Those who see no problems if the UK and EU fail to strike a deal regularly claim the WTO’s Trade Facilitation Agreement will come to the rescue. They are wrong.
By Peter Ungphakorn POSTED AUGUST 16, 2018 | UPDATED AUGUST 19, 2018
“The new Trade Facilitation Treaty commits members to facilitating trade, not obstructing it.” So wrote Iain Duncan Smith, former cabinet minister, Conservative Party leader and vocal Leave campaigner, in the Telegraph on August 15, 2018.
The argument is made with increasing frequency by “hard” Brexiters, who claim trade between Britain and the EU will not be disrupted, even if there is no agreement between them about their trading relationship when the UK leaves the EU.
Similar claims have been heard from former UK trade minister (1990–92) Lord (Peter) Lilley in the Times the previous day, economic adviser Ruth Lea on Brexit Central, and international economic law professor David Collins, on Brexit Central and in the Spectator.
The agreement is important. The main purpose is to slash the costs of trading by cutting red tape when goods cross borders. So it calls for streamlined procedures, paperwork handled electronically and as simply as possible, and so on. It also breaks new ground by allowing developing countries to promise to reform their procudures on condition they receive aid to implement it.
Because customs and other procedures in developing countries tend to be slow and cumbersome, it’s these countries that stand to gain the most from implementing the agreement.
But it would be wrong to say the agreement is targeted at only or even mainly developing countries. Far from it. There are important provisions that developed countries like the EU and UK have to respect or face legal challenges.
It’s just that the provisions dealing with electronic paperwork and streamlined procedures don’t fall into that category. They are written in a way that only requires countries to do their best to comply. And what “doing their best” means is left up to them.
To see how this works, it’s useful to compare how different parts of the agreement are written. In some parts the compulsory “shall”, meaning “must”, appears frequently. In other parts it’s phrases like “to the extent possible”. Let’s see which they are.
‘To the extent possible’
This is what the agreement’s Article 7 (“release and clearance of goods”) paragraph 1 says on “pre-arrival processing”:
1.1. Each Member shall adopt or maintain procedures allowing for the submission of import documentation and other required information, including manifests, in order to begin processing prior to the arrival of goods with a view to expediting the release of goods upon arrival.
1.2. Members shall, as appropriate, provide for advance lodging of documents in electronic format for pre-arrival processing of such documents.
Note “with a view to” in paragraph 1.1 and “as appropriate” in 1.2. These phrases allow countries quite a lot of leeway in implementing pre-arrival processing, particularly in electronic form.
Phrases like “as appropriate”, “as rapidly as possible”, “within the shortest possible time”, “to the extent possible”, ”wherever practicable”, and “encouraged to” appear throughout this article, all the way down to paragraph 9, which deals with perishable goods:
9.1 With a view to preventing avoidable loss or deterioration of perishable goods, and provided that all regulatory requirements have been met, each Member shall provide for the release of perishable goods:
(a) under normal circumstances within the shortest possible time; and (b) in exceptional circumstances where it would be appropriate to do so, outside the business hours of customs and other relevant authorities.
9.2 Each Member shall give appropriate priority to perishable goods when scheduling any examinations that may be required.
9.3 Each Member shall either arrange or allow an importer to arrange for the proper storage of perishable goods pending their release. The Member may require that any storage facilities arranged by the importer have been approved or designated by its relevant authorities. The movement of the goods to those storage facilities, including authorizations for the operator moving the goods, may be subject to the approval, where required, of the relevant authorities. The Member shall, where practicable and consistent with domestic legislation, upon the request of the importer, provide for any procedures necessary for release to take place at those storage facilities.
9.4 In cases of significant delay in the release of perishable goods, and upon written request, the importing Member shall, to the extent practicable, provide a communication on the reasons for the delay.
We could also take a look at Article 8 on border agency cooperation. Note “to the extent possible and practicable”, “mutually agreed terms” (relevant for “no deal” between the UK and EU), “with a view to” and “may include”. Again, not exactly compulsory:
1. Each Member shall ensure that its authorities and agencies responsible for border controls and procedures dealing with the importation, exportation, and transit of goods cooperate with one another and coordinate their activities in order to facilitate trade.
2. Each Member shall, to the extent possible and practicable, cooperate on mutually agreed terms with other Members with whom they share a common border with a view to coordinating procedures at border crossings to facilitate cross-border trade. Such cooperation and coordination may include:
(a) alignment of working days and hours; (b) alignment of procedures and formalities; (c) development and sharing of common facilities; (d) joint controls; (e) establishment of one stop border post control.
The fact is, developed countries like the UK and EU already implement these provisions, and if anyone is dissatisfied with how well they are complying there’s little they can do about it under this agreement.
But note that the provision on release and clearance of goods doesn’t appear in the agreement until Article 7. That’s a pretty low priority.
What do the previous six articles deal with? Answer: rule-making, decision-making, transparency and the ability to comment. Here’s the list:
Article 1: Publication and Availability of Information
Article 2: Opportunity to comment, information before entry into force and consultations
Article 5: Other measures to enhance impartiality, non-discrimination and transparency
Article 6: Disciplines on fees and charges imposed on or in connection with importation and exportation and penalties
In these articles, the compulsory “shall” appears much more often. For example, new regulations must generally be published in advance. Or, if an importer asks for an advance ruling on what the customs category a particular product, and therefore what the customs duty is, Article 3 begins:
“Each Member shall issue an advance ruling in a reasonable, time-bound manner to the applicant that has submitted a written request containing all necessary information. If a Member declines to issue an advance ruling, it shall promptly notify the applicant in writing, setting out the relevant facts and the basis for its decision.”
The UK and EU will have to (or “shall”) comply with these requirements each time the situation arises in the future. Even then, Article 2 on the opportunity to comment features “to the extent practicable” in its two key paragraphs.
In other words the compulsory bits have nothing to do with frictionless border procedures.
But they are important to help traders understand what each countries’ rules are.
A year ago, two-thirds of the WTO’s membership had ratified the Trade Facilitation Agreement, activating it in the ratifying countries. What’s happened since then?
By Peter Ungphakorn FEBRUARY 22, 2018 | UPDATED FEBRUARY 22, 2018
A year ago today, the World Trade Organization’s Trade Facilitation Agreement took effect in the ratifying countries amid a blaze of publicity, two decades after it was first proposed.
It was the first new WTO agreement since the late 1990s and its potential benefit was huge, particularly for implementing countries and particularly if their own procedures for handling imports and exports at the border were cumbersome.
It was also the first agreement to allow developing countries to link what they were prepared to do with receiving assistance from richer countries and donor organisations.
But the promise of the streamlined customs and other processes was conditional. For the full effect to be felt, the agreement had to be implemented in full. And a year ago that was still a long way off.
There are three main areas of work: for the countries that hadn’t yet ratified to do so; for all countries to implement it including developing countries saying what choices they were going to make; and for the promised assistance to be delivered — the way aid is handled here is a unique feature among WTO agreements.
This is a brief look at what has been achieved since then.
1. The need to keep ratifying
As soon as the two-thirds figure was reached on February 22, 2017, the pressure was off, and the flow of ratifications has eased off too.
NOT YET RATIFIED
The agreement will not apply to these countries until they ratify it, although other countries will apply the trade facilitation measures equally to all WTO members (9.2.18) Angola, Benin, Burkina Faso, Burundi, Cabo Verde, Cameroon, Colombia, Cuba, Congo (Democratic Republic), Djibouti, Ecuador, Egypt, Guinea, Guinea-Bissau, Haiti, Kuwait, Liberia, Maldives, Mauritania, Morocco, Papua New Guinea, Solomon Islands, Suriname, Tajikistan, Tanzania, Tonga, Tunisia, Uganda, Vanuatu, Venezuela, Yemen, Zimbabwe See the TFA Facility website
Up to that date, the WTO had campaigned vigorously for countries to ratify and the ratifications accelerated from late 2016 to February 2017.
Immediately afterwards, the campaign stopped and the numbers tailed off. Countries have continued to ratify, but slowly, except for a mini-peak around the December 2017 WTO Ministerial Conference in Buenos Aires.
What the WTO’s campaign never clarified is that even after the two-thirds was reached, the agreement still hadn’t “entered into force” everywhere, only in the ratifying countries.
The remaining members also have to ratify it if it is to apply to them, and for them to receive any aid under the agreement.
Since February 22 a year ago, 18 members have ratified it, but 32 still have not.
The number has fallen gradually bit significantly a large number of countries that have not yet ratified are in Africa, the continent that is forecast to benefit most from the agreement.
There may be other reasons why the 32 still haven’t ratified. But it would be a pity if the end of the campaign on February 22, 2017 meant that outside the limelight, some countries might consider ratification no longer to be a priority.
That said, those that have not ratified will still be able to trade more easily with other countries because each applies the provisions to all-comers. But larger countries that have not ratified might not implement the agreement, and may cause problems for their trading partners.
2. The need to notify and implement
The agreement requires countries to provide information on what they intend to do, including the aid they intend to provide, and on details of the trade facilitation measures they have implemented. The information is gradually being submitted but progress continues to be slow.
On trade facilitation itself, the requirement includes: governments providing information and allowing consultation on laws and regulations, how rulings and appeal are handled, impartiality and non-discrimination, fees, release and clearance of goods, cooperation between border agencies and between customs authorities, various formalities, and freedom of transit.
Developed countries simply have to implement everything. Most had already done a lot unilaterally.
But for developing countries, ratifying the agreement says nothing about what each country is going to do. They can choose how they want to handle its provisions, under three categories. They have to tell other members, and the world at large, what they have chosen to do and under which category. The information is shared through notifications to the WTO:
Category A — measures they will implement immediately (or one year later for least-developed countries). Some, such as Egypt and Indonesia, have already notified under this category even though they have not yet ratified the agreement itself, suggesting their ratification process ought to be underway (107 notifications submitted, 44.9% of all notifiable items)
Category B — measures that will be phased in over a notified period (47 notifications, 7.6%)
Category C — measures that will be phased in so long as assistance is provided (37 notifications, 8.9%)
The figures are broad and hide crucial detail. Even if a country has handed in notifications in all three categories, the content might not cover all the provisions, so further notifications will be needed.
Often overlooked is how notification also plays an important role domestically. It means the country’s government is getting its act together and is prepared to tackle any vested interests that might resist reform. The agreement also encourages cooperation between various agencies.
It’s an open secret that customs procedures in a number of countries are prone to corruption and inefficiency, although procuring expensive computer systems creates its own temptations. Change can also threaten officials’ sense of security.
Ultimately the country streamlining its procedures gains the most. Its imports and exports enter and leave the country quickly and at lower cost.
The agreement does not commit donors to give assistance. On this, it’s a statement of intent. Donors said they could not legally bind their budgets.
But although implementing this side of the deal has only just begun, in general, aid for trade-facilitation has been around for some time. For example, the EU says its latest data shows over €700m provided in the period 2008–12. That’s before the WTO deal was struck.
The TFA Facility website’s list of donors includes 17 developed countries (including the EU and some of its members), eight international organizations, 12 regional organizations, five transport organizations and five others, with links to their programmes.
It will still take time and effort for the agreement to achieve its potential. In some countries, probably a long time — longer than the economists’ simulations assumed. As Azevêdo said, it’s only just begun.
The WTO operates a consensus system, which means a decision is reached when no one objects.
In theory all 164 members should have the same decision-making power. In practice, there is an unofficial power structure, even though consensus is ultimately needed: the power structure influences the consensus outcome.
At the top: these days it’s the G5 — the US, EU, Brazil, China, India.
Next level down: the “Green Room” or equivalent — 20 to 30 members because of their influence or because they represent constituencies. They include the G5 plus Canada, Japan, Switzerland, Australia, Argentina, and others representing various groups of developing and least developed countries.
This is roughly how they got there and what the UK would need to join them
1. Have a policy
Obviously. But when politicians talk about the UK being a champion of trade, they are also advocating the UK being much more of a free trader than it is now, particularly in agriculture. This has not been debated properly and is certainly not the official policy of any of the main British political parties. In particular, this government has promised to continue to support farmers at present levels, at least for a time. Moving away from that would involve some substantial changes that have barely been discussed.
If the UK ends up in a customs union with the EU, then its trade policy for goods (not services) will be more or less the same as the EU’s. If it doesn’t, it may have a freer hand, but a lot also depends on how it aligns its regulations. Even though a customs union is not government policy, some still advocate it. Other policies are also still up in the air.
2. Sort out the UK’s WTO membership terms
The UK (and EU) have only just started talking about establishing their separate commitments in the WTO on tariffs, “tariff quotas”, farm subsidies, and on opening services and public procurement markets — explained here (WTO membership), here (tariff quotas) and here (UK negotiations in the WTO). It’s taken months just to prepare data for the tariff quotas and the real negotiations have only just begun (in mid-2018).
These commitments will be needed by Brexit day, March 29, 2019, so that the UK’s WTO membership terms are clear, and it’s going to be hard work. There’s no harm in having a long term vision, but for now the focus should be on the more urgent nitty-gritty.
3. Be large(-ish)
A key reason for being either in the G5 or the Green Room is economic size, particularly the share of world trade. As a rough guide we can look at WTO figures for goods exports.
Among the G5, the EU would be top if counted as a single entity, followed by China and the US. But the WTO ranks EU member states individually (Germany 3rd, the Netherlands 5th, etc) and this puts India 20th and Brazil 25th.
Among countries in the Green Room, with their ranking, are: Japan (4, after Germany), Canada (12 after a number of EU states, Hong Kong and South Korea), Switzerland (15), Australia (23), and so on.
And the UK? Tenth, putting it well inside the Japan, Canada and Switzerland group.
The factors that affect trading size include the size of the economy (population size and per capita income), the value of products (which goes some way to explaining Switzerland’s high ranking), and also having a large port (as with Hong Kong and Singapore, and to some extent the Netherlands).
4. Have a position that resonates with others
Size is not the only reason Brazil, China and India are in the G5. They each speak on behalf of different groups of developing countries. Brazil tries to bridge the differences between agricultural free traders (Thailand, Uruguay) and those wanting to protect their poor farmers (India, Indonesia, Kenya). In different ways China and India sometimes speak on behalf of weaker developing countries.
At the next level are coordinators of various coalitions of shared interests. Australia represents agricultural free traders. Switzerland coordinates a group of more advanced but more defensive agricultural producers. Others represent the African Group, the least-developed countries, and so on.
If the UK sticks to its present trade policy, it could find that the EU still best represents its position even after Brexit.
Or will its trade policy change? For now, that’s unclear. To be a leader of any kind, it would have to develop a new separate policy of its own, and one that would resonate with other members. But the field is already crowded. In agriculture, the UK might have to accept the leadership of Australia or Switzerland, depending on which direction it chooses, or be a lone voice with no followers.
5a. Either be constructive so everyone likes you
One way of winning friends and influencing people in the WTO is to help break a deadlock by proposing a compromise that everyone likes enough to want to work on it. This requires knowledge, skill and subtlety. It means understanding what might and might not be acceptable to others and the creativity and imagination to produce something new.
Countries rarely do this on their own. In the past few weeks, China has produced a new proposal on disciplining fisheries subsidies on its own, but the paper essentially reflects a Chinese concern and will need to be negotiated. By contrast, the EU and Brazil approached the negotiations on curbing farm subsidies from different directions and proposed a draft compromise. Whether that succeeds remains to be seen.
5b. Or be stubborn so everyone has to put up with you
India has a decades-old reputation in the WTO for being a blocker although it would argue that it is defending the weak and vulnerable. Most recently, it held up a new agreement on streamlining border procedures (“trade facilitation”) in order to push a separate proposal that would free public stockholding of food from WTO subsidy disciplines.
Anyone can be stubborn. From time to time the US and EU have been too, so size counts as well. There’s no doubt that a large and vocal India was difficult to ignore.
An anecdote. In 1986 the US and EU wanted to launch a major new round of negotiations. Some hardline developing countries led by India, Brazil and Argentina opposed the move. Finally two smallish countries, Colombia and Switzerland decided to take matters into their own hands. They produced a joint compromise proposal (appropriately nicknamed “café au lait”). More and more countries signed on, and that eventually became the basis for launching the “Uruguay Round” talks, which created the WTO.
In that example, constructive compromise trumped stubbornness.
6. Have a good supply of skilled diplomats and trade officials
If you’ve read this far, the need is obvious. Trade is technical and political. If a country is to operate effectively and credibly it needs skilled officials who can understand both the technicalities and other countries’ concerns.
Right now, the UK is in the early stages of rebuilding its capacity to negotiate trade. Its initial focus will be on sorting out its trading relationship with the EU, then on negotiating or renegotiating bilateral free trade agreements with other countries.
Those deals will be important for the UK, but they are not enough to make it a trade champion on the world stage. For some time to come, they will also draw British resources away from work in the WTO.
7. Accept that you still might not be at the top table
In fact there is really little chance that the UK will be in the G5 or whatever evolves next. A proper analysis of how countries fit into the power structure is bound to show that.
There is no shame in this. Constructive middle-level roles in the WTO — such as by Canada, Australia, Argentina, Japan, Switzerland, etc — are vital for the trading system. They are all realistic about what they can achieve and they get on with it.
The UK should do the same. Misguided self-importance will only backfire.
• October 7, 2018 — to reflect that WTO talks on UK commitments began in mid-2018, with updated links
By Peter Ungphakorn POSTED OCTOBER 7, 2017 | UPDATED NOVEMBER 25, 2017
When the press learned that the UK and EU had agreed on a common approach for their talks with other World Trade Organization (WTO) members, the headlines spoke of a “breakthrough” and a “deal”. A closer look suggests this was an exaggeration. But the issue is important, nonetheless.
What the two had agreed was a joint approach for handling something called “tariff quotas” when dealing with other WTO members.
On October 12, that joint approach was published in a letter to WTO members (pdf). The following week it was the basis of the first proper round of talks with other WTO members.
No sooner had the story broken than opposition emerged in a letter that the US, New Zealand and some other countries had sent to the British and EU ambassadors in Geneva.
Suddenly tariff quotas were really juicy. Critics saw the developments as proof that London’s Brexit plans were in disarray, and that ministers were misguided (or deliberately misleading the public) in claiming it would be easy to secure future free trade deals with the likes of the US and New Zealand. Politico’s headline said “post-Brexit trade woes deepen”.
This was “a complete, unmitigated disaster for the Brexiteers, Liam Fox, and the UK as a whole”, one member of parliament initially tweeted. She subsequently toned her comment down by clarifying “this is technical. UK has to lodge new schedules at WTO. Gov was planning to do this using method that requires little approval,” before continuing to criticise the government for getting it wrong.
This is technical. UK has to lodge new schedules at WTO. Gov was planning to do this using method that requires little approval. https://t.co/jg0bCn3o7s
As Adam, my editor at IEG Agribusiness Intelligence, said: tariff quotas were now mainstream. Even The Guardian had an editorial on the subject.
The excitement partly arose because this issue is so esoteric and technically complex that its significance is difficult to assess. Little wonder people struggled to judge realistically what it meant. It was easy fodder for the emotions Brexit has been stirring for months.
The use of “breakthrough” was defended on the grounds that it was the first time the UK and EU had agreed on anything in their fraught separation talks.
Perhaps a valid point, but this was not really about their future relationship, and “breakthrough” suggests the UK and EU had previously been deadlocked on this issue as well.
There is little public evidence to support that, although a Dutch official indicated on Twitter that some differences did need sorting out, so perhaps there was a breakthrough of a kind. Another tweet suggests the agreed approach was vaguer than the original reports suggested and might fall short of a “deal” (confirmed when the UK-EU letter was published — see details below).
Basically, the issue is so complex that much of it could easily have been left to civil service trade technicians on the two sides to come up with a common approach.
It’s unlikely David Davis and Michel Barnier would get their hands dirty on this one. But it was part of phase 1 (on separation terms) of the “Article 50” Brexit talks. Paragraph 13 of the EU’s negotiating guidelines deals broadly with honouring international commitments. The WTO is only one of these.
13. Following the withdrawal, the United Kingdom will no longer be covered by agreements concluded by the Union or by Member States acting on its behalf or by the Union and its Member States acting jointly. The Union will continue to have its rights and obligations in relation to international agreements. In this respect, the European Council expects the United Kingdom to honour its share of all international commitments contracted in the context of its EU membership. In such instances, a constructive dialogue with the United Kingdom on a possible common approach towards third country partners, international organisations and conventions concerned should be engaged.
Free from political supervision, technical-level officials often collaborate well to produce a shared result. After all, for tariff quotas there is nothing mysterious about the possible approach. I even explored it here.
Basically, “tariff quotas” are where limited quantities of imports are allowed into a country duty-free or at low duty. Quantities beyond those limits would normally be charged high duties. Because they are all about tariff rates for specific quantities, they are also called “tariff-rate quotas” or TRQs.
They are used on products that are sensitive: typically food and other agricultural goods. They are a compromise between: protecting domestic farmers and other producers with high import duties; and demands from exporters to be allowed full access to the market. The compromise is to have low or zero tariffs, but only for limited quantities. This also allows consumers to buy some cheaper or more varied food than if there were no quotas.
When a WTO member has tariff quotas, they are included in its “schedules” or lists of commitments (explained in part 1).
The EU has around 100 — the exact figure depending on how they are counted — on cheese, butter, beef, poultry, sheep and goat meat, other meat, live animals, sugar, citrus and other fruit, fruit juice, some vegetables, eggs, cereals and more.
So does the UK because as an EU member, the UK’s commitments are part of the EU’s.
When it leaves, the UK will need to have its own independent set of commitments. Most of this can be copied from the EU’s, meaning the UK would simply continue with the tariff ceilings and commitments on opening services markets that it currently has through the EU.
But for a handful of items, copying is not possible. Perhaps easier to handle among these are farm subsidy limits. The most complex and contentious are tariff quotas. This is where the common UK-EU approach comes in.
Take lamb (strictly speaking, “sheep and goat meat”). The EU currently allows around 300,000 tonnes to be imported duty-free. Some of that goes to the UK, some to other EU members. Once imported into one EU country it can be shipped on freely to another.
After Brexit, the UK and EU would normally have separate tariff quotas. What size should the UK’s be? And what about the EU’s?
A basic intuitive approach would be this. If 40% of the EU’s imports go to the UK and 60% go to the other countries, then the quota might also be split 40:60 — the UK’s tariff quota would be 120,000 tonnes and the EU’s would be 180,000. (The actual ratio seems to be closer to 50:50.)
This particular quota is actually subdivided between different suppliers, New Zealand having just over 200,000 tonnes. Although New Zealand could export all of that to any single EU member, in practice around 48% goes to the UK and 52% to the rest of the EU. So the UK’s tariff quota for New Zealand lamb could be 48% of 200,000 tonnes (96,000 tonnes) leaving the EU with a quota of 104,000 tonnes.
It ought to have been easy for the technicians on both sides to agree to those principles for their common approach.
The real challenge would have been grappling with the numbers, a much more difficult and time-consuming task, but a technical one.
Should the trade data be based on a certain number of years (perhaps an average of three or five) and if so which years (up to the start of the separation talks or to the date of the actual separation)? What kind of average should be used for the data (a straight three-year average, or a five-year “Olympic average” which excludes the highest and lowest numbers)? How should imports that enter the EU through other countries but end up consumed in the UK be identified, for example imports via Rotterdam? What should be done when data is unavailable? And so on.
It turned out that these were precisely the kinds of questions that occupied UK’s and EU’s economic statisticians and other officials for months. But unless they actually have a significant impact on UK and EU commercial interests, they are unlikely to attract the attention of the political masters.
The agreement on a commont UK and EU approach was described as preliminary (which Sprenger’s tweets seemed to confirm). Securing the approval of EU member states was apparently straightforward. The UK and EU followed up, as planned, by submitting it to WTO members in the third week of October on the sidelines of the WTO Agriculture Committee’s meetings.
Agreeing common solutions to statistical problems is not what most people would consider a breakthrough in Brexit talks. Nor is it a “deal”, in the sense that a deal usually involves paying something in order to get something else in return.
It also tells us next to nothing about the actual Brexit separation terms or the future relationship between the UK and EU.
The real deal
It’s what happens next that will involve payment. This could take months at least.
And the bargaining will not be between the UK and the EU since their own bilateral trade is for now being kept out of the picture — an important point since it implies the UK and EU assume free trade between them in goods will continue after Brexit.
The bargaining will be between the UK (and separately the EU–27) and the rest of the WTO. Those talks began in the week of October 16–20, when the UK and EU together met other delegations individually to present the data they had been working on, and to explain their joint approach. To what extent the UK’s and EU’s negotiations with other WTO members stay merged remains to be seen.
Already on September 26 — before the UK and EU sent out their joint letter — seven countries had publicly rejected (pdf) the UK-EU approach.
Argentina, Brazil, Canada, New Zealand, Thailand, the US, and Uruguay wrote to the UK and EU ambassadors in Geneva:
“We are aware of media reports suggesting the possibility of a bilateral agreement between the United Kingdom and the European Union 27 countries about splitting Tariff Rate Quotas (TRQs) based on historical averages. We would like to record that such an outcome would not be consistent with the principle of leaving other World Trade Organization Members no worse off, nor fully honour the existing access commitment. We cannot accept such an agreement.”
The letter includes a number of legal justifications including this assertion: “The modification of these TRQ access arrangements cannot credibly be achieved through a technical rectification. None of these arrangements should be modified without our agreement.” And “the whole membership of the organization may take an interest.”
What these countries are arguing is that dealing with post Brexit tariff quotas is not just a technical correction (“rectification”) of the implied commitments of the EU–27 and the UK. Under WTO procedures, rectification is quick and requires little or no negotiation. On the other hand, a “modification” does require talking particularly with countries that were part of the original negotiations or have a substantial interest.
The key difference between the two sides is on the meaning of leaving other WTO members “no worse off” and honouring “the existing access commitment”.
Take that example of splitting the 300,000-tonne EU–28 quota into 120,000 tonnes for the UK and 180,000 tonnes for the EU. The combined total is still 300,000 tonnes.
But the seven are arguing that the commercial value to them would be reduced because they have less flexibility to choose where to export their product to. While the UK is still in the EU, they can switch from selling less to the UK and more to Germany or France if the price is better, for example. Under the joint UK-EU approach that freedom would be constrained by the separate quotas.
At the very least, this suggests the seven would want: either, quotas that are larger than 120,000 tonnes (UK) and 180,000 (EU–27), meaning more than 300,000 tonnes in total; or, continued freedom to choose where to sell their products in the 28 countries that are now the EU.
That freedom would continue to exist, for example, if the UK ends up back in the single market and customs union with unchanged tariff quotas. In that case, the seven would drop their demand to negotiate.
The rejection does not mean the talks in the WTO are deadlocked, doomed or an “unmitigated disaster”. They haven’t even really started yet.
The UK, EU and some of the rest of the WTO have now declared their starting positions. Months of negotiations will follow. Any agreement reached after that will be the real deal. It will clear the way for trade to continue.
Since the new WTO commitments, including on tariff quotas, will be needed when the UK leaves the EU on March 29, 2019, and since they would normally need three months to be processed in the WTO, officials say they expect an agreement by the end of 2018.
Months of talk ahead
One journalist I spoke to was surprised that we might have to wait until this time next year at the earliest to find out what the deal is. We should not be surprised. Nothing happens quickly in the WTO.
These are pretty complicated issues. There are around 100 tariff quotas. At each stage, the negotiators in Geneva will have to consult officials, governments, farmers’ groups and exporters back home. The EU will have to consult the 27 member states too. The UK is understood to be aiming to submit its draft schedules of commitments sometime next year.
Even the first stage of preparing the data has taken so long that some sources say it was still incomplete at that first round of talks in the week of October 16–20. Other WTO members then started to look at their own data on their exports to the EU and UK to see if they tallied.
What if there is no agreement by Brexit day? Some lawyers argue that so long as the UK and EU have constructed their proposed tariff quotas according to legal principles and the case history of WTO disputes, London and Brussels can simply go ahead without needing other countries’ approval. Objecting countries would struggle to win a legal challenge against the two in the WTO, according to this argument.
Other trade experts and experienced negotiators disagree. They believe a legal challenge might be possible, with the risk that trade could be disrupted. Some argue that WTO dispute settlement rulings are not always predictable. In this case the adjudicators would be asked how WTO law would handle tough questions such as “no worse off” and honouring “the existing access commitment”. The worst outcome would be a soured atmosphere leading to tit-for-tat restrictions on imports.
For the time being the point is moot. Those actually involved in the talks say they want to avoid both disruption to trade, and litigation in the WTO. That would require some sort of deal by Brexit day.
The UK’s and EU–27’s schedules of WTO commitments would not necessarily need to be certified in the WTO by that date. The EU has been trading smoothly despite its schedules for various phases of enlargement remaining uncertified for years. To work in practice, the UK and EU would have to have learnt from the negotiations what tariff quotas would be reasonably acceptable to the other WTO members concerned.
The letter was published three days later on October 11 (pdf). It seems to confirm Sprenger’s tweets. “Rectification” does not appear in it, and nor does any specific reference to “modification” or negotiating rights. If the two sides (UK and EU versus other WTO members) haggle over the legal status of the talks, then we can expect delays to the discussion of the actual tariff quotas.
Follow-up 2: the October 16–20 talks
The first round of proper talks took place on the sidelines of the WTO Agriculture Committee meetings in the week of October 16–20. They were between the UK and EU together, and a selection of individual WTO members with the most interest in the tariff quotas.
The main purpose for the UK and EU was to present their data and explain their joint position. They also heard other countries’ reactions. Briefly, these issues emerged:
data: the immediate and tough challenge of how to arrive at figures that accurately reflect imports and subsidies separately in the UK and remaining EU–27, particularly for calculating how to split tariff quotas between them. This has been the focus of the first round of talks where a range of technical difficulties have arisen
tariff quotas and honouring “access” commitments: whether the UK and EU will be able to stick to their position that they can simply divide the present tariff quotas into UK and EU–27 portions while keeping the combined totals unchanged, in the face of opposition from some other WTO members
agricultural subsidies: how to divide the EU’s present entitlement between the UK and remaining EU–27
negotiating rights: whether the UK and EU should recognize other countries’ claim to legal rights to negotiate over the revised commitments — for the time being at least, this only seems to have been mentioned in passing
And on the data, among the objections raised by other WTO members were:
at least some of the data did not accurately reflect how much of EU imports went to the UK and how much to the EU–27
in some cases the proposed period of 2013–2015 was challenged because it could give exporting countries smaller quotas than if other years were used. Several delegations wanted to test the data for different and longer periods, including up to 2016, to see how that affects the outcome. Some rejected the argument that a three-year period is traditionally used in the WTO, countering that this is a process without precedent
some of the presentations were incomplete because they dealt with only a small proportion of tariff quotas allocated specifically to some countries
the way the quotas are administered — how they are allocated to individual companies or countries — could have distort the data
(A comprehensive report is available to subscribers of IEG Policy here.)
• October 9, 2017 — adding new information from Jochem Sprenger’s tweets
• October 12, 2017 — adding UK-EU letter and references to it in the story
• November 21, 2017 — adding information on the October 16–20 first round of WTO talks
• November 25, 2017 — adding Australia’s concerns aired on the BBC’s Today programme Photocredits: Pixabay, Pexels CC0
Reaching agreement was one test of multilateralism. Making it work will be another
Cape Town: South Africa is one of 51 countries that have not yet ratified the agreement
By Peter Ungphakorn POSTED FEBRUARY 25, 2017 | UPDATED FEBRUARY 28, 2017
It’s always tempting, when a tough negotiation has concluded, to breathe a sigh of relief and proclaim “job done”. But with trade agreements, the job is rarely done. For the World Trade Organization’s shiny new Trade Facilitation Agreement, seriously hard work lies ahead if it is to achieve its potential.
On February 22, 2017, the WTO proclaimed that its new deal on slashing red tape at the border had “entered into force”, the “first multilateral deal” concluded in its 21 year history. This was a truly major achievement. But as the celebrations die down, it’s time to look at what it really means and the challenges that lie ahead.
“The real work is just beginning. This is the biggest reform of global trade in a generation. It can make a big difference for growth and development around the world. Now, working together, we have the responsibility to implement the agreement to make those benefits a reality.”
Trade facilitation is about cutting red tape and streamlining customs and other procedures as goods cross borders. That includes goods in transit to and from land-locked countries.
More specifically, the procedures covered in the agreement include governments providing information and allowing consultation on laws and regulations, how rulings and appeal are handled, impartiality and non-discrimination, fees, release and clearance of goods, cooperation between border agencies and between customs authorities, various formalities, and freedom of transit.
The ink was barely dry. The agreements of the 1986–94 Uruguay Round had been signed in April 1994. They took effect the following January, bringing into existence the World Trade Organization. The round was the largest and most complex trade negotiation ever to be concluded, and was supposed to be the one to end all trade rounds.
Then at the first WTO Ministerial Conference in Singapore in December 1996, the EU and others proposed trade facilitation as a new negotiation topic. It was packaged with three much more controversial issues — investment, competition policy and transparency in government procurement.
Opposition, particularly from developing countries meant these four “Singapore issues” were kicked into the long grass in the shape of discussion groups.
The resistance continued. When in 2001 the Doha Round was launched, the Singapore issues were only included as subject headings that would not turn into negotiations without “explicit consensus”.
It was not until 2004 — when the EU finally agreed to unbundle the four issues and a compromise could be struck — that the more palatable trade facilitation formally became a Doha Round negotiating topic. The three other issues fell by the wayside.
Work on trade facilitation continued — even after the Doha Round ground to a halt in 2008, principally over agriculture. A text was eventually agreed in the run up to the Bali ministerial conference in 2013.
Azevêdo, who had recently become director-general, introduced a new way of negotiating. Instead of working on the text in a small group of core countries and then taking it to the rest of the WTO, ambassadors from the entire membership (each with one assistant) sat through lengthy sessions as they worked line by line through the draft displayed on a screen.
Hailed at the time as a breakthrough technique to make negotiations totally inclusive (and avoid resentment at being left out), the method only worked once. Since then, the core groups have returned.
The draft agreed in Bali still had to be revised to make it legally correct. Even this was delayed until November 2014 as India held up approval while it sought changes to a decision on agriculture that it had originally agreed in Bali.
Importantly, that also means 51 countries had not (yet) ratified. More on this below. (How the ratifications are counted is discussed here).
2. Achievement: it will have a real impact
Although a latecomer to the Doha Round, trade facilitation became a priority for business associations. Import duties are now often low (apart from agriculture and some other sensitive products), meaning border processes have emerged as a significant part of trading costs.
Calculations suggest the benefits will be large. By how much depends on the assumptions and the type of economic model.
The WTO’s in-depth analysis is in its 2015 World Trade Report, with estimates for reductions in trading cost of up to 14.3%, global export expansion from $750bn to $3.6 trillion — the most frequently cited is the neat $1 trillion — and up to half a per cent per year added to world gross domestic product.
A brief survey by Cathleen Cimino-Isaacs of the Peterson Institute for International Economics think-tank cites other studies that also show “sizable potential gains”.
Understandably, the biggest gains will go to the countries that currently have the most cumbersome border procedures. If goods entering and leaving a country spend weeks at the port waiting for clearance, then the costs to that country’s trade, production and consumption are going to be high.
“The range of trade cost reduction will be between 9.6% and 23.1%. African countries and [least developed counties] are expected to see the biggest average reduction in trade costs (in excess of 16%) from full implementation of the TFA [Trade Facilitation Agreement]. Full implementation will reduce trade costs of manufactured goods by 18% and of agricultural goods by 10.4%. —
“Full implementation of the TFA also has the ability to reduce time to import by over a day and a half (a 47% reduction over the current average) and time to export by almost two days (a 91% reduction over the current average).”
The Trade Facilitation Agreement allows developing countries to set a condition on implementing some of the reforms — receiving assistance to help them cover the costs and introduce new technology — a first in WTO agreements. The onus is therefore as much on the donors as on the reformers.
3. But it has not entered into force everywhere
Drowned out by the fanfare is the actual meaning of “entered into force”.
Strictly speaking, the agreement has only been activated in the ratifying countries although they will apply their streamlined processes to trade with all other WTO members equally, including those that have not ratified.
WTO rules say once the two-thirds of the membership has been reached, an amendment does enter into force, but only in ratifying countries. Therefore, the Trade Facilitation Agreement has not yet entered into force in the 51 countries that — at the time of writing — have not ratified it. They are:
Angola, Antigua and Barbuda, Argentina, Armenia, Barbados, Benin, Bolivia, Burkina Faso, Burundi, Cabo Verde, Cameroon, Central African Republic, Colombia, Congo, Costa Rica, Cuba, Congo (Democratic Republic), Djibouti, Dominican Republic, Ecuador, Egypt, Fiji, the Gambia, Guatemala, Guinea, Guinea-Bissau, Haiti, Indonesia, Israel, Kuwait, Liberia, Malawi, Maldives, Mauritania, Morocco, Namibia, Papua New Guinea, Qatar, Sierra Leone, Solomon Islands, South Africa, Suriname, Tajikistan, Tanzania, Tonga, Tunisia, Uganda, Vanuatu, Venezuela, Yemen, and Zimbabwe.
Among them are some significant traders such as Argentina, Indonesia and South Africa. Among the rest are many that would benefit most from streamlining their border procedures, particularly if they receive aid to do so.
Many countries that have not ratified may do so soon. Some have already submitted “Category A notifications” (listing measures they will implement immediately), even though they have not ratified (including Egypt and Indonesia). Many are actively preparing the details of what they will phase in, with and without assistance (C and B notifications).
(The rules on amending WTO agreements actually include a clause allowing the membership to expel countries that do not ratify in time. Of course, the word “expel” is not used. Instead: the country “shall be free to withdraw from the WTO or to remain a Member with the consent of the Ministerial Conference”. Incidentally, this provision seems to be the only way to kick a country out of the WTO. However, it is unlikely to be invoked here.)
4. The numbers should not be taken literally
It’s tempting to use simple figures to describe how important the Trade Facilitation Agreement is: “it will cut trading costs by 14.3%”, “it will increase trade by a trillion dollars”, and so on. At least Azevêdo uses “could” and “up to”.
Just as with any economic analysis this depends on the assumptions, the model and the data.
The assumptions: almost all calculations assume that the agreement is “fully” implemented, and they say so. The 2015 World Trade Report discusses this in some detail, including an assumed length of time for full implementation. But the report is 158 pages long and pretty technical. Few will even open it.
The truth is, we are a long way away from full implementation. For a start, those 51 countries that have not yet ratified will need to do so. Then, some countries will phase in some provisions over time, and some will require aid in order to do so — promised in principle but not legally committed.
According to the Trade Facilitation Agreement database, less than half of the agreement’s coverage has been notified for implementation by developing countries, whether for immediate implementation (Category A), delayed (B) or delayed and requiring technical assistance (C). A large number of Category A notifications (93) have been submitted but they do not cover all the provisions of the agreement.
Because developing countries are still compiling their needs, more notifications in Categories B (currently 9 countries notifying) and C (currently 8) can be expected, even from countries that have notified what they will implement immediately (A).
“Of course, fully implementing the TFA will be key to realizing the gains. The agreement specifies different tiers of obligations for developed and developing countries. For developing countries, the obligations are broken down between those implemented upon entry into force, those subject to a transition period, and those to follow with additional technical assistance. This built-in flexibility is important, but also serves as a reminder that the gains will take time to materialize. Making reforms will entail costs, and measures like investment in information technology and transport infrastructure, while not prerequisites, are important complements to trade facilitation reforms. Once the agreement is ratified, the challenge for the WTO will be monitoring progress towards implementation and ensuring political commitment to deliver the reforms.”
The model and the data: even more technical is the discussion in the 2015 World Trade Report about the methods used. (For the technically minded, computable general equilibrium (CGE) and gravity models produce considerably different estimates: see below.)
As for the data, some countries had implemented provisions that would be in the agreement. The analysis included creating index numbers from how much they had implemented and extrapolating these statistically to different categories of countries in the rest of the world.
Clearly calculations with this amount of construction are not meant to be predictions. They are estimates. However, the various estimates are consistent enough for us to conclude that the gains will be “pretty big” — if and when it’s all implemented.
Some expected benefits are much more difficult to model. One that is frequently cited is the transparency and predictability of bringing policies into the WTO system even if they would be implemented unilaterally anyway. This is what the 2015 World Trade Report says (pages 6–7):
“Given the widespread benefits from trade facilitation, every country should have an incentive to undertake reform on its own. The signing of the TFA, however, suggests that incorporating trade facilitation in a multilateral agreement creates additional benefits compared to what can be achieved unilaterally. —
“It provides greater legal certainty to the changes in trade procedures. It helps in the adoption of common approaches to customs and related matters, which should increase the gains from trade facilitation by harmonizing customs procedures worldwide. By foreseeing that richer members will provide assistance and support for capacity building to developing and [least developed country] members to help them implement the TFA, the agreement helps to match the supply of capacity building with the demand for it. The TFA could also help governments address a credibility problem by integrating their trade facilitation commitments into an institution with an effective enforcement mechanism.”
5. A lot of work lies ahead for rich and poor nations alike
WTO members will now create a Trade Facilitation Committee of the full membership, including countries that have not yet ratified. Its job will be to receive notifications describing what various members will implement and when, monitor how the agreement is being implemented and discuss related issues.
Two immediate tasks are to encourage the remaining members to ratify the agreement, and for all developing countries to complete their notifications of what they are implementing, whether immediately (A) or delayed (B) or delayed-requiring-assistance (C).
A third is to ensure the requests for technical assistance can be met. This requires well-designed assessments of needs from the developing countries concerned, and a real commitment to provide the assistance by developed countries and donor institutions.
In short, reaching agreement was one test of multilateralism. Making it work will be another.
6. Oh, and by the way, is it really the first?
Don’t shout this out too loud, but there are those who say trade facilitation is not the first multilateral trade deal since the WTO was created. They point to WTO deals in services on finance (twice), movement of natural persons and basic telecommunications.
But those agreements date back to 1995–97, soon after the WTO was born (and when trade facilitation was still a twinkle in the EU’s eye). That was an awfully long time ago.
The various databases and other resources available are rather confusing. You can access one, follow some links, and find yourself in another. However, the amount of available information is useful.
“Full implementation of the TFA has the potential to reduce trade costs by an average of 14.3 per cent. The computable general equilibrium (CGE) estimates see the TFA increasing global exports by between US$750 billion and US$1 trillion, depending on the speed and extent of implementation. The faster and more extensive the implementation, the greater the gains. TFA implementation has ramifications for the future trajectory of the global economy as well. This report estimates that over the 2015-30 horizon, implementation of the TFA could add up to 2.7 per cent a year to world export growth, and more than half a per cent a year to world GDP growth.
“The simulations using the gravity model provide higher estimates of the potential global export expansion arising from TFA implementation. They range from US$ 1.1 trillion to US$ 3.6 trillion depending on the extent to which the provisions of the TFA are implemented. Like the CGE simulation results, they show that the more fully the TFA is implemented, the greater are the gains for members.”
DISCLAIMER: This was written with the help of sources who asked not to be identified. It could not have been written without them. Consider it “Fake News” if you are so inclined
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 POSTED DECEMBER 1, 2016 | UPDATED DECEMBER 1, 2016
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.
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.
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.
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 it
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 incompetence
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.
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?
The first stage of the race has been won. In early 2017, two thirds of World Trade Organization members ratified two amendments. Now it’s up to the rest
By Peter Ungphakorn POSTED JULY 31, 2016 | UPDATED March 5, 2018
The World Trade Organization agreements are over 20 years old. Economic and trade needs are changing fast. And yet the agreements have never been updated — until now. Two amendments have reached the target. To achieve that they needed 110 ratifications, two thirds of the WTO’s 164 members.
The first was on access to medicines in poor countries. It’s a technical provision — explained here — to solve a problem that emerged after the WTO’s intellectual property agreement (TRIPS) took effect in 1995. It allows generic versions of patented medicines to be made under compulsory licence and exported to countries unable to manufacture the medicines themselves.
The amendment was agreed as long ago as 2005. After a slow start finally reached the two-thirds target, although exactly how the ratifications should be counted remains in doubt for a bizarre reason (more below). However, this is no big deal for the real world: the amendment’s provisions are already in place.
The other amendment is much more significant economically. It’s a package on cutting red tape in customs and other border procedures that also includes assistance for developing countries.
This “Trade Facilitation Agreement” was a response to evolving trading conditions. Successive rounds of negotiations had lowered tariffs, and as a result, bureaucratic procedures emerged as a more visible hindrance to trade.
Although a new agreement, it is treated as an amendment because it is added to the annex on trade in goods (Annex 1A) in the WTO Agreement, which already includes numerous agreements such as on agriculture and anti-dumping.
The trade facilitation deal was initially struck at the WTO’s Bali Ministerial Conference in December 2013 but the legal text was not approved until November 2014. India delayed the approval as a bargaining chip to secure changes on a decision on agriculture that it had originally agreed in Bali.
Why have they taken so long?
It’s only recently that the two amendments’ ratifications have approached the needed two thirds of the WTO’s membership
Once agreed, an amendment still has to be ratified (officially, “accepted”), normally by two thirds of WTO members (WTO Agreement article 10.3). (In a handful of cases, mainly for changes to key principles such as non-discrimination, the entire membership has to ratify — article 10.2.)
It’s only recently that the two amendments’ ratifications have approached the needed two thirds of the WTO’s membership, currently 110 out of 164. The amendment on pharmaceutical patents has taken much longer but finally reached the target on January 23, 2017. The Trade Facilitation Agreement quickly caught up.
Will the amendments apply to everyone?
Ratifying by the time or after the two thirds has been reached amounts to activating the amendment in the ratifying country
No. They will only apply to the countries that have ratified (WTO Agreement article 10.3). Once the two-thirds target is reached, the amendments will still not apply to the countries that have not yet ratified. It will only apply to them when they ratify.
In other words, ratifying by the time or after the two thirds has been reached amounts to activating the amendment in the ratifying country.
For the Trade Facilitation Agreement this seems important. The agreement includes technical assistance for developing countries as a condition when they make some commitments, known as “Category C” commitments.
These are: “Provisions that the member will implement on a date after a transitional period following the entry into force of the agreement and requiring the acquisition of assistance and support for capacity building,” according to this explanation.
For example, Mauritius includes these assistance needs as conditions for its Category C commitments: upgrading information management and staff training for enquiry points; better laboratories, software and staffing for testing products; improving risk assessments; and so on.
A commitment under Category C is, in effect, also a request for technical assistance on that particular item.
Can developing countries that have not ratified the Trade Facilitation Agreement nevertheless make Category C commitments (and therefore make that specific request under the agreement)? Logic would seem to say they cannot. However some countries have submitted Category C (and other) commitments even though they have not ratified. It’s unclear how that works (perhaps someone will clarify).
Arithmetic dictates that if the EU is only counted as 28 members, then one more non-EU country has to ratify an amendment for the number to reach the needed two thirds
The methods for counting the WTO’s membership are bizarre. They are discussed in more detail here and here.
Trade Facilitation Agreement ratifications reached 112, the final four submitted together, on February 22, 2017.
The situation for the pharmaceutical patent amendment depended on how the EU was counted.
The EU is 29 WTO members: the 28 member states plus the EU itself, and for this amendment the WTO is counting the EU as 29, meaning 107 had ratified by early Januay 2017, and three more were needed. However, for reasons that are unclear, the EU says it should only be counted as 28, meaning 106 had ratified and four more were needed.
The ambiguity was dodged on January 23, 2017 when the WTO announced that five more members had ratified, taking the total to 112— or 111if you prefer — in one go. (By then, 83 non-EU members had ratified it.)
Dodged it might have been, but the problem remains. The arithmetic dictates that if the EU is only counted as 28 members instead of 29, then one more WTO member that is not in the EU has to ratify an amendment for the number to reach the needed two thirds.
(Note that after Russia ratified the amendment on September 22, 2017, the WTO website said Russia was the 118th member to ratify. Here the WTO website was using the WTO’s full membership count, with the EU as 29.)
The situation is clearer but unexplained for trade facilitation. A footnote in the agreement says the EU will count as 28 (the same number as its member states). No explanation has been given for this, and so far the EU’s only explanation for counting itself as 28 for the pharmaceutical patent amendment is to cite trade facilitation, even though the Bali deal came six years after the EU ratified the patent amendment.
Who has not yet ratified the pharmaceutical patent amendment?
The amendment won’t apply to any country on this list until it ratifies
Antigua and Barbuda
Congo, Dem Rep
Who has ratified the pharmaceutical patent amendment?
(Counting the EU as 29. The WTO’s list is here)
United States 17 December 2005
Switzerland 13 September 2006
El Salvador 19 September 2006
Korea, Rep 24 January 2007
Norway 5 February 2007
India 26 March 2007
Philippines 30 March 2007
Israel 10 August 2007
Japan 31 August 2007
Australia 12 September 2007
Singapore 28 September 2007
Hong Kong, China 27 November 2007
China 28 November 2007
Austria 30 November 2007
Belgium 30 November 2007
Bulgaria 30 November 2007
Cyprus 30 November 2007
Czech Republic 30 November 2007
Denmark 30 November 2007
Estonia 30 November 2007
EUROPEAN UNION 30 November 2007
Finland 30 November 2007
France 30 November 2007
Germany 30 November 2007
Greece 30 November 2007
Hungary 30 November 2007
Ireland 30 November 2007
Italy 30 November 2007
Latvia 30 November 2007
Lithuania 30 November 2007
Luxembourg 30 November 2007
Malta 30 November 2007
Netherlands 30 November 2007
Poland 30 November 2007
Portugal 30 November 2007
Romania 30 November 2007
Slovak Republic 30 November 2007
Slovenia 30 November 2007
Spain 30 November 2007
Sweden 30 November 2007
United Kingdom 30 November 2007
Mauritius 16 April 2008
Egypt 18 April 2008
Mexico 23 May 2008
Jordan 6 August 2008
Brazil 13 November 2008
Morocco 2 December 2008
Albania 28 January 2009
Canada 16 June 2009
Macao, China 16 June 2009
Bahrain 4 August 2009
Colombia 7 August 2009
Zambia 10 August 2009
Nicaragua 25 January 2010
Pakistan 8 February 2010
Macedonia (FYROM) 16 March 2010
Uganda 12 July 2010
Mongolia 17 September 2010
Croatia 6 December 2010
Senegal 18 January 2011
Bangladesh 15 March 2011
Argentina 20 October 2011
Indonesia 20 October 2011
New Zealand 21 October 2011
Cambodia 1 November 2011
Panama 24 November 2011
Costa Rica 8 December 2011
Rwanda 12 December 2011
Honduras 16 December 2011
Togo 13 March 2012
Saudi Arabia 29 May 2012
Chinese Taipei 31 July 2012
Dominican Republic 23 May 2013
Chile 26 July 2013
Montenegro 9 September 2013
Trinidad and Tobago 19 September 2013
Central African Republic 13 January 2014
Turkey 14 May 2014
Botswana 18 June 2014
Uruguay 31 July 2014
Brunei Darussalam 10 April 2015
Moldova, Repf 7 July 2015
Kenya 21 July 2015
Saint Kitts and Nevis 27 July 2015
Sri Lanka 9 September 2015
Laos 29 September 2015
Iceland 12 October 2015
Grenada 8 December 2015
Malaysia 10 December 2015
Myanmar 16 December 2015
Lesotho 4 January 2016
Mali 20 January 2016
Thailand 28 January 2016
South Africa 23 February 2016
Nepal 11 March 2016
Tanzania 14 March 2016
Ukraine 16 March 2016
Qatar 6 April 2016
Samoa 21 April 2016
Saint Lucia 2 May 2016
Tajikistan 23 May 2016
Seychelles 8 June 2016
Papua New Guinea 22 June 2016
Peru 13 September 2016
Belize 15 September 2016
Benin 23 November 2016
Dominica 28 November 2016
Nigeria 16 January 2017
Burkina Faso 17 January 2017
Liechtenstein 23 January 2017
United Arab Emirates 23 January 2017
Vietnam 23 January 2017
Oman 1 March 2017
Sierra Leone 21 March 2017
Fiji 1 May 2017
St Vincent and the Grenadines 9 May 2017
Malawi 24 July 2017
Russian Federation 22 September 2017
Congo 31 October 2017
Madagascar 9 November 2017
Gabon 23 November 2017
Bolivia 30 January 2018
Kyrgyz Republic 6 February 2018
Guinea 15 February 2018
Trade facilitation amendment
Who has not yet ratified the trade facilitation amendment?
(The amendment won’t apply to any country on this list — including provisions on technical assistance — until it ratifies.)
Congo, Democratic Republic
Papua New Guinea
Who has ratified the trade facilitation amendment?
(EU represented by its 28 member states. The WTO’s list is here, but the one on the TFA Facility’s pages is kept more up-to-date)
Hong Kong, China 8 December 2014
Singapore 8 January 2015
US 23 January 2015
Mauritius 5 March 2015
Malaysia 26 May 2015
Japan 1 June 2015
Australia 8 June 2015
Botswana 18 June 2015
Trinidad and Tobago 29 July 2015
Korea, Republic of 30 July 2015
Nicaragua 4 August 2015
Niger 6 August 2015
Chinese Taipei 17 August 2015
Belize 2 September 2015
Switzerland 2 September 2015
China 4 September 2015
Liechtenstein 18 September 2015
Laos 29 September 2015
New Zealand 29 September 2015
Togo 1 October 2015
Austria 5 October 2015
Belgium 5 October 2015
Bulgaria 5 October 2015
Croatia 5 October 2015
Cyprus 5 October 2015
Czech Republic 5 October 2015
Denmark 5 October 2015
Estonia 5 October 2015
Finland 5 October 2015
France 5 October 2015
Germany 5 October 2015
Greece 5 October 2015
Hungary 5 October 2015
Ireland 5 October 2015
Italy 5 October 2015
Latvia 5 October 2015
Lithuania 5 October 2015
Luxembourg 5 October 2015
Malta 5 October 2015
Netherlands 5 October 2015
Poland 5 October 2015
Portugal 5 October 2015
Romania 5 October 2015
Slovak Republic 5 October 2015
Slovenia 5 October 2015
Spain 5 October 2015
Sweden 5 October 2015
United Kingdom 5 October 2015
Thailand 5 October 2015
Macedonia (FYROM) 19 October 2015
Pakistan 27 October 2015
Panama 17 November 2015
Guyana 30 November 2015
Côte d‘Ivoire 8 December 2015
Grenada 8 December 2015
Saint Lucia 8 December 2015
Kenya 10 December 2015
Brunei Darussalam 15 December 2015
Viet Nam 15 December 2015
Myanmar 16 December 2015
Norway 16 December 2015
Ukraine 16 December 2015
Zambia 16 December 2015
Georgia 4 January 2016
Lesotho 4 January 2016
Seychelles 11 January 2016
Jamaica 19 January 2016
Mali 20 January 2016
Cambodia 12 February 2016
Paraguay 1 March 2016
Turkey 16 March 2016
Brazil 29 March 2016
Macao, China 11 April 2016
United Arab Emirates 18 April 2016
Samoa 21 April 2016
India 22 April 2016
Russia 22 April 2016
Albania 10 May 2016
Montenegro 16 May 2016
Kazakhstan 26 May 2016
Sri Lanka 31 May 2016
Saint Kitts and Nevis 17 June 2016
Madagascar 20 June 2016
Moldova 24 June 2016
El Salvador 4 July 2016
Honduras 15 July 2016
Mexico 26 July 2016
Peru 28 July 2016
Saudi Arabia 28 July 2016
Afghanistan 29 July 2016
Senegal 24 August 2016
Uruguay 30 August 2016
Bahrain 23 September 2016
Bangladesh 27 September 2016
Philippines 27 October 2016
Iceland 31 October 2016
Chile 21 November 2016
Swaziland 21 November 2016
Dominica 28 November 2016
Mongolia 28 November 2016
Gabon 5 December 2016
Kyrgyz Republic 6 December 2016
Canada 16 December 2016
Ghana 4 January 2017
Mozambique 6 January 2017
St Vincent & the Grenadines 9 January 2017
Nigeria 16 January 2017
Nepal 24 January 2017
Chad 22 February 2017
Jordan 22 February 2017
Oman 22 February 2017
Rwanda 22 February 2017
Dominican Republic 28 February 2017
Guatemala 8 March 2017
Armenia 20 March 2017
Costa Rica 1 May 2017
Fiji 1 May 2017
Sierra Leone 5 May 2017
Qatar 12 June 2017
The Gambia 11 July 2017
Malawi 12 July 2017
Congo 5 October 2017
Antigua and Barbuda 27 November 2017
South Africa 30 November 2017
Indonesia 5 December 2017
Israel 8 December 2017
Central African Republic 11 January 2018
Argentina 22 January 2018
Bolivia 30 January 2018
Barbados 31 January 2018
Namibia 9 February 2018
Djibouti 5 March 2018
Updates: • August 24, 2016–March 5, 2018: adding new ratifying countries up to Djibouti in the list of countries accepting the TFA and new ratifying countries up to Guinea for the TRIPS amendment.
• February 22, 2017: some tidying up to make text better reflect both amendments now active • November 29, 2016: adding screenshot of WTO Agreement art.X.3 • September 13, 2016: deleted remark about the WTO not announcing new ratifications for the TRIPS amendment — on September 13 it did, but only saying that over 63% of members have ratified, without stating how many have ratified and how many more are needed • August 1, 2016: to correct chart; to clarify that developing countries receive assistance even of they have not ratified; adding links to TFA Facility • September 30, 2017: adding reference to WTO website counting Russia as 118th member to ratify the patent amendment and implied count of EU as 29