RESEARCH AND ANALYSIS

The WTO in Crisis: Five Fundamentals Reconsidered

Joost Pauwelyn, Graduate Institute, Geneva

 
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In times of severe crisis, an institution may want to revisit even its most sacred cows. When it comes to the WTO, five mantras need re-thinking.  This notes presents the issues bluntly so as to provoke discussion.¹

1. “Consensus” decision-making

We know that in the WTO nothing gets decided unless there is “consensus” and that a WTO body “shall be deemed to have decided by consensus … if no Member, present at the meeting when the decision is taken, formally objects” (footnote 1 to the Marrakesh Agreement).  However, should this one factual scenario (no formal objection when the matter comes up for decision) that is said to create a presumption of consensus, be the only way of establishing a consensus? 

In the international standards setting world, consensus is first and foremost a decision-making process “that involves seeking to take into account the views of all parties concerned and to reconcile any conflicting arguments”.²  As such, consensus decision-making is silent on the eventual voting or decision-making rule:  It could be unanimity, unanimity minus one or two, qualified or simple majority.  The ISO/IEC Guide 2, recently relied on in the US – Tuna II (Mexico) dispute³, refers to “general agreement, characterized by the absence of sustained opposition to substantial issues by any important part of the concerned interests”. This severely qualifies the individual veto power of individual participants. When the East African Court of Justice was recently asked what “consensus” means in one of its constituent documents⁴, it referred not to the Oxford English Dictionary but to Wikipedia which, itself, follows a complex consensus-based decision-making process for its web-based entries (without, however, automatic individual veto rights).⁵

Even within the current rule-book (and taking the scenario in footnote 1 above as just one rebuttable presumption⁶ of consensus), could WTO “consensus” decision-making not be re-interpreted as a process that must be inclusive and conciliatory, with the ultimate decision-making rule somewhat left open and tempering individual country vetoes as is done in the ISO/IEC and Wikipedia?  The Chair of a WTO body could then declare a “consensus” even if one or a small minority of countries formally objects.  This would make consensus decision-making in the WTO both easier (no more automatic single country vetoes) and more difficult (an inclusive and conciliatory process must have been followed). 

Crucially, this process should only work for what one could call secondary rulemaking by WTO bodies (pursuant to Articles IX to XII of the Marrakesh Agreement, e.g. on organizational matters, start and conclusion of negotiations, interpretations, waivers or accessions).  When it comes to new agreements or amendments to the WTO treaty (what one could call primary rulemaking), a WTO member can only be bound if it individually agreed and ratified them.  In other words, the WTO should be able to conclude a new agreement by “consensus” (as defined above, without automatic vetoes; the Vienna Convention on the Law of Treaties in Article 9(2) even refers to 2/3 majority as the fall-back rule for conclusion of treaties in international conference).  This new agreement can then, however, only be binding on a particular WTO member if it accepts and ratifies this agreement.  This way a WTO member may not be able to block progress by others, but it cannot be bound either by a new deal against its will.

2. The WTO as a “Member-driven” organization

Another reason the WTO fails to make headway is its distance from the real world.  Too much horse-trading is left in the hands of trade diplomats who regard every inch of market access as a concession that needs reciprocating.

To pinpoint and adequately regulate 21st century trade issues, the WTO needs to more actively engage with other actors.  This has little to do with reaching out to NGOs (a matter on which the WTO is actually doing quite well, if not de jure than at least de facto).  Rather, it has to do with both WTO members and the WTO as an organization establishing better and more direct lines of communication with the private sector, consumer organizations and sector-specific regulators, agencies and administrators (part of the so-called “disaggregated” regulatory state⁷).  This to tap into their expertise and resources and to facilitate adoption and implementation of trade deals.  In services negotiations, for example, “absence of regulators or relevant government departmental representatives from the negotiating table” has been lamented.⁸  In response to the financial crisis, however, the WTO did interact more actively with other actors including banks, regulators and other international organizations.⁹  Unnecessary complexity, resulting from legal line-drawing or classifications by technocrats that may have little to do with how businesses, customs authorities or regulators actually behave may further complicate progress. This type of reaching out should not make deals more difficult (it is not that these non-state actors should have a vote).  It should rather make deals easier and more effective, through collecting the relevant information, sharing tested and failed responses, designing adequate solutions and interactive adoption and continuous monitoring of results.  Ironically, this type of interaction is more developed in standard-setting organizations and transnational regulatory networks who could teach the WTO a few lessons.   

3. The WTO as “hard law” subject to compulsory dispute settlement

The WTO was created at the highpoint of legalization of world politics (mid-1990s), on the (mistaken) assumption that “hard” law, enforced by binding dispute settlement, is necessarily “better” law.  To facilitate agreement and, in some cases, because it is simply the optimal way of addressing an issue (e.g. because the problem is merely one of coordination or enhanced flexibility and adaptation is needed¹⁰), the WTO should consider creating some agreements that are not subject to WTO dispute settlement or even mere guidelines with flexibility for domestic implementation and future adaptation subject to peer review and less adversarial monitoring mechanisms.¹¹  In many cases, the incentive structure to comply with soft or informal law may be greater and more effective than those to comply with hard law.  Many problems in today’s networked knowledge society, where technologies change rapidly and uncertainty prevails, are increasingly difficult to address through the rigidity of traditional treaties and formal dispute settlement.  WTO members have already engaged in this direction, adopting ministerial declarations or guidelines in specialized committees (such as the TBT Committee Principles for the Development of International Standards) or non-binding paragraphs in Accession Working Party Reports.  Although violations of these norms are not enforceable in WTO dispute settlement, WTO panels and the Appellate Body can and have referred to them in the interpretation of the WTO treaty.  They could also be backed-up with Trade Policy Review Mechanism style monitoring with the possible inclusion of non-state actors discussed above.  

4. The WTO as a “single package”

It is a myth that the WTO is a “single package” in the sense that all WTO rules must inherently apply to all WTO members on a take-it-or-leave it basis.  It is true that most of the results of the Uruguay Round were put into a single treaty, but many rules or concessions within this treaty are binding only on some countries (think of schedules of concessions, accession protocols, plurilaterals, S&D provisions or waivers).  In the Uruguay Round, and now also in the Doha Round, negotiators adopted the procedural rule that “nothing is decided until everything is decided” (the true and original meaning of “single package”).  But that says something about when a deal can be closed (only if all elements are agreed upon); not about what is in this deal or which rule will be binding on what country.  As a result, nothing in the WTO prevents variable geometry with different rules applying (or applying differently) to different WTO members.  New agreements are regularly concluded between sub-sets of WTO members outside the WTO (think of regional trade agreements, ACTA, BITs or the Kimberley Scheme on conflict diamonds) and, at times, also within the WTO (such as the ITA or the 2011 Revised Government Procurement Agreement). With a growing membership, the WTO should not close its doors to such agreements on the misguided assumption that all WTO agreements must necessarily be binding on all WTO members.  On the contrary, embracing such agreements within the WTO (pursuant to the consensus decision-making process discussed above) would allow the WTO and non-participants to exercise at least some level of oversight over such “plurilateral” deals. That the parties to the GPA managed to revise the agreement illustrates that reciprocity can be found within a particular issue-area and that cross-issue bargaining (as happened in the Uruguay Round) is not always a necessity.  On the contrary, cross-agreement negotiations and horse-trading may actually make closure more difficult, cement the reciprocal-market-access-concessions mindset criticized above and weaken the quality and long term support for individual agreements.  The WTO does not and should not impose a straight-jacket or one-size-fits-all on all of its members.  The diversity amongst 155 WTO members requires variable geometry, not a single package.  

5. Special and differential treatment for “developing countries”

A final major obstacle in WTO negotiations is, as Susan Schwab put it, the “lumping together of all emerging and developing economies”¹² into one supposedly homogenous group of “developing countries” which need the same “special and differential treatment”.  More than 80 percent of WTO members are “developing countries” (a status obtained in the WTO by self-selection).  Yet, since the creation of the WTO the diversity between them has dramatically increased.  The taboo of opening up the box of “developing countries” is understandable:  Major emerging countries (such as the BRICS) want the group to stick together in order to limit future commitments (more cynically put, they have an incentive to play “elephants hiding behind mice”); smaller developing countries, in turn, fear a break-up of the group as it risks reducing their collective bargaining power.  It makes no sense to expect the same level of engagement and responsibility in the WTO when it comes to, for example, China or Brazil as compared to Burkina Faso, Ecuador or Malaysia.  Rather than creating additional generic categories (such as least developed countries which currently includes Equatorial Guinea, classified by the World Bank as a high income country) a more calibrated, issue- and negotiation-specific approach is needed.  The goal should be to spread responsibilities equitably taking into account differences between countries.  Discrimination is not only treating the same countries differently; it also includes treating different countries the same way.  A similar challenge faces UN climate change negotiations.  In the WTO, novel ways of addressing heterogeneity between WTO members can be found in the Trade Facilitation and NAMA negotiations as well as in the Revised Government Procurement Agreement (Article V).  None of these processes put all developing countries into a single class.  Further sub-divisions and country-specific needs and capacity assessments are the wave of the future.

Notes:

1. For a more nuanced assessment see Joost Pauwelyn, New Trade Politics for the 21st Century, 11 Journal of International Economic Law (2008) 559 and Richard Baldwin, 21st Century Regionalism: Filling the Gap between 21st Century Trade and 20th Century Trade Rules, CEPR Policy Insights No. 56, May 2011, available at http://www.cepr.org/pubs/policyinsights/PolicyInsight56.pdf. Back to text

2. ISO/IEC Guide 2. See also the work of http://www.isealalliance.org/ and G.-P. Callies and P. Zumbansen, Rough Consensus and Running Code (Hart, 2010). Back to text

3. Panel and Appellate Body Report on United States - Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products, WT/DS381/R and AB/R, circulated, respectively, on 15 September 2011 and 16 May 2012. Back to text

4. East African Court of Justice at Arusha, First Instance Division, Application No. 1 of 2008, In the Matter of a Request by the Council of Ministers of the East African Community for an Advisory Opinion, 2009, available at http://www.eacj.org/advisory_opinions.php. Back to text

5. See http://en.wikipedia.org/wiki/Wikipedia:Consensus. Back to text

6. Indeed, even if no WTO member “formally objected” (as referred to in footnote 1 to the Marrakesh Agreement), the preceding process may not have been inclusive and transparent or may not have attempted to reconcile differences so that no genuine “consensus” was reached. Back to text

7. See Informal International Lawmaking, J. Pauwelyn, R. Wessel and J. Wouters (eds.), forthcoming with OUP, 2012. Back to text

8. TheCityUK, After Doha: “Next Generation” Services Negotiations: Current Arguments For a Services-Only Approach, October 2011, p. 2, available at www.thecityuk.com. Back to text

9. See A Berman and J. Pauwelyn, Emergency Action by the WTO Director-General: Global Administrative Law and the WTO's Initial Response to the 2008-09 Financial Crisis, 6 International Organizations Law Review (2009) 499-512. Back to text

10. See Joost Pauwelyn, Optimal Protection of International Law:  Navigating between European Absolutism and American Voluntarism (Cambridge University Press, 2008). Back to text

11. For case studies that may offer inspiration, in a diversity of sectors ranging from health and finance to security and investment, see Informal International Lawmaking: Case Studies (A. Berman, S. Duquet, J. Pauwelyn, R. Wessel & J. Wouters, eds.), TOAEP Academic Publisher, forthcoming 2012. Back to text

12. Susan Schwab, After Doha, Why the Negotiations are Doomed and What We Should do About it (2011) 90 Foreign Affairs 104 at 111.  See also Zoellick, The End of the Third World? Modernizing Multilateralism for a Multipolar World, Woodrow Wilson Center for International Scholars, April 14, 2010. Back to text