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Evaluating the Criticism that the Doha Round lacks Ambition:

Analysis of Doha Round criticism, importance of rapid legal effect to prevent protectionism, trade growth factors, rebuttal to critics, and implications of economic crisis.

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Evaluating the Criticism that the Doha Round lacks Ambition:

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  1. Evaluating the Criticism that the Doha Round lacks Ambition: The need for creative mechanisms to give rapid and universal Legal Effect to the Negotiations Hunter Nottage BIICL Annual WTO Conference Panel 3: The Doha Agenda – Can It Still Deliver Meaningful Results? 21-22 May 2009

  2. PART I: Evaluating the Criticism that the Doha Round is not ambitious Critics of the Doha Round's level of ambition advocate that it simply locks-in liberalisation that has been undertaken voluntarily "Parallel unilateral and regional efforts at liberalization ended up robbing the multilateral process of its raison d'être. By the time the Doha Round resumed in Geneva last summer, little of consequence was even on the table." Aaditya Mattoo and Arvind Subramanian, Foreign Affairs, 88(1), Jan/Feb 2009

  3. Facts supporting the criticism: - World trade has grown at approximately 6% per year despite no further WTO multilateral trade-liberalising treaties since the Uruguay Round ("UR"). - A large proportion of this growth can be attributed to (i) unilateral actions by governments (many have voluntarily reduced tariffs or subsidies below UR bindings and ceilings), and (ii) regional actions through the proliferation of the RTAs (voluntary increases in RTAs from 90 to 400 over 14 years). - In a number of instances the D.Rd. Modalities would not significantly reduce currentlyapplied tariffs or overall currently applied domestic support in agriculture: e.g. currently applied tariffs for BRIC countries would remain unchanged (at 13.5% in agricultural goods) or be reduced by minimal amounts (6.4% to 5.6% in manufactured goods). (Mattoo and Subramanian, 2009) e.g. currently applied levels of domestic support in agriculture provided by the EC and US would remain within the legal bindings of the D.Rd (i.e. EC CAP reforms will shift support to the green box and US applied level of US$8.5billion in 2008 is well below its D.Rd cap of US$14.5 billion). (Bhagwati and Panagariya, 2008) e.g. "My offer to the US is that they should reduce their agricultural subsidies by just one dollar in real terms and we have a deal." (Indian Minister of Commerce and Industry, KamalNath, June 2008)

  4. Rebutting the criticism The criticism loses its cogency in a time of economic crisis where there are real risks of back-tracking to UR tariff bindings and subsidy ceilings "The trend in protection is up" Many Members are facing increased pressure to take protectionist measures. "At the start of this year, most WTO Members appeared to have successfully kept these pressures under control. … Since then, there has been significant slippage. There have been increases in tariffs, new non-tariff measures, financial and stimulus packages [etc.]." Report to the TPRB from the WTO Director-General on the Financial and Economic Crisis, 26 March 2009 (JOB(09)/30) Despite the G20 London Communiqué of April 2009 providing that "we reaffirm the commitment… to refrain from raising new barriers to investment or to trade in goods and services" the World Bank has reported that: - Since the start of the financial crisis several countries, including 17 G20 countries, have implemented 78 measures whose effect is to restrict trade at the expense of other countries (World Bank Monitoring Report, Gamberoni and Newfarmer, March 2009); - Within three weeks of the G20 London Communiqué, Robert Zoellick reported that "9 G20 countries have taken or are considering 23 new protectionist measures" (Reuters, 23 April 2009). According to the World Bank and WTO Reporting these trade-distorting measures include: - Tariff increases (one Member raised tariffs on over 600 items; one acceding Member on used autos) - Export subsidies (one Member has announced new subsidies on butter, cheese and milk powder) - Subsidies to the auto industries (Worldwide, US$48 billion; one Member, US$17.4billion) 

  5. The current trade-restricting measures are arguably all consistent with WTO rules, current Uruguay Round bindings and subsidy ceilings "The current crisis is highlighting the extent to which [WTO] rules and the individual market access schedules of WTO Members provide substantial room for trade restriction and distortion to increase and will continue to do so at least until the Doha Round is concluded." (Pascal Lamy, TPRB Report, March 2009) There are risks that if the recession deepens governments will be placed under increased pressure to apply further protectionist measures "To date most countries have not yet raised tariffs to bound levels or taken full advantage of headroom on agricultural subsidies, however, as the recession deepens, many countries may well do so. … This underscores the importance of pushing forward with a rapid conclusion of the Doha Round." (Gamberoni and Newfarmer, World Bank Monitoring Report, March 2009) As an indication of how far things could deteriorate: It has been estimated that if Members raised their tariffs to bound rates the average applied rate would double and value of world trade would be cut by 8%. (Bouet and Laborde, International Food Policy Research Institute, Issue Brief 56, 2008)

  6. The criticism is based on an incorrect assumption. The current environment of economic crisis risks significant back-tracking on voluntary liberalisation - The legal certainty resulting from a Doha "Legal Consolidation" Round could provide meaningful results to traders. "Since the crisis makes backsliding a real possibility, a Doha deal that locks-in nations' unilateral liberalisation achievements looks like a much more worthwhile achievement." (Evenett and Baldwin, What World Leaders Must Do to Halt the Spread of Protectionism, CEPR, 2008) "The dispute settlement system … is a central element in providing security and predictability to the multilateral trading system" (Article 3.2, DSU) THEREFORE: There are potentially significant benefits to a Doha "Legal Consolidation" Round. HOWEVER: The benefits provided by legal security are only relevant if the results of the negotiations are rapidly transformed into legal commitments enforceable through the WTO Dispute settlement system. CHALLENGE: How to give rapid and universal legal effect to the results of the Doha Round negotiations?

  7. PART II: The challenge of giving rapid and universal legal effect to the results of the Doha Round negotiations • Under WTO law, there are four methods of giving legal effect to the results of trade negotiations: • Amendments • Modifications of Schedules • Decisions of the Ministerial Conference • Reference Rules incorporated into Schedules • Any creation of WTO law will have to operate within this legal framework. • See: Nottage and Sebastian, Giving Legal Effects to the Results of WTO Trade Negotiations, JIEL 9(4) • At least some of the results of the Doha Negotiations will require an amendment to the WTO agreements pursuant to Article X of the WTO Agreement. • e.g. a new Agreement on Trade Facilitation; revisions to the boxes in the Agreement on Agriculture; revisions to the Anti-Dumping Agreement in the context of the Rules negotiations. • Unfortunately, it will be difficult to give rapid and universal legal effect to the results of the trade negotiations through the current Article X amendment procedures.

  8. The Limits of the WTO Amendment Procedures • The first major limitation of WTO amendment procedures is that they are highly likely to result in considerable delays before the results of negotiations become legally enforceable. • Even if all Members agree to an amendment incorporating the results of trade negotiations, Article X:7 of the WTO Agreement provides that amendments only take legal effect once two-thirds, and in certain instances all, Members have deposited formal instruments of acceptance with the DG. • This formal deposit requirement, which for many Members requires ratification by their domestic legislature, runs the real risk of considerable delays before the results of negotiations will have legal effect. • For example, the only amendment to be given legal effect in the last 40 years, the addition of Part IV on Trade and Development to the GATT 1947, took over 13 years before it was universally accepted. • More recently, it is alarming to note that over three years after Members unanimously agreed to the General Council decision to amend the TRIPS Agreement to include Article 31bisonly 21 Members, have deposited instruments of acceptance.

  9. The second major limitation of the WTO amendment procedures is the risk of creating an unintended two-tier system of obligations between WTO Members • Article X:3 of the WTO Agreement, the paragraph that would govern the majority of amendments, provides that: "Amendments… shall take effect for Members that have accepted them upon acceptance by two thirds of the Members and thereafter for each other Member upon acceptance by it. …". • Thus amendments only bind Members that have formally deposited instruments of acceptance. (Article 40.4 of the VCLT similarly provides that an amendment to a multilateral treaty"does not bind any State already a party to the multilateral treaty, which does not become a party to the amendment".) • Hence, amendments risk creating an unintended two-tier sytem of obligations in WTO law between depositing and non-depositing Members. A situation that is more or less inevitable as there will always be delays in the deposit of instruments of acceptance. • Awareness that amendments may result in two-tiers of obligations among Members is not new. A GATT Secretariat note from 1954 recognising that amendments entail: "some risk that there may be an indefinite period during which two-thirds or more of the contracting parties will be governed by the new set of rules and the others by the old."

  10. The third limitation of WTO amendment procedures is the risk of free-riders in a system where the MFN principle pervades • Members that have accepted an amendment must accord to the goods, services and service suppliers of all Members the treatment required by that amendment (pursuant to the GATT and the GATS MFN clauses). • They must accord the increased commitments of the Doha Round on a MFN basis, including to Members that have not yet deposited instruments of acceptance of, and are not legally bound by, the amendment. • In this way, the combination of the MFN principle and the WTO amendment rules creates the real possibility for Members to delay the acceptance of the amendment and free-ride on the economic benefits of the Round.

  11. HOWEVER: Amendments can be used to give rapid and universal legal effect to the results of trade negotiations if accompanied by similarly rapid and universal deposit of instruments of acceptance. • The Challenge and Question: What mechanism will create the incentive for Members to quickly and universally ratify a Doha Round amendment? • The participants in the Uruguay Round were confronted with the same question as they also wanted to use amendments to give rapid and universal effect to a single undertaking. The solution they devised was a radical one - replacing the GATT 1947 and the Tokyo Round Agreements with the WTO Agreement. (Which in turn involved replacing the GATT as an institution with the WTO) • This replacement forced participants to rapidly and universally accept the results of the Uruguay Round as the consequences of not doing so would have been to be left outside the multilateral trading system altogether. • At the moment, repeating this "nuclear option" (Bill Davey) and replacing the current WTO agreements with a new agreement (incorporating the existing agreements and the results of future trade negotiations) as well as the replacement of the WTO with a new organisation (the WTO Mark II) does not appear to be under serious consideration.

  12. Other options: - Use scheduling as much as possible. - Create a MFN waiver for those Members that have deposited instruments accepting the amendment. Key message:  - Rapid and universal methods of changing WTO law are limited. Creative methods will need to be considered if the full benefits of the Doha Round, as a legal security against protectionist roll-backs, are to be realised.

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