An Agenda for The WTO: Strengthening or Overburdening the System? Abstract by Stephen Woolcock In December 1996 the first biannual ministerial meeting of the World Trade Organization (WTO) will take place in Singapore. This meeting will begin to address some of the key issues facing the WTO in terms of its future agenda and thus its role in the international trading system. Underlying the debate on any specific issue at the Singapore meeting will be the issue of widening versus deepening of the GATT/WTO rules. Should the WTO respond to pressure from some of its developed members and begin talks on new issues, such as investment, competition and trade and labour standards, in order to ensure that it keeps up with the continued internationalisation of markets, or should it stress widening its membership in order to ensure that the fundamentals of free trade are extended to all countries? This paper discusses the factors that will shape this debate, both in the run up to the Singapore meeting and beyond. It analyses the various agenda items, including completion of existing work in the WTO, further liberalisation within the realms of existing policies and the new issues. Ultimately it will be some combination of these agenda items which will constitute the balance between widening and deepening the WTO. The paper argues that the WTO must widen and deepen. This means that no country or no issue can be excluded a priori. But the main purpose of the paper is to contribute to a wider, informed debate on the issues. International commercial diplomacy now affects more and more domestic interests and yet there is little informed public debate on the topic. The current talks on the WTO's agenda provides an opportunity for such a debate and it is hoped that this paper can make a contribution to such a debate. Acknowledgements This paper emanates from a project, entitled 'Subsidiarity in the Governance of the Global Economy', carried out between 1994 and 1996 at the London School of Economic's Centre for Research on the United States (CRUSA). The project was funded by the Economic and Social Research Council (ESRC) as part of its Global Economic Institutions (GEI) initiative coordinated by Prof. David Vines. The paper was discussed at a joint conference organized with the Royal Institute of International Affairs (Chatham House) in May 1996. The author would like to acknowledge the support of Chatham House as well as that of the sponsors of the conference, The Department of Trade and Industry, ICI plc, The Foreign and Commonwealth Office, the ESRC and the CRUSA. Key Words WTO, International Trade, Commercial Policy. Stephen Woolcock European Institute, LSE, Houghton St. London WC2A 2AE: E.mail Woolcocs@LSE.ac.uk Tel 0171 955 7696 1
An Agenda for The WTO: Strengthening or Overburdening the System? Stephen Woolcock London School of Economics 1 Introduction Contents 2 The Issues 2.1 Deepening and Widening 2.2 The Driving Forces 2.3 The Broad Policy Options 3 Consolidating the WTO 3.1 Dispute Settlement 3.2 Transparency 3.3 Co-operation with other Multilateral Organizations 4 Completing the Uruguay Round 5 The WTO's In-built Agenda 5.1 Agriculture 5.2 Services 5.3 Intellectual Property and Investment 6 Further Liberalisation 6.1 Tariffs 6.2 Public Purchasing 6.3 Sectoral Liberalisation 6.4 Tougher Rules on Public Enterprises 6.5 Preferential Rules of Origin 2
7 Regionalism 8 Trade and Environment 8.1 The Committee of Trade and Environment's Agenda 8.2 Multilateral Environment Agreements and the WTO 8.3 Production and Processing Methods 8.4 Eco-labelling 9 The New Issues 9.1 International Investment 9.1.1 The Growing Importance of Investment 9.1.2 The Existing Agreements 9.1.3 OECD Negotiations 9.1.4 Prospects for Success in the OECD 9.1.5 The Case for Moving Negotiations into the WTO 9.1.6 Current Status of Talks 9.2 Coherence in Trade and Competition Policies 9.2.1 The Case for Caution 9.2.2 The Case for WTO Work on Competition 9.2.3 Is There a Need for International Competition Rules 9.3 Trade and Labour Standards 9.3.1 The Use of Other Fora 9.3.2 Strengthening or Overburdening the WTO? 9.3.3 Humanitarian Arguments 9.3.4 Economic Arguments 9.3.5 Political Factors 10 Conclusions 3
An Agenda for The WTO Strengthening or Overburdening the System? 1 Introduction This paper addresses the issues involved in the current debate about the agenda for the World Trade Organization. These agenda items include consolidation of the WTO as an organization, the completion and implementation of the results of the Uruguay Round of the GATT and the in-built agenda inherited by the WTO. Supporters of the bicycle theory of trade negotiations argue that momentum in the form of liberalisation is needed to maintain stability of the system, so the paper looks at the main suggestions for further liberalisation within the existing framework of GATT/WTO disciplines. At the same time increased economic integration at a global level, and the political responses of those affected by this integration, are pushing additional items onto the agenda of international commercial diplomacy. The paper discusses the pros and cons of including these new issues, such as trade and the environment, investment, competition and labour standards, on the WTO's agenda. Against this backdrop the broader issues, such as whether more comprehensive multilateral rules will strengthen or undermine the WTO are also explored. As with all commercial diplomacy many of the agenda items are veiled in technical detail, but the broader debate on the WTO agenda has far-reaching strategic implications. The WTO must make decisions about its agenda against a background of widening membership to include countries such as Russia and China. WTO membership for these economies would anchor them into the liberal multilateral trading regime and turn the WTO into a global organization. But can the WTO deepen to include new issues at the same time as widening its membership? Will widening membership to include China or Russia itself be compatible with a stronger WTO? The positions of the major actors on these broad strategic questions as well as the detail of each agenda item area are still to be decided. Over the coming months officials in national capitals, Brussels and Geneva will be considering the best approach to take, and interest groups will be pushing for inclusion or exclusion of specific issues. But if past experience is anything to go by, there is unlikely to be much public debate or any parliamentary involvement in this debate, at least within European countries. This is remarkable given the political heat generated by ceding sovereignty in 4
regional integration. The 'incoming tide' of WTO rules may not have reached the levels of EC legislation, but it is an incoming tide all the same, and one that most national politicians appear to choose to ignore. 2.0 The Issues In December 1996 the World Trade Organization (WT0) will hold its first biannual ministerial meeting in Singapore. This meeting marks an important juncture in the evolution of the multilateral trading system in general and the WTO in particular. In the course of its 48 years the General Agreement on Tariffs and Trade (GATT) provided the forum for eight rounds of trade negotiations which established a system of multilateral rules and disciplines of considerable importance and complexity. The Uruguay Round, completed in 1994, was the most comprehensive in coverage to date and included an agreement to create the World Trade Organization (WTO) to replace the GATT. The WTO also includes more countries in full membership than had previously been the case under GATT rules. 2.1 Deepening and Widening Early multilateral rounds were dominated by industrialised countries and concentrated on negotiating reciprocal reductions in tariffs using a few clear and highly effective principles. Non-discrimination in market access was ensured through the use of the concept of most favoured nation (MFN) status, according to which a tariff reduction agreed bilaterally with any trading partner (the most favoured nation) would be extended to all other members of the GATT. Non-discrimination in the treatment of goods in any market was ensured through national treatment, according to which imported products were treated the same as national products. Once tariffs had been reduced a number of other, non-tariffs barriers, began to assume greater significance, and in the 1960s the Kennedy Round of the GATT made a concerted attempt to establish stronger multilateral rules for certain non-tariff measures, such as the use of anti-dumping duties and subsidies. The Kennedy Round also saw efforts to widen GATT membership. But as many developing countries resisted accepting the same disciplines as the industrialised countries, part IV of the GATT was negotiated. This enabled more countries to sign up, because it granted special and differential treatment to developing countries. During the 1970s the Tokyo Round deepened GATT's involvement in national policies by extending 5
the coverage of multilateral disciplines to a longer list of non-tariff barriers. The Tokyo Round returned to the issues of tariffs and anti-dumping, but also tackled those national policy instruments that had the most immediate impact on trade, such as subsidies (and countervailing duties), public purchasing and technical barriers to trade (regulations and standards). These negotiations made modest progress on all issues, which was more than could be said for the efforts to include agriculture in GATT disciplines at that time. The 1980s again saw new efforts to increase the number of issues covered by GATT rules and when the Uruguay Round of the GATT was initiated in 1986, it included the existing agenda carried over from the Tokyo Round along with the new issues of trade in services, investment and intellectual property. These new issues addressed the less obvious barriers to market access that resulted, whether or not by intent, from domestic regulatory policies. In other words, the Uruguay Round saw the multilateral trade agenda reach deeper into the competencies of national governments. Furthermore, important efforts were undertaken to strengthen the GATT disciplines and ensure that the existing rules were more effectively enforced than had previously been the case. In addition to this deepening of the GATT's system of rules, there was a widening of membership. During the 1980s a growing number of non-oecd countries moved to adopt liberal trade and investment policies. These less powerful countries also became more interested in strengthening multilateral discipline in order to contain what they saw as the protectionist actions of the major industrialised members of the GATT. A consequence of seeking stronger multilateral discipline over the actions of the big players, was the acceptance, by the developing countries, that they would have to give up special and differential treatment under Part IV and become full members of the GATT/WTO. Therefore the Uruguay Round resulted in a deepening and widening of the multilateral trading system. Even before the Uruguay Round was signed-off in Marrakesh in April 1994, further issues were being pushed onto the agenda. These included impediments to market access resulting from the structural features of an economy, such as the nature of the distribution system or the degree of competition in a market. This represented a new departure in commercial diplomacy, because the debate shifted onto what positive action governments should be taking to make their national markets more competitive, such as more active use of competition policy. GATT concentrated on 6
stopping governments acting to restrict trade or investment. Perhaps the best example of this type of issue was the US-Japan Structural Impediments Initiative (SII) in 1991. At about the same time 'trade and environment' was catapulted onto the agenda, following panel decision in the so called Tuna-Dolphin case. In this case a GATT dispute settlement panel ruled that the US implementation of a domestic law designed to protect dolphins, which involved controlling imports of tuna from Mexico, was contrary to GATT law. The case raised the issue of whether existing GATT law precluded the pursuit of effective environmental policies, and as a result thrust 'trade and the environment' onto the GATT agenda. International business and organized labour also had their priorities for multilateral rules. In the case of business, there was a desire to strengthen still further the protection of intellectual property rights that had been agreed during the Uruguay Round, and to get the effective multilateral agreement on investment that the Round had failed to produce. Organized labour, backed in particular by the US administration and France, argued that if the agenda could include international standards protecting these 'business' interests, then it could include protection of minimum labour standards. Therefore by 1994 there was already a putative agenda for commercial diplomacy in the 1990s that, if acted upon, would take multilateral rules even deeper into sensitive areas of national policy competence and sovereignty. At the close of the Uruguay Round the list included; in addition to trade and the environment, (which was already on the WTO agenda) trade and labour standards, competition policy, investment, the relationship between trade and immigration, regionalism (the impact of regional trade and integration agreements on the multilateral system), the links between trade and fiscal and monetary policies, trade and company law and the link between trade, development, political stability and poverty. 1 2.2 The Driving Forces There are two main forces behind this move towards a deepening and widening of the WTO's multilateral system of rules. The first is the increased interdependence of the international economy, which is now generally referred to as globalisation. The second is the adoption of market oriented policies by more and more countries, which has opened the way to them becoming full and active members of the WTO. 7
There is some debate about what is meant by globalisation, but there is little doubt that trade has continued to grow faster than output and thus increased interdependence. Perhaps more importantly, liberalization has resulted in high rates of growth in foreign direct investment (FDI). During the 1980s in particular, foreign direct investment grew at a much higher rate than output. Rather than exporting goods from one economy to another, an ever growing number of companies now gain access to foreign markets through investment and trade. Production has became global in more sectors as companies produce and assemble components in different locations. This means that what had previously been considered entirely national subsidy and regulatory policies have an immediate impact on competition and thus figure in international commercial diplomacy. One of the major advantages of foreign investors is the technological know-how they possess, consequently companies that had invested heavily in intellectual property pressed for the inclusion of effective multilateral disciplines to protect intellectual property in the GATT. FDI has also grown in the service sector in which the right of establishment is often the only means of gaining effective market access, thus national regulatory and investment policies affecting establishment have found their way onto the policy agenda. The commercial policy agenda is also influenced by those who see their established domestic policy preferences affected by globalisation. For example, environmental and consumer lobbies that have fought long and hard to establish national standards of protection, resist what they see as the effect that liberalisation and globalisation has in undermining these standards. These interests press for agreed international standards of protection for the environment or the consumer, and challenge what they see as the 'trade bias' of the GATT and its lack of transparency and accountability. Organised labour equally seeks to ensure that labour standards are not undermined through similar processes. The second driving force behind the multilateral commercial agenda is the burgeoning membership of the WTO. As noted above the Uruguay Round saw the 'graduation' of countries that had previously benefited from the Part IV provisions of the GATT. A larger number of developing countries also played an active part in the negotiations. The WTO is therefore more genuinely representative of a wide range of countries at different levels of development than was the GATT. Twenty seven countries are currently (August 1996) seeking accession to the WTO, including many countries that have recently made the transition from centrally planned to market economies. The list includes 8
small countries, which may have little choice but to follow the agenda set by the US and European Union, but there are also China and Russia, which have the power and will to shape the future rules of the WTO. As the international economic system becomes more 'integrated' the WTO therefore faces issues analogous to those faced by regional economic integration in the EC, including the deepening versus widening issue and questions of efficacy versus accountability. Of course, the degree of integration differs, but the issues are no less real. The WTO therefore faces some fundamental questions. Should the focus be on deepening or widening? Can the WTO continue to add new items to its agenda every few years and still hope to be an effective organisation? Where should the line be drawn between multilateral rules that facilitate trade and national sovereignty? Can the WTO still rely on unanimity in its decision making and is its decision making democratically accountable? These are long term questions that will not be resolved at the WTO ministerial meeting in Singapore in December 1996, but they form the backdrop against which decisions on the current agenda and work programme of the WTO will be taken. Before addressing the list of potential items for Singapore, the paper therefore considers some of the broad policy options. 2.3 Broad Policy Options In the debate on the Singapore agenda as well as on the longer term priorities for the WTO there are a number of broad policy options. The WTO can consolidate its successes and focus on facilitating liberal trade and investment. It could widen to include all major countries and thus become a genuinely global organization, but limit its ambitions in terms of taking on new issues and thus deepening. Alternatively, it can adopt a more ambitious agenda and press ahead with some of the new issues as well as widening to include new members. Each of these broad policy options will have implications for the future of the WTO, even if deepening and widening are not necessarily mutually exclusive options. The case for consolidation is that the Uruguay Round has already brought the multilateral trading system a long way and there is much to be said for making sure that the existing agreements are properly implemented before moving on to include new ones. It may also be argued that to extend the WTO's coverage to include issues of deeper integration risks undermining the its effectiveness. Consolidation would also have the benefit of helping to ensure that the WTO retains the cohesion in 9
membership it has achieved in recent years. To push ahead with politically sensitive issues, such as modifying the WTO to accommodate environmental policy objectives or linking trade with labour standards, could recreate the north-south split in the WTO that existed in the GATT during the 1970s. At the other end of the spectrum of options is the deepening option. This has the advantage that multilateral rules will be established in new policy areas and thus prevent a vacuum emerging that could otherwise be filled by unilateral, plurilateral or conflicting regional definitions of 'fairness' in treatment of the new issues. (see Bhagawti and Hudec, 1996) As international economic integration proceeds, WTO rules will have to try to keep up otherwise the legitimacy of the WTO rules will be undermined in the eyes of those interests affected by further liberalisation. For example, if the WTO continues to focus on trade and investment liberalisation and fails to take account of the interaction between such liberalisation and other policy objectives, such as environmental protection, its legitimacy will be challenged by those who favour effective environmental protection. In reality, of course, the policy choices will involve a balance between consolidation, further liberalisation, deepening and widening. As the following sections will show the choice already limited in that there is an in-built agenda in the WTO that requires attention and resources in the coming years regardless of what decisions are taken on the new issues. There is also the pragmatic option of eschewing decisions about how far to deepen and which balance to aim for between deepening and widening. The search for such a balance has not troubled commercial diplomacy too much in the past, which has managed to get by with a mixture of trade economics, GATT law and the art of the possible. Invariably, there was in the end some trade-off in which inclusion of one issue is 'bought' by accepting inclusion of another. 2.4 The positions of the major players At the time of writing (August 1996) the positions of the major players had not been defined in any great detail. This section therefore summarizes the broad stances only. In previous discussions on the multilateral agenda the United States has been one of the most - if not the most - active participant, and has generally had well developed positions. This was not the case in mid 1996 for largely domestic political reasons. The depth of support for multilateral liberalisation in the US is not 10
currently very great. As was illustrated by the campaign of Mr Bucannnen during the republican party primaries in the Spring of 1996, there is a populist sentiment in favour of 'fair trade' and against further multilateral liberalisation. Perhaps for this reason the current Clinton administration appears to have gone to some trouble to try and keep trade off the political agenda during election year. As a result the US position on the Singapore agenda is not very developed. There is support for the inclusion of trade and labour standards and for substantive agreement on trade and the environment. Both these issues being ones on which democratic voters have strong views. There was also a big push for the WTO to do something about corrupt practices, such as bribes in the award of contracts, which US companies are prohibited from providing under the Foreign Corrupt Practices Act, but are more or less freely provided by companies in many other countries. After the November elections, the US may articulate a more proactive position, but the president may have other priorities and if there are significant changes in the composition of the Congress it would be difficult for a 'lame duck' Congress to do much. The European Union has, in contrast, been more actively engaged in internal discussions on what it wants from the Singapore meeting and from the WTO in general. Broadly speaking the European Commission has been pushing for a deepening of the WTO agenda to include new issues, such as trade and labour standards. It has also produced ideas on how competition policy issues might be addressed at an international level, although in this case the basis would, at least in the first instance, be a plurilateral agreement. The Commission has pressed for substantive modifications to the GATT to accommodate international environmental agreements and has favoured inclusion of investment in WTO negotiations to follow the negotiations on a Multilateral Agreement on Investment (MAI) among OECD countries. In terms of consolidating the existing WTO, the Commission supports full implementation of the results of the Uruguay Round and extending liberalisation in areas already covered by GATT rules. There is negotiation among the Member States on which issues to include in the further liberalisation. The issues being considered include, further tariff reductions, possibly involving the acceleration of the tariff reductions agreed during the Uruguay round, extension of the coverage of the Government Purchasing Agreement to include more countries, technical barriers to trade, regulatory reform and better enforcement of intellectual property rights. One area the EU also seems likely to support is that of an international agreement on information technology, to promote liberal trade in a sector in which both services and goods are closely linked. The idea for such an 11
agreement was promoted in bilateral talks with the United States during 1995. At the time of writing no mandate for the European Commission in its negotiations on the Singapore meeting had been adopted by the Council of Ministers. Broadly speaking France and Belgium had been the keenest to see trade and labour included. Germany, Denmark, The Netherlands and the Scandinavian members of the EU had been pushing for real progress on trade and the environment and Britain has been stressing the need for further liberalisation of existing barriers to trade. Thus some form of balanced package will have to be agreed within the EU before it can adopt a mandate for the negotiations. This will probably include a balance between further liberalisation and a mandate to seek to at least establish WTO working groups on investment, labour and a continuation of the work of the Committee on Trade and the Environment. Finally, proposals have been made, for example by the British government, to include in the WTO agenda proposals for another round of multilateral negotiations. (Lang, 1996) This would follow preparatory work over the coming years and could start in 1999, to coincide with the scheduled reopening of negotiations on agriculture. See below for the 'in-built agenda'. The developing and middle income members of the WTO are likely to emphasis implementation of the existing agreements and oppose the addition of new issues, because they see these as providing opportunities for developed members to introduce new forms of protectionism. The developing countries emphasis has therefore been on retaining a relatively narrow agenda for the WTO. The following sections consider the options for the WTO's agenda in greater detail starting with consolidating the WTO as an organization and the completion of the Uruguay Round. This is followed by a discussion of the so-called 'in-built' agenda, the possibility of further liberalisation within existing areas of WTO competence and the idea or devising more effective WTO disciplines for regional integration and trade agreements. The paper then discusses the new issues of environment, investment, competition and labour standards in greater detail, and concludes by arguing in favour of the WTO moving forward in a pragmatic but comprehensive fashion. Only in this way can it retain legitimacy as well as efficiency. But the most important conclusion is that there is a need for a debate on the scope of WTO rules and on which items to include or exclude from the future agenda. This debate should ideally include all those constituencies that will be affected and 12
should therefore be broader than previous debates on GATT agendas. 3.0 Consolidating the WTO The GATT was intended to form part of the International Trade Organization (ITO) but survived when the Havana Charter establishing the ITO was not ratified. It is of interest for the current debate on deepening, that the failure to ratify the ITO was, in large measure, due to the reluctance of some leading Contracting Parties (CPs) to accept the loss of sovereignty that this represented. The GATT did not develop a strong central institutional view of the scope or nature of the multilateral negotiations but acted as a negotiating forum for consecutive rounds of trade liberalisation in which the (leading) CPs shaped the agenda. With the creation of the WTO there is finally an organization that could match the IMF and World Bank, but it remains a very lean body, with only 195 professional staff. Individual members of the WTO tend to place national interests before those of the system as a whole. There is therefore an issue as to whether the WTO should articulate views on the overall shape of the multilateral system. The counter argument to this is that the WTO should remain lean and not be tempted into assuming more and more functions and thus become overburdened. An issue of fundamental importance concerns the impact of the existing decision making structures of the WTO on the widening versus deepening issue. Decisions in the WTO are taken on the basis of consensus. With a large and heterogenous membership, this clearly places a real constraint on the efficacy of the decision making structure. If a consensus is hard to reach within a European Union of 15 members, then the prospects of the developed and developing country members of the WTO reaching a consensus on anything more than a fairly low common denominator do not seem very great. The issue is whether, in the interests of effectiveness, the WTO should based decisions on some form of weighted or qualified majority voting. This is a contentious issue and is unlikely to be addressed at the Singapore Ministerial meeting. A more modest but nevertheless important step would be to consolidate the committee structure of the WTO. In the Uruguay Round there were 15 negotiating groups. Many of these established committees to oversee the implementation of the agreements, such as those on TRIPs, TRIMs and services. There were also specialist committees established to look at individual sectors (financial services, telecommunications etc.). These new committees were added to a whole series of existing 13
committees, from customs valuation and rules of origin to the biannual ministerial conference itself. As a result the limited WTO staff are overstretched as indeed are even the larger national delegations in Geneva. Smaller developing country delegations simply do not have the capability to participate in all committees in any effective manner, so that up to a quarter of member countries are effectively absent from many negotiations. In short there is a case to be made for review the committee structure of the WTO with a view to rationalisation. (Sampson, 1996) 3.1 Dispute settlement One of the major achievements of the Uruguay Round was the adoption of a new, stronger, integrated dispute settlement understanding for the WTO. In contrast to the system in which the adoption of panel reports required consensus and could thus be blocked by the 'guilty party', the new procedures specify that all members of the WTO must agree not to adopt a panel report. In the past it was hoped that GATT panels would develop a kind of 'case law' for the GATT. This never happened because any interpretation had to be, in effect, agreed by all GATT members. With the new dispute settlement arrangement it is much more likely that WTO panel decisions will interpret WTO rules. This means that a transfer of power from member countries to the WTO may occur, even if progressive and as a result of a series of smaller steps. This raises questions about the legitimacy of such a process and its impact on the sovereignty of nation states. The impact of the revised WTO dispute settlement provisions on US sovereignty was, in fact, an issue raised by the US Congress during is deliberations the ratification of the results of the Uruguay Round. The importance of the dispute settlement procedures was also illustrated by the 1995 controversy over who should be on the appellate body, which is to review panel decisions. The major WTO members all wanted to have a 'representative' on the body, even though its members are supposed to be independent. Although the issue of membership of the appellate body has been resolved for the time being, some members of the WTO are likely to call for a review of the procedures for appointing members. Another issue concerning dispute settlement is whether the current system takes adequate account of 'non-trade' concerns. Since the GATT panel ruling in the Tuna-Dolphin case, environmental non- 14
governmental organizations (NGOs) have repeatedly challenged the legitimacy of GATT panels to reach decisions which affect environment policy objectives. Although the revised dispute settlement provisions allow for a panel to seek advice from technical experts, this is not considered to be adequate by the NGOs, which are pressing for a further review, possibly involving an international panel made up of WTO panellists and representatives from an international environment organization. 3.2 Transparency As the WTO negotiations have touched upon the interests of more and more constituencies, the issue of transparency has grown in salience. There is now pressure for an opening-up of the WTO to include NGOs. For example, the case has been made that deliberations in the WTO's Committee on Trade and the Environment is in danger of failing to take proper account of environmental interests unless it is open to wider participation. Environment NGOs have argued for a 'seat at the table' and have been firmly resisted, especially by developing country delegations, because they argue that governments represent to totality of interests in any country and because they have less active NGOs. There is also the issue of which NGOs should have access and on what terms. A more modest proposal has been that information and papers concerning the negotiations should be made more widely available. It was the practice in the GATT to limit circulation of papers to the delegations of contracting parties. 3.3 Co-ordination with other multilateral organizations The need for co-ordination between the GATT, the World Bank and the International Monetary Fund (IMF) has been discussed for some time, but it assumes a greater importance as the global economy becomes more integrated. The agreement establishing the WTO states that 'the General Council shall make appropriate arrangements for effective co-operation with other intergovernmental organizations that have responsibilities related to those of the WTO' 2 The 1995 Halifax meeting of the G7, which considered a review of the international institutions, also concluded that in order 'to ensure that it has a credible leadership role, it is essential that the WTO's activities are closely coordinated with the IMF, World Bank, OECD and trade related UN bodies' (such as the ISO, WIPO etc.) 3. There are a number of areas in which such cooperation is important. One example relevant to the 15
widening of WTO membership concerns Russia. In 1995 negotiations between the IMF and Russian authorities on support for Russia under the IMF's Structural Adjustment Facility brokedown, when the IMF argued that more progress was needed on trade liberalisation. At the same time a WTO working party on Russian accession was discussing Russian trade policy, but there was not even an exchange of information between the IMF and WTO secretariats. (Sampson, 1996) 4.0 Completing the Uruguay Round There is a body of opinion which favours a focus on completing and consolidating the achievements of the Uruguay Round. For example, the General Agreement of Trade in Services (GATS) provided the overall framework for trade in services, but negotiations on substantive commitments in a number of key sectors, such as financial services, telecommunications and maritime transport, are still incomplete. (see below) 4 In the area of subsidies there is still no adequate compliance with the requirements, agreed in the Uruguay Round, to notify all national subsidy programmes subject to GATT/WTO disciplines. Without transparency for national subsidy programmes it will be difficult, if not impossible, to effectively implement the Uruguay Round provisions on subsidies and countervailing duties. The Uruguay Round also established work programmes on a number of important technical issues, such as harmonization of non-preferential rules of origin. Differences between national (or EC) rules of origin were found to constitute a potential impediment to trade during the Uruguay Round. In order to overcome or reduce such impediments, it was agreed that the World Customs Organisation (WCO) (previously the Customs Cooperation Council) would develop harmonised rules of origin. The WCO's three year work programme is to be completed by the end of 1997. Many of the agreements reached during the Uruguay Round foresaw a phased implementation. For example, import controls by industrialized countries on textile and clothing products from developing countries, that had been legitimized by the Multifibre Arrangement (MFA), are to be phased-out over a period of ten years. In return the exporting countries are to satisfy certain conditions with regard to national subsidies and trade protection. At each stage progress in the removal of the MFA restrictions is to be measured against the efforts of the exporting countries in reducing subsidies and tariffs. This is a time consuming and resource intensive process, but one that 16
must be completed if protection in the textiles and clothing sector is to be phased-out. Developing countries are monitoring the implementation of this agreement very closely in the hope of preventing backsliding by industrialised members of the WTO. The case for completing the work of the Uruguay Round is not contentious and is supported by all countries and interests. But developing countries tend to argue that the WTO should not begin to look at new issues until after the existing work programme has been completed. Developing and dynamic industrializing countries see the Singapore ministerial meeting as a review of implementation rather than the start of something new. Developed countries, under more domestic pressure to introduce new issues in the WTO, argue for completion of the Uruguay Round as well as for the beginning of work on the new issues. In general terms the international business community also tends to favour concentrating on completion and is cautious about starting work on the new issues, with the exception of investment. 5.0 The WTO's In-built Agenda As part of the Uruguay Round a number of sometimes significant commitments were made to initiate or carry forward negotiations. These commitments touch on all areas of commercial policy from the most sensitive to the most technical. 5.1 Agriculture The Uruguay Round agreement on agriculture includes a general commitment to start further negotiations on liberalisation by the end of 1999. On more detailed aspects of agriculture, there is a commitment to open new negotiations on 'special treatment' measures, such as those concerning rice in Japan and South Korea, by the year 2000. There is also a commitment to review the question of risk assessment in the application of sanitary and phytosanitary protection. To find an example of how differing views of risk assessment can influence trade one need look no further than the various responses to BSE (mad cow disease) in Britain, Europe and around the world. The issue arises in a less sensational fashion every day in international trade. 5.2 Services Another major commitment on the WTO's in-built agenda is that to continue negotiations on trade in services, with a view to achieving progressively higher levels of liberalisation. Work is still needed on 17
the sectoral negotiations required to complete the services agreement. The sectors concerned include; basic telecommunications, on which negotiations are now scheduled to restart in February 1997, following the recent failure to complete negotiations by the deadline of April 1996 when the US declined to submit an offer an market access; maritime transport, on which negotiations also failed when the US declined to make any offer on liberalisation; and renegotiations on financial services that are due to start in November 1997. There is also sectoral work to be completed on professional services. If some developing countries were reluctant to engage in commitments in sectors such as financial services or telecommunications, developed members of the WTO were less than enthusiastic about opening their markets to workers from developing countries. As a result there was no agreement on the movement of workers to provide services. The Uruguay Round includes, however, a commitment to look at the issue of the movement of natural persons. A general round of liberalisation for services is also scheduled to begin before the end of 1999, five years after the entry into force of the GATS. The main aim here is to extend binding commitments in the area of services to more WTO members and more sectors. The coverage of the GATS detailed in schedules negotiated during the round was patchy. Some countries, including some of the more important countries, failed to include key sectors in their schedules. The GATS agreement adopted a hybrid approach to coverage, which combines a (negative) list of sectors exempted from coverage, with the maintenance of a (positive) list of covered sectors and modes of supply. The next round of services negotiations must seek to enhance liberalisation by reducing the negative lists and increasing the positive lists of sectors covered. It has also been argued that there is a need to reform and simplify this 'scheduling technology' which is opaque and thus an impediment to trade in itself. (Sauvé, 1995) In addition to extending the coverage of the GATS, there is still work to be done defining the rules. The GATS agreement was an important step towards multilateral disciplines for the service sector, but it is far from complete. There are commitments to negotiate rules covering 'domestic regulations' such as professional qualifications, technical regulations and standards as they affect the service sector. In services, as in goods trade, the removal of barriers to market access can be negated by the provision of subsidies to local suppliers. In the case of services the granting of special or 18
exclusive rights to a company to provide a services (such as transport or telecommunications) can enable that company to cross-subsidize operations in another non-regulated sectors by using the monopoly rents earned in the sector in which it has exclusive rights. Unless rules are developed to cover this kind of situation the benefits of liberalisation under the GATS could be negated. The negotiations on the GATS must not only identify the forms of subsidy that exist and thus improve transparency, but also determine what type of measure/regulation constitutes a subsidy. (Sauvé, 1996) There is also a commitment to negotiate a safeguard provision for services by the end of 1998. All multilateral agreements have some form of safeguard measure to be used when a sector is facing serious injury from an import surge. The inclusion of such a provision has traditionally been the price paid for commitments to liberalisation. The GATS seems to be no exception to this practice. But there is a need to define the circumstances in which the use of a safeguard clause would be justified. This is harder for services than goods, because market access in services often occurs through establishment. Any safeguard clause for services must establish criteria for determining when the operation of an establishment constitutes an import surge, and how a safeguard measure can be implemented when the foreign supplier is already established in the host economy? Another rule issue on the WTO's in-built agenda for GATS is the negotiation of provisions covering public procurement of services. The plurilateral Government Purchasing Agreement (GPA) renegotiated in parallel with the Uruguay Round, is one of the four qualified MFN agreements that survived the Round. In most cases the single undertaking of the WTO removed qualified MFN agreements. The plurilateral GPA (see below) covered some service contracts. Indeed, it is becoming harder and harder to distinguish between goods and services in public contracts. But there is a commitment to initiate negotiations by 1 January 1997 on an extension of WTO coverage to include public purchasing in the most important service sectors. Finally, there is a commitment to consider the question of whether there should be an exemption from GATS disciplines for environmental policies analogous to the exemption under Article XX of the GATT. Negotiations on this will no doubt be carried out in conjunction with those on whether there is a need to revise Art XX (see section 8). 19
5.3 Intellectual Property and Investment The in-built agenda includes work on the other two 'new issues' of the Uruguay Round; TRIPS and TRIMs. For TRIPs there is provision for a general review by 2000. Given the intense interest in this topic in a number of OECD countries, it seems likely that the reference to such a review will be used to seek a strengthening of the agreement in areas in which the OECD countries were not fully satisfied with the results of the Uruguay Round. These will probably include issues such as how to speed-up implementation in developing countries and what to do about patents currently under development (in the pipeline). Some developing countries can be expected to resist proposals to agree on such work at the Singapore WTO ministerial. There was also dissatisfaction with the achievements of the Uruguay Round in the field of investment. In this case, however, developed countries, led by the United States, have opted to negotiate a multilateral agreement among themselves. The issue for the WTO at the Singapore meeting will be whether, and if so when, these negotiations should be opened to all WTO members and on what terms. See the discussion of investment in section 9.1. The agreement on TRIMs adopted at the conclusion of the Uruguay Round, did, however, include reference to the need to negotiate a provision addressing the impact of foreign direct investment on competition. This reference was included largely as a result of pressure from developing countries in the belief that there is a need to balance liberal investment policies with effective means of ensuring that foreign investors do not establish or abuse market dominance. There is no timetable specified for this agenda item (see section 9.2 on competition). It remains to be seen how many of these agenda items will be taken up. Some have specific deadlines or timetables, but in the past GATT timetables for reviews were known to slip or be extended. There may also be some doubt about how seriously the obligations to review policies or provisions will be taken. In the 1980s the reviews of the Tokyo Round Codes on non-tariff barriers seldom resulted in any concrete advances. But this 'in-built' WTO agenda still represents a formidable list and one that could by itself easily fill the schedules of negotiators for some years to come. 6.0 Further Liberalisation The bicycle theory of trade negotiations argues that it is necessary to have momentum in order to 20
retain stability in the system. It is therefore argued that the WTO needs further liberalisation along the lines of existing WTO agreements. This liberalisation would include, for example, the completion of the sectoral negotiations in services discussed above, but there are other options. 6.1 Tariffs Perhaps the most straightforward means of maintaining momentum is to agree to either an acceleration of the tariff cuts agreed during the Uruguay Round, further cuts or both. There has been at least one suggestion that the WTO should aim for free trade, or the removal of all tariff barriers, by 2020. (Bergsten, 1996) Another option would be to eliminate tariffs completely in a number of sectors. This would probably have to be balanced against some formula reductions to bring down tariff peaks, otherwise such a selective 'zero for zero' approach will mean relatively high tariff peaks will remain in sensitive sectors. Reductions in the level of tariffs have also resulted in a heightened awareness of the costs of customs procedures. One estimate has put these at 2% of the value of goods. (Dunkel, 1996) Business interests have therefore made a case for simplifying customs procedures through improved automation, reduction of demands for arbitrary documentation and rules to limit restrictions on normal business hours. An alternative, more radical, option would be to eliminate tariffs below 2%. 6.2 Public purchasing There is considerable scope for further liberalisation in public purchasing, given that it can amount to as much as 15% of GDP in some countries and that the WTO disciplines have so far only limited coverage. The plurilateral Government Purchasing Agreement (GPA) does not even cover all members of the OECD let alone all members of the WTO. Even those countries that have signed have made access to their public procurement markets conditional upon a sector-by-sector reciprocity test. This means that existing members will insist on new signatories negotiating detailed schedules in order to ensure that access is reciprocal. Coverage could also be extended to include sub-federal level authorities, which account for some 70% of all public purchasing but are as yet less than fully covered by any international disciplines in the US, Canada and other non-european federal states. 6.3 Sectoral liberalisation 21
Difficulty getting support for across-the-board liberalisation can sometimes be overcome by adopting a sectoral approach. One sector targeted for such an approach is information technology (IT). This is a strategic sector in that it holds the key to market access in a number of other sectors. A liberalisation agreement could, for example, include access to communications networks, tariffs on electronic equipment and the liberalisation of communications service provision. The EU and US are considering such a sectoral approach in the context of the New Transatlantic Agenda for strengthening EU-US commercial links adopted in Madrid in December 1995. An option favoured by the IT industry would be to multilateralize these efforts within the WTO. 6.4 Tougher rules on public enterprise Widening the WTO will include countries, such as the economies in transition, that still have significant state enterprises. The WTO has provisions covering public monopolies, but WTO members with small public sectors are likely to make a case for tightening these, in order to ensure fair competition between public and private enterprise in international markets. This will require enhanced transparency requirements covering the provision of funding by governments for public enterprises. One model for such negotiations might be the 'market investor principle' employed in the EU subsidy control provisions. 5 6.5 Preferential rules of origin Proposals have also been made to extend multilateral rules in the area of rules of origin. (Lang, 1996) As noted above the in-built agenda already includes work on the harmonization of nonpreferential rules of origin. Non-preferential rules of origin are used to distinguish between products in order to apply instruments of commercial defence, such as anti-dumping, countervailing duties or safeguards. With the burgeoning of regional and plurilateral preferential trade agreements, the case can also be made for harmonizing preferential rules of origin, or those used to distinguish between products originating within and those originating outside the group. To date this has been resisted by the participants in the main regional agreements, notably the EU, but there now appears to be at least a willingness to discuss the issue. (European Commission, 1996) 7.0 Regionalism Regionalism, or the impact of regional free trade and customs unions on the multilateral system, will 22