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In the aftermath of the 3rd WTO Ministerial Conference, little objective analysis has emerged to explain such a result. Even more surprising, however, is the lack of concern over the future disposition of the key players in the international economy. This was most evident in Mike Moore's comment at the closing press conference where he indicated a desire to resume the ministerial "as soon as possible." At the least, it reflected poor judgment but is understandable in the context of the moment, perhaps best stated by Charlene Barshefsky when she opined prior to November 30th that, ..."failure is not an option."
The full extent of that failure will become evident over the next few months, but already it is clear that the consequences for the multilateral trading system are significant. The two determining elements during the week were agriculture, and the developing country agenda. The immediate cause of the suspension of the ministerial conference on December 3 was an inability to resolve differences over language in the draft agriculture text. Having made concessions regarding the presence of the term "multifunctionality," EU negotiators could not accept draft language calling for reduction of export subsidies in "the direction of progressive elimination." The position reflected an EU Council of Ministers meeting on December 3, in which France persuaded a majority of members to reject the draft agriculture text.
Developing countries now have a deeper appreciation for their role in the WTO, and the influence they can bring to bear when they act collectively. The developing countries probably could have been persuaded to accept less than their objectives at Seattle. However, once President Clinton voiced the long term implications of addressing labour and environment at the WTO, it was clear the developing world would not accept such issues falling within the multilateral trading system. The net result was that an otherwise fragile developing country coalition stuck together, and withheld their essential consent to the rolling draft declaration. Though the key developed countries are deign to acknowledge it, the fact is developing country members have sent a powerful message that will have a strong impact on the future operations of the WTO.
As December 2 drew to a close it was clear that the working group approach was not going to produce a final statement. When the decision was made to advance the process through smaller meetings, akin to the Geneva Green Room process, too many developing countries were on the outside looking in. Hence, the fundamental institutional issue concerns finding an answer to the question of how to be inclusive (or at least transparent) without sacrificing efficiency. Even if this were the only institutional issue, it is unlikely that a ready and acceptable answer will be found in January.
In the meantime, EU/US bilateral issues that were expected to be resolved in Seattle - the beef hormone issue, the banana import regime, and the denial of access for US aircraft sporting hush kits -are now warming up again. A week after Seattle, USTR Barshefsky suggested additional retaliatory lists on these matters may be necessary. For its part, the EU has begun to move ahead on an e-commerce initiative that includes special protection for the audio-visual industry, as well as addressing GMOs in the context of the Biosafety Protocol. More initiatives can be expected from both sides over the next few months. This will of course heighten trade tensions, and further complicate the resumption of the ministerial conference.
Separate EU meetings with both Canada and the US on December 15 and 17 did not produce encouraging signs of an early resumption to the ministerial process. The December 17 US-EU Statement on the WTO did stress the need to address institutional issues, while working toward launching a new round "as soon as possible." It appears that both the US and Canada have had to recognise the wisdom of Pascal Lamy's observation that recalling WTO ministers and failing a second time would be an unmitigated disaster.
It is noteworthy that the actual status of the drafts from Seattle is quite unclear, both in terms of their legality under the WTO Charter, and in terms of the existence of an agreement to "freeze' the draft as at December 3. No one has yet been able to point to any official document given a consensus endorsement to that effect by the assembled ministers.
Indeed, the initial EU interpretation offered the evening of December 3 by EU Agriculture Commissioner Frantz Fischler, was that Seattle proposals were no longer on the table. EU Trade Commissioner Pascal Lamy appeared to go further, suggesting that proposals discussed in Seattle were forfeit. Some EU officials have since reiterated the same view, though there appear to be on-going discussions within the EU on the matter. Japanese negotiators may have taken a similar view, as a number of them left Seattle well before the close of the conference. Consequently, the challenge of restarting discussion on a new round ought not be underestimated.
The upshot of Seattle is that an opportunity to proceed with a new round has been delayed by at least six months. If regional negotiations were to accelerate in this time period, the initiative may be lost for several years. Whatever one may think of regional trade agreements, there is no mechanism save the WTO that subsumes global multilateral trade. A weakening of this basic institution would not bode well for the further development of a rules-based international trading system.
The debate over WTO reform will intensify as the year progresses. It is worth tracking positions emerging on this issue, and considering the potential implications for subnational interests. In the last few years, NGOs have made a number of proposals for WTO reform. Generally speaking, they have argued for greater transparency in WTO processes, a proactive document derestriction policy, access to and standing before dispute panels, and a restructuring of organisational values away from "free trade," and toward "fair trade." As well, each presents a specific focal point depending upon their issue orientation - i.e., gender, poverty, environment, labour, and development. Of those already weighing in, the UK Consumers' Union and its American counterpart, the World Wildlife Fund, and elements of the international labour movement have all presented interesting views on the reform question.
The EU view on reform will be formally expressed in a paper being prepared by the EC for the European Parliament. It is not clear when the document will be tabled, though can be considered unlikely before the spring of 2000. However, there have been tantalising indications of the general thrust of the EC position. Certainly, Pascal Lamy's December 13 remarks at Strasbourg are relevant at the level of principle. When Lamy used the phrase "globalisation maitrisée" at Strasbourg, he was referring to the manner in which Seattle had altered the future course of trade liberalisation. To some degree, therefore, it is a term of art in service to the EC's objectives for multifunctionality, development, and so on.
However, the phrase may well contain a new value orientation. The English translation is "properly managed globalisation". In other words, this appears to be implying a people's globalisation. EU President Romano Prodi gave a speech at Carleton University December 16, just three days after Lamy's remarks, in which he said, " Let us see globalisation not as a threat, but as an opportunity to be grasped, in the interests not of multiunational companies but of ordinary people everywhere." Similarly, the US-EU Statement on the WTO of December 20 references a desire to "harness" globalisation by strengthening and extending WTO rules.
Accordingly, the phrase can be interpreted as implying a movement toward "fair trade" as the new objective, rather than the traditional "free trade" formula. This provides a broad umbrella under which most of the new forces can be addressed This is in effect a step toward controlled or managed globalisation. As something with which we have almost no knowledge or experience historically, it represents a new source of uncertainty in trade relations.
Certainly, it does imply a sea change at the political and institutional level. Ironically, the one agreement that did emerge in Seattle was among parliamentarians from about 60 countries who decided that they had a duty to participate and shape the WTO agenda. While appealing to western democratic temperaments, the work of WTO will become more complicated and less efficient with the deeper intrusion of domestically responsive political forces. However, it may happen anyway, as it offers a means of buffering and accommodating the diverse pressures now facing the multilateral trading system.
And if it does, it raises a series of questions relevant to federations in general, and Canada in particular. Canada can be expected to make a contribution as well. It is in this context of reform, therefore, that an opportunity could present itself to enhance the provincial role at the international level. Once the debate is in full swing, a range of options will emerge. From a parliamentary perspective, for example, there is a sound, historically relevant argument for a provincial representation role in any parliamentary forum.
Similarly, if non-governmental organisations can lay claim to a legitimate role by virtue of the WTO Charter, the claims of subnational governments to a role in the dispute settlement process are stronger, particularly when cases involve policies and programs within their legislative jurisdiction.
By early on the evening of December 3 1999, 135 delegations in Seattle knew there would be no final agenda for the next round of trade negotiations. The Third WTO Ministerial Conference revealed that the actual content for a round remains in contention among key players. It also unmasked the serious division between the developed and developing countries, based largely on disagreement over how and when to address the demands of the less developed economies.
One area in which the conflict has been pitched is the treatment of subsidies. The WTO Subsidies Committee is charged with administering the Agreement on Subsidies and Countervailing Measures(SCM). The agreement, negotiated in the Uruguay Round, sets out the internationally agreed rules on subsidies and related disciplines. Export subsidies, for example, are prohibited by the agreement. A wide variety of specific subsidies are actionable under the agreement.
However, the agreement also contains a category of "non-actionable" subsidies. There are only three kinds of specific subsidies deemed to be exempt from the rules: regional development, environmental facility adaptation, and research and development. Even these have constrains around them, but in principle they are exempt from conventional WTO disciplines on trade distorting practices.
The exemption for non-actionable subsidies expired at the end of 1999, due to the inability of the Subsidies Committee to reach a consensus on whether to extend the exemption as it stood or with modifications, for a further period.
The lack of a consensus on extending the exemption should not have been a surprise because developing countries have signaled since early 1998 that they regarded the exemptions as serving only the interests of industrial countries. As a result, they asked for changes in the SCM Agreement that would redress the 'imbalances' that they had identified. The developed countries, including Canada, argued that what was being proposed were issues for negotiation, not matters concerning the effective operation of the agreement.
As reported December 20, the Committee was unable to secure a consensus at its meeting in Geneva earlier the same day. There has been virtually no extended coverage in Canada of this development or its implications for Canadian subsidy practices. By and large, those potentially affected by this development are not even aware it has occurred.
The loss of this exemption could have an impact on Atlantic Canada. It means that the only multilaterally recognised protection available to Canada's regional development policy is lost, and with it any internationally agreed process at WTO to defend economic development assistance in Atlantic Canada or elsewhere in the country. The loss of the regional development exemption exposes development bodies, such as ACOA, to heightened risk of unilateral and multilateral trade actions. Businesses in the region that have received a financial benefit from government are vulnerable in such a case.
The loss of the non-actionable category undermines the recent blueprint of the Atlantic Caucus for energising regional development initiatives. Catching Tomorrow's Wave puts a premium on deploying "creative ways in which the Government of Canada can expand the pool of capital for new and growing small- and medium-sized businesses…" Inasmuch as such initiatives are likely to be developed on a cost sharing basis, there could be similar vulnerabilities for provincial assistance programs in all four Atlantic Provinces.
It is noteworthy that both the US and the EU have raised questions in Geneva regarding ACOA, and its development programs. The 1998 WTO Trade Policy Review for Canada takes note of the role of regional development programs across the country, and the scale of benefit flowing at the subnational level.
With the stakes high, the public and private sectors have a clear interest in seeing the subsidy issue sort itself out in a favourable way. As demonstrated at the Seattle WTO meeting, no concrete strategies have emerged to bridge the gap between developing and developed country views on this issue.
With the provisional articles formally lapsed, it will be extremely difficult to engage de novo a negotiation to create a new non-actionable category, as well as address other imbalances in the agreement.
There is, therefore, a great deal riding on the upcoming February meeting of the WTO General Council. If the Council can finesse the technical lapsing of this and other agreements, one avenue to consider is the striking of a working party. Such a WTO sanctioned group could be mandated to review, and analyse the claims of the developing countries, assess options for addressing them, and recommend appropriate modifications in the implementation of the agreement.
In addition, the working party could identify and recommend such other issues as may be legitimate for negotiation among the WTO Members. In keeping with developing country demands for early attention to issues of concern to them, the working party would be directed to complete its work this year, and report back with recommendations to the WTO General Council.
With this working party mechanism in hand, developing countries might have a larger incentive to recognise that a non-actionable category is in the interests of all Members.
Seeking an early resumption of ministerial level discussion on a new round, WTO DG Mike Moore committed January 7 to bridging the gaps among Members. In short order, he held meetings in Geneva with about thirty delegations before embarking on a whirlwind tour of capitals. In the last two weeks, he has held face-to-face meetings with senior political and bureaucratic officials in Delhi, Brussels, and Washington, D.C.. In New York, he met with the UN Secretary General Kofi Annan and senior staff where he argued an interesting case that what happened to WTO in Seattle is just the tip of the iceberg.
After two weeks of intense consultations, Moore is a more sober man. At a media breakfast in Brussels January 18, he said, "I have yet to see movement of a substantial nature and cannot say we are any closer than we were before."
The next phase of his travels includes the World Economic Forum at Davos, and then on to Bangkok for the UNCTAD meeting. He appears to consider neither of these meetings as the fora needed to create momentum to resolve disagreements at WTO. However, both fora may prove useful in the search for a mechanism to keep the new round initiative alive. Moore obviously cannot continue to play traveling salesman absent persuasive evidence that movement is occurring in country positions. As Kissinger demonstrated in the Middle East, shuttle diplomacy can work when there is a shared objective binding the parties. Without a concrete objective in place, Moore's reward for global travel will be merely jetlag and indigestion.
It is becoming clear that separating WTO reform from the process of consensus building for a new round will be extremely difficult. Both issues turn to a large degree on addressing the demands of the developing world. Therefore, the institutional reform issue is further complicating Moore's progress.
Until a viable proposal emerges that meets the test of inclusivity for large and small WTO Members, both the reform process and a new round will be stymied. Most thinking thus far seems to have held closely to existing institutional consultation practices, even though these are a prime cause of the growing gridlock.
The crux of the problem is developing country participation: how to have an inclusive process that accommodates developing countries. It is therefore critical that WTO hear from the developing countries on the reform issue. Up to now, there is little on the table other than India's generic demand for reform. A developing country proposal, perhaps under the auspices of the G 77 that addresses an approach to studying and engaging the need for reform could effectively begin the essential dialogue.
Accordingly, suggestions for a "security council" model, an "executive committee", and other elite management models will not receive a positive endorsement from developing countries. One fact not adequately considered is the existing capacity to structure more formal voting arrangements, as provided by both the GATT and the WTO Charter. While such an approach is unlikely to be suggested by any of the major industrial countries, it may be introduced by the developing countries themselves.
It remains to be seen whether the outcome in Montreal on January 28 - 29 is a landmark achievement in international biotechnology cooperation. The final draft text raises questions likely to precipitate significant debate in the months and years ahead. At first blush, the Protocol complicates rather than clarifies both the debate on trade and environment, and food safety.
The purpose of the negotiation was defined in a 1995 decision of the Parties to the Convention on Biological Diversity. The decision provided that the Parties develop a Protocol on biosafety, specifically focusing on transboundary movement of any living modified organism resulting from modern biotechnology that may have adverse effect on the conservation and sustainable use of biological diversity, setting out for consideration, in particular, appropriate procedures for advance informed agreement.
The text addresses these issues, and introduces consideration of human health, as well as the entire realm of transboundary movement of LMOs intended for direct use as food, feed, or for processing. New documentation requirements combined with recognition of the precautionary principle, suggest the prospect of extensive product labeling requirements is real. Moreover, the Protocol adds fuel to the case for establishing PPM regimes inasmuch as LMOs invite a distinction on the basis of production methods.
To the extent that there is an inconsistency between the Protocol and any other international agreement, there is room for debate on precedence. The preambular text notes that, "…this Protocol shall not be interpreted as implying a change in the rights and obligations of a Party under any existing international agreements." Thus, the Protocol does not presume to alter rights and obligations under any WTO agreements, such as TBT or SPS. However, the preamble concludes by saying, "…the above recital is not intended to subordinate this Protocol to other international agreements…" In other words, there is no intention to subordinate the Protocol to the WTO.
Article 14 speaks directly to bilateral, regional, and multilateral agreements and arrangements. This is an important article, and bears repeating in full:
Paragraph 1 has clear prospective application, and sets a floor on the objectives of such other agreements to which Parties are members. The larger issue, however, is with the proviso that such other agreements "do not result in a lower level of protection than that provided for by the Protocol." Were it not for the inclusion of the precautionary principle, this phrasing might be interpreted as meaning a rigourous science-based standard no lower than set out in the Protocol.
However, given the flexibility allowed the Parties to make a determination not to allow entry of an LMO in situations where the science is ambiguous, the level of protection afforded by the Protocol is extremely high. There is therefore some doubt that, for example, the SPS Agreement meets this test in relation to LMOs that could have "potential adverse effects on biological diversity, taking also into account risks to human health." At a minimum, there are some trade-related issues here that need to be examined in more detail.
One might consider this a moot point in the light of paragraph 3, which seeks not to tread on transboundary shipments made pursuant to other agreements to which the involved Parties are members. The significance of paragraph 3 is diminished, however, by virtue of paragraph 4, which clearly envisions parties identifying specific imports for which domestic regulations will apply. The Protocol itself defines "import" as meaning the "intentional transboundary movement into one Party from another Party."
Since the purpose of the Protocol is to ensure minimal adverse effects from transboundary movement, this provision may lead to specific LMOs being treated as within the ambit of the Protocol, and not within the operational jurisdiction of any other international agreement. If countries are enabled to shift unilaterally specific LMOs to the jurisdiction of the Protocol, other agreements -- the purpose of which is trade enhancement -- could be drained of significance. This is relevant in relation to LMOs directly used in food, feed, or processing because Article 11 specifically repeats the same domestic regulatory language, indicating that food is a specific import that can be constrained by the domestic regulatory process. Moreover, the lack of scientific certainty does not preclude action to avoid potential adverse effects.
There are other aspects of the agreement that raise questions. The notification provisions call upon the importing country to inform the exporter of their decision within a set period. However, the importing country is not obliged to do so, and the absence of a response is explicitly stated not to constitute acceptance. However, the Protocol does not clearly address how an exporter secures a response from the import country in such a situation. This appears to be left to the domestic regulatory regime, which could frustrate exporters indefinitely.
In addition, there appears to be a difference between the decision process for LMOS under Article 10, and the procedure for LMOs intended for direct use as food, feed, or for processing under Article 11. For example, Article 11 does not reference paragraphs two and three of the general decision procedure, suggesting that the importing country is not bound even by the extended timeframes for decision on other LMOs.
If these interpretations are accepted in practice, LMOs in the food trade could be faced with significant barriers to entry. The EC has moved rapidly in recent months to elaborate further its systematic approach based on the precautionary principle. In January, the EC issued the White Paper on Food Safety, which includes recommendations to further regulate in the area of food labeling before the end of calendar 2000. On February 2, the EC adopted a statement on the use of the precautionary principle. The statement deems its application to cover protection of environment, human, animal and plant health. EU Commissioner David Byrne (Health and Consumer Protection) will visit Washington February 8 - 11 to sell the White Paper, the precautionary principle, and the proposed European Food Authority.
North American farmers and food processors are reacting with considerable interest to the Protocol. A week ago, participants at an agriculture conference in New Brunswick, Canada expressed an appreciation for segregating organic and GMO products before they reach the marketplace. In the US, the National Food Processors' Association has called for labeling at the farm gate. In due course, these concerns will reach the fisheries sector, starting with the NAFO/Fisheries Commission meeting in Brussels February 29.
The January 21, 2000 Australian leather subsidy compliance ruling is significant because the WTO Panel presented a far-reaching operational definition of the term "withdraw the subsidy" at Article 4.7 of the SCM Agreement. According to the Panel, withdrawing a subsidy is not limited to prospective action but may encompass retrospective repayment of the subsidy. Moreover, the Panel went further and found that there is "no basis for concluding that anything less than full repayment would suffice to satisfy the requirement to 'withdraw the subsidy' in a case where repayment is necessary."
Some WTO Members, including Canada, insist that the compliance ruling not be viewed as a precedent in future disputes. The case, however, is clearly shaping strategic thinking about approaches to implementing panel rulings. Current cases involve subsidies valued in the billions of dollars, and how the subsidies are withdrawn will attract further scrutiny.
It could shape the outcome of the compliance reviews in the Canadian and Brazilian civil aircraft cases due in March. The US Foreign Sales Corporation Appellate Body ruling on February 24 confirmed the measure is a prohibited export subsidy under the SCM and Agriculture agreements. Delicately sidestepping the repayment issue for now, the Appellate Body recommended that the measure be brought into "conformity" with WTO obligations.
The Panel's argument appears to be rather persuasive, and lends genuine teeth to the ban on export subsidies, either in the form of government programming or one-of-a kind payments. Though controversial at the moment, the ruling eventually may bring further pressure to bear upon the EU to negotiate agriculture, when the Peace Clause expires in 2003.
Apart from the remote possibility that well-oiled corporations will be required to repay embarrassingly large sums of money, there are other consequences of seeing the leather ruling gain acceptance as a touchstone for future subsidy cases.
Though generally unnoticed, Howe's processing facility in Thomastown, and the Rosedale Tannery in Gippsland happen to be significant job generators in areas that have had difficulty attracting new businesses (See "Gippsland" below). The Australian defence before the dispute panel did reference the subsidy programs as part of the government's programme for "maintaining jobs in disadvantaged regional areas."
This line of reasoning was not further developed, and did not attract any comment in the Panel's May 1999 decision. This is at least significant in the sense that neither the US nor the Panel considered it a particularly persuasive argument to make. In other words, the regional development subsidy card carried no weight.
This raises questions regarding the vulnerability of incentives to encourage export-oriented businesses to locate in disadvantaged areas.
The May 1999 ruling also narrowed the scope for government incentives in another important and related way. Australia argued that Howe operated in a small domestic market, and therefore must export. In other words, there was no export performance contingency because by the nature of the domestic market, the firm must export. The Panel, which effectively equated sales performance criteria with export performance conditions, rejected this argument. This echoes a Canadian argument made in the civil aircraft case, and which was also rejected at Panel.
This development should set off a general alarm among small, export dependent jurisdictions. Subsidisation in small jurisdictions seeking to develop a value added, export oriented economy is more exposed and less defensible as a consequence of the Leather Panel's ruling.
Doing Development in Gippsland
From the Senate Employment, Workplace Relations, Small Business and Education References Committee:
As a representative of the Association told the Committee: