The Uphill Battle at WTO Continues

Published: The Financial Express, October 21, 2002

The News, October 27, 2002

By Pradeep S Mehta

“We will face an uphill battle at Cancun if we do not grapple successfully with the intermediate deadlines”, said a worried WTO chief, Dr Supachai Panitchpakdi at the first meeting of the Trade Negotiations that he chaired at Geneva on October 3.

Over the next three months, WTO members will be grappling with various deadlines agreed at Doha which have to be completed before end-December. These are matters relating to Implementation, Special and Differential Treatment (SDTs) and Clarity on the capability of poor countries to import medicines where they do not have a local manufacturing capacity. Supachai warned them that there are further new deadlines to be dealt with in the next year, as all these will have to be sorted well in time for the Cancun ministerial in September, following which, an overall deadline for completing the Doha round by end 2004 will loom.

As I wrote in the last column (September 23), Supachai has an uphill task as the chairman of the crucial trade negotiations committee, and will need all his diplomacy and skills to get countries to agree to a highly contentious agenda. Already, we saw the US reneging on promises in these two reform areas. Many countries also employ similar delaying tactics on other important issues. For example, on SDTs for developing countries, many believe that these are useless crutches. It is another matter that the rich are already enjoying enforceable SDTs in their favour in the area of textiles and agriculture. After all, it was the promise of SDTs that the poor countries made onerous commitments in the URA; if they are not made enforceable, they will hardly support any expansion in the WTO agenda.

Many agree that Supachai is more adept at handling the sensitive issues at the WTO than his predecessor, but his task is much more difficult than Moore’s. While Moore was lucky that he was able to get the Doha round launched before he left, for Supachai to be able to wrap up the same before he leaves after a three-year term is extremely suspect, because some of the issues in the Doha agenda can cause delays, which will beat even the seven-year URA ‘itch’.

‘We will face an uphill battle at Cancun if we do not grapple successfully with the intermediate deadlines’ — Dr Supachai Panitchpakdi

For example, let’s take the issue of an investment agreement at the WTO. “It’s all or nothing” seems to be the US’ attitude toward the controversial issue of negotiations of an international investment agreement at the World Trade Organisation (WTO).

Recently, the US stated at the WTO Working Group on the Relationship between Trade and Investment that it will not be interested in a WTO investment agreement unless it covers not only foreign direct investment but also portfolio investment and pre-establishment commitments. Its experience, “based on negotiation of more than 40 bilateral investment treaties (BITs), the NAFTA, and the ongoing

FTAA and bilateral FTAs with Chile and Singapore, is that a broad, open-ended definition is necessary to maximise the benefits of investment liberalisation and protection”. This, of course, follows the general US approach adopted in its bilateral approaches to investment.

Investment negotiations at the WTO is already a controversial issue, even without such bold moves from the US. China immediately countered the US that this will not be acceptable. It was supported by other developing countries, including India and Malaysia. Many of them feel that the WTO is supposed to be about trade, but is turning into a forum for negotiations on just about anything. Secondly, many developing countries believe that an investment agreement at any forum will hold little benefit for them.

The US knew that its bold proposal was going to cause some countries to dig their heels in resisting WTO negotiations. So what explains this step by the US? Possibly, part of the explanation may lie in the fact that the US, unlike the EU, was never really a demandeur of WTO investment negotiations. It had already burnt its hands in the aborted OECD Multilateral Agreement on Invest-ment (MAI) negotiations and has been successfully promoting investment protection its own way, through BITs and NAFTA. Hence the US finds itself well served by its makeshift international investment framework, and may not have much more to gain from WTO talks. Hence, it can afford to ask for a wide and inclusive definition of investment, risking putting some countries off the idea of negotiating altogether.

For those critical towards investment negotiations, the US’ move could, in fact, prove to be a lifeline. Unless the US has its way, it is not interested in negotiations. If the US does have its way on the scope of investment, negotiations are likely to be stalled by those that have already protested against a wide definition of investment. Hence, a step away from the negotiations threat, towards a stalemate on the issue, has just been taken.

On the other hand, a multilateral competition policy is much less controversial and increasingly demanded by the poor countries. In an increasingly interdependent world, business malpractices across borders has been growing at a rapid pace.

Developing countries are not in a position to regulate or even penalise them. Thus there is a better case for drafting an international agreement on competition. For example, on the issue of cooperation in cartel investigations, many developing countries have privately supported Thailand’s proposal for mandatory cooperation. This is a difficult issue, but perhaps the US, which could be the toughest cookie, could find ways to cooperate with lesser minions.

The only fear is whether the WTO is the place to host it at, or would another international body like Interpol be a better forum? After all, many restrictive business practices, such as collusion and price-fixing, are of a criminal nature. The WTO appears less sexy because developing countries feel that the system is inequitable and the existing agenda quite onerous. This is a valid argument, but can be resolved if other reforms are addressed.

Thus, reforms at the WTO have to be pioneered through resolution of the issues of implementation and SDTs, which are at the core of a world trading system where every member is at different levels of development. If these reforms are not delivered honestly, Cancun may end up as another Seattle. That will be bad for both the trading system and the poor, who are trying their best to integrate into the world economic system.

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