Critical mass as an alternative framework for multilateral trade negotiations.

Author:Gallagher, Peter
Position:Report
 
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The article posits that, over time, the sense of the World Trade Organization's so-called Single Undertaking has been perverted, and that the current interpretation requiring every WTO member to be obligated by all new Doha Round agreements is a major problem in the stalled negotiations. The authors' preliminary research supports the idea of conducting international trade negotiations in agriculture on the basis of a critical mass framework, where only those WTO members accounting for some nominated major percentage of trade would take on new obligations. The article recounts how this approach has worked before in the General Agreement on Tariffs and Trade (GATT) and the WTO, and suggests areas of further research in order to test the proposition with respect to agricultural trade. KEYWORDS: international negotiations, trade. World Trade Organization, agriculture, political economy. **********

The outcome of the Uruguay Round of multilateral trade negotiations contributed significantly to strengthening and unifying the international trading system. The World Trade Organization (WTO) and the so-called Single Undertaking of its members, wherein all are party to all WTO agreements, participate equally in decisionmaking, and safeguard their rights under a strong central dispute settlement system, is a unique and invaluable institution that is essential to the effective governance of the global economy. The continuing success of the system depends on the WTO being able to show that it can effectively discharge its three principal roles of overseeing the implementation of the trading rules (via multilateral surveillance of the committees and councils overseeing the agreements, the various transparency obligations embedded in those agreements, and the Trade Policy Review Mechanism, or TPRM), settling disputes among members, and serving as a forum for negotiation of new and improved rules and increased trade liberalization.

At the time of this writing, the Doha Round of multilateral trade negotiations is in serious trouble. (1) The negotiators are years late in achieving the targets set out for themselves in the November 2001 declaration. In our view, a large part of the problem relates to the process and to the fact that a decision made in November 2001 to treat ''the conduct, conclusion and entry into force of the outcome of the negotiations as parts of a single undertaking" (2) has been accepted by participants as meaning that all WTO members must be involved in and obligated by the outcomes in all areas of the negotiations.

Given the economic diversity of the WTO's membership and the history of the organization, it makes little sense to expect the Single Undertaking approach to negotiations as it is currently understood to produce good outcomes. Even more important, such an approach does not need to be pursued in order to achieve an outcome with meaningful benefits for the global economy. In fact, insistence on the Single Undertaking approach will likely produce an inferior result in the Doha Round--if a result can ever be achieved on this basis.

The problems with the current approach to the negotiations are particularly acute in the case of trade in agriculture--the sector universally regarded as the most significant element of the Doha Round. In this article, we outline a hypothesis that an alternative framework for international trade negotiations for agricultural products may be likely to produce better outcomes for agriculture and for future trade negotiations more generally.

The argument of this article is as follows:

  1. The WTO's Single Undertaking is valuable to the extent that it improves the adherence of developing and (especially) developed country members to all of the agreements.

  2. But the Single Undertaking did not eliminate the contradictory treatment of reciprocal trade liberalization by the General Agreement on Tariffs and Trade (GATT). It encouraged members to embed GATT's principle of nonreciprocity for developing countries (including some of the largest trading economies) in a more coherent legal framework ensuring slower, more difficult progress.

  3. Agreements that open markets on a reciprocal basis among members are more readily negotiated and are more likely to be robust over time.

  4. The Single Undertaking makes it almost impossible to negotiate effective agreements because it gives parties nonreciprocal rights over the content and management of an agreement.

  5. Critical mass agreements provide a familiar and practical framework for non-Single Undertaking agreements that would remain consistent with all of the other principles of the WTO. They retain an element of nonreciprocity by offering most-favored-nation (MFN) treatment for nonmembers, but they quarantine its debilitating effects.

A Contradiction in the GATT/WTO System

The GATT/WTO system has struggled, almost from its beginnings in 1947, with an apparent contradiction between its mandate to liberalize markets through negotiation of trade agreements and its objective of universal membership including rich and poor economies. In keeping with its universal vocation, the GATT/WTO system has objectives that sound, at least, redistributive. "Recognizing further that there is need for positive efforts designed to ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development." (3) But in a redistributive framework, you cannot ask the poor for cuts in trade barriers if you define them as a payment or a concession made to other economies, including the rich.

From one perspective, this contradiction looks like it is only semantic; a problem due to the mercantilist language that the political economy of trade enforces on the GATT/WTO system. Roughly two centuries of economic consensus that mercantilism fails to capture the national interest has had no impact on language and, most important, on the policy practice, of governments that are still bound in most circumstances to adopt a mercantilist stance in order to secure support for more open markets at home, let alone abroad. Similarly, governments often describe the support that trade brings to the development of developing countries in "redistributive" terms, even when they know well that the gains from trade are not a zero-sum distribution of income, but accrue to both sides of an exchange, even between unequals.

However, the WTO's problem is much deeper than confusion over language. It permeates the activities of the organization, at every turn, creating a stultifying tension between its high ambitions, characterized in the Doha ministerial declaration as both liberalizing and distributive, and the reality that no developing country member is obliged to take

an action that would secure the benefits of liberalization for themselves or their trading partners.

Recalling the Preamble to the Marrakesh Agreement, we shall continue to make positive efforts designed to ensure that developing countries, and especially the least-developed among them, secure a share in the growth of world trade commensurate with the needs of their economic development. In this context, enhanced market access, balanced rules, and well targeted, sustainably financed technical assistance and capacity-building programmes have important roles to play. (4) Schooled by GATT's five decades of managing this contradiction, the Doha ministerial declaration links its distributive objectives to the market liberalizing mechanism by means of elisions (enhanced access to whose market?), ambiguities ("balanced" how?), and a promise of some aid for trade capacity that has, for once, proved substantial.

Shorn of the drafting tricks, however, the qualifications attached to the Doha work program suggest that no developing country will be obliged to enhance access to its own market in order to secure these benefits for itself or for its trading partners, even on the basis of reciprocity. This is spelled out clearly toward the end of the Doha declaration.

The negotiations and the other aspects of the Work Programme shall take fully into account the principle of special and differential treatment for developing and least-developed countries embodied in: Part IV of the GATT 1994; the Decision of 28 November 1979 on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries; the Uruguay Round Decision on Measures in Favour of Least-Developed Countries; and all other relevant WTO provisions. (5) The history of GATT echoes through this paragraph, especially in the reference to the 1979 Framework Agreements, adopted around the time that developing countries assumed majority membership of GATT. The framework contains the so-called Enabling Clause (formerly embedded in a pair of 1971 waivers from Article I of GATT) that regularizes unilateral preferences for developing country trade. It broadens developing country access to balance of payments restrictions and to infant industry protection in Article XVIII and confirms a broad-ranging principle of nonreciprocity for developing countries in GATT negotiations.

(5.) The developed countries do not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other barriers to the trade of developing countries, i.e., the developed countries do not expect the developing countries, in the course of trade negotiations, to make contributions which are inconsistent with their individual development, financial and trade needs. Developed contracting parties shall therefore not seek, neither shall less-developed contracting parties be required to make, concessions that are inconsistent with the latter's development, financial and trade needs. (6) The Framework Agreements mark the first--but it turns out, not the last point in GATT/WTO's history at which the mercantilist idea that trade...

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