News and Analysis • Volume 4 • Number 1 • January 2000

Confidence-building: A Cure for Post-Seattle Blues?

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Two months after the Seattle debacle, WTO Members are cautiously starting to pick up some of the pieces. Countless analyses have pinned the blame on a variety of causes, all of which played their role: real and deep divisions about the scope of the new round; inadequate preparation in Geneva, which encouraged inflexibility and meant that key issues where not ripe for deal-making; flawed negotiating procedures; too little time; the labour linkage fuelled by US electoral politics, as well as the much-reported demonstrations and riots.

A first attempt to deal with the aftermath resulted in bitter fingerpointing at the 17 December 1999 General Council meeting, which ultimately agreed to delay consideration of Seattle follow-up to its first session in 2000.

Since then, WTO Director-General Mike Moore has conducted a series of informal consultations with Members about the way forward, particularly with regard to improving the WTO’s decisionmaking and negotiating structures and the way to deal with expiring deadlines and provisions in WTO Agreements that were expected to be addressed through ministerial decisions at Seattle.

Built-in Agenda Negotiations Start in February

A more constructive atmosphere reigned at the General Council’s meeting on 7-8 February. Members agreed to start the built-in agenda negotiations on agriculture and services on 23-24 March and 21 February respectively, based on the provisions in the Agreements themselves. The talks will take place in special sessions of the Committee on Agriculture and the Council for Trade in Services, to be held back-to back with the regular sessions of the two bodies. The first sessions are not likely start on substantive negotiations, but will attempt to agree on a mandate, work programme and rules of procedure.

The services negotiations will be chaired by Ambassador Sergio Marchi of Canada, who was elected chairman of the Council for Trade in Services on 8 February. A vice chair will be appointed later to conduct the regular Council meetings. The respective appointments for the Committee on Agriculture were still pending when this issue went to press (see page 4 for more details about agriculture).

First Step in Confidence-building: LDCs

WTO Members have agreed that at least some of developing countries’ key concerns must be dealt with as a matter of priority in order to rebuild trust in the fairness of the multilateral trading system and get the WTO as an institution back to an even keel. At the 7-8 February General Council meeting, a number of issues of particular importance to developing countries were on the agenda, some of which stemmed directly from unfinished business in Seattle, including initiatives aimed at better integration of least developed countries (LDCs) in the multilateral trading system. WTO Director-General outlined steps taken in this direction in recent weeks, stressing that greater market access and capacitybuilding measures were ‘never to be seen as a trade-off or leverage to gain agreement to a new round of negotiations’.

In Seattle, the European Union and Japan offered duty-free and quota-free access to ‘essentially all’ products of least-developed countries but failed to secure agreement from the United States and Canada. In the EU’s case, certain ’sensitive’ agricultural products were to be excluded, whereas the US sought to leave textiles outside the initiative. Instead, the US stressed its pending legislation that would increase market access for ‘reforming’ countries in Sub-Saharan Africa and the Caribbean, as well as greater technical assistance to LDCs.

Consultations are still going on between the Director-General and WTO Members regarding an LDC ‘package’. A progress report is expected before the Easter break.

Transition Period Extensions Still Uncertain

Deadlines for compliance with several WTO Agreements remain a major concern for most developing countries, whose transition periods for full compliance with the Agreement on Trade-related Intellectual Property Rights (TRIPs), the Agreement on Traderelated Investment Measures (TRIMs) and the Agreement on Customs Evaluation expired on 1 January 2000. Least-developed countries have more flexibility for some of the provisions. Some progress was made at Seattle in addressing these issues, but most of the key demands never came close to being met: the US in particular continued to oppose blanket extensions of the TRIPs and TRIMs deadlines, which it said it would at the most review on a case-by-case basis. In its own draft declaration, the EU proposed a three-year extension of the transition periods of the Agreement on Sanitary and Phytosanitary Measures and the Agreement on Customs Valuation, as well as a two-year extension for the TRIMs Agreement. On TRIPs, the EU proposed accepting developing countries’ right to issue compulsory licenses to drugs on the WHO ’s essential medicines list, consideration of the relationship between the Convention on Biological Diversity and the TRIPs Agreement, and clarifying the effect of TRIPs Article 27.3(b) on the patentability of plants and animals and biological reproduction processes.

At the General Council meeting of 7-8 February, developing countries sought a multilateral agreement on three to five-year extensions, but no decision was reached. LDCs might still obtain some as part of the package currently under preparation, but so far developing countries have only managed to secure a ‘gentlemen’s agreement’ that their non-consistent measures will not be challenged until trading partners have reviewed their individual specific requests (see separate article on page 9).

Consultations will continue on the issue, which will be on the agenda of the next General Council meeting on 3 May.

Other Implementation Issues

Before and during the Ministerial Conference, a great many developing countries resisted the inclusion of any ‘new issues’ to the built-in agenda, at least until an agreement to address imbalances in existing WTO rules and provisions had been secured. These demands were dealt under the loose cluster of ‘implementation’. In addition to the deadline extensions, these included changes to some existing rules and a review of industrialised countries’ implementation of Agreements and provisions in favour of developing countries. The implementation of the Agreement on Textiles and Clothing, as well as the Antidumping Agreement were particular priorities (see Bridges Year 3 No.8, pages 1 and 4).

The Seattle draft Declaration would have created a ‘Special Mechanism’ under the General Council to address the ‘remaining issues relating to the implementation of existing WTO Agreements’. The process was to be completed within a year, and trade ministers were to review the results and take ‘appropriate decisions’ on outstanding issues at the Fourth WTO Ministerial Conference.

Most WTO Members acknowledge that they should address the implementation of existing Agreements ñ beyond the urgent question of deadlines ñ as part of the confidence-building effort, but it is still unclear where and how this should be done. The February 2000 General Council meeting did not discuss the wider implementation problems, but informal consultations are underway between Members on how to tackle the issue in the absence of a ministerial decision. The EU has developed a proposal on the subject, which ñ with the exception of measures aimed at LDCs ñ would leave the most difficult issues to be resolved as part of a wider negotiating round (see excerpts opposite). The General Council is likely to address implementation as a separate agenda item at its meeting on 3 May.

Textiles Concessions Are Unlikely

It was obvious throughout the tortuous Seattle negotiation process that ñ in an election year, with thousands of trade unionists in the streets ñ the US would neither agree to review its slow liberalisation of the textiles sector, nor to address anti-dumping. Briefing the House Means and Ways Committee on the US trade agenda at the WTO, US Trade Representative Charlene Barshefsky said on 8 February that US was meeting its ‘own commitments, of course, in areas such as textiles’. Continued on page 4 The European Union, supported Hungary, Japan, Korea, Switzerland and Turkey offered to apply the stage three phase-in rate as of 1 January 2000 rather than 1 January 2002. Developing countries generally considered the offer insufficient.

Institutional Reform

One of the factors that helped derail the Seattle train was smaller countries’ exasperation at the WTO’s non-transparent ‘consensusbuilding’ procedures. Throughout the preparatory process, many of them complained about semi-official meetings where the majority of Members could not participate. In Seattle, working groups open to all delegations were set up on the clusters under consideration, but ‘green room’ meetings with far fewer participants were held simultaneously and many delegations ñ particularly from Africa and the Caribbean ñ felt that they were once again sidelined from real decision-making. Several Latin American countries and the members of the Organisation of African Unity issued statements warning that unless ‘procedures designed to secure participation and consensus’ were re-established, they would not be able to ‘join the consensus required to meet the objectives of this Ministerial Conference.’

Institutional reform, or internal transparency as it is also known, has been a subject of consultations between the WTO Director- General and Members since Seattle. The issue was not discussed at the February Council meeting, but the Director-General proposed further consultations in March, possibly in an informal Heads-of- Delegation meeting or a special session of the General Council. He also stressed that the ‘principle of consensus’ was ‘not negotiable’.

Although many Members now seem to agree that the negotiation procedures of the Seattle Ministerial were not the main cause of the failure, various approaches for increasing transparency are currently under consideration. The EU has outlined several immediate steps that could improve the preparation and organisation of future ministerial meetings, including advance agreement on the structure of such meetings, as well as a more transparent balance between ‘informal processes and open-ended meetings’. The EU and Japan have also proposed setting up an Eminent Persons Group to consider all possible WTO institutional improvements. The group would then present its recommendations for the consideration of WTO Members.

The EU’s institutional reform paper also contains a number of proposals designed to ‘enhance transparency and consultations with civil society’, such as the establishment of a formal accreditation system for NGOs or opening trade policy review meetings to parliamentarians and NGOs of the country under review. According to trade sources most developing countries are reluctant to discuss the subject. Agriculture

Although agricultural negotiations will get under way 23 March, they are expected to proceed slowly, as the principal targets of the market opening drive ñ the European Union and Japan ñ will have little incentive to make politically-sensitive concessions. In the absence of the precise negotiating mandate that was to have been agreed in Seattle, the negotiations will proceed on the basis of Article 20 of the Agreement on Agriculture, which provides for the continuation of the liberalisation process but contains no precise goals or time frames for achieving the ‘long-term objective of substantial progressive reductions in support and protection’. Sub-paragraph 20(c) allows Members to take into account ‘nontrade’ concerns, as well as special and differential treatment for developing country Members while working towards the goal of a ‘fair and market-oriented agricultural trading system’.

At Seattle, Members came closer to a compromise on agriculture than is generally recognised. The latest draft text recognised developing countries’ right to special and differential treatment, which was to be ‘embodied in the schedules of concessions and commitments and, as appropriate, in the rules and disciplines to be negotiated’ so as to enable developing countries to take into account their development needs, including food security and agricultural and rural development. Paragraph 24 also provided for special attention to be paid to the situation of least-developed, net food-importing and small island developing countries.

The most controversial issues were export subsidies and multifunctionality. Virtuoso wording (paragraph 25(ii)) eventually emerged on the former where negotiations were to address ‘export subsidies, and equivalent action in respect of the subsidy component of other forms of export assistance, in the direction of progressive elimination of export subsidies’. Multi-functionality disappeared from the text, but its key components remained under non-trade concerns, which in the draft text included ‘the need to protect the environment, food security, the economic viability and development of rural areas, and food safety without prejudice to the Agreement on the Application of Sanitary and Phytosanitary Measures’.

Non-trade concerns were a subject of heated debate pre-Seattle and will continue to be contentious once the negotiations start. Developing countries will seek to enlarge the ‘green box’ agricultural subsidies in order to protect food security and rural employment. The EU, Japan, Korea, Switzerland and Norway will defend ‘multifunctionality’ or the roles that agriculture plays in maintaining rural landscapes, employment and the environment. The multifunctionality argument is flatly rejected by the Cairns Group of fifteen developed and developing country agricultural exporters, which argue that eventually trade in agricultural goods must come under the same disciplines as trade in other goods.

In its statement on the EU’s post-Seattle strategy, released on 25 January, the European Commission said that while the EU would ‘participate in good faith in the scheduled negotiations’, it noted that ‘in the absence of a decision at Seattle to launch a new round as a single undertaking, there remains no time frame for the conclusion of these negotiations’. The EU has also made clear that the near-agreement reached in Seattle is now off the table and that negotiations will be pursued only on the mandate contained Article 20 of the Agriculture Agreement.

The US has warned, however, that it might significantly increase its own subsidies if Europe engages in foot-dragging. In addition, the ‘peace clause’ is due to expire in 2003. This Due Restraint Provision, contained in Article 13 of the Agreement on Agriculture, exempts domestic support policies and export subsidy arrangements from dispute settlement challenges. ‘It’s hard for me to see a situation in which the United States would agree to an extension of the peace clause absent a new agreement,’ US special agricultural trade negotiator Peter Scher said on 12 January.

Labour

One issue united developing countries as no other in the pre- Seattle process, as well as at the Ministerial: the determination to keep questions related to labour out of the WTO. While the European Union also sought some sort of a forum to address the trade and labour linkage, it was the United States that clearly had the keenest interest, proposing a WTO working group to look into a number of sensitive questions, including child labour and respect for core labour standards (Bridges Year 3 No.8, page 14). Although US officials were careful to portray the proposed working group as only exploratory, developing countries wanted no part of it.

At Seattle, a working group on trade and labour was convened for less than an hour. The group came to no formal conclusion, but the time was sufficient to confirm that four-fifths of WTO Members were opposed to the establishment of the proposed WTO working group, as well as the joint ILO/WTO forum sought by the EU. Developing countries’ suspicions were further strengthened by President Clinton’s much-quoted comment to a local newspaper in Seattle that he would ultimately support trade sanctions for violations of core labour standards. While US Trade Representative Charlene Barshefsky tried to downplay the significance of the President’s remark, it served as death warrant for introducing labour discussions in the WTO in any form at all.

The US continues to include labour in its wish-list for future talks, but Charlene Barshefsky acknowledged in her testimony before Congress that the US ‘must address more effectively the reasons why many developing countries are suspicious of these discussions’. A proposal from future WTO Director-General Supachai Panitchpakdi could provide a venue for such discussions: he suggested in Seattle the convening of a once-off ’soulsearching’ forum under the auspices of a neutral institution such as the United Nations or UNCTAD. Participants would include high-level government officials, as well as representatives of relevant international organisations such as the WTO or the ILO.

Dispute Settlement

The WTO’s dispute settlement mechanism is another reason why developing countries are wary of taking on additional obligations ñ including environmental ones ñ under WTO Agreements. They see trade sanctions as a very effective weapon in enforcing WTO rulings against their restrictive trade measures because the industrialised countries are their principal export markets. They are, however, acutely aware of their own limited capacity to retaliate with sanctions to violations of WTO rules the by the major players, due to the fact that their markets count only for a fraction of the overall exports of powerful trading nations. In addition, the imports are often necessary for the functioning of the local economy. Faced with this conundrum, Ecuador is currently seeking the right to retaliate in the intellectual property rights sector against the EU’s continued non-implementation of the banana rulings (see separate story on page 6).

Conclusion

In the aftermath of Seattle, most WTO Members agree that confidence-building measures must be undertaken as a priority, although the details are still unclear. Beyond that, the EU and Japan continue to push for the rapid relaunch of a broad-based single undertaking. The United States has also said it wants a round to be launched this year, but has so far shown few signs of flexibility. Developing countries have limited interest in restarting the process. Their immediate concerns focus on the extension of transition periods and establishing a mechanism for the consideration of imbalances in existing WTO Agreements.