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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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THE NECESSARY PROCESS OF REFORMS TO THE WTO
Some Latin American contributions


by Félix Peña
February 2019

English translation: Isabel Romero Carranza


 

After the G20 Summit in Buenos Aires, the process aimed at introducing deep reforms in the World Trade Organization is intensifying. In this regard, multiple meetings of government and experts have taken place in recent months and several ideas and proposals have been advanced on the reforms that would be necessary or convenient.

Last November, a group of Latin American experts released a document stating the importance of countries in the region having a leading role in the WTO reform process. Later, in January of this year, the so-called "Punta del Este Group" met to move forward in the analysis of actual proposals that could be promoted by the countries of the region.

In a central paragraph of the document issued by the Latin American experts, they point out that the intention is to defend a system of international trade governed by rules, as otherwise the alternative would be a system where political power would prevail in trade and in investments. It also states that: "in this last scenario, the developing countries would be the most affected".

What is at stake in the debate about its reforms are the founding principles of the WTO that all member countries pledged to respect, among which the key ones are non-discrimination, reciprocity, transparency and safety valves in well-defined situations.

One issue that may also need to be incorporated into the WTO's modernization agenda is that referred to the exceptions to the principle of non-discrimination that may result from the application of Article XXIV of the GATT. At different instances in the processes of Latin American integration, rigid interpretations, usually originating in the US and the EU, influenced the possibility of moving forward with more flexible formulas adjusted to the regional realities.


In May of last year, in a speech at the OECD, President Emmanuel Macron raised the need to address the profound reforms in the WTO (for his speech go to https://www.elysee.fr/).

The speech of the French President helped move forward in a process with multiple unfoldings and proposals which will probably intensify in the coming months. (On this topic, see the August 2018 edition of this newsletter on http://www.felixpena.com.ar/). Governments, business institutions, think-tanks and a variety of non-governmental organizations participate in this process.

As part of this process, last November, on the eve of the G20 Summit, a group of 33 experts from eleven Latin American countries with diverse backgrounds of experience and analysis linked to the multilateral trading system, published a document with their favorable opinion on multilateralism and the modernization of the WTO. This document also included some specific references on the topics to be addressed (for the full text and the list of participating experts go to http://www.iei.uchile.cl/).

In the mentioned document, the experts begin by noting that the multilateral trading system is in deep crisis because it is unable to deal with some of the economic and commercial challenges of the 21st century, such as the intensity of technological change; the irruption of China and emerging Asia as relevant players in world trade; the industrial organization around value chains; the plethora of preferential trade agreements promoted by the US, China and the EU, and the link of trade with the environment, climate change and the world of work.

What is at stake, the document continues, are the founding principles of the WTO that all member countries pledged to respect. Key among these are the principles of non-discrimination, reciprocity, transparency and safety valves in well-defined situations. In a central paragraph of the document, they point out that the issue is to defend trade governed by rules, or otherwise enter a system where political power will prevail in trade and investments. It adds: "in this last scenario, the developing countries would be the most affected".

The document also points to specific issues and initiatives to consider in the debate to modernize the WTO.

Some of the mentioned issues are:

  • monitoring and transparency of trade measures;
  • disciplines on subsidies with limits to the most distorting ones;
  • international cooperation and control of unfair competitive practices of state and private companies;
  • conclusion of negotiations on agriculture, substantially increasing access to markets, reducing all distorting domestic support towards its progressive elimination;
  • strengthening the mechanism for reviewing national trade policies;
  • updating of special and differential treatment in order to adapt it to the current economic and commercial realities;
  • improvement of procedures, facilitating flexible multilateralism of variable geometry, even through plurilateral agreements whose benefits can extend to all WTO members;
  • trade links with inclusive and sustainable development, and
  • monitoring and analysis by the WTO Secretariat to level the playing field and reduce information asymmetries, improving the quality of notifications by reinforcing its collaboration with the OECD, the World Bank, UNCTAD and the IMF, among others.

Finally, the experts state that Latin America should not remain outside the necessary debate on the reforms of the WTO. Specifically, they affirm that the roles of the Mercosur and the Pacific Alliance are irreplaceable and that, until the moment the document was finalized, they had not been manifested (the document was finished on November 28, 2018).

In January of this year, a meeting of international experts took place in Punta del Este, with the participation of some of the signatories of the previously mentioned document. In this meeting they decided to create a study group and a proposal in order to generate a space for debate on the relevant issues that should be considered for the necessary reform of the WTO system, including its dispute settlement mechanism. (In this regard, see the article entitled "Experts from the region articulate proposals in view of the crisis of the WTO ", by Luis Custodio, in the Economy and Market Section of newspaper El País of Montevideo, of January 21, 2019, on https://www.elpais.com.uy/. At the time of writing this newsletter, the constitutive document of this Group of Punta del Este, including its proposals on the priority issues to be addressed, had not yet been published).

The fact is that, after the G20 Summit in Buenos Aires, there seems to be a consensus among WTO members on the need to adapt their rules to the new realities of international trade. (See the December 2018 edition of this newsletter on http://www.felixpena.com.ar/).

In the case of Latin American countries, the agenda of reforms to be considered can also draw from those that were already considered relevant when the General Agreement on Tariffs and Trade (GATT) was negotiated in 1947. At that time, international relations were substantially different from what they are now. Few countries participated in the negotiations and the US had a decisive role due to its relative power and its major influence. Its interest was to achieve a global trading system guided by rules and focused on few principles, of which non-discrimination was a fundamental one.

A main rule that was meant to guarantee this principle was Article XXIV of the GATT, which in practice permitted exceptions through two modalities: the customs union and the free trade area. That article is a good example of the "constructive ambiguities" that characterized the original GATT rules. In fact, its interpretation is still somewhat complex today. This is evinced by the interpretation that usually predominates with respect to what a customs union or a free trade area "should be". The experience of the protracted bi-regional negotiations between Mercosur and the EU is illustrative of the difficulties that arise when there is a rigid interpretation of the scope of this article.

Nowadays, the WTO, successor to the GATT and which incorporated its main rules, including Article XXIV, has 164 members. The relative power of each country individually is different from what it was at its inception, and none of them would be able to impose the rules of international trade interpreted only in terms of their own national interests. This does not mean that they will not attempt to do so, but it would be difficult for them to sustain this over time.

On the other hand, the dynamics of global trade in a world with more protagonists and increasing connectivity between national and regional economic spaces, makes the existence of ground rules whose compliance does not depend on the will of each country more necessary than ever.

However, the predominance of consensus as the main criterion to change existing rules or to approve new rules makes it very difficult to successfully develop any attempt to adapt the WTO system to the new realities. The experience of the Doha Round proves this point.

A valuable contribution of the recent G20 Summit in Buenos Aires was, precisely, confirming that the multilateral trading system is not fulfilling its goals, and that it is possible to improve it. Therefore, the need to make the necessary reforms to improve its functioning has been acknowledged (the immediate precedent were the conclusions of the G20 meeting of Ministers of Commerce, held in Mar del Plata in September 2018).
.
Today, an additional factor impacts the practical importance of the reforms aimed at modernizing the WTO: it is very likely that, in the coming months, there will be a paralysis of its dispute resolution system because, in practice, the process of appointing the arbitrators to replace those who complete their periods is blocked. A dispute settlement mechanism thus paralyzed could significantly affect the effectiveness of the multilateral rules of world trade. The system would then be exposed to the discretionary criteria of the member countries, especially those with a greater relative power.

To undertake the WTO reforms, a significant problem results from the fact that not all the countries of the system share similar criteria to define which should be the priorities to be addressed. This is not a minor issue when it comes to building the necessary consensus.

In recent occasions, different statements have been made about the issues that would require a more urgent approach. One is in the Joint US-EU Declaration of July 25, where the willingness to work together is expressed "in order to reform the WTO and combat unfair trade practices, including the theft of intellectual property, the forced transfer of technology, subsidies to industry, distortions created by state-owned companies and overcapacity." (http://europa.eu/).

Additionally, on September 18 a "concept paper" of the European Commission on the modernization of the WTO was published (http://trade.ec.europa.eu/) and on November 26, proposals by the EU and a group of other WTO member countries on the functioning of the appellate body in the dispute settlement system were advanced (http://trade.ec.europa.eu/).

Another example is the Joint Statement of the meeting organized by the Government of Canada, with the participation at Ministerial level and Heads of Delegation of a group of like-minded WTO member countries (https://www.canada.ca/).

This meeting took place in Ottawa and included Australia, Brazil, Canada, Chile, the EU, Japan, Kenya, Korea, Mexico, New Zealand, Norway, Singapore and Switzerland. They advanced ideas on the functioning of the dispute resolution system and indicated their willingness to work on solutions to the observed problems, which, at the same time, would help preserve their essential characteristics. They also agreed to strengthen the negotiating function of the WTO, for which flexible and open approaches are required for multilateral solutions. They also acknowledged the need to face the distortions in markets caused by subsidies and other instruments. Additionally, they mentioned it is necessary to explore how the dimension of development, including special and differential treatment, can best be achieved in the rule creation efforts. Emphasis was placed on effective transparency in the functioning of the relevant agreements. Finally, it was pointed out that the current situation of the WTO is no longer sustainable. They stated that they would continue to fight protectionism, and that they have the political commitment to act urgently on the issues of transparency, dispute settlement and the development of 21st Century trade rules for the WTO.

In the previous paragraphs, we have made reference to some of the issues mentioned as relevant in the different approaches on possible agendas to reform and update the WTO, including those suggested by the group of Latin American experts who met last November.

One issue that may also need to be incorporated into the WTO's modernization agenda is that which refers to exceptions to the principle of non-discrimination that may result from the application of Article XXIV of the GATT. As indicated before, at different moments of the processes of Latin American integration, rigid interpretations usually originating in the USA and the EU influenced the possibility of moving forward with formulas adjusted to regional realities. It happened, for example, when the Treaty of Montevideo of 1960 was negotiated resulting in the creation of LAFTA. The original idea of partial advancements of sectoral scope had to adjust to what was understood to be a free trade area of broad coverage and reduced terms. The compliance with this requirement explains, to a large extent, the failure of the first effort of economic integration of regional scope. This has also happened in the development of negotiations for a bi-regional agreement between Mercosur and the EU. The rigid concept of regional free trade area, one of the requirements established by the European Commission, explains the fact that, after twenty years of negotiations, the agreement has not been possible.

Note: We have previously addressed the topic of the reform of the WTO, its necessity and its scope, in the editions of this newsletter of the month of July 2008; October 2011; January 2012; November 2012; March 2013; May 2013; February 2015; November 2016; July 2017; October 2017; July 2018; August 2018 and September 2018.


Recommended Reading:


  • Balmaceda, Daniel, "Qué tenían puesto. La moda en la historia argentina", Sudamericana, Buenos Aires 2018.
  • Ballou Morse, Hosea, "The International Relations of the Chinese Empire", Longmans, Green and Co., London 1918.
  • Congressional Research Service, "Venezuela: Backgroumd and U.S.Relations", CRS Report, en https://crsreports.congrss.gov R44841.
  • Devoto, Fernando; Fausto, Boris, "Argentina Brasil, 1850-2000. Un ensayo de historia comparada", Editorial Sudamericana, Buenos Aires 2008.
  • Ellis, Evan, "Beginning the endgame in Venezuela", Global Americans - Smart News & Research for Latinamerica's Changemakers, 31/1/2019, en https://theglobalamericans.org/.
  • Fernández Días, Jorge, "Mamá", Narrativa Hispánica, Alfaguara, Buenos Aires 2018.
  • Hirst, Mónica (compiladora), "Argentina-Brasil. El largo camino de la integración", Editorial Legaza, Buenos Aires 1988.
  • Ferrari Haines, Andrés; Moreira Cunhap, André, "Venezuela, en crisis; el Mercosur, sin estrategia", diario "El Cronista", 29 de enero 2019, en https://www.cronista.com/.
  • Florit, Carlos A., "Política Exterior Nacional", Editores Arayú, Buenos Aires 1961.
  • Jozami, Julio, "Argentina y el mundo árabe", Fundación Foro del Sur, Buenos Aires 2017.
  • Lagos, Julio, "Arturo Frondizi: claveles para el presidente olvidado y enterrado sin honores en el panteón familiar", diario "Infobae", 28 de enero 2019, en https://www.infobae.com/.
  • Lanús, Juan Archibaldo, "De Chapultepec al Beagle. Política Exterior Argentina 1945-1980", EMECÉ Editores, Buenos Aires 1984.
  • Luna, Félix, "Diálogos con Frondizi", Editorial Desarrollo, Buenos Aires 1963.
  • Motta Veiga, Pedro da; Rios, Sandra, "A OMC na nova política comercial brasileira", diario "O Estado de S.Paulo", 29 de enero 2019.
  • Naím, Moisés, "La polarización se globaliza", diario "El País", 20 de enero 2019, en https://elpais.com/elpais/.
  • Peña, Félix, "La OMC, ante la necesidad de reformarse para el siglo XXI", Suplemento Comercio Exterior del diario "La Nación", 17 de enero 2019.
  • Sánchez de Loria Parodi, Horacio M., "Máximo Etchecopar. Un pensador tucumano olvidado", Editorial Torre de Hércules, Buenos Aires 2015.
  • Sikkink, Kathryn, "El proyecto desarrollista en la Argentina y Brasil: Frondizi y Kubitschek", Editorial Siglo XXI, Buenos Aires 2009.

Félix Peña Director of the Institute of International Trade at the ICBC Foundation. Director of the Masters Degree in International Trade Relations at Tres de Febrero National University (UNTREF). Member of the Executive Committee of the Argentine Council for International Relations (CARI). Member of the Evian Group Brains Trust. More information.

http://www.felixpena.com.ar | info@felixpena.com.ar


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