Multilateralism and the World Trade Organisation: The Architecture and Extension of International Trade Regulation (Routledge Advances in International Political Economy)

Multilateralism and the World Trade Organisation

The demonstrations that accompanied the World Trade Organisation’s (WTO’s) Third Ministerial Meeting in Seattle in late 1999 offered many the first glimpse of this organisation. Yet they also drew attention to a growing tide of criticism directed towards the WTO, comprising, among other things, a perceived lack of environmental and developmental sensitivity as well as a disregard for the rights of workers. This book aims to contribute to a growing body of literature on the WTO. It explores the significance of the establishment of the WTO, as well as some of the issues brought into sharper focus by the Seattle demonstrations. Located within the broader study of global governance, Multilateralism and the World Trade Organisation offers a critical examination of the legal framework of the WTO. It begins with an exploration of the evolution of international trade regulation, tracing the historical background of the WTO from its beginnings in the postwar settlement and the designs for an International Trade Organisation, through further efforts to formalise trade regulation in the 1950s, to the completion of the Uruguay Round. Rorden Wilkinson then goes on to employ a conception of multilateralism as a prism through which to explore the WTO’s legal framework. In so doing, Multilateralism and the World Trade Organisation examines the way in which the principles of most-favoured-nation, reciprocity and dispute settlement are operationalised. It argues that the employment of a conception of multilateralism reveals a series of discriminatory practices embedded in the WTO’s legal framework which, if utilised in a particular manner, serve to disadvantage smaller, less able, developing and transitional states. Rorden Wilkinson is Lecturer in International Relations and International Political Economy at the University of Manchester. His most recent edited collection is Culture, Ethnicity and Human Rights in International Relations (1997).

Routledge Advances in International Political Economy

1 The Future of the Nation-State Essays on cultural pluralism and political integration Edited by Sverker Gustavsson and Leif Lewin (Co-publication with Nerenius and Santérus Publisher AB, Sweden) 2 Classical Liberalism and International Economic Order Studies in theory and intellectual history Razeen Sally 3 Coping with Globalization Jeffrey Hart and Aseem Prakash 4 Responding to Globalization Jeffrey Hart and Aseem Prakash 5 Japanese Capitalism in Crisis A regulationist interpretation Edited by Robert Boyer and Toshio Yamada 6 Globalization and Social Change Edited by Johannes Dragsbaek Schmidt and Jacques Hersh 7 Multilateralism and the World Trade Organisation The architecture and extension of international trade regulation Rorden Wilkinson

Multilateralism and the World Trade Organisation The architecture and extension of international trade regulation Rorden Wilkinson

London and New York

For George, Elsie, Harold and Rose-Ethel

First published 2000 by Routledge 11 New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor & Francis e-Library, 2001. © 2000 Rorden Wilkinson All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Wilkinson, Rorden, 1970– Multilateralism and the World Trade Organisation: the architecture and extension of international trade regulation / Rorden Wilkinson. (Routledge advances in international political economy) 1. Foreign trade regulation. 2. Environmental policy. 3. Labour policy. 4. World Trade Organization. I. Title. II. Series. K3943 .W536 2000 341.7'54–dc21 00-058259 ISBN 0–415–22171–4 (Print Edition) ISBN 0-203-18786-5 Master e-book ISBN ISBN 0-203-18909-4 (Glassbook Format)

Contents

List of illustrations Acknowledgements List of abbreviations Introduction

vi vii ix 1

PART I

The architecture of multilateralism 1 2

9

The institutional evolution of international trade regulation

11

Multilateralism: the architecture of international trade regulation

31

PART II

The extension of multilateralism

53

3

The WTO

55

4

Non-discrimination and the WTO

80

5

Trade barrier reduction and the WTO

100

6

Dispute settlement and the WTO

115

7

Multilateralism and the WTO: extending the parameters of trade regulation?

137

Bibliography Index

146 158

Illustrations

Figures 3.1 The organisational structure of the WTO 6.1 The dispute settlement procedure

68 121

Tables 3.1 3.2 4.1 4.2

The legal framework of the WTO Uruguay provisions for interorganisational co-operation Qualifications to the principle of MFN Provisions for lesser and least developed countries in the WTO’s legal framework

60 72 85 98

Acknowledgements

In its writing, this book has taken many paths, some more fruitful than others. It started life as a doctoral thesis written while I was at the Department of Political Studies at the University of Auckland, New Zealand, between 1995 and 1997. It has since been written and rewritten – an endeavour which at times appeared to have no discernible end – to such an extent that it is quite different from that initial project. I am grateful to the resources and kind assistance of the library staff at the University of Auckland, the British Library, the British Library of Political and Economic Science at the London School of Economics, the University of Sussex, the University of Kent at Canterbury, the Australian National University, and the John Rylands Library at the University of Manchester. I am also grateful to the Research School of Pacific and Asian Studies at the Australian National University, and in particular to Stephanie Lawson, for the use of its resources between September and October 1996 while in residence as a visiting member of staff. While I was at the Australian National University part of the original thesis was presented as a paper at the 1996 Australasian Political Studies Association Annual Conference held in Perth at the University of Western Australia. I am grateful to Campbell Sharman and Samina Yasmeen for their kind comments and their part in the decision to award the paper the prize for the best graduate paper at that conference. I am also grateful to Lorraine Elliott, Graeme Cheeseman and Sam Makinda for their contributions and support in both Canberra and Perth as well as thereafter. For their comments on drafts of what follows as well as on some of the ideas contained herein I am grateful to Lucy James, Paul Cammack, Terhi Saunby, Roisin McLaughlin, Nigel Haworth and Andrew Sharp. I also owe a debt of thanks to Kevin Cuddy; as well as to Stephen Chan, Norman Geras, Amanda Layne, Simon Bulmer, Inderjeet Parmar, Steve de Wijze, Véronique Pin-Fat, Andrew Russell and Seamus Simpson. Perhaps my largest intellectual debt is owed to my long-standing collaborator Steve Hughes who patiently read, discussed and listened to much of what follows and consistently and selflessly offered his support throughout this and its previous incarnations. Finally, I owe much for the support and encouragement of Randeep Kaur, Elsie and George Wilkinson, Jacqueline Wilkinson, Ivan Wilkinson, Vicky Singler

viii

Acknowledgements

and Graham Wilkinson, and the inspiration provided by Elizabeth Singler. Nevertheless, what follows must stand on its own, for which none of the above can bear any responsibility. Rorden Wilkinson Manchester April 2000

Abbreviations

ACP AD AIC AMS APEC ASEAN CAP CBERA CDP CET CTE CTG CTRIPs CTS DSB DSM DSU EC ECLA ECOSOC ECU EEC EU FDI G7 G77 GATS GATT GDP GNP IBRD

African, Caribbean and Pacific states Anti-Dumping Advanced Industrial Country Aggregate Measure of Support Asia Pacific Economic Co-operation forum Association of South East Asian Nations Common Agricultural Policy Caribbean Basin Economic Recovery Act (US) UN Committee for Development Planning Common External Tariff Committee on Trade and Environment Council for Trade in Goods Council for Trade-Related aspects of Intellectual Property rights Council for Trade in Services Dispute Settlement Body Dispute Settlement Mechanism Dispute Settlement Understanding European Community UN Economic Commission on Latin America Economic and Social Council of the United Nations European Currency Unit European Economic Community European Union Foreign Direct Investment Group of Seven leading industrial states Group of 77 developing countries General Agreement on Trade in Services General Agreement on Tariffs and Trade Gross Domestic Product Gross National Product International Bank for Reconstruction and Development (World Bank)

x

Abbreviations

ICC ICFTU ICJ ILO IMF ITC ITO LDC MAI MFA MFN MTN MTO NAFTA NAM NATO NGO NIC NIEO NTB OECD OEEC OIE OPEC OTC PGE PMEU PRC RTAA TBT TMB TPRB TPRM TRIMs TRIPs UN UNCTAD UNDP UNEP USTR WIPO WTO

International Chamber of Commerce International Confederation of Free Trade Unions International Court of Justice International Labour Organisation International Monetary Fund International Trade Centre International Trade Organisation Less/Least Developed Country Multilateral Agreement on Investment MultiFibre Agreement Most Favoured Nation Multilateral Trade Negotiation Multilateral Trade Organisation North American Free Trade Agreement Non-Aligned Movement North Atlantic Treaty Organisation Non-Governmental Organisation Newly Industrialised Country New International Economic Order Non-Tariff Barrier Organisation for Economic Co-operation and Development Organisation for European Economic Co-operation Office International de Epizooties (World Organisation for Animal Health) Organisation of Petroleum Exporting Countries Organisation for Trade Co-operation Permanent Group of Experts Permanent Monitoring and Enforcement Unit (US) People’s Republic of China Reciprocal Trade Agreement Act 1934 (US) Technical Barriers to Trade Textile Monitoring Body Trade Policy Review Body Trade Policy Review Mechanism Trade-Related Investment Measures Trade-Related aspects of Intellectual Property rights United Nations United Nations Conference on Trade and Development United Nations Development Programme United Nations Environment Programme United States Trade Representative World Intellectual Property Organisation World Trade Organisation

Introduction

Since its establishment on 1 January 1995 the World Trade Organisation (WTO) has attracted considerable interest from scholars, practitioners, governments, non-governmental organisations and grassroots movements. Perhaps the pinnacle of this attention was witnessed in late November, early December 1999 at the WTO’s Third Ministerial Meeting in Seattle. The mass demonstrations that accompanied the Ministerial Meeting, not only in Seattle but also in many major cities across the globe, ensured that the Meeting and the WTO became the subject of much media attention and speculation. Yet the demonstrations and the media attention reflected, not a spontaneous outburst of popular protest, but rather one dimension, albeit the most spectacular, of a growing process of opposition to a global economic agenda seemingly devoid of social, environmental and developmental sensitivity. For their part, the demonstrations contributed to the failure of the Seattle Meeting to result in its intended goal: to launch a new round of trade negotiations – dubbed the ‘Millennium Round’ – designed to bring certain commercial and related sectors, both outstanding and new, into line with WTO rules. The extent of the failure of the Meeting led the WTO to resort to more familiar methods of attempting to reach agreement: by holding discussions at its headquarters in Geneva and throughout a variety of formal and informal venues safely closeted away from unwanted public attention. Somewhat ironically, it had been this very lack of transparency that was among the concerns raised by the protestors. Yet the failure of the Seattle Meeting does not represent the beginning of the end for the WTO, nor does it reflect a general weakening in the commitment of member states to operate within and strengthen the WTO, as some have suggested. The history of the WTO is much longer than its short years suggest, and it is much more robust than many of its critics believe. The Seattle Meeting did highlight a number of issues and concerns which the WTO must address, and brought many others into sharp relief. But it can only be with the benefit of a degree of hindsight far greater than this work can provide that the significance of the Seattle Meeting can be gauged. That said, the establishment of the WTO represents the culmination, though not the end, of a political process stretching back to the wartime negotiations

2

Introduction

seeking to provide an organisational focal point for a liberal trade regime. What was intended to be the WTO’s forerunner, the International Trade Organisation (ITO), was itself to form one-third of a set of organisations conceived during the Second World War with the purpose of coherently managing the global economy. These, in turn, were the product of a culture of organisation building nurtured by an earlier, though not altogether successful, post-First-World-War effort to create a series of international organisations designed to govern key aspects of global life manifest in the form of the League of Nations and the International Labour Organisation (ILO). When set against this backdrop the WTO represents both the latest in a line of attempts to create an organisational focal point for a liberal trade regime, and one aspect of a series of endeavours to consolidate a global organisational structure designed to govern, to some degree, world affairs. The WTO’s situation in an historical process that has attempted to create various organisational foci for the regulation of international trade is often understated (with the notable exceptions of Hudec, 1990; Petersmann, 1997; Jackson, 1998a; Graz, 1999). Yet, the WTO owes much to the ill-fated wartime and post-war energies directed towards the creation of the ITO; it is intrinsically related to its immediate predecessor, the General Agreement on Tariffs and Trade (GATT); and it shares a lineage with another failed attempt at organisational formality in the form of the Organisation for Trade Co-operation (OTC). More intimately, the WTO embodies a core organisational structure directly inherited from its predecessors. However, although the WTO is the latest in a series of organisational projects and as such shares many of the characteristics of its predecessors, its creation also represents what Bulmer and Burch have, in another context, termed a critical juncture (Bulmer and Burch, 1998: 601–28). In this sense, the creation of the WTO marks a qualitative change in the way in which international trade is regulated – a change which, to use their words, ‘while not wholly breaking with the past, [is] sufficiently novel to be considered as significant’ (Bulmer and Burch, 1998: 605). It represents the first successful attempt at creating a formal organisational focus for the regulation of international trade; it embodies in its legal framework a consolidated set of rules governing existing areas of international trade; it also comprises a body of rules which serve to extend the arena of economic activity subjected to the WTO’s regulatory specifications beyond a traditional focus on trade in goods, to include trade in services; it has, with the notable exception of labour and to a lesser extent the environment, moved into the regulation of trade-related areas such as intellectual property rights and investment measures (Wilkinson, 1999a: 165–91); it has begun the process of drawing under its regulatory umbrella the contentious areas of agriculture, and textiles and clothing; and it has a Membership which far outstrips – both in number and geopolitical significance – that of its predecessor. The establishment of the WTO, then, has at one and the same time anchored, formalised, deepened and widened the trade regime. As such, it represents a qualitative shift in the regulation of international trade.

Introduction

3

The family resemblance that the WTO shares with its predecessors ensures that much can be learnt about the contours of international trade regulation from studying the background to the WTO. Much of the work on the GATT carried out throughout its 47-year reign as the principal legal basis for international trade remains extremely relevant. But the critical juncture represented by the establishment of the WTO is such that its impact has yet to be fully assessed. Significant work has been and is being done on specific aspects of the WTO and its legal framework, such as that on trade in services (Drake and Nicolaïdis, 1992; Kostecki, 1999), intellectual property rights (Bronkers, 1994), investment (Ariff, 1989), dispute settlement (Petersmann, 1997; Hudec, 1998), development (Awuku, 1994; Das, 1998), the environment (Brack, 1995, 1999) and labour standards (Haworth and Hughes, 1997; Hughes and Wilkinson, 1998; Wilkinson and Hughes 2000). Furthermore, a growing, but still small, body of literature is emerging surveying the WTO as a whole (Hoekman and Kostecki, 1995; Qureshi, 1996; Krueger, 1998; Jackson, 1998a). Yet there remains much to be done, particularly relating to new and increasingly significant aspects of the WTO’s remit, the regime that it supports, as well as the relationship between the WTO, national systems and civil society. This book seeks to add to that growing body of literature on the WTO. It locates the study of the WTO within a broader framework of evolving global governance – by which is meant those organisations, institutions, specialised agencies and private bodies that embody procedures and practices designed for the ‘management of [global] political, economic and social affairs’ (Cox, 1997: xvi). Beyond this, it conceives of the WTO as the latest, though qualitatively different, organisational foci in the post-war evolution of international trade regulation. It argues that, though best understood as one aspect of an evolving global institutional framework, the WTO reflects a specific organisational form: that of multilateralism. And it is by conceiving of the WTO as an instance of multilateralism that we can best understand the qualitative shift in international trade regulation that its creation has heralded. Following the work of John Ruggie (1993a, 1993b, 1998), among others, multilateralism is conceived hereafter as an organisational practice which serves to arrange, through a set of constitutive and authoritative rules, the relations of participants in accordance with certain generalised principles of conduct. These principles are identified as indivisibility, diffuse reciprocity and dispute settlement. Conceiving of the WTO as a specific instance of a distinct organisational form provides the conceptual framework with which to understand the qualitative change in international trade regulation that its creation represents. This is achieved by exploring the practices prescribed by the legal framework of the WTO as they arise from a particular utilisation of the generalised principles of conduct. More specifically, in understanding the qualitative shift that has occurred in trade regulation this work pursues answers to three questions: in what way does the WTO operationalise the principle of indivisibility; in what manner is the principle of diffuse reciprocity employed; and what provisions are made for the settlement of disputes arising among participants? Beyond this, the

4

Introduction

conclusion concerns itself with the findings arising from an application of this particular conception of multilateralism, as well as those barriers that may present themselves in such a way as to inhibit the further extension of the parameters of trade regulation. But, with regard to the latter, rather than surveying those factors that are usually put forward as representative of the greatest challenges to international trade, such as periodic tensions between the principal trading powers, it explores the interrelationship between, and tensions thrown up by, the more recent challenge from civil society and an older source of confrontation, that of development. However, before we proceed it is important to clarify once again the purpose of this book. The book is primarily concerned with the development of a more comprehensive understanding of the legal framework of the WTO and the practices that it embodies which, taken together, amount to a qualitative shift in the nature of trade regulation. Such a study is, in turn, intended to contribute to a more complete understanding of the evolving institutional framework of global governance. In this sense, it does not seek to conduct a critical examination of the trade policies of particular states – though at times these will be important – nor does it aim to be the definitive text on the WTO or international trade regulation.

The organisation of the book The book is organised in the following manner. Chapter 1 explores the organisational development of international trade regulation by examining the historical movement from the ITO to the GATT, through a second attempt at formalisation under the auspices of the OTC, the challenge of the United Nations Conference on Trade and Development (UNCTAD), and finally to the WTO. Once the historical evolution of the WTO has been established, Chapter 2 directs its attention towards developing the conceptual framework that enables us to understand something of the qualitative shift that has occurred in trade regulation, and, by extension, provides the anchor for the remainder of the book. It argues that, although a distinct preference for multilateralism as a specific form of international organisation can be identified across the range of literature, few scholars have sought to probe into its structural dynamics. But, building on those that have begun to think seriously about the architecture of multilateralism – what is often referred to as its anatomy – it extracts a conception which conceives such forms as comprising a set of rules which organise relations among three or more states in accordance with three generalised principles of conduct: indivisibility, diffuse reciprocity and dispute settlement. It then explores the architectural shape of international trade regulation arising from a particular operationalisation of these principles prior to the establishment of the WTO. Chapter 3 explores the key characteristics of the WTO; the manner in which its legal framework is organised; its role in contemporary global governance; and the more significant events of the initial years of its operations. Building upon

Introduction

5

this foundation, Chapters 4, 5 and 6 explore the organisational and regulatory form of the WTO, and, by extension, something of the nature of the qualitative shift that it represents. Chapter 4 examines how the WTO organises trade relations in accordance with the principle of indivisibility. This is achieved by exploring the format and function of the principle of most-favoured-nation as a central component of the WTO’s legal framework. Chapter 5 does the same for the principle of diffuse reciprocity by exploring the manner in which a commitment to trade negotiations forms an intrinsic part of the legal commitments administered by the WTO. Chapter 6, through an examination of the WTO’s Dispute Settlement Mechanism (DSM), concerns itself with WTO procedures for ensuring that the rules embodied in its legal framework are followed. The book draws to a close in Chapter 7 by mentioning something of the utility of employing a conception of multilateralism, as well as exploring those issues that pose a significant challenge to the further extension of international trade regulation. But before we proceed it is first necessary to define several terms used frequently in this study that have a specific meaning. The first of these is the term ‘trade regulation’. Throughout this book, the WTO is conceived as the principal source of international trade regulation, by which is meant that the WTO, through the decision-making capacity of the Ministerial Conference, determines which practices, congruent with its aims, are to be enshrined in international trade law. In this sense, then, the rules and procedures determined by the WTO regulate international trade in that they give rise to a particular kind of commercial behaviour. The use of the term regulation in conjunction with a body that seeks as its primary goal the establishment of a system of free trade wherein few commercial barriers are intended to exist seems to be something of a contradiction. This is not, however, the case. A system conceived around the free movement of goods and services, and an accompanying commitment to the free movement of capital, requires mechanisms to ensure that restrictive barriers are not put into place. These mechanisms may be rules or norms of behaviour that evolve through an adherence to an implicit set of rules; nonetheless, their function is the same – to regulate behaviour in such a way so as to ensure that the free movement of goods, services and capital is not compromised. That said, the regulatory nature of the WTO and its predecessors is such that it has actively sought to introduce a different kind of regulation in international commerce to that which existed prior to its initiation. In this sense, then, the introduction of a different kind of regulation in international trade is perhaps more correctly termed re-regulation. This more elaborate term intimates something of the regulative history, political processes and ideological influences behind contemporary commercial regulation. However, for the sake of clarity, and to resist an injection of awkwardness into what follows, the term regulation is used throughout, albeit mindful of this distinction. This is not, however, to suggest that the WTO is the only source of international trade regulation. Rather, the WTO lies at the centre of a complex web of

6

Introduction

regulatory systems comprising other global as well as regional and national bodies. In this sense, then, the WTO is the principal, though not the only, source of regulative authority in the governance of international trade. Second, the term ‘regime’ is used in places to refer to the particular commercial environment given rise to by the regulatory disciplines of the WTO and its predecessors. Here, the WTO is understood, in conjunction with its predecessors, as having given rise to an arena wherein a particular kind of commercial behaviour ensues – behaviour which is determined by the core architectural principles embodied in its regulatory framework. The term regime is not, then, employed in its more rigorous, analytical sense (see, among others, Krasner, 1983; Lipson, 1983; Finlayson and Zacher, 1983; Haggard and Simmons, 1987; Hasenclever et al., 1997; Haworth and Hughes, 2000). Rather, its meaning remains purposefully elastic. Nevertheless, this imprecision does not hide the symbiotic relationship between the trade regime and the principal regulatory focus of that regime. Building on the evolution of a set of historical practices, WTO rules specify the parameters within which national governments are able to affect trade flows and related factors as they transcend their national boundaries. These rules, in turn, nurture a particular kind of behaviour that, once established, defines the parameters of the trade regime. However, the relationship does not end there. National governments through their participation in the decision-making processes of the WTO are themselves to greater or lesser degrees the authors of that regime. It is then the collective activities of governments in the decisionmaking process that determine the nature of the legal basis of the regime, and thus gives rise to particular kinds of behaviour. It is important to note, however, that the collective participation of national governments in the decision-making process does not ensure that all participate equally in that process, or that the outcome of that process will be of roughly equal benefit to all, as this and other studies demonstrate. Rather, the outcome of that decision-making can give rise to a series of practices which enable some to benefit more than others. Furthermore, the evolution of a regime can be such that it differs in kind from that which was initially intended. As a consequence, the nature of the legal foundation of international trade regulation is such that it can give, and has given, rise to a trade regime which is uneven in character, favouring the powerful over those less able to influence the decision-making process whether they are member states, observers or affected parties (such as organised and unorganised labour, grassroots movements and non-governmental organisations). The symbiotic relationship between the trade regime and its regulatory anchor ensures that it is difficult to divorce the two, even for the convenience of scholarly enquiry. That said, this book is primarily about the WTO, its legal framework and the practices arising from that collection of rules. In this sense, then, it is not specifically about the trade regime, though of course the two are highly interrelated and at times a significant degree of overlap exists. Third, the term ‘architecture’ is used throughout to refer to the particular

Introduction

7

organisational structure arising from the core principles embodied in the regulative framework of the WTO. Put another way, it refers to a specific regulatory form that gives rise to particular modes of behaviour. More specifically, the term architecture is used as a descriptive term to refer to the three generalised principles of conduct that have been consistent features of the evolution of international trade regulation, and have provided the organisational centre for the various institutional expressions that have sought to provide an anchor for that regime. Fourth, the terms ‘institution’ and ‘organisation’ are used on occasion in a way which may appear as if they are being treated as interchangeable. This is not, however, the case. The term organisation is used to refer to those intergovernmental and non-governmental bodies that have a formal legal presence, accompanying secretariats, offices and known procedures. The WTO is conceived in this way. The term institution is used to refer to more intangible bodies which may or many not be intergovernmental in character, but that do not have the formal legal qualities of an organisation, though they may be treated as if they had. Such an interpretation has the capacity to include the GATT (though, as will be shown hereafter, the GATT evolved a quasiorganisational character) as well as a host of other bodies ranging through to private associations. That said, at times the term institution is used to refer to all of those bodies that have sought to regulate, in some way, international trade. This is done in recognition of the legally provisional status of the GATT prior to the establishment of the WTO, and, therefore, serves more as a collective term. Finally, the terms ‘global economic governance’ and ‘economic governance’ are used to refer to those aspects of evolving global governance that seek through a variety of means to manage the global economy. The use of this term does not, however, imply that economic governance can be divorced from wider political processes. Rather, the term is used for convenience of mind, conscious of the interrelated nature of global socio-economic, political and ecological processes. Furthermore, it encompasses not only those organisations which comprise its heartland, such as the WTO, IMF and World Bank; it also encompasses a host of other intergovernmental bodies (such as the World Intellectual Property Organisation – WIPO; and the Economic and Social Council of the United Nations – ECOSOC); quasi-formal bodies such as the Group of Seven leading industrial states (G7); and a range of private institutions such as the International Chamber of Commerce (ICC). Summarily, then, this book seeks to develop a more complete understanding of the regulatory character of the WTO and the qualitative shift in international trade regulation brought about by its establishment. It pursues this task through the application of a conception of multilateralism as a specific organisational form. And in doing so, it aims to contribute to the growing bodies of literature on the WTO and the nature of evolving global governance.

Part I

The architecture of multilateralism

1

The institutional evolution of international trade regulation

The establishment of the WTO on 1 January 1995 marks, in many ways, a new era in international trade regulation. It symbolises the successful completion of a protracted and periodically fraught Uruguay Round of Multilateral Trade Negotiations (MTNs) – a round that seemed to many destined to failure (see, for instance, Finger, 1991). It also represents the completion of a significant step towards the creation of a coherent system of global economic governance, centred around the WTO and acting in concert with its older siblings, the IMF and the World Bank, as well as with a host of like-minded global and regional bodies. The WTO is the successor to the GATT as the regulative body overseeing the governance of international trade. The GATT provided the legal framework regulating international trade for 47 years, in which time it evolved a quasiorganisational character with an appropriate managerial and administrative structure. And although the GATT has been heralded, by its supporters at least, as a qualified success, it was an agreement born with a number of defects. Periodic negotiations were held during the GATT’s tenure, yet these were directed more at pushing forward the trade liberalisation agenda than at addressing the General Agreement’s shortcomings. This lack of attention was heightened by the memory of previously unsuccessful attempts at altering international trade rules and creating a formal body to oversee international commerce. The GATT itself was the benefactor of post-war attempts to create an International Trade Organisation (ITO), and the survivor of a second attempt this time to establish an Organisation for Trade Co-operation (OTC). The absence of a further attempt to create a formal organisation designed to regulate international trade was, however, rectified when four years into the Uruguay Round a consensus emerged to take forward and strengthen the existing framework of international trade regulation. Initially the subject of some debate, particularly in the context of a seemingly never-ending Uruguay Round, the decision was made to extend the regulative framework governing international commerce, and it was out of this decision that the WTO emerged. The story behind the creation of the WTO is thus more than just about the enormous effort put into rescuing and completing a protracted, and at times

12 The architecture of multilateralism wayward, Uruguay Round of GATT negotiations, though of course that had an important hand in shaping the WTO. Rather, in order to understand comprehensively how the WTO came about, the form that it has taken, and its role in governing the contemporary global economy, it is necessary to explore a longer and richer history. This chapter begins that story, by exploring the institutional history behind the creation of the WTO. It then moves on, in the following chapter, to explore its regulative heart – what is termed here, the architectural core – embodied in its predecessors and rendered visible through the development of a conception of multilateralism. Beyond this, Chapters 3, 4, 5 and 6 direct attention towards the WTO and specific aspects of its legal framework in the pursuit of a more coherent and accessible understanding of the WTO.

The post-war settlement and the ITO As we noted at the outset, the WTO owes much to wartime and post-SecondWorld-War efforts to create an ITO charged with the task of administering a series of rules governing international trade and its related areas. But the ITO itself was intended to be one part of a wider plan to create a series of global economic institutions designed to manage the global economy. These institutions were themselves intended to form part of an even broader institutional framework designed to govern large tracts of global social, economic, political and cultural life under the auspices of the United Nations Organisation. The idea of an integrated system of economic management of which a trade body would be the central component was not, however, an innovation of the wartime planners. As early as 1920, John Maynard Keynes, as part of his critique of the post-First-World-War Paris Peace Accords, put forward a suggestion for the establishment of a Free Trade Union. The proposal envisaged that such a union would operate under the auspices of the League of Nations in concert with a large rehabilitation loan directed at reconstructing Europe, and a ‘Guarantee Fund’ to assist in the restoration of currency stability (Keynes, 1920: 248–52, 265–70). The primary purpose of the Union was to mitigate the imposition of tariffs as part of a wider reconstruction strategy, but also to retrieve ‘some part of the loss of organisation and economic efficiency … which must otherwise result from the innumerable new political frontiers now created between greedy, jealous, immature, and economically incomplete, nationalist States’ (Keynes, 1920: 249). While this was one of many suggestions that the League of Nations extend, in some way, its jurisdiction into the field of trade beyond the minimalist references in Articles 16 and 23 of the organisation’s Covenant, it was among the more significant. The importance of Keynes’ ideas lies in the system of economic governance he envisaged. The establishment of a Free Trade Union was only to be undertaken in tandem with a means by which the economic fortunes of defeated states could be rectified through some kind of lending facility, coupled with a mechanism for promoting currency stability. While Keynes’ ideas did not bear

Institutional evolution of trade regulation

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fruit initially, they set out the concept of a ‘trinity’ of institutions designed to promote domestic well-being through international means. These formative ideas proved to be of particular importance to the complexion of the system of economic governance that was to emerge in the aftermath of the Second World War. As one contemporary remarked, it ‘is interesting to note that [Keynes] should have been leader of the British Delegation at the Bretton Woods Conference negotiating [the] self-same questions’ – and, one might add, creating the same kind of institutions (Guinness, 1944: 502). The idea of a highly interrelated trinity of institutions was given purchase by the experience of the interwar period. The hiatus between the First and the Second World Wars had been an era of severe economic, social and political malaise. The reparations that Keynes had so strongly warned against (Keynes, 1920; also Markwell, 1995: 190–5) crippled the German economy, and contributed to hyperinflation, the rise of extreme forms of nationalism and ultimately Nazism. Political tensions again arose in Europe as the defeated powers sought to rectify what they perceived to be the injustices of the Paris Peace Accords. The Wall Street Crash of 1929 heralded the start of a series of financial crises among the major capitalist powers (Helleiner, 1993: 21–6; Germain, 1997: 58–72). As depression spread throughout a highly interdependent and largely uninhibited world economy, governments began moving away from their previously liberal policies, to the retraction of their external linkages and the embarkation upon economically nationalist policies. This economic nationalism became characterised by the imposition of tariff barriers and capital controls as states sought to protect themselves from the contagious effects of participation in the global economy. Yet this added fuel to the rising cause of political nationalism. By 1939 the political ramifications of the interwar period had come to a head when Europe again went to war. The economic hardship of the interwar period, and its role in facilitating a return to belligerence, strengthened contemporary perceptions that any new international order must, as part of a wider strategy to abate a further general outbreak of war, comprise a coherent system of global economic governance directed at enhancing national economic betterment. It was against this backdrop that the wartime allied planners began thinking about the shape of the post-war world order. In the first of several attempts to define their post-war objectives, the US and the UK convened the Atlantic Conference in August 1941. It was at this meeting that Churchill and Roosevelt laid the foundations for the post-war economic order. Albeit couched in the vaguest of language, the Atlantic Charter that was the outcome of the Conference resurrected the idea of an integrated set of economic institutions, at the heart of which would be a global trade body. For them, the key to the post-war order was: with due respect for their existing obligations, to further the enjoyment of all States, great or small, victor or vanquished, of access, on equal terms, to the trade and to the raw materials of the world which are needed for their

14 The architecture of multilateralism economic prosperity … [to] bring about the fullest collaboration between all nations in the economic field with the object of securing, for all, improved labour standards, economic advancement and social security. (Atlantic Charter, 1941: paragraphs 4, 5) The commitments outlined in the Atlantic Charter, and in particular the centrality of a trade body to plans for the post-war world order, were furthered by the February 1942 Lend–Lease Agreement between the UK and the US. Article 7 of the Agreement provided the mandate for discussions to commence between the two powers on the issue of liberalising international trade. Yet from the outset, it was clear that unabated laissez-faire trade policies were not an option. The lack of stability engendered by the previous liberal international order had left too many scars. This is not to suggest, however, that the general ethos of liberalisation did not continue to hold influence, as to varying degrees it did; rather that the necessity of a degree of domestic intervention had gathered salience in key political and economic circles. As Richard Gardner puts it, ‘[a]fter the havoc wrought by two world wars and the Great Depression the reconstruction of a liberal world economy was bound to require widespread government intervention’ (1956: 2–3; also Ruggie, 1982). As such, the preliminary discussions that were to result in the drafting of the Havana Charter for an ITO stated clearly that post-war commerce must marry the general principle of free trade with a recognition of, and need for, mechanisms designed to enable a degree of state intervention at the national level. Such a commercial order, then, had to reflect this marriage as did the institutions charged with the task of its management. This view was not, however, shared by all. Differences were to remain as to the symmetry of the blend between commercial internationalism and national interventionism – differences which ultimately contributed to the still-birth of the ITO project (Diebold, 1952; Penrose, 1953; Gardner, 1956; Woods, 1990; Schild, 1995; Graz, 1999). Article 7 of the Lend–Lease Agreement reads: To that end [the promotion of mutually advantageous economic relations] they shall include provision for agreed action by the United States of America and the United Kingdom, open to participation by all other countries of like mind, directed to the expansion, by appropriate international and domestic measures, of production, employment, and the exchange and consumption of goods, which are the material foundations of the liberty and welfare of all peoples; to the elimination of all forms of discriminatory treatment in international commerce, and to the reduction of tariffs and other trade barriers; and, in general, to the attainment of all economic objectives set forth in the [Atlantic Charter]. (Lend–Lease Agreement, 1942: Article 7) The project that was to emerge from the wartime discussions envisaged an economic order governed by three key institutions, each of which was to have

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jurisdiction over its own field of operations, though ultimately they were to be mutually complementary. Once agreement had been reached on the broad postwar agenda, internal discussions and negotiations between US and UK officials effectively separated out into two streams. The first centred on the financial issues thrown up by the designs for the post-war order culminating in the July 1944 Bretton Woods Conference and the subsequent establishment of the IMF and World Bank. The second stream dealt with making provisions for the establishment of a quasi-liberal international trading order, the eventual product of which was the Havana Charter for an ITO. Yet, while the negotiations diverged, the key to the success of the overall project was the high level of coherence between the two streams. The mechanisms devised for stabilising balance of payments situations were to have no effect unless subsequent progress was made in reducing, and ultimately eroding, trade barriers, and increases in productive capacity as a prerequisite for accruing the supposed benefits of freer trade could only be achieved in some cases through capital provision for reconstruction.

The Havana Charter and the ITO What was to become the ITO emerged from a plan for a Commercial Union drafted by the Economic Section of the UK War Cabinet and Members of the Board of Trade, and designs for a Multilateral Convention on Commercial Policy doing the rounds in equivalent US circles. Both the outline for the Commercial Union and that for the Multilateral Convention envisaged, to greater or lesser degrees, the establishment of a permanent body which would administer a series of rules designed to promote non-discrimination in international commerce; have the legal authority to interpret such rules; and provide a mechanism for settling any disputes arising among member states. Intrinsic to these designs was the inclusion of certain safeguards allowing member states to enact discriminatory trade practices in times of balance of payments crisis, thus reflecting the domestic focus underpinning the project (Penrose, 1953: 95) and underlining the institution’s intended congruity with its financial counterparts. In September 1943, a UK delegation arrived in Washington for talks with their US counterparts on the issue of international commerce. The talks were primarily intended to be exploratory, more of a ‘university seminar’ rather than formal negotiations (Gardner, 1956: 104). Yet, despite continuing disagreement as to how to tackle the issue of tariff reductions, the talks resulted in a broad consensus on the need for some kind of international commercial policy, supplemented by an international trade organisation with dispute settlement powers (Penrose, 1953: 97–104; Gardner, 1956: 104). Furthermore, the discussions explored the possibility of weaving into a convention certain issues related to commerce, in particular employment, investment, commodity agreements and cartels. In spite of the degree of agreement that had been reached between US and

16 The architecture of multilateralism UK officials on post-war trade policy, talks between the two powers did not recommence until early 1945. From here on, negotiations on the complexion of the post-war trading order were discussed more vigorously both independently as well as during talks surrounding the US loan for UK reconstruction in the aftermath of the end of the Lend–Lease Agreement (Penrose, 1953: 104–15). Yet, while there was much agreement on the inseparability of trade and employment policy, the issue of the UK’s imperial preference system and the way in which US officials favoured approaching the issue of tariff reduction remained key points of contention (see Parmar, 1995: 161–4). Ultimately, UK insistence on the issue of its imperial preference ensured that the procedural approach to tariff reduction – wherein tariff levels are negotiated bilaterally as had become the norm under the 1934 US Reciprocal Trade Agreement Act (RTAA) – favoured by the US largely prevailed. The success of the Bretton Woods Conference in establishing the IMF and World Bank increased the pressure for the completion of the ITO project. In December 1945 the US took the lead by preparing and sending out for discussion a draft charter of the ITO. This was followed, in February 1946, by the passing of a resolution by the Economic and Social Council of the newly created United Nations calling for an international conference on trade and employment to be convened (Fawcett, 1951: 269). The resolution, in turn, established a Preparatory Committee to discuss the creation of the ITO. Nineteen states were involved in the subsequent discussions that took place when the Preparatory Committee met to discuss the suggested charter in London in Autumn 1946, though the bulk of the negotiations remained between the UK and the US (Viner, 1947: 612; Brown, 1950: 67–134; Gardner, 1956: 269–70). Two provisions in particular emerged as a result of discussions in London – though they were the product of hard-fought negotiation rather than the emergence of a consensus. These related to the issues of employment and quantitative restrictions. On the issue of employment, the UK government was intent on endorsing measures designed to promote full employment, in part, to assist in the dispersion of social pressure resulting from mass demobilisation, whereas within the US, where such pressure was less evident, there was some reluctance to commit domestic employment policies to an international body. The UK delegation was largely successful in pushing through its intention, and the issue of full employment became a central feature of the charter. Similarly, the US was relatively successful in pursuing the issue of quantitative restrictions. Yet, in spite of the apparent compromise on the issues of full employment and quantitative restrictions, significant tensions remained over the detail of the international trade body. The resulting ‘London Charter’ that was the outcome of the Anglo-American discussions reflected these tensions. Nevertheless, it provided the prelude for what was to become the ITO Charter developed, first, at the Preparatory Committee’s second session in Geneva in April 1947, and second at the 1948 Havana Conference on Trade and Employment itself. As an addendum to the work on the ITO, the Preparatory Committee negotiated the GATT. The initial purposes of the GATT, at least at that moment

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in time, were generally deemed to be two-fold: first, to ‘give contractual force to the tariff concessions negotiated at that [Geneva] meeting between 23 governments’ (Fawcett, 1951: 270; Evans, 1968: 73–4) and thus to get the process of tariff liberalisation underway; and second, and by extension, to act as a bridging agreement between the previous international economic order and the rules-based system encapsulated in the legal framework of the ITO. As such, it was not intended to provide anything more than a lock on the progress that had been achieved on tariff liberalisation, injecting an additional degree of momentum into the larger task at hand, and thus paving the way for the full provisions of the ITO. The format of the GATT was largely derived from Chapter IV of what was to become the Havana Charter. This ensured that once established, the GATT would be relatively easily subsumed into the legal framework of the ITO (see Article XXIX of the GATT 1947). The successful conclusion of the GATT aside, disagreements between the two main players continued to plague designs for the ITO, and ultimately proved irreconcilable as each sought to ‘incorporate in the Charter a detailed statement of their favourite economic doctrines’ (Gardner, 1956: 379). Cast within a postwar political and economic climate markedly different from that envisaged by the wartime planners, the possibility of a successful completion of the ITO project began to look bleak. The end of the war witnessed an increasingly difficult economic situation in the UK wherein support for the ITO began to wane. On the other side of the Atlantic, the US polity became increasingly preoccupied with the growing tensions between itself and the Soviet Union. In addition, serious concerns were being raised about the content of the Charter itself. The Havana discussions themselves witnessed much disagreement. This was most pronounced on the issue of economic development, particularly with regard to commitments relating to tariff reduction negotiations, the establishment of new preferential systems, the ability to impose import quotas, and the employment of other trade restrictions without prior notice (Wilcox, 1949a: 48– 9). These disagreements were not, however, confined to Anglo-American negotiations. In commenting on the Havana Conference, Herbert Feis noted that: [a]lmost every one – [was] trying to re-write important sections of the [Charter], in the service of its special necessities, ideas, wishes or prejudices. The number of suggested amendments runs into hundreds. Most assertive of all seem to be the smaller countries which have little industry and small variety of natural resources; they seem carried away by the hope of rapid development. (Feis, 1948: 51) The disagreements that had emerged between the UK and the US early on in the wartime commercial negotiations, as well as those that emerged at the Havana Conference, were reflected in the final Charter, ensuring that it was a weighty and contradictory document. As one recent commentator has noted,

18 The architecture of multilateralism ‘[t]here were too many loopholes, far too much government intervention for free traders, and too much free trade for protectionists’ (Ostry, 1997: 64). The content of the Charter was not the only problem facing the ITO. The political intensities of the Cold War had begun to crystallise, diverting attention away from the project. Tensions between the US and the Soviet Union were exacerbated by an increasing sympathy for socialism in Western Europe. Furthermore, the sheer length of time that the project had taken, coupled with the frustration that many of the negotiators felt at the number of compromises that had been negotiated, had quelled much of the planners’ enthusiasm. And although 53 countries signed the Havana Charter, only two (Australia and Liberia) sought its ratification (Williams, 1991: 21). The relatively small number of participants seeking ratification of the Charter reflected a widely held perception that the US, as the leading industrial nation and guardian of the ITO project, should be the first to ratify its Charter. Once this had occurred a general process of ratification would take place among the other participants (Ostry, 1997: 63). However, the emerging politics of the Cold War in conjunction with diminishing support for the ITO ensured that the US did not seek ratification of the Havana Charter, thus ensuring the still-birth of the ITO (Diebold, 1952: 1– 6; Gardner, 1956: 378–80). Fearing a repeat of the League of Nations fiasco (where the US, despite putting much effort into its creation, omitted to join), the thought of an ITO without the US was inconceivable, and the notion of an organisation designed to administer a series of trade rules fell into the background as did hopes of completing a coherent system of global economic governance – for the interim at least. In spite of its demise, it is worth considering briefly the form that the ITO would have taken had it emerged from a successful ratification process. Compared with the Establishing Agreement of the WTO, the Havana Charter is massive. It deals in minute detail with tariff levels, preferences, discriminatory taxation regimes and regulations, customs procedures, quota systems, state subsidies and trading, cartels, commodity agreements, economic development, investment, and of course the relationship between domestic stability and international commerce. Reflecting the sheer size of the task undertaken by its architects, the Charter comprises nine chapters: (i) purposes and objectives; (ii) employment and economic activity; (iii) economic development and reconstruction; (iv) commercial policy; (v) restrictive business practices; (vi) intergovernmental commodity agreements; (vii) the composition and structure of the Organisation; (viii) the settlement of differences; and (ix) general provisions. The intended purpose of the provisions contained within these chapters was to limit the ability of governments to privilege domestic produce over competitor products, while at the same time providing a legal acknowledgement of the importance of domestic industrial stability, full employment and effective demand in the success of a liberal trade regime (Wilcox, 1949b: 489, 491). To assist in the realisation of its aims, the Charter envisaged an organisational structure composed of an Executive Board, a Conference and a series of

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Commissions to be established at the discretion of the Executive Board. The Executive Board of the ITO was intended to be a council of leadership comprising 18 members of the ITO elected by the Conference on the basis of a two-thirds’ majority. The structure of the Executive Board reflected prevailing ideas at the time. Membership of the Board was to include eight states of ‘chief economic importance’ and 10 others, the sum of which was to reflect varying levels of economic development as well as geographic distribution – though of course the requirement that the Board include eight states of chief economic importance ensured that both the US and the UK would continue to have a large degree of influence in the workings of the ITO. The Board was to be responsible for the execution of the policies of the ITO, to supervise the activities of the Conference, and to make recommendations to the Conference as well as to other intergovernmental organisations. The Conference, the main body of the ITO, comprised of all of the ITO’s members. It was to have the authority to determine trade policy, or empower an individual member to forgo a particular obligation (dependent on a two-thirds’ majority), as well as approve the budget and other related matters. And the functioning of the ITO was to be administered by a permanent staff, headed by a Director-General appointed upon the recommendation of the Executive Board. More importantly, the Havana Charter contained a series of provisions which defined the nature of the system of economic governance that would have emerged had the ITO succeeded in being established. First and foremost, the Charter established the constitution for the creation of a new specialised agency operating under the UN umbrella. Beyond this, it determined with which other organisations the ITO was intended to work, as well as the purpose of that work. These linkages separated out into two levels – primary and secondary – reflecting the relative importance attributed to partner organisations in the governance of the global economy (Wilkinson, 1999b: 6–11; 2001). At the primary level, co-operation was deemed most appropriate with the IMF, whereas secondary-level commitments endorsed co-operation with (in recognition of the centrality of employment to the Charter) the ILO, as well as the World Bank. Furthermore, these provisions served to embed the ITO, and by extension the organic system of economic management to which it was the central party, within the wider system of global governance centred around the UN. Provisions were also made for the possible extension of this system of governance to include regional bodies and non-governmental organisations. The system encapsulated in the ITO’s legal framework thus represented the first formal articulation of the Keynesian trinity, although the failure to ratify the Havana Charter halted its realisation. Indeed, the effective functioning of the Bretton Woods system (by which I am including the ITO) was premised on the creation of, and adherence to, the body of rules administered by the ITO (Diebold, 1952: 2). The failure to establish the ITO added to the difficulties that were to be encountered by the IMF and World Bank in fulfilling their mandate, though, of course, their experiences owe much to a wider set of factors beyond the scope of this study.

20 The architecture of multilateralism

The rise of the GATT Somewhat surprisingly, the failure of the ITO project did not seal the fate of the wartime attempts to establish a liberal trading regime supported by some kind of regulatory authority. First, the still-birth of the ITO paved the way for the elevation of the GATT. The Preparatory Committee’s negotiation of the GATT as the gatekeeper of the already-agreed post-war tariff cuts had lent the General Agreement a large degree of support. In contrast to the patchwork nature of the ITO, the GATT appeared narrow and focused, albeit without the organisational structure or comprehensive provisions of its larger relation, though, of course, some of the ITO’s provisions lived on in the GATT. Second, aspects of, and cross-references to, the Havana Charter survived the demise of the ITO. Residue of the ITO Charter was to be found in, among others, the Code of Liberalisation of Trade of the Organisation for European Economic Co-operation (OEEC, the foreshadower of the OECD), as well as in the anti-dumping provisions of the Schuman Plan (Diebold, 1952: 25–6). Furthermore, as will be demonstrated throughout this book, much of the legacy of the ITO can be found in the WTO, though, as we have already noted, there are significant differences between the two organisations. Somewhat by default, then, the hopes of the wartime planners for a liberal trading regime rested on the residue of the ITO generally, but more particularly on the fledgling GATT. Originally intended to lock into place the initial progress made in tariff liberalisation, as well as to act as the bridge between the old order and that to be established around the disciplines of the ITO, the GATT comprised a series of provisions directed at liberalising international trade in goods by putting into place a mechanism for conducting that liberalisation through periodic negotiations. Although the GATT was signed on 30 October 1947 by the 23 participating states, its initial status was the subject of some contention. Originally intended to enter into force for only three years, it was extended for a further period when it became clear that the ITO was likely to flounder. Yet, even in spite of the failure of the ITO, the longevity of the GATT was not guaranteed. In both the UK and the US commitment to the General Agreement was at best envisaged to be temporary, and at worst short lived. Signatories to the Agreement were referred to merely as ‘contracting parties’ rather than the more formal title of ‘members’, and at the outset it was only required that the content of the GATT be accepted provisionally – though this was to change in 1965. Indeed, the GATT’s status was to remain largely provisional until the establishment of the WTO (Jackson, 1998a: 39–41). That said, a large degree of effort had been expended in the ITO project, and any floundering of the GATT would have resulted in a fruitless waste of political energy. Furthermore, the provisions of the GATT reflected the spirit of the commercial components of the Havana Charter, though they were perceived to be much less constraining than the disciplines of the ITO. The General Agreement did not formally commit its contracting parties to the maintenance of full employment, though its desirability remained a feature of the GATT’s

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preamble, nor did it encompass the contentious investment rules. Consequently, the GATT was generally perceived to be less of a threat to those, particularly within influential positions in the US, who feared a dilution of sovereignty through participation in the ITO (Hudec, 1990: 57). Its qualification and exception clauses were comparably few and relatively straightforward, and in spite of the minimalist provisions of the GATT, it embodied the flavour of the ITO as replicated in the General Agreement’s preamble: Recognizing that their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, developing the full use of the resources of the world and expanding the production and exchange of goods … Being desirous of contributing to these objectives by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce [agree to the provisions as set out in the Agreement]. (GATT 1947 Preamble) The similarity between the GATT and the ITO, however, did not extend to the full breadth of the commercial provisions of the formal ITO. Rather, the focus of the GATT was much narrower than that of the ITO. It restricted the area of commercial activity subject to regulation to the field of trade in goods, accompanied by a much watered-down version of the ITO’s dispute settlement procedures. The aim of the GATT was to promote freer international trade by requesting that contracting parties conduct their commercial relations in accordance with the principle of most-favoured-nation, and to complement the free movement of goods by putting into place a mechanism for periodic negotiations directed at the general erosion of barriers to trade. Provisions were also made for the GATT to fulfil the ITO’s role in co-ordinating activities with other organisations, primarily the IMF, in the pursuit of a coherent system of management of the global economy – though these provisions, like the rest of the Agreement, were not nearly as comprehensive as those envisaged for the ITO. In spite of the progress that had been made in tariff liberalisation at the Geneva meeting of the Preparatory Committee, and its rise from the ashes of the ITO, in the first years of operation the GATT, as well as the IMF and World Bank, took a back seat to the reconstruction programme underway in Europe. The trade liberalisation programme of the OEEC effectively crowded out that of the GATT until the early to mid-1950s. As a consequence, the GATT’s initial success at liberalising trade was relatively modest. Yet, this was soon to change. With the end of Marshall Aid in sight, and the prevailing notion that the European currencies would move towards full convertibility within a relatively short space of time, the role of the GATT became the subject of renewed

22 The architecture of multilateralism attention. As a result, a substantial review of the GATT was undertaken under the auspices of the Ninth Session of the Contracting Parties in Geneva between October 1954 and March 1955. It was at this meeting that the future of the GATT was secured as the contracting parties sought to amend the Agreement ‘rather than scrap it and start again’ (Goodwin, 1956: 145–6). There were, however, several areas that required attention if the GATT was to continue successfully. The GATT’s main problem was its lack of an organisational structure. Its role as a bridging agreement to the ITO meant that in its drafting, provisions had not been made for the creation of a formal institutional and administrative structure. That said, the General Agreement’s body of rules did prove sufficient to give international trade regulation an operational framework. In order to overcome the lack of organisational formality, the GATT improvised by using Article XXV (Joint Action by the Contracting Parties) as the basis upon which to build a series of functions that approximated those of a formal organisation (Curzon and Curzon, 1974: 300). In the absence of a formal assembly, Article XXV enabled the contracting parties to act as if they were such a body, designating them as ‘Contracting Parties’ (paragraph 1). From this evolved a quasi-organisational structure, which added to its ranks a permanent secretariat (that was to occupy the old ILO building in Geneva), a council to oversee GATT activities between the meetings of the Contracting Parties, and the development of a series of committees and working groups concerned with various aspects of international commerce. Perhaps unsurprisingly, then, the decision to persevere with the GATT, and the ad hoc nature with which it operationalised its functions, led to renewed calls in the mid-1950s for the establishment of a formal organisation to oversee the workings of the Agreement. This came in the form of a discussion on the relative merits of creating an OTC. The idea of an OTC mirrored, in many ways, the designs that had been put forward for the ITO – though the OTC was only intended to administer commerce in goods, and not the elaborate and much more extensive provisions of the ITO. Like the ITO it was to comprise an Assembly (the ITO’s Conference), an Executive Committee of 17 elected members (this time five of which were to be of ‘chief economic importance’, and the body as a whole was to reflect the geographic and developmental distributions of its members) and a Secretariat (see Goodwin, 1956). In reality, the proposed OTC differed little from the GATT. It was, for some, merely a case of semantics (The Economist (1955): 1101–2). Yet the OTC befell the same fate of the ITO, defeated by the very forces that had been instrumental in the floundering of the first attempt at formalisation (Gardner, 1969: xxxiv; Curzon and Curzon, 1974: 300) – a defeat which some feared would see an end to the GATT itself (Goodwin, 1956: 248). The fate of the OTC did not, however, damage the GATT. Indeed, for some the relative success of the GATT vis-à-vis the OTC, and for that matter the ITO, was in large part due to the ad hoc nature in which it had developed. For Goodwin, the GATT’s intended role as a bridging agreement to the ITO remained a fortunate one: ‘The lack of elaborate rules and organisational

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structure encouraged flexibility and experiment and freed it from the follies of empire-building which [had] beset so many international institutions’ (Goodwin, 1956: 248). It was this flexibility that was to prove central to the functioning of the GATT for the following period, though, as Ostry has noted, this flexibility also led to a large number of escape clauses (Ostry, 1997: 71).

The GATT in operation As had been the intended case for the ITO, the GATT sought to organise the activities of its Contracting Parties in accordance with the general aim of nondiscrimination. To do this, it required that the Contracting Parties organise their commercial relations in accordance with the principles of most-favoured-nation (MFN) and national treatment (Articles I and III of the GATT respectively). The principle of MFN (about which much more is said in Chapters 2 and 4) was to be, with certain exceptions relating to balance of payments difficulties, the establishment of customs unions and free-trade areas, dumping, and the accession of new members, applied in its unconditional form (see Viner, 1931) – thus requiring that Contracting Parties in all instances, other than those when they are empowered to do so, procure previously negotiated trade concessions without restriction to all other Contracting Parties. Acting in tandem with MFN was the principle of national treatment. This principle required that Contracting Parties alter their domestic taxation and regulation regimes such that foreign and nationally produced products receive equal treatment. The principles of MFN and national treatment in themselves did not encourage trade liberalisation; rather they were merely intended to equalise commercial treatment. Operating in conjunction with the principles of MFN and national treatment was a commitment to engage in periodic negotiations to reduce the general incidence of tariffs, with the exception of particularly sensitive sectors such as agriculture. These negotiations (which are the focus of a more detailed discussion in Chapters 2 and 5) were conducted in accordance with a particular interpretation of the principle of reciprocity (Article XXVIIIbis), wherein the offer of a given tariff reduction was to be met with an offer of roughly equivalent value. Once tariff reductions had been negotiated, the principles of MFN and national treatment were intended to lock into place these reductions and ensure their near universal application. In the pursuit of this task, eight rounds of MTNs were held: Geneva (1947); Annecy (1949); Torquay (1951); Geneva (1956); Geneva (the so-called Dillon Round 1960–1); Geneva (the so-called Kennedy Round 1964–7); Tokyo (1973– 9); and Uruguay (1986–94). Each round of negotiations took longer than the last, owing to the relatively rapid increase in the number of Contracting Parties, the expansion in product coverage, and hard-fought negotiations over sectors where tariffs had already been significantly reduced. During the early years of the GATT, trade liberalisation appeared to thrive. Up to the mid-1970s progressive rounds of trade negotiations ensured a certain degree of success. Between 1950 and 1975 the merchandise trade of the

24 The architecture of multilateralism industrial countries grew at an average rate of 8 per cent (Cline, 1980: 188). During the Dillon Round over 4,000 concessions were exchanged; and at the Kennedy Round barriers to trade fell at an unprecedented rate – 35 per cent over a total of 60,000 products (Gilpin, 1987: 192). Yet, relatively early on into the life of the GATT, the broad overview of tariff reductions obscured a more negative trend. Up until the 1956 Geneva Round, much headway had been made in lowering the general incidence of tariffs. However, beyond this point the ability of the Contracting Parties to agree on mutually acceptable tariff cuts became increasingly difficult. This, in the main, is attributable to the degree by which tariffs were cut in the early rounds. The relatively high base from which tariffs were cut exaggerated the degree by which barriers to trade had been eroded. But, as the general level of tariffs decreased, so too did the ability of the Contracting Parties to agree further reductions. Furthermore, this creeping inertia was accompanied by an increase in the growth of other forms of protectionism in the form of non-tariff barriers (NTBs). Beyond the mid-1970s, the general level of tariff cuts began to stagnate. The severity of this stagnation was worsened by the ever-increasing use of NTBs. Many of the industrial countries had implemented elements of overt and covert protectionism (such as the adoption of quotas, licences, overzealous health and safety checks, lengthy administration procedures, and voluntary export constraints on supplier countries) in an attempt to find substitutes to replace the loss of protection that had occurred as a result of tariff reductions (Cline, 1983: 5–7). This ensured that, rather than liberalising trade, those gains that had been made by tariff reductions were offset by the growth of NTBs. The relative stagnation caused by NTBs was not, however, system wide. Much of the growth in NTBs affected those very countries whose specific problems had been unsatisfactorily addressed by the GATT – namely, those of the developing world. During the late 1960s developing countries accounted for 16 per cent of imports to the industrial world, yet their products faced 21 per cent of all NTBs (Page, 1994: 54–5). Similarly, the severity of NTBs was most prevalent in those products that developing countries were most likely to export – low-technology goods (Strange, 1985: 246). Much of this growth in NTBs, and their uneven distribution, was due to the relative decline in the economic power of the advanced industrial countries (AICs) in contrast with their developing counterparts. However, in spite of the realisation of the problems associated with NTBs, and attempts to counter this tendency at the Tokyo Round, it soon became apparent that the GATT was ill-equipped to deal with this kind of protectionism. The centrality of the principle of reciprocity as the basis for the GATT’s exchange of trade barrier concessions during MTNs was also threatened, coming under increasing pressure from the differing interpretations of the principle by the Contracting Parties (Curzon and Curzon, 1976: 156–7). Some interpreted the principle to entail sector-for-sector exchange, while others held that the value of reciprocity was to be calculated in the aggregate. Furthermore, bickering broke out among the Contracting Parties as to the relative value of

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concessions exchanged. As negotiations became increasingly tense, the time it took to complete negotiation rounds extended, and the outcome was often perceived to be inadequate. The external economic climate also began to have a negative impact on the GATT. The movement away from the exchange rate stability of the Bretton Woods regime in the late 1960s and early 1970s (formalised at the 1976 meeting of the IMF in Jamaica) exerted a large degree of pressure on the GATT’s balance of payments rules – rules that had been designed for a commercial system underpinned by fixed, rather than floating, exchange rates (Van Whitman, 1977: 33–4). Furthermore, the very heart of the Agreement was threatened by the increasingly selective implementation of the principle of MFN. To many, it seemed that the trade regime had begun to stall. The sensitivity of agriculture, too, contributed to the general attack on the foundations of the GATT. On the insistence, first of the US, then the European Economic Community (EEC), agriculture had been exempt from the GATT’s rules on domestic support systems. And although the adverse effects of these domestic agricultural support programmes were the subject of some discussion at both the Kennedy and Tokyo Rounds, neither resulted in a comprehensive solution. In large part, the inability of the GATT to regulate trade in agriculture was primary due to the nature of the Agreement itself (Hathaway, 1983: 443). Few sovereign countries were willing to put their domestic food and fibre policies forward as candidates for outside negotiation and determination: [I]t would [have been] political suicide for the European Community, Japan, or the United States to do so, yet it is the domestic agricultural policies of these trading partners that [have been] the root cause of the continuing agricultural trade problems. (Hathaway, 1983: 443–4) The development of certain internal practices also contributed to the GATT’s inability to regulate trade in agriculture. Eckart Guth and Tonia Pankopf have argued that although much of the inefficiency of the GATT’s agricultural provisions was caused by US actions during the 1940s and 1950s, three norms of practice developed in the GATT that accentuated the problem: (i) GATT rules were often not applied because derogations had been applied for by the Contracting Parties; (ii) the Agreement lacked clear guidelines for the settlement of disputes; and (iii) agricultural rules were often circumvented by state trading boards and grey-area measures (Guth and Pankopf, 1994: 250–1).

Development, the GATT and the threat of alternative trade structures Yet one issue above all threatened the foundations of the GATT: development. By as early as 1954 it had become apparent that the gap between the fortunes of the industrial world and its developing counterparts was on the increase. In 1958

26 The architecture of multilateralism the Haberler Report concluded that, although no evidence of a general tendency towards specific discrimination in trading relations with the developing world was found, factors did exist that were detrimental to the terms of trade of less developed countries (LDCs) (GATT, 1958). The Report concluded that the high incidence of trade barriers faced by LDCs, coupled with unfavourable price trends, had significantly affected the terms of trade performance of developing countries. In recognition of these findings the Report recommended that in the first instance a programme of ‘maintaining and expanding the export earnings of the less developed countries’ should be undertaken (Evans, 1968: 84). As a means of fulfilling this goal, the Contracting Parties committed themselves to fact-finding, co-ordinating the development of plans for trade opportunities, analysing market factors, providing technical assistance for officials of LDCs, and actively reducing those barriers to trade that directly affected the fortunes of the less developed. In 1966 GATT attempts to address the problems faced by the developing world culminated in the incorporation of a textual addition to the General Agreement under the heading of ‘Part IV’ – though its provisions were at best half hearted. Part IV requested that developed contracting parties merely consider adopting certain measures to assist in the trade and development of their less developed counterparts. There was not to be any compunction. Unsurprisingly Part IV had little effect. The growth rate of manufactures exported by developing countries was alarmingly slow. In 1970 LDC manufacturers accounted for only 7 per cent of total world exports. By 1990 this share had risen to 17.1 per cent, an average growth rate of 0.5 percentage points per year (Page, 1994: 9). Yet even these figures cloaked a more worrying trend, as the rate of growth across the developing world proved to be particularly uneven. Much of the increase was due to the export performance of Asia, and in particular the fortunes of the newly industrialised countries (NICs) of East Asia. Africa during this period experienced a negative growth rate in the export performance of its manufactures, and Latin American fortunes proved to be little better, stagnating over the same period. The incongruity of GATT rules with the needs of developing countries was not the only dimension of the development issue to confront the General Agreement. The GATT was also seen by a large portion of developing states as, at the least, an outmoded institution, and, at worst, one representation of the continuation of colonial exploitation through different means. Aside from the arguments as to the lack of a developmentalism in GATT rules, three main political criticisms were levelled at the General Agreement. First, neither the GATT nor the ITO had been negotiated among equals – though both purported to embody the general principle of non-discrimination and equality in international commerce – as both had taken place prior to the mass post-war rounds of decolonisation. As such, the interests of these states could not be represented adequately. And while some Contracting Parties purported to represent the interest of these states during the initial negotiations (in particular the colonial powers), this in itself served to compound the problem. The very suggestion that

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a colonial power could benevolently represent the interests of its subordinates was perceived, at the very least, to be politically insensitive. Second, the mass representations made by the UK and the other former colonial powers on behalf of their colonies ensured that GATT rules were imposed on many with little or no prior consultation. This perceived intrusion on the sovereign integrity of the newly independent states was seen as an insult, the impression of which would last for a long time. A sense of the frustrations felt by many of the developing countries at their effective marginalisation during the formative stages of the ITO and GATT negotiations can be ascertained, as we have already noted, from the high degree of energy exerted by the ‘smaller countries’ directed at altering particular rules during the Havana Conference on Trade and Employment. Though those states that had attained independence and were represented at the Conference did not purport to represent their preindependence counterparts, they embodied a sense of the frustration developing countries were all to feel, to varying degrees, at being locked out of these seminal negotiations (see Feis, 1948: 51). Third, until the adoption of Part IV, the only development-sensitive provision within the GATT was Article XVIII – empowering Contracting Parties to suspend, in part or whole, their procurement of MFN by imposing quantitative restrictions to rectify an adverse balance of payments situation. The main problem with this Article, however, was that prior to its implementation, the consent of the Contracting Parties writ large had to be ascertained. But, as Sidney Wells explains, the difficulties with Article XVIII were that the Contracting Parties had the ability to modify the level and type of safeguards introduced by a troubled state, and that the developing countries had to ‘go “cap in hand” to their richer fellow Contracting Parties, requesting permission to impose [such] restrictions’ (Wells, 1969: 65). This perception of begging, particularly to Contracting Parties who invariably comprised a state’s former colonial master(s), contributed further to a growing level of resentment among many developing countries. Not only, then, were the economic provisions of the GATT challenged by the issue of development, the perceived political insensitivities surrounding the Agreement were also the subject of much antagonism. These perceptions contributed to a broader anti-imperial backlash, which, in turn, fuelled a growing militancy among post-independence developing nations. The system of global economic governance came in for increasing criticism, and ideas and designs for alternative forms of governance began to appear. It is from these ideas that emerged the biggest potential threat to the future of the GATT. As early as the Havana Conference the developing countries could be identified as a specific interest group lobbying for an equitable say in the postwar economic order. In particular, they argued for a more proactive approach to the issue of trade promotion, advocating such policies as technological exchange, the use of import quotas as a means of promoting industrialisation, and the implementation of mechanisms designed to nurture the establishment and growth of infant industries (Williams, 1991: 21). The lack of success at

28 The architecture of multilateralism negotiating what was perceived as a fair trading system served to breed developing opposition to the GATT. This was added to by the mass decolonisation rounds in the 1950s and early 1960s. Criticism of the GATT increased as by 1964 the number of developing countries among the Contracting Parties had grown to outnumber the industrial states by nearly two to one (Williams, 1991: 24). Fuelled by these factors and the relatively poor economic performance of many developing countries in the aftermath of decolonisation, ideas about an alternative global economic order, and more particularly regarding a new international trade body, gained increasing salience (see Murphy, 1997: 201–12). Further weight was thrown behind these ideas when the Soviet Union declared that a new international trade organisation should be created which would not only address the problems of development, but also incorporate the state-trading activities of the Soviet Union and the people’s democracies of Eastern Europe (Goodwin, 1965: 4; Robertson, 1969: 265). A critical mass was thus emerging among the developing countries for a more development-centred approach to international trade. In response, the UN declared the 1960s a development decade. In order to add some substance to the UN declaration, as well as to capitalise on the growing solidarity among developing countries that had evolved since the 1955 Bandung Conference and the 1961 Belgrade Conference out of which had emerged the Non-Aligned Movement (NAM), the first UN Conference on Trade and Development (UNCTAD) was convened in Geneva between March and June 1964. The Conference was attended by 122 nations, out of which emerged a coherent bloc of 77 developing countries (the G77). It marked, for some, a new era in international relations, as global conflict moved away from security issues and the East/West stand-off, to North and South and the economic tension between developed and developing. Even the make-up of the Secretariat overseeing the Conference reflected this tone. Raul Prebisch, who had been most noted for his association with the UN Economic Commission on Latin America (ECLA) and for his work on development, was appointed Secretary-General. As the Conference loomed, increasing pressure was exerted on the GATT. It was in response to this pressure that the Contracting Parties agreed to Part IV, which was subsequently annexed to the General Agreement (Gosovic, 1972: 57; Williams, 1991: 26). While this took some of the heat out of the barrage directed towards the GATT, the more militant among the developing countries continued to press for an alternative trade framework. The first meeting of UNCTAD was successful on two counts, and partially so on a third. First, it served to bring into clearer focus the problems of development – though it also served to sharpen the divide between North and South. Second, it provided further adhesive to the growing negotiating coherence among the developing world in the form of the G77. Third, and much less successfully, it succeeded in establishing a formal presence in the field of international trade – though it failed to replace, or even seriously challenge, the GATT as the corner-stone of international trade regulation.

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In spite of several further attempts to make the international trade regulation more development friendly, most prolifically in the aftermath of the apparent reorientation of the global balance of power as a result of the Organisation of Petroleum Exporting Countries (OPEC) price rises in the early 1970s coupled with the UN declaration on the establishment of a New International Economic Order (NIEO) in 1974, the relatively powerful position of the developing world was to diminish significantly from the late 1970s on. The resurgence of the Cold War, the growing indebtedness of many developing countries, and the erosion of Third World solidarity in the wake of the performance of the NICs of East Asia pushed the notion of an alternative forum into the background. The GATT had survived what had been its most difficult challenge.

Towards Uruguay In spite of the relative failure of the development issue to unseat the GATT, it refused to disappear, as did the increasingly thorny issues of NTBs and agriculture. Moreover, the increasingly lacklustre enforcement capabilities of the GATT’s dispute settlement procedures came in for growing criticism. By the mid-1980s, it had become apparent that the inadequacies of the GATT required some kind of attention. In 1983 the US and Japan issued a joint statement in Tokyo outlining their perceived need for a new round of MTNs. The European Community (EC) was, at the time, less convinced of the need for a new round, and perhaps more importantly, within the EC there was a great deal of apprehension about the possibility that a new round would focus on the liberalisation of agriculture. Resistance was also apparent among many of the developing Contracting Parties. The GATT had failed to deal with the needs of developing countries adequately, and it was unlikely that a new round would address this imbalance. Indeed, it was widely held that the new round was likely to deal with issues that were not crucial to the economic performance of the developing world, and there was a fear that developing countries would be the main target for the extraction of concessions (Das, 1998: 1). Nevertheless, after much politicking the Contracting Parties agreed to launch the eighth (and final) round of MTNs to be held under the auspices of the GATT at Punta Del Este, Uruguay, in September 1986. The Uruguay Round proved to be qualitatively different from previous GATT MTNs. Whereas previous rounds had concentrated on negotiating commercial concessions, for the first time since the ITO discussions Uruguay witnessed negotiations on the more fundamental issue of trade rules (Finger, 1991: 22). Yet, in contrast to the ITO discussions, the Uruguay Round proved more successful, ultimately culminating in the creation of the WTO. That said, the creation of a formal organisation to oversee the conduct of world trade was not the intended outcome of the Uruguay Round. The idea of a formal organisation arose four years into the Round, when in 1990 Canada put forward a suggestion for a World Trade Organisation to consolidate and supersede the GATT (Jackson, 1990a, 1990b, 1993). This organisation was intended to provide

30 The architecture of multilateralism a centralised institution that would not only incorporate and build upon the GATT, but also encapsulate its recently negotiated sibling Agreements. Furthermore, it was hoped that the creation of a formal organisation would better address those areas of international commerce that the GATT had dealt with so ineffectually. The EC, though wanting the title of the organisation to be changed to the Multilateral Trade Organisation (MTO), offered its support to the Canadian proposal (Jackson, 1998a: 45). The proposed MTO was not, however, without opposition. The US Congress voiced strong concerns about the proposed MTO, asserting that any relinquishment of its sovereign authority to such an organisation was inconceivable. It seemed to many that the fate of the ITO might indeed also be that of the MTO. Yet, disaster was avoided when, after further negotiation, the US Congress stated that it was satisfied that the establishment of an MTO would not challenge the sovereign status of the US as most of the institutional aspects of the MTO already existed under the GATT (Hoekman and Kostecki, 1995: 36). After a reversion back to the original name of the proposed organisation, the Final Act Establishing the World Trade Organisation was agreed in Marrakech on 15 April 1994, and the WTO formally commenced operations on 1 January 1995. The Uruguay Round decision to establish the WTO thus represented the culmination of half a century’s effort to create an institutional foundation for international trade regulation. It also owes much to ideas of liberal internationalists like Keynes who envisaged a need for a formal trade body at the centre of a system of global economic governance. But, in order to explore more comprehensively the function, role and meaning of the WTO, it is first necessary to tease out the architectural core that has remained the central feature of the evolution of international trade regulation, and has been significantly extended by the creation of the WTO. This is achieved through the development of a conception of multilateralism, the task of the next chapter. Beyond that, we return to the WTO, first to explore the major features of, and developments in, the WTO as they have taken place since its establishment; and, second, to the extension of the scope of trade regulation by examining the practices prescribed by its legal framework as it seeks to organise international trade in accordance with its architectural form.

2

Multilateralism The architecture of international trade regulation

Tracing the historical evolution of the institutional basis of international trade regulation and its role in the governance of the global economy provides only a partial account of story behind the WTO. Central to that evolution has been a distinct organisational practice arising from the employment of a particular set of principles – principles which taken together comprise and define the organisational practice of this particular expression of trade regulation as well as the family resemblance it shares with its predecessors. These core principles have been in evidence since the first attempt to establish a formal trade body and have become synonymous with the term ‘multilateralism’. The ITO, GATT, OTC and WTO have all embodied the same core set of principles around which other provisions and mechanisms have been grafted. This core set of principles does not, however, refer to the organisation of a particular institutional hierarchy associated with the day-to-day functioning of each organisation, such as a ministerial conference, general council or secretariat – though here too there is a degree of historical residue. Rather, it refers to the core principles around which international trade is organised and thus regulated. In this sense, then, the core principles define the architecture of trade regulation. It follows that, to develop a more complete understanding of the legal framework of the latest institutional expression of trade regulation, we must first understand more completely what we mean by the organisational practice of multilateralism, the core principles central to its expression, and, by extension, the conceptual parameters within which to analyse that framework. That said, we are hindered at the outset by the relative dearth of scholarly enquiry into the qualitative dimensions of multilateralism (see Keohane, 1990: 731–2; Cox, 1992: 161–3; Ruggie, 1993b: 3–6). Scholars, practitioners and states people (as well as the GATT/WTO and a plethora of other international bodies) have all utilised the language of multilateralism. Yet the specificities of this form of international organisation are seldom presented beyond a notion of three or more states acting in concert. Rather, they are taken as given. The first task of this chapter, then, is to use the scholarly literature as a means of teasing out a conception of multilateralism which is, in turn, utilised as the prism through which the legal framework of the WTO can be laid open. This

32 The architecture of multilateralism involves, first, surveying those works that provide a useful, though at times tangential, insight into the phenomenon of multilateralism; and second, building upon and taking forward those few works that have sought to delve more deeply into the architecture of multilateralism. The second task of this chapter is to revisit the institutional evolution of the trade regulation as a means of rendering visible the core architectural principles that have remained central to that evolution and thus set the foundation for the examination of the WTO’s legal framework in the subsequent chapters.

Multilateralism: a preliminary exploration Much of the existing literature on multilateralism seeks to delineate it from other types of international action. This is done by referring to its quantitative dimensions. In this sense, multilateralism is deemed to be distinct from unilateralism and bilateralism. Unilateralism describes an action or mode of behaviour undertaken by a single actor; bilateralism refers to the interaction of two parties. Multilateralism, however, is commonly understood as an expression referring to the action of groups of international actors, nearly always states, comprising three or more acting in concert. John Jackson interprets multilateralism in this manner. For him, multilateralism ‘is an approach … that recognizes and values the interaction of a number – often a large number – of nationstates’ (Jackson, 1998a: 158). That multilateralism has any qualitative dimensions rarely figures in the literature. When such a reference is made, it is done so more in passing and takes the form of a value judgement about the attributes of multilateralism in contrast with these other forms of international organisation. Jackson again provides us with an example of this. He asserts that multilateralism is an approach that recognises the ‘dangers of organizing relations with foreign nations on bilateral grounds, dealing with them one by one’ (Jackson, 1998a: 158; also Keohane and Nye, 1977: 11). Indeed, in that literature which does allude to its qualitative dimensions, multilateralism is often contrasted with other forms of organisation that are deemed to be somehow sinister and less desirable. Unilateralism, for instance, is commonly equated with an aggressive self-serving mode of behaviour (see Bhagwati and Patrick, 1990; Nogues, 1990). Similarly, bilateralism is deemed to be inherently unequal, and at its extreme refers to an absolute preponderance of one over another, something that is more characteristic of imperialism. We can see this more prominently in those early works on international aid procurement that sought to ascertain something of the qualitative dimensions of multilateralism. Much of the early discourse sought to determine the relative merits of bilateral and multilateral aid regimes – wherein multilateralism was commonly defined as ‘harmonized or coordinated policies, programs, and projects’ undertaken by international agencies of an intergovernmental nature (Coffin, 1968: 272). The ‘aid debate’ resulted in four commonly acknowledged differences between bilateral and multilateral procurement – differences which

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were largely deemed responsible for the preference attached to multilateralism. First, it was surmised that the relative size of contributions going to recipients was greater when an expanded number of states were involved in the procurement process, than under the auspices of a bilateral regime. Second, multilateral aid procurement was perceived as reducing the opportunity for the duplication of effort, and the neglect of particular sectors often associated with a series of independently orchestrated (bilateral) projects. Third, and perhaps most importantly, multilateral aid procurement was deemed to be politically more acceptable to recipients as levels of conditionality tended to be less constraining and overtly self-interested than aid procured bilaterally. And fourth, multilateral procurement was deemed to be more inclusive as less opportunity existed for overt discrimination against a particular recipient (see Asher, 1962: 697–719; Feldman, 1967: 219–35). More recent studies in this area have reiterated this preference for multilateral procurement, though these have come with the caveat that a clear distinction is made between, on the one hand, the UN and its specialised agencies, and on the other hand, the IMF and World Bank (see, for instance, The Nordic UN Project, 1990: 17–19). Without pursuing too deeply the mechanics of what a multilateral arrangement may entail, the near-hallowed status attributed to multilateralism proved more than pervasive in ensuring that such organisational forms were to find themselves in the prescriptions of even the most critical of social commentators. Commenting during the height of the post-war rounds of decolonisation, Kwame Nkrumah, Ghana’s first post-independence leader, asserted that if the nations of Africa were to break the chains of colonialism they must be allowed to engage in multilateral, rather than bilateral, aid regimes (Nkrumah, 1965: xv). Bilateral arrangements, argued Nkrumah, allowed the continuation of colonial exploitation through other means. For Nkrumah, multilateral arrangements diluted, to some extent, the negative effects of aid procurement and enabled newly independent states to pursue relatively less perverted development strategies. Though Nkrumah failed to elaborate on why he deemed multilateralism to be so desirable, his preference was clear. Others have since echoed Nkrumah’s sentiments. Fred Halliday, for instance, in his discussion of various aspects of the relationship between Western and Islamist states exudes a similar preference for multilateralism. It is his assertion that: the principle of sovereignty outside Western Europe raises a similar set of alternatives: those who say that ‘we’ should not interfere and should ‘mind our own business’ are allowing the sovereignty of states … and of peoples … to be denied. Imperialist domination is not a legitimate policy for the end of the twentieth century; a firm, multilateral, always self-critical insistence on universal codes of political practice, as embodied in the conventions and documents of the UN to which all member states supposedly subscribe, definitely is. (Halliday, 1996: 131)

34 The architecture of multilateralism Robert Cox, in discussing the future possibilities of global governance, offers a dichotic interpretation of multilateralism. For Cox, future global governance has at least two possible forms: first, a world government or empire ‘conceived as having a hierarchical form of coordination, whether centralised (unitary) or decentralised (federal)’; and second, a form of non-hierarchical co-ordination which he terms ‘multilateral’. As he puts it, ‘[m]ultilateral governance establishes rules and procedures for interaction among the various forces that become involved in world (or regional) political issues. I am using the term “political” here in a broadly inclusive sense meaning any contest of power’ (Cox, 1997: xvi). But Cox introduces an important caveat into our thinking on multilateralism – a caveat which, as is demonstrated in the conclusion to this book, has implications for the study of the WTO conducted herein. He argues that ‘[m]ultilateralism in form is non-hierarchical but in reality cloaks and obscures the reality of dominant-subordinate relationships. Nevertheless, the form has importance, being a possible criterion of protest against abuse of hierarchical power’ (Cox, 1997: xvi). Emeka Anyaoku, in discussing the changing role of the Commonwealth, is more elaborate in his description of the virtues of multilateralism. For him, multilateralism requires ‘a soul; a set of principles; universal values, if you will, that … anchor it firmly within a moral perspective’ (Anyaoku, 1994). It is this commitment to a sense of morality that, for Anyaoku, differentiates multilateralism from other forms of international organisation. Speaking with reference to the tragedies of Bosnia and Rwanda during the mid-1990s, he elaborates: The inability of the global community to respond with equal concern to these various conflicts is often explained on a number of grounds. It may be because there is little clarity in what multilateral response should be. Or, because it is not easy to mobilise the necessary human, material and financial resources. The point, however, is that no matter what reason is adduced for an inadequate response to particular conflict situations, there is perhaps a deeper explanation for these failures. For true multilateralism to prevail, it needs a soul … Otherwise, it remains mere rhetoric, spoken but not pursued. And it will not be dependable. For it will be accepted by some when it suits them; and will be rejected by others when it does not. (Anyaoku, 1994) Yet although these commentaries exude a clear preference for the qualitative dimensions of a group of states comprising three or more acting in concert, they say little about the content of a multilateral arrangement that is supposed to give rise to these qualities. We find in the work of liberal political economists a slightly different approach to multilateralism – an approach that has proved particularly influential to contemporary international trade regulation – that takes us a little further. Here too we find a comparable preference for multilateralism, though its form centres on a different set of organisational principles to those implicit in more critical commentaries.

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For many economists the term multilateralism is merely a synonym for a specific form of economic organisation associated with the arrangement of international commerce in accordance with the principle of MFN applied in its unconditional form (see, for instance, Jackson, 1998a: 158; Winters, 1990: 1289; Curzon and Curzon, 1989: 481; Snape, 1988: 1–2). Under the auspices of unconditional MFN, states are understood to be better able to utilise their comparative advantages and thus maximise their economic welfare through the conveyance to third parties of any preferential commercial treatment accorded to another. This is in contrast with conditional MFN, wherein only the two parties involved benefit from the conveyance of preferential treatment – a form of organisation more commonly associated with bilateralism (see Diebold, 1988). The consequence of these contrasting styles of economic organisation is that unconditional MFN is commonly understood to rest on a notion of nondiscrimination, whereas conditional MFN relies on active discrimination against third parties. Richard Gardner, in commenting on the post-war settlement, offers the following insights into the practice of multilateralism as manifest in the field of trade. He suggests that the wartime case for multilateralism closely approximated an institutionalisation of the case for free trade. He posits that the creation of a trading system based upon non-discriminatory commercial treatment and a process of trade barrier reduction was deemed to enable trade flows to occur in accordance with relative price considerations. This, in turn, enabled purchases to be made in low-cost markets, and sales to be made in those markets wherein the returns are highest. Such activities would, themselves, promote the development of an international division of labour corresponding more closely with the greatest comparative advantage enjoyed by a particular state (Gardner, 1956: 13). The effects of such a system Gardner deemed to be two-fold. First, the realisation of an international division of labour based on the pursuit of a state’s greatest comparative advantage was understood as enabling a more effective use of ‘the world’s existing natural resources’ at any given time. And second, such a system was perceived as promoting the flow of capital to those areas wherein it could make the most significant contribution to productivity. Taken together, these effects would serve to increase over time the world stock of resources, as well as the level of competition among producers. As Gardner puts it, in ‘this way multilateralism will tend to maximize the real income of the world as a whole’ (Gardner, 1956: 13–14). However, as Gardner further explains, this increase in real world income was deemed possible only if the world’s natural resources were exploited in the most efficient manner, as any lack of efficiency and underemployment might mitigate that increase. For Gardner, multilateralism in this sense would only ‘maximize real income … in conditions of economic expansion’ (Gardner, 1956: 14). That said, Gardner argues, in recognition of the potential unevenness which may result from the distribution of any increases in world income, the multilateralism envisaged by the wartime planners also sought to incorporate various procedures to distribute more evenly the rewards of an

36 The architecture of multilateralism increase in the volume and value of trade among and within states – though he omits to identify just what these procedures were. Jagdish Bhagwati notes the primacy of two characteristics associated with the GATT’s specific expression of multilateralism: first, the principle of nondiscrimination in the form of unconditional MFN as the guiding principle of international commerce; and second, the exchange of balanced, mutual reciprocal concessions as the method for moving towards free trade (Bhagwati, 1990: 1304). But Bhagwati goes further. He argues that these two characteristics ensure that multilateralism rules out ‘the aggressive use of power to extract either unrequited trade concessions or acceptance of new disciplines, therefore shielding the weak against the strong who would otherwise, in bilateral one-toone confrontations, have an advantage constrained by altruism or conscience’ (Bhagwati, 1990: 1304; also see Jackson, 1998a: 158; Wiener, 1995: 234–5; Strange, 1985: 256; Curzon and Curzon, 1976: 147–67; Curzon, 1965: 57–107). So where does this take us? From the discussion so far it would seem that something of a consensus exists in the literature, albeit rather limited, which perceives multilateralism as, at best, an ideal form of international organisation, and, at worst, a means of dissipating the abusive use of vast asymmetries in power. Furthermore, we see a differentiation between, on the one hand, the idea of multilateralism, and on the other, actual expressions. This is most evident in the work of Cox, and in the differentiation between the aid programmes administered by the UN and those overseen by the IMF and the World Bank. However, these accounts do not provide us with an insight into how multilateralism, so arranged, gives rise to these outcomes. We see a synonymity with the principle of MFN and a centrality attributed to the role of reciprocity in tariff negotiations. But we must be clear that this synonymity does not necessarily mean that multilateralism must be premised on a collective commitment to unconditional MFN. It is equally as feasible to suppose that other principles may be utilised in such a way as to act as an intervening variable giving rise to an equality of outcomes. Beyond this, however, further precision is absent. So how does this help us in developing a better understanding of the legal framework of the WTO? The answer is reasonably modest though of central importance to the following analysis: it reveals a preference for a particular kind of organisation that is generally held to be of benefit to all involved. It is this preference, articulated by its architects, that has underpinned the system of trade regulation as it has evolved. Yet we still need to determine what exactly it is that is said to give multilateralism this particular quality. It is with this in mind that we turn to the work of Robert Keohane and John Ruggie.

Multilateralism: towards a conceptual framework? Both Keohane and Ruggie have sought to develop more precise understandings of the architectural dynamics of multilateralism. Keohane has done so within the confines of an already-existing research programme into international institutions (Keohane, 1984, 1989), whereas Ruggie, though ultimately relying on

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Keohane’s work, has sought to develop a differentiated understanding of multilateralism (Ruggie, 1993a, 1993b, 1998). Both are candid about what they perceive to be the limitations of their offerings. Their aim is not so much to develop the definitive interpretation of multilateralism, but rather to offer a series of conceptual insights which go some way towards determining the ideal type of multilateralism, which they deem sufficiently interesting to be the basis for further research. In both cases they take issue with the restrictive numericonly definitions of multilateralism and seek to determine something of its qualitative dimensions, though they too continue to exude the preference for this kind of international organisation evident in other works. Ruggie best puts this in his assertion that multilateralism is the doctrine, practice or principle which requires that activities ought to be, or are best, organised on a many-sided basis for a ‘relevant’ group. For him, multilateralism is the belief in an ‘architectural form’, a deep organising principle that ‘coordinates relations among three or more states in accordance with certain principles’ (Ruggie, 1993a: 568; also Caporaso, 1993a: 603). Keohane’s contribution has been to build a framework from which to start thinking about multilateralism. He suggests that multilateralism can be defined as ‘the practice of co-ordinating national policies in groups of three or more states, through ad hoc arrangements or by means of institutions’ (see also Cerny, 1993: 33). Yet he is purposefully limiting in his definition of multilateralism. First, while Keohane acknowledges that transnational actors are important in world politics, he argues that the range of contemporary and historical instances wherein three or more actors have converged is so vast that to broaden the definition beyond those involving states would prove counterproductive in the search for an appropriate starting point from which to begin thinking about multilateralism. Second, he differentiates multilateral institutions, which he defines as ‘persistent and connected sets of rules, formal and informal, that prescribe behavioural roles, constrain activity, and shape expectations’, from other forms of multilateralism, such as ‘ad hoc meetings and short term arrangements’ directed to solving specific problems (Keohane, 1990: 732). Third, Keohane suggests that multilateral institutions, the principal source of his interest, can take the form of regimes or bureaucratic organisations – though he notes the symbiotic relationship that often witnesses organisations accompanying regimes (Keohane, 1990: 732–3). And finally, he differentiates between three specific forms of multilateralism according to the size of their membership: (i) restricted institutions – those bodies whose purpose prohibits universal membership, such as NATO or the EU; (ii) conditionally open institutions – those organisations that have the potentiality to be open to a universal membership, but whose numbers are presently below that level such as the GATT; and (iii) open institutions – those bodies that have a membership open to all sovereign states such as the UN (Keohane, 1990: 750–1). Keohane further argues that each of these three instances of multilateralism, though related, have a specific character which ensures that they fall almost equidistantly along a line of effectuality, with the caveat that all forms ‘are

38 The architecture of multilateralism doubtless constructed to help powerful states achieve their interests’ (Keohane, 1990: 751). Restricted institutions are constructed either to enable one group of states to gain disproportionately over another, or (indeed as well as) to nurture a sense of identity. Conditionally open institutions exist to limit the extent of nonmembers benefiting without incurring any of the costs of membership – in other words, to act as a brake on free-riding. Open institutions, however, serve merely as forums for dialogue and the exchange of opinions as they often encounter difficulties in enforcing rules or ensuring reciprocity and, by extension, are unlikely to prove very effective (Keohane, 1990: 751–2). Keohane’s offerings suggest that we can identify an instance of multilateralism by observing ‘persistent and connect sets of rules, formal and informal, that prescribe behavioural roles, constrain activity, and shape expectations’ that serve to co-ordinate ‘national policies in groups of three or more states’. But though useful, as Ruggie has noted, this tells us little other than that certain sets of rules constitute a multilateral form. Conversely, it may actually inject a degree of confusion into the pursuit for a more precise understanding of multilateralism. For instance, Ruggie argues that according to these criteria both the Bismarckian alliance system and the League of the Three Emperors would qualify as instances of multilateralism (Ruggie, 1993b: 6). However, in each case, although three or more states are involved, the nature of the relationships encapsulated in both these organisational expressions is qualitatively different from that which we would normally deem to be multilateral. Rather, they are perhaps more correctly described as bilateral (or complexly bilateral when they involve a series of bilateral relationships). This qualitative distinction can be illustrated further by contrasting briefly the characteristics of the two regional organisations confronting one another during the Cold War: NATO and the Warsaw Treaty Organisation (Warsaw Pact). NATO, in both its pre- and post-Cold-War guises, has as its foundation an agreement among its members that an infringement upon the sovereign integrity of one will be met with a collective response. In this sense, NATO is an agreement among all. Conversely, the Warsaw Pact was at its root an agreement between the Soviet Union and each of its satellite states wherein an infringement on the sovereign integrity of one of the latter would be met with a response from the Soviet Union. As such, though both are/were regional organisations comprising three or more members engaged in what can broadly be understood as collective defence in accordance with a particular set of rules of engagement, the nature of that defence is/was qualitatively different. This leads Ruggie to assert that Keohane’s limitation of the definition of multilateralism to the co-ordination of policy among three or more states is too imprecise, and serves to obscure the qualitative dimensions of this form. As a result, Ruggie suggests, we need to seek further precision in our understanding of multilateralism. In pursuit of this task, he argues that although multilateralism has become more prevalent since the end of the Second World War, as a generic feature of the system of states since at least its modern formation, ‘its principled meanings can be recovered from historical practice’ (Ruggie, 1993b: ix). By

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exploring the character of specific organisational forms in particular historical moments, Ruggie puts forward this claim: that multilateralism is better understood as the practice of organising activities among such a group in accordance with certain ‘generalized principles of conduct’ (Ruggie, 1993a: 568). As he puts it, what is distinctive about multilateralism is not merely that it coordinates national policies in groups of three or more states, which is something that other organizational forms also do, but that it does so on the basis of certain principles of ordering relations among those states. (Ruggie, 1998: 106) To support his claim, Ruggie compares the organisational structures of the bilateralist Nazi Schacht Plan with the multilateralist GATT. In doing so, he observes that under the auspices of the Schacht Plan, interstate economic relations were organised on a bilateral ‘case-by-case and product-by-product’ basis, whereas under the GATT, all contracting parties were extended MFN. The primary difference between these organisational structures is that under the auspices of the Schacht Plan third parties were consciously excluded from the benefits of association, whereas under the GATT interstate activities were arranged in a more inclusive manner wherein third parties were accorded the same commercial treatment as all other Contracting Parties. Therefore, whereas Schacht relations were based on a system of discrimination, GATT relations were non-discriminatory (Ruggie, 1998: 108). To take his point further, Ruggie makes similar observations about interstate security arrangements. He suggests that, under the auspices of a collective security arrangement, each member is pledged to come to the aid of all parties to that agreement should the need arise. This ensures that if any member of the group is attacked by a non-member, the organisation responds as a collective. And, as all members are privy to the benefits of collective security, it is commonly held that the relations of such an organisation are arranged in a nondiscriminatory manner. This is different from that which occurs within bilateral security alliances. Such alliances only ensure that A comes to the aid of B in the event of an attack by C. They do not ensure that C receives similar assistance from A in the event of an attack from B. Hence, such an arrangement discriminates against C. By organising relations in such a manner bilateral security alliances are discriminatory in the same way as their commercial counterparts (Ruggie, 1998: 109). The apparent non-discriminatory manner in which both expressions of multilateralism are organised leads Ruggie to suggest that multilateral organisation occurs when there exists a perceived ‘indivisibility’, an instance wherein the interests of participating states have converged to such an extent that they cannot be separated. Under the auspices of the GATT, this indivisibility is manifest in the form of non-discriminatory commercial treatment through application of the principle of MFN. In the case of a collective security

40 The architecture of multilateralism arrangement, the desire for peace to prevail is treated as indivisible. Ruggie stresses, however, that this notion of indivisibility is a social construct, rather than a ‘technical condition’. The adherence to unconditional MFN by parties to a commercial agreement ensures that preferential treatment is conveyed to all as if it were indivisible; in the same way, members of a collective security arrangement behave as if peace were indivisible (Ruggie, 1993a: 570–1, 1998: 110). It is this perceived indivisibility that, for Ruggie, is the first generalised principle of multilateralism. The identification of the principle of indivisibility is not, however, the full extent of Ruggie’s perception of the qualitative dimensions of multilateralism. He argues further that expressions of multilateralism ‘appear to generate expectations of diffuse reciprocity’ (Ruggie, 1998: 110) – expectations that participants in such arrangements will yield a ‘rough equivalence of benefits in the aggregate and over time … Bilateralism, in contrast, is premised on specific reciprocity, the simultaneous balancing of specific quid pro quos by each party with every other at all times’ (Ruggie, 1993a: 11). Like his interpretation of indivisibility, we can suppose that Ruggie also deems diffuse reciprocity to be socially constructed – constructed in the sense that participants perceive and expect reciprocal balancing to occur in the aggregate and over time. That said, Ruggie is brief on exactly what he means by the principle of diffuse reciprocity. Nevertheless, we can extract something of the substance of his inference by exploring the work of Keohane and others upon whom he draws. Reciprocity is itself an ambiguous term that finds expression across a range of scholarly disciplines (see Axelrod, 1984; Sugden, 1984; Axelrod and Keohane, 1985; Becker, 1986; Schüßler, 1986; Curzon and Curzon, 1989; Rhodes, 1989). Indeed, like multilateralism its specificities are often taken as given. In spite of its ambiguity, reciprocity is at its root a principle of exchange. It requires that like be exchanged for like, wherein the value of that which is exchanged is perceived by participants to be of roughly equivalent value (Becker, 1986: 73). There are two dimensions to this form of exchange: contingency and equivalence. Contingency refers to the expectation that an initial offer is contingent on a rewarding reaction; equivalence refers to the expectation that the rewarding action will be of roughly equivalent, though not exactly the same, value – an expectation which is itself notoriously imprecise (Keohane, 1989: 135). Keohane differentiates between the two types of reciprocity Ruggie uses in his work: specific and diffuse (Keohane, 1989; 132–57). Each type of reciprocity relates to a particular way in which the action of exchange is ordered. In instances of specific reciprocity, the action of exchange takes place between actors in a limited sequence. Here, each partner is known to the other or others; the initial part of the transaction is known to all; and the value of that which is returned is gauged accordingly. Conversely, diffuse reciprocity is less precise. As Keohane explains, one’s partners may be viewed as a group rather than as particular actors, and the sequence of events is less narrowly bounded … Participants typi-

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cally view diffuse reciprocity as an ongoing series of sequential actions which may continue indefinitely, never balancing but continuing to entail mutual concessions within the context of shared commitments and values. (Keohane, 1989: 134) It is Keohane’s claim that because of specificities of each kind of reciprocity, specific reciprocity is more characteristic of bilateral relationships, whereas diffuse reciprocity is more akin to multilateral arrangements. The distinction between specific and diffuse reciprocity can be made more clearly by referring back to our examples. Under the auspices of a collective security arrangement all parties are expected to contribute a portion of their military capability. The sum of these contributions is intended to provide the necessary degree of force with which to deter or repel an attack. Each party’s return for such a contribution lies in the knowledge that should they be attacked or threatened at some point in time, a collective response would ensue. Similarly, parties to a trade agreement convey preferential commercial provisions contingent on the expectation that they will receive roughly equivalent benefit from the sum of concessions which they are able to act upon over time. Here we can begin to see the interrelationship between the principles of indivisibility and diffuse reciprocity. The very existence of a principle which is perceived to bring about a good which is deemed indivisible gives rise to the conditions necessary for diffuse reciprocity. By extension, the absence of a perceived indivisibility renders the possibility of co-operation among actors, and thus the acceptance that returns will be accrued in the aggregate and through time, null and void. As James Caporaso notes in addressing this very point (though his reading of Ruggie is slightly different to that presented here), ‘these … properties [indivisibility and diffuse reciprocity] should be treated as a coherent ensemble which is itself indivisible, rather than as additive, detachable indicators of multilateralism’ (Caporaso, 1993b: 53). Ruggie’s final move is to marry the principles of indivisibility and diffuse reciprocity with more conventional liberal thinking on institutions. He asserts that multilateralism is a particular type of institution which is qualitatively different from other institutional forms (Ruggie, 1993b: 11). Nevertheless, it shares those characteristics that are common to all institutions – a kind of a family resemblance. This leads Ruggie, following Keohane, to assert that multilateralism is best conceived of as ‘persistent and connected sets of rules, formal or informal, that prescribe behavioural roles, constrain activity, and shape expectations’ (Keohane, 1990: 732), in accordance with the principle of indivisibility and its corollary diffuse reciprocity (Ruggie, 1994: 556, 1998: 109). Ruggie does not, however, seek the kind of numeric differentiation that Keohane attempts, but instead settles for a degree of imprecision by pursuing a more generic understanding of multilateralism. In doing so, he states simply that multilateralism, as a generic feature of the international system, can occur at three levels: as an international (world) order, regime and organisation. While this generic understanding of multilateralism is useful and provides the

42 The architecture of multilateralism bulk of the conceptual framework utilised hereafter, in order to provide the means by which to examine the legal framework of the WTO we need to seek further precision in our understanding of multilateral organisations. More precisely, there exists a third generalised principle of conduct to which both Keohane and Ruggie allude, but which requires further elaboration here. As we have already noted, both Ruggie and Keohane assert that at its root multilateralism is best conceived as an institution. In this sense, we are to think of multilateralism as a set or sets of rules which organise participant behaviour in the particular manner. Furthermore, both argue, to varying degrees, that institutions are highly demanding in that their formation is dependent on the presence of a particular set of conditions. The absence of the particular conditions which give rise to an institution mitigates against its formation. But once formed, Ruggie argues, multilateral institutions have a tendency towards longevity (Ruggie, 1993b: 31–6). This tendency towards longevity, Ruggie argues, is primarily due to the qualitative characteristics of multilateralism, but, we might add, it is also due to the embodiment of a mechanism through which the rules of an institution are monitored and enforced. This may be achieved through a process of self-monitoring by participants, as is likely to be the case in more informal arrangements, or through the creation of a formal enforcement body established by the participants but operated independently by the administrative capacity of an organisation. What follows, then, is that multilateralism has a third generalised principle of conduct: a commitment to rule following which is enforced by some means of ensuring that a particular mode of behaviour is given rise to. This we can term a principle of dispute settlement. This, in turn, enables participants to act as if there were a perceived indivisibility and, by extension, to expect that returns will occur (and accept that they will occur) on a diffusely reciprocal basis based on the knowledge that if they are not, the contravening actions of others will be the subject of a process of scrutiny. Summarily, then, in the work of Keohane and Ruggie we find an interpretation that suggests multilateralism is premised on a particular set of constitutive rules that organise relations among three or more states in accordance with a set of generalised principles of conduct: indivisibility, diffuse reciprocity and dispute settlement. How, then, and to bring us full circle, does this conception relate to the preference for multilateralism identified at the outset? It is Ruggie’s assertion that these generalised principles of conduct are ‘principles which specify appropriate conduct for a class of actions, without regard to the particularistic interests of the parties or the strategic exigencies that may exist in any specific occurrence’ (Ruggie, 1993a: 571). In this sense, then, multilateralism mediates outcomes. Ruggie is more explicit on this point in a later version of his original piece on multilateralism (1998: 102–30). He suggests that the ability of multilateralism to mediate outcomes in a particular manner ensures that ‘where ex ante uncertainty is high, multilateral principles offer a degree of risk insurance against losses – which, presumably, is why smaller countries are more uniformly in favor of such principles’ (Ruggie, 1998: 128). While Ruggie is not making a claim here for the infallibility of multilateralism, he is saying that in

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instances where the motives of others are unknown, or uncertainty exists, the principles of multilateralism act to protect smaller, less powerful states. This point is highly contentious and requires much more empirical work. Nevertheless, implicit in Ruggie’s assertion is a normative preference for multilateralism comparable with that demonstrated at the outset of this chapter. We are now in a position to elucidate our framework for the analysis of the WTO in the subsequent chapters. The preceding exploration enables us to extract an ideal type – a model of multilateralism – which can provide the means for laying open and thus making sense of the intricacies of the WTO’s legal framework. This model perceives multilateralism as a set of constitutive rules which organise the relations of participants in accordance with the principles of indivisibility and diffuse reciprocity. These rules, in turn, authorise participants to act within a given behavioural range conducive with these core principles. As such, they regulate the behaviour of parties to the rules (Ruggie has since termed these rules ‘regulative’, though here they are deemed ‘authoritative’ for the above reason – see Ruggie, 1998: 22–5; cf. Wilkinson, 1997). But as a necessary corollary, to ensure that such behaviour is given rise to – that it is regulated in the intended manner – multilateralism also entails an adherence to the principle of dispute settlement. Both Keohane and Ruggie note that as an ideal type, however, it is unlikely that specific or actual expressions of multilateralism will demonstrate anything other than a general propensity to adhere to these characteristics. Nonetheless, it gives us a basis upon which we can observe the differences between the ideal type and an actual expression. Furthermore, we can understand the manner in which a particular expression deviates from the ideal type and the impact that this may have on the way in which relations are ordered among participants. But before we can utilise this conception of multilateralism as a means of exploring the WTO’s legal framework, it is first necessary to demonstrate how these generalised principles of conduct have manifested themselves in international trade regulation, and have remained central features of its evolution.

Multilateralism and the post-war evolution of trade regulation Now that we have a conceptual framework with which to explore the contours of the legal framework of the WTO, we can begin to tease out the core principles of multilateralism – indivisibility, diffuse reciprocity and dispute settlement – as they have found expression in previous attempts to provide an organisational focus for international trade regulation. This, in turn, enables us to understand more comprehensively the relationship between the WTO and the historical lineage to which it owes so much, as well as, by extension, to go some way towards completing the story started in Chapter 1. It should be noted at the outset, however, that although the principles of indivisibility, diffuse reciprocity and dispute settlement find expression in a particular way, this does not mean that these expressions constitute the only way in which multilateralism may be configured.

44 The architecture of multilateralism As we have already noted, the architectural core of the ITO was to encapsulate an institutional expression of free trade, wherein barriers to trade would be actively reduced, and signatories would operate non-discriminatory commercial practices. In addition, procedures were to be put into place to facilitate the settlement of disputes between and among participants as a further attempt to dissipate potentially conflictual tensions. The ITO took as its central organisational form a commitment to these principles. Paragraphs 3, 4, 5 and 6 of Article 1 of the Havana Charter committed the ITO, in the pursuit of its objectives: To further the enjoyment by all countries, on equal terms, of access to the markets, products and productive facilities which are needed for their economic prosperity and development … To promote a reciprocal and mutually advantageous basis [for] the reduction of tariffs and other barriers to trade and the elimination of discriminatory treatment in international commerce … [and to] facilitate through the promotion of mutual understanding, consultation and co-operation the solution of problems relating to international trade in the fields of employment, economic development, commercial policy, business practices and commodity policy. (Havana Charter 1948, Article 1, paragraphs 3–6) Yet, while the principles embodied in these commitments were to form the architectural core of the trade regime, the Havana Charter emphasised from the outset the substance of the compromise that had been reached between the drive for commercial internationalism and the necessity of national economic stability, as well as the provisions designed to promote economic development and reconstruction (see Havana Charter 1948, Chapters 2–3). It was not until the commercial provisions of Chapter 4 of the Charter that the first two principles of the ITO’s architectural core were to be found. It is here that we find the ITO’s perceived indivisibility manifest in the form of a commitment to MFN, and a process of trade barrier reduction governed by a particular interpretation of the principle of reciprocity. Let us deal first with the principle of indivisibility. Multilateralism, indivisibility and MFN The commitment to MFN as one of the core architectural principles of the body of rules administered by the ITO draws upon a long history of the use of this clause in international commercial agreements stretching back to as early as the 1417 Treaty for Mercantile Intercourse between England and Flanders (UNCTAD, 1999: 13), though it was not until 1860 and the Cobden–Chevalier Treaty that the principle became a staple of commercial agreements (Curzon, 1965: 58; O’Brien and Pigman, 1992: 100–1). That said, the particular interpretation of MFN enshrined in the legal framework of the ITO owes much to the Economic Committee of the League of Nations, and in particular its attempts to develop a more coherent interpretation of the MFN clause prior to the ITO negotiations

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(see League of Nations, 1933) – a debt which further illustrates the interrelatedness of the way in which international organisation as a broad process has evolved. Prompted by a worsening international economic climate following the immediate post-First-World-War boom, the Economic Committee of the League of Nations sought to bring some coherence to the principle of MFN by attempting to determine its general characteristics, bolster its rather weak commitment to the principle in its own Covenant, while at the same time differentiating these characteristics from those of the more discriminatory, conditional interpretations of MFN that were, at the time, the staple of many commercial agreements. The Economic Committee’s purpose was to develop an internationally agreed-upon understanding of non-discrimination, around which future commercial relations could be organised, so that MFN ‘should be either the central principle or the normal outcome of every commercial negotiation’ (League of Nations, 1933: 3). This, it was hoped, would provide the basis for a liberal, transparent and equitable international trade regime, and, by extension, the catalyst for a peaceable international order. In the words of the Economic Committee, ‘the most-favoured-nation clause must speedily bring about the reestablishment of regular currents of trade, which will no longer have to contend with a policy of protectionism and isolation’ (League of Nations, 1933: 3). For the Economic Committee, MFN was deemed to have two objectives: (i) ‘to secure to the country enjoying its benefits a total of advantages represented by all the Customs concessions and privileges granted to third countries and by all the concessions made by autonomous act’, and (ii) ‘to ensure absolute equity of treatment by guaranteeing to all countries which enjoy its benefits equal terms in all matters covered by commercial treaties and, as a result, the free development of their economic aspects’ (League of Nations, 1933: 11). MFN, then, was to act as a guarantee of equity in commerce by prohibiting discrimination in customs procedures and commercial agreements. It was not to be the practice of conveying trade concessions only to those parties that offered compensation in return (Viner, 1931: 94). In this sense, MFN was deemed to comprise two central components: unconditional application to all parties involved; and unrestricted application across the full range of products comprising international trade. Yet, even though the Economic Committee’s purpose was to codify an international understanding of MFN – an understanding in which restrictions on the general dictates of the principle were to be avoided – in doing so, certain exceptions were endorsed, most notably relating to customs unions and frontier traffic. Although the League of Nations proved ineffectual both in securing its own survival and in extending its foray into international commerce, it did, as we have seen, provide lessons for the post-war global institutional structure. This was most certainly the case with regard to the MFN clause encapsulated in the Havana Charter. Though differing slightly from the clause worked out by the Economic Committee, Article 16 of the Havana Charter committed its Members to a version of what has become the standard MFN clause around which post-war international trade regulation has evolved. Article 16 states that:

46 The architecture of multilateralism With respect to customs duties and charges of any kind imposed on or in connection with importation and exportation or imposed on the international transfer of payments for imports and exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation … any advantage, favour, privilege or immunity granted to any Member to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for all other Member countries. (Havana Charter 1948, Article 16, paragraph 1) MFN was not, however, simply to be defined as a positive commitment, in the sense that all advantages, favours and privileges were to be accorded to all unconditionally and without restriction. MFN was also to be defined in the negative under the Quantitative Restrictions Articles of the ITO (Article 20) (also see League of Nations, 1933: 20). In this sense, MFN was intended to ensure that any restrictive practices, such as they were allowed to exist under both agreements, were also to be applied in a non-discriminatory manner. With a series of qualifications, for the ITO this entailed that: No prohibition or restriction other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any Member on the importation of any product of any other Member country or on the exportation or sale for export of any product destined for any other Member country. (Havana Charter 1948, Article 20, paragraph 1) Similarly, the commitment to MFN was to be complemented by a comparable commitment to ‘national treatment’ (Article 18), requiring that all parties to the agreements apply equal treatment in terms of taxation and regulation to imports in a manner consistent with that which is applied to domestically produced or supplied goods. Its purpose is to eliminate the imposition of discriminatory commercial practices cloaked as internal taxation or regulation procedures and thus cover all areas wherein protectionism may masquerade as a legitimate procedure. As Article 18 states: The products of any Member country imported into any other Member country shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations, and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. (Havana Charter 1948, Article 18, paragraph 4) What we find in the Havana Charter, then, are the foundations of what has become the perceived indivisibility of this particular expression of multilateral-

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ism. An adherence to the non-discriminatory treatment deemed to be encapsulated in the principle of MFN, and complemented by the quantitative restriction and national treatment clauses created a sense that the benefits of membership were indivisible, and that the more states subject to these disciplines, the larger the potential gain. In spite of the still-birth of the ITO, the centrality of the principle of MFN and its corollaries to its surrogate the GATT ensured that a culture of familiarity of conducting commercial relations in accordance with these principles was nurtured, which, in turn, served to deepen further the perceived synonymity between this particular kind of international trade regulation and multilateralism. The importance of this development should not be overlooked. For 47 years a de facto international body managed to regulate international trade in accordance with this particular principle; as such it became a norm of international trading relations. Beyond this, the familiarity with a particular style of trade management ensured that the movement from de facto regulation under the GATT to formalised trading relations under the WTO was relatively easy. Furthermore, the familiarity with this style of commercial management ensured that MFN would not only have a central role within the WTO’s legal framework, but provide the model for a new series of trade agreements to be incorporated under its legal umbrella thus spreading the principle’s disciplines beyond the GATT’s traditional focus on trade in goods. The GATT did not, however, strictly adhere to the legal formulations of the ITO. The quantitative restriction clause of the GATT, for instance, prohibited the use of such restrictions unless the ‘importation of the like product of all third countries or the exportation of the like product to all third countries is similarly prohibited or restricted’ (GATT 1947, Article XIII, paragraph 1) – though in reality their use remained a notable feature of international commerce. Nonetheless, the GATT’s envisaged role as a bridging agreement between the previous fractious commercial order and that envisaged by the wartime architects ensured that large portions of the Havana Charter found themselves replicated, with the odd modification, in the General Agreement. This was the case with both the MFN and national treatment provisions. Reciprocity and the pursuit of liberalisation That said, the principle of MFN and its corollary national treatment were but one-third of the architectural core of the envisaged trade regime. The second component of this core was a commitment to trade barrier reduction through the application of the principle of reciprocity. The necessity for this second architectural principle was derived from the need to utilise fully the ‘benefits’ of the principle of MFN. Alone the principle of MFN does not promote trade liberalisation. As Viner puts it, MFN ‘grants nothing in return except equality, i.e., that [which could entail] equally bad treatment’ (Viner, 1931: 100). And, although MFN plays a central role in the liberalisation process, in that it conveys to all parties the value of negotiated concessions, it is only in conjunction with a

48 The architecture of multilateralism commitment to the erosion of existing barriers to trade that its benefits are understood to come about. Yet, this commitment to trade barrier reduction itself requires a mechanism for achieving its goal. Again, building upon a long commercial history, the mechanism that was first embedded in the Havana Charter in pursuit of a reduction in barriers to trade, and that which survives to this day in the WTO’s legal framework, is through an adherence to a process of reciprocal exchange of commercial concessions. Participating states are required to make commercial concessions in return for similar privileges. The product of this exchange is then conveyed to all other participants in accordance with the principle of MFN. Reflecting the perceived inseparability of MFN and reciprocity as the method by which barriers to trade were to be reduced, Article 17 of the Havana Charter fell equidistant between the MFN clause and that of national treatment and quantitative restrictions. More specifically, Article 17 set out an elaborate set of rules governing trade barrier reduction that later found their way, albeit much watered down, into the GATT. Members of the ITO were to embark on negotiations with other Members in accordance with the five rules: a)

b) c)

d)

e)

Negotiations were to be carried out on a product-by-product basis ‘to take into account the needs of individual countries and individual industries’. Members were not, however, compelled to grant concessions on particular products, and they could bind concessions at a specific level or undertake not to raise them above a specified level; Concessions were only to be made in return for comparable treatment (that is, there was no compunction to liberalise unilaterally); (i) When reductions were made to the MFN rate, such a reduction must automatically reduce or eliminate the ‘margin of preference’ applicable to that product; (ii) in reductions relating only to the preferential rate, an automatic reduction in the rate of MFN must occur; (iii) in reductions to both MFN and preferential rates, the size of the reduction must be agreed by the parties to the negotiations; and (iv) the margin of preferential treatment for any product or range of products shall not be increased; The binding of low or duty free treatment was to be recognised as equivalent in value to the ‘substantial reduction of high duties or the elimination of tariff preferences’; and That previous commercial commitments made between or among participating states were not to frustrate the commitment to enter into trade barrier reducing negotiations. (Havana Charter 1948, paragraphs 1–2)

In essence, then, the rules governing trade barrier reduction fell some way short of the idea of diffuse reciprocity. Members were first to negotiate bilaterally; only then was the product of that negotiating to be conveyed, in accordance with the commitment to MFN and its corollaries, to the membership in its entirety. The logic, however, was that the sum total of all of the bilateral negotiations

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entered into by the membership would bring about a rough equivalence in returns (this point is explored in more detail in Chapter 5). Beyond the rules dictating the format of trade negotiations, Article 17 mapped out the relationship between the larger ITO and the GATT. Here, Members were asked to become Contracting Parties to the GATT within two years of entry into force of the Havana Charter, to ensure the continued benefits of MFN unless previously agreed by a majority of the Membership (Havana Charter 1948, Article 17, paragraph 4(b)). Again, however, the demise of the ITO did little to unhinge the principle of tariff barrier reduction as an evolving norm of international commercial relations. As with many of the similarities between the ITO and the GATT, the latter’s provisions for the reduction of trade barriers were slightly diluted, though in essence they remained the same. To operationalise this principle, the GATT relied on Article XXVIIIbis – an Article which, as is demonstrated in Chapter 5 of this book, ensured that the format of trade negotiations was very much open to interpretation (also see Curzon and Curzon, 1976: 156–7). For the GATT, negotiations directed towards a significant reduction in the general incidence of barriers to trade were also to be undertaken. Similarly, these negotiations were to be carried out on a ‘product-by-product’ basis, or (more interestingly) ‘by application of such multilateral procedures as may be accepted by the contracting parties concerned’ (GATT 1947, Article XXVIIbis, paragraph 2(a)). However, the ITO’s more specific rules on the format of negotiations were absent, replaced instead by three guidelines asking that Contracting Parties take into account (i) the individual needs of Contracting Parties and industries; (ii) the need for flexibility in tariff schedules of less developed countries; and (iii) (rather ambiguously) the specific needs of Contracting Parties in ‘fiscal, development and strategic’ areas (GATT 1947, Article XXVIIbis, paragraph 3(c)). The format for negotiations specified by the GATT was at best vague – a vagueness which perhaps contributed to the perception of flexibility and thus relative warmth in which the GATT was received. Nonetheless, the General Agreement’s provisions for reciprocal negotiations to be entered into served as the particular expression of the second generalised principle of conduct embodied in the core of international trade regulation. Dispute settlement The third and final architectural principle of the trade regime is a commitment to a process of dispute settlement. This commitment arose, in part, from a prevailing wartime notion that a process of commercial dispute settlement overseen by an independent body (albeit one made up of the respective participants) would assist in dissipating conflict among and between states and thus contribute to the promotion of world peace. This commitment also arose for more pragmatic reasons. As with any legal system, there will exist, from time to time, differences of interpretation. The capacity to settle disputes arising from a legal framework governing international trade was deemed to be an essential

50 The architecture of multilateralism principle around which international commercial relations ought to be organised. But the commitment to the principle of dispute settlement was to have a third function. It was to act as a restraint on the ability of states to pursue unilateral action in contravention of the rules of the regime, and thus contribute to the maintenance of commercial benefit for all. The commitment to the principle of dispute settlement was implicit in the Lend–Lease Agreement between the UK and the US that preceded the ITO negotiations, but found its formal expression in the Havana Charter. With the exception of Article 66 of the Havana Charter, relating to the settlement of disputes arising from intergovernmental commodity control agreements, the ‘settlement of differences’ provisions of the ITO’s legal framework were to be found in Chapter VIII, Articles 92–7. Chapter VIII binds Members to adhere to dispute settlement provisions directed at settling any commercial differences, and prohibits the use of unilateral action. These provisions set out an extensive set of procedures directed at settling disputes. In the first instance, any Member with a grievance against another relating to a perceived nullification or impairment of previous conveyed preferential treatment is empowered to put in writing the nature of the grievance and receive ‘sympathetic consideration’ thereof from the offending party, as well as notify the ITO of such action. If these bilateral procedures do not produce a satisfactory settlement, disputes could be referred to the Executive Board – the ITO’s council of leadership comprising eight states of chief economic importance and 10 others (see Chapter 1). The Executive Board, in considering a dispute, had five options open to it: first, to refrain from taking any action; second, to recommend that further consultation take place with the Members concerned; third, to seek a process of arbitration agreed upon by the Board and the disputing parties; fourth, to request that a Member at fault take any necessary action to conform with the specifications of the Havana Charter; and fifth, to make recommendations for action that would ‘best assist the Members concerned and contribute to a satisfactory adjustment’ (Havana Charter 1947, Article 94, paragraph 2). If these options did not result in a satisfactory resolution of the dispute, the Board was empowered to authorise a degree of punitive action by allowing a Member to suspend its procurement of trade concessions vis-à-vis the offending party. In the event that reference to the Executive Board proved unsuccessful in finding a satisfactory resolution, the case could be referred to the Membership at large in the form of the Conference. In such cases, if the Conference could not bring an end to the dispute by adopting the same procedures as those undertaken by the Board, two options remained. First, the Conference could authorise the suspension of preferential treatment vis-à-vis the offending party; and second, it could ask an offending Member to leave the ITO. In an attempt to ensure impartiality in commercial disputes, either party, as well as the ITO, could seek advice from the International Court of Justice (ICJ). In such cases, the ITO was to consider itself bound by any decision from the ICJ. Elaborate as they were, rather than establishing an independent body to oversee the settlement of disputes, the ITO’s provisions relied on already-existing

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bodies within the ITO supported by the legal expertise of one aspect of the UN system in which it was located. Nonetheless, what is important is the embodiment of a principle of dispute settlement as a fundamental pillar of the intended regulatory framework. While its provisions were much less extensive, the GATT also embodied the principle of dispute settlement – though in keeping with the nature of the General Agreement they were rather ad hoc. Furthermore, rather than going by the more formal title of ‘settlement of disputes’ the GATT relied largely upon two provisions: ‘consultation’ (Article XXI) and ‘nullification and impairment’ (Article XXIII) as a truncated version of the ITO’s dispute settlement procedures – a reliance which suited the informal and flexible character of the General Agreement. The first of these provisions – consultation – merely empowered Contracting Parties to consult with one another. The bulk of the GATT’s dispute settlement procedures lay in its nullification and impairment provisions. These were largely composed of a slightly rewritten and précised versions of Articles 93 and 94 of the Havana Charter. Article XXIII of the GATT set out the conditions (of nullification and impairment) under which a Contracting Party may enter into a procedure designed to settle a dispute. As with the ITO, the first step was to enter into bilateral negations. Beyond this, the case could be referred to the Contracting Parties (the equivalent of the ITO Conference) for investigation which had the power either to empower an injured party to suspend preferential treatment in relations with the offending party(ies) or to request that an offending party withdraw from the General Agreement. The manner in which the Contracting Parties dealt with disputes evolved through time. At the outset, disputes were brought before a biannual meeting of the Contracting Parties. This, however, evolved through a committee comprised of the Contracting Parties and a later delegated working party, to the use of a panel of experts as the means of mediating disputes – a practice that has much bearing on the way in which disputes are handled in the WTO (see Chapter 6).

Multilateralism and the evolution of international trade regulation For our purposes, the utilisation of a conception of multilateralism enables us to identify the core architectural principles that have remained a constant feature of international trade regulation as they have evolved in the post-war era. We have determined that a conception of multilateralism has as its primary constituent a body of rules. These rules serve to organise the relations of participants in accordance with three generalised principles of conduct: indivisibility, diffuse reciprocity and dispute settlement. These principles, taken together, serve as intervening variables in the production of outcomes – outcomes which Ruggie claims offer a degree of risk insurance for smaller countries. These three architectural principles found expression in the ITO and provided the skeleton upon which other provisions were grafted. However, their

52 The architecture of multilateralism place in the regulation of international trade was not adversely affected by the failure to ratify the Havana Charter. Rather, they remained central to the truncated form of trade regulation that served as the principal source of commercial legislation under the auspices of the GATT. However, although we know that the principles of MFN, reciprocity and dispute settlement have made up the architectural core of the trade regime, as yet we know little about the specific form they have taken. More specifically, we know little about the way in which these principles are manifest in the latest mutation of trade regulation – the WTO. Accordingly, it is to the legal framework of the WTO that the remainder of this book now turns. First, Chapter 3 familiarises us with the character of the WTO. Second, Chapter 4 explores the function and role of the principle of MFN under WTO rules. Third, Chapter 5 explores the principle of reciprocity in the reduction of trade barriers, and in particular the way in which negotiations are conducted. And finally, Chapter 6 examines the way in which the WTO provides for the settlement of disputes. In the latter three chapters, emphasis is placed on understanding the specificities of the WTO’s legal framework by comparing its utilisation of these principles with the ideal type of multilateralism outlined above.

Part II

The extension of multilateralism

3

The WTO

The Uruguay Round of trade negotiations finally reached completion in December 1993. Its Final Act as well as the Marrakech Agreement Establishing the World Trade Organisation (hereafter the Establishing Agreement) were signed at the last Ministerial Meeting of the GATT in Marrakech in April 1994, paving the way for the WTO to formally commence operations on 1 January 1995. Great claims were made for the results of the Uruguay Round, as well as for the new WTO. The architects lauded the creation of the WTO as the beginning of a new era in world trade. The WTO was to provide a legal and institutional base for international trade which had been previously absent under the GATT; a contractual framework within which governments could formulate domestic trade policy; and the platform upon which trading relations among countries could evolve ‘through collective debate, negotiation and adjudication’ (WTO, 1995a: 1). Official estimates suggested that by 2005 world income would have risen by over US$500 billion, and that the growth rate of global trade would be as much as 25 per cent higher than it would have been had the Uruguay provisions not been agreed (WTO Focus (1995) No. 1: 4). Irrespective of these claims, in light of the history of attempts to establish a formal organisational presence to regulate international trade, the establishment of the WTO was a significant step forward. However, the short history of the WTO has so far has been mixed. The pace of activities in the initial three years after its establishment were, to its supporters, impressive and, to its opponents, worrying. The WTO’s First Ministerial Meeting in Singapore in December 1996 proved to be relatively comfortable, in spite of the re-emergence of the particularly thorny issue of labour standards (about which more is said later in this chapter). On 15 February 1997, the WTO successfully concluded three years of negotiations culminating in the Agreement on Basic Telecommunications. World trade continued to expand in spite of the financial turmoil suffered to varying degrees by parts of East Asia, the former republics of the Soviet Union, and Latin America, and good progress was made on timetabling and negotiating outstanding issues and agreements. Yet, almost as soon as it had been created the WTO began encountering problems. Its Second Ministerial Meeting in Geneva in May 1998 witnessed public demonstrations illustrating a level of civic dissatisfaction with the global

56 The extension of multilateralism trade agenda that had previously been suppressed, and in some cases had not existed. This civic dissatisfaction was thrown into sharper relief by the mass protests that accompanied the Third Ministerial Meeting of the WTO in Seattle in late November/early December 1999. The demonstrations aside, tensions arose among the principal trading powers over trade in cars, alcoholic beverages, photographic film, bananas, magazines, hormonally modified beef and foreign sales corporations. And the tenure of Renato Ruggiero, the first DirectorGeneral of the WTO, was overshadowed by the long delay in appointing a successor; an overshadowing which resulted in the election of two candidates – Mike Moore of New Zealand and Supachai Panitchapakdi of Thailand – for successive three-year terms as an untidy compromise. The awkward resolution of Ruggiero’s successor was complicated further by the criticisms surrounding Mike Moore’s leadership over the failure of the Seattle Ministerial Meeting to result in the launch of a new trade round. The purpose of this chapter is to complete the story of the evolution of international trade regulation started in Chapter 1, and begin to tie in the core architectural principles of multilateralism detailed in Chapter 2, thus completing the foundation for the examination of the WTO’s legal framework in the following chapters. More specifically, the task of this chapter is to explore the principal features of the WTO and survey the major developments that have occurred since its establishment. In doing so, it details the organisational and legal structure of the WTO; it explores the WTO’s role in global economic governance; it examines the major developments that have taken place since the WTO’s establishment as well as the outcome of the first three Ministerial Meetings; it outlines the impact of civic concerns on the WTO; and it discusses the WTO’s first, tentative engagement with non-governmental organisations – its understanding of the constituents of civil society.

The WTO After 47 years of de facto trade regulation under the GATT and two unsuccessful attempts at creating an international trade organisation, the WTO represents the culmination of a long process directed at establishing a formal trade body. Unsurprisingly, then, the WTO embodies many of the key themes of that process. And while the WTO exists in a global economic climate markedly different from its predecessors, it embodies the same architectural core as that of the ITO, OTC and GATT. The stated objectives of the WTO remain those of its predecessors: first, nondiscriminatory treatment in international commerce; second, the pursuit of a reduction and possible elimination of barriers to trade; and third, the pacific settlement of disputes through a generalised adherence to a dispute settlement mechanism. To this end, MFN and its corollary national treatment remain the key principles of international trade regulation and are embedded throughout the Agreements administered by the WTO (see Chapter 4); the principle governing trade negotiations is that of reciprocity (see Chapter 5); and the

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dispute settlement mechanism of the GATT has been modified to make it more rigorous, inclusive and binding (see Chapter 6). Much of the literature on the WTO celebrates the establishment of a formal legal presence in international trade (Ruttley et al., 1998; Krueger, 1998). While this has been a significant feature of the creation of the WTO, its contribution to international trade regulation has been to inject more than just a degree of formality. Whereas the GATT was concerned solely with trade in goods, the legal framework administered by the WTO has deepened the coverage of its architectural principles with the inclusion of regulations pertaining to trade in services (under the General Agreement on Trade in Services – GATS). The WTO has also incorporated an agreement on the much embittered area of agriculture; an attempt has been made to move away from the protectionism associated with the MultiFibre Agreement (MFA) by bringing textiles and clothing under the umbrella of the WTO rules; and two of the selective ‘Plurilateral’ Agreements negotiated under the auspices of the GATT have been phased out in an effort to create a more coherent, all-encompassing rules-based system. But the WTO’s impact on the nature of trade regulation has been more than just a deepening of the scope of its commercial coverage. It has also widened the parameters of international trade regulation. The negotiation of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) and the Agreement on TradeRelated Investment Measures (TRIMs) has taken this regulation beyond the traditional parameters of trade into areas deemed to be ‘trade related’ – areas which, though not bearing tradable commodities, are deemed essential to the production process. Furthermore, the very nature of these Agreements differs from that of the GATT as well as the other commercial Agreements administered by the WTO. The TRIPs seeks to endorse and safeguard intellectual property ownership, and the TRIMs aims to go some way towards liberalising global investment flows. Consequently, neither Agreement seeks to bring about a direct expansion in commercial activity. Rather, their aim is to contribute to the creation of an environment that is perceived to be conducive to an expansion in the volume and value of trade. Nevertheless, both encapsulate the core architectural principles of trade regulation and serve to consolidate further the all-encompassing rules-based nature of the trade regime. There is, however, a further dimension to this extension in regulative coverage. Although the WTO has moved into the regulation of trade-related areas, it has done so selectively (Wilkinson, 1999a: 166–79). No attempt has been made to extend to labour, also a trade-related area (cf. G15, 1999: paragraph 20), a comparable degree of protection as that offered to intellectual property – perhaps because of its perceived incongruity with the WTO’s core architectural principles (Hughes and Wilkinson, 1998: 382–8). Precedent for such an extension exists in the legal framework of one of the WTO’s predecessors, the ITO. Chapter 2 of the Havana Charter required members to ‘take fully into account the rights of workers under inter-governmental declarations, conventions and agreements’ (Havana Charter 1948, Article 7). In pursuit of this, a series of provisions were drafted in an effort to strengthen the relationship between trade

58 The extension of multilateralism and full employment as well as to maintain a minimum level of labour standards (see Articles 2–7 of the Havana Charter). This is different from the WTO which asks merely that its Members conduct their commercial relations ‘with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand’ (Establishing Agreement 1994, Preamble, paragraph 1, emphasis added). Little effort has been made to add legal substance to this commitment. Similarly, though without comparable precedent, the WTO has not extended its regulative safeguards to the environment, again perhaps because of its perceived incongruity with the WTO’s core architectural principles. And although the environment has been dealt with in a relatively more comprehensive manner than labour, beyond the general exceptions clauses of the GATT and GATS (Articles XX and XIV respectively) the inclusion of the language of ‘sustainable development’ in the preamble to the Establishing Agreement and the creation of a Committee on Trade and Environment (CTE) designed to identify the relationship between ‘trade measures and environmental measures’, the level of environmental protection in the Agreements administered by the WTO is more rhetorical than substantive (LeQuesne, 1996: 75–84). What remains, then, is an organisation which oversees a series of legal Agreements (29 at the completion of the Uruguay Round and growing) that extends the coverage of the core architectural principles of trade regulation across a wide range of commercial activities coupled with a number of complementary provisions which act to safeguard intellectual property ownership and liberalise investment flows, but which do not offer labour, and to a lesser degree the environment, comparable safeguards. The deepening and widening of the WTO’s regulative parameters has been accompanied by a significant extension in its actual and potential geopolitical boundaries. GATT Membership at 31 December 1994 – the last day prior to its replacement – stood at 128. By November 1999, WTO Membership stood at 135. In addition, 31 states had lodged Membership applications (all of which now hold observer status) and a further five were registered as observer governments but which had yet to submit an application. These figures, while seeming to demonstrate only a reasonably modest increase in the geopolitical area subject to WTO regulations, hide a more significant picture. Whereas the boundaries of the GATT were, in part, fixed by the structural dynamics of the Cold War, the WTO has extended the coverage of the core architectural principles of international trade regulation to include states formerly outside the Western sphere of influence. Most of the 15 republics of the former Soviet Union have, in one form or another, lodged Membership applications. Of these Estonia, Kyrgyzstan and Latvia have so far successfully acceded to the ranks of the WTO, with applications from Armenia, Azerbaijan, Georgia, Kazakhstan, Lithuania, the Russia Federation, Ukraine and Uzbekistan pending. Similarly, much progress has been made on the seemingly intractable accession of the People’s Republic of China (PRC). China was one of the 23 original contracting parties to the GATT in 1948. However, after the establishment of

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the People’s Republic in 1949, the Kuomintang government (which relocated to Taiwan (Chinese Taipei)) notified the organisation of its withdrawal with effect from 5 May 1950. And although China has held observer status since 1982 and its accession working party was established on 4 March 1987, it is only recently that significant progress has been made paving the way for its membership. Furthermore, though in principle autonomous, the return of first Hong Kong and then Macau (both founding Members of the WTO) to the People’s Republic has ensured a Chinese presence in the WTO – though this should not be overstated. More contentiously, Taiwan has also applied for WTO Membership.

The legal framework The WTO regulates international trade through a body of rules constructed around its architectural principles encompassed by its extensive legal framework. These rules are arranged into a series of Agreements each of which subjects one aspect of commercial activity and its related areas to the disciplines of MFN and reciprocity while also empowering Members to settle differences over rule interpretation through a process of dispute settlement. The legal framework itself is organised into six sections, all of which are annexed to the Establishing Agreement: (i) trade in goods; (ii) trade in services; (iii) trade-related aspects of intellectual property rights; (iv) dispute settlement procedures; (v) trade policy review; and (vi) plurilateral trade agreements. Complementing these Agreements are a series of Ministerial Decisions and Declarations which serve to add weight to the interpretation of various provisions within the legal framework; lay down intentions as to the function and future direction of the WTO; as well as set out its central role in the governance of the global economy. Trade in goods The first section, trade in goods, comprises a series of Agreements which build upon and enhance the work of the GATT. These include disciplines on a range of areas previously not subjected to GATT rules as well as the General Agreement’s evolution into the GATT 1994. Within this first section (see Table 3.1 on p. 60) are three Agreements of particular significance: the Agreement on Agriculture; the Agreement on Textiles and Clothing; and the TRIMs. Each Agreement can be understood as an issue-specific extension of the rules embodied in the General Agreement as they related to a particular sector. Agriculture The primary purpose of the Agreement on Agriculture is to introduce a series of provisions designed to remove the trade-distorting effects of non-tariff measures, export subsidies and domestic support systems, and to move towards the organisation of trade in this sector in accordance with the WTO’s architectural

60 The extension of multilateralism Table 3.1 The legal framework of the WTO Final Act of the Uruguay Round of Multilateral Trade Negotiations Marrakech Agreement Establishing the WTO Multilateral Agreements on Trade in Goods: General Agreement on Tariffs and Trade 1994 Agreement on Agriculture Agreement on the Application of Sanitary and Phytosanitary Measures Agreement on Textiles and Clothing Agreement on Technical Barriers to Trade Agreement on Trade-Related Investment Measures Agreement on Implementation of Article VI of the GATT 1994 Agreement on Implementation of Article VII of the GATT 1994 Agreement on Preshipment Inspection Agreement on Rules of Origin Agreement on Import Licensing Procedures Agreement on Subsidies and Countervailing Measures Agreement on Safeguards General Agreement on Trade in Services Agreement on Trade-Related Aspects of Intellectual Property Rights Understanding on Rules and Procedures Governing the Settlement of Disputes Plurilateral Trade Agreements: Agreement on Trade in Civil Aircraft Agreement on Government Procurement International Dairy Agreement International Bovine Meat Agreement Ministerial Decisions and Declarations

principles. In approaching the problem of non-tariff measures new rules on market access introduce a process of ‘tariffication’. This process requires that existing non-tariff measures be converted into more visible tariff barriers at the date of entry into force of the WTO. Once converted, tariff levels are to be applied in accordance with the principle of MFN, and reduced by 36 per cent for developed countries over a period of six years, and 24 per cent for developing countries over a period of 10 years. That said, developing countries are exempt from the tariffication process for those products that are deemed to be the primary staples of a traditional diet, on the understanding that imports of these products must reach a consumption figure of 4 per cent by 2005. Export subsidies are dealt with in a comparable manner to the tariffication provisions. Developed Members are required to reduce export subsidies by 36 per cent in value terms in the first six years of exposure to WTO rules, whereas developing countries are required to pursue a 24 per cent reduction over 10 years. Furthermore, Members are required to reduce, from a base period average calculated on 1986–90 figures, the volume of goods eligible for export subsidies by 21 per cent (Hoekman and Kostecki, 1995: 205–6).

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The perceived disruption caused by domestic support systems has also been addressed, albeit partially, by requiring that each Member of the WTO have its total Aggregate Measure of Support (AMS) calculated. Once this has been achieved, developed Members are bound to reduce this figure by 20 per cent over six years. Developing Members are required to reduce their AMS figure by 13 per cent over a 10-year period. Nevertheless, this area remains the source of much contention, particularly regarding the subsidy systems in place in the EU and US. Textiles and clothing The Agreement on Agriculture has not been the only area of commercial contention in which the WTO has sought to extend its core architectural principles. The first section dealing with trade in goods also contains the Agreement on Textiles and Clothing. The significance of this Agreement lies in its attempt to draw into the WTO the second-largest commercial sector previously exempt from GATT rules (the largest being agriculture), and to phase out the highly contentious Arrangement for the International Trade in Textiles and Clothing – more commonly known as the MultiFibre Agreement (MFA). The history of the MFA is entwined with the growth of protectionism throughout the post-war evolution of the trade regime. Alarmed by what was perceived to be a flood of cheap textile imports from the developing world, the industrial countries (most notably the UK and the US) sought the introduction of measures to protect domestic textile production in the early 1950s. In the first instance this involved the UK and the US exercising their political influence over Japan, Hong Kong, Pakistan and India to extract a series of voluntary quotas limiting the volume of textile exports. However, as such measures were contrary to GATT rules, the developed countries sought to codify the adoption of these quantitative restrictions. The first step towards this codification was the negotiation of a Short-Term Agreement on Cotton Textiles during the Dillon Round of GATT negotiations. This Agreement, in turn, evolved into the Long-Term Agreement Regarding Trade in Cotton Textiles, and subsequently, in 1974, into the highly contentious MFA. Put simply, the MFA enabled developed countries to offset a decline in competitiveness in the production of textiles and clothing vis-àvis their developing counterparts by putting into place a system of regulation predicated on Contracting Parties negotiating bilateral quantitative restrictions or by unilaterally imposing import constraints. The MFA proceeded through four incantations, each time becoming progressively more discriminatory (as well as unpopular) (see Das, 1998: 68–9; Jackson, 1998a: 207–9; Hoekman and Kostecki, 1995: 207–8). In an attempt to reverse this discrimination, the Agreement on Textiles and Clothing sets out the provisions for the transition from the MFA to full exposure to GATT 1994 rules (Agreement on Textiles and Clothing 1994, Article 1) and thus the WTO’s architectural principles. The Agreement requires that all restrictive arrangements in operation under the terms of the MFA be terminated by 2005 whereupon the

62 The extension of multilateralism normal regulative conditions of the WTO apply. That said, prior to this date a process of liberalisation has been put into place. As of 1 January 1995, 1998 and 2002 respectively, importing Members are required to liberalise restrictions on particular products by a percentage of trade in textile produce as specified in the schedules annexed to the Agreement. A Textile Monitoring Body (TMB) has been established to oversee the implementation of the Agreement and to examine any disputes arising between participants. TRIMs The exposure of agriculture and textiles and clothing to WTO rules illustrates a deepening of the parameters of commercial activity traditionally subjected to multilateral trade regulation. However, also under this first section dealing with trade in goods is the Agreement on Trade-Related Investment Measures – an Agreement which, as we noted at the outset, widens the regulative parameters of the WTO’s core architectural principles by introducing disciplines in the related area of investment. The purpose of the TRIMs is to remove domestic policies which place restrictions on inward investment. The aim of this liberalisation procedure is to contribute to an increase in the global incidence of foreign direct investment (FDI), and thus contribute to an increase in the volume and value of goods and services for trade. Unsurprisingly, the discussion surrounding investment was the source of much controversy during the Uruguay Round, as indeed it had been during previous attempts to table the investment issue within the GATT (see Ariff, 1989). The controversy rested on a dichotic understanding of the role of a trade body in the regulation of investment flows. On the one hand, supporters of an extension of GATT activities into this area (most notably the UK and US, but also the EU and Japan) suggested that there is an interdependent relationship between trade and investment, and as such it would be a natural extension of the work of the GATT/WTO. On the other hand, opponents argued that investment issues lie outside of the jurisdiction of the GATT and should remain as such, and that any move to liberalise investment flows within such a forum would be of disproportionately greater benefit to the capital-rich North than to the capital-scarce South. In spite of this opposition, the TRIMs was successfully negotiated and now forms a central component of the Multilateral Agreements on Trade in Goods, complementing the disciplines of the GATT 1994, and falling in line with the principles of MFN, national treatment and reciprocity. Trade in services Providing the second pillar of the WTO’s legal framework is the General Agreement on Trade in Services. The GATS was seen as a natural outcome of the Uruguay Round, particularly as, by one estimate at least, services accounted for 70 per cent of GDP in the developed world and about 50 per cent in LDCs (Drake and Nicolaïdis, 1996: 37). Moreover, the share of trade in services as a percentage of

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total world trade had significantly increased in the run-up to the Uruguay Round negotiations. In 1980 trade in services stood at 18.8 per cent of the total value of world trade. By 1993 this figure had risen to 22.2 per cent. Between 1982 and 1992 the average annual growth rate for trade in goods was 7.1 per cent, whereas trade in services grew at the rate of 9.5 per cent per annum (Hoekman, 1994: 86). Trade in services is generally deemed to be qualitatively different from trade in goods. Services are invisible entities and are procured through a range of relationships between supplier(s) and purchaser(s). In recognition of this, the GATS covers all services in all sectors, except those supplied ‘in the exercise of governmental functions’ (Hoekman, 1994: 87). The GATS identifies four types of relationship to which its regulations pertain: (a) from the territory of one Member into the territory of any other Member; (b) in the territory of one Member to the service consumer of any other Member; (c) by a service supplier of one Member, through commercial presence in the territory of any other Member; (d) by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member. (GATS 1994, Article 1, paragraph 2) The GATS comprises two elements: the first a set of rules that apply to all WTO Members; and the second a schedule of specific commitments. In keeping with the structure of the contemporary trade regulation, GATS disciplines are organised in accordance with the architecture principles of MFN, national treatment and reciprocity. However, unlike the specifications of the GATT, the GATS specifies that any Member may refrain from MFN implementation if the service for which the restraint is to be applied has previously been listed in the Annex to the Agreement (GATS 1994, Article 2, paragraph 2). This is the socalled ‘negative list’. Exemptions to the Agreement can be made while negotiating to accede to the WTO. Further exemptions can only be made by requesting an MFN waiver from the Ministerial Conference. The negative list ensures that the regulative coverage of the GATS is less encompassing than the GATT. During the negotiating process a large number of Members expressed a wish to lodge exemptions. Such was the demand that by mid-1994 over 60 GATS members had lodged requests for exemptions. These numbers were so large that in the final days of the Uruguay Round negotiations were restarted in an effort to reduce the number of proposed exemptions for financial services, basic telecommunications and maritime transport (Hoekman and Kostecki, 1995: 131–2). Though not completed by the end of the Uruguay Round, the conclusion of the Agreement on Trade in Financial Services was deemed to be vital to the GATS, and more generally the WTO, as trade in this sector accounts for the majority of the total volume of trade in services. The Agreement was finally concluded in July

64 The extension of multilateralism 1995 with 29 Members (with the 15 Members of the EU counting as one) signing a protocol stating their intention to implement trade liberalisation measures in this sector. However, the conclusion of the Agreement was marred by the abstinence of the US – a result deemed second best by the then WTO Director-General Renato Ruggiero (WTO Focus (1995) August–September: 6). The US action stemmed from a 1993 announcement of dissatisfaction with the negotiations and their projected results. It was hoped that an extension in the negotiations would bring the US back into the fray. However, by the end of June 1995 the US had reiterated its position, announcing that it would take MFN exemption on some aspects of financial services, but would only convey MFN treatment to those who opened up their markets on a bilateral basis. TRIPs The third, and perhaps most contentious, pillar of the WTO’s legal framework is the Agreement on Trade-Related Aspects of Intellectual Property Rights. Not only does the TRIPs have equal status to the GATT and GATS, it takes to another level the regulative impact of a trade body on national legislation. Moreover, the inclusion of the TRIPs, and its status as one of the key pillars of the WTO’s legal framework, is remarkable considering at the start of the Uruguay Round intellectual property featured as little more than ‘a footnote on a crowded agenda’ (Bronkers, 1994: 1245). The primary function of the TRIPs is to harmonise international standards on intellectual property. For the purposes of the Agreement, intellectual property is defined as a trademark referring to: any sign, or combination of signs, capable of distinguishing the goods or services of one undertaking from those of other undertakings … [Moreover] such signs, in particular words including personal names, letters, numerals, figurative elements and combinations of colours as well as any combination of such signs, shall be eligible for registration as trademarks. (TRIPs 1995, Article 15, paragraph 1) To this end, the Agreement sets out specific criteria pertaining to the usage of trademarks, their registration, requirements of use and licensing arrangements. Special consideration has been made for wines and spirits, and integrated circuits. In the pursuit of this international harmonisation, the Agreement requires that the Members of the WTO abide by the Paris Convention (1967), the Berne Convention (1971), the Rome Convention (1961) and the Treaty on Intellectual Property in Respect of Integrated Circuits as if they were party to those Agreements. As with the range of Agreements administered by the WTO, the principles of MFN, national treatment and reciprocity apply. Domestic parties are not to be accorded special preferences, nor is any Member to be denied ‘any advantage, favour, privilege or immunity’ granted by another in respect of intellectual

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property protection (Articles 3 and 4). In addition, Members are not required to implement any law procuring ‘more protection than is required by this Agreement’. However, this harmonisation is not so stringent as to constrain national autonomy as Members are left ‘to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice’ (TRIPs 1994, Article 1, paragraph 1). The move to incorporate intellectual property regulation into the WTO framework was undertaken in direct response to the growing incidence of intellectual property piracy in unregulated areas (particularly LDCs). This caused much debate during the Uruguay Round as negotiations polarised between two camps – essentially North and South. This polarisation resulted from a conflict between the perceived benefits of intellectual property piracy and those associated with the attraction of FDI. Many considered intellectual property piracy to be an important, if not vital, source of income for many LDCs. As such, any movement towards the eradication of intellectual property piracy was deemed by opponents as potentially harmful to these countries. These arguments were countered by the assertion that intellectual property piracy deters FDI, as investors cannot be guaranteed patent or copyright security. The promise of inward investment served to weaken the resolve of many, though it did not put an end to the opposition. Few among those opposing a move into this area saw any reason why intellectual property should be incorporated into a trade agreement. The WTO, it was pointed out, is an organisation designed to facilitate freer trade, whereas the incorporation of harmonised national standards on intellectual property requires the introduction rather than removal of legislation. As Hoekman notes, the TRIPs ‘obliges governments to take positive action to protect intellectual rights’ as opposed to the more ‘normal’ GATT requirements of legislative reduction (Hoekman, 1994: 100; also Capling, 1999: 84–5, 87–8). Furthermore, the developing countries argued that the industrial countries were not subjected to intellectual property legislation during their developmental drives, so such legislation should not apply to them (Bronkers, 1994: 1247). Instead, the developing world favoured the World Intellectual Property Organisation (WIPO, a Geneva-based UN body), as the body in which the harmonisation of intellectual property legislation could be conducted. The purpose of TRIPs, then, is not to embark on the road towards freer trade like its siblings the GATT and GATS, but more to ensure a minimum level of protection for intellectual property through institutional regulation – albeit with the acknowledgement that intellectual property rights should not in themselves constitute barriers to trade. Furthermore, whereas the GATS is clearly modelled on its older sibling the GATT, the TRIPs has taken a slightly different form. The main difference is that the primary function of the TRIPs is to harmonise national intellectual property protection standards, whereas under the GATS the harmonisation of national policy is not pursued. That said, the TRIPs embodies the WTO’s core architectural principles.

66 The extension of multilateralism Dispute settlement The WTO’s dispute settlement procedures form the fourth pillar of its legal framework. The Dispute Settlement Mechanism (DSM) drawn up during the Uruguay Round builds upon those of the GATT 1947 (Articles XXII and XXIII), though substantial modifications have been made. Its stated aim is to provide security and predictability in international trade by offering Members a mechanism for recourse against perceived unfair trading practices, and to seek positive solutions among parties in dispute (Dispute Settlement Understanding 1994, Article 3, paragraphs 2–7). The Dispute Settlement Understanding (DSU) lays out a series of procedures for Members to follow if they are in dispute. These procedures are the subject of a much lengthier discussion in Chapter 6. In brief, however, they are as follows. In the first instance, upon lodging a complaint with the Dispute Settlement Body (DSB) a complainant must follow a procedure of consultation as specified by Articles 4, 5, 6 and 7, of Annex 2 of the Establishing Agreement. This procedure requires that in the first instance disputing parties attempt to settle their differences within the confines of bilateral consultations. Should the dispute fail to reach conclusion through bilateral means, the complainant can ask the WTO to establish a Panel to mediate the dispute. If the outcome of the Panel proves unsatisfactory to either of the parties in dispute, each has the right of appeal. Appeals are referred to the DSB’s Appellate Body, which in turn reassesses the dispute, and rules accordingly. The Agreement requires that parties to a dispute promptly implement the recommendations or rulings of either the DSB Panel or Appellate Body. Should a Member fail to implement the rulings or recommendations of either the DSB or the Appellate Body ‘within a reasonable period of time’, then Article 22 of Annex 2 of the Establishing Agreement empowers injured parties to suspend WTO concessions in relations with the offender, or entitles them to request compensation from the offending party. It is only at this final stage that the DSB empowers a Member to engage in punitive action. Trade policy review The fifth pillar of the WTO’s legal framework relates to the workings of the Trade Policy Review Mechanism (TPRM). The provisions for the Trade Policy Review Body (TPRB) were first discussed at the 1988 Montreal mid-term Ministerial Meeting, though its roots precede the 1986 Ministerial Declaration that set the tone of the Uruguay Round (Qureshi, 1996: 108–9). The primary function of the TPRB is to promote understanding of the provisions of the Establishing Agreement among the Members by ‘regular collective appreciation and evaluation of the full range of individual Members’ trade policies and practices and their impact on the functioning of the multilateral trading system’ (TPRM 1994, Article A, paragraph 1). The TPRB also provides for the periodic assessment of the WTO, and the activities of the Members in the interests of promoting an increase in transparency among participants. Assessment of the multilateral trading system is outlined in the context of the wider economic

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environment, taking into account the performance of the WTO’s least developed Members, as well as the impact the WTO has on sustainable development. The Agreement sets out a hierarchy for the timing of reviews. The largest trading countries, referred to as the ‘first four’ (the EU, Japan, Canada and the US), are subject to periodic review every two years. The next 16 most significant trading nations are reviewed every four years, others every six, and special arrangements are available for least developed members. Each review produces a report on its findings. Additionally, the TPRB provides annual reports on those general developments ‘which [have] an impact on the multilateral trading system’ (TPRM 1994, Article G). This yearly report, produced in conjunction with the Director-General, constitutes the WTO’s official analysis of the international trading system. Plurilateral Agreements The sixth and final pillar of the WTO’s legal framework comprises a set of four Plurilateral Agreements negotiated under the auspices of the GATT during the Tokyo Round. These four Agreements relate to Trade in Civil Aircraft, Government Procurement, the International Dairy Agreement and the International Agreement on Bovine Meat. The Agreements are plurilateral, as opposed to multilateral, in character, in that they constitute formal agreements adhered to by a group of WTO members, but they are not the source of regulation for the Membership in its entirety. Signatories to these Agreements are obliged to abide by the conditions of the Plurilateral Agreements in the same way that they abide by the rest of the Agreements administered by the WTO. In addition, the Plurilateral Agreements play an important role in the work of the TPRB (Establishing Agreement 1994, Article IV, paragraph 8). That said, since the establishment of the WTO two of these Agreements have been phased out and the commercial areas which they have previously sought to govern have been brought under more general WTO rules. The International Agreement on Bovine Meat and the International Dairy Agreement only functioned under WTO auspices for the first two years of its existence (up to 31 December 1997; see WTO, 1997a), whereupon they were terminated. Nonetheless, the two other Agreements remain notable features of contemporary trade regulation, and those that have been phased out form an important part of its recent history. The Agreement on Trade in Civil Aircraft requires the elimination of import duties on all civil aircraft, engines, parts and other components, as well as flight simulators and their respective parts and components among its signatories. The Agreement came into force on 1 January 1980 and was signed by 21 countries. Like the Agreement on Civil Aircraft, both the International Agreement on Bovine Meat and the International Dairy Agreement also came into force on the first day of 1980. However, unlike the Civil Aircraft Agreement, they did not allow for the complete elimination of barriers to trade, but rather they sought to ‘promote the expansion, liberalization and stability of international trade’ in these commodities (WTO,

68 The extension of multilateralism 1995a: 32–3). Noteworthy was the International Dairy Agreement’s legislation on minimum price which dictated, until the suspension of this clause effective from 18 October 1995, minimum export prices for international trade in various dairy products (see WTO, 1995c). The Agreement on Government Procurement seeks to open government tenders to outside competition. The Agreement is designed to make the procurement of government tenders more transparent, and to ensure that domestic producers and/or suppliers do not enjoy positive discrimination vis-à-vis their foreign counterparts. The Agreement is separated into two parts. The first deals with those rules of conduct that are the concern of the Agreement; and the second is concerned with the schedules of national entities in each Member country whose procurement is subject to the Agreement. The Agreement has nine Members (with the EU counting as one) and came into force on 1 January 1981. The Agreement was substantially revised during the Uruguay Round and has now been extended to cover construction services, procurement of contracts at the regional (local) level and procurement by public utilities, as well as other governmental services.

Figure 3.1 The organisational structure of the WTO

The organisational structure Supporting the legal framework of the WTO is an organisational structure (Figure 3.1) consisting of a Ministerial Conference; a General Council; a series of councils covering each of the three main commercial areas of the WTO’s activities (trade in goods, services and trade-related aspects of intellectual property rights); a series of committees dealing with trade and development, trade and environment, balance of payments restrictions, and budget, finance and administration; a Director-General; and a Secretariat.

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The highest body of the WTO is the Ministerial Conference. It is composed of representatives of the various Members usually at the level of trade minister or equivalent. The Conference meets at least once every two years, and has jurisdiction over all matters concerning the WTO. The General Council meets more frequently than the Conference, and is in effect the overseer of the WTO’s operations. Again, it is composed of representatives of the Members, though normally at the level of trade official. The Council acts as the executive for the Conference when that body is not in session. It also acts to oversee the functioning of the DSB as well as the TPRM. Under the direct control of the General Council are the Council for Trade in Goods (CTG), Council for Trade in Services (CTS), and the Council for TradeRelated Aspects of Intellectual Property Rights (CTRIPs). These Councils oversee the implementation and administration of the provisions laid down in the legal framework in their respective areas. The Councils themselves can establish ancillaries as they deem necessary to facilitate the running of their various tasks. Also under the direct control of the General Council are the committees on trade and development; trade and environment; balance of payments restrictions; and budget, finance and administration. The Plurilateral Agreements are not, however, under the direct control of the General Council. Instead, they operate within the general framework of the WTO reporting their activities to the General Council. The day-to-day activities of the WTO are handled by the Secretariat, headed by the Director-General. This body provides technical and logistical support to the bodies established under Articles IV to VI of the Establishing Agreement (relating to the structure of the WTO, relations with other organisations, and the Secretariat). The Secretariat is responsible for the organisation of meetings, the preparation of documentation, providing assistance with the dispute settlement process, the provision of legal services, and the publication of studies, research, trade policy reports, statistics and general information relating to the work of the WTO. Decision-making The majority of decisions made in the WTO are done so, unless specified otherwise, by consensus. Consensus is taken to mean agreement among all excluding those representatives of Members who are not present, or have abstained from participation. Consensus is not understood as unanimity, but rather agreement in the absence of major opposition. That said, there exist three other procedures by which decisions can be made. In those cases where changes to the core principles of the WTO are proposed, such as an amendment to the procurement of MFN, unanimity is required. In cases relating to the implementation of the provisions of the WTO Agreement, or in respect of a waiver of a Member’s obligations, a three-quarters’ majority is required. A two-thirds’ majority is necessary for any amendment to the Final Act in cases relating to issues other than the core principles of the Agreement.

70 The extension of multilateralism In cases where decisions are put to the vote, the WTO operates on the basis of one member one vote. However, Article X of the WTO specifies that Members are not bound by any amendment that passes a vote they have opposed. Nonetheless, in such cases, the Ministerial Conference can decide whether to ask the Member or Members in question to leave, or whether to allow their continued participation within the WTO without adherence to the amendment in question. The WTO’s first decision concerned the granting of waivers for the application of MFN under Article I of the GATT 1994. The General Council voted that the GATT waiver on the trade provisions provided for the Caribbean Basin by the US under the Caribbean Basin Economic Recovery Act (CBERA) be renewed, and that similar waivers be extended for Pakistan and Malawi until the end of 1995 (WTO Focus (1995) October/November: 5). Waivers are only normally granted for a maximum of 10 years, and are subject to review and future negotiation after five years. Accession So that the Contracting Parties of the GATT were able to accede to the WTO, the provisions of the GATT co-existed with those of the WTO until the end of 1995, whereupon they became an integral part of the latter’s legal framework. Under the provisions of Article XII any state or customs territory wishing to accede to the WTO can do so as long as it has ‘full autonomy in the conduct of its external commercial relations’ (Establishing Agreement, Article XII). In keeping with the decision-making criteria laid down by the WTO, states may only accede in instances where the Ministerial Conference has returned a two-thirds’ majority decision in favour of accession. Accession to the Plurilateral Agreements is governed by the Agreements themselves. The 31 July 1995 witnessed the General Council adopt measures to allow for the first accession of a new Member to the WTO following an application by Ecuador.

The WTO and global economic governance Although much of the legal framework of the WTO deals with the detail of trade regulation, it also contains important provisions which locate the WTO at the heart of the system of global economic governance. The still-birth of the ITO not only put paid to the first attempt at formalising international trade regulation, it also inhibited the establishment and functioning of a system of global economic governance. The GATT’s contribution to the development of such a system was relatively small, providing for co-operation with the IMF in instances relating to ‘exchange questions within the jurisdiction of the Fund and questions of quantitative restrictions and other trade measures within the jurisdiction of the Contracting Parties’ (GATT 1947, Article XV, paragraph 1) – though of course behind the scenes co-ordination took place with other organisations. In this respect, the creation of the WTO is more than just about

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the regulation of international trade through a complex set of rules governing specific areas of commercial activity centred around a core set of architectural principles. It also has a major role in the governance of the global economy, and, in many ways, is the most important world economic organisation. In this sense, it fulfils as well as expands upon the role envisaged for the ITO. Yet, the nature of the systems of global economic governance encapsulated in the legal frameworks of the WTO and ITO are vastly different. Whereas the Havana Charter establishing the ITO contained a complex set of 18 provisions detailing a bilayered system of global economic governance drawing into the heart of global decision-making the ILO, the WTO’s legal framework contains only seven, and focuses on constructing an interinstitutional hub wherein decision-making power is concentrated among three principal organisations: the WTO, IMF and World Bank (see Jackson, 1998b: 166–7; Wilkinson, 1999b: 3–6; cf. Vines, 1998: 60). Like the ITO, the WTO’s provisions envisage a bilayered system of governance – though here the similarity ends. At the primary level, the development of a co-operative relationship with the IMF and World Bank is deemed to be the most important; whereas at the secondary level, provisions are made for co-operation with those other organisations that share a degree of complementarity with that of the WTO. The WTO sets out its blueprint for this system of governance in the Declaration on the Contribution of the World Trade Organisation to Achieving Greater Coherence in Global Economic Policy Making annexed to the Establishing Agreement. The central feature of the primary level (see Table 3.2 on p. 72) is the development of mutually supportive polices and the removal of ‘cross-conditionality’ among the WTO, IMF and World Bank thus harmonising the conditions under which Members and prospective Members deal with each organisation, as well as consolidating the character of global economic governance. The purpose of this harmonisation is to make national governments more aware of the requirements of these organisations, though it clearly has the effect of restricting the range of nationally possible economic behaviour and increases the relative power of these three global bodies. At the secondary level, the WTO’s envisaged co-operative linkages can be further divided into two sub-categories relating to: (i) the work of specific organisations; and (ii) creating political space for co-operation with other as-yetto-be-specified organisations if and when the need arises. The general pattern here is one of co-operation with specific organisations in given issue areas in instances when the work of these organisations proves useful to that of the WTO. Within the first sub-category only one organisation is mentioned by name – the WIPO. The purpose of this linkage is to create a mutually supportive relationship with the WIPO directed at assisting and strengthening the functioning of the TRIPs. Within the second sub-category the general pattern is again to develop mutually supportive linkages with other organisations that support the work of the WTO. It is under these auspices that co-operative ventures can be established.

72 The extension of multilateralism Table 3.2 Uruguay provisions for interorganisational co-operation Level of commitment and corresponding provision Primary: Article III (paragraph 5) Agreement Establishing the World Trade Organisation Ministerial Declaration on the Contribution of the World Trade Organisation to Achieving Greater Coherence in Global Economic Policymaking Ministerial Declaration on the Relationship of the World Trade Organisation with the International Monetary Fund (building upon Article XV of the General Agreement on Tariffs and Trade 1947) Secondary: Preamble to the Agreement on Trade-Related Aspects of Intellectual Property Rights

Association organisation IMF/World Bank IMF/World Bank

IMF

WIPO

Preamble to the Agreement on Trade-Related Aspects of Intellectual Property Rights

Unspecified

Article V of the Agreement Establishing the World Trade Organisation

Unspecified

Article XXVI of the General Agreement on Trade in Services

Unspecified

The provisions contained within the WTO’s legal framework do not constitute the sum total of co-operative commitments into which the WTO has entered. Since its establishment, the WTO has actively built upon its existing co-operative provisions in an effort to consolidate the system of global economic governance. This can be seen at both primary and secondary levels. At the primary level, the relationship between the WTO and the IMF and World Bank have been consolidated by the signing of two post-Uruguay agreements. The purpose of each agreement is three-fold: first, to provide the foundations for carrying forward the WTO’s commitment to achieving greater coherence in global economic policy-making; second, to establish formal channels of communication between the WTO and the IMF and World Bank; and third, to grant reciprocal observer status to each organisation. These agreements were further complemented by the release, in October 1998, of a joint statement by the heads of the IMF, World Bank and WTO committing the organisations to a further consolidation of the linkages embodied in the Uruguay Round Agreement and the subsequent co-operative agreements (WTO, 1998a). This joint statement – essentially a response to fears that the economic crisis in East Asia would spread to Europe and North America via Russia and Brazil and aggravate the backlash against these organisations – reiterated the need for global economic governance among the three organisations as well as an extension of that system (Joint Statement by the

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Heads of the IMF, World Bank and WTO, 3 October 1998, paragraph 1). The perceived indivisibility of the relationship between the three bodies was again reiterated at the Seattle Ministerial Meeting of the WTO (WTO, 1999a, 1999b, 1999c). Similarly, the WTO has built upon its secondary-level commitments. On 29 September 1995 the WTO and the UN agreed to an ‘exchange of letters’ between their respective heads. One aspect arising from this agreement was a recognition of ‘the importance of cooperation and collaboration between’ the Secretariat of the WTO and that of the United Nations Environment Programme (UNEP) (WTO, 1999d) – though little substantive co-operation appears to have occurred between the two bodies. On 4 May 1998 the WTO signed a co-operation agreement with the Office International des Epizooties (the World Organisation for Animal Health) on issues relating to the WTO’s Agreement on Sanitary and Phytosanitary Measures; the WTO launched a joint venture with UNCTAD and the International Trade Centre (ITC) on 28 February 1998; relations with the WIPO have been enhanced through the launching of a cooperative programme directed at ‘helping’ developing countries to meet intellectual property commitments by 2000; a training programme has been launched with the Joint Vienna Institute; and in the aftermath of the WTO’s May 1998 Geneva Ministerial Meeting, movements have been made to extend linkages to non-governmental organisations – a movement to which we return momentarily. What is clear is that both within the WTO’s legal framework, as well as in its post-establishment operations, a formal system of global economic governance has evolved much beyond that which existed prior to the signing of the Uruguay Round accords. The WTO perceives that greater coherence in global economic policy-making is premised on a web of co-operative relations that draws itself in to closer proximity to the IMF and World Bank. Furthermore, it perceives as a necessary complement a secondary layer of co-operative relations among a series of organisations the work of which is deemed to be generally supportive of key aspects of the WTO’s activities. The most striking difference between this system and that envisaged by the wartime planners is that the Establishing Agreement omits any provisions for the extension of co-operative linkages to the ILO – an organisation that, under Chapter 2 of the Havana Charter, was deemed to be central to the effective functioning of the post-war system of governance. As such, this omission ensures that labour lacks any formal legal representation within this system (see Wilkinson, 2001). Instead of committing itself to a formal legal linkage, the WTO has merely voiced its support for the work of the ILO – though this has not been a voluntary declaration of support, rather a response to the tension created by the trade–labour standards debate. The extent of the WTO’s commitment to support the work of the ILO has simply taken the form of the issuing of a Declaration partially referring to the latter’s work on labour standards and a side-stepping of the issue in favour of the development of channels of communication with non-governmental organisations.

74 The extension of multilateralism Trade and labour standards During the WTO’s First Ministerial Meeting in Singapore in December 1996 the WTO addressed the much debated issue of trade and labour standards. This drew on a long history of the possibility of a linkage between labour issues and the regulation of international trade (see Van Liemt, 1999, 1989; Hughes and Wilkinson, 1998; Scherrer, 1998; Haworth and Hughes, 1997; Lee, 1997; Langille, 1997; Fields, 1995; Charnovitz, 1987; Edgren, 1979). Most succinctly, the WTO and its predecessor the GATT had been under prolonged pressure from a number of Members as well as non-governmental organisations and trade unions to incorporate into its legal framework provisions requiring that the Membership as a whole adhere to a core set of labour standards – relating to freedom of association, the right to collective bargaining, restrictions on the usage of child labour, prohibition of the usage of forced labour, and non-discrimination in employment – when engaged in the production of goods and services for trade. To date, the WTO has managed to resist this pressure. In the Ministerial Declaration that was the outcome of the Singapore Ministerial Meeting, the WTO articulated its position on this issue. First, it stated that, while the WTO acknowledges the need to adhere to a core set of labour standards, it perceives the ILO rather than itself to be the appropriate body to set, deal and administer these standards; second, the WTO perceives its contribution to the maintenance of international labour standards to be the facilitation of a greater degree of liberalisation in the global economy – which it believes will naturally improve the position of labour – rather than the construction of a more formal relationship between itself and the ILO; and third, the WTO commits itself only to the continuance of its ‘existing collaboration’ with the ILO – though the substance of this collaboration is unspecified (Hughes and Wilkinson, 1998: 375–80). In spite of the Organisation’s attempts, the Singapore Ministerial Meeting did not put a satisfactory end to the labour standards issue. Indeed, 18 months later at the May 1998 Geneva Ministerial Meeting the issue was once again raised. Again, however, the Organisation refused to acknowledge anything other than a commitment to support the work of the ILO. In fact, the only concession that the WTO made was to issue a commitment to establishing channels of communication with civil society dealing broadly with ‘social issues’, of which labour representation was to form one part (Ruggiero, 1998; Wilkinson, 1999a: 174–9). The issue was once again raised at both grassroots and governmental levels at the Seattle Ministerial Meeting. Yet, while the issue succeeded in raising awareness about the concerns of workers, it did so at the expense of considerable antagonism from opposition governments. What became clear in Seattle was the reluctance of the WTO to move beyond its commitment to support (though not co-operate more substantively with) the work of the ILO embodied in the Singapore Ministerial Declaration (Wilkinson and Hughes, 2000). More consequentially, the lack of legal provision for the extension of co-operative linkages to the ILO in conjunction with the WTO’s reluctance to establish substantive relations with that organisation in the wake of the labour standards debate has ensured that the labour representation that was an integral part of

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the immediate post-war system of global economic governance is missing from the current incarnation, and subsequent efforts to redress this omission have so far failed.

Extending global economic governance: NGOs and civil society Efforts to develop a more comprehensive system of global economic governance do not, however, represent the full extent to which the WTO has fostered relations with other bodies. Prompted in the main by the sharp increase in the level of public disquiet at the pace, extension and unevenness of the trade agenda (of which the call for a generalised adherence to a core set of labour standards is but one among many), as well as an increase in the number of civic organisations concerned with the work of international organisations, the WTO has begun developing communicative linkages with NGOs – its interpretation of civil society (Wilkinson and Hughes, 2000; Scholte et al., 1999; Williams and Ford, 1999). Provisions for such an extension do exist in the WTO’s legal framework, as they did in the Havana Charter for the ITO (Article 87), though the operationalisation of these provisions only became most pronounced in the wake of the demonstrations at the Geneva Ministerial Meeting. The Establishing Agreement empowers the General Council to make ‘appropriate arrangements for consultation and co-operation with non-governmental organisations concerned with matters related to those of the WTO’ (Establishing Agreement, Article V, paragraph 2). This provision does not, however, compel the WTO to develop such linkages; rather its existence is merely to create legal space for such a development should the need arise. The GATT had little to do with NGOs. It did not provide for formal interaction with institutions beyond the IMF, and was, in comparison, relatively hidden from the kind of grassroots criticism levelled at the Bretton Woods organisations. This is not to say, however, that the GATT was immune from grassroots criticism, as this was not the case (cf. Marceau and Pedersen, 1999: 5). Not only did trade unions consistently lobby the GATT to take account of worker rights, as well as for a restoration of the Havana Charter (Hughes and Wilkinson, 1998: 375–6), a range of NGOs emerged specifically to oppose the General Agreement. In response to growing calls for the WTO to increase its level of transparency as well as pursue strategies to enhance its accountability, on 18 July 1996 the General Council adopted a series of guidelines on relations with NGOs (WTO, 1996a). The guidelines set out the need for greater transparency in WTO procedures by increasing access to information, particularly through expanding the WTO’s publication of derestricted documents on its website. While the guidelines appeared to be taking a significant step forward, the WTO’s intention for the fostering of such a relationship became clear. NGOs were deemed to have an important role in promoting the work of the WTO, and in the dissemination of information about trade regulation to civic groups more widely. The relationship was deemed not to be one sided in the sense that a degree of

76 The extension of multilateralism reciprocity was to exist. NGOs wishing to make available ‘general information and briefings’ to interested delegates could do so; nevertheless, the balance of power was to remain firmly with the WTO. That said, under no circumstances were NGOs to be included in the decisionmaking forums of the WTO, or be allowed behind closed doors. Furthermore, the WTO clearly stated that while it perceives interaction with NGOs as an albeit laborious necessity, the responsibility for dealing with civil society remains squarely with national governments, and in those instances when a channel of communication is to be established between the WTO and an NGO, it is only to be done with those NGOs that the WTO deems have a legitimate interest in trade issues. Indeed, this approach, of engaging only with those NGOs that are deemed suitable, is characteristic of the type of interinstitutional engagement into which the WTO has entered. As we have seen, significant and intricate relations with the IMF and World Bank are deemed essential in the pursuit of a coherent system of global economic governance, as are those nurtured with other congruous organisations such as the WIPO, yet little is made of how the WTO might contribute to, or participate in, a global shift towards greater representation and accountability. The WTO’s contribution to society is deemed merely to be the economic benefits of freer trade – a contribution for which it requires a vast amount of political agency. Little effort is made, however, to recognise the significance of the creation of the WTO, or the system of economic management of which it forms a central component, to the changing nature of governance and the socio-political consequences that this change may have. As the final paragraph of the General Council’s guidelines on relations with NGOs states: Members have pointed to the special character of the WTO, which is both a legally binding intergovernmental treaty of rights and obligations among its Members and a forum for negotiations. As a result of extensive discussions, there is currently a broadly held view that it would not be possible for NGOs to be directly involved in the work of the WTO or its meetings. Closer consultation and co-operation with NGOs can … be met constructively through appropriate processes at the national level where lies primary responsibility for taking into account the different elements of public interest which are brought to bear on trade policy-making. (WTO, 1996a: paragraph 6) These guidelines set the tone of the first formal interaction between the WTO and NGOs at the Singapore Ministerial Meeting in December 1996. The significant increase in the exposure of international trade regulation to criticism from NGOs ensured that a large number expressed an interest in attending the Ministerial Meeting. O’Brien characterises the Singapore NGO experience as mixed (O’Brien, 2000). The WTO did, in conjunction with the Singaporean government, provide good facilities, and the proceedings of the press conference were broadcast in the

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NGO centre. However, delegations were only permitted from those NGOs that could demonstrate that their interests were directly related to those of the WTO; access to information suffered from a few logistical teething problems; NGOs were warned against public demonstrations by the Singaporean government; and access to national delegates proved difficult (O’Brien, 2000). The invitation to attend the Singapore Ministerial Meeting was not, however, intended to set a precedent (Marceau and Pedersen, 1999: 13); rather, in line with the WTO’s guidelines on co-operation with NGOs, such interaction was to be developed through various means such as inter alia the organisation on an ad hoc basis of symposia on specific WTO-related issues, informal arrangement to receive the information NGOs may wish to make available … and the continuation of past practice of responding to requests for general information and briefings about the WTO (WTO, 1996a: paragraph 4) and not through a formal and institutionalised process. Nevertheless, the experience of Singapore bred a perception among the more critical Members of the WTO that this first engagement with civil society was relatively unthreatening, and as such no objections were raised to further accommodation of such organisations at the Second Ministerial Meeting (Marceau and Pedersen, 1999: 17). The character of the WTO’s interaction with NGOs at the Geneva Ministerial Meeting was, however, qualitatively different from Singapore. The relative political freedom of Switzerland enabled a series of demonstrations, organised by a coalition of NGOs, to take place illustrating a level of dissatisfaction with the WTO that had been absent in Singapore. Though not wanting to appear to be bowing to this kind of grassroots pressure, the Geneva Ministerial Meeting resulted in a deepening of the WTO’s engagement with civil society beyond that which had been expected. Throughout the Ministerial Meeting various supportive declarations and proposals were aired with a view to increasing, rhetorically at least, the participation of ‘civil society’ within the WTO. Renato Ruggiero, in a particularly candid opening address, suggested that the main challenge facing the WTO was the need to tackle issues of public concern, citing financial instability, development, marginalisation, the environment, employment, health and cultural diversity as the major challenges. Such a challenge, he argued, required that the WTO divert some energy towards strengthening its relationship with ‘civil society’ (Ruggiero, 1998). While these comments did not suggest that the WTO was about to reverse its decision not to involve NGOs directly in the workings of the WTO, Ruggiero’s statement was followed by comparable supportive declarations from US President Bill Clinton, US Trade Representative Charlene Barshefsky and EU Trade Commissioner Leon Brittan. While to some these intentions appeared largely symbolic, they were raised in conjunction with calls for a new trade round to follow the WTO’s Third

78 The extension of multilateralism Ministerial Meeting in Seattle in late 1999. And although the relationship between the WTO and civil society is unlikely to mature, in the near future at least, to such an extent that the NGOs will be invited into the workings of the WTO, hopes were raised that the Millennium Round would not only take issues of development more seriously, as had been promised, but that issues of public concern would occupy a larger portion of the trade agenda. The ‘Battle in Seattle’ However, hopes that a more amicable relationship would emerge between the WTO and its opponents appeared increasingly unlikely in the run-up to the Third Ministerial Meeting in Seattle in late November/early December 1999. Indeed, the degree of energy exerted in organising an oppositional coalition to the Ministerial Meeting prompted some to caricature the forthcoming meeting as the ‘Battle in Seattle’. They were not disappointed. The Seattle Ministerial Meeting encountered mass demonstrations, not only in Seattle but in many major cities across the globe. Images of the US National Guard aboard armoured vehicles adorned newspapers and television screens across the globe. Seattle appeared to be a step backwards for the WTO. The heavy-handedness of the US National Guard in attempting to disperse the demonstrators served to obscure an equally inhibiting dynamic: inside the Meeting the impasse among the delegates that had been threatening in the runup to Seattle had been realised. Significant divisions emerged over existing as well as proposed areas of regulation; and the fall-out from the untidy compromise that had been reached in the selection of the WTO’s Director-General manifested itself in a number of areas. But more significantly, the WTO’s efforts to abate the fears of many in the ranks of NGOs and grassroots movements suffered a major setback. In short, the failure of the Seattle Ministerial Meeting either to launch a new trade round or to result in a more intimate relationship between the WTO and civil society cast a shadow over the WTO. The long-term impact of these events, however, has yet to be gauged. We return to this point in Chapter 7.

Conclusion The establishment of the WTO, then, represents more than just an injection of organisational formality into the regulation of international trade. It also signifies a qualitative change in the nature of trade regulation. The deepening of those areas of commerce subject to WTO rules, and its widening through the drawing in of certain related areas, bears testimony to this. The system of global economic governance envisaged in the WTO’s legal framework too signifies a qualitative change in the nature of trade regulation, albeit one originally envisaged by the wartime planners. The location of a body designed to regulate trade at the heart of a complex system of organisations serves to solidify the character of that system. Furthermore, it serves to privilege a certain type of

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organisation at the expense of others. But as we have seen, the omission from that system of organisations such as the ILO as well as certain representative NGOs has resulted in a considerable backlash, and one that sets the tone of the challenges facing the WTO for at least the medium term. However, as we have seen, issues of representation and accountability do not constitute the sum of complaints levelled at the WTO. Those who have taken time to explore its complex legal framework point to deficiencies within the framework itself. It is to that framework, laid open by the conception of multilateralism set out in the previous chapter, that the following chapters now turn.

4

Non-discrimination and the WTO

We have so far gleaned something of the institutional evolution of international trade regulation, the significance of the WTO’s creation, and the WTO’s location within the contemporary system of global governance. We have seen that the evolution of international trade regulation has been such that a critical juncture was reached with the completion of the Uruguay Round. This juncture brought with it an extension in the operational range of the core architectural principles beyond the unitary focus on trade in goods under the GATT, to include, under the WTO, trade in services, agricultural produce as well as textiles and clothing. We have also noted that the range of these principles has been extended to include the trade-related areas of investment and intellectual property. And we have seen how a significant increase in the WTO Membership has extended the geopolitical boundaries of international trade regulation. But we have yet to establish how each of the core architectural principles is expressed within the WTO’s legal framework. This chapter begins that task. Apart from a general notion that MFN ought to be applied in its unconditional form, little has yet been said of the particular manner in which this commitment to non-discrimination is utilised as a means of regulating international trade. While the WTO has sought to decrease the range of commercial areas exempt from its core architectural principles, the way in which MFN is utilised in its legal framework is such that it permits discrimination in particular instances. This ability to discriminate owes much to the way in which the principle of MFN has been codified throughout the evolution of international trade regulation. Nonetheless, it empowers WTO Members to qualify their commitment to convey MFN treatment to sections of the WTO Membership under certain circumstances. At one level, then, the WTO regulates international trade in accordance with an adherence to unconditional MFN. At a deeper level, however, the WTO permits a number of qualifications to this principle – qualifications which have a significant impact on the way in which the trade regime is governed. This chapter explores the contours of the WTO’s utilisation of the principle of MFN. By way of procedure it first examines, in more detail, the WTO’s general commitment to non-discriminatory commercial treatment as it is expressed across the WTO’s legal framework. Second, it explores each of those

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instances wherein the procurement of MFN is qualified. And third, by way of bringing the chapter to a close, it comments on the impact of the particular way in which the WTO operationalises this principle of indivisibility.

MFN and the WTO The WTO’s commitment to MFN runs throughout its legal framework, though it is only explicitly stated in three of the Agreements administered by the WTO. Nonetheless, each of these Agreements forms the pillar of a particular section of that legal framework. These pillars, in turn, serve to anchor the behavioural prescriptions of the disciplines contained within each section. As we know, the legal framework of the WTO is divided into six sections, relating to: (i) trade in goods; (ii) trade in services; (iii) trade-related aspects of intellectual property rights; (iv) rules and procedures governing dispute settlement; (v) trade policy review; and (vi) plurilateral trade agreements. Of these six sections only five apply to the WTO Membership as a whole, with the Plurilateral Agreements relating to a specific sub-set of Members. The fourth and fifth sections relate to procedures designed for the settlement of disputes, and for the monitoring of international trade. As such, only the first three sections deal with the governance of international commercial behaviour. Non-discrimination and the GATT Contained within the three central Agreements to each of these sections – the GATT, GATS and TRIPs – is a commitment to MFN (Articles I, II and 4 of each Agreement respectively). In the case of trade in goods, the MFN clause of the GATT specifies the manner in which commerce in this area is to be conducted. The 12 remaining Agreements comprising this section then build upon this commitment as well as deal with the particularities of the areas to which they relate. Article I of the GATT exemplifies the WTO’s utilisation of the principle of MFN. It states that: [A]ny advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties. (GATT 1994, Article I, paragraph 1) As was the case with the ITO, this commitment to like treatment in international commerce is complemented by two further Articles: Article III (National Treatment on Internal Taxation and Regulation) and Article XIII (NonDiscriminatory Administration of Quantitative Restrictions). Article III requires that all Members apply equal treatment in terms of taxation and regulation to imports in a manner consistent with that which is applied to domestically produced or supplied goods by requiring that:

82 The extension of multilateralism The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. (GATT 1994, Article III, paragraph 2) The quantitative restrictions clause takes a slightly different form. Whereas Article I specifies that ‘any advantage, favour, privilege or immunity granted by any contracting party … shall be accorded unconditionally’ to all others, Article XIII defines non-discriminatory commercial treatment in the negative. It stipulates that the exports of a Member must not be prohibited or encounter restriction into domestic markets, ‘unless the importation of the like product of all third countries is similarly prohibited or restricted’ (GATT 1994, Article XIII, paragraph 1). In this sense, Article XIII consolidates the commitment to MFN and national treatment by requiring that restrictive practices must also be applied in a universal fashion. Non-discrimination and the GATS The application of MFN in the GATS is slightly different from that relating to trade in goods, reflecting the particular character of trade in services, though the general principle remains the same. Article II of the GATS states that: With respect to any measure covered by this Agreement [GATS], each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country. (GATS 1994, Article II, paragraph 1) There are, however, two appendages which form important aspects of the GATS’s definition of MFN. Their effect is to ensure that the regulative coverage of the GATS is less extensive than that of the GATT, and that, as a result, the potential liberalisation of services under the auspices of this Agreement is only partial. First, the GATS embodies a ‘negative list’ comprising a list of specific products exempt from MFN status lodged prior to the entry into force of the Agreement for a specific Member (either during the negotiation period running up to the establishment of the WTO, or during accession procedures thereafter) (GATS 1994, Annex on Article II Exemptions, paragraphs 1–7; see Chapter 3). Each exemption is intended to be lodged with an accompanying date after which it can no longer be exempt from GATS rules. To ensure that this happens, all services lodged on the negative list are subject to review every five years, and are not normally exempt for more than 10 years. Additions to the list can only be made after the date of entry into force of the Agreement (1 January 1995 for founding Members; the accession date for those that join thereafter) by lodging an application with the Ministerial Conference for a waiver.

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Second, the MFN clause of the GATS empowers Members to convey preferential treatment to others without subsequent conveyance to all other Members in instances relating to the provision of services to ‘contiguous frontier zones … that are both locally produced and consumed’. This empowers producers whose geographic location is such that they serve markets straddling the borders of two or more states to operate as if those markets were subject to a single system of regulation. As such, they can supply services without the restrictions presented by tariffs and other barriers to trade. Like the GATT, the GATS’s interpretation of MFN is also complemented by a national treatment clause – though this clause appears towards the end of the Agreement rather than in close proximity to that relating to MFN (in the form of Article XVII). Nonetheless, the content of the GATS’s national treatment clause largely mirrors that of its older sibling. However, unlike the GATT, the GATS is without a comparable quantitative restrictions clause. Non-discrimination and the TRIPs The application of MFN in the TRIPs is slightly different again from that found in either the GATT or the GATS. Whereas both the GATT and the GATS seek to universalise preferential treatment, the TRIPs seeks the standardisation of intellectual property protection (Hoekman, 1994: 100; Wilkinson, 1999a: 166–71). As a result, MFN under the TRIPs is defined in the following manner: With regard to the protection of intellectual property, any advantage, favour, privilege or immunity granted by a Member to the nationals of any other country shall be accorded immediately and unconditionally to the nationals of all other Members. (TRIPs 1994, Article 4, paragraph 1) Like the GATS, the TRIPs also makes certain qualifications to its definition of MFN. Exempt from this obligation is any advantage, favour, privilege or immunity accorded by a Member to another Member arising from: (i) ‘international agreements on juridical assistance or law enforcement of a general nature and not particularly confined to the protection of intellectual property’; (ii) the Berne and Rome Conventions (see Chapter 3); (iii) in respect of the rights of performers, producers of phonograms and broadcasting organisations; or (iv) international agreements relating to the protection of intellectual property in force prior to the establishment of the WTO on the condition that the Council for the TRIPs deems that they do not ‘constitute an arbitrary or unjustified discrimination against nationals of other Members’ (TRIPs 1994, Article 4, paragraph 1a–b). The TRIPs interpretation of MFN is also complemented by a national treatment clause, though it too omits to include a quantitative restrictions provision. The omission of a quantitative restrictions clause in either the GATS or

84 The extension of multilateralism the TRIPs signals, in this latest phase of trade regulation, a commitment to move away from the discriminatory and trade-distorting effects of such restrictions. Out of keeping with the more traditional way in which trade agreements are drafted (exemplified by the style of both the GATT and GATS), the national treatment clause of the TRIPs falls prior to that relating to MFN (in the form of Article 3 of the TRIPs). Like its interpretation of the principle of MFN, the TRIPs’ interpretation of national treatment requires that all Members accord nationals from other Members comparable intellectual property protection subject to exceptions consistent with the provision of the Paris, Berne and Rome Conventions, or in the Treaty on Intellectual Property in Respect of Integrated Circuits (TRIPs 1994, Article 3, paragraphs 1–2). What we see in the way in which the principle of MFN and its corollaries are expressed in the GATT, GATS and TRIPs is the beginning of a pattern. The style in which international trade has been regulated under the GATT has been extended to the new commercial areas now administered by the WTO. And although we see minor alterations in the way in which, particularly, the principles of MFN and national treatment are utilised in the GATS and TRIPs, we see the standardisation and consolidation of international trade law around a known format.

MFN qualification and the principle of indivisibility This regulatory standardisation is not, however, without anomalies. Across the legal framework of the WTO there exist eight instances in which Members are empowered to qualify their procurement of MFN, and thus engage in discriminatory activity. These instances relate to balance of payments difficulties, newly acceded Members, general and security exceptions, anti-dumping, customs unions and free-trade areas, the settlement of disputes, nullification and impairment, and the establishment of infant industries (see Table 4.1). Each exception has evolved from provisions made under the GATT, though the creation of the WTO has augmented their application. These instances, in turn, have a significant impact on the way in which the WTO organises commercial relations among its Members. Moreover, to varying degrees, each instance wherein qualification is permitted affects Members in different ways. However, it is not just the legal framework that empowers Members to engage in discriminatory activity. The WTO itself, as well as its predecessors, is based on a system of discrimination. Members of the WTO are only required to procure MFN status to other Members, and not to those that lie outside of the WTO (though Members can of course convey preferential treatment to non-members through bilateral and other arrangements). The purpose of this exclusive provision of MFN is generally held to be two-fold: first, to act as a safeguard against free-riding – the accrual of benefits without corresponding commitment; and second, to highlight the benefits of participation in the trade regime and thus make it an attractive option to non-members. In this sense, then, the WTO remains an exclusive club of traders (see Curzon and Curzon, 1974).

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Table 4.1 Qualifications to the principle of MFN Qualifying provision

Purpose for qualification

Article XII (GATT 1994 and GATS)

To enable Members to rectify adverse balance of payments situations

Article XVIII Section B (GATT 1994)

Similar to the provisions laid out in Article XII. Section B of Article XVIII allows developing countries temporarily to suspend their provision of MFN

Article XIII Establishing Agreement (Article XXXV GATT)

Allows states to exercise their sovereign autonomy by not procuring MFN to new Members should they see fit

Articles XX and XXI (GATT 1994), XIV and XIVbis (GATS), and Article 73 (TRIPs)

To enable Members to withhold the provision of MFN under the auspices of general and security exceptions

Article VI (GATT 1994)

To protect Members against ‘material injury’ arising from instances of dumping

Article XXIV (GATT 1994)

To allow Members to operate accelerated trade liberalisation processes unhindered by WTO rules, by allowing for the formation of customs unions and freetrade areas

Article 22 (Dispute Settlement Understanding)

To act as a sanctioning mechanism in the event of a Member failing to abide by the recommendations of the Dispute Settlement Body and/or the Appellate Body

Article XXIII (GATT 1994)

To enable Members, once all other avenues have been exhausted, to suspend their procurement of MFN in instances relating to the nullification or impairment of the value of previously conferred concessions

Article XVIII Section A (GATT 1994)

To offer protection for the establishment of an industry, or to shelter those industries in their infancy

Balance of payments Article XII and Section B of Article XVIII of the GATT and Article XII of the GATS set out the first of the qualifications of the principle of MFN. Under both GATT and GATS rules, Article XII allows Members temporarily to enact restrictive trade practices in order to protect against worsening balance of payments situations. Section B of Article XVIII makes similar provisions for developing Members. Paragraphs 3 to 5 of Article XII set out the preferred course of action for a Member to pursue should it experience balance of payments difficulties. These paragraphs temporarily empower Members to implement, and determine, the incidence and severity of import restrictions necessary to relieve the pressure

86 The extension of multilateralism caused by such difficulties. They enable Members to undertake such activity so as to ‘forestall the imminent threat of, or to stop, a serious decline in its monetary reserves … [or] to achieve a reasonable rate of increase in its reserves’ (GATT 1994, Article XII, paragraphs 2(a)(i) and (ii)). However, such activity must be conducted with due regard for the economic interests of other Members (GATT 1994, Article XII, paragraph 3(c)(i); GATS 1994, Article XII, paragraph 2). Moreover, such activity must be conducted in such a way that it does not ‘impair regular channels of trade … [or] prevent the importations of commercial samples or … compliance with patent, trade mark, copyright, or similar procedures’. These restrictions must then be relaxed as the situation eases (GATT 1994, Article XII, paragraphs 3(c)(ii) and (iii)). The restrictive practices available under these provisions normally take the form of quantitative restrictions, such as quotas, import licences or duties. When implementing such measures, Members are required to consult with both the WTO and the Member(s) towards which the restrictions are directed, as to the nature of balance of payments difficulties, and agree a date at which these measures will be reviewed (GATT 1994, Article XII, paragraphs 4(a) and (b)). In the event that protracted balance of payments difficulties occur, a troubled Member may be invited ‘into consultations’ to discuss possible courses of action to alleviate the situation. Further, in the event of ‘a persistent and widespread application of import restrictions … [Members] shall initiate discussions to consider whether other measures might be taken’ either to step up the action within the troubled state, or to remove the external source of the balance of payments deficit (GATT 1994, Article XII, paragraph 4(d)). Section B of Article XVIII B makes available similar provisions for LDCs in the context of a more relaxed time period. There is, however, a condition to this Article. By undertaking such action Members are required to alter their future domestic economic policies and strategies to avert a repeat of such an incident. Moreover, such future refocus must be in the spirit of the WTO’s commitment to the liberalisation of trade – an action in itself which narrows the range of possibilities open to a given state (GATT 1994, Article XII, paragraph 3(a)). Under GATT 1947 rules, if after a predetermined period Members enacting discriminatory practices under Articles XII and XVIII Section B had not bettered their balance of payments situation they were invited to enter into ‘discussions’ in the pursuit of a resolution to the situation. If after embarking on such discussions an observable change had not occurred, and/or the current course of action had proved to be detrimental to another, as a last resort the initiating Member could be released from the Agreement (GATT 1947, Article XII, paragraph 4(d); Section B of Article XVIII, paragraph 12(d)). The existence of a provision permitting the Contracting Parties to release one of their number from the GATT was designed to add some weight to the need for a particular signatory to address its balance of payments problems and revert to normality – that is, back to GATT rules – as soon as possible. However, release from the General Agreement was seldom considered as a serious option. This resulted in quite a problem. In instigating policies designed to counter an adverse

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balance of payments situation, Contracting Parties were presented with an opportunity to renege on their commitments for longer, or to a greater degree, than ought to be the case, thus enabling them to incur a temporary commercial advantage. The lack of an adequate enforcement mechanism during the GATT years served to compound this problem further. What resulted, then, was an abuse of these provisions by certain states. The Uruguay Round sought to rectify the ability of Members to gain a temporary advantage by strengthening the requirements of Articles XII and Section B of Article XVIII. This involved making provisions for a greater role to be played by other Members by increasing the frequency of ‘discussions’ as one means of pressing Members to alter their discriminatory practices as soon as an adverse balance of payments situation had been rectified. Yet the strengthening of these requirements by including other Members in the ensuing discussions has created a further problem. Members experiencing protracted balance of payments difficulties may be pressured or coerced into implementing policies that they would not have otherwise embarked upon. Or they may be pressured into reversing discriminatory practices too soon. That is to say, these provisions now enable others to exert undue influence in the internal affairs of a Member during balance of payments discussions – influence which may be detrimental to the Member in question. As a consequence, then, while seeking to close one window of opportunity, another may have been inadvertently opened. Non-application The opportunity to exercise overt influence in the economic affairs of another state can also be found in the non-application clause – Article XIII – of the WTO’s Establishing Agreement. Article XIII relates to the qualification of MFN with regard to newly acceded Members of the WTO. Paragraph 1 of this Article states that the Agreement and the Multilateral Trade Agreements in Annexes 1 and 2 [trade in goods; trade in services; and intellectual property] shall not apply as between any Member and any other Member if either of the Members, at the time either becomes a Member, does not consent to such application. Put another way, Article XIII enables established Members of the WTO to withhold their application of MFN in relations with new Members should they see fit to do so. This builds on the non-application clause of the GATT 1947 (Article XXXV). The non-application clause was not included in the initial drafting of the GATT. It was only after the Contracting Parties unanimously agreed to make accession to the General Agreement dependent on a three-quarters’ majority vote, instead of the previous requirement of unanimity, that its inclusion was sought. With this change in voting came debate over the status of GATT rules for nonconsenting Contracting Parties and their newly acceded counterparts (Curzon,

88 The extension of multilateralism 1965: 37). Some Contracting Parties were concerned that in the absence of unanimity, they would have little say on the future composition of its signatories. By way of pandering to these concerns, a proviso was added to Article XXXIII (Accession) empowering Contracting Parties to refrain from applying GATT concessions to newly acceded Contracting Parties to which they had not given their consent. This later evolved into Article XXXV. Japan suffered more than most under the provisions of Article XXXV in the years immediately following its accession. This built upon a history of discrimination pre-dating Japan’s accession to the General Agreement. Japan was kept out of the GATT for nearly 10 years while the also defeated Germany was allowed to participate from the outset. This was in spite of Japan’s membership of the IMF and World Bank. Even Japan’s request for an observer to attend GATT negotiations after the signing of the 1951 peace agreements was strongly opposed. This opposition was based on various perceptions of the way in which Japanese industry was organised. It was claimed that certain business practices imbued Japan with an unfair commercial advantage (Patterson, 1966: 276) – a claim that has continued to be a feature of international discourse between Japan and its industrial rivals (see Donnelly, 1994: 493–4; Hatch, 2000: 385–6). The UK led much of the opposition to Japan’s accession to the GATT, with France, Australia, New Zealand, South Africa, Belgium, Luxembourg and the Netherlands also voicing strong disapproval (Patterson, 1966: 285–6). In spite of this opposition, with US backing Japan acceded to the GATT in September 1955. This accession resulted in 40 per cent (then 14 states) of the Contracting Parties invoking Article XXXV allowing them to refrain from conveying MFN status to Japan. Japan reacted by reciprocating non-application with regard to those developing countries instigating the clause (Wang, 1994: 60, 66–7, 71). Yet it did not seek such reciprocation in relations with its developed counterparts. The result of this action was that Japan spent a good deal of its time in the GATT as a nominal participant seeking to negotiate the full range of commercial concessions open to much of the remainder of the Contracting Parties. Much of the debate relating to the nature of Japanese industry revolved around the price of its labour, the violation of copyright laws and patent rights, the use of ‘false marks of origin, and the sudden flooding of markets for the purpose of destroying competition’ (Patterson, 1966: 274). Many of these allegations were, however, merely veiled attempts by the industrial countries to disguise the growing anti-Japanese feeling that had developed in the years following the Second World War as well as a means by which to offset the rapidly developing competitiveness of Japan’s industrial base. Japan’s main opponents argued that, not only was Japanese industry (particularly its manufactures industries) relatively labour intensive, but the price of its labour was below the value of its marginal output, a factor which the industrial countries interpreted to be exploitative. This, it was suggested, was in part due to the lack of unionisation in Japanese industry (Patterson, 1966: 274–8). Although the severity of the discrimination suffered by Japan has not been repeated, the non-application clause was frequently invoked between Contract-

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ing Parties during the GATT’s reign as the regulator of international trade. Lei Wang notes that out of the 112 Contracting Parties in 1993, 79 pairs had at one time or another invoked Article XXXV, 13 of which were, at that time, still current. What is more, Wang notes that under WTO auspices the nonapplication clause may have actually been strengthened rather than eroded (Wang, 1994: 70–3). Under GATT 1947 rules, newly acceded Contracting Parties had the right to reciprocate non-application. However, WTO rules deprive Members of this right. As Wang explains: As a result, the acceding party is likely to [be] blackmailed by the threat of non-application by some Members in cases of dissatisfaction with the concessions made by the acceding party. Therefore, it could be said that the unilateralism inherent in the non-application [clause] is reinforced by the WTO provisions, which would put an acceding party in a particularly disadvantageous position by its accession negotiation. (Wang, 1994: 70–1) Two issues, highlighted by the Japanese case, arise from the non-application clause which remain pertinent to contemporary international commerce. First, under the guise of Article XIII prospective Members of the WTO may be urged to make certain alterations to aspects of their national economy as a prerequisite for Membership, beyond that which is required by WTO rules. This could witness some Members inappropriately linking other demands to accession protocols for WTO Membership. Second, certain Members may threaten others with Article XIII to extract further (and often unacceptable) concessions from others, thus imbuing the former with a commercial advantage greater than that which would normally be deemed fair in the context of accession negotiations. What we have, then, is a situation wherein the future trade relations of an acceding country can be arranged in such a way that they are disadvantaged from the outset. The severity of this problem is compounded by the relative economic position of those states that are already Members of the WTO and those that are seeking, or have yet to seek, Membership. Without exception, the WTO’s Membership comprises the world’s leading industrial states. Those seeking accession, however, are made up of developing or transitional states. There already exists a vast difference in the economic fortunes of both of these sets of states. The non-application clause could be used in such a way that these global disparities are consolidated rather than eroded. Caveats do exist to Article XIII, though they do little to modify the consequences of the clause. Paragraph 3 requires that the Ministerial Conference be notified of such action prior to the approval of terms of accession, and paragraph 4 allows for the review of non-application by the Ministerial Council on behalf of a Member. Should the Ministerial Council, upon reviewing the implementation of Article XIII, find against such activity, it can make a series of recommendations. Such recommendations, however, cannot be enforced as it is a Member’s right to invoke non-application.

90 The extension of multilateralism More widely, the non-application clause illustrates the futility many organisations suffer in dealing with the need to maintain the sovereign autonomy of their member states. By respecting the sovereign and equal status of states, the WTO cannot force Members to procure MFN to new Members if they do not wish to do so at the time of accession. Nevertheless, to paraphrase Patterson, what is ‘embarrassingly’ clear is that there is little ‘defense to be made of the discriminatory practices’ possible under the non-application clause (Patterson, 1966: 290). General and security exceptions The opportunities for Members to implement discriminatory practices under WTO rules do not end with the balance of payments and non-application clauses. The three commercial pillars of the WTO’s legal framework also contain provisions empowering Members to make ‘General Exceptions’ to their application of MFN. These come in the form of Article XX of the GATT, Article XIV of the GATS, and the slightly ambiguous Article 17 of the TRIPs. Article XX of the GATT and Article XIV of the GATS empower Members to suspend their procurement of MFN if they deem it necessary to protect public morals; human, animal or plant life or health; in relation to the importation or exportation of gold or silver; to secure compliance with domestic laws that are not consistent with the Agreement; relating to the products of prison labour; to protect national treasures; the conservation of natural resources with regard to obligations under any intergovernmental commodity agreement; for the needs of domestic consumption; and for those goods that are identified as in short local supply (GATT 1994, Article XX, paragraphs (a)–(j); GATS 1994, Article XIV, paragraphs (a)–(e)). Article 17 of the TRIPs merely specifies that ‘Members may provide limited exceptions to the rights conferred by a trademark, such as fair use of descriptive terms, provided that such exceptions take account of the owner of the trademark and of third parties’. Further exceptions can be made for security reasons under Article XXI of the GATT, Article XIVbis of the GATS, and Article 73 of the TRIPs. Article XXI of the GATT typifies these provisions. It empowers Members to refrain from conveying MFN status to others to protect sensitive information, to secure fissionable materials and related structures, to constrain the traffic of arms and other military or dual purpose hardware, in time of war or other international crises, and to prevent any other Member seeking to pursue policies contravening UN obligations under the Charter for the Maintenance of International Peace and Security (GATT 1994, Article XXI, paragraphs (a)–(c); GATS 1994, Article XIVbis, paragraphs 1(a)–(c); TRIPs 1994, Article 73, paragraphs (a)–(c)). These Articles, like Article XIII of the Establishing Agreement (and Article XXXV of the GATT), exist primarily to preserve the sovereign autonomy of the WTO’s Members. However, as with Article XIII of the Establishing Agreement, they are open to abuse. They enable Members to enact import bans or other restrictions on foreign produce when in fact such restrictions may prove

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unjustified. Examples of such behaviour can be found littered throughout the history of the GATT. For instance, with regard to the general exceptions clause, prior to the establishment of the WTO the Thai government implemented a ban on the importation of all cigarettes. This action was justified as part of a general campaign to control the incidence of smoking among its population. However, a GATT Panel found that domestic producers were not subjected to the same restraints as those imposed on foreign producers. As a result, the Thai government was found to be in contravention of Article III (national treatment) of the GATT. Furthermore, the Panel found that the ban was inconsistent with the general achievement of the government’s stated goal, as it neither applied to domestically produced cigarettes, nor reduced the level of national consumption. As a result, Thailand’s policy was deemed to be inconsistent with the enactment of Article XX, and it was asked to rectify the situation (GATT, 1990: esp. 1–3). More recently, in the first dispute brought before the WTO resulting in the operationalisation of the full extent of the WTO’s dispute settlement procedures, the US unsuccessfully attempted to qualify its provision of MFN under the general exceptions clause – a case which is explored in more detail in Chapter 6. Put simply, the US utilised paragraphs (b), (d) and (g) of Article XX of the GATT to enable it to withhold MFN provision on imports of gasoline from Venezuela and Brazil. The action was deemed to be justified under the 1994 US Clean Air Act as a means of protecting the environment. However, both the DSB Panel established to consider the case and the WTO’s Appellate Body found that these measures were inconsistent with the stated objective, and constituted unjustifiable discrimination as it unfairly disadvantaged Venezuelan and Brazilian gasoline imports. The Appellate Body was, however, at pains to point out that it did not wish to interfere with a Member’s ability to safeguard its environment. What results from the extension of the general and security exceptions clauses to trade in services and intellectual property is the consolidation of an opportunity for Members to engage in unjustifiable discriminatory activity. The line between that which is justifiable and that which is not, is not as clear as is perhaps the case under the non-application clause. The US gasoline case illustrates that good reason can be found as the basis upon which to utilise these provisions, even if the particular manner in which they are utilised is found to be at odds with the stated aim of such action. The result, as with much of the legal framework of the WTO, is that each instance where these provisions are enacted must be carefully monitored. Anti-dumping Discriminatory action can also be undertaken by utilising the anti-dumping provisions of the GATT. However, the line between justifiable and unjustifiable discrimination is much vaguer here than in the proceeding provisions. Article VI of the GATT enables Members to modify their procurement of MFN in instances when dumping occurs. Broadly speaking, dumping is understood as the

92 The extension of multilateralism selling of products in other markets at prices below that which the product reaches in domestic markets. In extreme cases dumping refers to the selling of products in other markets at less than the total cost of production. Dumping may be undertaken by producers in an effort to reduce stockpiles of perishable produce in order to gain some return for production, or to reduce the level of competition in foreign markets. Nevertheless, the effects of dumping are generally held to be the same. In flooding markets with cheap goods, producers crowd out foreign competition by consistently undercutting the price of competitor products. Further, because larger firms can run at a loss for proportionately longer than smaller firms, and can sell their goods at a price less than the cost of production in the pursuit of the longer term gains associated with an increase in market share, producers may be encouraged to engage in dumping. This can create market instability, and can be detrimental to the trading practices of small firms, and ultimately small and more sensitive countries. Article VI of the GATT defines dumping as a situation wherein the ‘products of one country are introduced into the commerce of another country at less than the normal value of the products’. The Agreement differentiates this from ‘hidden dumping’, which is taken to be a situation where goods are sold to an importer at a price below that corresponding with the ‘price invoiced by an exporter with whom the importer is associated, and also below the price in the exporting country’ (GATT 1994, Article VI, paragraph 1). The GATT ascribes the value of a product as either that which is a comparable price in foreign currency (with reasonable allowance for exchange rate fluctuations) to that of the home market equivalent; or, in the absence of a domestic price for comparison (in instances where products are made solely for export), goods are considered to be dumped if the price (taxation and other differences affecting sale aside) is less than the highest comparable price for the like product for export to any third country in the ordinary course of trade, or the cost of production of the product in the country of origin plus a reasonable addition for selling cost and profit. (GATT 1994, Article VI, paragraphs 1(a) and (b)) Action to counter the effects of dumping can only be undertaken in instances where it ‘causes or threatens to cause material injury to an established industry in the territory of a contracting party or materially retards the establishment of a domestic industry’ (GATT 1994, Article VI, paragraph 1). In this sense, dumping is not an illegal practice; rather the GATT recognises the negative effects that such action can have. In cases where dumping is deemed to cause material injury, states are empowered to introduce a levy on the product in question – known as a countervailing duty. The value of this levy must not, however, exceed the margin of dumping (that is, the difference between the dumped price and a subsequently determined ‘real’ price). In order to implement a levy, the enacting Member must be sure

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that a product upon which the levy is to be introduced is being dumped, evidence must be collected, and the WTO notified of such action, unless the damage caused by this dumping would prove difficult to repair if immediate action were not undertaken (GATT 1994, Article VI, paragraph 6(c)). In instances where the material injury associated with dumping is understood to be immediate, Article VI empowers Members to implement levies without prior consultation with the WTO, although it must be notified as soon as is possible. The introduction of a levy does not, however, suspend MFN. Rather, it seeks the rectification of a ‘normal’ situation. This is because the imposition of a levy merely reinstates the price which a good would normally have reached in foreign markets at MFN rates. Put another way, rather than introducing sanctions over and above the original level for such action, countervailing duties offset the artificially low price of dumped goods. Entry into foreign markets by goods of a disproportionately lower price than domestic values, at MFN rates (that is, at the minimum tariff level) with the addition of a levy, equates to normally priced goods entering markets under MFN auspices. This is because the value of the levy cannot be more than the difference between the value of the dumped good and its normal price. Here the price of the dumped goods minus the benefits from MFN entry into foreign markets plus the value of the levy is equal to the normal price of the good in question (that is, the equivalent price the good sells for in home markets plus the value of entry tariffs taking into account the benefits of MFN). This appears to be reasonably straightforward. This, however, is not the case. The principal problem with the anti-dumping measures lies in the absence of a comprehensive definition of what constitutes ‘material injury’. It is the absence of such a definition that presents Members with the opportunity to engage in discriminatory activity in the pursuit of an unfair commercial advantage. In order to justify the introduction of a countervailing duty, Members are required to demonstrate that the practices of another are such that they cause injury to a particular industry. But the imprecision of the term ‘injury’ is such that it can vary considerably in its interpretation. It is this variance that presents Members with an opportunity to engage in discriminatory activity contrary to the Agreement. Customs unions and free-trade areas Among the most debated of qualifications to the procurement of MFN is found in Article XXIV of the GATT (see, among others, Hanson, 1998; Coleman and Underhill, 1998; Wilkinson, 1998; Gamble and Payne, 1996; Schultz, 1996; Siebert et al., 1996; Bowles and Maclean, 1996; Bhagwati, 1990). Article XXIV is qualitatively different from the provisions that we have so far surveyed. Whereas the non-application clause, for instance, enables Members to engage in discriminatory practices, Article XXIV empowers Members to convey extrapreferential treatment above the previous level of MFN to Members within a specific geographic location, relating to frontier traffic, customs unions and

94 The extension of multilateralism free-trade areas. It is because this extra-preferential treatment is not subsequently conveyed to all Members that Article XXIV is deemed to be discriminatory. The GATT defines a customs union as the substitution of a single customs territory [normally a single Member] for two or more customs territories, so that … duties and other restrictive regulations … are eliminated with respect to substantially all the trade between the constituent territories of the union or at least with respect to substantially all the trade in products originating in such territories. (GATT 1994, Article XXIV, paragraph 8(a)(i)) Similarly, though not identical, a free-trade area is defined as a ‘group of two or more customs territories in which the duties and other restrictive regulations … are eliminated on substantially all the trade between the constituent territories in products originating in such territories’ (GATT 1994, Article XXIV, paragraph 8(b)). These differences aside, under WTO rules both groups are to be treated as if they constitute a single Member – though in doing so, they must not prevent the procurement of advantages to other Members. The EU is perhaps the most prolific example of a territory benefiting from the provisions of Article XXIV and the regional project that has attracted the most attention. In trading relations among the 15 member states of the EU, barriers to trade only nominally exist (for example, in regard to those natural barriers to trade that are associated with the transportation of goods from one side of the EU to another). However, in relations with other WTO Members outside of the confines of the EU, each Member operates a common (to all EU member states) external tariff, and procures MFN accordingly. MFN is qualified only in that the preferential treatment (over and above that of MFN required by the WTO) accorded among EU member states is not accorded to all other WTO Members (which nonetheless receive MFN). There is an innate logic to Article XXIV. By empowering states to collectivise and convey to one another extra-preferential treatment, the liberalisation of trade within that group has the potential to accelerate at a rate above that under general WTO rules. This accelerated liberalisation may then spill over into the wider environment and act as a stimulant. In this sense, an increase in the volume and value of trade is created, first within the subset and then by extension in the trade regime writ large. But to ensure that customs unions and free-trade areas meet WTO requirements, each regional grouping is required to register with the WTO and to conform with its rules. The ability to offer extra-preferential treatment to a small sub-set of Members under the auspices of either a customs union or free-trade area, however, has come in for significant criticism. Rather than acting as a stimulant to trade, the collectivisation of certain states is deemed to have a trade-diverting function. Trade flows may be stimulated within the group as they benefit from extrapreferential treatment, but this will not have a corresponding spillover effect. Rather, trade will be diverted away from the region as the goods and services

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from outside suffer relative cost disadvantages in the market place from their competitor products within the group. This, in turn, has the capacity to lead to an increase in discrimination as customs unions and free-trade areas are played off against one another, causing, at the extreme, a breakdown in international commerce (see Salvatore, 1993; Thurow, 1992). Two reports have produced markedly different findings on the supposed effects of regional associations and illustrate something of the lack of consensus on this issue. A 1995 WTO study of more than 100 regional trade agreements put into operation since the Second World War found, perhaps somewhat unsurprisingly, that regional arrangements and the multilateral trading system have acted in broad complement in the pursuit of freer trade (WTO, 1995b). In contrast, a 1990 UN Committee for Development Planning (CDP) study concluded that the existence of free-trade areas in Europe, and between the US and Canada, the US and Israel, and Australia and New Zealand, did in fact discriminate against third countries, particularly developing states, in this manner (The CDP Report, 1990: 1–5). While no attempt is made here to reconcile the differences of interpretation surrounding Article XXIV, the provisions of this Article can have markedly different effects. Much of this differentiation results from the relative starting point – meaning the relative competitiveness of goods originating from different industrial bases – of states engaged in customs unions and free-trade areas. Put crudely, the disadvantages faced by goods from developing countries in industrial markets are compounded further by the extra-preferential treatment within customs unions and free-trade areas comprising the latter. This is because products from the industrial states, which already have a competitive advantage, gain additional benefits from extra-preferential treatment. The converse, however, is quite different. The extra-preferential treatment accorded to developing Members engaged in customs unions or free-trade areas does not serve to disadvantage goods from industrial countries to the same extent, though it may narrow something of the gap in competitiveness between goods of different origins. As a result, goods from industrial countries remain competitive in developing markets in spite of the conveyance of additional benefits to members of the collective. The consequence is that this qualification of MFN when operationalised can have vastly different consequences. These consequences, in turn, have the capacity to disadvantage further vulnerable states. Dispute settlement and MFN Qualitatively different again are the deviations from MFN provision found in the Dispute Settlement Understanding (DSU). Rather than presenting Members with an opportunity to pursue a course of unilateral action designed to bring about a commercial advantage, the DSU only has the power to authorise the suspension of MFN vis-à-vis a particular Member once a series of dispute settlement procedures has been exhausted. Such procedures require that the suspension of MFN is authorised only in instances when a Member has failed to

96 The extension of multilateralism adopt – after a period of 60 days – the recommendations of either a DSB Panel or the Appellate Body (DSU 1994, Article 25). The purpose of this suspension is two-fold: to protect both the interests of Members in their trading relations with others; and to act as a safeguard for the system as a whole. However, the effectiveness of this provision is dependent on the impact that the suspension of MFN privileges has on the violator. Article 22 of the DSU stipulates the course of action a Member may wish to undertake when deliberating over the suspension of its MFN procurement. First, the injured party is asked to consider suspending only those concessions which relate to the sector in dispute (DSU 1994, Article 22, paragraph 7(f)(i)–(iii)). Second, if the suspension of sector-specific concessions fails to rectify the situation (that is, to deter the violator from further dissent), then the injured party may suspend ‘concessions or other obligations in other sectors under the same agreement’ (DSU 1994, Article 22, paragraph 3(d)). In this sense, then, the qualification of MFN occurs only in instances when it has been previously withheld or compromised. Furthermore, it was in response to some of the unilateralism permissible under GATT rules that the dispute settlement procedures were strengthened. Nevertheless, a key problem remains. The mechanisms embodied in the DSU are not automatic; rather, they rely upon Members to instigate such procedures. In this sense, then, unilateral action arising from a contravention of a given Article or Articles, or through the improper use of one of the provisions outlined here, can only be countered by the action of one Member lodging a formal complaint. As such, the DSU cannot independently attempt to counter all instances wherein Members seek unfair commercial advantage. The dispute settlement mechanism is the subject of a more detailed discussion in Chapter 6. Nullification and impairment Although the DSU procedures of the WTO now form the bulk of those relating to dispute settlement, provisions still exist within the GATT relating to nullification and impairment (the GATT’s dispute settlement provisions) in the form of Article XXIII. As we noted in Chapter 2, the purpose of this provision is to empower Members to suspend their procurement of MFN to another Member or Members if it is deemed that the action of the latter in some way nullifies or impairs the value of previously negotiated concessions. This empowerment, however, is a last resort and can only be embarked upon once a particular procedure has been followed. In reality, all disputes are now handled by the dispute settlement procedures of the WTO. Infant industries, development and MFN Qualitatively different again are those provisions enabling states, particularly developing states, to engage in discriminatory activity under the auspices of ‘Governmental Assistance to Economic Development’. These provisions are

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found in Section A of Article XVIII of the GATT and enable Members to suspend their procurement of MFN in order to protect the establishment or development of infant industries. As a result of various amendments to the GATT, the definition of a ‘developing country’ includes not only those Members in the early stages of development, but also those Members whose economies were still disproportionately dependent on the production of primary products (GATT 1994, Ad Article XVIII, paragraph 2). Paragraph 2 of Article XVIII states that ‘[Members] should enjoy additional facilities to enable them … to maintain flexibility in their tariff structure to be able to grant the tariff protection required for the establishment of a particular industry’. This enables developing Members to qualify their procurement of MFN for specific goods which they deem will undermine those produced by infant industries through excessive competition. Paragraph 4(a) of Article XVIII allows for less developed Members to deviate from these provisions by utilising ‘other Articles’ of the Agreement relating to development. Broadly speaking, these provisions enable developing countries to pursue four different types of action under WTO rules. First, to reduce their level of obligation under certain Articles below that required by other Members. Second, to contribute their best endeavour in particular circumstances. Third, to benefit from a longer period within which to meet certain WTO obligations. And fourth, to benefit from technical assistance in given instances. Table 4.2 on p. 98 provides an overview of the incidence of these provisions across the WTO’s legal framework. The provisions of Section A of Article XVIII are privy to the usual GATT/WTO restraints: that is, if the actions of a Member in the pursuit of economic development adversely affects the economic fortunes of another, then the initiating Party must rectify the situation (paragraph 5); and all instances of MFN qualification are subject to periodic (annual) review by the WTO (paragraph 6). Further, should LDCs find that the provisions laid down in Sections A and B (balance of payments – see above) of Article XVIII are insufficient for promoting domestic economic development, then Sections C and D may be enacted. Sections C and D empower developing Members to implement provisions over and above those specified by Sections A and B of Article XVIII in order to raise ‘general standard[s] of living [for] its people’, providing that all avenues contained in Article XVIII have been exhausted. Providing that the WTO is notified, and after a 30-day period or further consultations with other Members of the intentions of a Member in difficulty, then Members are free to implement measures to ‘remedy these difficulties’. However, the WTO requires that consultations are called between the implementing Member and other Members if other Members consider it necessary. During these consultations implementing Members must specify the purpose of the proposed measure(s), any alternative measures which may exist, and the possible effect ‘of the measure proposed on the commercial and economic interests of other Contracting Parties’ (GATT 1994, Article XVIII, paragraph 16).

98 The extension of multilateralism Table 4.2 Provisions made for lesser and least developed countries in the WTO’s legal framework Area (Article or Agreement)

Type of Concession Reduced level of obligation

Best endeavour

Increase in implementation period

Technical assistance

Agreements: Establishing Agreement TRIMs

–

Least

Least

Least

LDC

LDC and Least

–

TRIPs

–

LDC and Least LDC

LDC and Least

Agriculture

LDC and Least

LDC

DSU

–

–

LDC

Textiles and clothing Trade policy review Sanitary/ phytosanitary Technical barriers

–

LDC and Least LDC and Least Least

LDC and Least Least

Least

–

LDC and Least

–

–

–

LDC and Least

LDC

LDC and Least LDC

LDC and Least LDC

Import licensing

LDC

Subsidies/ countervailing measures Safeguards Preshipment inspection GATS GATT Articles: Anti-dumping (Article VI) Customs valuation (Article VII) Balance of payments (Article XII, also Article XVIII Section B) Subsidies (Article XVI) Part IV (Trade and Development) Sources: Note:

LDC and Least LDC

LDC and Least –

LDC and Least

LDC and Least LDC

LDC and Least

LDC –

LDC –

– –

– LDC

LDC

LDC and Least

LDC and Least

LDC and Least

–

LDC

–

–

LDC

LDC

LDC

LDC

LDC and Least

–

–

Least

LDC and Least

LDC

LDC and Least

–

LDC

–

LDC

LDC

Hoekman and Kostecki (1995: 285), GATT (1994). LDC = Less/Lesser developed country; Least = Least developed country.

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The impact of this qualification of MFN on the ability of Members writ large to be privy to that which is deemed to be indivisible (that is, the sum of the preferential treatment accorded by Members) is negligible. At best, the provisions of this Article empower developing countries to seek a means of bridging the gap in competitiveness for particular products. Even then, however, these measures are temporary. At worst, these provisions will have little impact on the flow of goods, and may not result in any increase in competitiveness. While it remains that this provision has the capacity to enable some to pursue an unfair commercial advantage, the impact of that advantage on the general provisions of MFN is likely to be minimal.

Trade governance and the qualification of MFN In exploring the first of the WTO’s core architecture principles we begin to see an uneven picture emerging. On the one hand, the WTO’s legal framework requires that Members adhere to unconditional MFN, whereas, on the other, eight instances exist wherein Members are empowered to qualify this requirement. What results is a generalised principle of conduct (in this case MFN) perceived to be indivisible, yet which can be divided, and more significantly withheld from others, in particular instances. The way in which MFN is divided is not, however, uniform. Opportunities for overt discrimination are more pronounced under the non-application and general and security exception clauses contained in the legal framework than they are in the other instances, particularly those relating to the establishment of infant industries – though here too Members are presented with opportunities to pursue a commercial advantage. Among these, the non-application clause causes the most problems, principally because it has the capacity to disadvantage an acceding state from the outset, thus precluding it from utilising the full value of MFN. Moreover, the relative economic character of states towards which this Article would be invoked (that is, developing and transitional states) is such that its impact would serve to further disadvantage them in global commerce. What we see at this stage in our exploration of the legal framework of the WTO, then, is a series of instances wherein Members are empowered to engage in discriminatory action. But more importantly, we see that the disadvantaging effects of these provisions are such that they have a greater impact on smaller, less able, developing, transitional and newly acceded states than on their larger developed counterparts. What we begin to see is an expression of multilateralism which, though on the surface appearing to be egalitarian in form, obscures a series of provisions that, when utilised, can create structural imbalances between Members. It is with this emerging picture of the legal framework of the WTO in mind that we turn to the second generalised principle of conduct – that of the principle of reciprocity in the pursuit of trade barrier reduction.

5

Trade barrier reduction and the WTO

Our exploration of the legal framework of the WTO has so far led us to examine the way in which the principle of MFN is operationalised by the various Agreements administered by the WTO. In this we have seen how the creation of the WTO has not only extended the parameters of trade regulation by deepening and widening the coverage of that core architectural principle, but also extended the range of commercial activity wherein exceptions to the MFN clause can be taken. The result, as we have seen, is that opportunities exist in the WTO’s legal framework for discriminatory activity to take place which, if utilised correctly, can structurally disadvantage certain states. What we have, then, is an emerging sense of the contours of the WTO’s legal framework in the procurement of trade preferences and the like. MFN is not, however, the sole principle around which WTO activities are organised, nor does it operate in isolation. By itself MFN does little to liberalise barriers to trade. It is only when utilised in conjunction with a second core architectural principle – that of reciprocity – that a process of liberalisation can come about. Our purpose here is to turn our attention towards this second core architectural principle and explore how the principle of reciprocity is utilised as the mechanism by which trade barriers are reduced, and ultimately eroded, during MTNs. Efforts to reduce barriers to trade have been an intrinsic feature of the international trade regime since the wartime planners sought to inject a degree of formality into the field. The GATT, as we noted in Chapter 1, was itself intended to get the process of trade liberalisation underway by making some headway in eroding the restrictive barriers put into place during the interwar period by committing its original 23 Contracting Parties to the exchange of trade preferences without condition. Once this process of liberalisation had been set in motion, the GATT’s subsumption into ITO would put into place a more extensive series of procedures designed to erode further barriers to trade through periodic negotiation (see Chapter 2). It was only once reductions in trade barriers had been agreed that the principle of MFN would come into operation and universalise the preferential treatment accorded during these negotiations to all other participants.

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Not only, then, are trade negotiations inseparable from the system of international trade regulation, they are also among its most commonly acknowledged features. Casual observers are familiar with the language of the Uruguay, Tokyo or Dillon Rounds if not their actual substance. Moreover, the failure of the Seattle Ministerial Meeting to result in the launch of the much hyped ‘Millennium Round’ has further associated periodic negotiations with international trade regulation, and, by extension, the WTO. We have already noted something of the issues at stake during negotiations, the perceived necessity of addressing both tariff and non-tariff barriers as well as the specificities of trade in services, trade-related intellectual property rights and trade-related investment measures, but our interest in this chapter is in the form that negotiations take, and, in particular, the role of the principle of reciprocity. We know that the substance of negotiations has been complicated further by the deepening and widening of the parameters of trade regulation, as well as the extension of its geopolitical boundaries. But how do they operate? We need to identify clearly what we are examining here. The function of negotiations within the WTO is at least three-fold. First, negotiations are used as the means by which trade rules are determined. Second, negotiations form an important part of the day-to-day functioning of the WTO, particularly with regard to states seeking entry into the WTO. Finally, negotiations are the principal means by which trade is liberalised. Although there is, to varying degrees, overlap between these areas, it is with this last category that we are primarily concerned in this chapter. More specifically, we are interested in the way in which trade negotiations approximate an operationalisation of the principle of diffuse reciprocity. Put differently, we are concerned here with understanding how, if at all, the expectation that returns accrue to all participants in the ‘aggregate and over time’ results from the negotiating provisions embodied in the WTO’s legal framework. By way of procedure the chapter first explores the provisions within the Agreements administered by the WTO pertaining to the format of trade negotiations. This is accomplished by identifying and examining the disciplines contained in the relevant sections of the legal framework. Second, it explores those negotiating practices that have arisen during the lifetime of MTNs as a result of the provisions embodied in the legal framework of the WTO. Finally, it explores some of the problems associated with MTNs arising from the way in which they are conducted and the impact that they have on sections of the Membership.

The format of MTNs The failure of the ITO to emerge successfully from the ratification process ensured that international commerce became subject to the GATT’s less elaborate set of rules governing trade negotiations. Building on the commitment to enter into ‘reciprocal and mutually advantageous arrangements directed [towards] the substantial reduction of tariffs and other barriers to trade and to

102 The extension of multilateralism the elimination of discriminatory treatment in international commerce’ enshrined in its preamble, the GATT utilised Article XXVIIIbis as the means with which to govern negotiations. Yet this utilisation provided only a guide for the conduct of negotiations, rather than a strict set of rules. Article XXVIIIbis merely committed the Contracting Parties to engage in tariff negotiations ‘from time to time’ (paragraph 1). The provisions did not set out a timeframe within which negotiations should take place. Moreover, once a round of negotiations had been agreed upon, Contracting Parties were provided with a set of ‘rules of thumb’ rather than an elaborate series of procedures. For Article XXVIIIbis:

Negotiations … may be carried out on a selective product-by-product basis or by the application of such multilateral procedures as may be accepted by the contracting parties concerned. Such negotiations may be directed towards the reduction of duties, the binding of duties at then existing levels or undertakings that individual duties or the average duties on specified categories of products shall not exceed specified levels. The binding against increase of low duties or of duty-free treatment shall, in principle, be recognized as a concession equivalent in value to the reduction of high duties. (GATT 1947, Article XXVIIIbis, paragraphs 1–2) The lack of a strict set of procedures aside, we can extract some behavioural guidelines from Article XXVIIIbis which set the broad framework for MTNs. Negotiations could either take the form of product-by-product exchange where a reduction in tariff levels or other barriers was sought on specific goods, or be conducted by means of other ‘multilateral procedures’ most commonly associated with an aggregate cut in tariff levels across a broad range of goods. The lack of a clear preference for either form resulted in a large degree of flexibility (as well as ambiguity) in conducting negotiations. Nonetheless, whichever style of negotiations was adopted the most important criterion was that they be balanced. But in order to add some substance to what might be negotiated as well as to assist in the interpretation of what constitutes ‘balance’, three guiding provisions were included in Article XXVIIIbis. Negotiations could consist of: (i)

the offer of a reduction in the level of import duty attributed to one or a range of products; (ii) the offer that existing tariff levels be bound at their present rate for one or a range of products; or (iii) an offer that tariff levels would not exceed a given rate thereafter. Furthermore, in order to enable participants to gauge more accurately the level of reciprocation – that is, the value of that which is being exchanged – the binding of tariffs at existing levels, and thus the provision of an assurance that the level of duty attributed to a particular product would not rise in the future, was deemed equivalent to a reduction in a high tariff level. (GATT 1947, Article XXVIIIbis, paragraph 2(a))

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Contained within the GATT’s negotiating provisions were also three other broad guidelines which the Contracting Parties were required to take into account. First, negotiations had to afford ‘adequate opportunity’ to the specific needs of individual Contracting Parties as well as to particular industries. Second, account had to be made for the need to maintain a more flexible tariff structure for developing countries. And third, Contracting Parties were asked to consider ‘all other relevant circumstances, including the fiscal, developmental, strategic and other needs of the contracting parties concerned’ (GATT 1994, Article XXVIIIbis, paragraph 3(a)–(c)). The inclusion, in 1966, of Part IV of the GATT added further to the negotiating provisions by modifying the reciprocity requirement of MTNs by empowering developing countries to refrain from reciprocating concessions offered. In this regard, Article XXXVI specified that: The developed contracting parties do not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other barriers to the trade of less-developed contracting parties …. The phrase ‘do not expect reciprocity’ means … that the less-developed contracting parties should not be expected, in the course of trade negotiations, to make contributions which are inconsistent with their individual development, financial and trade needs, taking into consideration past trade developments. (GATT 1994, Article XXXVI, paragraph 8; and Ad Article XXXVI, paragraph 8) The creation of the WTO brought with it a small number of additional provisions which built upon rather than departed from GATT negotiating rules. The norm has, however, remained flexibility. In this sense, the WTO has not sought to dictate the form of negotiations; rather, it merely continues to offer a series of guidelines relating to each commercial area governed by the legal Agreements. The first and most obvious addition to the negotiating procedures resulting from the establishment of the WTO has been the provision of a permanent forum wherein MTNs can be held, as well as the wherewithal to interpret the results of such negotiations provided by the administrative functions of the WTO (Establishing Agreement 1994, Article III, paragraph 2). Beyond this, the additional provisions relating to negotiations can be found in the two other commercial pillars covered by the WTO’s legal framework (trade in services and trade-related aspects of intellectual property rights). GATS negotiating provisions The provisions included in the GATS differ from those of the GATT in that they seek to commit Members to a built-in timetable for negotiations. This commitment was included, in part, in response to the range of outstanding issues not covered by the GATS at the completion of the Uruguay Round (see Ostry, 1997: 175–256). The ‘Progressive Liberalisation’ section of the GATS (Part IV)

104 The extension of multilateralism requires that by no later than 1 January 2000 (five years after the Agreement’s date of entry into force) Members enter into successive rounds of negotiations with the specific purpose of reducing and ultimately eliminating barriers to market access in services (GATS 1994, Article XIX, paragraph 1). For each round, the GATS seeks to establish a series of ‘guidelines and procedures’ – though, as with the GATT, their precise format is unspecified beyond a commitment to conduct negotiations ‘through bilateral, plurilateral and multilateral’ means (GATS 1994, Article XIX, paragraph 3). This is complemented by Article XV of the GATS requiring that Members seek to embark on negotiations directed at removing the trade-distorting effects of subsidies. Although no specific timetable is specified by Article XV, it does require that a future work programme determine a timeframe for such negotiations (GATS 1994, Article XV, paragraph 1, note 7). In conducting negotiations, both Articles specify that a greater degree of flexibility is to be accorded to developing Members, as well as to the relative development of a particular national sector, though the content of that flexibility is again left undefined. Beyond these minor references, the way in which the GATS defines services by specific sectors also shapes the format of negotiations. As such, negotiations on air transport, telecommunications, maritime transport, or financial services occur independently from negotiations in other sectors, though they may take place under the auspices of a wider round of MTNs. TRIPs negotiating provisions Like the GATS, the TRIPs offers little in the way of a set of binding rules relating to the format of negotiations. Only two additional provisions are included. These relate to the negotiation of the ‘geographical indicators’ of wines. Geographical indicators are defined by the TRIPs as those ‘indicators which identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin’ (TRIPs 1994, Article 22, paragraph 1). The first provision is a built-in commitment to embark upon negotiations to be held under the auspices of the Council for TRIPs and directed at setting out a system of registration and notification for geographical indicators of wines (TRIPs 1994, Article 23, paragraph 4) – though no specific timeframe is endorsed. The second provision commits Members to enter into negotiations aimed at increasing the level of protection attributed to individual geographical indicators (TRIPs 1994, Article 24, paragraph 1). Again, Article 24 does not include a clear commitment to a specific timeframe. It does, however, come with the caveat that under no circumstances can prior activity (particularly that relating to instances wherein goods have been previously branded in a manner that contravenes the protection of geographical indicators) be used as a means of refusing to enter into such negotiations, or the means by which to restrict the extension of these indicators (TRIPs 1994, Article 24, paragraph 1).

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The absence of a rigorous set of procedures relating to the format of MTNs is not the only omission in the WTO’s legal framework. Although the preambles to the Establishing Agreement of the WTO and the GATT ask that Members enter into ‘reciprocal and mutually advantageous’ negotiations, the legal framework omits to offer a definition of reciprocity. This, as we see below, is itself the source of a range of problems. What we have encapsulated in the legal framework of the WTO, then, is a set of negotiational provisions that consist of a few broad guidelines relating to the manner in which negotiations are to be conducted that vary slightly according to the particularities of a commercial sector (trade in goods; trade in services; and intellectual property), but which do not specify the exact procedures in which Members are to engage. This elasticity, in turn, ensures that the practice of trade negotiations occurs and continues to occur in a manner closely related to that which has evolved through practice throughout the GATT years. It is to the evolution of these practices that we now turn.

The practice of MTNs Part of the reason for not solidifying more substantively the rules governing trade negotiations can be attributed to the nature of MTNs. MTNs require negotiators to enter into a series of bartering procedures. A concession in one area may be exchanged for a concession or concessions in the same or other areas (the GATS aside). Most simply, negotiators attend MTNs with a predetermined package of nationally acceptable trading concessions, accompanied by predetermined goals. As with any system of exchange each negotiator attempts to exchange as little as is necessary for as much as possible. What ensues is a complex, ever-changing and often laborious process of mediation among the representative parties until a mutually acceptable solution is reached. As with most systems of barter, MTNs are imperfect. Hoekman (1989) outlines three imperfections commonly associated with such systems. First, a system of barter will only function if the goods in a particular market are of interest to its participants. A lack of interest in, or demand for, those goods on offer will result in an absence of trade. Second, a situation may arise wherein a participant is being offered something as part of an exchange, to which the participant attributes little or no value. The participant may, however, be interested in something from a third party. In this case, trade will only take place if a satisfactory arrangement can be reached among the three (or more) parties involved. Third, trade can only take place if participants are able to gauge a rough equivalence of value in the goods exchanged. In the absence of a predetermined index, or unit of exchange (such as money), this can prove problematic. This is particularly the case in instances where the value of goods offered for exchange cannot be divided in such a way as to equate with the value of that offered in exchange (Hoekman, 1989: 695). In an effort to overcome some of the problems associated with barter systems, MTNs are subject to a process of agenda setting prior to their start. This is done by composing an agenda of issues for discussion that are deemed to be suitably

106 The extension of multilateralism interesting to the range of participants. This agenda then forms the basis upon which negotiation groups are created for specific issue areas. It is under the auspices of these groups that WTO procedures are then utilised and negotiations proceed. GATT negotiations Broadly speaking, two methods of conducting MTNs have largely prevailed throughout the history of post-war trade regulation: a product-by-product approach and a linear across-the-board method. The first five rounds of the GATT witnessed the employment of the product-by-product negotiating technique (see Curzon, 1965: 70–107), whereas the Kennedy Round saw a change to an across-the-board approach. This linear approach was again employed during the following Tokyo Round, though it was done so in conjunction with a specific tariff-cutting formula – known as a harmonisation formula – designed to even out some of the inconsistencies associated with disparities in tariff schedules (Winters, 1990: 1294; Jackson, 1998a: 146). Objections to the linear approach and the use of a harmonisation formula saw the Uruguay Round follow a more familiar product-by-product approach with some sector-for-sector negotiating (Hoekman and Kostecki, 1995: 74–5). The product-by-product technique employed in the early rounds of the GATT is reasonably straightforward. In the first instance, Contracting Parties draw up a list of concessions they would like to see made on particular products. This is then sent to the Contracting Party from which a concession has been requested as well as to the GATT Secretariat. The list of requests, in turn, is met with a list of offers relating to those products that a particular Contracting Party is willing to make concessions on. This is the so-called ‘request and offer system’ (Curzon, 1965: 72–4; Winters, 1990: 1290–1). Contracting Parties tend only, however, to request concessions from those states with which they conduct most of their trade. In this respect, a practice arose during the early GATT years wherein the ‘principal supplier’ of a particular product requests concessions on the entry of that product into another’s market (Winters, 1990: 1290). This request, in turn, is met with an offer relating to market access for that product put forward in tandem with a request for concessions on another product. However, the situation is complicated when only one of the Contracting Parties involved is the principal supplier. In such cases, a rough equivalence of value can be sought by bringing a third party to the negotiation. Put differently, if Contracting Party A is the principal supplier of good X to Contracting Party B, but Contracting Party B is not a principal supplier of goods destined for A, though it is the principal supplier for good Y on which concessions are sought from Contracting Party C, then the three parties involved may seek to arrive at a mutually acceptable situation trilaterally. Once an exchange of concessions has been agreed upon, all Contracting Parties are privy to the preferential treatment offered by all others as is required

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by the principle of MFN. Hence concessions negotiated between Contracting Parties A and B on market access for products X and Y would be conveyed to all other participants. In this sense, the concessions negotiated are ‘multilateralised’ (Rhodes, 1995: 86). The purpose of conducting negotiations only with those Contracting Parties deemed to be principal suppliers is intended to limit the value of concessions given away to third parties during the multilateralisation process, and thus restrict in some way the level of free-riding. As principal suppliers tend to be the main participants in a negotiation, it is they that are most likely to incur the greatest benefit, and, as principal suppliers are required to offer something in return which has been deemed to be of roughly equivalent value to that on offer, any value given away to other (third party) Contracting Parties is minimised (Hoekman and Kostecki, 1995: 70; Keohane, 1988: 35). That said, prior to the formal completion of the negotiations a process of recalculation takes place – socalled multilateral balancing – designed to review the content of the negotiations in light of multilateralisation and, as an intended consequence, minimise further any free-riding by accruing concessions without an appropriate offer. The increase in the number of signatories to the GATT, in conjunction with a corresponding increase in the number of products on which concessions were sought, however, began to put a strain on the product-by-product negotiating technique employed during the first rounds. This was compounded further by the relative success that had been achieved in cutting tariff levels in the early rounds. With a range of goods subject to reasonably small import duties, the concessions that Contracting Parties were willing to grant on individual goods were the product of hard-fought negotiating. Furthermore, negotiators began to divert their attention towards non-tariff measures as well as the development of various supplementary Agreements designed to govern trade in specific sectors. It was such a diversion that resulted in the negotiation of the highly discriminatory Short and Long Term Agreements on Cotton Textiles and the MFA – see Chapter 3. In response to these changing dynamics, the adoption of a linear across-theboard approach was proposed and accepted for the majority of tariffs under negotiation during the Kennedy Round. Under such a system, Contracting Parties proposed to cut the average level of tariffs by a specified amount. But, in doing so, they also composed a list of those products they wish to see exempt from such a reduction. Negotiations then ensue on those products that have been placed on the exemption list – the numbers of which are intended to be less than the sum of products which would be subject to a linear reduction thus, in principle at least, making the negotiations more manageable. The content of these exemption lists is then negotiated in groups of Contracting Parties, though on occasion the more contentious among the products are subject to bilateral procedures. The linear method was again used during the Tokyo Round, though by this time support for such an approach had begun to wane. The then EEC argued that a strictly across-the-board approach required that tariff levels be relatively even across the range of products. Such evenness was deemed desirable as any

108 The extension of multilateralism peaks and troughs in tariff schedules would distort the real value of a linear reduction and, by extension, its ability to act as a stimulant to trade. For instance, an average cut of 50 per cent would see a tariff of 14 per cent reduced to 7 per cent. This, in turn, would act to stimulate trade flows into that market. However, higher tariffs, though cut by 50 per cent, would remain prohibitively high and result in little or no stimulation of trade. As a result, a tariff of 60 per cent, even if reduced by 50 per cent to a level of 30 per cent, would still be prohibitively high and, most likely, would not act to stimulate flows of goods. As such, benefits would only be accrued in those areas where already-existing tariffs were reasonably low. In response, the Contracting Parties sought to arrive upon a commonly agreed formula that would factor in the relative impact of cuts in various tariff levels (see Winham, 1986: 63; Jackson, 1998a: 146). High tariff levels would be reduced by a factor greater than their lower counterparts. Yet, although such a formula was agreed upon, the problems that had been associated with determining its substance, coupled with the unevenness of some Members’ tariff schedules, particular those of the US, ensured that the Uruguay Round witnessed a reversion to the more traditional product-by-product and sector-bysector approaches. The Uruguay Round The stated aims of the Uruguay negotiations were four-fold: (i) to take forward the process of liberalisation; (ii) to strengthen the role of the GATT and the rules-based nature of international commerce; (iii) to increase the responsiveness of the GATT to events in the wider global political economy, such as to crisis as well as to changes in the nature of production; and (iv) to increase the harmonisation of commercial, developmental and monetary policy at national and international levels (GATT 1986, Part 1, Section A, paragraphs (i)–(iv), 20). With the benefit of hindsight we can see the extent to which the creation of the WTO met these objectives. The Uruguay Round not only extended trade in goods, it also brought into the fray trade in services, trade-related intellectual property rights and trade-related investment measures. The role of the GATT has been strengthened by the creation of the WTO and its accompanying extension of the General Agreement’s core architectural principles, and a movement towards a rules-based system has been much facilitated by the incorporation of the new dispute settlement procedures (see Chapter 6). Keeping up with changes in the nature of production has seen the WTO take an increasing interest in negotiating agreements on new areas such as financial services. And the desire to bring about a convergence in policy has begun at a number of levels by increasing the coherence of economic policy among the WTO, IMF and World Bank by moving away from cross-conditionality, as well as by requiring that national governments and regional bodies fall into line with WTO rules. Accompanying these objectives was a set of seven ‘general principles’ designed to bring some coherence to the conduct of the Uruguay negotiations.

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First, they were to be carried out in a transparent manner, in accordance with the general GATT objectives of mutual benefit and advantage for all participants. Second, each stage of the negotiations (launch, conduct and implementation) was to be treated as part of a single undertaking. Third, a balance of concessions was to be sought within ‘broad trading areas’ in an effort to avoid ‘unwarranted cross-sectoral demands’. Fourth, the need for special and differential treatment for developing countries was to be a central part of the negotiations. Fifth, developing countries were not obliged to reciprocate commitments made by their developed counterparts inconsistent with their ‘development, financial and trade’ capacities. Sixth, developing countries were expected to take a greater part in trade negotiations as their economic situation improved. And seventh, special attention was to be given to the economic situation of least developed Contracting Parties (GATT 1986, Part 1, Section B, paragraphs (i)–(iv), 20–1). Allied to these general principles were the specified subjects for negotiation. The Ministerial Declaration envisaged negotiations on: tariffs, non-tariff measures, tropical products, natural-resource-based products, textiles and clothing, agriculture, safeguards, subsidies and countervailing measures, dispute settlement, intellectual property and trade-related investment measures (GATT 1986, Part 1, Section D, paragraphs (i)–(iv), 23–6). And the logistics of the negotiations were to be organised in accordance with a set of guidelines entitled ‘Organization of the Negotiations’ – though little in the way of substance was outlined relating to the manner in which the negotiations were to be conducted. As we know the Uruguay Round was successful in concluding negotiations on services, intellectual property, trade-related investment measures, as well as deepening the regulations pertaining to the liberalisation of trade in goods. Yet, although the Round was successful in bringing about this qualitative shift, it suffered from the same problems that have hampered previous negotiations. Furthermore, it is unlikely, given the minimal extent to which the rules relating to MTNs have been altered, that future negotiations will not suffer from comparable problems. Such problems relate to the difficulty participants face in gauging accurately the value of reciprocity; the bilateral root of multilateralised negotiations; the particular kind of reciprocity utilised as the means by which exchange is governed; and the specific problems encountered by non-principal suppliers and developing states. Reciprocity The manner in which negotiations are organised serves to obscure the way in which participants are able to calculate the value of that which is exchanged. As we have seen, though the outcomes of negotiations are multilateralised, MTNs are, at their root, conducted between two participants, or groups of participants. In this sense, they are bilateral (cf. Curzon, 1965: 72, 76–7). It is only once agreement has been reached between the two parties to the negotiations that the

110 The extension of multilateralism membership at large becomes privy to their results. In the first instance, then, participants calculate the value of that which is to be exchanged bilaterally. This calculation is then modified to take account of the value of concessions given away to, and received from, third-party participants once they have been conveyed writ large under MFN. What ensues is a situation wherein participants gauge the value of reciprocity specifically, with the caveat that modifications can be made towards the end of the negotiations. This is different from the expectation that reciprocal satisfaction will be accrued in the aggregate and over time – that is, diffusely. While the multilateralisation process ensures that there is the perception of a multilateral dimension to MTNs, in reality the value of reciprocity is calculated at a given point in time and is thus premised on an underlying notion of bilateral exchange. The principle that governs MTNs, then, is a modified version of specific reciprocity. Even the action of multilateralising concessions among the Membership, though considered a ‘multilateral component’ (Curzon, 1965: 72), is, at its root, an instance of specific reciprocity. To elaborate further, the key to multilateralisation is to accept a series of moments in time as points at which reciprocal satisfaction is accrued. The first moment is arrived at once principal supplier negotiators reach agreement on the value of their exchange. The second and further moments are reached when the content of that initial negotiation is conveyed to all the participants and some rebalancing occurs. In all instances, the moments at which reciprocal satisfaction is calculated are known to those involved. There is, then, a known and definable period within which the value of reciprocity can be gauged. As such, reciprocal satisfaction is not derived through an on-going process of accrual, as an operationalisation of diffuse reciprocity would require. Keohane has suggested that because of this, the use of reciprocity in MTNs is best characterised as a compromise or hybrid form falling somewhere between its specific and diffuse types (Keohane, 1989: 150). We can perhaps go further and suggest that because of the existence of a finite time period, it is rather a modified version of specific reciprocity. The existence of a known timeframe also alters the expectations that participants have when engaged in negotiations. For instance, in a collective security arrangement participants can expect, unless a specific life-span has been attributed to such an arrangement, that they have the capacity to benefit from the collective might of all involved should the need arise. As such, they do not expect to accrue reciprocal satisfaction within a given timeframe. MTNs, however, are finite in length. As such, each participant expects that they will accrue satisfaction within the confines of a trade round. Participants are unlikely to accept that part of their satisfaction will be derived in a future round. This is particularly the case if they have made a contribution at an initial round and are likely to be obliged to do so again in any further negotiations. What we can deduce, then, is that the particular way in which multilateral trade regulation is operationalised depends on a modified form of specific rather than diffuse reciprocity. What this tells us is that the particular manner in which trade negotiations are organised does not lend itself to the generation of an expecta-

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tion that reciprocal satisfaction will accrue in the aggregate and over time. Quite the opposite. It lends itself to a preoccupation with specifically reciprocal balancing within a finite time period, albeit more often than not protracted (cf. Curzon and Curzon, 1989: 487–8). Beyond the particular type of reciprocity utilised during MTNs, attributing a value to the level of reciprocal satisfaction is itself problematic. Two dimensions come into play here: the first economic, and perhaps methodological; and the second political. First, in arriving at that which is acceptable to a negotiator, calculations must be made as to the net value of concessions received – that is, once the value of concessions given away has been taken into account. In arriving at a figure, negotiators employ a range of methods that are unlikely to be uniform, thus creating additional opportunity for confusion. This, as we know, is complicated further by the need to revisit those calculations towards the end of the negotiations. Such calculations are, however, hampered by a range of factors that can come into play once the concessions exchanged are utilised. For instance, changes in the demand structure of a particular good or a change in the competitiveness of an industry over time can affect the net value of concessions exchanged during the negotiations. Consequently, the net value attributed to the exchange once utilised can be less than precise. Second, the calculation of reciprocal satisfaction has a political dimension (see Dell, 1986; Bhagwati and Irwin, 1987). Not only are negotiators pressured into achieving at least rough equivalence in the value of exchange, they are also obliged to secure concessions on politically sensitive areas, and as such be seen to secure a rough equivalence of value. This can involve gaining concessions on goods deemed to be of great national significance, and which are subject to reasonably high barriers to entry into foreign markets. However, both of the economic and political dimensions to reciprocity can conflict with one another. What is politically satisfying does not necessarily equate with that which is of rough economic equivalence, or, for that matter, benefit. Prising open foreign markets in, say, automobiles, may not accrue the same level of economic benefit as concessions exchanged in other sectors, though it may prove to be of great political significance. In this sense, then, negotiators have to maintain a balance between that which is economically beneficial and that which is politically sensitive (and indeed acceptable). Multilateralisation The multilateralisation techniques employed during negotiations create further problems. First, smaller, non-principal supplier countries (particularly developing states) are inhibited in their ability to participate on an equal footing in MTNs. This is due to the dominance of MTNs by principal suppliers. As principal suppliers have little in the way of incentive to negotiate with non-principal suppliers the result is that non-principal suppliers are locked out of the negotiations (Hoekman and Kostecki, 1995: 71). This can prove significantly problematic for non-principal suppliers. Without the ability to negotiate agendas

112 The extension of multilateralism that are specific to their needs, smaller countries are obstructed from dealing with those problems that are associated with their development, as well as negotiating concessions for those sectors that are understood to be of benefit. Gilbert Winham, in commenting on the multilateralisation process during the Kennedy and Tokyo Rounds, observed that a ‘pyramidal structure’ emerged. Such a structure ensured that the major industrial powers dominated the negotiations. Lesser powers were only included during the multilateralisation process when a rebalancing of concessions was required. Even then, however, there proved little room for developing countries (Winham, 1986: 371, 376). Second, it is claimed that the marginalisation of non-principal suppliers during negotiations can be mitigated to some extent by the trickling down of concessions conveyed during the multilateralisation process. Because principal suppliers, which are economically larger and more diverse and thus have more to offer than smaller economies, multilateralise the results of their negotiations without the need for reciprocation, it is argued that smaller countries gain considerably from the concessions traded among their larger counterparts. This disproportionately larger number of concessions is exacerbated further by the removal of the obligation to reciprocate by LDCs under the guise of Article XXXVI of the GATT. This action procures developing countries with a disproportionately favourable number of concessions. Furthermore, it is argued that ‘the habit of gaining many concessions and giving few, mean[s] that smaller countries [take] on fewer binding self-denial ordinances and thus maintain much higher levels of protection’ (Hart, 1995: 178, 388 fn. 16). This accrual of a disproportionately large number of concessions is not, however, as beneficial as it may at first seem. While it may be that developing countries ‘benefit’ from the multilateralisation process to the extent that they accrue a number of concessions without the need to reciprocate, the nature of those concessions is often incongruent with the needs of these smaller countries. This is particularly the case with concessions negotiated on so-called ‘new issues’. The export portfolios of smaller and lesser developed countries are predominantly made up of primary, semi-manufactured and some low-technology goods (Luke, 1996: 142–8). However, the export portfolios of the industrial powers are dominated by the production of middle- to high-technology manufactures and services. As such, the procurement of concessions in, say, financial services is of relatively lesser value to a developing country than they are to their industrial counterparts. Not only then are non-principal suppliers locked out of negotiations by their inability to participate, but their plight is compounded by a perception that this situation is rectified by the gaining of concessions without reciprocation through the multilateralisation process. At one level, then, the multilateralisation process appears to equalise the imbalance created by conducting negotiations among principal suppliers. At a deeper level, however, we see that the multilateralisation process and thus the accrual of concessions in incongruous commercial sectors obscures the further disadvantaging of nonprincipal suppliers. Third, and following directly from the last point, the ability of some Members

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to derive reciprocal satisfaction from MTNs is impaired by the use of a multilateralised technique. The action of two Members negotiating bilaterally ensures that each derives reciprocal satisfaction from the exchange. And, as we have noted, the results of these negotiations are then conveyed to all in accordance with the principle of MFN. But this does not ensure that those not engaged in the initial bilateral negotiation will be able to derive a comparable level of reciprocal satisfaction in the same manner. The marginalisation of smaller, non-principal suppliers in the negotiation process ensures that, to varying degrees, they are unable to satisfy fully their reciprocity function. And as we have seen, although the results of the principal supplier negotiations are conveyed to all in accordance with the principle of MFN, those concessions that are received by smaller countries are of little or no benefit. Nevertheless, the conveyance of concessions to the wider Membership by principal suppliers obligates others to act in a like manner, unless they are empowered to utilise Article XXXVI of the GATT. Fourth, by promoting the expectation that others engage in similar negotiations, certain parties may be forced to negotiate concessions beyond that which is prudent (see Bhagwati, 1983: 24–5, 33–8). Three factors come into play here. In the first instance, by engaging in multilateralised negotiations, Members obligate others to act in a like manner. This is arguably part of the natural process of reciprocation – bilateral negotiation is returned for bilateral negotiation. However, in recognition of the plight of some of the WTO’s Members, Article XXVIIIbis, for instance, operates as a safeguard by enabling certain countries to offer concessions at a lower level to those procured by the larger, more powerful Members (GATT 1994, Article XXVIIIbis, paragraph 3(a)–(c)). However, a third factor comes into play. By failing to meet the full extent of their obligations (to enter into multilateralised negotiations) Members risk being labelled as free-riders. Such labelling may pressure others to engage in negotiations, and to make concessions that they are unable to honour by forcing them to convey concessions over and above an appropriate level. This can have the effect of undermining the relative protection allocated to economically less significant states. The problems faced by smaller non-principal suppliers are further complicated by the removal of the obligation to reciprocate under Article XXVIIIbis of the GATT for developing countries. Whereas the requirement to reciprocate disadvantages smaller non-principal suppliers in that they are obliged to offer concessions against the receipt of privileges in which they have little say, the removal of this requirement for developing countries has a converse, yet comparable, effect. Without the obligation to reciprocate, LDCs have little impact on the agenda of trade negotiations. Whereas they may have benefited from improved market access for particular primary or semi-manufactured products, such concessions could not be secured without a comparable offer. The consequence is that, while benefiting from an exemption to reciprocate to correct one problem, the inability to participate in the negotiations creates another.

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Reciprocity and trade negotiations What we see in the way in which MTNs are conducted is a series of procedures which advantage principal suppliers and disadvantage smaller, non-principal supplier developing states. Much of this can be attributed to the imprecise nature of WTO rules relating to the format of MTNs. The tone of MTNs is decided by the Ministerial Declarations that precede the negotiation. Even then, the lack of precision ensures that their format is left open to interpretation. It is because of this imprecision that the format MTNs take draws heavily on previous practice. But as we have seen, it is this practice which is the source of much of the disadvantaging during MTNs. Principal among these problems is the bilateral manner in which negotiations are conducted, albeit it with a quasi-multilateral dimension. This bilateral nature ensures that negotiations operate in accordance with a specific form of reciprocity. This, in turn, ensures that the way in which the principle of reciprocity is utilised is such that it fails to generate the expectation that reciprocal satisfaction is derived in the aggregate and over time. But more worrying are the disadvantages suffered by developing states. As non-principal suppliers they are locked out of negotiations; the concessions they accrue are often incongruous with their economic needs; and the obligation to reciprocate concessions accrued, in spite of provisions to lessen their extent, may actually serve to compound the problem. Finally, and somewhat paradoxically, the marginalisation of developing countries in MTNs may be consolidated by the removal of the obligation, in certain instances, to reciprocate as it removes the ability to influence agendas. What we see in the way in which MTNs are conducted, then, is a particular utilisation of the principle of reciprocity which serves to compound further the disadvantages to which smaller, less able, developing countries are privy under the exception clauses to the principle of MFN. In this sense, the pattern that we saw emerging at the end of the previous chapter is consolidated under the WTO’s utilisation of the principle of reciprocity. It is with this in mind that we turn to explore the operationalisation of the third core architectural principle – that of dispute settlement.

6

Dispute settlement and the WTO

As with most things in our already-familiar story, the failure to ratify the Havana Charter resulted in the implementation of a system of international trade regulation devoid of the elaborate dispute settlement procedures of the ITO. Instead, what resulted was the utilisation of a set of procedures enshrined in the GATT as the de facto means by which Contracting Parties sought to settle commercial differences. This was to change with the establishment of the WTO. The Uruguay Round provisions brought with them a more rigorous series of dispute settlement procedures designed to safeguard the newly extended parameters of trade regulation administered by a DSB. The DSB has been among the busiest of the WTO’s ancillary bodies since its establishment. It has presided over a series of highly charged disputes between the major powers – such as those relating to the importation of cars and automotive parts into Japan; the access offered to certain Caribbean banana producers under the EU’s Lomé Convention; and the ban on US imports of hormonally modified beef into the EU. But these headline-grabbing cases obscure another significant feature. Developing countries have also been active participants in the DSB. By one count, of the 155 requests for dispute settlement procedures to be instigated by 31 December 1998, 60 per cent involved developing countries as complainants, defendants or both (Brewer and Young, 1999: 169). This of course tells us little other than that developing countries have been active in the DSB. Moreover, it obscures some countervailing trends. For example, Brewer and Young note that evidence is emerging which suggests a disproportionately high number of complaints involving developing countries are being settled after bilateral negotiations and prior to the establishment of a DSB Panel, thus avoiding formal proceedings being taken against a particular country (Brewer and Young, 1999: 172). This, they intimate, could be because of a relative deficit in legal expertise between developed and developing countries – in spite of WTO provisions providing developing countries with legal assistance (DSU 1994, Article 27(2)). The broad picture of developing country participation hides other less positive features. Robert Hudec, for instance, has shown that over the first three years and four months of operations, the DSM witnessed a three-fold increase in the number of complaints brought against developing countries when compared

116 The extension of multilateralism with the period 1980–94 (Hudec, 1998: 24–5). Furthermore, he notes, the percentage of cases brought by developing countries against others has remained static, replicating the rate set in the last 14 years of the GATT’s reign (Hudec, 1998: 22–3). When taken together, the increase in activity by developing countries in the DSM begins to look less impressive. Beyond this, and perhaps somewhat unsurprisingly, two-thirds of the complaints made by developing countries have been against their developed counterparts. Even more unsurprisingly, given what we know about the economic make-up of developing countries, most of these complaints have involved agricultural produce and textiles and clothing (Brewer and Young, 1999: 169, 174). Yet it has not been the interaction of developing countries in any form that has been the most notable feature of the DSM. Rather, it has been the disputes between the principal industrial powers that have attracted the largest share of attention and have threatened to undermine the new procedures. Our concern in this chapter is to explore the provisions relating to dispute settlement under the auspices of the WTO, and to gain a sense of its practice. We have so far noted something of the distortions arising from the WTO’s particular utilisation of the first two core architectural principles. But as yet, this provides us with an incomplete picture of the WTO’s particular expression of multilateralism. Our aim here, by determining something of the practice of dispute settlement, is to understand better how this third core architectural principle is operationalised, and, by extension, to assist us in gaining a greater sense of the critical juncture through which international trade regulation has passed as a consequence of the results of the Uruguay Round. By way of procedure, the next section explores something of the dispute settlement provisions utilised under the GATT; it then details the dispute settlement procedures of the WTO, thereafter moving on to an examination of certain key disputes and related trends as they have emerged since the DSM came into operation.

Dispute settlement under the GATT Rather than a wholesale departure from the practices that served the trade regime since 1947, the Uruguay provisions have sought to build upon the ‘consultation’ (Article XXI) and ‘nullification and impairment’ (Article XXIII) procedures of the GATT in an effort to approximate more closely a formal system. In this sense, the establishment of the WTO has codified, as well as taken forward, existing provisions. The first of these provisions – consultation – merely established a convention that when in dispute Contracting Parties engaged, in the first instance, in bilateral consultations. These were complemented by the nullification and impairment provisions of the General Agreement empowering a contracting party to ask the Contracting Parties to preside over the settlement of a dispute and, under certain conditions, implement sanctions against an illegally acting party. Comparable perhaps to the negotiating provisions explored in the last chap-

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ter, what existed under the GATT was a less than comprehensive set of procedures for dispute settlement. To make up this deficit, a series of practices evolved to enable Contracting Parties to resolve disputes more ably. During the initial five years the Contracting Parties handled disputes by means of establishing working parties. These working parties were designed to move towards the settlement of a dispute by bringing together the parties to that dispute with other Contracting Parties in a process of negotiation. However, from 1952 working parties were replaced by the practice of establishing ‘Panels’ to examine the substance of a dispute. These Panels comprised between three and five nationals chosen from Contracting Parties other than those parties to the dispute, deemed fit to undertake such a capacity. Panellists were normally required to have been involved in some way with the GATT; have served in a capacity at national level dealing with trade issues; or to have written and published extensively in the area. Thereafter the dispute settlement procedures of the GATT were codified through a series of Decisions and Understandings adopted prior to the establishment of the WTO (see Petersmann, 1997: 71). Significant among these was the November 1979 Understanding Regarding Notification, Consultation, Dispute Settlement and Surveillance and the accompanying annex relating to the Agreed Description of the Customary Practice of the GATT in the Field of Dispute Settlement embodying the change in practice for settling disputes (Jackson, 1998b: 166). The GATT dispute settlement procedures were, however, plagued by the inability of the Contracting Parties to enforce the recommendations of the Panels. The problem here was that Contracting Parties were not bound by Panel decisions. This lack of compunction can be largely attributed to two factors: first, Contracting Parties were able to exercise a right of veto over Panel recommendations; and second, Contracting Parties were not obliged to implement the recommendations of the dispute settlement process within a specified time period. The absence of a legal compunction to implement the recommendations of a dispute, in part, accounts for the rise of two kinds of unilateral action that proved troublesome to the GATT, particularly towards the end of its reign. First, certain Contracting Parties ignored, or omitted to implement, the recommendations of a GATT dispute settlement Panel, and thus continued to pursue a course of illegal action. Second, and perhaps as a consequence of the first, certain states sought to use, and indeed strengthen, particular aspects of national legislation in an effort to provide an ad hoc sanctioning mechanism designed to get illegally acting Contracting Parties to comply with what they deemed to be ‘correct’ interpretations of GATT rules. Most notable among this category was the US, and in particular its use of the notorious Section 301 of the 1974 Trade Act (Amended 1988) authorising the use of punitive sanctions in retaliation for a perceived commercial violation (see Bhagwati and Patrick, 1990; Bayard and Elliot, 1994; Ryan, 1995). The evolution of the dispute settlement procedures during the GATT years culminating with the incorporation of the Understanding on Rules and Procedures

118 The extension of multilateralism Governing the Settlement of Disputes (known as the Dispute Settlement Understanding – DSU) as one of the six pillars of the WTO’s legal framework can be described as one aspect of the broader movement towards a rules-based system brought about by the establishment of the WTO. The narrowing of the opportunities for unilateral action, and thus the restriction of instances wherein certain states could attempt to force others to comply with their particular interpretation of international trade law or embark upon a modicum of freeriding, represents a qualitative shift not only in the nature of trade regulation, but also in the way in which commercial disputes are settled. Jackson characterises the evolution of the dispute settlement procedures as a movement from power-oriented to rule-orientated commercial diplomacy (Jackson, 1998a: 109– 12). Put crudely, Jackson is referring to a move away from the settlement of disputes through implicit or explicit reference to the relative power capabilities of particular states, to settlement by recourse to a set of rules and norms previously agreed upon by the disputing parties (Jackson, 1998a: 109). Central to the DSB’s efficacy, then, is a mitigation of the use of such unilateral measures as those practised by the US under Section 301. Indeed, it is this very attribute that has been the source of much praise. This, however, is a point to which we return later.

The DSB But how exactly have the dispute settlement procedures been strengthened? And how do they relate to the rest of the legal framework? Put simply, the DSB’s principal function is to administer the rules and procedures of the WTO’s legal framework. In the fulfilment of these duties, the DSB is authorised to establish Panels to mediate disputes arising between or among Members over a particular action or from a specific interpretation of trade law; to refer disputes to its Appellate Body; and survey the implementation of its rulings and recommendations. Furthermore, the DSB can authorise Members to suspend their procurement of MFN in its relations with an illegally acting state, or request compensation for such activities (DSU 1994, Article 2, paragraph 1). The first stage of the dispute settlement process is the establishment of bilateral negotiations between the disputing parties. As had been the practice under GATT rules, the WTO facilitates these bilateral consultations by providing the disputing parties with means conducive to conciliation (DSU 1994, Article 5). The establishment of such consultations allows Members to exercise their right of complaint and to seek a means of resolution. However, if bilateral consultations fail to reach a successful conclusion within 60 days, or sooner if a deadlock has been reached, Members can make a request for the establishment of a DSB Panel to mediate the dispute (DSU 1994, Article 5, paragraphs 4–5). Disputes brought before the DSB are presided over by a Panel of individuals appointed by the WTO on the basis of their experience in trade issues – though, as was the case with the GATT, Panels do not normally consist of nationals from those member states in dispute. Panellists normally number three, though in

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instances where the disputing parties deemed it to be necessary this can rise to five. The names of a set of panellists are normally proposed by the WTO Secretariat, though Members have the right to oppose the appointment of particular individuals. In cases where the appointment of panellists has proved contentious, and no agreement has been reached within 20 days of the establishment of a Panel, at the request of either party in dispute, the DirectorGeneral in consultation with the Chair of the DSB and the Chair of the relevant Council or Committee (such as the Council for Trade in Goods) has the power to appoint those deemed most appropriate. Decision-making within these Panels is done by consensus (DSU 1994, Article 8, paragraphs 1–7). In the event that the findings of the Panel prove to be unsatisfactory to one or more of the Members in dispute, the case can then be referred to the DSB’s Appellate Body for further deliberation. Members are required to implement the recommendations of a DSB Panel between 20 and 60 days after the findings of the Panel have been circulated, unless within 60 days one or more parties to the dispute lodges an intent to appeal (DSU 1994, Article 16). In the event of an Appellate Body decision, Members are required to implement the findings within a similar time period. In an effort to ensure that those involved in a dispute abide by the recommendations of the DSB, Members are required to make notification of their intentions within 30 days of the circulation of the report. Members are then required to implement these intentions (if they meet with DSB approval) immediately or as soon as is practicable thereafter. Under special circumstances Members can negotiate an extension to the period within which the recommendations of the report must be implemented, which, in extreme cases, is not to be more than 18 months from the date of circulation. Once these recommendations have been implemented, the DSB surveys the activities of the adopting Member, usually at six-monthly intervals, to ensure that such compliance has occurred (DSU 1994, Article 21). If a Member fails to comply with the recommendations of the DSB Panel or the Appellate Body within the specified period of time, Article 22 of the DSU empowers Members either to request that the violating party offer compensation for its actions, or to suspend the procurement of MFN in relations with that party. A Member can request compensation from another Member only if the violating party fails, is unwilling, or is unable, to comply with the recommendations of the DSB or the Appellate Body. The request for compensation is perceived to be a half-way house between the implementation of the DSB/Appellate Body recommendations, and the suspension of MFN privileges for the sector in dispute. Moreover, the offer of compensation is understood to be a voluntary action taken by the non-implementing party in instances when it is unable to implement immediately the recommendations of the DSB or the Appellate Body. The value of this compensation is agreed upon through negotiations between the two (or more) parties in dispute under the guidance of the WTO. In the event that Members should fail to reach agreement on the value of compensation within 20 days of the expiry of the

120 The extension of multilateralism previously agreed-upon time limit, then the DSB can authorise Members to suspend MFN privileges with regard to offending parties. Paragraph 3 of Article 22 of the DSU deals with the procedures for the suspension of MFN privileges. As a first resort Members are empowered to suspend MFN privileges for the sector in dispute. If the suspension of concessions in the original sector of dispute is impractical then Members may suspend concessions for another sector – so-called cross-sector retaliation. The level of this suspension should only equate to the nullification or impairment of concessions for that sector. However, when suspending MFN privileges, Members are required to take into account the effects that such suspension will have on the offending party’s economic well-being. In order to oversee this process, the WTO requires that Members provide justification for their actions. If the suspension is deemed to be detrimental to the Member in question, then the DSB has the capacity to review the case, which, in turn, may lead to the establishment of a further Panel. The DSU also embodies an arbitration process which permits Members to refer a case back to the original Panel, or to an arbitrator, should the parties in dispute feel that the settlement procedure has not been followed, or that the level of rectification (that is, the level of punitive action) exceeds the extent of nullification or impairment of concessions for the sector in question. Members are required to accept the decision of the arbitrator (defined either as an individual or group appointed by the Director-General) as final, and there is no recourse for further arbitration. The arbitrator is empowered to uphold the level of original suspension, recommend a modification of that level, or find in favour of the complaining party. In an effort to restrict further the ability of Members to contravene the WTO’s rules, the DSU clearly specifies that neither the suspension of WTO concessions, nor the payment of compensation, is to be considered as a preferable course of action to the full implementation of WTO rules. Members should treat Article 22 as a deterrent, not as a cost to be incurred during the accrual of disproportionately greater gains through illegal activity. This is an important point. Some Members may feel that even by incurring sanctions or providing compensation, their illegal course of action is preferable in the light of greater aggregate gains. Members may be tempted to follow this course of action in situations when the cost of an action plus the cost of a WTO sanction is sufficiently less than the benefits of such a course of action. For instance, by incurring a suspension of concessions, a Member may still receive greater benefits from following a course of action that is contrary to WTO rules, than it would have had it adhered to the provisions of the Agreement. Nevertheless, it is expected that the Member forgo these gains and abide by the rules of the WTO (DSU 1994, Article 22, paragraph 1). In total, the usual time for the dispute settlement procedures to run their course is nine months. In cases where an appeal has been lodged with the Appellate Body this can be extended by a further three months. Figure 6.1 summarises the dispute settlement procedure.

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Figure 6.1 The dispute settlement procedure

The practice of dispute settlement The number of cases brought before the WTO’s DSB has far outstripped anything its predecessor had experienced. By 4 October 1996 – barely 22 months into operations – 56 requests for the establishment of bilateral consultations had been filed with the DSB. Twelve of these requests resulted in the establishment of DSB Panels, and two resulted in the dispute being referred to the Appellate Body – the latter relating to a joint Venezuelan and Brazilian complaint against the US over new standards for reformulated and conventional gasoline; and a complaint by Canada, the EU and the US against Japan over taxation levels on alcoholic beverages. By 18 April 2000, the number of complaints lodged with the WTO had reached 192 of which 32 cases had been settled or were inactive; 34 Panel and Appellate Body reports had been adopted; and 21 cases were still active.

122 The extension of multilateralism The first complaint overseen by the DSB was lodged by Singapore on 13 January 1995. Singapore complained that Malaysia was illegally prohibiting imports of polyethylene and polypropylene and was therefore in direct contravention of Article I (MFN) of the GATT. In accordance with the requirements of the DSU, Singapore asked that the WTO oversee bilateral consultations between the two disputing parties (DSU 1994, Articles 4 and 5). Singapore withdrew the complaint after bilateral negotiations resulted in a mutually acceptable settlement of the dispute. This first dispute, while proving uncontentious and relatively undemanding, was followed by a series of other cases that required the full extent of the WTO’s dispute settlement procedures to be utilised. We see in surveying a selection of the most prominent cases an appearance which at first glance indicates a widespread commitment to adhere to the dispute settlement rules. However, while this has remained largely the case, we see instances wherein the rules-based system has come under pressure from the threat of an older, more familiar power-orientated means of settling disputes. US, Venezuela, and Brazil: reformulated gasoline On 2 February 1995 Venezuela lodged the first complaint with the WTO to result in the establishment of a DSB Panel (established 10 April 1995). Venezuela stated that the structure of the US Environmental Protection Agency’s new standards for reformulated and conventional gasoline discriminated against its imports (WTO Focus (1995) March–April: 3). The US regulation under dispute was the Regulation of Fuels and Fuel Additives – Standards for Reformulated and Conventional Gasoline, Part 80 Title 40, Federal Regulations 7716 (16 February 1994). Venezuela had previously complained about US gasoline legislation under GATT 1947 rules. However, with the establishment of the WTO imminent the complaint was withdrawn to enable resubmission under the newer, more rigorous regulations. Initially, as stipulated by Article 4 of DSU, the disputing parties entered into bilateral consultations, though they failed to bring about a successful resolution. As a result, Venezuela asked the WTO to establish a Panel to examine its complaint against the US. The legislation in question was the US 1994 Amendment (effective 1 January 1995) of the Clean Air Act which states that only gasoline of a specified ‘cleanliness’ (reformulated gasoline) can be sold to consumers in the most polluted areas of the US, while in the rest of the country only ‘gasoline no dirtier than that sold in 1990’ (conventional gasoline) could be offered for sale (WTO Focus (1996) January–February: 1). On 31 May 1995, upon gaining consent from both the US and the WTO Secretariat, Brazil joined the Panel established to examine Venezuela’s complaint. Canada, Norway and the EU also applied to participate in the Panel as third parties. Venezuela and Brazil stated that by imposing less favourable standards on imports of gasoline the US was violating Articles I (MFN) and III (national treatment) of the GATT, and Articles 2 (Parts 1 and 2) (Preparation, Adoption

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and Application of Technical Regulations by Central Government Bodies) and 12 (Special and Differential Treatment for Developing Country Members) of the Agreement on Technical Barriers to Trade. Both Members argued that these purported environmental measures were merely a means of disguising discriminatory trade practices. Brazil stated that the amount of gasoline it had exported to the US since the imposition of the Environmental Protection Agency’s standards had fallen from US $8 million per quarter to zero. Furthermore, both Venezuela and Brazil emphasised that, although they did not object to the imposition of more stringent environmental regulations, the US measures went beyond that which was deemed reasonably necessary for such protection (WTO DSB Panel Report, 1996a: 7). In retort the US claimed justification for its actions as necessary measures to protect its environment. It argued that amendments to the Clean Air Act were consistent with Article XX of the GATT (general exceptions), paragraphs (b), (d) and (g), allowing for the introduction of protectionist measures necessary to protect human, animal or plant life or health; to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement; [and] relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production and consumption. (GATT 1994, Article XX, paragraphs (b), (d), (g)) The DSB Panel established to mediate this dispute decided that the actions of the US Environmental Protection Agency were inconsistent with Section 4 of Article III (national treatment) of the GATT. Moreover, the Panel stated that the use of discriminatory practices under the Clean Air Act could not be justified under paragraphs (b), (d) and (g) of Article XX. The Panel deemed imported gasoline to be a ‘like’ product and therefore that it should attract the same level of treatment as its domestic equivalent. Accordingly, the Panel recommended that the US bring its gasoline rules into line with its obligations under the General Agreement. The Panel emphasised, however, that although Members were free to set their own environmental legislation, and while it appreciated the need to seek a decrease in national pollution levels, in doing so they are not to interfere with the provision of equal treatment for domestic and foreign goods as specified under Article III of the GATT (WTO DSB Panel Report, 1996a: 47–50). Although the Panel decision was to the satisfaction of Venezuela and Brazil, on 21 February 1996 the US notified the DSB of its intention to appeal in accordance with Rule 20 of the Working Procedures for Appellate Review. US officials claimed that the Panel report was at error on two counts: first, for suggesting that US regulations were inconsistent with ‘measures relating to the conservation of exhaustible natural resources’; and second, for ruling that the US regulations did not constitute ‘measure[s] … relating to’ the conservation of clean air within the meaning of Article XX, paragraph (g) (WTO Appellate Body Report, 1996a: 13).

124 The extension of multilateralism The US decision to appeal was not, however, met favourably by Venezuela. In spite of a clear adherence to the dispute settlement procedures, Venezuela stated the US move would ‘diminish the credibility of the WTO dispute-settlement system and [its] panels’ (WTO Focus (1996) January–February: 2). On 29 April 1996, the Appellate Body published its decision. The report concluded that the discrimination resulting from the US action must have been foreseen. The Appellate Body ruled that the US action under Article XX, paragraph (g) constituted ‘unjustifiable discrimination’ and a ‘disguised restriction on international trade’ (WTO Appellate Body Report, 1996a: 28–9). But, fearing that the ruling would be the source of some contention and would be perceived as setting a precedent of what constituted justifiable protection of the national environment, the Appellate report added: [The decision] does not mean, or imply, that the ability of any WTO Member to take measures to control air pollution or, more generally, to protect the environment, is at issue. That would be to ignore the fact that Article XX of the General Agreement contains provisions designed to permit important state interests – including the protection of human health, as well as the conservation of exhaustible natural resources – to find expression. The provisions of Article XX were not changed as a result of the Uruguay Round of Multilateral Trade Negotiations. Indeed, in the preamble to the WTO Agreement and in the Decision on Trade and Environment, there is specific acknowledgment to be found about the importance of co-ordinating policies on trade and the environment. (WTO Appellate Body Report, 1996a: 29–30) Although noting its disappointment with the outcome of the dispute, on 19 June 1996 the US announced its intention to comply with the Appellate Body recommendations and bring its national legislation into line with WTO commitments. However, in doing so, it called for a process of consultation to commence directed at promoting congruence between its commitment to a reduction in pollution levels under the Clean Air Act and the recommendation of the Appellate Body (USTR, 1996d). Japan and alcoholic beverages Following in quick succession to the gasoline case, the US found itself again involved in a dispute under consideration by the Appellate Body. This time, however, its role was as complainant. On 29 June 1995 the EU, Canada and the US lodged a joint complaint with the DSB against Japan concerning the level of taxation on imported alcoholic beverages. The complainants argued that Japanese taxation levels for imports of alcoholic beverages such as whisky, brandy, rum, vodka and liqueurs were higher than those attracted by the domestically produced shochu (a potato-derived spirit). These imported alcoholic beverages, it was argued, were significantly similar to Japanese shochu – that is,

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they were ‘like’ products – and as such should enjoy the same level of taxation as those enjoyed by the comparable domestic produce as required by Articles I (MFN) and III (national treatment) of the GATT. In accordance with Article 4 of the DSU, the three complaining Members asked that bilateral negotiations be established in an effort to solve the dispute. Under previous GATT arrangements a Panel had been established to mediate between the then EC and Japan on this issue. The Panel had found in favour of the EC ruling that ‘whiskies, brandies, other distilled spirits, liqueurs, still wines and sparkling wines imported into Japan were subject to discriminatory or protective taxes [and were thus] contrary to Article III: 2’ (national treatment) of the GATT. As a result, the Panel recommended that Japan bring its alcohol taxation system into line with GATT rules. However, and contrary to Japanese assertions that it had twice reformed its alcohol taxation system since the original complaint, the EC contended that Japan had failed to implement the recommendations of the Panel. The bilateral consultations established between the three complainants and Japan under the new DSB arrangements failed to reach a mutually satisfactory solution. Subsequently, the complainants lodged a request with the DSB for the establishment of a single Panel. The request, with the consent of Japan, was granted on 27 September 1995 (under Article 9 of the DSU dealing with multiple complaints), although Japan made it clear that it regretted that the dispute had not found a mutually acceptable solution prior to this action (WTO Focus (1995) August–September: 2). On 11 July 1996 the DSB Panel reiterated the ruling of the previous GATT Panel, concluding that the Japanese taxation system for imported alcoholic beverages was inconsistent with Article III, paragraph 2 of the GATT (WTO DSB Panel Report, 1996b: 120). Furthermore, the Panel reiterated the need for Japan to rectify the situation. The Panel based its recommendations on two conclusions: (i)

Shochu and vodka are like products and Japan, by taxing the latter in excess of the former, is in violation of its obligation under Article III: 2, first sentence, of the General Agreement on Tariffs and Trade 1994. (ii) Shochu, whisky, brandy, rum, gin, genever and liqueurs are ‘directly competitive or substitutable products’ and Japan, by not taxing them similarly, is in violation of its obligation under Article III: 2, second sentence, of the General Agreement on Tariffs and Trade 1994. (WTO DSB Panel Report, 1996b: 138) On 8 August 1996 Japan lodged its intention to appeal with the Appellate Body. However, the Appellate Body reaffirmed the findings of the Panel and recommended that Japan amend its taxation system to bring it into line with the requirements of the GATT. The Appellate report did, however, note that some inconsistencies existed in the findings of the Panel (WTO Appellate Body Report, 1996b: 33). The Appellate Body noted that the Panel erred in law in its

126 The extension of multilateralism conclusion that ‘panel reports adopted by the GATT Contracting Parties and the WTO Dispute Settlement Body constitute subsequent practice in a specific case by virtue of the decision to adopt them’; by failing to take into account Article III: 1 in interpreting Article III: 2, first and second sentences; in limiting its conclusions in paragraph 7.1(ii) of the Report on ‘directly competitive or substitutable products’ to ‘shochu, whisky, brandy, rum, gin, genever, and liqueurs’; and ‘in failing to examine “so as to afford protection” in Article III: 1 as a separate inquiry from “not similarly taxed” in the Ad Article to Article III: 2, second sentence’. Nonetheless, it upheld the Panel’s decision (WTO Appellate Body Report 1996b: 37–8). In response, Japan provided notification of its intention to implement the recommendations of the DSB Panel/Appellate Body. In spite of the sloth demonstrated by Japan with regard to the implementation of previous GATT Panel recommendations, the consolidation of dispute procedures under WTO rules seemed to have resulted in a resolution of the case through a strict adherence to the WTO rules. But trouble was brewing. The dispute was one of a series brought before the DSB in quick succession involving the US and Japan. Car wars At the same time as the tension surrounding taxes on alcoholic beverages, the US was also involved in a dispute with Japan over cars and automotive parts. On 10 May 1995 the US notified the WTO that it considered the Japanese car market for both vehicles and spare parts to be closed to outside competition – a situation that it contended contravened WTO rules. This was followed on 22 May 1995 by further notice that if the situation was not rectified to US satisfaction, from 1 July 1995 tariffs of 100 per cent would be imposed on 13 luxury models of Japanese cars under Sections 301 and 304 of the 1974 (Amended 1988) Trade Act. US trade officials asserted that the threat of such action was necessary to ensure that Members (Japan in this case) lived up to their obligations, thus allowing the system to work to the benefit of all. Adhering to WTO procedures, on 17 May Japan asked that bilateral consultations commence between the disputing parties in an effort to resolve the dispute. The case against Japan was based on a number of US assumptions about the nature of the Japanese economy and associated commercial practices. US officials complained that the massive trade imbalance between the two countries was a direct result of the employment of discriminatory practices by the Japanese (see Ravenhill, 1993). Furthermore, the US Trade Representative (USTR) argued that much of the $36.9 billion US trade deficit for car and associated components would not exist if Japan had adhered to WTO rules, and had taken measures to eliminate some of its discriminatory practices. The USTR had this to say about the Japanese motor industry: [Japanese automotive] practices are unreasonable and discriminatory and burden or restrict US commerce …. [The] Japanese market for replacement

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auto parts is restricted by a complex system that is not reasonable or justifiable. This system channels most repair work to government-certified garages that use very few foreign parts, and restricts the development of other garages more likely to carry and use foreign parts … [E]ven minor additions of accessories to motor vehicles requires a full vehicle inspection and tax payment, which severely limits opportunities for US automotive accessories suppliers. (USTR, 1996a: 3) In essence, US trade officials argued that the relationship that exists between Japan’s car manufacturers and their suppliers and dealers (the so-called Keiretsu system) militates against sales of imported cars. In order to redress these perceived imbalances the US demanded that Japan agree to meet informal import quotas for its cars and associated products. However, much of the impetus behind the complaint arose not from the size of the trade imbalance – though this was a factor – but rather from the Clinton Administration’s preoccupation with the 1996 election. It was by no means a coincidence that in an era when the US public had voiced its concern about an ever-growing trade deficit with Japan, that the US should launch a concerted attack on the perceived discriminatory practices it employed, particularly in the automotive sector – an area of much US national pride. Evidence of this can be found in Clinton’s revival, by executive order, of Super 301 following the breakdown of US–Japan bilateral trade negotiations in February 1994 – an action which reversed the Bush Administration’s shelving of 301 as a conciliatory measure during the Uruguay Round (Kunkel, 1995: 13). Japan replied to these allegations by pointing out that if the US were to carry out its threat it would be in direct contravention of Articles I (MFN) and II (tariff binding) of the GATT 1994. Furthermore, US actions would contravene Article 23 of the DSU prohibiting unilateral action as a method for dispute resolution. Article 23 states: When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding …. In such cases Members shall [not seek to rectify a dispute] except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding. (DSU 1994, Article 23, paragraphs 1 and 2(a)) The US action sparked off a barrage of criticism from other WTO Members, as well as from the WTO itself. During the WTO Council for Trade in Goods (CTG) and DSB Meetings of 29 and 31 May 1995 respectively, both Japan and the US were reminded of ‘their responsibilities in adhering to the principles and procedures of the dispute settlement mechanism’ (WTO Focus (1995) May–June: 2). While some Members of the WTO wished it to be noted that they

128 The extension of multilateralism shared US concerns about the protectionist nature of the Japanese economy, they believed that recourse to unilateral action was not the correct means of effecting change. The EU stated that although it shared the view that ‘various rules and practices made access to the Japanese market … difficult, it disapproved of the US announcement of unilateral measures as being inconsistent with the WTO’. India voiced its concern that such action would damage the multilateral trading system, and that ‘it would be ironic if the major trading powers … [were] the first to resort to unilateral actions’ (WTO Focus (1995) May– June: 16). Hong Kong reminded the US that it understood Section 301 to be a national measure for dealing with trade disputes and other related activities that fell outside the WTO sphere, but that this was clearly within the WTO’s field of operation. Similar concerns were raised by Canada, Turkey, Switzerland, Norway, Brazil, South Korea, Pakistan and the ASEAN countries. Concerns about the nature of US actions were also raised in the international press. The Economist, for instance, stated that Japan’s trade surplus with the US, particularly in the automotive sector, was merely due to Japan’s comparative advantage (The Economist, 20 May, 1 July 1995). This advantage, it argued, was made relatively more advantageous by the incongruous nature of US production techniques with the Japanese market. It noted that many cars produced by the US were offered for sale with engine sizes larger than 2 litres, a sector accounting for only 20 per cent of the Japanese market (the largest selling category in Japan is between 660 cubic centimetres and 2 litres). Moreover, few US models were offered in Japan in right-hand-drive form, though many Japanese models were offered in left-hand-drive form for the US market. Indeed, The Economist claimed that Japanese car manufacturers at the time of the dispute offered 53 models in left-hand-drive form as opposed to only two right-hand-drive models offered by their US counterparts (The Economist, 17 June 1995). On 27 June 1995, the two disputing parties concluded a bilateral agreement which ended the dispute and halted the establishment of a Panel and any subsequent referral to the Appellate Body. The US asserted that it had obtained a significant increase in market access for ‘autos and auto parts based on quantitative and qualitative objective criteria, as well as structural changes in the Japanese auto sector’ (USTR, 1996a: 2). The agreement also stated that it had improved foreign access to Japanese car dealerships; provided for Japanese government support to facilitate an increase in car and associated product imports into Japan; promoted parts purchases from non-Keiretsu suppliers; addressed a list of specific ‘automobile performance and technical standards that hinder car imports in Japan’; provided vehicle registration data for use in market research; and made significant gains in the deregulation of barriers to selling spare parts (USTR, 1996a: 3–4). On 29 June 1995 Japan announced that it was withdrawing its complaint against the US after reaching a satisfactory agreement during the second round of bilateral consultations. The conclusion of this dispute led the WTO to announce that its ‘dispute-settlement mechanism ha[d] done its job as a deterrent against conflict and a promoter of agreement’. WTO Director-

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General Renato Ruggiero stated that the ‘knowledge that both sides were prepared to use the system played a crucial role in pressing them towards a deal’ (WTO Focus (1995) May–June: 1). This was not, however, the end to the matter. Perhaps the most significant outcome of the early disputes in which the US became embroiled was the establishment, in January 1996, of a Permanent Monitoring and Enforcement Unit (PMEU) operating under the auspices of the USTR. Most certainly the car dispute acted as a catalyst in the creation of the PMEU, though its remit was clear: to monitor all US trade agreements and to implement US trade laws ‘determining compliance by foreign governments, and pursuing actions necessary to enforce US rights under those agreements and laws’ (USTR, 1996c). One of the principal responsibilities of the PMEU is to produce, in conjunction with the US Department of Commerce, a report on the implementation activities of other states. But perhaps most troubling was the apparent reluctance to relinquish any recourse to unilateral action. Indeed, the stated enforcement role of the PMEU was interpreted by some that an end had not been put to the era of aggressive unilateralism. More elaborately, for the USTR the PMEU’s role is to: Identify foreign government practices for US enforcement action and ensure the proper coordination of the Super 301 process and Special 301 review of countries that deny adequate and effective protection for intellectual property rights, the Section 1377 review of the operation and effectiveness of US telecommunications trade agreements, and the Title VII report identifying countries that discriminate in government procurement against US goods and services. Ensure that all of our trade policy leverage … and other unilateral trade preference programs is brought to bear on countries that do not comply with their obligations. (USTR, 1996c) Barely 18 months after the auto agreement had been reached between the US and Japan the shadow of retaliatory action once again appeared. In an interim report produced by the PMEU surveying Japan’s implementation of the auto agreement it was noted that, while some ‘positive trends’ were apparent during the year following the dispute, concern was expressed that a degree of ‘stalling’ had become evident. As a consequence, the report urged that Japan be asked to ‘redouble its commitment to make on-going efforts throughout the life of the Agreement’ (US Dept of Commerce/USTR, 1997: 1–2). Other statements revealed a resolve to maintain at least the threat of unilateral action if not the reality in the face of what was deemed to be noncompliance by other Members. The 1996 President’s Trade Policy Agenda provides a good example of this: Our trade agreements are mere pieces of paper unless we pursue their dictates in a vigorous manner. A major priority this year [1996] is to ensure

130 The extension of multilateralism that the members of the World Trade Organization [live] up to the commitments they made during the Uruguay Round of multilateral negotiations. We will work through the many committees created under the WTO to ensure that new obligations are met and that our trading partners have put in place the laws, regulations and policies necessary to ensure compliance with the WTO agreements. We are already using the WTO dispute settlement process to press other countries to faithfully implement their WTO obligations, and we will continue to do so …. Enforcement of both international trade agreements and US trade laws underpins our approach to trade and continues to be central to our agenda in 1996. Since we are the world’s largest trading nation, it is our interest to strengthen the rule of law and its institutions. (USTR, 1996b: 2, 6–8) Disputes between the US and Japan have remained a staple feature of the activities of the DSB. Japan has been on the receiving end of DSB Panel and Appellate decisions instigated by the US relating to measures affecting photographic film and agricultural products. And the pressing open of market access for US goods in Japanese markets has remained a prominent feature of subsequent Presidential Trade Agendas (USTR, 1997, 1998, 1999a). But the militancy with which the US has pursued redress of perceived discriminatory practices by Japan has not been unique. The ratification of the Helms–Burton Bill facilitated by the shooting down of a US-registered light aircraft by the Cuban Air Force in early 1996, sanctioning all goods, and all goods that contain Cuban produce from entry into US markets, was also the cause of some concern within the CTG (WTO Focus (1996) May: 9; also Lisio, 1996; Snyder and Agostini, 1996). Many argued that by introducing a ban on all produce containing ingredients of Cuban origin, the US was in contravention of Articles I (MFN) and III (national treatment) of the GATT and discriminated against not only Cuba but also other WTO Members. Disputes between the US and the EU have also seized much attention. Two cases, in particular, have been the source of much controversy: the first relating to market access for bananas into the EU; and the second concerning restrictions on the importation of hormonally modified beef and related products into European markets. In both cases the threat of unilateral action has been apparent, though the WTO’s dispute settlement rules were not contravened. It is to these cases that we now turn. Bananas The dispute that broke out between the US and EU over the latter’s import regime for bananas – though also involving Ecuador, Guatemala, Honduras and Mexico – reflected deep-seated tensions between the two powers over a preferential trade relationship nurtured by Europe with certain of its dependencies and former colonies since the establishment of the EEC in 1957. This

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relationship has evolved from an association agreement under Part IV of the Treaty of Rome, through Yaoundé Conventions I and II, to its most familiar incarnation as the Lomé Convention. It should be noted, however, that from June 2000 Lomé was replaced by a 20-year ‘partnership’ agreement signed in Fiji (and will, most likely, take that name) (The Courier (2000) February–March: 5). But the banana dispute is not just reflective of tensions surrounding Europe’s preferential regime, it also reflects wider tensions between the two powers over trade in agriculture – tensions which, as we saw in Chapter 1, contributed to the protraction of the Uruguay Round. The Lomé Convention grew out of, first, a French desire to incorporate formally its colonial relations in the Treaty of Rome establishing the EEC, and later, an extension of the geopolitical parameters of that relationship to include sections of the UK’s dependencies and former colonies in a comparable relationship in the wake of its 1973 accession. The history of the Lomé Convention is much longer than can be recounted here (see Cosgrove-Twitchett, 1978, 1982; Frey-Wouters, 1980; Long, 1980; Ravenhill, 1985; Lister, 1988). Put simply, under the Lomé Convention a range of African, Caribbean and Pacific states (ACP) are privy to preferential, and non-reciprocal, access into European markets for a range of products. The conveyance of preferential treatment to the ACP was permissible under the waiver attained for Lomé from the GATT. In recognition of the severe export dependency of certain Caribbean states the preferential relationship between the EU and ACP has comprised, from the outset, a Banana Protocol. Most simply, the purpose of the Protocol has been to offset, to some degree, the relative uncompetitiveness of ACP banana producers. In 1993 a set of rules was agreed for allowing for a continuation of traditional levels of banana imports from the ACP, while at the same time setting a limit on imports from non-ACP producers into the European market for a period of 10 years (McMahon, 1998: 103–4). These rules established a quota for imports set at 2 million tonnes, comprising 90,000 tonnes of duty-free entry for ACP producers, and the remainder for the more competitive non-ACP producers at a duty of 100 ECU per tonne (rising to 850 ECU per tonne for any excess). The level of this quota was, however, the source of much discontent, particularly as non-ACP Caribbean Basin producers argued that the quota had been set at a level below the 1988 rate of imports (McMahon, 1998: 104). In spite of an EU response to increase the size of its quota, on 5 February 1996 Ecuador, Guatemala, Honduras, Mexico and the US requested that bilateral consultations be established with the EU in an effort to find a mutually acceptable conclusion to the dispute. Under the auspices of the GATT, a Panel had twice been established to determine whether the market access provisions of the Lomé Convention contravened GATT rules. In both cases the Panel found that EU measures were inconsistent with GATT rules. However, the complaining parties argued that the EU had ignored the recommendations of both of these reports and continued to use unfair trade practices. After a breakdown in the bilateral consultations, on 8 May 1996 the complainants requested that a DSB Panel be established to examine the issue.

132 The extension of multilateralism The EU argued that it interpreted the Lomé waiver to empower it to determine the necessary level of preferential access for ACP producers as required by the provisions of the Convention. Furthermore, it argued that the interpretation of the Convention was a matter for itself and the ACP rather than for the DSB Panel. As such, it suggested that ‘the Panel was not empowered to give an interpretation of the Lomé Convention which was at odds with the [EU’s] and ACP’s understanding of their obligations under that agreement’ (McMahon, 1998: 105; WTO DSB Panel Report 1997a: 32). The EU, therefore, did not consider its import regime for bananas to be at odds with its WTO commitments. Nevertheless, the Panel again found in favour of the complainants. It asserted that aspects of the EU’s import regime for bananas contravened Articles I, paragraph 1 (MFN), III, paragraph 4 (national treatment), X, paragraph 3 (publication and administration of trade regulations), XIII, paragraph 6 (quantitative restrictions) of the GATT; Article 1, paragraph 3 of the Agreement on Import Licensing Procedures; and Articles II (MFN) and XVII (national treatment) of the GATS. The Panel concluded by recommending that the EU bring aspects of its banana regime into line with its commitments under the GATT, GATS and the Agreement on Import Licensing Procedures. The EU reacted by rejecting the findings of the Panel and on 11 June 1997 requested that the matter be referred to the Appellate Body. Nearly 20 months after the initial request for the establishment of bilateral consultations the findings of the Appellate Body were published. With minor amendments, the Appellate Body report recommended that the EU be asked to bring its import regime for bananas into conformity with its obligations under GATT and GATS (WTO Appellate Body Report, 1997: 118–21). As a result, the EU notified the WTO that it would implement the recommendations of the report. However, this did not bring an end to the dispute. In October 1997 the EU lodged a request for consultations to be undertaken with the complaining parties in order to reach agreement on what constituted a ‘reasonable period of time’ for the implementation of the recommendations. But the consultations failed to result in agreement. This resulted in the complaining parties requesting, on 17 November 1997, that the EU be bound to Article 23, paragraph 3(c) of the DSU empowering them to take punitive action for non-implementation (WTO Arbitrator’s Report, 1998: 1–2). In turn, the EU lodged a request for arbitration on the issue of a reasonable time period in which to implement the recommendations of the Appellate Body report. However, indicative of the political tensions surrounding this dispute, the disputing parties could not agree on the appointment of an arbitrator and requested that the Director-General of the WTO do so. An arbitrator was finally appointed on 8 December 1997. The arbitrator’s report, published on 7 January 1998, provided the EU with a longer than expected respite within which to alter its importation regime for bananas, citing the period 25 September 1997 to 1 January 1999 as appropriate (WTO Arbitrator’s Report, 1998: 7). That said, by 1 January 1999 the EU had not implemented the recommendations of the Appellate report to the satisfaction of the US. In response, on 14

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January 1999 the US published its intention to take punitive action against the EU by implementing 100 per cent tariffs on a range of products to the value of $520 million – the value of harm to the US economy caused by EU actions estimated by the USTR. The US justified its action by suggesting that the EU had implemented measures that had perpetuated ‘discriminatory aspects of the regime identified by a WTO panel and Appellate Body as being WTOinconsistent’ (USTR, 1999b). Unsurprisingly, the announcement resulted in an escalation of tension between the two powers. In an effort to dissipate some of this growing tension, on 25 January 1999 the then Director-General Renato Ruggiero put forward a compromise proposal for both parties to enter into consultations to find a mutually agreeable solution to the dispute with an accompanying commitment to empower the US to implement its proposed sanctions if further arbitration found them to be justified. In this instance, the arbitrator was identified as the original Panel which had examined the case in 1997. Both the US and EU agreed to the proposal, though sought to maintain their aggressive posturing. After a series of delays which saw the date for agreeing a decision move from March to April 1999, the arbitrators decided that the damage suffered by US companies as a result of the EU’s preferential market access regime was significantly lower that had been suggested. The arbitrator put the estimated damage suffered at $191.4 million, and ruled that the figure was final and not subject to appeal (WTO Arbitrator’s Report, 1999: 43). Both parties accepted the ruling of the arbitrator. What the banana dispute demonstrates, then, is at one level a willingness by the parties involved to adhere to the dispute settlement procedures of the WTO. However, the need for a compromise solution to be found by utilising aspects of the DSU for further deliberation illustrates that at another level, the threat, if not the reality, of power-orientated resolution remains a feature of contemporary international trade. Furthermore, it raises questions as to the equity of stretching DSB procedures. For instance, it is unlikely that any procedural compromise would have been put forward had it been two developing countries in dispute. Beef – a challenge to the procedures of the WTO? The banana dispute is indicative of more traditional trade disputes. The same could be said of the other disputes we have so far visited in this chapter. That which arose over an EU ban on imports of hormonally modified beef from the US, however, comprises a dimension previously unseen in the disputes mediated by the WTO and one which threatens to become more prominent in the future. Whereas the banana dispute was about the perceived discrimination arising from a bilateral agreement between the EU and ACP, the decision to ban US beef imports, though at one level also about discrimination, owed much to public fears about the health consequences as well as the moral implications of hormone modification in bovine products. The dispute arising from the EU’s decision to ban imports of beef and bovine products from the US, like so many other disputes that were unsatisfactorily

134 The extension of multilateralism addressed prior to the establishment of the WTO, has its roots in a GATT action taken by the US. In response to a long history of growing concern about the human health and animal welfare implications of hormone use in livestock husbandry throughout the 1970s and 1980s the EC (as it was then) decided to ban the use of growth hormones with ramifications for the importation of goods produced using such methods (WTO DSB Panel Report, 1997b: 9). In March 1987, the US challenged the EU decision under the Tokyo Round Agreement on Technical Barriers to Trade (TBT) (WTO DSB Panel Report, 1997b: 12). Bilateral consultations were established to review the ban, but failed to result in a satisfactory conclusion. In response, the US requested that a technical experts group be established to examine the issue. This request was, however, denied on procedural grounds. This resulted in the US implementing retaliatory action in the form of 100 per cent tariffs against a list of EU products. The EU requested that a Panel be established to review the action. This was, however, denied by the US. That said, the two parties did manage to agree to limit the extent of the US punitive action in exchange for a certification process identifying products that had not been produced using hormones (WTO DSB Panel Report, 1997b: 12). The establishment of the WTO witnessed renewed resolve to find a resolution to the dispute. On 26 January 1996 the US requested bilateral consultations to be established with the EU to discuss the latter’s Directive banning the use of hormones in livestock farming. Canada, Australia and New Zealand joined the consultations. Yet the consultations failed to result in a conclusion to the dispute, and on 20 May 1996 a Panel was established to examine the issue. In light of the establishment of the Panel, the US withdrew its retaliatory action (WTO DSB Panel Report, 1997b: 1, 12). In an independent action, a Canadian request for the establishment of a Panel was granted. Nonetheless, the composition of the two Panels was, with the agreement of the EU, identical. The substance of the US complaint (though not entirely identical to that brought by Canada but sufficiently comparable for our purposes) was that it perceived the EU to be in contravention of, among others: • •

• •

Articles III (national treatment) and XI (general elimination of quantitative restrictions) of the GATT; Articles 2 (basic rights and obligations), 3 (harmonisation) and 5 (assessment of risk and determination of the appropriate level of sanitary and phytosanitary protection) of the Agreement on the Application of Sanitary and Phytosanitary Measures; Article 2 (preparation, adoption and application of technical regulations by central government bodies) of the Agreement on Technical Barriers to Trade; and Article 4 (market access) of the Agreement on Agriculture. (WTO DSB Panel Report, 1997b: 1)

The US claimed that the EU action was (i) ‘not based on an assessment of risk …; (ii) without sufficient scientific evidence …; (iii) not based on scientific

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principles …; (iv) not applied only to the extent necessary to protect human life or health; (v) more trade-restrictive than required’; (vi) arbitrary and constituted unjustified discrimination; and (vii) a disguised restriction on international trade. Moreover, the US argued that the EU measures discriminated against imports which it deemed to be ‘like’ products to those produced and sold in European markets (WTO DSB Panel Report, 1997b: 12–13). In retort the EU argued, among other things, that the meat from these animals was not ‘like’ that of non-hormonally modified livestock; and even if they were ‘like’ in kind, imports were given no less favourable treatment than domestic products. As such, it was not in contravention of the national treatment requirements of the GATT (Article III). The Panel found in favour of the US arguing that the EU’s measures were not based on adequate risk assessment of the situation; that the levels of sanitary protection adopted were arbitrary and unjustifiable; and that the measures adopted were not based on any existing international standards. As a result, the Panel recommended that the EU bring its measures into line with the requirements of the Agreement on the Application of Sanitary and Phytosanitary Measures. The EU appealed against the findings of the report. However, though the Appellate Body overturned aspects of the Panel’s conclusions, it recommended that the general recommendations of the report be upheld (WTO Appellate Body Report, 1998a: 102–3). The significance of this case is not so much that it reflects a continuation of a US conviction to threaten unilateral action. It lies in the use of scientific evidence in the settlement of the dispute and the incongruity of this approach with a rising tide of public concern at the effects of what have been called ‘Frankenstein foods’. It is not so much that the scientific evidence is incorrect – most agree that the effects of hormone and genetic modification have yet to be fully established – rather that there exists a moral dimension to this dispute. Much of the hostility towards foods of this kind has been motivated by a moral rejection of the excessive modification of life forms. This has been seen throughout the EU not only with regard to livestock products, but also in relation to genetically modified crops. This moral rejection has, in certain European countries, led to the development of a more rigorous system of labelling enabling consumers to identify foodstuffs that contain any kind of modification. Furthermore, certain supermarkets have resolved themselves to a marketing strategy based on a complete absence of modification in their ‘own-brand’ products. In this light, the EU could perhaps have based its defence on action taken to protect public morals (Article XX, paragraph (a) of the GATT dealing with general exceptions) rather than those clauses of the Agreement on the Application of Sanitary and Phytosanitary Measures which, building on the general exceptions clause of the GATT, empower Members to restrict the importation of particular products which are deemed to threaten ‘human, animal or plant life or health’ (see Chapter 4). Nonetheless, and procedural matters aside, this is an issue that is likely to become an increasing feature of civic disquiet at the nature and

136 The extension of multilateralism direction of international trade regulation. As a result, what may or may not be scientifically provable is of little consequence to those who are critical of the activities of the WTO.

Dispute settlement and the WTO What we see in exploring how the third core architectural principle has been utilised and strengthened with the creation of the WTO is an incomplete movement from power-orientated dispute resolution to settlement through ruleorientated procedures. Rather we see, in the actions of the US, an adherence to WTO procedures, conducted against a background wherein the threat of powerorientated measures still exists in the pursuit of dispute resolution. A WTO investigation into the consistency of Sections 301–10 of the US 1974 Trade Act which found that they are ‘not inconsistent with US obligations under the WTO’ (WTO DSB Panel Report, 1999: 350) has done little to alter this. What is also apparent is that while there has been some increase in the use of the dispute settlement procedures by developing states, it is the activities of the principal trading powers that have dominated the functioning of the DSB. Furthermore, it is these disputes, rather than those brought by developing countries, that have resulted in the utilisation of the full extent of DSM procedures and have offered the clearest test to date of the efficacy of that system. Beyond these trends, we see in the case of hormonally modified beef and bovine products a public morality issue which may come to present itself more forcefully among the concerns of those who are critical of the activities of the WTO. Indeed, the beef dispute is not the only dispute presided over by the DSB which has been the focus of public attention. Much public interest surrounded the dispute brought against the US by India, Malaysia, Pakistan and Thailand over import prohibitions of shrimp and shrimp products. The dispute revolved around US legislation requiring trawlers to use turtle excluder devices when harvesting shrimp in an effort to minimise the resulting number of turtle deaths. The US lost the case after the Panel ruled that its measures were inconsistent with the general exceptions clause of the GATT (Article XX) – a ruling that has been acutely unpopular among environmental groups. The Appellate Body upheld the general findings of the Panel report, but made slight alterations concerning the submission of information from NGOs (see WTO Appellate Body Report, 1998b). As the WTO makes an increasing number of rulings on issues that are of public concern, what may result is an increase in hostility from civic groups. This, in turn, will place increasing pressure on the WTO to become more accountable for its actions. It is to this issue, among others, that we turn in the concluding chapter to this study.

7

Multilateralism and the WTO Extending the parameters of trade regulation?

For many, the media reports of the demonstrations during the WTO’s Seattle Ministerial Meeting, as well as those accompanying the meetings of the IMF and World Bank in April 2000, offered the first glimpse of a global institutional framework which, though still rudimentary, is firmly rooted and has gone some way towards consolidating its form. As we have seen, much of the recent consolidation in this global institutional framework can be attributed to the completion of the Uruguay Round and the subsequent co-operation that has taken place among these three organisations. It is unlikely that we will witness any regression in the evolution of this framework – what we have called throughout global economic governance – though at times it will wax and wane. Rather, we are likely to see further consolidation, development and evolution. Inevitably, this will ensure that these organisations remain the source of much attention. By exploring the legal framework of the WTO through the prism of multilateralism, this book has attempted to gain a sense of one aspect of this evolving global structure. We see in undertaking such a task, not only something of the qualitative shift in the nature of international trade regulation brought about by the conclusion of the Uruguay Round, but also the gulf between the idea of multilateralism and the particular way it is expressed in the regulation of global commerce. Building on the work of Ruggie and Keohane we extracted a conception of multilateralism which allowed us to conceive of such forms as comprising a set of constitutive and authoritative rules ordering relations among three or more states in accordance with three generalised principles of conduct: indivisibility, diffuse reciprocity and dispute settlement. In observing the manner in which each of these three principles is utilised by the WTO’s legal framework we arrived at three conclusions. First, though purported to embody the essence of non-discrimination, the principle of MFN and its corollaries are utilised in such a way so as to empower Members to discriminate against others in particular instances. In this we see how certain provisions can be operationalised in such a way that they actively disadvantage smaller, less able, newly acceded developing and transitional states. Second, we see that trade negotiations are governed in accordance with a

138 The extension of multilateralism specific form of reciprocity. The bilateral character of negotiations that arises from this particular operationalisation causes distortions in the way in which Members participate, again actively disadvantaging smaller, less able, nonprincipal supplier developing countries. Third, we see in the new dispute settlement procedure an increase in activity by developing countries, but we also see that it is the activities of the leading industrial states that have dominated its practice. And in their domination of the dispute settlement procedures, we see the remnants of an older more power-orientated means of settling disputes. These conclusions, in this instance at least, would seem to add some substance to Cox’s claim that while multilateralism in form appears non-hierarchical, ‘in reality it cloaks and obscures dominant-subordinate relationships’ (Cox, 1997: xvi). They also appear to be somewhat at odds with Ruggie’s assertion that multilateralism can intervene in such a way that it offers a degree of risk insurance to smaller countries (Ruggie, 1998: 128). But the distortions in the WTO’s legal framework did not suddenly arise with the completion of the Uruguay Round and the establishment of the WTO. More accurately, they represent the augmentation of existing practices and procedures in the evolution of international trade regulation. Exceptions to MFN were key features of the GATT, and both the negotiating and dispute settlement procedures of the WTO, though sufficiently novel to represent a qualitative change, build upon, rather than depart from, those of the General Agreement. These issues have all been addressed in the previous chapters. The purpose of this chapter is not to recover that ground, but rather to draw this study to a close. This it does by exploring two questions that follow naturally from our assertion that the establishment of the WTO marks a qualitative shift in the nature of trade regulation. To what extent has the qualitative shift in the nature of trade regulation reached a point beyond which it can no longer continue on its present trajectory? And, by extension, what factors, if any, present themselves in such a way that they divert attention towards addressing some of the deficiencies in the WTO’s legal framework? Throughout the history of international trade regulation, change has come in the main from the major powers. War between the European powers, the US and Japan brought with it designs for a system of global economic governance centred on the regulative disciplines of the still-born ITO; the US and UK were instrumental in designing the institutional structure that was to emerge after the war, and the US and the EU have exercised, at key moments, significant influence over the nature of trade regulation. In short, the history of trade regulation has been a history of the changing commercial activities of the leading industrial powers. In truth, others have also had an influence. But that influence has been much less pronounced. The critical mass generated among post-independence developing countries proved decisive in the addition of Part IV to the GATT; and the influence of various collectives in the content and, to a lesser degree, the format of some MTNs is not without note. Yet Part IV was largely ineffective, and although groups of medium-sized powers such as the Cairns Group have

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been reasonably successful in developing a negotiating presence, the industrial countries still dominate trade negotiations. That said, the critical juncture brought about by the completion of the Uruguay Round may contain within it seeds which have the capacity to bring about change. The content of contemporary trade regulation is such that it has created significant tensions in certain quarters. These tensions, in turn, may present challenges to the WTO which, at some point in time, have the capacity to exert an alternative influence on the trade agenda – although, as we will see momentarily, at present they appear to be at odds with one another. It is to these tensions that we now turn.

The future extension of trade regulation? In many ways identifying the most pertinent challenges to the WTO ties in with current debates on the future shape of the trade agenda. Had the so-called Millennium Round been launched by the Seattle Ministerial Meeting, it would most likely have sought a consolidation of existing, though as-yet-incomplete, areas of regulation. This would most likely have included pushing forward liberalisation in agriculture, and textiles and clothing; pursing the in-built liberalisation procedures of the GATS; and extending the coverage of intellectual property protection. It is also likely that greater attention would have been directed towards beginning the task of setting out the regulative contours of e-commerce. But an agenda comprising these issues would not have been as clear cut as might at first seem to be the case. It is likely that any attempt to consolidate, or further extend, the parameters of trade regulation will be met with significant opposition. The reasons for this are best illustrated by exploring briefly one of the issues that has long been touted as a potential agenda item: investment. Investment inhabits that space between a new issue and one that requires consolidation in the wake of the Uruguay provisions, and is likely to be included on any proposed agenda. This is primarily for two reasons. First, the Uruguay Round provisions that resulted in the TRIMs proved to be far less comprehensive than had been intended. Rather, what resulted was an Agreement that only partially addressed the issue of barriers to global investment flows, and represented a compromise indicative of the political tension surrounding the issue. Second, many have speculated that investment may gain salience as an issue for WTO discussion in the wake of the failed attempt by the Organisation for Economic Co-operation and Development (OECD) to negotiate a Multilateral Agreement on Investment (MAI) (see Wilkinson, 1999c). Although the MAI was originally intended to be an agreement among the members of the OECD seeking far-reaching investment liberalisation, it was drafted in such a way that its format replicated that of the Agreements administered by the WTO. Put more precisely, the draft MAI had at its root an adherence to the same core architectural principles as those around which the WTO’s legal framework is arranged.

140 The extension of multilateralism The MAI negotiations officially broke down in October 1998 with the withdrawal of the French government. However, at least two other factors contributed to their breakdown. First, a huge display of civic discontent grew in opposition to the MAI that saw over 560 NGOs organise against it. Second, cries were heard that the MAI sought to enhance further the competitive advantage of the North over their Southern counterparts (as membership of the OECD is almost exclusively Northern), and thus preclude those states from enjoying the perceived ‘fruits’ of investment liberalisation. Like the official explanation of the breakdown of the Seattle Ministerial Meeting, the stalling of the MAI was attributed to the inability to reach agreement among participating states; however, it would be wholly inaccurate to suggest that neither the extent of civic disquiet, nor the displeasure of some in the South, were not contributing factors. It is these two issues – civil society and development – that pose the most significant barriers to the future extension of trade regulation. The first is associated with a proliferation of civic organisations and relates to a broader grassroots backlash against economic globalisation and the propagation of that process by trade and investment liberalisation. The second challenge is in many ways more familiar, and relates to the capacity of developing states to participate on an equal footing in global commerce. These two challenges have been referred to throughout this book. Yet it is the qualitative shift in the nature of trade regulation that has brought these issues into sharper relief.

The challenge of civil society Civil society, by which I am referring rather artificially to those NGOs and grassroots movements that in some way oppose one or a number of aspects of the WTO’s remit (for a more elaborate and comprehensive discussion of civil society see Kasfir, 1998; Cox, 1999), has long been critical of the direction of the trade agenda. The claims of those critical of the trade agenda are many and varied, yet all to a degree assert that the regulative framework of the WTO empowers business, and in particular multinational corporations, to operate in a range of ways that are perceived to be detrimental to unskilled and semi-skilled workers, the environment and developing states. Put crudely, they argue that the trade and investment liberalisation activities of the WTO and other like-minded bodies create a culture of competitiveness that enables producers to seek out the lowest costs of production. As every producer is, at a minimum, seeking to maintain their market share, and a maximum to increase it, downward pressure is exerted on the cost of existing factors of production. As a result, not only will producers compete with one another to seek out lower and more efficient production costs, governments will also compete in an effort to attract foreign investment. In terms of labour, this is manifest in the form of cost-cutting exercises in monetary and non-monetary remuneration, infrastructural provision, health and safety, or the removal of national labour legislation for particular industries or commercial zones (such as export processing zones). In terms of the environment, this is manifest in the relaxation of environmental

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standards, the exploitation of scarce or endangered resources, the abdication of the responsibilities and costs of pollution, and the reckless use of genetic technology. And, with regard to developing states, the pressure to create an environment in which inflows of investment will occur is deemed to constrain the range of politically possible action. Put another way, it is said to undermine the sovereignty of many in the South. To separate out the concerns of civil society into labour, the environment and sovereignty is, however, to miss much. Equally important concerns are voiced about the negative impact of trade liberalisation on different social structures, the relationship between women and the nature of production, and so on. And although many acknowledge that liberalisation has the capacity to enable consumers to purchase goods at reduced costs, they argue that this will only be the case for a few. Furthermore, as pressure increases for ever-lower production costs this group will inevitably shrink in size thus reinforcing the global trend towards increasing disparities in income and wealth distribution. The sum of this activity will be to make production socially and ecologically unsustainable. It is in response to these perceived dangers that civic groups have pursued a range of political activity, asking, at the very least, that the WTO become more sensitive to the negative impact that an increase in unregulated production can have, or, for the more radical, the abolition of the WTO. The WTO’s response to the concerns of civil society has been, as we have already noted, cautious – though even this has begun to change. With regard to the labour standards debate, we have seen how the WTO has attempted to sidestep the issue by acknowledging support for the principle of worker rights, but to abdicate any responsibility it may have in their maintenance (see Chapter 3). With regard to the environment, the WTO’s response, while appearing to be slightly more progressive, has been to fall into line with the rhetoric of sustainable development and to look to the process put in place by a range of global environmental summits, rather than to endorse more ecologically sensitive legislation. That said, mixed signals have been emanating from the WTO. On the one hand, the sympathetic statements of Renato Ruggiero, the first Director-General of the WTO, US President Bill Clinton and former EU Trade Commissioner Leon Brittan in the aftermath of the Geneva Ministerial Meeting appeared to some as opening up an avenue for dialogue. On the other hand, the way in which the concerns of civil society were dealt with in run-up to, during and after the Seattle Meeting have since served to undo much of this. For instance, the International Confederation of Free Trade Unions (ICFTU) was told prior to the Seattle Meeting that the labour issue was a ‘false debate’ and, by extension, not the concern of the WTO (WTO, 1999e). Furthermore, NGOs were told that the WTO is not a world government, nor does it have any intention of becoming one (WTO, 1999f). While the same point can be made in the reverse, these statements revealed a lack of understanding of the concerns of civil society within the WTO. Labour is vital to the process of production that results in the making of goods and services for trade, and although the WTO is

142 The extension of multilateralism not a world government, its rules and underlying ideology have governance-like consequences on national and local structures, particularly in developing states. Unsurprisingly, the WTO’s seemingly dismissive attitude towards the concerns of civil society failed to have the desired effect. Furthermore, it illustrated a lack of understanding that has dogged the evolution of international trade regulation since its beginning.

The challenge of development Entwined with the civil society issue is a much older and more familiar source of tension – development – though the interrelationship between the two issues is not, at first glance, obvious. Throughout the Uruguay Round much of the South, in as much as the developing countries can be deemed a coherent and consciously identifiable group, was uneasy about a number of issues under discussion. This unease was made all the more pronounced when viewed in conjunction with the memory of the GATT’s ineffectuality in dealing with development issues and the overt protectionism of agreements such as the MFA. Many hoped that a new round (as the Uruguay Round was then) would offer a means of moving away from the generally poor economic performances of the post-war period; the dashed hopes of the NIEO; the spectre of the debt crisis that haunted many in the 1980s; and the residual structural disadvantages resulting from a history of colonialism. The result was, however, a round characterised by a breakdown in negotiations between the US and EU over agriculture, and the introduction of a series of Agreements that many felt were of little benefit to the economic capabilities of the South. Since the conclusion of the Uruguay Round a series of events have served to consolidate the perceived anti-developmentalism inherent in the trade agenda. The efforts of the US and EU to get the WTO to undertake an examination of the relationship between trade and labour standards was deemed by some to be a means of: (i) attempting to erode the comparative wage advantage of developing countries; (ii) introducing legislation which could be used as veiled protectionism; and (iii) attacking the value systems of many developing countries by requiring that they adhere to a set of culturally incongruous economic and social rights. Opposition governments were quick to point out that their rejection was not an endorsement of the use of exploitative forms of labour. On the contrary – rather, that such a remit belonged to the ILO. The Singapore Ministerial Declaration, as we have seen, reflected much of the tension over this issue. It appeared at one and the same time to be offering an emphatic rejection of any WTO involvement in the issue, but also leaving the door open for a future re-examination (see Hughes and Wilkinson, 1998: 375–80). The issue was not helped when delegates, primarily from the industrial North, raised the issue again (albeit indirectly) during the Geneva Ministerial Meeting. Although much of this raising was carefully worded to ensure that it fell broadly into line with the Singapore Ministerial Declaration, while at the same time attempting to allay the concerns of many of the demonstrators outside the meeting, the continued

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political support for the issue did not go unnoticed, and several developing members saw fit to reinforce the Meeting’s rejection of the issue. The way in which the Seattle Ministerial Meeting unfolded served to irritate further those who sought an emphatic rejection of the labour issue. The sheer size of labour groups represented outside the Meeting; the US government’s apparent pandering to the concerns of US labour; the EU proposal for the creation of a joint WTO/ILO working group; and the general anathema many felt by the size and inappropriateness of the protest were all contributing factors. As has been noted, the prominence gained by labour issues at Seattle has come at the cost of considerable hostility from many of the governments of East Asia (Haworth, 2000). But the labour issue has not been the only source of tension between developed and developing countries. Environmental issues have also been at the heart of many a terse debate. Like the issue of worker rights, many in the South have been opposed to the introduction of any means of enforcing environmental protection into the legal framework of the WTO. Opposition stems, not from a disregard for the health of the global ecosystem, but rather from the possibility that such protection has the capacity to undermine the competitiveness of the South as well as the potential for such legislation to be used as a form of veiled protectionism. Furthermore, many bemoan the lack of a comparable regulative inhibition on the developmental drives of the industrial North as a further example of the perceived bias of trade regulation. Again the lack of developmentalism in previous incarnations of trade regulation serves to sharpen this view (see Brack, 1999: 139–41). Although, as we noted in Chapter 3, the WTO as yet has little in the way of substantive legislation that is environmentally sensitive, the potential for a move in this direction creates a good deal of hesitancy among many in the South. Evidence to support this hesitancy is abundant: the critical mass generated by the various post-Rio conferences on the environment (most of which, it must be noted, either have not been implemented properly, or are full of rhetoric and little else); the prominence of the issue among the concerns of those raised in Seattle; and the apparently conciliatory stance of some industrial governments to the concerns of the Seattle protestors. It is unsurprising, then, that a backlash may emerge among those who perceive that issues such as the environment may crowd out any discussion of development. The political fall-out from the election of Renato Ruggiero’s successor must also be considered as a factor in the further alienation felt by much of the South. The politicking that preceded the election witnessed all but two candidates fall by the wayside. A lack of clear consensus saw the Members of the WTO offer their backing to the two remaining candidates – Mike Moore of New Zealand, and Supachai Panitchapakdi of Thailand. However, the political aligning that occurred witnessed much of the North, and in particular the US, support the election of Moore, whereas a good deal of the South opted to throw their weight behind Supachai. A stalemate ensued that ensured the successor was not appointed until four months after the end of Ruggiero’s tenure. But even then

144 The extension of multilateralism the issue was not adequately resolved. The stalemate that resulted was such that a resolution to the situation only came about when both candidates were elected to the post for two consecutive terms fixed at three years instead of the normal four. Even then, however, Moore’s tenure was to precede that of Supachai. Further residual tensions present themselves over services, investment and intellectual property. In addition to the unease that much of the South feels at a movement into these areas, the lack of a significant service sector, the much documented negative impact of foreign multinational corporations, and the inappropriateness of intellectual property legislation, all add weight to the perception that the principle of reciprocity is being compromised by placing issues such as these on the trade agenda. Irrespective of Part IV of the GATT’s insistence that certain developing countries do not have to reciprocate (which, as we noted in Chapter 5, can itself serve to lock LDCs out of negotiations), the granting of access into foreign service markets is, for instance, of absolutely no benefit to a primary producing developing country. It is, then, with some hesitancy that the South approaches the prospect of a new round of trade negotiations. This hesitancy is compounded further by the prospect of a series of new issues comprising the agenda. Promises have been made before, and are now being made again. Periodically there has been talk of a development-centred approach to trade liberalisation, yet little substantive appears to have been achieved. Many have joined Mike Moore in advocating that a Millennium Round of trade negotiations would be a ‘Development Round’. But even this may not be enough to dissipate growing hemispheric tension. The sum of this is that development presents itself again as the issue which international trade regulation must address. Any attempt to introduce additional ‘new’ issues onto the trade agenda, and thus to extend the parameters of trade regulation further, is unlikely to be successful unless the development issue is properly addressed. In doing so, it must be remembered that the root of the tension is not that the South is anti-worker, anti-environment or antiliberalisation; rather, it is that the political foothold from which the developing countries start is, to greater or less degrees, significantly smaller than that of their Northern counterparts and has little sign of increasing. The concerns of civil society are also of great and equal importance. The rights of workers, the need for greater and more substantive environmental sensitivity, the need for greater civic accountability, and the necessity of a greater transparency in WTO working procedures are all challenges which the WTO cannot shy away from. In short, the twin spectres of development and civil society offer the most serious challenges to the future expansion of international trade regulation as well as to the functioning of the WTO. It is these that are likely to present themselves in such a way that they may inhibit any further, qualitatively significant extension of international trade regulation even if at the present they appear in conflict with one another. This is not, however, to suggest that the WTO will not be faced with other challenges jostling to occupy much of its time in the medium term. Much has

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been made of the tensions that plague the commercial relations between the US, EU and Japan. Yet, in spite of some alarmist suggestions, all three remain relatively close on a number of issues, both within the WTO’s remit as well as outside. Furthermore, they have not suffered the kind of alienation that the developing world and civil society have had to endure. The mandate of the WTO is, after all, to promote an increase in the volume and value of trade for all, not just for a small group of producers in the industrial world. It is to this task that the WTO must turn.

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Index

accession: concessions 89; Establishing Agreement 70; Ministerial Conferences 89; nonapplication clause 87–8, 89; Plurilateral Agreements 70 advanced industrial countries (AICs): non-tariff barriers (NTBs) 24 Africa: colonialism 33 African, Caribbean and Pacific States (ACP) 131, 132, 133 Aggregate Measure of Support (AMS) 61 Agostini, Stephano 130 Agreement on Agriculture: Aggregate Measure of Support (AMS) 61; developing countries 60; export subsidies 60; GATT issue-specific extension 59; most-favoured-nation (MFN) 60; scope 59–61; tariffication 60 Agreement on Basic Telecommunications (1997) 55 Agreement on Government Procurement 67, 68 Agreement on Import Licensing Procedures 132 Agreement on Sanitary and Phytosanitary Measures 73, 135 Agreement on Technical Barriers to Trade (TBT) 123, 134 Agreement on Textiles and Clothing 59, 61–2 Agreement on Trade in Civil Aircraft 67 Agreement on Trade in Financial Services 63–4 agricultural policy: dispute settlement 116; EEC 25; GATT 23, 25; grey-area measures 25; United States 25; WTO 57 aid regimes: multilateralism 32–3, 36 Annecy Round (1949) 23 anti-dumping provisions: countervailing duty 92–3; GATT 91–3; MFN qualification 91–3; Schuman Plan 20 Anyaoku, Emeka 34 arbitration: dispute settlement 120, 132, 133 architecture: ITO 44, 56; meaning 6–7; multilateralism 4, 31–52; trade regulation 31–52, 100; WTO 56, 57, 58, 80, 100 Ariff, M. 3

Armenia 58 ASEAN 128 Asher, Robert 33 Atlantic Charter (1941) 13–14 Australia: dispute settlement 134; free-trade areas 95; Havana Charter (1948) 18; Japanese membership 88 Awuku, Emmanuel Opoku 3 Axelrod, Robert 40 Azerbaijan 58 balance of payments: consultation/discussions 86, 87; GATS 85, 86; GATT 25, 85–7; less developed countries (LDCs) 86; MFN qualification 85–7; monetary reserves 86; protracted difficulties 86; quantitative restrictions 86; Uruguay Round (1986–94) 87 Bandung Conference (1955) 28 Barshefsky, Charlene 77 Bayard, Thomas O. 117 Becker, Lawrence C. 40 Belgium 88 Belgrade Conference (1961) 28 Berne Convention (1971) 64, 83, 84 Bhagwati, Jagdish 32, 36, 93, 111, 113, 117 bilateral negotiations: concessions 113; dispute settlement 115, 116, 122, 128; ITO 48–9; reciprocity 113, 114 bilateralism: colonialism 33; most-favourednation (MFN) 35; multilateralism distinguished 32; specific reciprocity 40, 41 Bismarckian alliance 38 Bosnia 34 Bowles, Paul 93 Brack, Duncan 3, 143 Brazil 72, 91, 121, 122–4 Bretton Woods Conference 13, 15, 16 Bretton Woods system: exchange rate stability 25; grassroots criticism 75; IMF see International Monetary Fund (IMF);

Index Keynesian trinity 19; World Bank see World Bank Brewer, Thomas L. 115, 116 Brittan, Leon 77, 141 Bronkers, Marco C.E.J. 3, 64, 65 Brown, William Adams 16 Bulmer, Simon 2 Burch, Martin 2 Cairns Group 138 Canada: dispute settlement 121, 122, 128, 134; free-trade areas 95; TPRB 67; WTO origins 29 capital flows: multilateralism 35 Capling, Anne 65 Caporaso, James A. 37, 41 Cerny, Philip G. 37 Charnovitz, Steve 74 Charter for the Maintenance of International Peace and Security 90 China 58–9 Churchill, Winston S. 13 civil society: challenges 4, 140–2; NGOs see nongovernmental organisations; protest see demonstrations; WTO relationship 3, 140–2 Cline, William R. 24 Clinton, William Jefferson (Bill) 77, 127, 141 Cobden–Chevalier Treaty (1860) 44 Coffin, Frank M. 32 Cold War 17, 18, 29, 38, 58 Coleman, William D. 93 collective security: indivisibility 39–40; specific reciprocity 38, 39, 40, 41, 110 colonial powers: GATT 26–7 colonialism: Africa 33; bilateralism 33 Commercial Union (proposed) 15 Committee on Trade and Environment (CTE) 58 Commonwealth: multilateralism 34 concessions: accession 89; bilateral negotiations 113; Kennedy Round (1964–7) 24; less developed countries (LDCs) 112; mostfavoured-nation (MFN) 113; multilateral trade negotiations (MTNs) 24–5, 105, 106–7, 111–13; new issues 112; reciprocity 48, 111 Cosgrove-Twitchett, Carol 131 Cox, Robert W. 3, 31, 34, 138, 140 cross-conditionality: IMF 71; Uruguay Round (1986–94) 108 Cuba 130 Curzon, Gerard 22, 24, 35, 36, 40, 44, 84, 106, 109, 111 Curzon, Victoria 22, 24, 35, 36, 40, 84, 111 customs unions: definition 94; MFN qualification 93–4; preferential treatment 93, 94, 95

159

Das, Bhagirath Lal 3, 29, 61 decision-making: benefits 6; collective participation 6; consensus 69; economic governance 71; Ministerial Conferences 5; voting 70 Dell, Edmund 111 demonstrations: IMF 137; Second Ministerial Meeting (Geneva) 55–6, 75, 78; Third Ministerial Meeting (Seattle) 1, 56, 137, 143; World Bank 137 developing countries: Agreement on Agriculture 59– 60; dispute settlement 115–16; G77 28; GATT 26, 28, 29, 142; general standard of living 97; Government Assistance to Economic Development 96; infant industries 28, 96–7; intellectual property 73; LDCs see less developed countries (LDCs); marginalisation 27; MFN qualification 96–9; multilateral trade negotiations (MTNs) 103; non-tariff barriers (NTBs) 24; Soviet Union 28; Uruguay Round (1986–94) 109, 142; WIPO 65 development policy: anti-developmentism 142; challenge 142–5; GATT 25–9, 97–9; United Nations 28 Diebold, William 14, 18, 19, 20, 35 diffuse reciprocity: dispute settlement 42; indivisibility 41; multilateral trade negotiations (MTNs) 101; multilateralism 40, 41; principle 3, 4, 5, 41, 43; see also reciprocity Dillon Round (1960-1) 23, 24, 61, 101 discrimination: free-trade areas 95; mostfavoured-nation (MFN) 80, 84; preferences see preferential treatment dispute settlement: agriculture 116; alcoholic beverages 124–6; arbitration 120, 132, 133; Australia 134; bananas 115, 130–3; beef 133–6; bilateral negotiations 115, 116, 122, 128; Canada 121, 122, 128, 134; cars 126–30; compensation 119, 120; conflict reduction 49; Decisions and Understandings 117; developing countries 115–16; diffuse reciprocity 42; enforcement 117; Establishing Agreement 66; European Union (EU) 115, 121, 122, 128, 130–6; gasoline imports 91, 121, 122–4; GATT 21, 25, 29, 51, 96, 116–18, 125; Havana Charter (1948) 50, 51, 115; impairment 51, 96, 116; indivisibility 42; International Trade Organisation (ITO) 50–1, 115; Japan 115, 121, 124–30; legal assistance 115; MFN qualification 95–6; MFN suspension 119, 120; multilateralism 42; nullification 51, 96, 116; practice 121–36;

160 Index principle 3, 4, 43, 49–50; sanctions 117, 120; textiles 116; time 120; unilateral action 127–8; United States 115, 121,122–35; Uruguay Round (1986–94) 115, 116; working parties 117; WTO 5, 57, 66 Dispute Settlement Mechanism (DSM): Appellate Body 91, 96, 118, 120, 121, 124, 125–6, 132; DSB Panel 91, 96, 115, 118–23, 125, 131–2, 134–6; increased activity 116; legal framework 5, 66; procedure 118–21 Dispute Settlement Understanding (DSU) 66, 95–6, 117–18, 120, 127 division of labour: multilateralism 35 Donnelly, Michael W. 88 Drake, William J. 3, 62 dumping: material injury 92, 93; meaning 91–2; measures see anti-dumping provisions East Asia: export performance 26; financial crisis 72 Economic and Social Council (ECOSOC): economic governance 7; International Trade Organisation (ITO) 16 economic governance: betterment 13; decisionmaking 71; Establishing Agreement 71; Free Trade Union proposal 12; GATT 27, 70; Havana Charter (1948) 19, 71; interorganisational co-operation 71, 72–3, 76, 137; ITO 70, 71; meaning 7; MFN qualifications 99; WIPO 7, 71, 76; WTO 7, 70–5 Ecuador 70, 130, 131 Edgren, Gus 74 electronic commerce 139 Elliot, Kimberely Ann 117 employment policy: Establishing Agreement 58; GATT 20, 75; ILO see International Labour Organisation; Japan 88; standards see labour standards; United Kingdom 16; WTO 58, 141 environmental policy: United States 91, 122–4; WTO 58, 143 Establishing Agreement: accession 70; dispute settlement 66; economic governance 71; employment policy 58; Havana Charter compared 18; ILO 73; legal framework 59; negotiations 103, 105; NGOs 75; nonapplication clause 87; sovereignty 90; TPRB 66, 67 Estonia 58 European Community (EC): multilateral trade negotiations (MTNs) 29, 30 European Economic Community (EEC): agricultural policy 25; preferential treatment 130–1; Tokyo Round (1973–9) 107; Yaoundé Conventions 131

European Union (EU): bananas 115, 130–3; beef 133–6; dispute settlement 115, 121, 122, 128, 130–6; Fiji agreement (2000) 131; investment 62; labour standards 142, 143; Lomé Convention 122, 131, 132; preferential treatment 94, 131; restricted institution 37; TPRB 67; trade regulation 138 Evans, John W. 17, 26 exchange: contingency/equivalence 40 exchange rate stability: Bretton Woods system 25 export subsidies: Agreement on Agriculture 60 Fawcett, J.E.S. 16, 17 Feis, Herbert 17, 27 Feldman, Herbert 33 Fields, Gary 74 financial crises: East Asia 72; Wall Street Crash (1929) 13 financial services: most-favoured-nation (MFN) 64 Finger, J. Michael 11 Finlayson, Jock A. 6 First Ministerial Meeting, Singapore (1996): labour standards 55, 74, 142; NGOs 76–7 Ford, Lucy 75 foreign direct investment (FDI) 62, 65 France 88, 140 free trade: multilateralism 35 free-riding: conditionally open institutions 38; most-favoured-nation (MFN) 84; multilateral trade negotiations (MTNs) 107, 113 free-trade areas: definition 94; discrimination 95; MFN qualification 94–5; preferential treatment 94, 95 Frey-Wouters, Ellen 131 Gamble, Andrew 93 Gardner, Richard 14, 15, 16, 17, 18, 22, 35 General Agreement on Tariffs and Trade (GATT): ad hoc nature 22; agricultural policy 23, 25; anti-dumping provisions 91–3; balance of payments 25, 85–7; colonial powers 26–7; commercial treatment 23; contracting parties 20, 22–8, 49, 51, 70, 86–9, 102–3, 106–9; core principles 31; creeping inertia 24; customs unions 93–4; de facto regulation 56; derogations 25; developing countries 26, 28, 29, 142; development policy 25–9, 97–9; dispute settlement 21, 25, 29, 51, 96, 116–18, 125; economic climate 25; economic governance 27, 70; employment policy 20, 75; escape clauses 23; flexibility 23; free-trade areas 94; general exceptions 90–1; Havana Charter (1948) 17, 20, 49; IMF 21,

Index 70, 75; investment 21, 62; less developed countries (LDCs) 97–8; membership 58, 87–8; MFN see most-favoured-nation; MTNs see multilateral trade negotiations; multilateralism 36, 47; national treatment 23, 47, 82, 91; NGOs 75; non-discrimination 81–2; operation 23–5; organisational structure 7, 22–3; origins 16, 20–3; Plurilateral Agreements see Plurilateral Agreements; Preparatory Committee 16, 20, 21; provisional status 20; quantitative restrictions 47, 70, 81, 82; reciprocity 23, 24, 36, 49, 144; review (1954– 5) 22; shortcomings 11; signatories 20; sovereignty 21; textiles 61; trade liberalisation 20, 21, 100; WTO origins 2, 3, 11 General Agreement on Trade in Services (GATS): balance of payments 85, 86; general exceptions 90; Ministerial Conferences 63, 82; most-favoured-nation (MFN) 63, 81, 82–3, 84; multilateral trade negotiations (MTNs) 103–4; national treatment 83; negative list 63, 82; non-discrimination 82–3; preferential treatment 83; progressive liberalisation 103–4; relationships 63; scope 62–4; trade liberalisation 139; Uruguay Round (1986–94) 62–3; WTO architecture 57 generalised principles of conduct 3, 4, 39, 42 Geneva Ministerial see Second Ministerial Meeting Geneva Round (1947) 23 Geneva Round (1956) 23, 24 Geneva Round (1960–1) see Dillon Round Geneva Round (1964–7) see Kennedy Round Georgia 58 Germain, Randall 13 Germany: GATT 88; interwar period 13; Schacht Plan 39 global governance: economic see economic governance; meaning 3; multilateralism 34 Goodwin, G.L. 22, 23, 28 Gosovic, Branislav 28 Government Assistance to Economic Development 96 Graz, Jean-Christophe 2, 14 Great Depression Group of Seven (G7): economic governance 7 Guatemala 130 Guinness, A.R. 13 Guth, Eckart 25 Haggard, Stephen 6 Halliday, Fred 33 Hanson, Brian T. 93 Harbeler Report (1958) 26

161

Hart, Michael 112 Hasenclever, Andreas 6 Hatch, Walter 88 Hathaway, Dale E. 25 Havana Charter (1948): commercial order 14, 15; content 18; disagreements 17; dispute settlement 50, 51, 115; economic governance 19, 71; GATT 17, 20, 49; IMF 19; indivisibility 44–7; International Labour Organisation (ILO) 19, 71, 73; ITO see International Trade Organisation; labour standards 57–8; most-favoured-nation (MFN) 45–8; national treatment 46, 47; NGOs 75; principles 44; ratification failure 19; signatories 18; trade liberalisation 48; World Bank 19 Havana Conference on Trade and Employment (1948) 16, 17, 27 Haworth, Nigel 3, 6, 74, 143 Helleiner, Eric 13 Hoekman, Bernard M. 3, 30, 61, 63, 65, 83, 105, 106, 107, 111 Honduras 130, 131 Hong Kong 59, 61 Hudec, Robert E. 2, 3, 21, 115–16 Hughes, Steve 3, 6, 57, 74, 75, 142 impairment: dispute settlement 51, 96, 116 India 61, 136 indivisibility: collective security 39–40; diffuse reciprocity 41; dispute settlement 42; Havana Charter (1948) 44–7; most-favoured-nation (MFN) 5, 39–40, 44–7; principles 3, 4, 5, 40, 41, 43 infant industries: developing countries 28, 96–7 institutions: conditionally open 37, 38; meaning 7; multilateralism 37, 41, 42; open 37, 38; restricted 37, 38 intellectual property: Berne Convention (1971) 64, 83, 84; developing countries 73; foreign direct investment (FDI) 65; less developed countries (LDCs) 65; most-favoured-nation (MFN) 83–4; Paris Convention (1967) 64, 84; piracy 65; Rome Convention (1961) 64, 83, 84; trademarks 64; Treaty on Intellectual Property in Respect of Integrated Circuits 64, 84; TRIPS see Trade-Related Aspects of Intellectual Property Rights; Uruguay Round (1986-94) 64, 65; WIPO see World Intellectual Property Organisation International Agreement on Bovine Meat 67 International Chamber of Commerce (ICC) 7 International Confederation of Free Trade Unions (ICFTU) 141

162 Index International Court of Justice (ICJ) 50 International Dairy Agreement 67–8 International Labour Organisation (ILO): Havana Charter (1948) 19, 71, 73; WTO 2, 73, 142, 143 International Monetary Fund (IMF): aid procurement 33, 36; co-operation 71, 72, 73, 76; cross-conditionality 71; demonstrations 137; economic governance 7; establishment 15, 16; GATT 21, 70, 75; Havana Charter (1948) 19; reconstruction programme 21 International Trade Centre (ITC) 73 International Trade Organisation (ITO): architecture 44, 56; bilateral negotiations 48–9; commercial provisions 21, 81; Conference 18, 19, 50; core principles 31; dispute settlement 50–1, 115; Economic and Social Council (ECOSOC) 16; economic governance 70, 71; Executive Board 18–19, 50; GATT compared 20–3; Havana Charter see Havana Charter; International Court of Justice (ICJ) 50; negotiations 48–9; objectives 2, 44; Preparatory Committee 16; quantitative restrictions 46, 47; UK proposals 15; UK/US disagreement 17; United States 18, 21; WTO lineage 2, 11, 12, 20, 56 interorganisational co-operation: economic governance 71, 72–3, 76, 137 investment: foreign direct investment (FDI) 62, 65; GATT 21, 62; Multilateral Agreement on Investment (MAI) 139–40; TRIMs see TradeRelated Investment Measures; Uruguay Round (1986-94) 62 Irwin, Douglas 111 Israel 95 Jackson, John H. 2, 3, 20, 29, 30, 32, 35, 36, 61, 71, 106, 118 Japan: alcoholic beverages 124–6; business practices 88, 126, 127; cars 126–30; dispute settlement 115, 121, 124–30; employment policy 88; GATT membership 88; investment 62; Keiretsu 127, 128; multilateral trade negotiations (MTNs) 29; non-application clause 88; textiles 61; TPRB 67; US trade imbalance 126, 127, 128 Joint Vienna Institute 73 Kasfir, Nelson 140 Kazakhstan 58 Kennedy Round (1964–7): across-the-board 106, 107; agricultural policy 25; concessions 24; negotiations 23, 112; pyramidal structure 112

Keohane, Robert O. 31, 32, 36–8, 40–3, 107, 110, 137 Keynes, John Maynard 12, 13, 30 Kostecki, Michel 3, 30, 61, 63, 106, 107, 111 Krasner, Stephen D. 6 Krueger, Anne O. 3, 57 Kunkel, John 127 Kyrgystan 58 labour standards: European Union (EU) 142, 143; Havana Charter (1948) 57– 8; ILO see International Labour Organisation; Ministerial Conferences 55, 74, 141, 142–3; United States 142, 143; see also employment policy Langille, Brian 74 Latvia 58 League of Nations: Economic Committee 44–5; economic management 12; most-favourednation (MFN) 44–5; organisation building 2; United States 18 League of the Three Emperors 38 Lee, Eddy 74 Lend-Lease Agreement (1942) 14, 16, 50 LeQuesne, Caroline 58 less developed countries (LDCs): balance of payments 86; concessions 112; GATT 97–8; intellectual property 65; manufactures 26; multilateral trade negotiations (MTNs) 112, 113; terms of trade 26; TPRB 67; trade barriers 26; WTO legal framework 97–8; see also developing countries Liberia: Havana Charter (1948) 18 Lipson, Charles 6 Lisio, Stephen A. 130 Lister, Majorie 131 Lithuania 58 London Charter 16 Luxembourg 88 Macau 59 Maclean, Brian 93 McMahon, Joseph A. 131, 132 Malawi 70 Malaysia 122, 136 manufactures: less developed countries (LDCs) 26 Marceau, Gabrielle 75, 77 market access: multilateral trade negotiations (MTNs) 106–7 market share: dumping 92 Markwell, D.J. 13 Marrakech Agreement (1994) 30, 55 Marshall Aid 21

Index membership: accession see accession; GATT 58, 87–8; WTO 2, 58, 70 merchandise trade: growth 23–4 Mexico 130, 131 Millennium Round: development policy 144; launch failed 1, 101, 139; NGOs 78 Ministerial Conferences: accession 89; decisionmaking 5, 69–70; GATS 63, 82; Geneva see Second Ministerial Meeting; labour standards 55, 74, 142– 3; organisational structure 68, 69; protests see demonstrations; Seattle see Third Ministerial Meeting; Singapore see First Ministerial Meeting; voting 70 Montreal Ministerial Meeting (1988) 66 Moore, Mike 56, 143, 144 most-favoured-nation (MFN): Agreement on Agriculture 60; anti-dumping provisions 91–3; balance of payments 85–7; bilateralism 35; concessions 113; conditional 35; developing countries 96–9; discrimination 80, 84; dispute settlement 95–6; financial services 64; free-riding 84; GATS 63, 81, 82–3, 84; GATT 21, 23, 27, 36, 39, 47, 81–2, 83, 84–99; general exceptions 90–1; Havana Charter (1948) 45–8; impairment 51, 96; indivisibility 5, 39–40, 44–7; intellectual property 83–4; League of Nations 44–5; multilateralism 35, 44–7; national treatment see national treatment; non-application clause 87–90; nullification 51, 96; preferential treatment 93–4; qualification 80, 81, 84–99; quantitative restrictions 27, 46, 47; reciprocity 48; security exception 90; sovereignty 90; suspension 96, 119, 120; trade liberalisation 47, 100; TRIPS 81, 83–4; unconditional 35, 36, 40, 45, 80; United States 91; unrestricted application 45; waivers 70; WTO 56, 81–4 MultiFibre Agreement (MFA): discrimination 107; phased out 57, 61; quantitative restrictions 61, 142; see also textiles Multilateral Agreement on Investment (MAI) 139–40 Multilateral Convention on Commercial Policy 15 multilateral trade negotiations (MTNs): acrossthe-board 106, 107; Annecy Round (1949) 23; barter 105; concessions see concessions; developing countries 103; diffuse reciprocity 101; Dillon Round (1960–1) 23, 24, 61, 101; equivalence of value 105; European Community (EC) 29, 30; exemption lists 107; format 101–5; free-riding 107, 113; functions 101; GATS provisions 103–4; GATT practice 106–8; GATT provisions 101–3;

163

Geneva Round (1947) 23; Geneva Round (1956) 23, 24; Japan 29; Kennedy Round see Kennedy Round; less developed countries (LDCs) 112, 113; linear approach 106, 107; marginalisation 112; market access 106–7; Millennium see Millennium Round; multilateral balancing 107; multilateralisation techniques 111–13; non-principal suppliers 112; permanent forum 103; political dimension 111; practice 105–13; principal suppliers 106, 107, 112, 113; product-byproduct 49, 102, 106, 107, 108; reciprocity 23, 24, 49, 101, 105, 109–11, 113–14; request and offer system 106; sector-by-sector 106, 108; specific reciprocity 110–11; Tokyo see Tokyo Round; Torquay Round (1951) 23; trade regulation 100–1; TRIPs 104–5; United States 29, 30; Uruguay see Uruguay Round; see also negotiations multilateralism: aid regimes 32–3, 36; architecture 4, 31–52; bilateralism distinguished 32; capital flows 35; Commonwealth 34; conceptual framework 36–43; core principles 31, 43; definition 37; diffuse reciprocity 40, 41; dispute settlement 42; division of labour 35; dominant/ subordinate relationships 138; extended 55– 79, 137–45; free trade 35; GATT 36, 47; generic understanding 41; global governance 34; institutions 37, 41, 42; longevity 42; mostfavoured-nation (MFN) 35, 44–7; natural resources 35; preliminary exploration 32–6; qualitative dimensions 31, 32, 37, 40, 42; sovereignty 33; structural dynamics 4; trade regulation 43–51, 137–45; unilateralism distinguished 32; WTO 137–45; WTO organisational form 3 Murphy, Craig N. 28 national treatment: GATS 83; GATT 23, 47, 82, 91; Havana Charter (1948) 46, 47 natural resources: multilateralism 35 negotiations: bilateral see Bilateral negotiations; Bretton Woods Conference 15; ITO 48–9; Kennedy Round (1964–7) 23, 112; MTNs see multilateral trade negotiations; Tokyo Round (1973–9) 23, 101, 107, 112; Uruguay Round (1986–94) 11–12, 23, 29, 101, 108–9, 131 Netherlands 88 New International Economic Order (NIEO) 29, 142 new issues 112, 144 New Zealand 88, 95, 134 newly industrialised countries (NICs) 26, 29

164 Index Nicoladis, Kalypso 3, 62 Nkrumah, Kwame 33 Nogues, Julio 32 Non-Aligned Movement (NAM) 28 non-application clause: accession 87–8, 89; Japan 88; MFN qualification 87–90; reciprocity 89 non-discrimination: GATS 82–3; GATT 81–2; quantitative restrictions 81, 82; taxation 81, 82; TRIPS 83–4 non-governmental organisations (NGOs): GATT 75; Havana Charter (1948) 75; Millennium Round 78; WTO linkages 73, 75–8, 79, 140 non-tariff barriers (NTBs): advanced industrial countries (AICs) 24; developing countries 24; protectionism 24; tariffication see tariffication; Tokyo Round (1973-9) 24 Nordic UN project 33 North Atlantic Treaty Organisation (NATO) 37, 38 Norway 122, 128 nullification: dispute settlement 51, 96, 116 Nye, Joseph S. 32 O’Brien, Patrick 44 O’Brien, Robert 76–7 Office International des Epizooties 73 organisation: meaning 7 Organisation for Economic Co-operation and Development (OECD) 139, 140 Organisation for European Economic Cooperation (OEEC): Code of Liberalisation of Trade 20, 21 Organisation for Trade Co-operation (OTC): architecture 22, 56; core principles 31; failure 2, 11, 22; GATT origins 11; WTO lineage 2 Organisation of Petroleum Exporting Countries (OPEC) 29 Ostry, Sylvia 18, 23 Page, Sheila 24, 26 Pakistan 61, 70, 129, 136 Panitchapakdi, Supachai 56, 143, 144 Pankopf, Tonia 25 Paris Convention (1967) 64, 84 Parmar, Inderjeet 16 Patrick, Hugh T. 32, 117 Patterson, Gardner 88, 90 Payne, Anthony 93 Pedersen, Peter N. 75, 77 Penrose, E.F. 14, 15, 16 Petersmann, Ernst-Ulrich 2, 3, 117 Pigman, Geoffrey Allen 44

Plurilateral Agreements: accession 70; GATT 57, 67; reporting 69; scope 67–8 Prebisch, Raul 28 preferential treatment: customs unions 93, 94, 95; EEC 130–1; European Union 94, 131; free-trade areas 94, 95; GATS 83; MFN qualification 93–4; spillover effect 94 quantitative restrictions: balance of payments 86; GATT 47, 70, 81, 82; International Trade Organisation (ITO) 46, 47; mostfavoured-nation (MFN) 27, 46, 47; MultiFibre Agreement (MFA) 61, 142; nondiscrimination 81, 82 Qureshi, Asif H. 3, 66 Ravenhill, John 126, 131 reciprocity: ambiguity 40; bilateral negotiations 113, 114; concessions 48, 111; diffuse see diffuse reciprocity; GATT 23, 24, 36, 49, 144; most-favoured-nation (MFN) 48; multilateral trade negotiations (MTNs) 23–4, 49, 101, 105, 109–11, 113–14; nonapplication clause 89; specific see specific reciprocity; trade liberalisation 47–9, 100; WTO 56 regulation: meaning 5; re-regulation 5; WTO remit 2; see also trade regulation Rhodes, Carolyn 40, 107 Robertson, Charles L. 28 Rome Convention (1961) 64, 83, 84 Roosevelt, Franklin Delano 13 Ruggie, John 3, 14, 31, 36–43, 137, 138 Ruggiero, Renato 56, 64, 74, 77, 129, 133, 141, 143 Russia 58, 72 Ruttley, Philip 57 Rwanda 34 Ryan, Michael P. 117 Salvatore, Dominick 95 Schacht Plan 39 Scherrer, Christoph 74 Schild, Georg 14 Scholte, Jan Aart 75 Schultz, Siegfried 93 Schuman Plan 20 Schüßler, Rudolph A. 40 Seattle Ministerial see Third Ministerial Meeting Second Ministerial Meeting, Geneva (1998): demonstrations 55–6, 75, 78; labour standards 74, 141, 142, 143; NGOs 73, 77 security: Charter for the Maintenance of International Peace and Security 90;

Index collective 38–41, 110; indivisibility 39–40; MFN qualification 90; specific reciprocity 38, 39, 40, 41 Siebert, Horst 93 Simmons, Beth 6 Singapore 122 Singapore Ministerial see First Ministerial Meeting Snape, Richard H. 35 Snyder, Jeffrey L. 130 South Africa 88 South Korea 128 sovereignty: Establishing Agreement 90; GATT 21; most-favoured-nation (MFN) 90; multilateralism 33 Soviet Union: Cold War 17, 18; developing countries 28 specific reciprocity: bilateralism 40, 41; collective security 38, 39, 40, 41, 110; multilateral trade negotiations (MTNs) 110– 11; see also reciprocity Strange, Susan 24, 36 Sugden, Robert 40 Switzerland 128 Taiwan 59 tariffication 60 taxation: alcoholic beverages 124–6; nondiscrimination 81, 82 terms of trade: less developed countries (LDCs) 26 textiles: Agreement on Textiles and Clothing 59, 61–2; dispute settlement 116; GATT 61; Long-Term Agreement on Cotton Textiles 107; MFA see MultiFibre Agreement; Short-Term Agreement on Cotton Textiles 61, 107; Textile Monitoring Board (TMB) 62; trade liberalisation 62; United Kingdom 61; United States 61 Thailand 91, 136 Third Ministerial Meeting, Seattle (1999): demonstrations 1, 56, 137, 143; failure 1, 56, 101, 139, 140; inter-institutional co-operation 73; labour standards 74, 141 Thurow, Lester C. 95 Tokyo Round (1973-9): agricultural policy 25; EEC 107; harmonisation formula 106; linear approach 106, 107; negotiations 23, 101, 107, 112; non-tariff barriers (NTBs) 24; pyramidal structure 112 Torquay Round (1951) 23 trade barriers: Agreement on Technical Barriers to Trade (TBT) 123, 134; dumping see antidumping provisions; less developed countries (LDCs) 26; NTBs see non-tariff barriers; quantitative see quantitative restrictions;

165

relative price considerations 35; sanctions 117, 118, 126, 127 trade growth: merchandise 23–4, 63; services 63; Uruguay Round (1986–94) 55 trade liberalisation: barrier reduction 100–14; GATS 139; GATT 20, 21, 100; Havana Charter (1948) 48; most-favoured-nation (MFN) 47, 100; MTNs see multilateral trade negotiations; reciprocity 47–9, 100; relative impact 108; textiles 62; trade focus 2 Trade Policy Review Board (TPRB) 66, 67 Trade Policy Review Mechanism (TPRM) 66–7 trade regime: meaning 6 trade regulation: architecture 31–52, 100; European Union (EU) 138; future extension 139–40; institutional evolution 11–30; international evolution 51–2; major powers 138; meaning 5; multilateral trade negotiations (MTNs) 100–1; multilateralism 43–51, 137–45; post-war evolution 43–51; trade-related areas 57; United States 138 Trade-Related Aspects of Intellectual Property Rights (TRIPs): Council (CTRIPs) 69; GATT/GATS contrasted 65; general exceptions 90; geographical indicators 104; most-favoured-nation (MFN) 81, 83–4; multilateral trade negotiations (MTNs) 104–5; non-discrimination 83–4; scope 57, 64–5; WIPO 71; see also intellectual property Trade-Related Investment Measures (TRIMs): compromise 139; foreign direct investment (FDI) 62; GATT issue-specific extension 59; scope 57, 62, 139 transparency: Millennium Round 1 Treaty for Mercantile Intercourse between England and Flanders (1417) 44 Treaty on Intellectual Property in Respect of Integrated Circuits 64, 84 Turkey 128 Ukraine 58 Underhill, Geoffrey R.D. 93 unilateralism: multilateralism distinguished 32 United Kingdom: Bretton Woods Conference 13; employment policy 16; imperial preferences 16; International Trade Organisation (ITO) 15; investment 62; Japanese membership 88; textiles 61 United Nations: Committee for Development Planning (CDP) 95; Conference on Trade and Development (UNCTAD), Geneva (1964) 28, 73; declarations 28, 29, 142; development decade 28; Economic and Social Council (ECOSOC) 7, 16; Economic

166 Index Commission on Latin America (ECLA) 28; Environment Programme (UNEP), WTO 73; New International Economic Order (NIEO) 29, 142; WTO 73 United States: Agreement on Trade in Financial Services 64; agricultural policy 25; beef exports 133–6; car imports 126–30; Caribbean Basin Economic Recovery Act 70; Cold War 17, 18; Cuba 130; Department of Commerce 129; dispute settlement 115, 121, 122–35; environmental policy 91, 122–4; free-trade areas 95; gasoline imports 91, 121, 122–4; Helms-Burton Bill 130; International Trade Organisation (ITO) 18, 21; investment 62; Japanese membership 88; labour standards 142, 143; League of Nations 18; most-favoured-nation (MFN) 91; Multilateral Convention on Commercial Policy 15; multilateral trade negotiations (MTNs) 29, 30; Permanent Monitoring and Enforcement Unit (PMEU) 129; Reciprocal Trade Agreement Act 16; Section 301 sanctions 117, 118, 126, 127; shrimps 136; tariff schedules 108; textiles 61; TPRB 67; trade regulation 138; US Trade Representative (USTR) 126–7, 129, 130, 133 Uruguay Round (1986–94): Agreement on Government Procurement 68; aims 108; balance of payments 87; completion 11; crossconditionality 108; developing countries 109, 142; dispute settlement 115, 116; GATS 62–3; intellectual property 64, 65; inter-institutional co-operation 72, 137; investment 62; Ministerial Declaration (1986) 66, 109; negotiations 11–12, 23, 29, 101, 108–9, 131; origins 29–30; product-by-product 106, 108; protracted negotiations 11–12, 131; trade growth 55 US Trade Representative (USTR) 126–7, 129, 130, 133 Uzbekistan 58 Van Liemt, Gijsbert 74 Van Whitman, Marina 25 Venezuela 91, 121, 122–4 Viner, Jacob 16, 23, 45, 47 Vines, David 71 waivers 69, 70, 82, 131, 132 Wall Street Crash (1929) 13 Wang, Lei 89 Warsaw Treaty Organisation 38 Wells, Sidney 27 Wiener, Jarrod 36

Williams, Marc 18, 28, 75 Winham, Gilbert 112 Winters, Alan L. 35, 106 Woods, Randall Bennett 14 World Bank: aid procurement 33, 36; cooperation 71, 72, 73, 76; cross-conditionality 71; demonstrations 137; economic governance 7, 70–5; establishment 15, 16; Havana Charter (1948) 19; reconstruction programme 21 World Intellectual Property Organisation (WIPO): developing countries 65; economic governance 7, 71, 76; TRIPs 71; WTO 73, 76; see also intellectual property World Organisation for Animal Health 73 World Trade Organisation (WTO): accession 70, 87–9; agreement see Establishing Agreement; agriculture 57; architecture 56, 57, 58, 80, 100; assessment 3; civil society 3, 140–2; conferences see Ministerial Conferences; core principles 31; Council for Trade in Goods (CTG) 68, 69, 127; Council for Trade in Services (CTS) 69; Council for TradeRelated Aspects of Intellectual Property Rights (CTRIPs) 69; cross-conditionality 71, 108; Director-General 56, 67, 68, 69, 78, 143–4; dispute settlement 5, 57, 66; economic governance 7; employment policy 58, 141; environmental policy 58, 143; establishment 1, 11, 30, 55; General Council 68, 69, 70, 75, 76, 89; ILO 2, 73, 142, 143; ITO legacy 2, 11, 12, 20, 56; legal Agreements 58, 59, 60; membership 2, 58, 70; most-favoured-nation (MFN) 56, 81–4; multilateralism extended 55–79, 137–45; NGOs 73, 75–8, 79, 140; nondiscrimination 80–99; objectives 56; organisational structure 68–70; origins 2, 3, 11, 20; reciprocity 56; regulatory scope 2, 5–6; Secretariat 68, 69; transparency 75; UNCTAD 73; UNEP 73; United Nations 73; WIPO 73, 76 World War I: Paris Peace Accords 12, 13 WTO rules: agriculture see Agreement on Agriculture; intellectual property see TradeRelated Aspects of Intellectual Property Rights; investment see Trade-Related Investment Measures; legal framework 59–68; services see General Agreement on Trade in Services; textiles 59, 61–2; trade in goods 59– 62; trade regime 6 Young, Stephen 115, 116 Zacher, Mark W. 6