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Contents

CURRENT REPORTS

CURRENT REPORTS WTO

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by Chakravarthi Raghavan

GENEVA: When member states of theWTO resume consultations at the Dis-pute Settlement Body (DSB) on filling va-cancies in the Appellate Body (AB), theyhave to come to grips with a credibilityproblem of the WTO and its disputesettlement process, impaired by the USstatements in vetoing a second AB termfor Seung Wha Chang of Korea.

Hopefully, WTO members at theDSB will agree on and tackle this as be-ing of the highest priority.

As of 1 June, there are now two va-cancies in the seven-member AB. One isto replace Chang, whose reappointmentat the end of his first four-year term wasvetoed by the US at the DSB meeting on23 May (see TWE No. 616/617). The sec-ond vacancy is for replacing YuejiaoZhang of China, whose second and lastterm also ended on 31 May.

The US veto of Chang and critiquedirected against him (though clearly tar-geted at the AB as a whole, aiming tointimidate or pressure its members to toethe US line in disputes) has elicited suchwidespread criticism that the US stancesounds like the entire world is marchingout of step but for the Exceptional Na-tion, USA.

If the rest of the WTO members, hav-ing made statements of trenchant criti-cism, believe they can hereafter continuewith “business as usual”, they would becommitting a fatal error. The WTO’s Dis-pute Settlement Understanding (DSU,which sets out the procedures and rulesof the WTO dispute settlement system),and with it the WTO, would lose all pub-lic credibility and legitimacy, and theWTO would soon meet the fate of theLeague of Nations.

With the US having staked out apublic stance on the issue, and after itsvarying explanations – first at the levelof US trade officials in Washington andthen at the DSB on 23 May – it is ex-tremely unlikely that the US would re-verse its stance and agree to a secondterm for Chang. And even if it does, itwill still leave the AB’s reputation in tat-ters, and every future ruling of the AB

or of a dispute settlement panel will besuspect and tainted.

There are only two options for WTOmembers to restore the credibility of theDSU and AB:

(a) They could agree on and adoptby consensus a decision that for the fu-ture, any retiring member of the AB whois eligible otherwise for reappointmentshould be automatically reappointed,unless there are some serious questionsover their health, misconduct or inabil-ity or unwillingness to continue for an-other term.

(b) Alternatively, they should ap-point AB members for one fixed term, asBrazil and past AB members have sug-gested. If the six or seven years mootedby Brazil is viewed as too long, a com-promise can be reached with a five-yearterm.

Another suggestion for option (a),posted at US trade lawyers’ InternationalEconomic Law and Policy (IELP) blog,is that reappointment should be auto-matic unless there is a positive consen-sus against. Option (a) as an immediatedecision, and considering and decidingon option (b) as part of the mandatedDSU review process (see below), couldalso be considered.

When vetoing Chang’s reappoint-ment, the US pointed to AB decisionswhich it said engaged in rule-making,added to the obligations of WTO mem-bers and curtailed their rights instead of“clarifying” existing rules and leavinginterpretations of the rules to the WTOMinisterial Conference or General Coun-cil. In this, the US is exhibiting the doublestandards it plays by on internationalquestions.

So long as it benefited from such ABrulings, as in the early days of the WTO,it was praising the AB. However, onceits own favourite protectionist action –the use of “zeroing” in anti-dumpinginvestigations and taking counter-mea-sures by levying anti-dumping duties –was found WTO-illegal, the US begancrying foul.

To calculate anti-dumping duties

2 WTO’s first priority is restoringcredibility of DSU, AB

4 US double standards in complaintsagainst AB

10 WTO DG’s sleight of hand on newissues

11 Cracks emerging in plurilateral TiSAtalks

12 Western nations, blaming cashcrunch, pull out of UNIDO

OPINION14 Is good governance key to

eliminating poverty?

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against a foreign product, the foreigndomestic price of the product is com-pared with its import price adjusted fortransportation and handling costs. Un-der the controversial practice of “zero-ing”, the US sets at zero any negativedifferences (that is, whenever the foreigndomestic price is less than the importprice).

This methodology, or its applicationin particular ways, has been repeatedlyfound by the AB to be in contraventionof WTO rules. Unable to comply (becauseof powerful domestic lobbies and Con-gress), the US began to cry foul, and hasso far failed to implement any of the rul-ings and DSB recommendations involv-ing such anti-dumping measures.

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Having dealt with the immediateissue of restoring the credibility of the ABthrough one of the two options citedabove, it is also time for the WTO to cometo grips with and tackle the mandatedDSU review, and complete it in a time-bound and fresh manner before theWTO’s next Ministerial Conference.

This is an important long-term issuefor the WTO to ensure credibility in itsdispute settlement function, long pro-claimed as the jewel in its crown. All themore so as the WTO’s role as a negotiat-ing forum has already been impaired bythe US’ unilaterally viewing itself as be-ing no longer bound to engage in “goodfaith” negotiations on the Doha WorkProgramme – a US stance that has beensupported by other developed countries.

The way the issue relating to the re-appointment of AB members has comeup in public (in two earlier cases, the USvetoed appointment or reappointment,but did not voice its views openly) is nowforcing WTO members to come to gripswith the Ministerial Decision on DSUreview, adopted at Marrakesh in 1994when the agreement establishing theWTO was signed. The decision called fora review of the DSU to be completedwithin four years of the entry into forceof the WTO treaty (that is, by the end of1998), and for the Ministerial Conferenceto take a decision “whether to continue,modify or terminate” the DSU.

This is a ministerial mandate that theWTO members have avoided or evadedso far. It was initially on the agenda ofthe WTO’s third Ministerial Conference,held in Seattle in 1999, but that confer-ence broke up in utter confusion andchaos, engineered by the host country,

and failed to reach any decision.In the run-up to Seattle, the devel-

oping countries, in particular a like-minded group coordinated by Egypt andits ambassador to the WTO MounirZahran, had consulted past GATT andUruguay Round negotiators and soughthelp from one of them, former Indianambassador to GATT Bhagirath Lal Das,to write a paper with concrete recom-mendations.

Das, for personal reasons, was notable to complete the task, and entrustedit to this writer. The draft was presentedand discussed in 1999 at a consultationmeeting of developing countries (at-tended by most of them at ambassadorlevel, and with the participation of thethen UNCTAD Secretary-GeneralRubens Ricupero, formerly Brazilianambassador to GATT during the Uru-guay Round). After the collapse of theSeattle Ministerial Conference, the draftpaper was finalized and published by theThird World Network (TWN Trade &Development Series, No. 9, twn.my/title/tilting.htm).

The DSU review mandate resur-faced in paragraph 30 of the WTO’s 2001Doha Ministerial Declaration, whichstipulated: “We agree to negotiations onimprovements and clarifications of theDispute Settlement Understanding. Thenegotiations should be based on thework done thus far as well as any addi-tional proposals by Members, and aimto agree on improvements and clarifica-tions not later than May 2003, at whichtime we will take steps to ensure that theresults enter into force as soon as pos-sible thereafter.”

Under paragraph 47 of the DohaMinisterial Declaration, this mandate for“improvements and clarifications” (theMarrakesh mandate language that in-cluded “terminate” was quietlydropped) of the DSU was made an inde-pendent negotiating item, outside theDoha Work Programme’s single under-taking.

The DSB, meeting since then in spe-cial sessions, has been considering, offand on, small procedural changes on se-quencing of “retaliatory” actions etcwhich would at best tinker with the DSUrules, but has not taken up or come togrips with the review in any substantialway.

It is perhaps time for the member-ship to take a fresh look and do so, andthis does need to cover the role and ex-tent of AB rulings, in terms of where“clarification” of the WTO rules ends and

the role of “interpretation” (reservedsolely for the Ministerial Conference orGeneral Council) begins.

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Within this remit comes also the is-sue of self-assumed powers of the AB,under the concept of “collegiality” un-der Rule Four of its “Working Proce-dures”, which enables the three-memberAB division bench hearing an appeal to“consult” the four other members of theAB at all stages, behind the backs of theparties and third parties to the dispute/appeal. This is something alien to theprinciples of natural justice, and to anindependent judicial process. In terms ofprinciples of natural justice and an inde-pendent judicial process, a judge orjudges adjudicating a dispute, after hear-ing the parties, must come to an inde-pendent conclusion, without consultingany other person or body of persons, noteven the secretariat servicing the panelor appellate process providing any inputor draft, and write down and delivertheir own judgment.

If a rules-based WTO treaty has anymeaning, it entails that no instrumentcreated by the treaty enjoys any powernot provided for in the various provi-sions of the treaty and its annexed agree-ments. There is no “residual” power un-der which any treaty body, whether adispute panel or the AB, can claim in-herent power to do something on thebasis that it is not prohibited.

In this instance, the WTO’s DSU, inits Article 17, has provided for the set-ting up of an Appellate Body. It sets outhow the body should be constituted andits members chosen, and its remit, pow-ers and functioning. The AB has no in-herent powers that cannot be found inthe various provisions of Article 17.

In terms of substance, Article 17.1says: “A standing Appellate Body shallbe established by the DSB. The Appel-late Body shall hear appeals from panelcases. It shall be composed of seven per-sons, three of whom shall serve on anyone case. Persons serving on the Appel-late Body shall serve in rotation. Suchrotation shall be determined in the work-ing procedures of the Appellate Body.”

Article 17.2 and 17.3 set out how theAB members are to be appointed, theduration of appointment and reappoint-ment, and qualifications. Article 17.4 setsout who can appeal and the rights ofthird parties in such appeals. Article 17.5sets out the duration and time limitations

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for the work of the AB on any appeal.Article 17.6 sets out that an appeal “shallbe limited to issues of law covered in thepanel report and legal interpretationsdeveloped by the panel.” Article 17.7provides for appropriate administrativeand legal support for the AB, and Article17.8 for expenses (travel and subsistence)for AB members to be met from the WTObudget.

Article 17.9, on the working proce-dures, says: “Working procedures shallbe drawn up by the Appellate Body inconsultation with the Chairman of theDSB and the [WTO] Director-Generaland communicated to the Members fortheir information.” While the AB is onlyto consult the DSB chair, in practice thechair circulates the draft procedure to theDSB members and forwards any com-ments from them to the AB.

In terms of the “ordinary meaning”(public international law requires atreaty to be interpreted in accordancewith the “ordinary meaning” of its terms,as codified in the Vienna Convention onthe Law of Treaties), a “procedure” can-not mean “substantive”. No dictionary,not even Black’s Law Dictionary, givessuch a meaning. As such, the AB cannotderive any substantive rights or dutiesand responsibilities other than those pre-

scribed under Article 17.1, 17.6, 17.12 and17.13 of the DSU. Neither can it create asubstantive right for itself nor devolvesubstantial responsibility on the ABmembers or the WTO members.

Also, Article 17.12 stipulates: “TheAppellate Body shall address each of theissues raised [emphasis added] in accor-dance with paragraph 6 [Article 17.6cited above] during the appellate pro-ceeding.” The use of the mandatory“shall” here leaves no scope for the ABnot to address an issue of law raised inan appeal on the ground of “judicialeconomy”, as the US in vetoing Chang’sreappointment has argued.

A comment (on Chang’s reappoint-ment and the US call for exercise of judi-cial economy) posted on the IELP blogpoints out that Article 17.12 requires theAB to address every issue raised in anappeal. This has been taken to meanclaims in an appeal. “Therefore, in effect,the Appellate Body has less discretionunder the DSU to exercise judicialeconomy by ignoring claims than pan-els.”

As the AB has ruled on several oc-casions, if members wanted such exer-cise of “judicial economy” for whateverreason, they would have said so!(SUNS8255)��

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GENEVA: In directing its ire against theAppellate Body (AB) at the WTO’s Dis-pute Settlement Body (DSB) meeting on23 May, though purportedly against Prof.Seung Wha Chang of South Korea andsingling him out to deny him reappoint-ment to the AB, the US was exhibitingits double standards in the internationalarena.

So long as the WTO’s dispute settle-ment panels and AB were piling obliga-tions on developing countries and cur-tailing their rights, to pry open theirmarkets to serve the mercantilist inter-ests of its corporations, the US was allpraise. But when some dispute rulingswent against the US, particularly regard-ing its anti-dumping measures (aimed atprotecting specific industries and enter-prises), the US began to cry foul. This has

now reached a crescendo in the US’ vetoof Chang and voicing its views openlyand stridently, initially through its tradeofficials in Washington and then at theDSB.

In the early years of the WTO andthe functioning of its Dispute SettlementUnderstanding (DSU), when most of therulings handed down by the panels andthe AB were against the developingcountries (and were virtually automati-cally adopted under the “negative con-sensus” rule, through which a rulingwould be adopted by the DSB unless itdecides by consensus not to do so), theUS was one of the main beneficiaries andcheerleaders, often when the EU and Ja-pan too were complainants.

Several of those rulings added to theobligations of the developing countries

and curtailed their rights, and weregrounded on questionable reasoning andconclusions, purportedly based on pub-lic international law interpretations codi-fied by the Vienna Convention on theLaw of Treaties (VCLT).

[The US never ratified the VCLT asthe US Senate did not consent to it. How-ever, the US State Department (to whoseviews on international commitments theUS courts, including the Supreme Court,defer), in a statement by the Secretary ofState, announced that the US abided bypublic international law.]

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The US double standards, and theWTO and its secretariat acquiescing, be-gan even in 1995 when the initial slate ofseven AB members was agreed on 29November 1995 after a difficult processof haggling involving the WTO Director-General, the US and the EU. The processresulted not only in the seven AB mem-bers being named, but also in a US na-tional being selected to head the WTO’slegal division (and a Canadian to headthe AB’s legal assistance secretariat).Under the old GATT forum which pre-ceded the WTO, the legal division hadbeen headed by a German national. Un-der the WTO, Europe as a whole got oneseat on the AB!

For the selection of the AB members,candidates from 23 countries were inter-viewed. From among them a selectionwas made by a small committee consist-ing of the then WTO Director-GeneralRenato Ruggiero and the respectivechairpersons of the DSB (Don Kenyon ofAustralia), Goods Council (Minoru Endoof Japan), Services Council (CristerManhusen of Sweden) and TRIPS Coun-cil (S.W. Harbinson of Hong Kong). (In1995, Hong Kong was still a separatecustoms territory under the UK.)

In the selection process, the WTOmembers were “consulted” and askedfor views on their preferred candidatesand why, on the basis of criteria agreedby the DSB. However, the US was effec-tively given the “privilege” of objecting/vetoing some names (a question neverposed to other members), thus helpingto label the successful candidates as “pro-American”. Everyone involved in thatprocess must be held responsible, but themajor players were DSB chair Kenyonand Director-General Ruggiero: the twoenabled the Americans to exercise sucha “privilege”.

After some tussle (between the USand the EU over Europe’s claim for two

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seats), seven names were put before theDSB and accepted by consensus. Indiaand Switzerland, while not blocking theconsensus, however said they were notjoining. Switzerland said there was animbalance, complaining that the selec-tion committee had not followed the cri-teria set out and agreed upon, and hadtaken a “restricted view” of the Europeanentity. India, in a statement made avail-able by its delegation to the media, de-tailed how one member alone had beengiven the option of saying “no” to indi-vidual candidates. The EU, while join-ing the consensus, expressed its dissat-isfaction. (For a detailed report, seeChakravarthi Raghavan, “WTO estab-lishes Appellate Body”, www.sunsonline.org/trade/process/followup/1995/11300095.htm.)

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The Uruguay Round (UR) agree-ments had been negotiated at variousstages in formal and informal negotiat-ing groups, with most of the negotiatorshaving no clear view of the final outcomeor of the institutional setup for the imple-mentation of the agreements until thevery end. This outcome, in the shape ofthe WTO Agreement – with annexedagreements relating to trade in goods,trade in services, trade-related aspects ofintellectual property rights, trade policyreview mechanism, some plurilateralagreements, and a Dispute SettlementUnderstanding for an integrated disputesettlement system – was negotiatedwithin a small group of key countries(often between the US and the EU ini-tially) and then presented to the other URparticipants on a take-it-or-leave-it basis.The developing-country negotiators inGeneva and their capitals had very littletime to study the final draft agreementsand their implications; they never hadany option to suggest changes.

The various agreements under therubric of “trade in goods” had been ne-gotiated disjointedly, with different ne-gotiating groups on different issues, of-ten with one or two delegates of devel-oping countries having to shuffle be-tween negotiating groups meeting at thesame time. Compromises in differinglanguage were agreed for more or lessthe same concepts. Some of these weresuch that even at the time of the official-level conclusion of the negotiations inNovember-December 1993, possible con-flicts inter se were envisioned.

To reconcile these, two safeguardswere suggested. One was to subject all

the agreements to “legal scrutiny and rec-onciliation” before settling on a finaldraft. At the time of legal scrutiny, whensome of the inconsistencies and impre-ciseness in language were raised andpointed out by some developing coun-tries, Canada argued that reopeningcompromise texts arrived at after muchdifficulty may unravel the entire pack-age of agreements.

While an important consideration,this was not such an insurmountableobstacle. With clear instructions for time-bound discussions to produce unifor-mity and clarity without endangering orchanging substance, solutions couldhave been found. Nevertheless, withdelegations weary after seven years ofnegotiations, the Canadian suggestion –that these matters could be resolvedthrough the dispute settlement process– prevailed.

In this respect, some of the built-insafeguards were pointed to:

1. The dispute settlement process,through the panels and AB, was to“clarify” the existing provisions of theagreements in accordance with custom-ary rules of interpretation of public in-ternational law. However, recommenda-tions and rulings adopted by the DSBcannot add to or diminish the rights andobligations provided in the agreements(DSU, Article 3.2).

2. Under Article IX:2 of the WTOAgreement, “The Ministerial Conferenceand the General Council shall have theexclusive [emphasis added] authority toadopt interpretations of this Agreementand of the Multilateral Trade Agree-ments. In the case of an interpretation ofa Multilateral Trade Agreement in An-nex 1, they shall exercise their authorityon the basis of a recommendation by theCouncil overseeing the functioning ofthat Agreement. The decision to adoptan interpretation shall be taken by athree-fourths majority of the Members.This paragraph shall not be used in amanner that would undermine theamendment provisions in Article X.”

3. The negotiators recognized thatconflicts were likely to arise from theGeneral Agreement on Tariffs and Trade(GATT) 1994 and several multilateralagreements covering various aspects of“trade in goods”, put together in Annex1A (titled “Multilateral Trade Agree-ments on Trade in Goods”) of the WTOAgreement. As such, Annex 1A itself hasa “general interpretative note” whichstipulates: “In the event of conflict be-tween a provision of the General Agree-

ment on Tariffs and Trade 1994 and aprovision of another agreement in An-nex 1A ..., the provision of the otheragreement shall [emphasis added] pre-vail to the extent of the conflict.”

While every participant whichsigned on to the WTO Agreement atMarrakesh in 1994 also had to sign on toall the agreements listed in Annexes 1, 2and 3 (but not the plurilateral agree-ments listed in Annex 4, where adher-ence was to be voluntary), the WTOAgreement has no provision on the sumtotal of rights and obligations under thevarious agreements.

In terms of customary rules of inter-pretation of public international law,when a country is a party to severalagreements, it is expected to implementall in good faith, with specific obligationsin one overriding the general in another,and a subsequent agreement between thesame parties on a specific subject over-riding an earlier one etc.

From the outset, however, contraryto these customary rules of interpreta-tion, the WTO’s dispute settlement pan-els and AB, aware that their rulingswould be automatically adopted by theDSB under the “negative consensus”rule, in a series of disputes raised by theUS against individual developing coun-tries (and in the banana dispute againstthe EU), held that the rights and obliga-tions of the various agreements were“cumulative”, even though those whonegotiated, drafted and concluded theagreements did not formulate any suchrequirement.

The AB said that it would clarify andreconcile the various agreements suchthat there are no conflicts and in such away that a WTO member state would beobliged and enabled to observe all theobligations of all the agreements.

In several of its rulings, the AB “in-terpreted” the accords cumulatively, in-creasing the obligations of developingcountries and restricting their rights, ineffect using the DSU and the “negativeconsensus” requirement for adoption ofrulings to open up developing-countrymarkets to the transnational corpora-tions (TNCs) of the US. Some egregiousexamples are detailed below.

The AB bias in favour of the US, andacting against developing countries toopen up their markets, began from theoutset in its rulings on a series of dis-putes raised by the US and/or the EU.

In a dispute against Indonesia overits domestic auto production project,which involved some subsidization for

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local procurement, the panel ruled thatwhen a number of international agree-ments are entered into by the same par-ties at the same time, there has to be apresumption that there are no conflicts.

However, on a plain reading of texts,it is clear that the UR negotiators, inreaching the various WTO accords ontrade in goods, did envisage conflicts,and hence inserted the overriding gen-eral interpretative note to Annex 1A.

The panel got around this by argu-ing that the note could apply to any con-flict between the obligations of GATT1994 and the Agreement on Subsidiesand Countervailing Measures (SCM),but not between the Agreement onTrade-Related Investment Measures(TRIMs) and the SCM Agreement. The“non-conflict” between the TRIMs andSCM Agreements was deduced by “in-terpreting” the TRIMs Agreement as a“full-fledged” agreement of the WTO,and the references in the TRIMs Agree-ment to the “provisions” of Article III ofGATT 1994 (against investment mea-sures) as a reference not to the Article assuch – as would be the ordinary mean-ing of the term in public internationallaw interpretations – but only to its “sub-stantive aspects”!

The panel did not explain where itgot this “qualification” to distinguishbetween “substantive aspects” and theArticle itself. It used the AB ruling in theUS-EU banana dispute (see below) tobuttress this view and promote thetheory of “cumulative obligations” onthe same subject in different agreements.

However, if the TRIMs and SCMAgreements are separate accords, thespecial rights given to developing coun-tries under the SCM Agreement (to pro-mote industrialization through subsidiesand incentives, including for the use ofdomestic goods in preference to im-ported goods) ought to have prevailedover the more general TRIMs Agree-ment.

In commenting on the Indonesiaauto dispute in the South-North Develop-ment Monitor (SUNS), trade expert andformer Indian ambassador to GATTBhagirath Lal Das pointed out that inreaching the conclusion of no conflictbetween the TRIMs Agreement (a gen-eral accord) and the specific SCM Agree-ment, the panel had taken “circuitousroutes, making a subtle, but tenuous,distinction between Article III of GATT1994 and ‘the provisions’ of this article.”This appears totally artificial, as an ar-

ticle cannot be viewed as separate fromits provisions. Das said: “One may betempted to ask: what is the content ofArticle III of GATT 1994, devoid of itsprovisions contained in its various para-graphs?”

Indonesia did not appeal the panelruling but implemented it. In this in-stance, it bowed to the InternationalMonetary Fund (IMF), which requiredIndonesia, in return for an IMF loan tomeet the country’s financial crisis, toimplement the ruling, end the subsidyand abandon its automobile project. TheIMF thus advanced the mercantilist in-terests of its major shareholders, the US,the EU (France, Germany and the UK)and Japan.

[The accord with the IMF (and thepicture of the flamboyant way the thenIMF boss Michel Camdessus stood be-hind then Indonesian President Suhartoas the latter signed the accord) sealedSuharto’s fate, and the corrupt Suhartoregime gave way to successors who didnot want to pursue the projects whosebeneficiaries were Suharto’s sons.]

In the earlier banana dispute, the US,in pursuing the interests of its Chiquitabanana TNC (which procured and ex-ported bananas from Central and SouthAmerica, but not from the US), had chal-lenged the EU’s wholesale distributionregime under the WTO’s General Agree-ment on Trade in Services (GATS); theUS had no locus standi in a dispute in-volving Annex 1A accords on trade ingoods, since it exported no bananas.

[The US withdrew its own initialcomplaint and joined the Central Ameri-can countries as co-complainant.Chiquita had banana plantations in Cen-tral America and exported bananas to theEU at MFN rates, as against the prefer-ential tariff regime for bananas from Af-rican, Caribbean and Pacific (ACP) coun-tries.]

The issue raised by the US complainthence was over the EU’s obligations un-der Annex 1A agreements in relation tobanana imports, and the accord in An-nex 1B (GATS), and whether the invoca-tion of GATT accords (by Guatemala andothers) excluded a claim by the US un-der GATS.

The WTO treaty itself has no provi-sion analogous to the Annex 1A generalinterpretative note when it comes to pos-sible conflicts amongst the agreementsin Annexes 1A, 1B, 1C (the TRIPS Agree-ment) and 2 (DSU). Thus, on questionsof conflict among the first three (e.g., con-

flict between the general and the spe-cific), a presumption (rebuttable though)of no conflict is possible. But all Annex1A accords are covered by the manda-tory general interpretative note, whichshows that the signatories envisagedpossible conflicts and ways to resolvethem.

At first (in the banana dispute), thepanels said that the obligations underGATT, GATS and the TRIPS Agreementwere “cumulative”. This itself was ques-tionable. But to import this to makeGATT 1994 and the other goods agree-ments in Annex 1A cumulative, as in theIndonesia auto dispute, is nonsense. Ifthe negotiators had intended it, theywould have said so, as both this writerand Das pointed out at a 2000 trade semi-nar in Harare (see Martin Khor, “WTOdispute system tilting balance againstSouth”, SUNS, No. 4638, 31 March 2000).

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In another set of rulings, despite itsown so-called “collegiate” working pro-cedures, the AB provided two differentviews on the same wording in two dif-ferent provisions invoked in two differ-ent, more or less contemporaneous dis-putes.

In the Turkey-India dispute (seeChakravarthi Raghavan, “WTO Appel-late Body extending its jurisdiction”,SUNS, No. 4537, 26 October 1999), inobiter dicta on points of law not raisedin appeal by either India or Turkey, butof indirect benefit to the US in future dis-putes, the AB handed down a ruling con-trary to its earlier views on the India bal-ance-of-payments (BOP) case.

The AB’s obiter dicta (against whichthe US expressed no criticism then)opened the way for customs unions todepart from GATT obligations other thanthose in Article I, the MFN provision ofGATT. The AB said: “... we are of the viewthat Article XXIV may justify a measurewhich is inconsistent with certain otherGATT provisions. However, in a caseinvolving the formation of a CustomsUnion, this ‘defence’ is available onlywhen two conditions are fulfilled. First,the party obtaining the benefit of thisdefence must demonstrate that the mea-sure at issue is introduced upon the for-mation of a customs union that fullymeets the requirements of sub-para-graph 8(a) and 5(a) of Article XXIV. And,second, the party must demonstrate that

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the formation of a Customs Union wouldbe prevented if it were not allowed tointroduce the measure at issue. Againboth these conditions must be met tohave the benefit of Article XXIV.”

In these obiter dicta, the AB ob-liquely sought to expand its own juris-diction in future cases: “We wish to pointout that we make no finding on the is-sue whether quantitative restrictionsfound to be inconsistent with Article XIand Article XIII of the GATT 1994 willever be justified by Article XXIV. We findonly that the quantitative restrictions atissue in the appeal in this case were notso justified. Likewise, we make no find-ing either on many other issues that mayarise under Article XXIV. The resolutionof those other issues must await anotherday. We do not believe it necessary to findmore than we have found here to fulfilour responsibilities under the DSU indeciding this issue.”

In the Turkey-India dispute, the Uru-guay Round Understanding on ArticleXXIV (on customs unions) was involved.In the India BOP dispute, where Indiasought to justify its quantitative restric-tions (QRs) on BOP grounds, the URUnderstanding on Article XVIII:B (onBOP) was involved. The language usedin paragraph 12 of the Article XXIV Un-derstanding, and that in footnote 1 to theArticle XVIII:B Understanding both seekto ensure that the right of WTO mem-bers to raise disputes under Articles XXIIand XXIII “with respect to any matterarising out of” either of the Articles andUnderstandings is preserved.

In the case against India’s QRs,where India pleaded BOP justification,and in the case against Turkey, whereTurkey claimed justification under pro-visions on customs unions, the panelsfaced the issue of whether the BOP justi-fication in the first and the customs unionjustification in the second were mattersthat could be raised before and disposedof by a panel, or whether they should bedecided by the respective substantiveWTO bodies where all members are rep-resented.

In the BOP case, the AB, like thepanel, interpreted the Understanding toprovide jurisdiction to both the WTO’sBOP Committee and the panels to hearand decide. The US blocked any conclu-sion of the Committee and raised a dis-pute, which the panel and the AB adju-dicated, declaring the Indian QRs illegal.

At the stage of the DSB’s adoptionof the rulings (under the “negative con-

sensus” rule), India and several other de-veloping countries strongly objected tothis interpretation, seeing it as a seriousinroad into the special and differential(and more favourable) rights assured todeveloping countries under the WTO,GATT 1994 and its Article XVIII:B.

In the Turkey case, however, thepanel took the opposite view that, argu-ably, the issue of compliance of a customsunion with Article XXIV was for theWTO body (in this case, the Committeeon Regional Trade Agreements) to de-cide, but that panels could go into dis-putes with respect to “any matters aris-ing from the application of these provi-sions relating to customs unions, free-trade areas or interim agreements lead-ing to the formation of a customs unionor free trade areas.”

The panel reports on the India BOPcase and the Turkey Article XXIV casewere due to be circulated to all DSBmembers at about the same time (in bothcases, advance copies were provided tothe dispute parties as per the rules). Ifthe two reports had come out at the sametime, both would have landed in the ABat the same time and the AB (function-ing under self-assumed collegiality pow-ers) would have been forced to deal withthe fact of the identical language in theGATT 1994 provisions relating to boththe disputes.

But the publication of the report onthe Turkey dispute was delayed (by thesecretariat) by a little over a month afterit was ready, on the ground of timeneeded for translation; it thus went to theAB later.

In both cases, before the panels, In-dia had taken the same position. But bythe ‘fortuitous’ circumstance of the ABhearing in the BOP case taking place be-fore the Turkey dispute appeal, the USwas able to get the AB in the BOP case torule on the simultaneous jurisdiction ofthe WTO legislative body and of the pan-els. In the Turkey dispute, though the UShad been an interested third-party inter-vener before the panel, it did not inter-vene at the AB stage!

Nevertheless, the AB (which underthe DSU cannot create or abridge rightsand obligations of the WTO), by meansof obiter dicta that more often come outof courts of record in Anglo-Saxon com-mon law jurisdictions, “invited” futureappeals in future disputes to enable it torule on this contradiction in interpreta-tion of the same wording in the Under-standings on Article XVIII:B and Article

XXIV.

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In the “shrimp-turtle” dispute,raised by India, Malaysia, Pakistan andThailand against US restrictions on im-ports of shrimp caught using nets thatmay ensnare turtles (see SUNS, No. 4301,14 October 1998), the AB:

1. Cleared the way for non-govern-mental organizations (NGOs) to file am-icus curiae briefs and intervene, in effectruling that the panel’s right to “seek”information should not be read narrowlybut as enabling it to make use of infor-mation it had not in fact “sought”. Theverb “seek”, which (by any ordinarymeaning of the word in any dictionary)requires an active role of the panel, isthus made to mean to “receive”, evenwhen the panel did not initiate any moveon this! The US and EU NGOs cheered,little realizing that this meant rich cor-porations and their lawyers could alsointervene – which they did, as in a sub-sequent steel import dispute.

2. Imported and expanded the scopeof the GATT “exceptions” in Article XXby setting aside the panel ruling on thisas a “serious error” of legal reasoning.The AB held that the panel did not ex-amine the ordinary meaning of ArticleXX (unlike in the Indonesia auto ruling,there was no discussion here as towhether this meant the “substance” ofthe provisions or the entire Article) norlook at the application of the measure,but rather focused on the design of themeasure and addressed “a particularsituation where a Member has takenunilateral measures which, by their na-ture, could put the multilateral systemat risk.”

The panel had formulated a broadstandard and test for excluded measures,and found the US shrimp ban as fallingunder this class because it imposed con-ditions for market access based on adop-tion by the exporting country of conser-vation policies prescribed by the US. TheAB, however, accepted the US plea thatArticle XX(g) about the conservation of“exhaustible natural resources” appliednot merely to mineral resources but alsoto living natural resources, and spoke ofan “evolutionary” approach to treaty in-terpretation. The AB held that the treatyinterpreter must interpret the treaty inthe light of contemporary concerns of thecommunity of nations about protectionand conservation of the environment.

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According to the AB, while Article XX ofGATT 1947 (reflecting the understand-ing at that time on mineral and livingresources) was not modified by GATT1994 in the Uruguay Round, the WTOAgreement had “the objective of sustain-able development” in its own preamble,and thus, the term “natural resource”used in Article XX(g) was not static but“by definition, evolutionary.” Evolutionin five years of life of the WTO and GATT1994!

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Public international law interpreta-tion, as codified in the VCLT, requires thewords of a treaty to be interpreted in ac-cordance with their “ordinary meaning”,but where language is ambiguous orunclear, reference can be made to thenegotiating history to arrive at a mean-ing. Under the Vienna Conventions onPlenipotentiary Diplomatic Conferencesfor negotiating treaties/agreements,while concluding a treaty, the plenipo-tentiaries are also authorized to draw upand approve a “negotiating history” tobe part of the records of the conference.Any other “negotiating history”, how-ever drawn up, is of no value.

The Uruguay Round’s concludingmeeting of plenipotentiaries atMarrakesh was not presented with, nordid it approve or adopt, a negotiatinghistory. (This was unlike at the end of theprevious Tokyo Round, when the nego-tiating history, drawn up by the secre-tariat, was adopted.) At the Marrakeshplenipotentiary ministerial meeting, onlyformal documents and reports of theUruguay Round were derestricted andpublished. Although much of those ne-gotiations had taken place in informalmeetings where informal proposals byparticipants and sometimes “non-pa-pers” (those without identified authors)were tabled and considered, none ofthese can be found in the derestrictedformal Uruguay Round documents.

Yet, WTO dispute settlement panels,purporting to exercise a need to clarifymeanings of language in the WTO ac-cords (rather than on the basis of the or-dinary meaning deduced from a dictio-nary), have been using “negotiating his-tory” produced by the secretariat (thelegal division servicing the panels, inconsultation with substantive divisions),behind the backs of parties after they hadpresented and argued their cases. Thisis a gross violation of the principles ofnatural justice common to all systems oflaw and public international law. Thesecretariat records resulted, in two dis-pute cases explained below, in some

strange “negotiating history”.In a ruling against Korea in a dis-

pute raised by the US on the plurilateralGovernment Procurement Agreement(for an analysis of the ruling, see SUNS,No. 4670, 18 May 2000), a panel headedby Michael Cartland, a former HongKong representative to GATT/WTO,first gave an expanded interpretation ofthe rarely invoked “non-violation”clause in GATT Article XXIII.1.b (onlyeight cases till then in the 50-year historyof GATT invoked this clause). The rul-ing spoke of impairment to the US aris-ing out of “reasonable expectation of anentitlement” to a benefit that had accrued“pursuant to the negotiation”, ratherthan “pursuant to a concession ex-changed in the negotiations,” the tradi-tional view of public international law(codified in Article 26 of the VCLT, whichincorporates the principle of pacta suntservanda).

This finding by the Cartland panelenabled its further finding that there hadbeen lack of “good faith” in negotiationsor “treaty error” on the part of Korea, andthat the DSU could be used to invalidatea part of the treaty (Government Procure-ment Agreement), and a DSB recommen-dation substituted, to enable a party towithdraw reciprocal concessions. Thepanel arrived at this expanded view ofpacta sunt servanda by delving into thenegotiating history, not of the Govern-ment Procurement Agreement but of theVCLT itself, citing the statement of theInternational Law Commission in trans-mitting the draft VCLT to the UN Gen-eral Assembly, which had set up theCommission and adopted the VCLT!

Having given this obiter dicta,which opened up the scope for futurecomplaints, the panel however ruledagainst the US on the ground that the UShad not exercised “due care” in the ne-gotiating process! The US did not appeal,and the panel report was adopted, in ef-fect putting the DSB imprimatur on thisexpanded clarification/interpretation of“non-violation” complaints and “goodfaith” in negotiations, and the ability ofpanels to remedy “treaty error” and “lackof good faith” in negotiations by substi-tuting their own judgment in lieu of ac-tual scheduled commitments – a veri-table “Daniel come to Judgment”, to useShakespearean language. The US did notprotest such an expanded remit for dis-pute settlement.

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The manner in which the disputesettlement process was being invoked,

and rulings handed down, elicited somecriticism at that time from a former GATTlaw official Frieder Roessler, a Germannational who had headed its legal divi-sion during the Uruguay Round and intothe WTO, and later headed the Geneva-based Advisory Centre on WTO Law (setup to help developing countries, in par-ticular least developed countries, withlegal assistance in disputes).

In a critique of the functioning of theWTO’s dispute settlement system, par-ticularly the way panels and the ABmade use of the procedural rights in theDSU to virtually nullify the substantialrights and obligations of members un-der the WTO agreements, Roessler saidthat the competence of panels and the ABcould not be determined by themselvesexclusively on an interpretation of theDSU, but in the context of the complexinstitutional structure of the WTO andthe division of decision-making amongdifferent organs, set out in the Marrakeshtreaty and which reflect legitimate, ne-gotiated policy objectives.

WTO panels, Roessler said, shouldrespect the competence and discretion-ary powers of the political bodies estab-lished under the agreements, and shouldnot reverse their determinations. And ifa competent WTO body has not yet madeits determination, panels should not stepin and preempt that determination. Therole of panels, he added, should be lim-ited to protecting WTO members againstan abusive resort to provisions govern-ing, for example, BOP measures and re-gional trade agreements – against mea-sures that fall outside the discretionaryauthority of the BOP Committee or theCommittee on Regional Trade Agree-ments.

Roessler’s views were put forwardin a paper, “The institutional balancebetween the judicial and political organsof the WTO”, presented at a June 2000seminar at Harvard University (for a re-port on the paper, see SUNS, No. 4685,16 June 2000).

The US at that time voiced no criti-cism of the way panels and the AB wereclarifying and interpreting the WTOagreements such that it seemed to in-crease the obligations of developingcountries to the benefit of the US and itsmercantilist interests. This bias at theWTO came into play to a much greaterextent in the 1996 US presidential elec-tion campaign (Bill Clinton vs Bob Dolecontest), where the WTO, its DSU andloss of US sovereignty became an issueand one of the campaign slogans was“Two strikes and we are out”; the WTOand its panels and the AB seemed to betrying to ensure there was no such op-

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portunity!In a similar vein to Roessler’s paper,

Bhagirath Lal Das, former Indian ambas-sador to GATT, a trade law expert andauthor of several books on the WTO sys-tem and its imbalances, in a critique ofthe way the panels and the AB were func-tioning, went so far as to call for the abo-lition of the standing Appellate Body it-self (see Bhagirath Lal Das, “The paneland appeal process at the WTO”, SUNS,No. 4689, 19 June 2000).

In analyzing the AB views in twoseparate disputes (against Korea andArgentina) involving the WTO Agree-ment on Safeguards, heard and rulingshanded down at the same time by twodifferent division benches of the AB, Daspointed to the “extraordinary coinci-dence” of six paragraphs in the two ABreports having the same wording. Headded: “The members of the AB divi-sions in these two cases were two totallydifferent sets of members ... Each of thesereports is signed by the respective setsof three members each. It is surprisinghow these two different sets of personsended up writing exactly the same lan-guage in some parts of their respectivereports. The AB is like a judicial body inthe WTO. One has to presume that theAB in a case writes its own reports, anddoes not get it written by some otherpersons. This presumption seems to behit by the exact convergence of the lan-guage in some parts of the two reports...”

After Das’s article came out inSUNS, WTO officials explained to thiswriter about “collegiality” under theAB’s working procedures – which at thattime were not made public but wereavailable to WTO members – and that inthe light of conclusions by the AB divi-sion, reports were drafted by the AB sec-retariat and approved by the divisionbenches! A recent letter by six AB mem-bers to the DSB chair (written in connec-tion with the issue of Chang’s reappoint-ment) both explains and brings to thepublic record how the AB division benchof three members hearing an appeal in-variably consults and interacts through-out with the four other members of theAB who do not participate in the hear-ing, and that this is done in terms of theAB’s working procedures.

Not yet in the public record then butknown, as this writer had done at thattime, by talking to some panel and ABmembers (after the rulings), it wouldappear that after hearing the parties andthird parties in a dispute, panels, inreaching their conclusions, are “guided”

by officials of the legal (and substantive)divisions of the WTO secretariat “servic-ing” the panel; and in most cases the sec-retariat also draws up a draft report.

In the case of the AB, as mentionedabove, the three-member division benchinteracts throughout, without the pres-ence of the parties and third parties tothe appeal, with the other members ofthe AB, and their reports too are draftedby the AB secretariat’s legal assistance.

In any domestic jurisdiction, this isenough to make a ruling or decision (ju-dicial, quasi-judicial or administrative)illegal and invalid. The WTO apparentlyis a different animal, and part of the DSUreview process that should be under-taken as a priority over any other nego-tiations at the WTO must address theseissues and ensure rulings adopted at theDSB do not add to or diminish the rightsand obligations provided in the WTOagreements.

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In one US-EU dispute overcountervailing duties under the Agree-ment on Subsidies and CountervailingMeasures, the AB ruled against the USbut in the process, through its freewheel-ing ways without any authority of therules, managed to raise more controver-sies.

The US, in its notice of appeal, hadnot spelt out the legal grounds and paneldecisions thereof, as required under theAB working procedures. When the EUasked for dismissal of the appeal on thatground, the US said there was no suchrequirement in the DSU. Instead of up-holding its own working procedures, theAB division “requested” the US to fileits grounds of appeal and accepted iteven though the time for appeal had ex-pired!

The AB also asserted its right to re-ceive an amicus curiae brief, this timefrom an industry association, but thendecided there was nothing in the brief!In the process, it gave NGOs superiorrights over WTO members that are thirdparties which had not notified their in-tention to intervene in the appeal or thosemembers other than third parties whichcan’t claim any right to be heard!

On substance, the AB turned downthe US arguments about when a “ben-efit” is conferred, but refused to provideany authoritative ruling that would endfuture disputes.

In the EU-Canada patent case, thepanel used the “negotiating history” ofthe TRIPS Agreement provided in a note

by the secretariat that purported to drawa history of the negotiations “on the ba-sis” of draft legal texts in the negotiatinggroup in the spring of 1990, a secretariatcomposite text, and subsequentchairman’s informal text and revisions,as well as “parallel work” in the WIPOCommittee of Experts on preparationsfor a Patent Harmonization Treaty.

The secretariat note admitted thatthese texts had not been circulated to theTRIPS negotiating group, but still usedthem on the ground that WIPO represen-tatives had kept negotiators “informed”of developments! (See ChakravarthiRaghavan, “WTO panel hits stockpilingexception in Canadian Patent Act”,SUNS, No. 4630, 21 March 2000.) AtMarrakesh, all formal documents andreports were derestricted; however, thereports of various meetings of the TRIPSnegotiating group were, at that juncturein 1994, available even to UruguayRound delegates only as drafts (subjectto editing and corrections from delega-tions); the reports were finalized andmade public only in 1995 or 1996, afterthe WTO came into being.

While the AB has in other instancesshown willingness to create law and dowhat it wants regarding NGO briefs, onthe sequencing issue (compliance panelfirst before retaliation authorization re-quest, or Article 21.6 of the DSU vs Ar-ticle 22) where the Quad (the US, the EU,Canada and Japan) disagreed consider-ably, the AB noted lack of clarity and saidit was for the WTO members to clarifythrough interpretation or change ofrules! (See SUNS, No. 4812, 12 January2001.) (SUNS8258/8259)��

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by D. Ravi Kanth

GENEVA: Without consulting membersand in an apparent violation of rules ofbusiness, the World Trade Organization(WTO) Director-General RobertoAzevedo has expanded two existing di-visions of the WTO secretariat to over-see work on investment and competitionpolicy respectively, trade negotiators fa-miliar with the development told theSouth-North Development Monitor(SUNS).

The controversial issues of invest-ment, competition policy and govern-ment procurement were shot down at theWTO’s fifth Ministerial Conference inCancun in 2003 following massive op-position from the developing countries,and that entire meeting collapsed.

Subsequently, in July 2004, the WTOGeneral Council adopted the July Frame-work agreement to put the Doha Roundtalks back on the rails, but decided tokeep the three so-called “Singapore is-sues” outside any work at the WTO dur-ing the Round. Accordingly, the DohaWork Programme was modified in theseterms in paragraph 1(g) of the JulyFramework: “Relationship betweenTrade and Investment, Interaction be-tween Trade and Competition Policy andTransparency in Government Procure-ment: The Council agrees that these is-sues, mentioned in the Doha MinisterialDeclaration in paragraphs 20-22, 23-25and 26 respectively, will not form part ofthe Work Programme set out in that Dec-laration and therefore no work towardsnegotiations on any of these issues willtake place within the WTO during theDoha Round.”

This decision of the General Coun-cil remains in force unless specificallydecided otherwise by the Council (act-ing in between sessions of the Ministe-rial Conference) or by the MinisterialConference.

The tenth Ministerial Conference,held in Nairobi in 2015, could reach nodecision for lack of consensus, neither toend the Doha Work Programme nor ontaking up any new issues.

As a result, ever since the General

Council decision in July 2004, these threeissues have hovered around the CentreWilliam Rappard that houses the WTO,unable to make an entry. The develop-ing countries have not given any “ex-plicit” approval at the subsequent Min-isterial Conference or General Councilmeetings. As such, for all practical pur-poses, the three issues remain multilat-erally “untouchable” due to lack of con-sensus among the WTO’s 164 members.

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But, in an astonishing development,Azevedo has brought back these issuesthrough a sleight of hand, said a tradenegotiator who asked not to be quoted.

In a move that raises serious sys-temic concerns, the WTO Director-Gen-eral took decisions without any specificmandate from any of the WTO bodies torename the secretariat divisions on ser-vices and intellectual property.

Members were “informed” in theweek of 6 June that the division on ser-vices is being rechristened as the “Tradein Services and Investment Division”,while the division on intellectual prop-erty will be called the “Intellectual Prop-erty, Government Procurement andCompetition Division.”

The new division on intellectualproperty, government procurement andcompetition, according to the WTOwebsite, “is responsible for the WTO’swork in trade-related intellectual prop-erty rights (TRIPS), government procure-ment and competition policy (it shouldbe noted that substantive work in thelatter area in the WTO has been on holdsince 2004).”

(The division on intellectual prop-erty had already included a section ongovernment procurement for specificallyservicing “the Committee establishedunder the [existing] plurilateral Agree-ment on Government Procurement anddispute settlement panels that mayarise”.)

The decision to include competitionpolicy in the intellectual property divi-

sion is startling since “substantive workin the … area in the WTO has been onhold since 2004.” If competition policyhas been on hold since 2004, did theWTO members now decide and has theWTO Budget Committee agreed that thedivision should monitor “developmentsat the international level and would beresponsible for any further work in theWTO Working Group on the Interactionbetween Trade and Competition Policy,in the event that that body should re-sume its work”?

After the Doha Ministerial Confer-ence, any additional work and the bud-get for it, even an expansion in activitiesof the WTO’s information division on theDoha Work Programme agenda, had tobe approved by the Budget Committee,which insisted on having the official min-utes of that Conference before it in orderto give its approval.

It is also legally unclear as to whatis meant by saying that competitionpolicy “has been on hold since 2004”,because there was no decision to keepthe work on hold. That competitionpolicy was buried at the WTO’s fifthMinisterial Conference is well known,the trade negotiator said.

In a similar vein, the decision to in-clude work on investment along withissues of trade in services is not legallyjustifiable as there is no formal decisionby the members to consider investmentas part of services. Investment, for ex-ample, can form part of trade in goodsand even intellectual property. On whatbasis therefore has the Director-Generaldecided to include investment in thework on trade in services without aproper discussion involving all 164members, a negotiator who spoke toSUNS asked.

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It is common knowledge that thethree areas of investment, competitionpolicy and government procurement –along with trade facilitation – constitutedthe four “Singapore issues”, which wereintroduced at the WTO’s first Ministe-rial Conference in Singapore in 1996. Inthe face of combined opposition fromdeveloping countries, the four issueswere brought into the Doha WorkProgramme in 2001 on the condition thatnegotiations on each of the four issueswould commence only on the basis of“explicit consensus” at the WTO’s fifthMinisterial Conference. The EuropeanUnion, which was the principaldemandeur for the four issues, tried hard

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to start negotiations at Cancun but gaveup in the face of developing-countryopposition.

Subsequently, the four issues weredropped until the United States, the EUand other developed and some develop-ing countries which were part of theColorado Group brought trade facilita-tion back into the 2004 July Frameworkagreement, promising the developingand the least developed countries thattheir core issues in agriculture and otherareas of the Doha Work Programme shallbe addressed on the basis of special anddifferential treatment and less than fullreciprocity. Effectively, the three otherSingapore issues – investment, competi-tion policy and government procure-ment – were obliterated from the DohaWork Programme.

In the next 11 years between 2004and 2015 in the Doha Round negotia-tions, the developing countries wereforced to run in circles to secure mini-mal results in areas such as tacklingtrade-distorting domestic agriculturesubsidies, addressing tariff peaks andtariff escalation, improving anti-dump-ing rules, and securing credible marketaccess for the movement of short-term

services providers in Mode 4.After pocketing a binding and com-

prehensive outcome in the form of anagreement on trade facilitation at theWTO’s ninth Ministerial Conference inBali in 2013, a handful of developedcountries – the US, the EU and Japan –sought to torpedo the Doha WorkProgramme at the tenth Ministerial Con-ference in Nairobi in 2015. They wereunable to get a consensus for ending theDoha Work Programme but, with someassistance from the secretariat, have beentorpedoing any work on other measurespost-Nairobi.

Now, the Director-General whohelped these handful of developed coun-tries in their efforts to put the Doha WorkProgramme to bed has quietly initiatedwork to bring in investment, competitionpolicy and government procurementwithout multilateral consent, said aSouth American trade envoy.

Trade observers said that, followingthe example set by the US on the reap-pointment of a WTO Appellate Bodymember, the Director-General, whosecurrent term will be ending next year,may face a similar experience.(SUNS8260)��

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by D. Ravi Kanth

GENEVA: Cracks are finally emerging inthe grossly imbalanced plurilateral talkson a Trade in Services Agreement (TiSA)being pursued by 23 countries, after theEuropean Union and several other mem-bers voiced concern about the overallquality of the latest revised offers and theexclusion of Mode 4, maritime transportand sub-federal categories among othersectors, several trade envoys told theSouth-North Development Monitor(SUNS).

Although the trade ministers and se-nior officials of the TiSA countries whomet on 1 June on the margins of the an-nual Organization for Economic Coop-eration and Development (OECD) meet-ing in Paris put on a brave face by issu-ing an optimistic statement about con-cluding the negotiations by the end ofthe year, they could not conceal their

growing disappointment over the poorquality of the latest revised market ac-cess offers as well as backtracking bysome members of the group, in offerswell below the overall GATS (WTO Gen-eral Agreement on Trade in Services)floor, participants maintained.

The EU came out into the open atthe Paris meeting by suggesting that thelevel of “ambition” in the revised offersis lacking. “The recent revised offers andthe work done so far represent real im-provement, but we certainly need moreambition,” EU Trade CommissionerCecilia Malmstrom said. “The EU isready to go an additional mile but ev-eryone needs to join if we want toachieve an agreement able to shape theglobal economy of the 21st century.”

The US, according to one source, hasnot included an offer on Mode 4 (deliv-

ery through movement of natural per-sons) and maritime transport serviceswhile raising the ante on financial ser-vices, telecom services, e-commerce andlocalization (local content requirementsin services, particularly servers and otherrequirements in e-commerce). The US isalso not ready to table and commit itssub-federal sectors in the overall marketaccess demands.

However, Washington pressed theother members to start negotiating aboutnew services which are not yet fullyimplemented by several TiSA membercountries, the source said.

The US is also not prepared to ac-cept any reservations/exceptions in thenational treatment provisions for newservices and other areas in which theTiSA members are following the “nega-tive list” criteria for the agreed sectors,according to the source.

While Uruguay and Paraguay havewithdrawn from the TiSA talks,Mauritius, which has become a tax ha-ven for alleged dubious/illegal trustsand companies, has circulated its latestoffer. Chinese Taipei did not table its lat-est offer because of its recent elections.

[Former trade negotiators and tradeexperts suggest a plurilateral accord likeTiSA will be contrary to the WTO andcannot be lodged as a plurilateral agree-ment in the WTO’s annex, nor would itqualify as a “services integration agree-ment” among participants under ArticleV of GATS. See C. Raghavan (2014), “ThePlurilateral Services Game at the WTO”,in The Third World in the Third MillenniumCE, Vol. 2: The WTO – Towards Multilat-eral Trade or Global Corporatism?, Penang:Third World Network, pp. 367-70.]

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At the end of the 18th round of theTiSA talks on 2 June at the EU mission inGeneva, differences among the partici-pants were writ large on several aspectsof the negotiations.

During the eight days of negotia-tions that began on 26 May, the TiSAmembers discussed revised market ac-cess offers in areas such as short-termservices providers under Mode 4,telecoms, financial services, transport(air, maritime and road), energy, environ-ment and delivery services. They alsodiscussed textual provisions and an-nexes on Mode 4, transport sectors,telecoms, financial services, localizationand e-commerce. Besides, there was an

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inconclusive discussion on the institu-tional architecture for TiSA.

There were concerns on sevengrounds following the latest round oftalks.

To start with, there are grave doubtswhether the revised offers submitted by22 countries are above the “GATS floor”which is what was envisaged when thenegotiations were launched in early 2012.

The question over the GATS floorcame up because some members havebacktracked in their latest market accessoffers in areas such as Mode 4, includ-ing the US, according to a participantfamiliar with the technical level of dis-cussions.

While the GATS floor was selec-tively crossed by the US and other ma-jor industrialized countries, it was lefthanging when it came to services that arenot overly capital-intensive, such as inMode 4. Besides, the overall level of am-bition in transport services involvingmaritime, road and air is well belowother areas because of opposition fromthe US, according to another participant.

Second, offers in sectors such asmaritime, road and air transport are un-likely to match the high level of ambi-tion being pressed by the US and the EUin areas of their interest. While the twotrans-Atlantic giants are beating thedrums for ambitious, high-quality offersin financial services, telecommunica-tions, environmental services, profes-sional services, e-commerce and localiza-tion requirements, they are not forthcom-ing on demands raised by the develop-ing-country members of TiSA, said anAsian participant.

Third, the TiSA participants are un-clear how to raise the bar in terms ofambition with the demands being raisedfor matching with their best FTA (freetrade agreement) commitments in differ-ent areas. Several participants told SUNSthat it is difficult to match with the bestFTA commitments because those com-mitments were made in the context ofgive-and-take between the signatories ofthose agreements.

Fourth, the TiSA participants arestuck because of the raging debate on“policy space” as some major developedcountries including the US and the EUare not prepared to open some sectorson the pretext of policy space, partici-pants said.

Fifth, there is growing concern, evenamong some developed countries suchas the EU, over poor quality as well aslack of offers on contractual services pro-

viders and independent services provid-ers in Mode 4, participants maintained.The US did not even place an offer inMode 4, which caused concern amongseveral members, according to the par-ticipants.

Sixth, the US wants to introduce newservices and wants the remaining TiSAparticipants not to place any nationaltreatment reservations or exceptions.Several members – the EU, Korea, Swit-zerland and Norway – remain opposedto the US demands on new services.

Seventh, the US is not willing toplace sub-federal areas in the TiSA mar-ket access offers. The US is joined byAustralia in excluding any coverage ofsub-federal areas in TiSA.

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In short, the latest round of negotia-tions has revealed that a comprehensiveand ambitious agreement covering allareas in a “symmetrical” framework isout of the question and far-fetched, par-ticipants said.

There will be pronounced asymme-tries in the levels of ambition in differ-ent services sectors, and barriers, accord-ing to several members familiar with thenegotiations.

The US, the EU and Switzerland,among others, want a high level of am-bition in areas such as banking and in-

surance, telecommunications, distribu-tion and retail services, and e-commerce.

More crucially, the US remains in-different to any opening in maritime ser-vices as demanded by Norway alongwith several TiSA members which in-clude both developed and developingcountries.

The US and the EU are not willingto support any liberalization of roadtransport services as demanded by Tur-key and Mexico.

The US continues to turn a deaf earto air transport services as demanded byseveral members such as Australia andSwitzerland.

Against this backdrop, the TiSA min-isters have agreed to place their secondrevised offers in October that will sug-gest whether an agreement is possible.

The exclusion of China from theTiSA negotiations is also having an ad-verse impact on the plurilateral negotia-tions on environmental goods, partici-pants said. China has now called for ne-gotiating a multilateral agreement ontrade in services at the WTO and outsideTiSA, according to a participant who waspresent in Paris.

In crux, the US-led TiSA talks mightnot be concluded by the end of the yearbecause of too many imponderables thatcannot be resolved in a US presidentialelection year, participants maintained.(SUNS8255)��

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by Thalif Deen

NEW YORK: The 134-member Group of77, the largest single coalition of devel-oping countries, has expressed seriousconcern over the “unprecedented” with-drawal of nine member states from theVienna-based United Nations IndustrialDevelopment Organization (UNIDO).

The nine – all members of the Euro-pean Union (EU) and/or the Organiza-tion for Economic Cooperation and De-velopment (OECD) – are the UK, France,Portugal, Belgium, Lithuania, Canada,Australia, New Zealand and the UnitedStates.

The withdrawals, which began in

1993, have continued through 2016, withtwo additional countries, Denmark andGreece, planning to quit in January 2017.Withdrawal by the Netherlands is await-ing approval by the two chambers in theDutch Parliament.

If approved, a total of 12 countrieswould have pulled out of UNIDO byearly next year.

The apparent reasons for the with-drawals are mostly financial: cuts in de-velopment aid in the respective nationalbudgets of member states, as indicatedto UNIDO.

Ambassador Simon Madjumo

��

CURRENT REPORTS UNIDO

Maruta of Namibia, the chairman of theG77 in Vienna, pointedly says: “TheGroup firmly believes that any efforts tochange the architecture of the UnitedNations system should be undertakenthrough consultative processes, within abroad framework of international soli-darity and consensus, rather than to pur-sue this goal through budgetary ap-proaches.”

Asked for his comments, UNDeputy Spokesperson Farhan Haq toldInter Press Service (IPS): “We have noimmediate comments, although, ofcourse, we encourage support forUNIDO.”

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Currently, UNIDO has 170 memberstates, described as “sizeable”, andmostly from the developing world, com-pared with 193 at the United Nations.

According to UNIDO, its mission isto promote and accelerate inclusive andsustainable industrial development(ISID) in developing countries andeconomies in transition.

The G77, which also includes China,has argued that withdrawals underminethe international character and credibil-ity of UNIDO, which was created in 1966and converted to a specialized agency in1985.

A second implication is a budgetaryone: the reduction of core resources toUNIDO affects its capacity to deliver ser-vices to beneficiary countries.

However, the most serious implica-tion is that it is creating a “domino ef-fect”, with one Western nation followinganother in quitting the organization.

In October 2011, the US cut off fund-ing for the UN Educational, Scientificand Cultural Organization (UNESCO)when Palestine was accepted as a full-fledged member of the Paris-basedagency.

The G77 says although it respects thesovereign right of every member state todecide upon its membership of interna-tional organizations, it believes that ev-ery effort should be made to preventsuch decisions from undermining theconcept of international solidarity andjeopardizing the existence of multilateralorganizations that make a critical contri-bution to the achievement of the devel-opment objectives of the members of theGroup.

(continued on page 16)

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OPINION Good governance

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For over a decade, much of the interna-tional development community, led bythe Organization for Economic Coopera-tion and Development (OECD) and theWorld Bank, promoted “good gover-nance” as a prerequisite for economicdevelopment and poverty eradication.

Lack of good governance became theexplanation for the failure of structuraladjustment programmes (SAPs) to de-liver economic growth and poverty re-duction. It was presumed that SAPs weregood for growth and the poor. But thedisappointing results of SAPs had to beexplained away, and blaming poor orbad governance provided a convenientexplanation which did not challenge theeconomic rationale for the SAPs. Badgovernance was also convenient forblaming or excusing poor aid effective-ness.

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The World Bank started rankingcountries against well over 100 goodgovernance indicators. A compositegood governance index was introducedbased on perceptions of: (a) voice andaccountability, (b) political stability andabsence of violence, (c) government ef-fectiveness, (d) regulatory quality, (e)rule of law, and (f) control of corruption.

Aid was increasingly allocated ac-cording to countries’ good governancerankings, ostensibly to improve aid ef-fectiveness. The index has also been usedby the donor community to “name andshame” countries that failed to live upto the standards associated with it andother related indices, e.g., the CorruptionPerceptions Index published annually byTransparency International and whichserves as the basis for the influential an-nual Global Corruption Report.

Critics have, however, pointed outflaws in the World Bank and donorcommunity’s good governance indexand agenda. They range from method-ological weaknesses to poor evidencelinking good governance to economicdevelopment and poverty reduction.

Good governance indicators are

riddled with systematic biases due tochanging definitions, selection problems,perception biases, survey design andaggregation problems.

The World Bank’s good governanceindicators are ahistorical while its defi-nitions are controversial.

Claiming to be “context-neutral”,they do not take into account country-specific challenges and conditions,which can be very different – not onlyamong developing countries but alsoamong developed countries, and be-tween the two.

It is true that most developed (orhigh-income) countries have strongerinstitutions or good governance, whilemost poor (or low-income) countries donot. But it would be wrong to concludethat this observed correlation betweengood governance and high incomemeans that higher incomes are due tobetter governance. Also, a currently highincome level does not necessarily implycurrently rapid economic growth.

Historically, high-income countriesimproved their governance and strength-ened their institutions as they developed.After all, institution building needsmoney. Poor institutions in poor coun-tries reflect, rather than cause, their pov-erty.

Thus, analytical conclusions on therelationship between good governanceand growth are, at best, partial and hencemisleading. The indicators measure ini-tial conditions and the ostensible effectsof governance reforms, rather than thedirect consequences of governance re-forms on growth and poverty rates.

Additionally, methodological andmeasurement biases often overestimatethe impact of governance and institu-tions on growth.

Methodologically, most cross-coun-try econometric studies suffer from se-lection bias, as African countries – whereinstitutions are generally weak andgrowth performance was poor, espe-cially in the 1980s and 1990s – are typi-cally over-represented.

Secondly, most cross-country em-pirical studies use some measures of

institutional or governance quality to-gether with other variables, such as in-vestment, which are more likely to di-rectly affect growth. Such empirical ex-ercises can overestimate the impact ofinstitutions on growth if institutional orgovernance quality also affects the effi-ciency of investment. After all, it is diffi-cult to disentangle the direct effects ongrowth of institutional quality variablesfrom their indirect effects through theirimpacts on investment.

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There is also a lack of consensus inthe literature on definitions of institu-tions, how they change, and their likelyinfluence on economic outcomes.

Thus, a wide range of indicators –including institutional quality (e.g., en-forcement of property rights), politicalinstability (e.g., riots, coups, civil con-flicts, wars), characteristics of politicalregimes (e.g., elections, constitutions,executive powers), “social capital” (e.g.,civic activity, organization) and socialcharacteristics (e.g., income, ethnic, reli-gious, cultural and historical differences)– are used in empirical work, althougheach has a potentially different impactchannel on growth.

Moreover, many institutional indi-ces used in empirical work are ordinalindices, which rank countries and sim-ply associate a number with a rankingwithout specifying the degree of differ-ence among countries ranked. For ex-ample, it does not necessarily mean thatthe quality of institutions of a countryranked 2nd is twice as good as that of acountry ranked 4th. To be used correctly,such an index needs to be transformedinto a cardinal index, in which the de-gree of difference matters. There is alsono reason to assume that such transfor-mation from an ordinal to a cardinal in-dex will be one-for-one or linear.

The empirical evidence conclusivelyindicates that countries only improvegovernance with development, whilegood governance is not a necessary pre-condition for development.

All developing countries do poorlyon good governance indicators com-pared to developed countries. Yet, somedeveloping countries perform much bet-ter than others in terms of economic de-velopment without any empirical impacton good governance indicators.

This implies the need to identify thekey governance capabilities that helpdeveloping countries accelerate eco-

��

OPINION Good governance

nomic development, and thus to workto improve governance on a sustainablebasis.

In recent years, Bangladesh, China,Ethiopia and Vietnam have all beengrowing rapidly despite their poor gov-ernance indicators. Such experiencessuggest that good governance, as con-ventionally defined, is hardly ever a pre-requisite for getting growth and devel-opment going.

Poor countries face a multitude ofconstraints, and effective growth accel-eration interventions should address themost binding of them. Poor governancemay well be the binding constraint insome situations, but certainly not incountries growing rapidly despite poorgovernance.

Thus, as a rule, broad good gover-nance reform is neither necessary norsufficient for growth.

Finally, the link between growth andpoverty reduction may also be morecomplex than presumed, depending onthe distributional consequences of thegrowth process.

One foundation of the good gover-nance agenda is “norms of limited gov-ernment that protect private propertyfrom predation by the state”. In fact,strengthened property rights have oftenreduced tax revenues, impeded agrarianreforms and exacerbated inequality. Suchgood governance reforms may thusdeepen poverty, increasing resentmentand popular discontent – that may nega-tively impact on growth itself.

The good governance agenda is par-ticularly demanding on poor countries.In some cases, it may not be possible tomake much progress on one dimensionwithout prior or simultaneous progresson others. And if certain institutional andpolicy reforms matter more for develop-ment, these should probably receive pri-ority. Selectively concentrating resourceswould then be better than spreading lim-ited resources thinly across a wholerange of ostensible good governance re-forms, as some international develop-ment agencies tended to do.

Poverty exists in a broad range ofcircumstances and has many causes.Poverty may be due to inclusion or ex-clusion. Attacking poverty’s systemic,structural or root causes requires politi-cal commitment and state capacity toaccelerate equitable and sustainable eco-nomic development. (IPS)��

Jomo Kwame Sundaram was UN Assistant Secre-tary-General for Economic Development. AnisChowdhury held senior positions in the UN Sec-retariat in New York and Bangkok.

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CURRENT REPORTS UNIDO

These objectives include the imple-mentation of the 2030 Agenda for Sus-tainable Development and the UN’s Sus-tainable Development Goals (SDGs),where industrialization plays a key role.

The UN’s new development agenda,with a targeted date of 2030 for fullimplementation, was adopted by worldleaders last September. Among the 17SDGs, SDG 9 seeks to “build resilientinfrastructure, promote inclusive andsustainable industrialization and fosterinnovation.”

Currently, UNIDO is the only UNspecialized agency mandated to promoteindustrial development, as reaffirmed inthe Lima Declaration adopted at a meet-ing in the Peruvian capital in December2013.

During a meeting of the G77 in NewYork in June, several members of theGroup were of the view that this continu-ing trend of weakening international in-stitutions serving development shouldbe seriously addressed at the higher po-litical level. As a consequence, the Grouprequested the G77 chair, AmbassadorVirachai Plasai of Thailand, to proceedas follows:

Firstly, to have a letter of the Chairof the Group of 77 sent to the PermanentMission of the Netherlands as well as toother countries such as Denmark andGreece – whose withdrawals fromUNIDO membership are impending –requesting those countries’ reconsidera-tion on maintaining their membership inthe organization.

Secondly, to request UNIDO Direc-tor-General Li Yong of China, at the ear-liest opportunity, to brief the Group’smembers and also to jointly explore thebest course of action in this regard.

Thirdly, realizing the significance ofthis issue to developing countries, espe-cially to the achievement of SDG 9, theG77 chair has been requested to pursuethis issue at the 71st session of the UNGeneral Assembly this September.

This may lead to a resolution, un-der an existing or new agenda item,aimed at “promoting solidarity amongall UN specialized agencies while high-lighting intergovernmental commitmentto a global partnership for sustainabledevelopment stipulated in 2030 Agendafor Sustainable Development.” (IPS)��

(continued from page 13)��

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