Trade is an integral and indispensable element for growth and development of any economy. The ability to compete in global markets is a reliable indicator of the sustainability of any economic model.
The multilateral trading system is currently undergoing a difficult period. Progress in the system and in the WTO disciplines is currently hindered by serious impasses, which have not yet been overcome by Members. This paralysis is particularly worrisome in light of the uncertainties faced by international trade and the global economy, which is now on a path of recovery from the 2008 financial crisis and its negative effects.
The work of the WTO is most important in uncertain times, like today. The WTO disciplines are the best defence against protectionism and against the actions that aggravate the situation of the poorest and most vulnerable economies. What we do in the WTO has a direct impact on the quality of millions of lives around the globe, and what we don’t do, also affects them.
The three pillars of the organisation are well known: a) monitoring the implementation of existing agreements in the appropriate subsidiary bodies; b) the dispute settlement mechanism; and c) multilateral negotiations. The third pillar is the one that allows for the evolution of the system, developing new rules and agreements, usually by means of multilateral rounds of negotiations. This is the pillar that gives us more cause for concern, for it has been effectively paralysed since the WTO was created in 1995.
We are approaching two full decades of stagnation on the negotiating front. The system must be updated or it will soon become incapable of dealing with the demands of today’s changed world.
I believe that this is the right time to do that. First we must try to achieve a successful negotiated outcome for the 9th Ministerial Conference, in Bali. Besides the very tangible material gains from the “early harvest,” that success would boost our confidence that we at the WTO can still talk to each other and that we can do it in a constructive and productive way.
Second, we all need to believe that any Bali outcomes will not be the end of the road. We must still find a solution to the Doha Development Agenda (DDA) and a number of relevant and pressing non-DDA issues must be examined by WTO members. A post-Bali process must, however, prioritise the issues of interest to the poorest countries. We cannot throw away the development agenda that was strenuously negotiated to ensure delivery to the poorest and most vulnerable members of this organisation. We can’t turn the page and leave them behind.
The multilateral trading system must work for all, and even the smallest must be part of its driving force.
When the Marrakesh Agreement Establishing the WTO was adopted, four plurilateral agreements were appended as Annex 4 to the WTO Agreement. Two of them - the agreements on trade in civil aircraft and government procurement - remain in force today. The other two were terminated in 1997. Already in 1996, 29 participants at the Singapore Ministerial Conference adopted the Information Technology Agreement (ITA - today, the number of participants has increased to 70).
Thus, the plurilateral approach is not new, and should not be ruled out a priori as a legitimate and effective approach to deepening commitments within the framework of the WTO. The increase in participation in the ITA is proof that such agreements can work as true “building blocks” in the effort to increase liberalisation at the multilateral level, and points to what, in my view, is the right direction for such enterprises: plurilateral agreements should not be discriminatory, should be open to participation by the entire membership, and should be sufficiently transparent to enable Members to assess the benefits of joining them.
Now, this does not mean that the WTO should become - as one author has put it - a “house of plurilaterals.” Plurilateral agreements tend to be less reflective of the priorities of smaller economies. Moreover, they are generally not capable of disciplining matters that can only be satisfactorily addressed when most or all players are involved. In short, plurilateral agreements and the multilateral trading system can effectively work in mutually supportive ways, but the first could be inefficient - or even detrimental in some cases - without the latter.
An illustration may be helpful in this regard. Take, for instance, one of the plurilaterals currently in force - the Agreement on Trade in Civil Aircraft (ATCA). While this agreement has been effective in eliminating customs tariffs for civil aircraft and their components, international friction in this sector has long moved to the subsidies area - an area that is much more effectively disciplined under the multilateral Agreement on Subsidies and Countervailing Measures (SCM Agreement).
Thus, in the late 1990’s, Brazil - which is not party to the plurilateral ATCA - and Canada challenged each other’s measures, in the WTO, in the field of export credits for civil aircraft. The disputes were adjudicated in light of the rules of the SCM Agreement. The matter was definitely resolved after Brazil was invited by key OECD members to participate fully in the review of its Aircraft Sector Understanding on export credits, a negotiation which I led on the Brazilian side, and that was successfully concluded in 2007. Although this sectoral arrangement in the OECD - of which Brazil now fully participates - may be regarded as a sort of “plurilateral” agreement, the existence of effective multilateral rules, embodied in the SCM Agreement, was essential for a satisfactory resolution of the matter.
Today, two major disputes are going on over production subsidies granted to the United States’ Boeing and Europe’s Airbus. Although both sides are parties to the plurilateral ATCA, the disputes were brought under the SCM Agreement. It may well be that, in the future, more detailed rules relating to aircraft production subsidies be agreed in a plurilateral framework involving the major aircraft producers, perhaps in the same way as happened with aircraft export credits. In any case, the importance of the multilateral disciplines in the regulation of government intervention in this highly competitive sector is, in my view, of fundamental importance.
I believe that this brief illustration helps to demonstrate the importance of strengthening the multilateral trading system. I think that the number one priority for the WTO should be to deliver results, however modest the first results may be. This would restore a currency of which we have been very much in need - the Members’ ability to trust each other and thereby conclude negotiations.
Preferential Trade Agreements
As regards the relationship between the WTO and regional trade agreements, the usual arguments are known: some regard the regional deals as “stumbling blocks” that, owing to their discriminatory nature, tend to impede rather than facilitate multilateral trade liberalisation; others view regional agreements, more optimistically, as “building blocks” - “islands” of trade liberalisation that might eventually coalesce into a global trade regime.
From a systemic viewpoint, I have no doubt that it is preferable to advance as much as possible on the multilateral front, so that regional or preferential arrangements work as a sort of “residual” category in the process of world trade liberalisation. In terms of market access, for example, a result achieved in the round will be much more significant, for all countries involved, than a result obtained with the conclusion of a regional or plurilateral agreement which benefits only its participants. Moreover, regional arrangements tend to be less efficient economically, not only because of trade discrimination, but also because of the costs incurred by economic operators in face of the need to cope with the multitude of different regulations created under each agreement. These costs may be particularly severe where businesses want to benefit from operating in supply chains connected across the globe, to the point of offsetting the gains originally conceded in terms of market access.
Besides the costs associated with the regulatory complexity and the possible reduction in economic welfare that result when the trade diverting effect of regional agreements exceed their trade creating effect, regional or preferential deals tend to be less balanced as regards the demands of smaller countries. Moreover, such agreements are usually less suitable for the negotiation and adoption of several types of rules and disciplines which are horizontal in nature or which a player will be willing to endorse only if all other relevant players also agree to abide by them.
This does not mean that regional agreements are harmful to the world trading system. These agreements tend to bring material benefits to their participants. Otherwise their number would not have grown so dramatically in the last two decades. Today, I think it is fair to say that practically all WTO Members are somehow involved in the negotiation and implementation of such deals.
However, for the reasons that I mentioned, in comparison with multilateral agreements, preferential and regional arrangements are only a second best option. So how should the WTO deal with this challenge?
As I said in my response to question two regarding plurilateral agreements, I believe the number one priority for the WTO should be to deliver results, however modest the first results may be. This would restore a currency of which we have been very much in need - the Members’ ability to trust each other and thereby conclude multilateral negotiations.
Additionally, Members might also consider reinforcing the roles of the Committee on Regional Trade Agreements and the Committee on Trade and Development, so as to, as a first step, allow for more transparency and information to the WTO membership. On the basis of such information, areas of convergence among the numerous regional agreements might be identified with a view to a possible harmonisation of commitments where commonality is the greatest.
I reiterate what I said to the WTO General Council in my presentation last January: whatever the reasons behind regional trade agreements, I firmly believe that the countries entering those initiatives would gladly negotiate a much broader and more encompassing multilateral deal. What we must do is ensure that the multilateral trading system remains a viable option for trade liberalisation.
I do not share the view that WTO disciplines irremediably constrain the ability of governments to implement sectoral or horizontal national economic policies. In this connection, I tend to agree with Dr. Razeen Sally’s statement, to the effect that the GATT/WTO disciplines are not a substitute for national governance in trade policy, but rather a helpful auxiliary to good national governance. This is because WTO rules are generally not of a prescriptive, one-size-fits-all character. Rather, they reflect rules of conduct that aim at protecting the expectation of individuals and businesses that they will be able to engage in international trade, on a level playing field, while at the same time preserving the ability of governments to promote economic growth and development in a diversity of ways, consistently with their national goals and policies.
Thus, governments can act and intervene in the economy - as they actually do - in ways that are fully consistent with the multilaterally agreed rules.
Of course, governments may also act in ways that, in the view of one or more of its trade partners, are not consistent with the multilateral trade disciplines. However, I believe that the WTO is very well equipped to deal with these situations, through a variety of mechanisms, including a highly successful dispute settlement system.
Any recent shift in the traditional patterns related to trade in agricultural products would be the result of complex structural and circumstantial phenomena. The relative weight of each aspect in this process is difficult to measure, but a definitive conclusion on this topic is not required to define the proper multilateral response. Irrespective of new challenges affecting the supply side in agricultural economics, in many countries restrictions in the supply side for foodstuff remain very relevant, in stark contrast with a generally predictable and open regime for trade in manufactured products. These restrictions do not contribute to solve the supply-side constraints we now face; as a matter of fact, such distortions inhibit bottom-up solutions from appearing in the mid- to long-term for those constraints.
I would not venture into trying to ascertain which, between supply-side and demand-side distortions, would be more burdensome for food production in the next few years. We do know, however, that WTO Members have negotiated for more than ten years new disciplines on market access for agricultural products, export competition and domestic support that, when implemented, will substantially reduce distortions affecting trade in agriculture. Also in the DDA, there are negotiations covering a number of provisions covering food security concerns. From a practical standpoint, therefore, I would - quite literally - go for potentially achievable results: focus on the conclusion of the Doha Round with an ambitious and balanced outcome in agriculture, addressing both the issues of market distortions and food security, which are, by the way, often mutually supportive.
Climate Change, Energy access and security
There are several new - and not-so-new - issues clearly intersecting with trade policy and trade rules that the WTO will have to deal with one way or the other. If Members choose not to discuss and negotiate disciplines about them - and this is an entirely legitimate choice - these issues will be inevitably brought to the dispute settlement system. Some already have.
We very frequently hear that new rules are the solution to new challenges. It may be so in some cases, but in several others the disciplines already in place regulate a new technical, ethical, or social reality aptly. Think of the decision by the Appellate Body in the US Shrimp-Turtle dispute to consider the expression “exhaustible natural resources” in paragraph (g) of Article XX of the GATT 1994 as encompassing sea turtles. It is hard to argue that negotiators of the conservational exception text had turtles in mind, or other environmental considerations present in today’s world back in 1947. The legal text proved to be flexible enough in this and in many other situations.
I am not arguing for passivity with regard to negotiating new rules, but rather pointing out that Members will not always decide to opt for new rules as opposed to innovative approaches to old ones. In any event, it is up for Members to decide what topics they want to talk about. The Director-General does not set the agenda, but rather has the important function of facilitating the discussions among the Members.
That said, one cannot ignore that some new subjects are not going away anytime soon and it will be only natural if Members decide to negotiate rules about their relationship with trade. These subjects are hard-wired in deep-rooted trends, such as consumption patterns, demography, technological limitations, and opportunities. Climate change is one such issue. Finance and energy are other obvious examples.
The question essentially describes one situation where trade and cooperation is particularly beneficial and profitable. Higher prices for minerals and agricultural products are conducive to greater rewards for exporting countries, which will have incentives to increase production and supply. This is how trade is supposed to work and has actually worked in the vast majority of situations where a new balance between demand and supply emerges, irrespective of the type of goods or services involved. There are few natural resources that are so scarce and critical that strategic hoarding may become a generalised, market disruptive practice, thus disturbing the spontaneous adjustment in production, consumption, and prices.
In addition, policies related to the conservation of such resources will not always fall within the range of those governed by the WTO Covered Agreements. While a measure that bans the exportation of a certain mineral may be analysed as a prima facie violation of Article XI:1 of the GATT 1994, a prohibition on the production of the same mineral is, in principle, outside the scope of all WTO disciplines.
The issue for the Membership is therefore to ascertain: first, if widespread market-distorting measures are to be expected in a scenario where consumption of certain natural resources could outstrip supply; and, second, if the nature of these measures would be such that regulation by the WTO is possible - and desirable.
In the event that both questions are answered in the affirmative, and that the measures expected to be employed are not already covered by the rules currently in force (e.g., export duties, quantitative restrictions, exhaustible natural resources, etc.), then the Membership may decide to further discuss the issue and eventually negotiate more detailed disciplines on the subject. It is far from clear, however, that currently permissible trade measures could be applied in such a manner that threatens the effectiveness of the multilateral trading system.
The role of trade in promoting structural economic transformation
The preamble to the Marrakesh Agreement states that Members’ relations “in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services.” The preamble also recognises a 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.” These statements reflect the collective vision of the founding Members of the WTO, and I personally believe in the wisdom of these words.
One of the key messages contained in the preamble is that trade should be conducted with a view to raising standards of living, and the WTO agreements are conceived as a means to achieve that purpose, rather than hamper it. The preamble also reflects the view that participation in the growth of international trade is essential for the economic development of least-developed countries (LDCs).
In my view, the multilateral trading system can help in the economic development of LDCs in at least two ways: first, by providing them with trade opportunities in the form of access to foreign markets and of a regulatory framework that is responsive to their particular needs; second, by coordinating efforts of many partners directed at the provision of technical assistance and capacity building that enables LDCs to benefit more fully from world trade.
As regards trade opportunities, we have to commend the initiative of a number of WTO Members who have been acting unilaterally to provide LDCs with duty-free/quota-free access to their markets.
At the multilateral level proper, however, there is still much to be done, starting with negotiated results that bring us closer to a more open and development friendly multilateral trading system.
With respect to technical assistance and capacity building, for example, there are several initiatives in place. The Integrated Framework for trade-related assistance to LDCs was endorsed by Ministers at the Doha Ministerial Conference in 2001, and the so-called Enhanced Integrated Framework became operational in 2009. The Aid for Trade initiative was launched at the Hong Kong Ministerial Conference in 2005, with the objective of helping LDCs to better integrate themselves into the world economy. In connection with technical assistance, we also have to recognise the exceptional role of the WTO Secretariat in helping LDCs benefit more from other Members’ commitments.
In addition to these efforts in the area of technical assistance, I think that the periodic Trade Policy Reviews could be used by LDCs, on a voluntary basis, so that aid for trade, for example, could be channelled more effectively to priority areas identified by the beneficiaries themselves. This is an initiative that has great potential in the identification of actions that could help in the process of structural economic transformation in LDCs.
These are just a few examples of what I believe the multilateral trading system is doing and can do to support economic development in LDCs. I firmly believe that the next DG should engage in a deep and thorough dialogue with the LDCs, in order to evaluate how the WTO can be more responsive.