By Peter Ungphakorn
POSTED FEBRUARY 22, 2021 | UPDATED MARCH 30, 2021
It’s tempting to call it a bombshell. But the warning signs have been around for some time. Nevertheless a new paper from India and South Africa signals a tough ride for the new head of the World Trade Organization’s ambitions to drive negotiations forward.
The paper criticises negotiations involving only part of the WTO’s membership. They are called “plurilaterals” and are seen as a way of breaking deadlock when consensus is elusive.
It was circulated on February 19, 2021 for the March 1–4 meeting of the WTO General Council — the WTO’s topmost decision-making body outside ministerial conferences. It will be the council’s first regular meeting of the year.
March 1 also happened to be the first day in office for Ngozi Okonjo-Iweala, the organisation’s new director-general.
Keen to be an active WTO head, she had already argued that if the WTO membership as a whole is struggling to reach consensus agreement in negotiations, then the solution should be deals struck among only some members, provided enough of them are on board — a “critical mass” of them.
“Plurilateral initiatives have brought new energy in the multilateral trading system,” Okonjo-Iweala told members in an irregular General Council meeting on February 15, called specially to confirm her appointment.
“A single undertaking approach has failed to deliver and progress can be best achieved through different processes, in particular open, plurilateral agreements. In parallel to substantive negotiations, WTO members should reflect on ways of better integrating plurilateral agreements into the WTO framework.”
Dissent arrived the next day, February 19, in the paper from India and South Africa.
They stopped short of saying they would block inserting new plurilateral agreements into the WTO’s trade system, but their opposition is clear.
They argued that plurilateral agreements contradict the fundamental principles of the WTO: multilateralism (all members involved), decisions by consensus (nobody objects), and the rules on amending WTO agreements.
India, for one, has been sceptical for some time about the plurilateral approach, for example in the October 2020 General Council meeting (see page 82 of the minutes).
Unlike in some WTO negotiations, drafts in these talks are officially restricted. However, as frequently happens, several have been leaked and are availble, for example on bilaterals.org:
● e-commerce draft and stocktake (February 2021)
● investment facilitation draft (February 2021)
● services domestic regulation disciplines draft text (December 2020) and draft schedules of commitments (February 2021)
The list on bilaterals.org may be updated periodically.
This affects five subjects under negotiation plurilaterally in the WTO. Three were originally grouped as “joint statement initiatives” (“JSI” in the India-South Africa paper): electronic commerce/digital trade, investment facilitation for development, and micro, small and medium-sized enterprises (MSMEs).
A fourth is domestic regulation in services. Like the other three, these talks were launched at the last ministerial conference in 2017 and the subject is now also considered to be a joint-statement initiative even though it was not in the group announced at the conference. The WTO has been bashful about these talks, not acknowledging their existence publicly until May 2019.
A fifth subject is trade and gender. It, too, is now considered a joint-statement initiative.
Large numbers of developed and developing countries are active in all these plurilateral negotiations, including China now involved in all of them after a delay on e-commerce. So the concerns of India and South Africa are not widely shared.
Over 140 of the WTO’s 164 members are involved in at least one of these talks — barely 20 are not involved in any. Participation in any one of the five topic ranges from about 65 members to almost 120.
The talks will continue anyway, but what happens when they conclude remains to be seen.
First, a step back.
Continue reading or use these links to jump down the page:
What are plurilateral agreements?
Plurilaterals that do not discriminate (MFN) | Plurilaterals that discriminate | Hybrid ‘open’ plurilaterals
The India-South Africa paper
Objections | Proposed options | Reactions
A political observation
Find out more
Plurilateral agreements are negotiated and agreed by only some WTO members. Not all of them. Deals among the full membership are called “multilateral” in the WTO.
The Doha Round, the last “single-undertaking” package of negotiations, stalled in 2008. Since then, sporadic agreements have been reached multilaterally on a handful of the individual Doha Round topics, not the whole package.
But a number of members say it’s all been too slow, while WTO rules are becoming out-of-date. They have started talks among smaller groups preferring not to wait until all members are ready for new legal obligations and commitments. This allows more modern topics to be negotiated, such as on digital trade. But not everyone agrees.
Broadly, there are two main types of plurilateral agreement.
These are sometimes called “open” plurilaterals. Examples already agreed in the WTO include duty-free trade in pharmaceuticals and information technology products. A third negotiation on environmental goods began in 2014, but has seen no movement since 2016.
When enough members agree — a critical mass is achieved — each simply changes the lists, or “schedules,” of tariff commitments it has made in the WTO so that the tariff ceilings on these products are zero.
These non-discriminating or MFN plurilaterals are sometimes caled “critical mass agreements (CMA)”. See, for example, Bernard Hoekman and Charles Sabel (page 4).
Those duty-free commitments do not discriminate. They apply to imports from all WTO members under the most-favoured-nation (MFN) rule. All countries are favoured equally. Those that did not join in are free riders. Requiring a critical mass ensures the free riders are insignificant.
Effectively, each participant is altering its commitments unilaterally, but only when the whole group agrees. Therefore, no WTO rules are changed. There are no new legal texts to add to the WTO agreements. No consensus is needed in the full membership.
However, commitments have to be “certified”. This is not possible so long as any objections remain. But they are often implemented in practice anyway even while they are not certified.
In theory, this type of plurilateral agreement should be possible in services as well as goods, provided it only involves commitments on market access, not rules.
Discriminating plurilaterals avoid the free-rider problem. Therefore critical mass is less important. The WTO has one plurilateral agreement of this type, on government procurement.
A second agreement, on trade in civil aircraft, is a mixture. Tariff reductions apply to imports from all WTO members, while some rules such as on government purchases and subsidies only apply to the signatories.
The Government Procurement Agreement also has both rules and the commitments, but they only apply to trade between the signatories. The commitments are on agencies whose purchases are open to competition from foreign suppliers, but only from the participating countries.
Because plurilateral agreements of this type discriminate, and because there are rules, they can only come under the WTO umbrella by adding them to the package of WTO agreements.
Technically, they would be in Annex 4 of the WTO Agreement — officially the Marrakesh Agreement Establishing the World Trade Organization, and sometimes confusingly shortened to the “Marrakesh Agreement”.
Plurilateral deals can only be added to the WTO agreements if there is a consensus among all WTO members to do so, including members that are not among the plurilateral participants.
This is where dissenting countries like India or South Africa could block plurilaterals if they wanted to.
Some discussion has emerged on how these plurilaterals relate to bilateral or regional free trade agreements.
Where they discriminate, they explicitly bypass most-favoured-nation (MFN) treatment. But because the plurilaterals have their own rules under the package of WTO agreements, they are not subject to the disciplines that apply to free trade agreements (for goods, GATT Article 24).
The India-South Africa paper looks at the plurilaterals currently being negotiated and highlights a third type, a kind of hybrid, where “members shall inscribe the [rules] in their schedules [or lists of commitments] as additional commitments”.
Including rules within commitments instead of separately, raises a number of questions. Does it bypass the need for consensus to annex the rules to the WTO agreements? Can non-participants object or block the process?
Some commentators think it would bypass consensus, with non-participants powerless to block. But it would make the commitments more unwieldy — the present draft on electronic commerce is about 90 pages. And the text of the agreement might not be so easy to find, since it would be buried in the commitments, which normally remain secret until they are certified.
Leaked draft lists (officially “schedules”) of commitments indicate how the additional commitments on rules (or “disciplines”) might be done for domestic regulation in services. They show that countries’ willingness to apply new disciplines vary.
Countries generally undertake “as additional commitments the disciplines contained in Section II of document INF/SDR/W/1”.
They do this
- either “for all sectors included in this schedule” (usually developed but also some developing countries, including China)
- or for listed sectors, with some variation (many developing countries but also, for example, New Zealand and Switzerland).
Some of them propose making separate commitments on disciplines for financial services based on different texts. Uruguay’s draft has a 3-year phase-in period.
The complexity is typical of agreements on services in general.
India and South Africa say each of the plurilaterals currently under negotiation “is likely to pose different legal challenges to existing rules and mandates”. Without going into each subject, they say proposed new rules would affect:
- Rules and principles: “erode the integrity of the rule-based multilateral trading system by subverting established rules and foundational principles of the [WTO agreements]”
- Precedent: “create a precedent for any group of members to bring any issue into the WTO without the required consensus”
- Collective oversight “bypass the collective oversight of Members for bringing in any new rules or amendments to existing rules in the WTO”
- Resources: “usurp limited WTO resources available for multilateral negotiations”
- Mandates: “result in members disregarding existing multilateral mandates arrived at through consensus in favour of matters without multilateral mandates”
- Balance and inclusion: “lead to the marginalization or exclusion of issues which are difficult but which remain critical for the multilateral trading system, such as agriculture, development, thereby undermining balance in agenda setting, negotiating processes and outcomes”.
This opens the door to possible trade-offs. But it’s unclear whether the priorities of India and South Africa could be potential consensus-builders — rules on stockholding food when bought at supported prices, relaxed tariff rules for agricultural products, or a waiver on intellectual property protection for COVID-19.
- Development priorities: “leave Members with no option other than to choose between remaining outside the discussions or participating on matters that are inconsistent with their economic development priorities, needs, concerns and levels of economic development”
- Multilateralism: “fragment the multilateral trading system and undermine the multilateral character of the WTO”
India and South Africa propose solutions inside and outside the WTO framework or changing the rules:
Conclude in the WTO: Seek consensus amongst the whole WTO membership to make the deal multilateral, applying to all members. Or keep it plurilateral and add it to the WTO agreements as such.
Either way, this would amount to amending the WTO agreements. Once agreed by consensus, the deal would then have to be ratified by at least two thirds of the membership before it could take effect.
Conclude outside the WTO: Keep the deal outside the WTO. It would not be added to WTO rules and crucially would not come under WTO dispute settlement.
Accusations of violating the deal could not be challenged legally in the WTO (although dispute settlement could be used if countries outside the plurilateral group felt the deal led to a violation against them).
India and South Africa cite as examples negotiations on a Trade in Services Agreement (TISA), and free trade agreements outside the WTO.
Change the rules: Amend the WTO Agreement (Article 10) to allow for a “flexible multilateral trading system”. This would require consensus followed by at least two-thirds of the members to ratify for the amendment to take effect.
India and South African do not say how they would approach an amendment. They also do not mention that once ratification by two thirds has been reached, the amendment would only apply to the ratifying countries. This raises the prospect of a mess, where the new rules on a “flexible multilateral trading system” apply to some members but not others.
On March 29, 2021, Brazil circulated a General Council document proposing WTO members work on developing “WTO architecture” that would incorporate plurilaterals more formally in its structure of agreements.
Aiming for a decision at the next ministerial conference in November-December 2021, Brazil proposed that the decision should recognise the possibility of countries being able to negotiate “at different speeds”, with plurilateral and multilateral talks supporting each other:
“WTO architecture: a flexible geometry for plurilateral negotiations. We need to agree on a pathway that leads to the flexible geometry of plurilateral negotiations at the WTO. Those that are willing to advance negotiations at different speeds should count with the institutional framework to do so at the WTO. Plurilateral and multilateral formats should complement and reinforce each other.”
This is similar to the position of the EU, as described by its ambassador to the WTO, João Aguiar Machado.
Whereas Brazil implies the decision could be taken at the next ministerial conference, the EU’s idea is for a decision after that, with a new working group to be set up to discuss criteria for plurilateral agreements as part of WTO reform more broadly. He told this blog on February 27, 2021:
“The EU would favour an inclusive approach to open, plurilateral agreements that facilitates participation by developing countries and allows them to decide whether they wish to join the agreement, leaving the door open for them to join in the future.
“Discussions with members could identify certain principles that plurilaterals should comply with in order to be incorporated into the WTO framework — relating for example to openness to participation and future accession by any WTO member. A Working Group on WTO reform could be set up at the ministerial conference to consider this and other institutional improvements to the WTO’s functioning.”
The membership as a whole had already discussed the India-South Africa paper in the General Council meeting on March 2, 2021 where many plurilateral participants reacted with dismay and condemnation, according to accounts from people who attended.
Russia reportedly said the paper risked allowing the WTO to become an “archaic” and “useless” organisation, and was not really about legality but preventing the WTO from moving forward. The Philippines complained about a minority seeking to frustrate a majority who want to modernise the rules.
Mexico and the EU are said to have warned that obstructing the plurilaterals would leave the WTO outdated and irrelevant. The talks would just move outside the WTO, the EU said. Others denied that more traditional talks such as agriculture were being neglected.
India and South Africa were in a minority. Support came from a handful of their neighbours, plus Tanzania, Cuba and Oman.
Perhaps the most intriguing reaction was China’s. It did not speak at all.
Beijing likes to position itself in the alliance of developing countries that includes India, but it is active in all the plurilaterals — as are large numbers of developing countries.
Finally, politics. The paper is the latest product of a new India-South Africa alliance in the WTO. The two also spearheaded a proposal to waive some intellectual property protection on medical products during the COVID-19 pandemic.
It highlights the end of a decades-long alliance between India and Brazil against moves in the trading system that they considered to serve the interests of rich countries and big corporations at the expense of the poor.
Back in 1985–86 the two led a group of hardline developing countries opposing the launch of new negotiations that became the Uruguay Round. Their numbers dwindled as compromises and concessions for developing countries increased in the proposed negotiating mandate. They eventually joined the consensus.
Since the WTO was created out of the Uruguay Round in 1995, India and Brazil also repeatedly sought more flexibility in WTO intellectual property rules.
But recently Brazil, which has announced it is not seeking special treatment in the WTO as a developing country, has broken ranks. It did not support the COVID-19 waiver. It is participating in the all the plurilateral talks. And it has now called for members to develop new procedures to accommodate plurilaterals.
- Nicolas Lamp: A Historical Perspective on India‘s and South Africa’s Threat to Block the Implementation of the Joint Statement Initiatives in the WTO, and a Potential Way Forward, International Economic Law and Policy Blog, February 26, 2021
- Bernard M Hoekman, Charles Sabel: Plurilateral cooperation as an alternative to trade agreements : innovating one domain at a time, Robert Schuman Centre for Advanced Studies, January 2021
Credit: to Ieva Baršauskaitė for spotting the new paper
March 30, 2021 — adding Brazil’s proposal
March 5, 2021 — correcting the quote on Russia’s reaction
March 4, 2021 — adding reactions in the General Council and numbers of countries participating in plurilaterals
February 26–27, 2021 — adding the EU’s position; adding links to leaked draft texts; revising the section on hybrid plurilaterals based on draft schedules of commitments; clarifying services domestic regulation as a “joint-statement initiative”; adding China’s participation; adding talks on environmental goods
February 23, 2021 — correcting Brazil’s status at the end (it’s not yet in the OECD); adding commentators’ confidence on including rules in schedules of commitments, and the implications