Blog
Rules or Engagement?

Alisa DiCaprio

This is Part 1 of a 2-part analysis of the upcoming WTO 8^th Ministerial Conference in December 2011. Part 2 will appear in the November edition of Angle 

Part 1: Rules

There has been much wringing of hands about the expected outcome of the WTO's 8^th Ministerial Conference (MC8) in December. It is likely to be the second Ministerial in a row where no progress will have been made on the Doha Development Agenda. Even the mooted Least Developed Countries (LDC) package—which the LDCs themselves admit will have little impact on trade—is now seen as unlikely to move forward.

While the negotiation process is expected to produce little in the way of deliverables, it has generated two important signals about the changing dynamics of trade governance. The first signal is on rules, the second is on engagement.

The rules signal was generated when negotiators decided to take the so-called Singapore Issues  off the table for the second time. These issues—ranging from trade and investment to competition policy and transparency—were originally tabled at the 1996 Singapore Ministerial and cover topics  new to the WTO. Their rejection reaffirms  the presence of a new division of labour among trade institutions in the international economy. The second signal comes from  the fact that the LDC package is the only issue that achieved any consensus. This is an indication that reliance on special and differential treatment (SDT) as a tool to engage developing countries has produced a governance structure that does not meet their needs.

Though the Round is not over, and the outcome of the MC8 may yet surprise us, it is the trajectory of the negotiating process that offers the most insight into the future of the trade governance regime. Efforts to reorient the world economy to meet the needs of developing countries are occurring at many different levels—the debate over voting weights at the IMF and the rise of the G20 after the financial crisis for example. The process of the WTO negotiations can inform these other efforts and suggest new strategies.

This article looks in depth at the implications of the rules signal for trade governance.  November's Angle article explores the engagement signal, particularly in the context of the LDCs in the WTO system.

Trade governance in the 21st century

In 1944, John Maynard Keynes thought that he had designed a reasonably good institution that could effectively manage the international trading system. While his International Trade Organization never existed as anything more than a Charter, the resilience of the 'provisional' GATT over the next five decades suggested that trade governance was a public good that was in high demand.

The GATT proved to be a flexible arrangement. It progressed from a forum for bilateral tariff negotiations in 1947, to one which treated non-tariff barriers in the 1970s, to one which moved beyond merchandise trade to also cover issues such as services and intellectual property in 1994. Its success and evolution rested on two factors. First, under GATT, contracting parties could choose which rules they applied. Second, in the Uruguay Round, countries that opposed new regulations were willing to accept them in return for other concessions such as more open agricultural markets.

The WTO's evolution has run into more trouble. There has been some progress clarifying and modifying existing rules; for example by including the public health exception in TRIPS in 2001. But it has not been able to introduce negotiation on new topics that go beyond the Uruguay Round Agreements Act. There have been several attempts; on labour rights (in 1996) and on the Singapore Issues (in 1996, 1999, and 2001). But both ultimately failed to gain traction.

This does not mean that progress on new topics in trade governance has halted. Finding the multilateral channel blocked, countries have simply diverted their negotiations into the bilateral sphere. Bilateral trade agreements have established themselves as an alternative mechanism to govern trade on issues that go beyond the WTO's coverage. Because this mechanism has regulatory influence over only parties to the agreement, bilateral regulations do not have the same force (or legitimacy) that similar rules would have if they existed in the WTO.

Today, the bilateral negotiating process functions as an alternative space for designing rules on trade topics the WTO does not cover. But as treatment of these topics becomes increasingly standardized we might expect them to inform future WTO rules, as  trade norms have traditionally been the foundation of trade law.

For developing countries, the question is then, how can they exploit this division of trade governance to promote rules that suit their objectives?

Implications for developing countries

There are three lessons that developing countries can take away from the Doha Round's signal that trade governance is now a joint multilateral-bilateral project.

The first is that even within the WTO's more limited negotiating framework, forward movement needs to be strategic. Developing countries can gain momentum by first focusing efforts on clarification of topics on which there is broad agreement—such as which SDT provisions are mandatory and how to incorporate food security in agricultural commitments. Consolidation is an important gain for developing countries. If other issues are off the table, then political capital and bureaucratic capacity will not be wasted negotiating topics of only peripheral importance.

The second lesson is that the consensus rule should be reconsidered for development reasons. In 1999 and 2003, consensus proved to be an effective tool to stop developed countries from bulldozing through new rules that were not in the interest of developing countries. But today, the Doha negotiation process has made it clear that this rule has also prevented developing countries from moving the WTO in a direction that meets their needs.

The third lesson is that countries should actively pursue bilateral trade agreements. The motivating factor should not be seen as market access, but rather the official articulation of their preferred structure of governance over different trade topics. The EU and the United States both have designed templates with their preferred interpretations of issues such as competition policy and quality standards. There is no reason that developing countries cannot present an alternative structure. We are beginning to see outlines of such an alternative with Asia's agreements, but so far, these have largely articulated preferences through omission of topics—such as the lack of dispute settlement mechanisms—rather than specific institutional design.

As we come up to the MC8 in December, these lessons can inform our perspectives about its outcome. If the lessons here are translated into actions, the WTO's developing member states may yet be able to transform the international trading system to one which meets the spirit of the Doha agenda, if not the actual negotiating objectives.

Alisa DiCaprio is a Research Fellow at UNU-WIDER.

WIDER Angle newsletter
October 2011
ISSN 1238-9544

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