Bridges Weekly Trade News Digest • Volume 9 • Number 1 • 19th January 2005

Supachai’s Consultative Board: Non-Discrimination In Trouble

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The World Trade Organisation is threatened by the proliferation of discriminatory trading arrangements that could render it irrelevant, as well as by widespread public misperception about the WTO’s role, benefits, and limitations. These were among the main conclusions of WTO Director-General Supachai Panitchpakdi’s ‘Consultative Board’ (CB), in a report made public on 17 January. The 86-page report entitled ‘The Future of the WTO: Addressing institutional challenges in the new millennium’ also made a series of recommendations for how the functioning of the WTO might be improved, but stopped short of suggesting radical changes to the way the institution operates.

Supachai had convened the group of eight well-known trade experts led by former WTO head Peter Sutherland in June 2003. They were charged with considering the challenges that the WTO would face in coming decades, and to look at ways in which the institution could be made to function more efficiently and transparently. The group’s mandate specifically excluded topics currently under negotiation.

‘Spaghetti bowl’ of discriminatory preferences undermining WTO

The report’s biggest concern was the erosion of the multilateral trading system’s founding principle of non-discrimination. The ever-increasing number of customs unions, common markets, regional and bilateral free trade areas, trade preference schemes, and other trade pacts has meant that "MFN [Most-Favoured Nation status] is no longer the rule; it is almost the exception." The EU, it notes, fully applies its MFN tariffs to only nine trading partners, although these include the world’s other major economies.

This ’spaghetti bowl’ of overlapping preferences not only prevents resources from being directed to where they will be most efficiently used, it imposes significant transaction costs on business — costs that are particularly onerous for developing countries. Furthermore, while some preferential trade agreements (PTAs) may spur liberalisation at the multilateral level, the report says that "the unregulated proliferation of PTAs tends to create vested interests that may make it more difficult to attain meaningful multilateral liberalisation."

Though the report acknowledged that some developing countries might benefit from unilateral trade preferences or regional trade agreements, it was on the whole highly critical of PTAs, particularly recent ones. It described their inclusion of ‘non-trade objectives’ such as "one-sided provisions on intellectual property rights" and labour and environmental standards as attempts to get issues into the WTO "through the side door" since they "cannot be justified at the front door."

The advisory group urged Members to exercise restraint in the pursuit of new preferential trade agreements. They said that PTAs (which are relative to MFN tariffs) could be made insignificant by reducing MFN tariffs and non-tariff measures in multilateral negotiations, and challenged developed country WTO Members to establish a date for eliminating all tariffs.

Proposals for institutional reform; WTO must deliver for LDCs

The CB offered a spirited defence of free trade and the WTO, broadly arguing that they promote growth and combats poverty and do not impede the pursuit of human rights, or of labour and environmental standards. They praised the WTO for providing Members with a "rules-based system with an effective adjudicating process for disputes," and asserted that the "balance between some loss of ‘policy space’ at the national level and the advantages of cooperation and the rule of law at the multilateral level… is already a positive for all WTO Members," a process Sutherland described as "losing sovereignty to gain strength."

Nevertheless, it also said that institutional reform could improve the organisation’s effectiveness and efficiency. The CB’s suggestions included increased formal, high-level participation in Geneva talks by capital-based policy-makers; the creation of a consultative body of senior trade officials to replace the ‘mini-Ministerial’ process; annual meetings of the WTO Ministerial Conference; a requirement that the WTO Director-General regularly report to ministers on trade policy developments; and a ‘WTO Summit of World Leaders’ to be held every five years. Another notable innovation proposed was modifying the process of consensus decision-making that would require a Member seeking to block consensus to specify a "vital national interest" for doing so.

Though it argues that much of the opposition to the WTO is based on misperceptions, the CB said "the moral case for the WTO as a source of good is diminished" if least developed countries (LDCs) "do not receive real benefit from membership." It said that future agreements reached in the WTO "should contain provisions for a contractual right, including the necessary funding arrangements, for LDCs to receive appropriate and adequate technical assistance and capacity building aid as they implement new obligations."

The Board also recommended closer cooperation with intergovernmental organisations, international development agencies and the World Bank, particularly to fund trade policy-related adjustment assistance programmes in developing countries that cannot afford them. It also suggested that Members clarify the Secretariat’s engagement with civil society organisations.

Notably, the CB also proposed opening up dispute settlement panel and Appellate Body hearings to public. And though it saw the dispute settlement mechanism as one of the WTO’s greatest successes, the panel highlighted its failure to deliver for poor countries lacking a credible retaliatory option.

DG, Secretariat should have stronger role; DG should be selected on merit alone

The CB advised Members to clarify the role of the Director-General, suggesting that the head of the WTO should play a more prominent role both in providing ’spiritual’ leadership to the multilateral trading system and as an ‘honest broker’ in WTO negotiations. Their report strongly recommended that Members select Directors-General on the basis of technical competence and experience, rather than on the basis of geographic or political considerations.

The report makes the case for increasing the WTO Secretariat’s budget, so that it can function as "the guardian of the treaties that comprise WTO law" and make a "pre-eminent intellectual input into public and political debate on trade policy matters." The CB believes that it can do so without compromising the negotiating positions of Members.

Future of the report: Supachai hopes for ‘enlightened discussion’

Supachai has stressed that Members are under no obligation to consider the report’s recommendations, but has expressed the hope that it would lead to ‘enlightened discussion’ on the systemic issues that the report addresses.

The report will be presented to Members at an informal meeting on 24 January. Supachai has said that the Members could take up the report informally without affecting the Doha Round negotiations. Members of the Consultative Board will also discuss their report at the WTO Public Symposium from 20-22 April.

In addition to Peter Sutherland, the members of Supachai’s Consultative Board are Columbia University economist Jagdish Bhagwati; former Brazilian Foreign Affairs and Trade Minister Celso Lafer; Georgetown University law professor John Jackson; Yale economics professor Koichi Hamada; Reuters news agency chairman Niall FitzGerald; French Institute of International Relations chairman Thierry de Montbrial; and Kwesi Botchwey, former Ghanaian finance minister and chairman of the African development Policy Ownership Initiative. ‘The Future of the WTO: Addressing institutional challenges in the new millennium’ is available at http://www.wto.org/english/thewto_e/10anniv_e/10anniv_e.htm#future

ICTSD reporting. "Advisory Report Calls for WTO Push to End Tariffs to Counter Trade Preferences Threat," WTO REPORTER, 19 January 2005; "Bilateral trade agreements ‘betraying’ WTO ideals," FINANCIAL TIMES, 18 January 2005; "How to make world trade fairer," FINANCIAL TIMES, 18 January 2005, "WTO ‘wise men’ seek shake up at world trade body," REUTER 17 January 2005.