MC12, Other JSI, WTO crisis and reform

WTO ‘plurilateral’ agreements brace for moment of truth

India and South Africa never liked ‘plurilateral’ agreement negotiations initiated in the World Trade Organization after the Doha ministerial conference twenty years ago.

But a series of agreements among a broad subset of members of the global trade institution are coming to fruition. Now the long-simmering disagreement between these two countries and a large majority of WTO countries is coming to a head.

Sacro-sanct consensus rule

The core principle of the WTO is that decisions are taken on the basis of consensus among all its 164 members.

The adoption of new agreements or rules requires a unanimous decision, even if not all countries are on board the new deal. This was the approach taken in existing plurilateral agreements in the WTO, some of which are annexed to the founding Marrakesh Agreement, such as the Government Procurement Agreement.

The announcement of an agreement in principle on ‘services domestic regulation’ among 65 WTO members last month is focusing minds in Geneva. Some signatories include the world’s largest economies such as the EU, the United States, China and Brazil.

The agreement is one in a series of initiatives known as ‘joint statement initiatives’ – JSIs in the jargon – launched in December 2017 in Buenos Aires. These initiatives came amidst general failure of WTO ministers to agree on anything else, not least long-standing disagreements over agriculture subsidies.

Other notable agreements that have made headway since the ministerial meeting in Argentina include a potential agreement on digital trade or e-commerce and a deal setting out rules on ‘investment facilitation for development’.

Last winter, India and South Africa tabled legal objections to the JSIs to the rest of the WTO membership.  Since then, both countries have been very vocal in making their views heard as others doggedly progressed on their plurilateral deal and rule-making.

Delhi and Pretoria see only two ways forward for these plurilateral deals: bring them to the multilateral table and negotiate consensus to have the new rules incorporated into the rule-book as is formally required in the 1994 Marrakesh agreement, or take these agreements out of the WTO.

Given that Delhi, Pretoria and some other countries also object to plurilateral agreement negotiations more broadly on the grounds of their substance, nobody is currently risking taking the route of proposing that the new deals are adopted through the required consensus route. Indeed, a veto by these countries is seen as inevitable.

The focus instead has been to get on with reaching agreements and to try to work a way around the expected Indian and South African objections.

A controversial ‘scheduling’ route for services

For the services domestic regulation deal negotiators, the immediate question now is how the services agreement, which is expected to be announced formally at the next ministerial conference at the end of November, will be integrated into the overall architecture of the trade institution’s rule-book.

Services domestic regulation negotiators consider the task ahead of them as relatively easy: the new procedural rules agreed in this accord are expected to simply be integrated into the individual ‘market access schedules’ of these countries.

These member-specific schedules, where they usually table the sectors where they agree to commit to non-discrimination and market openness principles, are annexed to the General Agreements on Trade in Services or GATS.

The choice was made to schedule the outcome of these services negotiations despite the fact that these explicitly steered clear of any market access bargaining and commitments.

Proponents of choosing this path forward say this is perfectly legal, not least because procedural rules adopted in 2000 by WTO member allow parties to include (unspecified) “new commitments” into their GATS schedules.

The argument is that this has already been put into practice in the late 1990s when a subset of countries integrated a Reference Paper on telecommunications into their GATS schedule. On top of market access commitments taken by its signatories, the paper spells out rules on competition, interconnection and other basic governance norms for a competitive telecommunications sector.

It is hence not a coincidence that this year’s services domestic regulation ‘deal’ was also technically framed as a Reference Paper the principles of which are set to be built into the members’ schedules.

Proponents of the scheduling method argue that as long as the rights of non-participants in the agreement are not diminished, and as long as there is no violation of the WTO’s most-favoured nation and national treatment rules (i.e. no discrimination), everything is in order. What is more, the overall exercise is trade-enhancing.

All that would remain to be done, according to this view, is to go through a schedule ‘certification’ procedure, where non-participating members have relatively little leeway in blocking individual members’ schedules if they cannot demonstrate that their acquired rights at the WTO are harmed.

This is the view taken by Hamid Mamdouh, a former WTO official and services trade law expert who now serves at the law firm King and Spalding.

In a note published by that firm last April, Mamdouh wrote: “There is no legal difference between a member scheduling liberalisation decided autonomously, and a member scheduling liberalisation decided plurilaterally. It would be absurd to interpret WTO rules to restrict members from autonomously sharing the benefits of increased commitments with all other WTO members on an MFN basis.”

Not everyone in the legal trade profession agrees.

University of Auckland professor Jane Kelsey wrote a paper in April rebutting the general view that plurilateral agreements as proposed under the 2017 Joint Statement Initiative programmes are legal at all.

On the 65 members’ services scheduling plans Kelsey writes: “Members’ ability to implement the outcomes of negotiations through the modification of schedules is limited to the legal scope of those schedules, being tariff concessions for the GATT and sector-specific commitments on services in the GATS.”

Some who are not opposed to plurilateral initiatives in principle as Kelsey to share this legality concern regarding the scheduling approach chosen for the services agreement.

In a forthcoming opinion piece to be published by the Society of International Economic Law, former WTO Appellate Body member Peter van den Bossche, who is not in principle opposed to plurilateral initiatives, writes: “I query (…) whether such incorporation is appropriate, given that the Reference Paper does not set out market access commitments in the narrow sense, but rather provides for rules on licensing and qualification requirements and related procedures as well as technical standards for services.”

A desire to confront India and South Africa

At the latest plenary meeting of ambassadors in Geneva this month, India’s ambassador to the WTO Brajendra Navnit reiterated India’s long-standing view that these plurilateral agreements fall outside the mandate of the institution.

Navnit also said that these deals “will create the precedent of bringing any new issue into the WTO without the required consensus”.

Navnit, in views shared by South Africa, also considered that negotiating resources are diverted away from the bread-and-butter of still ongoing negotiations on multilateral issues, such as on agriculture or fisheries. These two countries also consider that the new plurilateral agreements should not be adjudicated by the WTO’s dispute settlement body.

A broad set of WTO members are wary of these objections and perceive these as mere obstructionism.

Most participants in JSIs take the opposite view to that aired by Pretoria and New Delhi. They consider these agreements as supportive of multilateralism given the system’s current crisis. There are as many as 105 participants in the investment talks, which means support for these initiatives is wide-spread.

“Plurilaterals can act as a protection mechanism against protectionism, demonstrating the value of outcomes negotiated together. They can provide a safety net for the rules-based system,” said Alison Hamilton, the New Zealand WTO embassy’s number two.

“The JSIs are a vital component of reinvigorating the negotiating functions of the WTO,” said Markus Schlagenhof, a Swiss trade diplomat. “Given that progress in the WTO has been unsatisfactory, new creative ideas are needed to ensure the rule-based international trading system remains up-to-date with daily challenges.”

Part of the reason why the parties to the services domestic regulation deal went down the scheduling route is precisely a will to get around this perceived obstruction and put India and South Africa in front of what some see as their contradictions. In the corridors in Geneva, one senses even a desire ‘corner’ Delhi and Pretoria, and make them confront the question during the scheduling process of whether any harm is done to them.

Another frequent argument overheard in Geneva is that the WTO is, after all, a member-driven organisation. If a very large group of members wants something and feels it is being held back by only a very small number of recalcitrant countries, why should they be stopped?

No way around negotiations

But the need to negotiate a new agreement in the institution that would allow for an easier integration of plurilateral agreements is well recognised.

Using the scheduling trick for forthcoming JSI’s is seen as practically impossible. The investment facilitation deal for instance, covers an area of policy where there is no founding text in the WTO: investment. This makes it almost impossible to simply ‘dock on’ to a pre-existing treaty.

The type of commitments and rules that are emerging in the deal would also overlap with several different WTO agreements, rendering the legal task of incorporating the JSIs particularly challenging.

So it is clear that something needs to be done.  Hamid Mamdouh, in another paper published last month by the German development policy institute DIE and the International Trade Centre argues for a new standalone agreement that needs incorporating as a dedicated special annex – an Annex V – to the founding Marrakesh Agreement.

The European Union wants to negotiate about this issue as part of its broader plans to have a work programme on WTO reform after MC12. Signs are the United States would also be on board such negotiations.

Speaking last week in Geneva, USTR Katherine Tai said: “We can successfully reform the negotiating pillar if we create a more flexible WTO”.

As a path forward in their February legal submission, India and South Africa stated that one way forward could be to “seek amendments to the provisions of Article X [covering amendments to WTO rules] to provide for the so called Flexible Multilateral Trading System”.

Many will be curious about what happens the moment WTO members start taking South Africa and India at their word on this matter.


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