiver or an amendment of an agreement with a decision taken by a vote, rather than by consensus. These are means by which members could adopt modifications to an agreement or respond to a dispute settlement ruling that they do not approve. However, these procedures have not been explored or used to date because of the overwhelming support of members for the consensus principle.

The Way Forward

The difficulties with rulemaking and decision making in the WTO may not lie in the rules themselves but rather in the culture or attitudes of the members. Flexibilities provided in the decision-making and amendment rules in the WTO Agreement have not been fully explored by members. Consensus decision making was made a rule in the Uruguay Round, however, it is not absolute. Where consensus is not practicable, members may vote, but members have been reluctant to use voting procedures to date.

Members should explore rulemaking on an ongoing basis, not just during major rounds. However, they may need to develop more formalized processes at the front end for rulemaking proposals to move forward. It is not the final phase of adoption of a legislative proposal that causes the delays and blockage in the WTO system, but rather the lack of formal mechanisms at the initial and intermediate stages of the rulemaking process.

The WTO lacks governance structures for strategic planning and policy making. The absence of a management or executive body with a specific role in agenda-setting or supervisory functions, analogous to the executive boards of the IMF and World Bank, contributes to the lack of direction and drift in the WTO.

The drafters of the Havana Charter for an International Trade Organization contemplated creating an executive board that would have had both executive and supervisory functions. The GATT Consultative Group of Eighteen was established in the early 1970s, became a permanent body in 1979 and continued until 1988. It was a limited-membership, representative body that addressed existing and emerging trade policy issues. Topics included trade and structural adjustment, as well as trade and development.

It is time to establish a formal executive board to provide direction in strategic goal-setting and policy planning in the WTO. Such a body should be specifically designed to be representative of the membership of the WTO, accountable to the members, legitimate and effective. With a rotational, representative system for selecting members of the board and built-in transparency mechanisms, an executive board could provide the leadership and direction that the WTO sorely lacks.

The roles of the director-general and the Secretariat of the WTO should also be enhanced. The Secretariat should be permitted and encouraged to take a more proactive role in conducting research and developing proposals. The authority, responsibilities and powers of the director-general should be specifically delineated, and accountability mechanisms should be established.

Members are currently engaged in important discussions in the WTO on reform issues, such as transparency, notifications and improving the effectiveness of committees. Excellent proposals have been made on these issues and incremental reforms appear achievable.

However, the lack of leadership in strategic planning and policy making is the major problem in the WTO. It cannot be cured by incremental, administrative changes to transparency, notification or committee procedures, or reforms to voting rules. Leadership was not a problem in the GATT when the United States and the European Communities were the dominant trading partners. In the WTO, there are several powerful economic members, none of whom acts as a clear leader individually or collectively. The WTO has a multitude of members, a rulemaking system that cements their equality, no leaders, and no executive body that provides strategic planning and management direction. Is it surprising, therefore, that the WTO is rudderless and adrift? Members are in charge of steering the ship. They can set it right by establishing an executive board with strategic planning and management capabilities. Multilateralism is at stake.

6 The WTO can ... help countries develop

Underlying the WTO’s trading system is the fact that more open trade can boost economic growth and help countries develop. In that sense, commerce and development are good for each other.

In addition, the WTO agreements are full of provisions that take into account the interests of developing countries.

Over three-quarters of WTO members are developing or least-developed countries. All of those in the queue to join are likewise developing countries. Whether the interests of developing countries are well enough served in the WTO is a subject of continuing debate. But even the most critical developing countries acknowledge that the system offers them benefits.

In fact, few economists dispute that properly handled, trade is essential for development.

All WTO agreements contain special provisions for developing countries, including longer periods to implement agreements and commitments, measures to increase their trading opportunities and support to help them build the infrastructure for WTO work, handle disputes, and implement technical standards. Least-developed countries receive special treatment, including exemption from many provisions.

The needs of developing countries can also be used to justify actions that might not normally be allowed under the agreements – for example, governments giving certain subsidies.

And the negotiations and other work launched at the Doha Ministerial Conference in November 2001 include numerous issues that developing countries want to pursue.

Finally, although the WTO is not an aid agency, it does have a role to play, particularly as a forum and clearing house for information on trade-related development aid.

Aid for Trade. The debate over whether developing countries need aid or trade is at an end.

Today, there is widespread recognition that developing countries need both. But WTO agreements do not guarantee increased trade flows: they provide opportunities. Some countries are better placed than others to grasp those opportunities. Some need help: “Aid for Trade” and various other tools are aimed at enhancing the capacity of developing countries to participate more effectively in the global marketplace.

The WTO is the coordinating agency for the Aid for Trade programme and as such regularly brings donors, development agencies, recipient governments and the private sector together. This dialogue helps to highlight what is being provided and what is needed while encouraging the development of more suitably designed projects.

Both donor and recipient countries have responded to these efforts. Donor countries have committed an average of $40 billion a year to trade-related development programmes while recipient countries have had success

in pinpointing the specific areas where aid is needed and in mainstreaming trade into their development strategies.

Better communications. The WTO has set up reference centres in over 100 trade ministries and regional organizations in capitals of developing and least-developed countries, providing computers and internet access to enable ministry officials to keep abreast of events in the WTO in Geneva through online access to the WTO’s immense database of official documents and other material. Efforts are also being made to help countries that do not have permanent representatives in Geneva.