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(6) World Trade Organization

 The World Trade Organization (WTO) • Explained With Maps

What Is The World Trade Organization?

WORLD TRADE ORGANIZATION

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Negotiation processes in the WTO

 The substance and evolution of the agenda of the WTO depend on to a large extent on the decision-making processes. Several of these decision-making procedures are themselves the product of negotiation. As we discovered in the previous texts, protocols on the negotiation of such rules are few and often result in the reliance on de facto, controversial processes of rule formation. But especially after the agenda is set, formal and informal negotiation processes are crucial in determining what goes into the final package. Without such protocols of negotiation in place, the raison d’être for the WTO - to provide a negotiating forum that facilitates multilateral trade liberalisation - would collapse. Of course, any negotiation is driven by the preferences of states, their domestic constituencies, and the individual negotiator's party to the deal. But the fact that countries engage in tariff reductions within the WTO matters: the WTO establishes certain rules of the game, which would not automatically come into existence and in whose absence different outcomes would ensue. Below, I examine the principal features of the negotiation process, and also provide examples of how negotiation minutiae can sometimes skew outcomes in favour of the already powerful in the WTO.

First, as the previous chapter outlined, the WTO provides its members with two firm rules that provide the basis for all trade negotiations under its auspices: the Most Favoured Nation (MFN) rule and the associated principle of reciprocity. The first extends all concessions negotiated between two parties to the rest of the membership, thereby expanding the pie to be shared and also shielding countries against the vagaries of bilateralism. To guard against free-riding and make trade liberalisation politically palatable at home, however, the second principle of reciprocity is crucial. Concessions negotiated under these rules have to be bound; if countries exceed the bound level, they can be penalised (barring specific circumstances when this is allowed). While these rules existed in the GATT, the WTO has strengthened them through its powerful dispute-settlement mechanism that authorises retaliation if a party reneges on its obligations, and also by extending it to all countries including developing countries. It is worth bearing in mind that the two rules of MFN and reciprocity are actually mutually contradictory. The WTO resolves these contradictions by building in the condition of reciprocity to MFN in the negotiation process; once the concession has been granted, however, its multi lateralization is essential and cannot subsequently be made conditional on reciprocity.

Second, the WTO has evolved specific methods of actually implementing the broader rules of MFN and reciprocity, with implications for the inclusion or exclusion of certain parties and certain agendas. For instance, in the first five rounds under GATT auspices, the Principal Supplier Principle was used in tariff negotiations. As per this principle, the initial negotiation would be conducted bilaterally among the largest countries on specific products. Hoekman and Kostecki explain the rationale behind this: Granting a concession to a small supplier implies giving away the concession to the principal supplier since the latter will benefit from it due to the MFN rule. The principal supplier is the trading nation which benefits the most from a concession and is thus probably prepared to offer more reciprocal trade liberalisation than a smaller supplier would be prepared or able to do.

Smaller countries may enter into the negotiation in the endgame when the country granting a concession to the principal supplier might make the offer conditional on gaining supplementary concessions from other smaller suppliers of the same product. However, as discussed in Chapter 1, negotiations based on this principle resulted in the marginalisation of developing countries and their agendas from the GATT process. Further, as the number of products on the GATT agenda and its membership expanded, negotiations on a product-by-product basis became unmanageably complex.

To address some of the problems of the Principal Supplier Principle, across-the-board tariff negotiations were used in the Kennedy Round. Two types of formulae were used for this: the linear cutting formula and the harmonising formula. The former requires all members to engage in the same rate of tariff cuts for all product lines. It allows a broader coverage, but also means that countries with higher tariffs can continue to have high tariffs in relation to other members implementing the same rates of tariff cuts. The harmonisation formula can have many versions; depending on the particular formula used, it can reduce higher tariffs much more drastically than lower ones. The choice of formula can be a difficult political matter, especially as the distributive implications of each type vary across and within countries. Exactly how politicised the process of choosing a negotiation formula can be was illustrated at the Cancun meeting, where one of the principal causes of the breakdown of the negotiations was that countries could not agree upon the formula that would provide the basis for the Doha agricultural negotiations. Even after an across-the-board formula was adopted in the Kennedy Round, a mix-and-match approach was used in the Kennedy and Tokyo Rounds in practice. The Uruguay Round saw the use of a sector-by-sector approach rather than a formula approach. Today, a mix of approaches is used depending on the issue area. For instance, after the agreement on the ‘July Package’ in the summer of 2004, a tiered formula is going to be used in agriculture, while services negotiations will continue to be on a request-offer basis among countries. Services commitments by countries have in general been disappointing so far; some observers attribute this to the request-offer approach and argue that it needs to be substituted with a more generalised approach.

Third, multilateral trade negotiations depend critically on issue linkage for their success. Country A agrees to make a concession on Issue I that is of value to Country B, but, in return, gains a concession from Country B on Issue II that is of particular value to Country A. In other words, issue linkage facilitates reciprocal exchange. This exchange also increases the potential gains from trade liberalisation according to the respective preferences of negotiating countries. Without such linkages, multilateral trade liberalisation would be a considerably more difficult process than it already is; indeed, the creation of the WTO would have been impossible without them. The practice of issue linkage is epitomised in the concept of the Single Undertaking. While issue linkages can facilitate agreement, they also have a negative side, as they can be used by powerful countries to extract disproportionate concessions from their weaker counterparts.

Frequently cited examples are of the Uruguay Round, when developing countries gained some concessions on agriculture and textiles, but paid a heavy price for those concessions through the inclusion of the ‘new issues’. Linkages can also extend beyond the issue area of trade. Politicians from developed countries have been known to offer bilateral carrots and sticks to developing countries in return for their agreeing to withdraw from a certain position or to agree to a concession. Examples of such carrots include aid, low-interest loans, market access quotas, and regional trade arrangements, while threats of withdrawing these concessions and privileges are brandished as sticks.

Issue linkage can exacerbate power asymmetries, especially if they are used to make weak countries pay several times over for the same concession. The coalition of developing countries known as the Like Minded Group (LMG) was in effect making this same argument when it threatened to block the launch of the round of trade negotiations that is currently underway (the so-called ‘Doha Development Agenda’). The LMG highlighted the many problems that developing countries have encountered in implementing the Uruguay Round. These implementation problems referred to the costs of implementation, as well as the fact that developed countries have not kept their end of the Uruguay Round bargain, and hence the fruits of the Uruguay Round have proven elusive for developing countries. They argued that if they agreed to a new round and gained the concession that the implementation issues would be put on the agenda of the new round, they would end up paying again for the unrealized promises of the Uruguay Round through more concessions on new issue areas. It is on account of these kinds of negative issue linkages that the Single Undertaking has attracted considerable criticism in certain quarters.

Fourth, underlying all processes in any international organisation is its organisational culture, which can have an important effect on the negotiation and coalition strategies that its members employ. As was mentioned in Chapter 1, the negotiating culture of the GATT led developing countries to label the institution a ‘rich man’s club’. Rather than expend limited resources in a forum that seemed weighted against them, developing countries successfully lobbied for the creation of a different economic organisation that attached primacy to their development concerns – the UNCTAD. Their dealings with the GATT were marginal, and even these limited dealings were couched in a confrontational discourse. The expansion in the agenda of the WTO and its legalisation has led developing countries to recognise that they can no longer afford to stand at the margins. However, the similarities between the organisational cultures of the GATT and the WTO have persisted through the continuities in decision-making procedures as well as the informal protocols of interaction in the Green Room and corridors. This has led developing countries to adhere, in general, to many of the negotiation strategies that they pursued in the GATT.

John Odell conceptualises negotiation strategies across a spectrum that range from value-claiming to value-creating: He writes: At one pole is the pure value-claiming or distributive strategy, a set of actions that promote the attainment of one party’s goals when they are in conflict with those of the other party. . . . At the opposite pole is the pure integrative or value-creating strategy. It involves actions that promote the attainment of goals that are not in fundamental conflict – actions designed to expand rather than split the pie.

Along with this spectrum, many developing countries in the WTO have tended to adopt the strict distributive strategy. Of course, this tendency has several sources including the role of the particular negotiator, the domestic political economy, and the political culture of the country. But there are two additional factors – both relating to the culture of the WTO – those further prompt developing countries to adopt hard-line positions and show limited flexibility in arriving at a compromise. First, the use of the strict distributive strategy is especially common when levels of trust among the negotiating parties are low, and such a situation exists in the WTO.

Developing countries have long been resentful of the relative ease with which developed countries, both in the GATT and the WTO, have been able to bludgeon them into consensus, and keep expanding the agenda of the organisation despite the reservations that developing countries have consistently had with this. Second, as was outlined in the previous section of this chapter, developing countries find themselves poorly equipped to deal with the technicalities of the negotiations, whereas integrative strategies require considerable knowledge and skill. The pace of the negotiations makes it especially difficult for developing countries to adopt proactive, positive negotiating positions, let alone formulate fallback positions that form an essential part of an integrative strategy. Often, they end up succumbing to pressure in the endgame and gain few concessions. Former Indian Ambassador B. L. Das comments on this negotiating trajectory of developing countries: The transition from the long period of determined opposition to sudden collapse into acquiescence at the end has denied these countries the opportunity of getting anything in return for the concessions they finally make in the negotiations.

Agreements thus arrived at further exacerbate the level of distrust and endanger their political sustainability.

Finally, any discussion about the norms of negotiation in the WTO will be incomplete without a mention of the accession process. The WTO began with a membership of 128 members; its membership had expanded to 148 by 2005. The few remaining outside are lining up to join the club. The accession process, however, is not an easy one. It begins as a bilateral process, in which all interested members can make demands of the aspirant member, and the accession eventually has to be approved by a two-thirds majority. Acceding countries cannot negotiate concessions beyond those covered by the WTO agreements, but they may be asked by member countries to surrender much more. The accession of Cambodia in 2003 – the first Least Developed Country (LDC) to join the WTO since its creation in 1995 – provides a good example of how asymmetric this process can be. An Oxfam report points out that Cambodia was required to give up the use of generic medicines as part of its accession package, even though the WTO actually exempts LDCs from implementing this part of the agreement on intellectual property rights until 2016. In agriculture, the EU and the US have tariff peaks which are several times higher than those that Cambodia signed on to. Unsurprisingly, the Cambodian Minister of Commerce, Mr Cham Prasidh, is quoted as saying: ‘This is a package of concessions and commitments that go far beyond what is commensurate with the level of development of an LDC like Cambodia.’

 

This highly asymmetric accession process notwithstanding, countries have shown a willingness to give up rather a lot to acquire membership of the WTO. This is because members assume that the costs of accession, as well as some questionable decision-making procedures and politicised negotiation processes, will be easily outweighed by the benefits of belonging to the WTO. The expected benefits for developing countries (and indeed, most of the recent accessions have been developing countries) include MFN-based market access with all the other members, the protection of rules against the whims of the powerful, and an enforceable dispute-settlement mechanism to uphold that protection. Whether these benefits are actually as high as expected can perhaps be best gauged by examining the substance of the agreements.

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