“Future of WTO” report launched, with some controversial proposals

Original Publication Date: 
19 January, 2005

The World Trade Organisation on 17 January launched a report on “The Future of the WTO” which addresses several institutional issues, with recommendations to reform the way the organisation works and how decisions are made.

The 86-page report was authored by a Consultative Board set up by the WTO Director General Supachai Panitchpakdi and chaired by Peter Sutherland, a former Director-General of GATT and the WTO, and presently Chairman of two corporate giants, Goldman Sachs International and British Petroleum.

In a foreward, Supachai explains that the eight-member Board was asked to clarify the institutional challenges faced by the WTO system and to consider how the WTO could be “reinforced and equipped” to face them.

The report addresses the WTO’s role in globalisation, responding to the many criticisms the organisation is facing. In separate chapters, it looks at preferential trade arrangements (PTAs), coherence between the WTO and other agencies, relations with civil society, the WTO dispute settlement system, the decision-making process, and the role of the Director General and the Secretariat.

The other Board members are Jagdish Bhagwati (the free-trade economist from Columbia University), Kwesi Botchwey (chairman, African Development Policy Ownership Initiative and former Ghana Finance Minister), Niall FitzGerald (Chairman of Reuters and former CEO of Uniliver), Koichi Hamada (Yale University economics professor), John Jackson (Law Professor, Georgetown University), Celso Lafer (Sao Paulo University law professor and former Brazilian Foreign Minister) and Thierry de Montbrial (President, French Institute of International Relations).

Many of the proposals can be expected to be controversial, including those that had been introduced by certain members before but rejected by others.

The controversial measures in the area of WTO decision making process include the use of the plurilateral approach for suggested new agreements when consensus among members for such rules is not possible, the establishment of a Ministerial-level “consultative group” of up to 30 members (with some being “permanent members”), and greatly expanding the powers of the Director General and the Secretariat so that they can play pro-active and even leadership roles in negotiations.

Other suggestions include that Ministerial meetings be held annually (instead of once in two years) and a Summit-level meeting once in five years.

The report dwells at some length on the WTO’s consensus principle. It notes that there is more legitimacy for proposals to be adopted by consensus but there are also disadvantages as the majority’s will can be blocked by even one country.

The report is not in favour of departing from the consensus principle (saying that voting is rarely if ever a wise alternative) but makes two recommendations: that the problems related to the consensus principle be further studied with possible distinctions made for certain types of decisions; and that a Declaration be made at the general Council that a member wanting to block a measure that has very broad support shall only block the consensus if it declares in writing (with reasons) that the matter is of vital national interest to it.

The report then raises the possibility of what it calls “variable geometry” in WTO commitments, where some members may choose to take on more or less obligations. This turns out to be just another term for the plurilatral approach, which enables “sets of WTO members wishing to negotiate more ambitious commitments to do so.” The remaining members can take part in negotiations of a plurilateral agreement but can opt out, or else they are excluded from negotiations but can opt in at a later stage.

This plurilateral approach, with complicated “opt-in” and “opt-out” possibilities, had been put forward by the European Union before in the run-up to the 2001 Doha Ministerial conference, and again raised by the EU before and even after the 2003 Cancun Ministerial, in respect to the Singapore issues, when it found widespread opposition to its proposal to launch negotiations for new treaties.

This plurilateral approach had been repeatedly rejected by many developing countries, most notably in a joint communication by 45 members at the General Council meeting of 15 December 2003 on the Singapore issues, saying that the plurilateral approach was not appropriate in a multilateral organisation like the WTO.

The report recognises that “clearly, this is a divisive approach that would enshrine a multiclass membership structure. It could take the multilateral trading system backwards rather than forwards.” It warns that small groups of members should not be permitted to bring into the WTO issues which are opposed by substantial sections of the rest of the membership.

However, it also states that the plurilateral approach has an advantage, that it dissuades the most powerful members from taking alternative routes, especially through regional and bilateral arrangements.

The report then proposes that possible plurilateral approaches to WTO negotiations should be re-examined, and that an experts group be established to consider the implications.

It also suggests that a GATS approach (where each member decides its own pace for market opening and national treatment) could be used as an alternative to the plurilateral approach in developing new disciplines.

[It should be noted that the GATS-type approach had also been advocated by the EU as a modality for an investment agreement, and had been included as an issue for clarification in the investment issue in the Doha Declaration. As a result of the opposition of many developing countries to the launch of negotiations, the Singapore issues was taken off the Doha negotiating agenda as part of the July 2004 package].

The report also suggests that, wherever possible, the provision of technical assistance and capacity building for LDCs should be included as a contractual right (including for funding arrangements) in future new WTO agreements.

Calling for more political involvement in the WTO, the report proposed that Ministers should meet annually and the Director General should report to Ministers on key WTO developments in writing every six months. A summit of heads of government should also be held in the WTO every five years.

It added that capital-based senior officials should be in Geneva more often, with special General Council sessions extended for such officials every three or six months.

The report proposes that, alternatively, a consultative body at the level of Ministers or senior officials or both be established, to give political guidance to negotiators. It might, adds the report, replace the informal “mini-Ministerial” format which is resented and often ineffective.

However the report is in danger of proposing an even more unpopular format, since the envisaged consultative body, to be chaired by the Director-General, would have a “restricted membership to be effective, an absolute maximum of 30.” And of these, some major trading nations would be permanent members and the majority of seats would rotate, drawing from geographical areas or regional trading arrangements.

The report discusses in some detail the relation between WTO members and the Secretariat. It laments that “member-driven” nature of the WTO has the drawback of diminution in the Secretariat’s role, and that the Secretariat’s capacity to “inject creative proposals into the negotiating process” is less welcome now than before. In various parts of the report, specific proposals are made to greatly enhance the Secretariat’s functions.

Regarding the running of Ministerial meetings, the report recognises that “much criticism” has been directed at the conduct of such meetings in terms of their process and organisation.

However, the report does not propose changes to the basic ways in which Ministerials have been run -- including the use of “facilitators” appointed by the Director General or conference Chairman (rather than selected by the members) and the convening of exclusive or restricted “Green Room” meetings.

Indeed, the report calls for the reinforcement of the practice of appointing facilitators by announcing their names earlier. The report emphasises that the appointments be made by the conference Chair and the Director General and “should not become part of a further bargaining process.”

The report advocates a leading role for the Secretariat at Ministerials. One option is for the Director General to chair them. In any case, the DG and Secretariat should have the standing to be “at the centre of negotiations” during the Ministerials.

“Not only should Deputy Directors-General and divisional directors work closely alongside facilitators throughout the proceedings, they should be expected and encouraged to make proposals that will contribute towards the achievement of consensus,” says the report.

These proposals are bound to be controversial with at least some members, since the meaning is clearly that not only the DG but several other staff are asked to play central roles in the negotiations at the organisation’s highest organ, i.e. the Ministerial conference.

In reality, Secretariat staff have been playing crucial functions at previous Ministerials, but much of these activities were carried out informally and behind the scenes. The report is proposing that these functions be recognised, legitimised and strengthened.

The report also says that “Green Room” meetings with limited access are necessary and appropriate. To make the meetings more representative, the report suggests a constituency structure based on regional representation. The report advises that the Director General explore with relevant groups how to increase coordination and group representation in restricted meetings, and the support to be provided to such groups.

On the role of the Secretariat, the report bluntly criticises the attitude that the WTO is a member-driven organisation and the Secretariat’s role is solely one of support and not initiative or defence of the system. “The principal losers from this attitude are the WTO members themselves,” it says.

It proposes that the powers and duties of the Director General be spelled out clearly by the General Council, with advice to be given by present and past holders of the post. It favours a much greater role for the DG, including chairing of negotiating committees and councils. If the DG is envisaged to be a political figure, spending time outside Geneva, a deputy should be appointed as CEO to run the Secretariat, chair key councils, and interface with the delegations.

The report goes so far as to say that the WTO needs an institutional voice, and “if members are not prepared to defend and promote the principles they subscribe to, then the Secretariat must be free to do so”; indeed, even required to do so. The secretariat should also be seen as “the guardian of the treaties that comprise WTO law.”

These proposals can be expected to generate debate, since the WTO members often have different interpretations of the rules or how they can be implemented, and these differences are brought up during meetings, with sometimes heated debate. It would indeed be a major leap of faith for members to make Secretariat staff the guardian of the treaties.

The report also asks that members “should not be afraid of asking the secretariat to provide policy analysis” and to encourage the secretariat to provide greater intellectual output.

In the appointment of a new Director General, technical competence and appropriate experience should be prerequisites, says the report. There should not be requirements that WTO members can nominate only their own nationals, or that candidates must have the backing of their own governments. Alternating between developing and developed countries, and choosing candidates based on regional sequencing, should be avoided.

In a chapter on “the erosion of non discrimination”, the report warns that the practice of the most-favoured nation (MFN) principle is no longer the rule, and it is almost the exception. “The term might now be better defined as LFN, least favoured nation treatment,” it says, lamenting the ‘spaghetti bowl’ of customs unions, common markets, regional and bilateral free trade areas, preferences and trade deals.

It defends the fact that some agreements, mentioning the EU and NAFTA, can be positive, acting as spurs to the multilateral system. However it points to major new problems: the great proliferation of preferential trading arrangements (PTAs), causing confusion and administrative costs; PTAs are more likely to be stumbling blocks rather than building blocks to the multilateral system; and there is a diversion of negotiating resources from the multilateral process into PTAs.

The report also warns that non-trade objectives have been injected into PTAs, citing as examples the one-sided provisions on IPRs, labour and environmental protection undertakings, and restrictions on the use of capital controls. The report fears that such requirements become templates for further PTAs and the forerunners of new demands in the WTO. “If such requirements cannot be justified at the front door of the WTO they probably should not be encouraged to enter through the side door.”

Another controversial part of the report is its analysis of and proposals on special and differential treatment (SDT). Stating that there a “fault lines” in S&D for developing countries, the report says S&D remains a valid concept, but in light of present realities, these mechanisms require further study.

It questions the two basic assumptions of S&D. The first assumption is that the economics of trade liberalisation is not valid for poorer countries, so demands for reciprocal trade concessions from them are inappropriate.The report says empirical studies show that inward-looking policies harm developing countries, and that protection undermines developing countries’ export performance.

The second assumption is that reciprocal concessions from developing countries are not worth the bother as their markets are insignificant. The report says this does not hold for many developing countries today, hence the demands for “graduation.”

The report points to what it considers the disadvantages of preferential market access. It suggests that in the longer term, reducing MFN tariffs to zero can eliminate the spaghetti bowl problem, as the preferences would then also go down to zero.

If old PTAs cannot be scrapped and new ones cannot be prohibited, says the report, the remedy to discriminatory preferences that they spawn is to attack them indirectly by reducing MFN tariffs and non tariff measures in multilateral negotiations. Another route is to clarify GATT Article XXIV and administering its provisions better, says the report.

In its chapter on the WTO’s relations with civil society groups, the report does not propose anything new. It says the main responsibility for engaging civil society in trade policy matters rests with the members themselves, especially at national level. WTO members should also develop a set of clear objectives for the WTO secretariat’s relations with civil society.

The report also provides several proposals on the dispute settlement system, including opening panel and Appellate Body hearings to the public, and developing criteria and procedures for handling amicus curiae submissions.

The WTO members will have the opportunity to give their views at a special meeting on the report in the WTO on 24 January.