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The Missed Trade Facilitation Deadline of July 31, 2014

Where Does the WTO Go from Here?

By: Terence P. Stewart
Stewart and Stewart
Washington, DC 

The World Trade Organization (“WTO”) has existed for almost nineteen years, replacing the former General Agreement on Tariffs and Trade (“GATT”) in 1995.  There are now 160 Members, and another 23 countries or customs territories are in the accession process.  The current Members account for 97% of global trade.  The organization and its predecessor have had a variety of functions – a forum for negotiating global rules for trade and reducing tariff and non-tariff barriers, providing transparency of Member trading regimes, providing a forum for consulting over differences and pursuing disputes where appropriate, and providing technical assistance to developing countries and least developed countries (“LDCs”).  Actions have been taken by consensus as a general rule.  In the GATT days, prior to the Uruguay Round, most negotiations were amongst a handful of countries with many developing countries neither actively participating nor actively contributing but enjoying reduced tariffs and non-tariff barriers from those countries undertaking liberalization commitments.  That changed with the Uruguay Round where all Members were expected to make some contributions to the progress of trade liberalization and the assumption of obligations on trading rules.

Since the launch of the WTO, despite some early successes on an important sectoral negotiation on information technology products and some advances on financial services and telecommunications services, the WTO has struggled to negotiate expanded trade liberalization or updated trading rules.  The Doha Development Agenda (“DDA”), started in late 2001, remains stymied thirteen years after its launch.  Various areas of unfinished business from the Uruguay Round (subsidies, safeguards, and government procurement in services) and the review of the dispute settlement system are many years behind schedule.  The result has been that trading nations have moved increasingly to bilateral and plurilateral deals to avoid the slow pace of progress at the WTO and to advance trade policies not being examined or addressed in the WTO negotiations.

The Hope from Bali’s Success

Last December, trade Ministers from the WTO eeked out a last minute compromise to permit an agreement on trade facilitation to be reached and to agree to commitments on a range of other topics at the 9th Ministerial in Bali, Indonesia.  Many hoped that the ability of Ministers to reach consensus on a new agreement – the first under the WTO – could breathe life back into the negotiating function of the WTO, permit progress in wrapping up the large amounts of unfinished business from the Doha Agenda (at Bali, Ministers agreed to develop a work program by the end of 2014 to permit completion of the DDA), and get the organization to a position where it was capable of addressing the issues that have arisen since the start of the Doha round where multilateral rules would be beneficial – currency manipulation/misalignment, state-owned/invested enterprises being but two obvious topics of interest to many.  The Trade Facilitation Agreement (“TFA”) had long been viewed as a win-win for all Members.  Some estimates of the benefits to the world economy were as high as $1 trillion and the creation of some 21 million jobs (most in the developing world).  While concerns had been raised by some WTO Members about adequate funding for developing countries and LDCs to implement commitments made that required technical assistance, those concerns had been addressed in the TFA itself and through the creation of a fund announced in the last weeks of July by the Director-General.[1]

The WTO membership operates on momentum.  When there is optimism based on success or progress, the membership appears capable of searching for solutions and the organization can achieve significant forward movement.  Thus, coming off of the Bali success, there was increased optimism at the WTO and increased focus on the commitments made at Bali, including the development of a work program to conclude the Doha negotiations.[2]

Where there are missed deadlines or spoiled expectations, WTO Members go into lock down positions where officials in Geneva are basically just going through the motions, and the organization’s negotiating function effectively shuts down for extended periods.  Since the summer 2008 failure to achieve breakthrough in the Doha negotiations, the WTO had been in a long hiatus from meaningful activity on most Doha issues until the 2011 effort to harvest low hanging fruit – the Trade Facilitation Agreement.

But never before have WTO Members (or GATT Contracting Parties before them) ever failed to move a new agreement approved by Ministers through the steps of a legal scrub and adoption of appropriate documents to permit the agreement to be opened for ratification by Members.  Yet that is exactly what happened last month as India (with some support from a few other countries) refused to permit adoption of a simple Protocol of Amendment to add the Trade Facilitation Agreement to the WTO agreements and to open the agreement for ratification by the membership.

The Director-General correctly noted that the fallout from the failure to do that which Ministers had agreed upon only seven months earlier was likely to have significant effects on the organization’s ability to move forward on other aspects of its negotiating agenda.[3]  The failure was not just another missed deadline.  In a piece I posted last month, the failure was described as sending the WTO once again to the precipice of irrelevance for trade negotiations.[4]  Since July 31, major trading nations, like the United States and the EU, have said little other than to express disappointment with the failure to adopt the Protocol of Amendment,[5] presumably reassessing how to move the WTO forward or whether to limit their efforts in the WTO to sectoral initiatives where sufficient interest exists to make negotiations viable and otherwise address liberalization and new rules negotiations in free trade agreements.  Certainly for the United States, the Trans-Pacific Partnership negotiations and the Transatlantic Trade and Investment Partnership negotiations with the EU have increased importance.  China too has expressed its disappointment in the breakdown and the failure of a few to permit the agreement to move forward.[6]  The Indian press has run a large number of articles, most of which attempt to justify India trying to change the agreement that its former government had agreed to just seven months before.  There has been some discussion of moving the Trade Facilitation Agreement forward on a plurilateral basis without India and other objectors.[7]  Such an approach would, of course, permit the TFA to move forward for the “willing” but would reduce the likelihood of the WTO being able to maintain its roles in multilateral negotiations affecting all Members.

Will Hostage Taking Be Rewarded?

The path out of the crisis India has created is not clear.  While India has downplayed the importance of the missed date and the significance of changing the balance of the Bali package, the dilemma for others is more obvious.  If a WTO Member can hold the membership hostage on an agreed upon direction in the hopes of altering a previously agreed balance, negotiations at the WTO become meaningless and subject to repeated hostage taking.  Certainly the comments of Members in late July suggested that hostage taking was not an approach that would be rewarded and that collapse of other initiatives that require WTO consensus were likely the price of failure on the TFA.  For India, having climbed out on a limb to insist on a renegotiated package (i.e., the speed up of a permanent solution to the food security issue), it is hard to see how they climb down without a loss of face.  The Director-General urged the membership to take the August break and consider carefully how to proceed.  There is little doubt that the WTO is at a crossroads and that the actions taken next could well put the organization into a position of significant danger as a current or future forum for negotiations.  The Director-General has himself questioned whether the WTO can maintain its role without a negotiating function.

What Could Be Done to Get the WTO Back on Track?

India has publicly made statements of movements in areas such as investment (reducing barriers in some sectors) where other WTO Members could find some satisfaction despite the failure of July 31.  To avoid the likely stoppage of negotiations outside of sectorals and plurilaterals, what else can WTO Members do in the coming months?

1.    Agreement by India and the other Members who blocked consensus to early adoption of the Protocol of Amendment to add the Trade Facilitation Agreement to the WTO agreements.

2.    Positive actions by other WTO Members to achieve progress in other negotiations could be one important step.  For example, China, now the world’s largest trading nation, could significantly improve its openness in the Information Technology Agreement extension talks, which have been stalled for the last year or so because of China’s posture on products to be included or its need for phase out periods.

3.    India could join the Environmental Goods negotiations, submit notifications on domestic support to the Agriculture Committee, and notify its current food security program (as provided in the Bali package to qualify for the four year peace clause until the 11th Ministerial in late 2017).

4.    WTO Members could agree to monthly meetings on the food security issue and, without changing the date for agreed resolution (end of 2017), agree to use best efforts to resolve the issue earlier if possible.

5.    WTO Members could agree to support implementation of trade facilitation projects of developing countries and LDCs ahead of formal ratification of the TFA for those countries moving to implement the agreement early.

6.    WTO Members could agree that RAM (“Recently acceded member”) status expires at the end of the protocol accession implementation of tariff phase ins.

The above package of steps if taken quickly could result in the WTO membership getting back to work on the program to conclude the Doha negotiations to permit a timely completion of the work program.  It would take leadership from many countries, but some special leadership from India and China – in keeping with their new leadership roles in the organization.  While the membership would need to decide how the Protocol of Amendment proceeds following the missed deadline, the other steps would show a commitment by the full WTO membership to moving forward.

Longer term, some fundamental organizational issues need to be addressed:

1.    The current inner group of major trading nations – the United States, the EU, China, Brazil, and India – needs to reach agreement on relative responsibilities between them in moving trade liberalization forward at the WTO.  The lack of consensus of what is appropriate amongst the majors prevents meaningful progress on many areas of market liberalization.

2.    The WTO needs to come to grips with the challenge of a structure of membership that no longer works.  The simple developed/developing country divide, with developing country status being one of self-selection, is unworkable and essentially nonsensical since it has not evolved.  Korea remains a developing country as do many other countries that have advanced enormously over the last decades.  They should be graduated outright (and they should move to accept that change on their own).  Within developing country status, some countries have no need for special and differential (“S&D”) treatment for certain areas of coverage.  Thus, China has no need for S&D treatment in non-agricultural goods, Brazil in agricultural goods, and India in at least many services.  A system that limits S&D rights to those with a demonstrable need has the chance of working with far less stress than the current system.

3.    Members need to determine if they are truly comfortable with a dispute settlement system that has no meaningful checks on the judicial function.  Unlike national systems where legislatures can modify laws to address perceived errors in judicial decisions, the WTO system (where the winning party would need to agree to the modification) practically is not able to address problems of judicial construction that arise.  While there is a difference in views on the seriousness of the problem, there is little doubt that the inability to correct decisions that do not comply with the limits on creating rights and obligations encourages Members to litigate versus negotiate.  A vibrant negotiating system requires a judiciary that limits its role to determining actual rights under existing agreements and leaves to the sovereign states the role of negotiating what to do with uncovered areas.

While there are proposals for changing the approach to adopting measures from consensus to voting (one vote per member), a non-consensus approach ultimately infringes on the sovereignty of states where a Member does not consent.

Hope Versus Reality

Typically there would be a multiple month minimum hiatus from WTO Members being able to develop any forward momentum after the failure to achieve anticipated results.  One would expect an even longer hiatus this time because of the stunning nature of the failure where all Ministers had been on board just months before.  But the system needs the WTO membership to surprise themselves by exhibiting leadership to get the process restarted.  If not, 2014 will go down as a truly catastrophic failure of the WTO negotiating function.

For optimists, the hope is always of a brighter future.  For realists, the obstacles may be too large and too immovable to permit hope to become a reality.  With the hourglass almost empty, the realists probably have the more likely scenario – failure of the WTO, loss of interest in the organization for multilateral rule making, focus on plurilateral negotiations or bilateral negotiations with some sectorals pursued within the WTO.  If such a scenario plays out, the Director-General’s warning about the long term viability of the WTO may prove true.[8]

For those who believe that multilateral rules have the potential to improve global governance and fairness for participants, may hope prevail.

[1] See Press Release, World Trade Organization, Azevêdo launches new WTO Trade Facilitation Agreement Facility to deliver support to LDCs and developing countries (July 22, 2014).

[2] See Press Release, World Trade Organization, Azevêdo reports “very good level of engagement” on Doha Round work programme (July 25, 2014) (“Director-General Roberto Azevêdo, in his report to the General Council on 25 July as chair of the Trade Negotiations Committee, said that there had been ‘a very good level of engagement’ in recent consultations conducted by him and the chairs of the negotiating groups on the key areas of agriculture, industrial goods and services.  ‘How we move forward now is in your hands’, he said.”).

[3] Press Release, World Trade Organization, Azevêdo: Members unable to bridge the gap on trade facilitation (July 31, 2014) (stating that the failure to adopt the Protocol “would be likely to have an impact on all areas of our work”).

[4] See Terence P. Stewart, India’s Actions in the WTO General Council on July 24-25 Once Again Send the WTO to the Precipice of Irrelevance for Trade Negotiations, July 28, 2014, http://www.stewartlaw.com/Article/ViewArticle/1010.

[5] See U.S. Trade Representative, “Statement by Ambassador Michael Froman on the World Trade Organization Trade Facilitation Agreement Protocol Failure,” July 31, 2014, http://www.ustr.gov/about-us/press-office/press-releases/2014/July/Statement-by-Amb-Froman-on-WTO-Trade-Facilitation-Agreement-Protocol-Failure; European Commission, “Statement by Karel De Gucht on Trade Facilitation Agreement,” Aug. 4, 2014, http://trade.ec.europa.eu/doclib/press/index.cfm?id=1144.

[6] See Ministry of Commerce of the People’s Republic of China, “Due to India’s obstruction, the World Trade Organization failed to pass the Trade Facilitation Agreement,” Aug. 2, 2014, http://www.mofcom.gov.cn/article/i/jyjl/m/201408/20140800683876.shtml.

[7] See “Proposed Plurilateral Approach to TFA Could Face Significant Challenges,” Inside U.S. Trade, Aug. 14, 2014.

[8] Press Release, World Trade Organization, Azevêdo: Members unable to bridge the gap on trade facilitation (July 31, 2014) (noting concerns about the future of the “negotiating pillar” of the WTO and warning that the WTO will not function properly without all of its pillars working).
Disclaimer: This material is for the reader's information only. It is not to be construed as legal advice.

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