Can EU law really dictate World Trade Organization rules?

This is a genuine question. I don’t know the answer. Hopefully some lawyers can help explain why the WTO and EU are trying to dodge the question of how to count the organisation’s members

By Peter Ungphakorn

If you visit the WTO website today, bang in the middle of the homepage is a countdown image declaring that only 10 ratifications are needed before the Trade Facilitation Agreement enters into force.

From homepage December 1, 2016

What you won’t see is another countdown that should be even more exciting.  Much closer to entering into force is a long overdue amendment on pharmaceutical patents — only three more ratifications are needed.

The pharmaceutical patent amendment was once hailed as an important change to the rules on access to medicines, allowing governments to license the production of generic versions of patented drugs so they can be exported to countries that need them.

Now it is the subject of a low-key drip, drip, drip of information. There is no countdown. There are no numbers other than the vague statement in a news story that “over 65 per cent of WTO members” have ratified the amendment.

Dealing and not dealing with it
Competence and incompetence
What next?
More information

The contrast with trade facilitation could not be greater. Why is this happening?

The difference could be justified on the grounds that the Trade Facilitation Agreement — which aims to streamline customs and other procedures at the border — is worth considerably more than the amendment on pharmaceutical patents.

This is principally because the content of the patent amendment has been in place for over a decade through a legal instrument called a “waiver”. The amendment simply confirms the waiver’s content as a change to the WTO agreement on intellectual property (called TRIPS, Trade-Related Aspects of Intellectual Property Rights).

It makes absolutely no difference to real-world access to medicines since in practice the rule was already changed in 2003 thanks to the waiver. What the amendment does is tidy up the text of WTO agreement.

BashfulnessBack to top

That might justify the low-key approach. It does not explain why the WTO is so bashful about exactly how many countries have ratified the amendment.

The truth is the WTO and European Union have different views on how the EU should be counted for the purposes of these ratifications. The differences are described here.

No other group of WTO members could say ‘We’ve ratified but please count that as only 96.55% of us.’

It’s unclear why the differences matter, or more specifically, why the EU’s view should carry any weight in the WTO. No other group of WTO members could say “We’ve ratified but please count that as only 96.55% of us.”

The EU’s membership in the WTO is clear. At the ceremony that created the WTO in Marrakesh in April 1994, EU External Trade Commissioner Sir Leon Britton and each of the ministers from the EU member states signed the WTO agreements.

As a result, the EU itself and its member states are all WTO members. The present number is 28 member states + the EU = 29, which brings the WTO’s membership to 164. This is not disputed.

‘Look. Here’s the list of WTO members. You, EU, are 29 of them. End of story. If that’s difficult for you, it’s your problem, not ours. Deal with it.’

The problem is about counting ratifications (or “acceptances”) of amendments, including the Trade Facilitation Agreement, which is an amendment to Annex 1A (dealing with trade in goods) of the WTO Agreement. The EU insists it should be counted as 28 (the number of its member states) rather than the 29 (including the EU itself) that appear in the list of the WTO’s 164 members.

Why this should be a problem is beyond a non-lawyer like me. As far as I can see, the WTO only needs to say: “Look. Here’s the list of WTO members. You, EU, are 29 of them. End of story. If that’s difficult for you, it’s your problem, not ours. Deal with it.”

Dealing and not dealing with itBack to top

For trade facilitation, the EU did deal with it, but in a way that begs more questions than it answers. The EU created a footnote saying its ratifications (“acceptances”) should be counted by the number of EU member states (28), not the 29 that includes the EU itself. There is no explanation.

The footnote in the Trade Facilitation Agreement’s Protocol
¹ For the purposes of calculation of acceptances under Article X.3 of the WTO Agreement, an instrument of acceptance by the European Union for itself and in respect of its Member States shall be counted as acceptance by a number of members equal to the number of Member States of the European Union which are Members to the WTO

At least for this agreement, the numbers are unambiguous, which is why the WTO homepage can proclaim that only 10 more ratifications are needed to reach 110, two thirds of the WTO’s present membership of 164.

WTO Agreement, article X.3 on amendments
3.       Amendments to provisions of this Agreement, or of the Multilateral Trade Agreements in Annexes 1A and 1C, other than those listed in paragraphs 2 and 6, of a nature that would alter the rights and obligations of the Members, shall take effect for the Members that have accepted them upon acceptance by two thirds of the Members and thereafter for each other Member upon acceptance by it. […]

(We can overlook the bizarre mathematics resulting from this. Even though the EU is counted as 28, the WTO’s full membership is still 164. The two thirds needed for an amendment to take effect is still 110, which means the EU is imposing on non-EU countries the requirement for one more of them to ratify for the total to reach the 110.)

The pharmaceutical patent amendment is older. The trade facilitation deal was struck in 2013–14. By then, the EU had spent almost a decade ruing the fact that it had not added a similar footnote to the 2005 patent amendment.

For much of the same decade the rest of us could rue the fact that the EU thought this was a problem in the first place.

The best time to sort out this legal problem should have been during the 11 years that the patent amendment has waited to reach its ratification target. It’s probably too late now

There is a sobering thought to this. The best time to sort out this legal problem should have been during the 11 years that the patent amendment has waited to reach its ratification target, particularly since the amendment has no impact on real-life access to medicines. It’s probably too late now.

How the EU wants to be counted has never been formally confirmed. The only statement the EU has offered is from the Commission’s press office for trade. It said the EU should be counted as 28, citing a provision in the WTO Agreement which says if members vote (they have only ever voted once), then the EU’s votes will be counted as the same number as its member states.

The WTO Agreement on decision-making and voting, article IX.1 and footnote 2
1.       The WTO shall continue the practice of decision-making by consensus followed under GATT 1947¹. Except as otherwise provided, where a decision cannot be arrived at by consensus, the matter at issue shall be decided by voting. At meetings of the Ministerial Conference and the General Council, each Member of the WTO shall have one vote. Where the European Communities exercise their right to vote, they shall have a number of votes equal to the number of their member States² which are Members of the WTO. Decisions of the Ministerial Conference and the General Council shall be taken by a majority of the votes cast, unless otherwise provided in this Agreement or in the relevant Multilateral Trade Agreement³.
² The number of votes of the European Communities and their member States shall in no case exceed the number of the member States of the European Communities.

The press office also cited the trade facilitation footnote as an explanation, even though that came eight or nine years after the pharmaceutical patent amendment was agreed.

The voting rule is obviously designed to avoid giving the member states plus EU an unfair numerical advantage. This cannot be not a problem when WTO members ratify an agreement or amendment that they have already decided by consensus.

Competence and incompetenceBack to top

The more likely reason is internal to the EU, perhaps the strained political and legal relationship between the EU and the Commission versus the member states over “competence”, the EU’s areas of authority.

One clue could be the WTO’s list of ratifications for the patent amendment. The EU is included, but not its member states. There is an accompanying “instrument of acceptance” from the EU Council, which says the ratification is “binding” on the member states, without confirming that its member states have actually, individually, ratified the patent amendment.

By contrast, the ratifications page of the WTO-affiliated TFA Facility website lists the 28 EU member states individually. The page on the main WTO website does not, although there is no statement that the EU’s ratification is binding on the member states either.

So the questions are:

  • Why should the WTO be bothered about the EU’s internal problems over its and the Commission’s authority? What are the legal obstacles preventing the WTO from saying “Either you’ve ratified or you haven’t. Come back when you’ve sorted it out.”
  • If the EU has a problem confirming that individual member states have each ratified an amendment (rather than the notion of it being “binding” on the member states as a group), how should the rest of the world assess its ability to deliver ratifications and other decisions in the WTO?
  • If the Commission and/or Council do have the authority to make legally binding commitments on behalf of the member states, why do the EU’s ratifications have to be counted as 28 rather than 29?

And there’s more. Some WTO amendments, involving key principles such as discrimination, require all members to ratify. So long as the EU insists on being counted as 28 instead of 29, the ratifications will never reach the total needed.

WTO Agreement, article X.2 on amendments
2.       Amendments to the provisions of this Article and to the provisions of the following Articles shall take effect only upon acceptance by all Members:
Article IX of this Agreement;
Articles I and II of GATT 1994;
Article II:1 of GATS;
Article 4 of the Agreement on TRIPS.

What next?Back to top

The two amendments are now set to take effect later this year, or, more likely, early next year. For trade facilitation, it’s clear when the point will be reached. At the time of writing, just 10 more ratifications will do it.

For the pharmaceutical patent amendment, it’s possible we won’t know for certain when that point has been reached. We’ll only know for sure that the line has definitely been crossed after four more ratifications have been received.

Does that mean the amendment will spend some time in limbo? Not necessarily. It’s unlikely that the EU will change its position in the next few weeks, so that leaves two options for the WTO.

One is simply to assert its own count, by declaring the target has been reached after it has received three more ratifications.

The other is to perpetuate the fudge. At the critical moment the next third and fourth ratifications would arrive at the WTO simultaneously, as suggested at the end of this piece. This would satisfy the need to ensure the amendment is clearly ratified, but do nothing to clear up a totally unnecessary legal mess.

Perhaps one member is already waiting in the wings, ratification in hand, ready to submit it when the third ratification comes in.

What might be a suitable candidate? It could be a country on this list, and one that is likely to cooperate without any fuss.

Countries that have not yet ratified the patent amendment (December 1, 2016)
Afghanistan; Angola; Antigua and Barbuda; Armenia; Barbados; Bolivia; Burkina Faso; Burundi; Cabo Verde; Cameroon; Chad; Congo; Côte d’Ivoire; Cuba; Democratic Republic of the Congo; Djibouti; Ecuador; Fiji; Gabon; The Gambia; Georgia; Ghana; Guatemala; Guinea; Guinea-Bissau; Guyana; Haiti; Jamaica; Kazakhstan; Kuwait; Kyrgyz Republic; Liberia; Liechtenstein; Madagascar; Malawi; Maldives; Mauritania; Mozambique; Namibia; Niger; Nigeria; Oman; Paraguay; Russian Federation; Saint Vincent & the Grenadines; Sierra Leone; Solomon Islands; Suriname; Swaziland; Tonga; Tunisia; United Arab Emirates; Vanuatu; Venezuela; Viet Nam; Yemen; Zimbabwe.

It could be a European country close to the WTO and to Switzerland, whose internal ratification process is outside the global public eye.

Liechtenstein would fit the bill nicely, wouldn’t it?

More informationBack to top

WTO (and WTO-affiliated TFA Facility)

This blog

Updates: (None so far)

Picture credits: top image created using EU flag by rockcohen Creative Commons CC BY 2.0; hands by Pogrebnoj-Alexandroff Creative Commons CC BY-SA 3. WTO logo from WTO.

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Author: Peter Ungphakorn

I used to work at the WTO Secretariat (1996–2015), and am now an occasional freelance journalist, focusing mainly on international trade rules, agreements and institutions. (Previously, analysis for AgraEurope.) Trade β Blog is for trialling ideas on trade and any other subject, hence “β”. You can respond by using the contact form on the blog or tweeting @CoppetainPU

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