European Union -Developments in EU Trade Policy

CHAPTER 7: THE ROLE OF THE WTO

142.  It has been argued that the inability to conclude a trade round would damage all of the WTO's functions. This is known as the "bicycle theory" on the basis that the Organisation has to move forward to stay upright (QQ 134, 497). Lord Mandelson, Secretary of State for Business, was confident that the WTO would continue to function but cautioned that "many countries' attachment to the WTO, and its machinery too, could be weakened" if the Round did not reach a conclusion (Q 605). Mr Lamy described failure as a "big geopolitical problem" (Q 417).

143.  Several witnesses, including Mr Lamy, Lord Mandelson, as European Commissioner for Trade, Commission staff, and Professor Lehmann also drew parallels between WTO-based trade talks and negotiations on other subjects where consensus would be important, such as climate change and security. They argued that a failure to conclude trade talks would not bode well for talks on these other global problems (QQ 134, 258-259, 417, 422, 456). In particular, Professor Lehmann noted that, compared to these other issues, trade was a "win-win", making the talks "not only an intellectual exercise but an important exercise for the planet" (Q 456).

144.  On the other hand, Professor Higgott suggested that many countries were attaching a decreasing level of importance to the global institutions and that the breakdown of the multilateral talks was a symptom of this (Q 57); we were also told that this change in attitude was a reflection of the governance structures of some of the institutions which did not always reflect countries modern relative strengths (Q 482).[35] Although Professor Higgot's evidence was given to us in June, before the recent financial market bailouts, Mr de Jonquières echoed it when he wrote in October that participants looking to reform the global institutions may not have the time and energy needed to strengthen the WTO (p 11).

145.  Mr Lamy said politicians used the WTO as "insurance policy ... against protectionist surges". He described it as a "member driven organisation", moving at the speed that the members chose (Q 416).

146.  Lord Mandelson, Secretary of State for Business, highlighted the role Mr Lamy had played in the Round: "my admiration for Pascal Lamy knows almost no bounds. His energy, his stamina, his technical grasp and his ability to operate politically amongst so many cross-cutting interests and issues really was remarkably impressive" (Q 594). We endorse the Minister's praise for Mr Lamy, and welcome the Government's support for his decision to seek a second term as Director-General of the WTO.

147.  Ambassador Stephenson, Chair of the WTO Negotiating Group on Market Access, told us that attempts over the past four years to review the WTO decision making process had been avoided while the Round negotiations were live. He felt that a hiatus in the negotiations would be an opportunity to commence a "real debate" (Q 490). With this in mind, we now examine whether the existing approach of a single agreement, resolved by consensus, remains realistic in a WTO of over 150 members.

Consensus

148.  Despite the difficulties involved in reaching a consensus—Dr Balas highlighted this as a key difficulty in the Round (Q 109)—witnesses remained committed to the current decision-making process. Mr Garzotti emphasised this point: "[The WTO] is not like other institutions where you have one dollar one vote, this is one country one vote" (Q 130). He argued that granting all members equal standing and requiring unanimity gave more strength to developing countries than is the case in other organisations (Q 132). The Government described equal voting rights for members as "the great strength" of the WTO (Q 572).

149.  However, while consensus in the decision-making process is the theory, some witnesses suggested that this did not happen in practice. Fairtrade noted that organisations such as the EU could afford to bring "hundreds of specialist negotiators" to talks as opposed to "one or two" from smaller countries. She argued that this meant negotiating power was "completely different" between WTO members (Q 179). During the Ministerial, Mr Lamy held separate meetings of leading trade powers: while an agreement between these parties would have resolved many of the issues on the table, it would probably have created a sense of exclusion amongst smaller nations. However, Mr van Eeckhaute added that Mr Lamy had taken steps to improve the representation of the poorer countries in the informal decision-making groups within the WTO (Q 133).

150.  Ambassador Falconer, Chair of the WTO Negotiating Group on Agriculture, cautioned that the Organisation was at the limit of unanimity and thought that the groupings (outlined in Box 1) might become more solid than in the past (Q 513). Ambassador Mathurin said that having the groups of countries speak as one greatly assisted the negotiating process as they were able to pool responsibility and expertise (QQ 531-533).

151.  Mr Garzotti added that role of the WTO Secretariat and the Director General in negotiations could be strengthened, for example by allowing them to propose compromise texts (Q 130). Mr Lamy highlighted the member-driven process to initiate new proposals as a source of delays to the negotiations, although he did not go as far as suggesting that the WTO should have the right of initiative (Q 419).

152.  Mr Lamy was unequivocal about the advantages of consensus: he told us that developing countries had invested in the WTO not only because of a desire to expand trade but because it was the international organisation where the "decision making and governance system is the most flexible to their interests. We do not have a security council, veto rights which have been inherited from 60 years ago, quotas, voting rights, we do not have to spend five years to transfer 1.5 per cent of voting rights from Belgium to Brazil" (Q 417).

153.  Mr Thomas MP, Under-Secretary of State for Trade and Consumer Affairs, told us that the Government did not have a definitive position on a reform agenda for the WTO, and said that it was an area that they planned to examine, possibly as soon as this autumn. He reported that there had been no debate on this subject between EU Trade Ministers (QQ 572-574).

The single undertaking

154.  At a press conference after the collapse of the Ministerial talks, Mr Lamy drew an analogy between the principle that the talks produce a "single undertaking" and the construction of a cathedral: "First you have the vague idea for a cathedral, then plans for the cathedral, then you have to start adding chapels everywhere. The fundamental reality is that it has become too complex."[36] However, he also made clear that any changes to the principle of the single undertaking should not be made retrospectively to the Doha Declaration, and that this Round should continue under the principle.

155.  Mr Peel stated that the concept of the single undertaking needed revisiting to prevent agreed advances from being lost (p 2). Professor Higgott and Professor Evenett advocated allowing WTO members with particular interests to be allowed to negotiate upon them separately, as long as this was done in a way that allowed other members to join in if they desired, and the usual WTO negotiating principles (e.g. all trading partners are treated equally) were respected (QQ 58-59). Dr Supachai explained that multilateral solutions would always be the first choice but that the "variable geometry" of plurilateral agreements could work better (Q 406). Despite acknowledging the benefits of the plurilateral approach, Ambassador Stephenson, Chair of the WTO Negotiating Group on Market Access, preferred the multilateral approach (QQ 495-496).

156.  Emphasising it was a personal view, Ambassador Gosper, Chair of the WTO General Council, foresaw increased use of "critical mass sectoral agreements", i.e. agreements applying to a particular industry or product which come into force once countries representing an agreed percentage of world trade sign up to them (Q 376).[37] Dr Mendoza concurred (Q 434). Mr Lamy also indicated he would be content with this approach as long as the principle of non-discrimination (i.e. liberalisation is made available to all rather than just the participants in the agreement) was maintained (Q 420).

157.  Dr Balas implied that the EU preferred a single undertaking: he said that the EU was offering agricultural subsidy cuts to be weighed against improvements in industrial tariffs elsewhere (QQ 117-121). Similarly, Mr Thomas MP, Under-Secretary of State for Trade and Consumer Affairs, made it clear that services liberalisation would be balanced with market opening in agriculture and industrial markets (Q 561-563).

Other roles for the WTO

158.  No witnesses suggested radical departures from the WTO's existing role, although several suggested that some of its other functions, away from the facilitation of multilateral negotiations, should be strengthened. These functions are the Dispute Settlement Mechanism (discussed in chapter four) and monitoring individual members' trade policy and regional and bilateral trade agreements made outside the WTO.

159.  Ambassador Falconer, Chair of the WTO Negotiating Group on Agriculture, suggested there was a policy vacuum in international trade and that the Organisation could move to fill this by undertaking more research and peer review work (Q 509). He also argued that the challenge over the next ten years would be how to marry up the contractual set of relationships between states in trade policy, with political relationships in other policies (Q 514). Dr Mendoza expected that the remit of the Organisation would naturally evolve to incorporate these other issues which are beginning to affect trade, including climate change (Q 432). Dr Supachai used the current trend towards measuring carbon footprints as an example of a potential, and controversial, protectionist measure that he expected the WTO to be asked to look at in the future (Q 406).[38] He feared that the need to rely on scientific confirmation and research would make the WTO's role "very complicated" (Q 406). Mr Thomas MP, Under-Secretary of State for Trade and Consumer Affairs, repeated that the Government had not formed a view on changes to the WTO's role or remit (QQ 575-576, 580).

160.  The European Commission made several suggestions about the future of the WTO. Mr Garzotti suggested that the WTO should expand its role in monitoring and promoting transparency in bilateral and regional trade agreements, and that links between the WTO and national parliaments should be strengthened (Q 130). Mr Erixon proposed a similar role. The WTO secretariat already undertook a large amount of research and analysis of trade agreements, but the membership had constrained what it had published. Expansion of this role would only require the members' agreement rather than a significant change to the organisation (QQ 275-277).

161.  Although the focus of WTO members' attention should be on completing the Round, it is not too soon to examine the future of the WTO. While the existing Round should be completed under the current rules, discussions about the Organisation's future should not wait until the end of the Round.

162.  10 countries represent 80% of world trade and 50 countries in excess of 90% which raises the question of why the other 100 WTO members have jointly or severally a veto. The consensual approach to agreement should remain a fundamental tenet of the WTO. It is no longer appropriate however that the Organisation should move at the speed of the slowest or most cautious. We therefore support an extension of the plurilateral approach to negotiations. If groups of WTO members wish to negotiate agreements on particular subjects, within the consensual approach and on terms which they then make open to all WTO members, they should be allowed to do so.

163.  The WTO should also undertake work to promote unilateral liberalisation and encourage members to set applied tariffs at rates below their bound levels. We also support calls for the WTO to strengthen its research and monitoring work with a view to encouraging more liberalisation among members.

164.  WTO members should not underestimate the value of the functions performed by the Organisation outside of the multilateral trade negotiations. We look forward to the Government's work on the role and structure of the WTO and invite them to detail their emerging conclusions in the response to this report.

165.  We welcome the support given to the principle of free trade by the November G20 summit and believe that it bodes well for the future of the WTO. We share Mr Lamy's confidence that the WTO will be supported by its members, but we are concerned that actions members may take, such as the conclusion of unambitious bilateral agreements or increased protectionism, could undermine the Organisation. The WTO is of crucial importance to the wellbeing of the global economy, with a vital role to play in the current financial turmoil, and it must not be allowed to decline. The rule-making function and above all the dispute settlement system must be kept in good health even if traditional multilateral liberalisation is making slow progress.

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35   The July 1944 conference in Bretton Woods led to the creation of the International Monetary Fund, the International Bank for Reconstruction and Development, and the General Agreement on Tariffs and Trade (the forerunner of the WTO). Recent events have led to the promotion of reforms to these organisations. Back

36   Financial Times 31 July 2008 Back

37   An example is the 1997 Information Technology Agreement, which signatories agreed would come into force once WTO members comprising 90% of trade in the products it covered had signed up. Back

38   Dr Supachai gave an example from this debate: he told us that the carbon footprint of flowers imported by air from Africa to Europe was lower than that of flowers grown in heated greenhouses in Europe. Back