WTO NEWS: SPEECHES — DG PASCAL LAMY

Monitoring and Surveillance: The Rising Agenda of the WTO

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Good evening ladies and gentlemen,

I am happy and honoured to be at Georgetown University Law Center tonight and pleased that Professor Jackson invited me to exchange views with you on trade issues. This is quite a treat for me and I would like to thank Professor Jackson and Dean Aleinikoff for this unique opportunity.

Today I would like to share with you what is happening in an area of work in the World Trade Organisation that may not necessarily be on your radar screens.

In the media and in the literature, much attention is given to WTO negotiations and to WTO disputes. But very little, if anything, is said about the actions between these two activities, that is the WTO mandate to ensure voluntary implementation of the Agreements by Members.

The theory of the separation of state powers as enounced by Montesquieu identified a legislative, an executive and a judiciary powers. In international relations and within international organizations, this division is less pertinent, since the main actors remain the Westphalian nations-states. This is especially true with respect to the so-called “executive functions”, which would deal with the implementation of the rules negotiated by some form of a “legislative”.

Within the concept of separation of powers, “monitoring and surveillance” would be found somewhere between the executive and the judiciary. In the WTO, this results in a sui generis mix of individual and collective actions — occasionally assisted by the Secretariat — aimed at exploring, understanding, discussing and influencing Members' implementation of their negotiated obligations. The WTO monitoring and surveillance function has been expanding and, in my view, will continue to do so as WTO obligations are deeper and deeper in scope and complexity. Today, this activity absorbs around half of the WTO Secretariat resources and of its wealth of knowledge and technical expertise.

On a more personal level, I am convinced that this is one of the areas where the WTO can contribute to harnessing globalization: the WTO offers forums where States can discuss and explore how best to operationalize the positive dimensions of market opening on the one hand, and the need for measures that translate the results of negotiations into real benefits for all Members, their economic operators and their people, on the other.

So tonight, I propose first to discuss what I mean by “surveillance and monitoring”, in the WTO. Then, I will provide you with a brief overview of the existing monitoring and surveillance mechanisms in the Organization, especially the ones resulting from the Uruguay Round. Finally, I will address the additional monitoring mechanisms currently under consideration by WTO Members in the on-going Doha Round. I will conclude with a few comments on why and how I believe that expanding this activity in the WTO could improve international trade relations.


What do I mean by monitoring and surveillance in the WTO?

Multilateral trade negotiations, as you all know, are difficult and tend to be quite long. Once negotiations are completed, real work begins for Members to implement the agreed obligations. What would be the purpose of negotiating detailed trade rules, if they were not implemented? It is in this context that the so-called “monitoring and surveillance” comes into play.

The terms monitoring and surveillance cover a continuum of actions. On one end of the spectrum we have voluntary or binding transparency and notification obligations. On the other end we have actions undertaken by Members to ensure implementation of WTO a commitment, short of initiating a dispute.


Active Transparency in the WTO

Let's look at the traditional mechanisms of what I would call “active transparency” in the WTO.

I would like to start with GATT/WTO notifications and publications.

Transparency is one of the main pillars of the multilateral trading system and pervades all actions related to implementation. Transparency between Members has always been a basic GATT obligation. The old GATT contained multiple notification, publication and transparency requirements, both at the national or domestic level — what at home we would call “publication”, and at the WTO we call “notifications”.

The basic provision on transparency and publication is contained in Article X of GATT. It calls for Members to publish promptly in a domestic accessible Gazette any measures (laws, regulations, judicial decisions, etc.) relating to GATT matters, as well as any agreements affecting international trade policy. The purpose of this provision is to allow governments and trading entities to become familiar with those laws and regulations.

Members are also required to notify all laws and regulations of general application concerned with WTO matters. This includes all actions and measures covered by the WTO provisions. Since the Tokyo Round, there has been an obligation to notify specific measures affecting the operation of the GATT. The WTO has multiplied notification obligations to add specific requirements pursuant to some of the new WTO agreements. Only in the area of trade in goods, there are currently more than 175 notification requirements!

Since the advent of the WTO, there are also cross-notifications, whereby a Member notifies the WTO of a measure not notified by another Member. This process ensures further transparency and forces the originating Member to justify its position regarding such cross-notified measure.

Following the WTO Decision of 2002 Destricting access to WTO documents, and with the help of modern technology, essentially all notifications by WTO members are now accessible on the WTO website. This is important as it is often the private operators, not the governments themselves, who will be most affected by the proposed or enacted measures that are notified.

But publishing measures domestically and notifying them to the WTO may not be sufficient to ensure full transparency. Full transparency also requires an understanding of what is being notified. And this is where our unique system of “peer review” in committees and other bodies comes into play. This is what I call “active transparency”.

Traditionally in the GATT, and still today in the WTO, monitoring and surveillance takes place in standing committees, through reviews of notifications, questions, examination of individual policies against the relevant WTO Agreements, and other procedures of control. Generally, the right of Members to request information, necessary for any monitoring, flows from the obligation of domestic publication and of WTO notification. Some agreements, such as the one relating to Technical Barriers to Trade (TBT), the Agreement on Sanitary and Phytosanitary Measures (SPS), the Agreement on Trade-Related-Investment Measures (TRIMS) or the General Agreement on Trade in Services (GATS), also contain obligations on Members to maintain “enquiry points”, where any Member can request information on any trade-related law, regulation or measure in place domestically.

Let's take the example of the TBT Committee. Since 1995, more than 8,000 TBT notifications have been submitted to the TBT Committee. At each TBT Committee meeting, a substantial amount of time is spent discussing specific trade concerns — in most cases relating to measures that have been notified. Typically, the most common concerns raised by Members relate to whether the design or application of the measure creates an unnecessary barrier to trade, the need for more clarification about the legitimate objective of the measure and the use of international standards.

Let me give you an example. In March 2004 and then again in August 2006, Switzerland notified a draft ordinance on measures to reduce particle emissions from diesel engines. The European Communities, supported by the United States, raised concerns about these measures, in particular with respect to their trade restrictiveness and the need for Switzerland to comply with existing international standards. The discussions lasted over several TBT meetings. At the last meeting of the TBT Committee, in July 2007, Switzerland informed the Committee that, further to the comments received by WTO Members, the Swiss authorities had decided not to proceed with the introduction of the above mentioned draft ordinance. Switzerland will instead be introducing emission limit values of the European Union's standards.

The monitoring and surveillance of the Committee on Sanitary and Phytosanitary Measures — the SPS Committee — also examines thousands of such measures.

For example at the SPS Committee meeting in October 2005, Sri Lanka reported that they could no longer export cinnamon to a number of EU Members States, and in particular Germany, which applied a specific legislation limiting residues of sulphur dioxide in cinnamon. Although the Codex Alimentarius — which is world's standardizing body for food safety — had standards for sulphur dioxide in other spices, it did not have a specific one for cinnamon. Given the huge impact of such a measures for Sri Lankan exports, and subsequent to the SPS meeting, the EC agreed to help Sri Lanka pursue this issue at the European level. At the same time, Sri Lanka was encouraged to seek a specific Codex standard for sulphur dioxide in cinnamon. At the SPS meeting in October 2006, Sri Lanka reported that the problem with access to the EC market had been resolved, and that the Codex had adopted an international standard for sulphur dioxide in cinnamon in July 2006.

If I have mentioned these examples is to show just how these “active transparency” through our committees allow Members to review and “dissect” the notifications and monitor whether negotiated rules are actually and effectively implemented. It is clear that in many of these cases, it is unlikely that a number of developing countries would have been in a position to litigate many of such measures. However, exposing these measures to the public and collective scrutiny within the Committees creates pressure to resolve differences.


A special mechanism : the Trade Policy Review Mechanism

One of the success stories of the Uruguay Round was the establishment of a new Trade Policy Review Mechanism. It involves periodic reviews of trade and trade-related policies, practices and measures of each WTO Member. The reviews take place in the Trade Policy Review Body (TPRB), which is composed of representatives of all WTO Members. The largest trading entities — the United States, the European Communities, China and Japan — are reviewed every two years; the next 16 trading partners are reviewed every four years; the remainder of the Members are reviewed every six years, although a longer period may be allowed for least-developed countries. Each review is based on a report prepared by the Member under review and on a report drawn up by the WTO Secretariat on its own responsibility. Both reports are published by the WTO.

The objective of this exercise is to achieve greater transparency in, and understanding of, Members' trade policies, practices and measures. It allows for the evaluation of trade and related policies and measures, including those that do not necessarily contravene, or indeed may not even be subject to, WTO obligations. WTO Members value the “non-confrontational” nature of the Trade Policy Reviews. The depth and quality of the WTO Secretariat analysis is increasingly praised by our Members. Many other international organizations are now exploring the possibility of developing their own “policy review mechanism”, based on this experience.

As you can see, the WTO has today a strong monitoring agenda, which will only expand in the future, as evidenced by the state of the on-going negotiations under the Doha Development Round. Pending the conclusion of the Round, a number of monitoring mechanisms are already functioning provisionally, such as the one relating to Regional Trade Agreements (RTAs). Many others are being currently discussed in the context of the Doha Round.


Monitoring and Surveillance in the Doha Round

In December last year WTO Members adopted, on a trial basis, a decision setting up a mechanism to enhance the transparency of Regional Trade Agreements (RTAs), to which I have just referred.
This Decision seeks to strengthen the WTO scrutiny of RTAs, from the moment they are entered into, to the final version agreed, as well any subsequent amendments. All RTAs notified to the WTO, including those entered into between developing countries, are subject to the provisions laid out in this transparency mechanism. The Decision charges the WTO Secretariat with the preparation of factual presentations of RTAs notified to the WTO, both on goods and services. The factual presentation, which contains the legal provisions of the agreement and also an analysis of the trade opening that is to take place between the parties, provides the basis for discussions in the relevant WTO Committees. The Secretariat has, thus far, completed 10 such factual presentations, while 51 remain to be completed. It aims not only to help Members better understand the content of the RTAs but also, in the longer run, to address some of the systemic issues they are trying to address in the negotiations.

Let me also mention two monitoring mechanisms on specific development issues which are part of the Doha Round.

The first one concerns the duty-free-quota-free (DFQF) market access for the world Least Developed Countries. Since this decision was taken at the WTO Ministerial Conference in Hong Kong in December 2005, the steps taken by Members to implement it have been the object of scrutiny at the Committee on Trade and Development. Members have reviewed the implementation of, as well as the steps being taken to implement, the decision to grant DFQF access to LDCs exports. Regular reports are given by countries on measures they are taking to implement the decision. This has allowed us to see clearly who has done what and what remains to be done.

Thanks to this transparency mechanism, we know that to date, Japan has implemented the decision by extending DFQF for 98 per cent of LDC exports at the tariff-line level. In addition, there are a number of other Members whose DFQF market access for LDCs already meets the requirement set out at in Hong Kong, that is they already provide DFQF market access for at least 97% of LDC exports at the tariff line level. These include, among others Switzerland, Canada, Norway, New Zealand and the EC. Among the developing countries, Brazil, China, India and Korea have also informed Members that they are working towards expanding the provision of DFQF market access to LDCs.

The second one concerns a mechanism being discussed to monitor the implementation and effectiveness of the Special and Differential provisions agreed in favour of developing countries. In July 2002 Members agreed to establish a Monitoring Mechanism on S&D. For the past year and a half, Members have been considering the possible elements of such a Monitoring Mechanism, i.e. its function, structure and terms of reference. This mechanism would allow a better evaluation of the effectiveness of the provisions in WTO agreements adopted to address specific needs of developing countries.

Finally, also in the ongoing Doha negotiations, two additional monitoring mechanisms are being discussed. One in the area of agriculture, sponsored by the Cairns Group and the G-20, and aimed at enhancing the existing notification and review procedures of agriculture subsidies. But why would we need to strengthen these procedures you may well ask? Because some of the world's biggest subsidizers have not respected existing notification requirements, notifying several years after they were supposed to. This has itself complicated the Doha negotiations, where some members have been uncertain as to how much subsidy reduction to ask of their trading partners, given the limited information on current spending. So the new proposal tries to create greater “incentives” to notify, and to do so on time, for a change! The second monitoring mechanism is in the area of the non-tariff barriers in the field of industrial products where proposals have also been tabled to improve the tracking of NTBs.


Monitoring and Evaluation Mechanism for Aid for Trade

In an area which is outside the scope of the Doha Round, but on which the WTO has been given a specific mandate to work, Aid for Trade, monitoring and evaluation also figures prominently. The challenge here is to use these instruments to ensure a better mainstreaming of trade in the development strategies of developing countries, while ensuring adequate and coordinated provision of funding by donors.


Great potential but also shortcomings

There is no doubt that monitoring and surveillance is one of the most intense areas of work in WTO, holding great potential for improvement. I would nevertheless want to share with you that a number of challenges that we face to fully implement these mechanisms, including basic issues such as compliance with notification obligations.
WTO rules establish notification obligations for Members but, what happens when a Member refuses to notify or does not notify adequately?

It is surprising how much time is devoted to negotiating new obligations, including notification obligations, and yet too often Members simply do not comply with their notification obligations. And very often this is not due to limited capacity. For example, the EC and the US had until very recently a backlog in notifications of agriculture subsidies dating from 2001. It is clear that with negotiations on-going to reduce the level of trade-distorting subsidies in rich countries, having this information available would be essential to understand the value of the figures being discussed. At times Members simply don't notify and wait to be sued but another Member. But again, in order to initiate a dispute, one needs to know what is happening!

Even when a Member does notify, it may take quite some time to verify if the notification is accurate. What can be done about this? In order to respond to such problems, some agreements — such as the Subsidies Agreement — foresees the possibility of cross-notifications, that is, a notification by a Member of a measure not notified by the Member concerned. But cross-notifications also require a certain level of knowledge!

Many ideas have been floated to deal with these situations, such as, for example, the reversal of the burden of proof against the Member at fault. For example, in case of a dispute relating to excessive trade-distorting subsidies granted by a Members who has failed to notify its level of subsidies, it could be for the subsidizing member — and not for the complainant — to bear the burden of proving that its subsidies are WTO consistent. Another idea floated would call for the Secretariat to submit notifications based on best information available for discussion among Members and eventually for a rebuttal by the Member concerned. Another suggestion would prohibit Members from taking certain actions in the absence of notifications.

The problem is even more complex, when publication requirements are concerned with generic actions such as the obligation to publish domestically “any action that can affect trade”. Some say that we need to find “incentives” for Members to do so. Maybe a “reward” or a “candy” for those who provide information voluntarily could be envisaged, perhaps in the form of an extended period of implementation. Perhaps also by providing additional technical cooperation for those who inform the Committee early on of the unsuccessful efforts undertaken to comply. Should we put in place a system whereby the Secretariat would ring bells when notifications are delayed? Should we set up a system of “good points” reflected in the Secretariat section of the Trade Policy Review Mechanism report? Should there be a third party responsible for policing the filing of notifications? Maybe a designated Member, the Secretariat or a third party? Bright ideas are welcome !

There are also important practical and logistical problems with the number of notifications. With less than full notification by all Members, the information flow is simply not manageable for many of our Members, especially those with limited administrative resources. The problem is further compounded by the fact that some notifications are still not fully in electronic form. More than a decade after the WTO agreements came into effect, there are areas where there is still no electronic submission of notifications, existing databases are limited or are just beginning to be established.

The WTO notification process is very labour-intensive for Members — despite the Secretariat's efforts to assist in building capacity in many of our Members. In the early days of the WTO a working group on notifications was created to try to identify overlaps in notification requirements and discussed how notifications could be streamlined. A good deal of progress has been made soon but with monitoring and surveillance coming high on the agenda of this Round too, we may soon need to conduct a new review to determine whether the enormous amount of accumulated information is fulfilling its purpose of allowing for effective surveillance, under resource constraints of the Members and the Secretariat.

In addition to quantity, the quality and comprehensiveness of notifications vary widely from agreement to agreement, also with much unevenness between Members. So these notifications need to be “reviewed” and since “reviews of notifications” is left to Members themselves in Committees, it is clear that the limited capacity in many of our Members to digest these notifications reduces their effectiveness. There may be scope for enhancing the Secretariat’s role in providing a neutral analysis of the most complex notifications.

If the system offers conceptually a very good balance between respect of Members' sovereignty and of the overall systemic interests, in practice the effectiveness of committees' monitoring and surveillance is greatly reduced by the lack of participation of many developing countries, which often have very limited human resources — often two or three people following the work of all International Organisations in Geneva — or are not even present in Geneva. Members and in particular developing country Members need to attend and participate more in committees. It is hard for them to benefit from the surveillance and cross-notification processes if they are not present or actively following the work of the WTO.

In this context we have created what we call the “Geneva Week for Non-Residents” where twice a year all Members who do not have a mission in Geneva are invited to briefings on all topics under negotiation as well as regular WTO work, including monitoring and surveillance. But this may simply not be enough and perhaps more could be done to actively involve regional organisations who could follow these issues on behalf of several Members to benefit from economies of scale.

For transparency and for notifications to be effective, Members need to be able to understand what is notified, what is not notified, and what is hidden. And the only way to guarantee that all Members understand the scope of what has to be notified, is to make sure that all Members have a solid understanding of the WTO provisions. This means, therefore, that the WTO technical assistance for developing countries needs to comprise also in-depth training in this area and in particular assist developing countries in the drafting of their notifications and in better understanding those that may have an impact on them, as in the cinnamon case we just discussed. Today a standard feature of our training programme for developing countries includes an entire course on notifications. But I am convinced that more will need to be done in his area in the future.

In sum, we need to focus more on how to operationalize these notifications, as well as our monitoring and surveillance process, so as to ensure that we not only have more functional and effective but also more accessible mechanisms to ensure the full implementation of WTO obligations by all Members. This is easy to say but difficult to realize. But before entering into new obligations, shouldn't we focus on ensuring that existing obligations are actually being implemented by all players?

It is now time for me to conclude, so that I can benefit from your comments and suggestions.
Firstly, transparency, effective monitoring and surveillance of trade rules, of trade preferences, of regional agreements, of Aid for Trade etc. are key for economic operators who need to know the terms of trade.

Secondly, monitoring and surveillance cannot and will not replace binding dispute settlement but can be an effective means to avoid clogging the dispute settlement. GATT contracting parties and WTO Members worked very hard to put in place the sophisticated dispute settlement mechanism that we now have. But with the growing number of technical obligations and an expanding Membership, ensuring effective implementation of those obligations by everyone becomes more difficult. Transparency must become more “active” and this is where, in my view, monitoring and surveillance becomes useful, even necessary.

Thirdly, monitoring and surveillance will continue to increase, as a means to allow Members to better understand each other's actions to implement their obligations. But the notification mechanisms in place and the committee's reviews must be made fully operational ensuring the informed participation by all Members. Since monitoring and surveillance are here to stay, the demand for further informed and understood transparency will only increase as the scope, depth and technicality of our obligations continue to increase. But it goes even further than understanding WTO obligations, to also cover the manner in which developed, as well as developing country Members implement these provisions.

Fourthly, surveillance and monitoring will become all the more important in the future that the nature of obstacles to trade is changing. Duties or quantitative restrictions are rather straightforward: easy to identify, to understand and to cope with. Non tariff barriers, technical requirements about the safety of products or hidden subsidies are generally more obscure and hence more difficult to address. Monitoring and surveillance will have to adjust to the expansion, both in width and depth, of these regulatory requirements. We will have to plan for that if we are serious about our core business which is to keep opening trade.

We all have great hopes for the Doha Round which aims at rebalancing the rules multilateral trading system in favour of developing countries. But such new rules will only be as good as their implementation. This is true for existing rules as well. We cannot lose sight of the importance of implementation. I am looking forward to hearing your suggestions!

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