Update: the three essential tasks for the WTO’s trade facilitation deal

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?

Advertisements

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.

JUMP TO

1. The need to keep ratifying
2. The need to notify and implement
3. The need to provide assistance

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.

“The real work is just beginning,” said WTO Director-General Roberto Azevêdo that day, February 22, 2017, and he warned against complacency.

I wrote at the time that countries still needed to do much more on this important agreement. There’s been some quiet progress since then, but it’s been slow.

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.

Chart, TFA ratifications by month
Source: TFA Facility,  Click the image to see it full size

1. The need to keep ratifyingBack to top

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.

Cat A, B, C notifications
Developing countries’ category A, B and C notifications. Source: TFA Facility. Click the image to see it full size

2. The need to notify and implementBack to top

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 stream of these notifications has been promisingly steady, if slow. It has risen to 61.4% of the notifications expected for the full range of options, compared with 47.5% in late June 2017.

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.

3. The need to provide assistanceBack to top

Twelve members (including the EU and some of its member states) have notified development assistance under the agreement.

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.


Updates: None so far


Grandfathering EU free trade deals for the UK: a look at an actual text

After Brexit, ‘Global Britain’ will want free trade agreements with the rest of the world. But it already has some 37 agreements with over 60 countries through the EU. Rolling them over into the UK’s own agreements will not be automatic. A look at the actual text of the EU-South Korea deal shows why

By Peter Ungphakorn
FEBRUARY 13, 2018 | UPDATED FEBRUARY 15, 2018

Leaving the EU means the British government will either have to convert the EU’s free trade agreements with other countries into UK deals, or risk losing them, when Brexit is supposed to be about to allowing Britain more freedom to enjoy trade agreements with the world outside the EU.

At the very least, the UK should continue with the deals it already has through the EU, with Norway, Iceland, Switzerland, Canada, South Korea, Japan (in the pipeline) and many others. Academics at Sussex University say there are over 60 other countries. The UK government says there are over 100. It depends on what kind of agreement is counted.

Grandfathering: or even great-grandfathering | drawing by bamenny
Grandfathering: or even great-grandfathering | drawing by bamenny

JUMP TO

Transition and long term
Possible to do; impossible to do quickly
Grandfathering: more than CTRL+C, CTRL+V
Photocopier? Or negotiating table?
Safeguards
The dreaded rules of origin

Even then, the “rolled over” free trade agreements could be less valuable to the UK outside the EU than inside, unless talks can be set up with all three parties leading to something called “diagonal cumulation of rules of origin”.

As with much about Brexit what some fancied was a simple task is actually pretty complicated.

Many had thought that the UK could more or less copy and paste the agreements.

Shanker Singham of Legatum Institute told the Commons International Trade Committee that the UK would simply “replicate” them.

Few thought that the other countries involved might want to negotiate this with the UK — until news broke that some might seek just that, even during a transition period.

Much of the complexity is shown in a paper (pdf) by Michael Gasiorek and Peter Holmes of Sussex University and published by the UK Trade Policy Observatory (UKTPO). They say something that few had considered: that what appears to be a set of bilateral talks will turn into a threesome — the EU will be involved too. This is one of their summary points:

“Grandfathering existing EU free trade agreements is unlikely to happen without some engagement or negotiation with the EU. Hence what you might think is a bilateral issue between the UK and a given Free Trade Agreement (FTA) partner, becomes a trilateral issue which also involves the EU.”

“Grandfathering” means continuing with an older arrangement (here the existing EU free trade agreements), which might lapse or be superseded when a new arrangement is introduced (the UK leaving the EU). The Sussex paper is a comprehensive account of the various issues that could be raised in the talks.

There’s also a short video:

And Michael Gasiorek discusses this in a podcast in the Peterson Institute’s “Trade Talks” series of podcasts.

Transition and long termBack to top

The British government too is learning that this is going to take longer than it had first thought.

“I hear people saying ‘oh we won’t have any [free trade agreements] before we leave’. Well believe me we’ll have up to 40 ready for one second after midnight in March 2019,” International Trade Secretary Liam Fox told a fringe meeting at the Conservative Party Conference only last October.

Is grandfathering difficult or impossible? No, for the most part, it shouldn’t be. But there’s a lot to copy, adjust and check. And the number of negotiations the UK will be involved in for Brexit is huge.

Then there are the more complex areas such as “tariff quotas” and agricultural “safeguards” and “rules of origin”. It becomes even more complicated if the other countries want to negotiate additional adjustments.

Then, on February 8, the government admitted for the first time that this will not be possible. It released a position paper (pdf) calling for the EU’s free trade agreements to continue to apply to the UK — as if it were still an EU member — during the proposed two-year transition period after March 2019.

The paper cites article 31 of the Vienna Convention on the Law of Treaties as the legal basis. I’m not a lawyer, so I’m not going to discuss the legal aspect other than to note that the UK says the agreements involved are with over 100 countries.

To keep life simple, this would probably mean EU institutions continuing to handle various aspects of the free trade agreements on Britain’s behalf, such as managing the allocation of tariff quotas among importers (including British companies), confirming that imports into the EU (including Britain) meet EU standards and “rules of origin”, and participating in committees set up under the agreements and in disputes.

What happens after the transition period remains to be seen. The quickest approach would be to convert the EU’s agreements into the UK’s. The alternative would be for the UK to negotiate new agreements from scratch. But since it may want to do that with other countries such as the US, China, Australia, New Zealand and so on, the load on UK trade negotiators would be immense.

Michael Gasiorek’s and Peter Holmes’ paper actually speaks of “great-grandfathering”! But more importantly, it refers to complex supply chains, which are important for a number of reasons:

“Clearly the UK will want to and needs to establish the nature of its relationship with the existing FTA [free trade agreement] partner countries on a long-term basis. However, this will be more difficult to achieve without the partner countries knowing what form of trade agreement the UK has with the EU.

“For many products this is because we are in a world of more complex supply chains and for many FTA countries, their exports to the EU may be indirect via the UK. For some agricultural products where tariff-rate quotas apply, changing access to the UK may impact on their access to EU markets.

“It is therefore likely that both the UK and the partner countries may seek to roll the agreements over on a temporary basis for the duration of the transition. In turn, that means that during the transition period the UK will need to renegotiate these agreements, or at a minimum, renegotiate the grandfathering, hence greatgrandfathering the agreements” (page 5)

Overall, Gasiorek and Holmes suggest renegotiation might be needed because of rules of origin, most-favoured-nation (MFN) or non-discrimination clauses, mutual recognition of standards and regulations, and tariff quotas. I will look at a couple of those issues, but I’m not going to repeat their excellent work. Their paper speaks for itself.

Possible to do; impossible to do quicklyBack to top

What I am going to do here is to dip into the EU-South Korea free trade agreement — and I really mean “dip in” because it’s over 1,400 pages long — to highlight a few issues that attracted my attention. They are intended as examples to illustrate some important points. This is also developed from an older Twitter thread.

The bottom line. Is grandfathering difficult or impossible? No, for the most part, it shouldn’t be. But even where it’s relatively straightforward, the task is time-consuming. There’s a lot to copy, adjust and check. If there were only one agreement to deal with, it could be completed quite quickly. But the number of negotiations the UK will be involved in for Brexit is huge.

Then there are the more complex areas such as “tariff quotas” and agricultural “safeguards” (there aren’t many in the EU-S.Korea agreement but there are a lot more in the agreement with Canada) and “rules of origin”. It becomes even more complicated if the other countries want to negotiate additional adjustments.

Milking protection: Dairy products are often excluded | Mihail Macri on Unsplash
Milking protection: Dairy products are often excluded | Mihail Macri on Unsplash

Grandfathering: more than CTRL+C, CTRL+VBack to top

You don’t have to go very far into the text to see that there are references to the EU which will have to be replaced by the UK’s equivalents.

Article 1.2 General definitions

Numerous references to EU procedures and regulations will also have to be changed.

Regulations, market access Article 3

The endless lists of regulations will have to be replaced with UK versions. This is just a small part of a long table of regulations for vehicles.

Technical regulation for cars, extract

All of this is also bound up in how the UK sorts out its own post-Brexit arrangements.

And provisions such as this would have to go:

Ceuta and Melilla

And then there are services. The EU-S.Korea agreement has long lists describing where their services markets are opened up to each other (pages 1165-1250 for the EU’s commitments). Much can be copied for the UK. There are also lots of provisions which don’t apply to the UK and will have to be removed, and a lot that refer to the EU as a whole, which will have to be changed.

This is what the agreement says for mining and quarrying services. It’s complicated, technical stuff, but even if we don’t understand it fully, at the very least “5% of the European Union’s oil or natural gas imports” will have to be changed to “the United Kingdom’s”. You have to be an expert in the field to know if that “5%” will stay unchallenged.

“EU: Unbound for juridical persons controlled […]  by natural or juridical persons of a non-European Union country which accounts for more than 5 % of the European Union’s oil or natural gas imports. Unbound for direct branching (incorporation is required). Unbound for extraction of crude petroleum and natural gas”

Services commitments on mining and quarrying
Click the image to see it full size

Finally there are institutional arrangements, everything from committees and working groups to arbitration procedures, which will have to be set up for the new bilateral relationship

Article 15 creates a “Trade Committee”, which meets annually, plus at least six “specialised” committees and at least seven working groups:

Trade Committee and specialised committees

The agreement includes procedures for settling disputes, including the creation of arbitration panels and references to international law including the Vienna Convention on the Law of Treaties and World Trade Organization dispute rulings. The procedure is similar to the WTO’s and adapting it for the UK would be relatively simple.

Arbitration panel

So, the task has moved beyond copy-paste to search, adjust, adapt, replace or delete. The volume is pretty large, and this is just one of the 37-or-so agreements. Still, what we have looked at so far won’t necessarily need any negotiation, just a lot of work.

Copy or talk? Going beyond copy-paste to search, adjust, adapt, replace, delete and negotiate | Mickey970
Copy or talk? Going beyond copy-paste to search, adjust, adapt, replace, delete and negotiate | Mickey970

Photocopier? Or negotiating table?Back to top

Where negotiations will be needed is on market access, particularly for goods, but only on some parts. (There may be no need to renegotiate services, but the technical detail is beyond me.)

For goods, the EU-S.Korea agreement lists tariffs on around 900 pages. They could be run through the photocopier — except that S.Korea is reported to be one of the countries that might seek unspecified concessions from the UK, according to Politico:

“South Korea has already indicated that it wants to address its trade deficit with the U.K., which was particularly high between 2012 and 2015, before granting Britain continued market access during transition, EU diplomats and business people said.

“‘Exports are South Korea’s credo No. 1, and trade balance is their credo No. 2,” said Christoph Heider, president of the European Chamber of Commerce in Korea, who is in close contact with the government in Seoul. “I expect that Great Britain will have to make concessions if it wants to stay in the trade deal during the transition.’”

In many cases, tariffs are not scrapped from the start: they are phased out over different periods depending on the product, from immediate (most products) to 21 years and in some cases tariffs are never eliminated (“staging category E”). So the UK would be stepping into an appropriate phase of the reductions (unless “rolling over” took more than two decades!)

What most people forget is the EU’s free trade agreements include tariff quotas as well. That’s where limited quantities of imports are allowed in duty-free or at lower than normal rates, also known as tariff-rate quotas or TRQs. And it’s where negotiations will probably be needed.

The EU-S.Korea agreement has a few, mainly on the Korean side. Here’s one for flatfish where the duty-free allowance increases from 800 tonnes in year 1 to duty-free for all imports from year 13.

Flatfish tariff quota
Click the image to see it full size

Here’s another on various types of milk and cream. This time the duty-free allowance remains indefinitely at 1,512 tonnes after year 16 (“staging category E”), meaning quantities outside the quota will be charged import duty, which is 89% or 176% depending on the product. (The tariff rates are on page L127/102 of the EU’s version of the text (pdf).)

Milk tariff quota
Click the image to see it full size

This is not exactly “free trade”. It’s an example of how trade agreements are not necessarily as free as they are made out to be, and a warning to those who argue that the value of the UK’s present access to the EU market can be replaced by trade deals with other countries.

What will the UK’s share of that 1,000–1,512 tonnes be? The answer is likely to come from talks among all three sides: the UK, EU and S.Korea.

Incidentally, The EU’s agreement with Canada (the Comprehensive and Economic Trade Agreement, or CETA) has many more tariff quotas for imports into both sides. The EU has them on some kinds of seafood, wheat, sweetcorn, bison meat, beef and veal, and pork.  Canada has them on cheese.

This is part of the EU’s CETA tariff-quota on one category of beef and veal (there are more details than this):

CETA tariff quota beef and veal (EU)
Click the image to see it full size

And this is Canada’s tariff quota for one category of cheese, again ignoring a lot of additional detail:

CETA tariff quota, cheese (Canada)
Click the image to see it full size

Although Canada is apparently keen to use copy-paste as much as possible, there will almost certainly be renegotiations over the tariff quotas.

Added protection: South Korea retains the right to impose safeguards on apples for 24 years | Don O’Brien
Added protection: South Korea retains the right to impose safeguards on apples for 24 years | Don O’Brien

SafeguardsBack to top

One type of tariff barrier that has received little attention is “safeguards”. These are temporary increases in import duty to protect producers from import surges or falling prices, the kind of raised duty the US recently imposed on washing machines and solar panels.

For agricultural products and in bilateral trade agreements the rules are not quite the same as for industrial goods. Here, S.Korea has secured the right to impose an additional duty on beef imports of up to 40% for the first six years, the ceiling declining to zero after 17 years, if the “trigger level” specified is reached.

SKorea's agricultural safeguard for beef
Click the image to see it full size

S.Korea has the right to use safeguard duties on pork, apples, malt and malting barley, potato starch, ginseng, sugar, alcohol, and dextrins.

For beef the right to impose a safeguard duty expires after 16 years. For pork it’s 11 years, for apples 24 years, and for other products somewhere in between.

The trigger volumes were for the whole of the EU-28. Copying the same trigger level for imports from the UK alone would not make sense for S.Korea. To do so would double the size of the import surge before Seoul could react. That means these volumes would be split between the UK and EU, requiring negotiations between all three sides.

In its agreement with the EU, Canada has dozens of products eligible for additional safeguard duty, but the EU has none.

Made in … where? Rules of origin determine if cars qualify since they can be made from components sourced anywhere
Made in … where? Rules of origin determine if cars qualify since they are assembled in complex supply chains | Bilerandi

The dreaded rules of originBack to top

To qualify for lower duty or duty free access to the EU market, or for recognition of standards under the agreement, a product has to be shown to have been made in S.Korea. The same goes for EU products entering S.Korea, and for UK products under a future UK-S.Korea deal.

Anyone who has looked at these “rules of origin” knows they can be pretty complicated, to the extent that lower tariffs are not always worth the additional red tape. (You can find explainers by the Institute for Government here, and by Sam Lowe here.)

The criteria start with general rules on what qualifies and what proof is needed, covering 8 pages (1346–1354) in the EU-S.Korea agreement. For example, Article 6 lists 17 operations that cannot be cited — “sharpening, simple grinding or cutting” is not enough (item (i)). Nor is it enough if two ingredients from elsewhere are simply mixed together in the EU — they cannot be said to be “made in the EU” (item (m)):

Rules of origin on insufficient working or processing

But that’s just the start. A further 57 pages has tables of excruciating detail — like this on what is required for two types of “woven fabrics of man-made-filament yarn” to qualify with the right origin:

Rules of origin on woven fabrics of man-made filament yarn
Click the image to see it full size

(Note that in that last paragraph, the product can qualify even if the value of the unprinted fabric exceeds 47.5%, so long as the fabric itself is also of local origin.)

Could these rules of origin just be run through the photocopier? Maybe. But remember right now exports from the UK to S.Korea only have to qualify as “made in the EU”, meaning components could be sourced anywhere in the 28 countries. A post-Brexit UK-S.Korea free trade agreement would only deal with products “made in the UK”.

In other words, from the point of view of qualifying products, a future UK-S.Korea agreement will be much less valuable for the UK than the present EU-S.Korea agreement.

Complicated? That’s just the start. Here’s what Gasiorek and Holmes say about duty-free imports involving the UK, EU and S.Korea:

“It is important to note that this could easily mean that, for example, a given intermediate input could be exported directly from Korea to the EU duty free, but if that input is used in the production of a UK good which is then exported to the EU, that input cannot count for UK originating status.

“The same could apply to UK exports of intermediates to the EU which are then used in EU exports to Korea; and EU exports of intermediates to the UK which are then used in UK exports to Korea. Hence bilateral flows between each of the three countries in this example (the UK, Korea and the EU) are likely to be affected.”

They then talk about “diagonal cumulation”, essentially a three-way deal that says if assembly, processing or other form of production in any two (combined) of the three meets the requirement, then the item can be imported duty-free into the third.

And a three-way deal needs a three-way negotiation.

Finally, how well does EU-S.Korea represent other EU free trade agreements? It depends. No two agreements are the same, but they can be similar. The Korean agreement is partly similar to the Canadian one but also has significant differences.

Norway and Switzerland are important trading partners of the UK. One of the most complicated agreements for the UK to grandfather is the one with Norway, Iceland and Liechtenstein — the European Free Trade Association (EFTA) countries, which form the European Economic Area (EEA) with the EU.

As for Switzerland, its arrangement with the EU is through bilateral agreements. Here, the official list (pdf) — containing only the names of the agreements — runs to 28 pages!


Developed from a Twitter thread from October 25, 2017. On February 15, 2018, I wrote this thread about the response to this article.
Updates
: February 14, 2018 — added a link to Lorand Bartel’s article on various legal implications in Borderlex.
Photos and drawing: Either CC BY 2.0 or CC0


Introducing the WTO elephant and its dodgy health

People’s understanding of the WTO is a bit like the ancient parable of the blind men and the elephant. Even those who have spent their lives working on it stress different aspects

By Peter Ungphakorn
DECEMBER 17, 2017 | ORIGINAL PUBLISHED ON UK TRADE FORUM DECEMBER 16, 2017 | UPDATED DECEMBER 17, 2017

There’s been an elephant in the room ever since the discussion of Brexit and trade began. Gradually, bits of the animal have become visible, but what we’ve seen has not always been accurate. It’s time to complete the picture, and to understand why the beast isn’t in the best of health.

The elephant is the 164-member World Trade Organization (WTO), whose trade ministers have just ended their biennial conference in Buenos Aires, December 10–13, with little achieved substantially.

WTO building_BW cropped_1200pxl
What is this elephant? The WTO’s headquarters, Geneva

JUMP TO

Leg 1: Trade negotiations
Leg 2: Implementing and monitoring
Leg 3: Dispute settlement
Leg 4: Development
Putting it all together

WTO agreements already apply to the United Kingdom’s relationship with the European Union as an EU member.

As the Brexit talks enter their second phase, they will determine what can and cannot be done with the future UK-EU relationship on trade — sometimes explicitly, sometimes quietly behind the scenes. WTO rules will also affect any trade relationship Britain seeks to define with the rest of the world, whether globally, regionally or with individual countries.

How well WTO rules and the terms of Britain’s WTO membership work depends on the nature of the elephant and its health, which cannot be taken for granted.

People’s understanding of the WTO is a bit like the ancient parable of the blind men and the elephant.

IT was six men of Indostan
To learning much inclined,
Who went to see the Elephant
(Though all of them were blind),
That each by observation
Might satisfy his mind.

Blind_men_and_elephant 3_adj_770x340
Is it a wall? Is it a spear? Is it a snake? Is it a tree? Is it a fan? Is it a rope?

Each feels a different part and, according to this version, they observe separately a wall (the body), spear (tusk), snake (trunk), tree (leg), fan (ear), and rope (tail).

And so these men of Indostan
Disputed loud and long,
Each in his own opinion
Exceeding stiff and strong,
Though each was partly in the right,
And all were in the wrong!

The same applies to the WTO. Even people who have spent their lives working on it stress different aspects.

Some lawyers’ eyes magnify WTO dispute settlement and its jurisprudence, the “jewel in the crown”. For some practitioners, what matters are the achievements of WTO committees whose work is partly designed to avoid legal disputes. Many journalists judge the WTO by the success or failure of negotiations. And so on.

So what is this elephant?

The WTO’s own explanation is here. We’ll do it differently, focusing on the elephant’s four legs — bearing in mind that the whole elephant is the WTO’s multilateral trading system. The elephant stands or moves on those legs. All four are important. Right now they are not too steady.

Leg 1: Trade negotiations — where WTO rules come fromBack to top

Japanese_Blind_monks_examining_elephant_383x270

Negotiations are the starting point of everything that happens in the WTO. All “WTO rules” are actually negotiated agreements. Everything the WTO does is based on them.

They include key principles such as non-discrimination and transparency, and aim for a trading system that is stable and predictable.

They have been negotiated and re-negotiated since the end of the Second World War, starting with the 1947 General Agreement on Tariffs and Trade (GATT, which deals with trade in goods), through the addition of services and intellectual property in 1995 (when the WTO was created) and to streamlining border procedures (“trade facilitation”) in 2013.

Negotiations can be by individual subject, or as a package or “round” covering many subjects. Rounds allow trade-offs across subjects, which can help to break deadlock — for example, a country reluctant to reform agriculture might find it easier to do so if other countries open up their financial services markets in return. But because rounds cover many subjects they are also more complex. Single-subject negotiations are simpler but with less scope for trade-offs.

In 2001 WTO members agreed to launch the Doha Round. They hoped to reach agreement in four years, and they failed. Despite immense progress in 2006–2008, the talks fell short of agreement. Since then, they have stagnated. In the meantime a handful of single-subject deals have been struck. Some came from the Doha Round, including the one in 2013 on trade facilitation.

Agreement in the WTO is by “consensus”, which means no one objects. In 2015 some countries such as the US wanted to declare the Doha Round to be over. Others, mainly developing countries, disagreed. Without consensus, the Doha Round could not be declared dead. But it could not continue in that form either. I’ve called it a zombie.

The WTO’s political leaders, ever since Mike Moore was its director-general in 1999, have measured their own success or failure by the fate of negotiations. By that measure, Moore was successful in launching the Doha Round but all his successors have failed to conclude the talks, until recently when single-issue deals have been agreed.

But there’s more to this elephant than that.

Leg 2: Implementing and monitoring — vital, routine WTO workBack to top

Thai_Blind_men_and_elephant_383x439

Someone described the WTO’s negotiations and other headline-hitting work as the “poetry” in its “plumbing”. The plumbing is unglamorous and rarely seen but cannot be ignored.

Signing negotiated agreements is not an end: it’s a beginning.

Most of the WTO’s routine work is about monitoring how well countries keep the promises they made in those agreements and implementing what was agreed.

It involves a huge amount of information-sharing and scrutiny by WTO members — in over 20 “regular” committees, each comprising the full membership. This leg is wobbling because members struggle to keep up-to-date with the information they have to supply once or twice a year, or when they introduce new regulations or policies. That makes monitoring difficult.

Even when countries keep their promises, the way they do it can hamper trade. When these problems are raised in the committees, solutions can be found just by talking, avoiding expensive legal disputes. Some of the most productive work is on product standards and regulations, such as how to ensure food or industrial products are safe.

If there is no news from these committees, then the system is working well. Generally, peer pressure encourages countries to keep the promises they made in the agreements. That in itself should be news but it’s rarely reported.

All of this means most of the $20 trillion global trade in goods and services flows smoothly and almost unnoticed. Some experts even argue that the WTO’s success or failure should be measured primarily by the “plumbing”, not the poetry.

Leg 3: Dispute settlement — adjudicating WTO lawBack to top

Blind_men_and_elephant_2_383x358

Back to the poetry, though. Formal WTO disputes attract much more attention. They help enforce agreements. They also deal with huge amounts of money (such as aircraft subsidies) or other concerns (such as when tuna fishing endangers dolphins).

WTO disputes are always between governments, so “Boeing” versus “Airbus” is actually the US versus the EU.

And they are always about broken promises (violations of WTO agreements, commitments or expected rights). If a government simply dislikes another’s trade policy in general, the solution is to try to negotiate new rules.

Normally, that is also the recourse when a country is dissatisfied with a dispute ruling.

This year, something different has happened. The US is unhappy with rulings against a particular method it used to calculate something called a “dumping margin”. It’s all very technical but powerful commercial interests are involved and the upshot is that the US is blocking the appointment of WTO appeals judges to replace those whose terms expire. By December 11, they had dwindled from seven to just four.

Unless something changes, WTO disputes could eventually come to a halt. The elephant would be toothless.

Leg 4: Development — the WTO’s particular roleBack to top

Blind_men_and_elephant_255x395

The WTO Is not a development agency, but members want it to have a role. It does this in several ways.

Trade itself is supposed to help developing countries. The rules in the trade agreements also include a considerable amount of leeway for them.

The WTO hosts “aid-for-trade” meetings between development agencies and other donors, and developing countries, so that aid matches real needs as much as possible.

And the WTO Secretariat also trains officials from developing countries so they can operate better in the system.

Acknowledging this used to be routine. Not anymore.

The US blocked a draft declaration for the December 10–13, 2017 WTO Ministerial Conference in Buenos Aires. It objected to the  commitments to the WTO’s multilateral trading system and development, both standard in previous declarations.

Putting it all together — and what it means for the UKBack to top

Some have claimed that the threat to the dispute settlement system means the elephant could be on its deathbed. Others have said the same about the failure to conclude a major negotiation. And then there are those who remind us that the routine work is in reasonably good health, even if the information that members notify to the WTO needs to be better and to arrive faster.

As far as Brexit is concerned, a weakened WTO would allow Britain more leeway in how it chooses its trade policies. But it if the UK feels that others’ trade policies are unwelcome, a weakened WTO would also give it less leverage to deal with the problem.

As for the idea that by leaving the EU, Britain can inject new life into the elephant (which some seriously believe), at the very least the UK will need to learn how to ride it first.


Slightly adapted from: “What is the World Trade Organization?” on UK Trade Forum

Updates: None so far

Photocredit: WTO building © WTO

Illustrations: drawings and paintings of the blind men and the elephant, all public domain:
from Charles Maurice Stebbins & Mary H Coolidge,
Golden Treasury Reader (US);
by Itcho Hanabusa (Japan);
from Phra That Phanom chedi temple (Thailand):
from
Holton-Curry Readers (US);
from Augusta Stevenson,
Children’s Classics in Dramatic Form (US)


How to be a trade champion

A guide for busy politicians


By Peter Ungphakorn
NOVEMBER 21, 2017 | UPDATED NOVEMBER 21, 2017

By Abraham Storck - Public Domain, https://commons.wikimedia.org/w/index.php?curid=1147660
Size counts: the more you trade, the bigger your clout in the WTO

International Trade Minister Greg Hands has again proclaimed the UK is a global trade champion only needing to “reclaim our position at heart of global trading system”.

I have written a longer piece on this. Here are some key points for busy readers. I’m using the WTO as the context since that’s where “the heart of the global trading system” is.

How to be a trade champion
  1. Have a policy
  2. Sort out the UK’s WTO membership terms
  3. Be large(-ish)
  4. Have a position that resonates with others
  5. Either
    a. be constructive so everyone likes you
    or
    b. be stubborn so everyone has to put up with you
  6. Have a good supply of skilled diplomats and trade officials
  7. Accept that you still might not be at the top table

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 policyBack to top

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 termsBack to top

The UK (and EU) have only just started talking about establishing their separate commitments in the WTO on tariffs, “tariff quotas” (explained here), farm subsidies, and on opening services and public procurement markets. It’s taken months just to prepare data for the tariff quotas and the real negotiations haven’t yet begun.

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)Back to top

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 othersBack to top

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 youBack to top

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 youBack to top

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 officialsBack to top

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 tableBack to top

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.


Updates: None so far
Photocredits:
• Harbour scene by Abraham Storck, public domain


What WTO leadership means and where the UK would fit in

People who should know better keep talking about the UK becoming a leader in the World Trade Organization. What exactly does this mean and what are the chances?

By Peter Ungphakorn
NOVEMBER 8, 2017 | UPDATED NOVEMBER 8, 2017

Brexit will allow Britain to lead the World Trade Organization (WTO), the Legatum Institute claims in a new paper published on November 4, 2017.

The paper, “The Brexit Inflection Point: The Pathway to Prosperity”, is new but the claim is not — not entirely.

“Britain stands ready to take a leading role within the WTO,” International Trade Secretary Liam Fox said in a speech at the WTO almost a year earlier on December 1, 2016.

Major General Wellesley (mounted, the future Duke of Wellington) commanding his troops at the Battle of Assaye (J.C. Stadler after W.Heath) Public domain, National Army Museum
No invisible hands here: the British East India Company won monopolies and trading power partly through war such as at the Battle of Assaye in 1803

And further back in September 2016, Fox talked about “corralling coalitions of the willing” in a speech at Manchester Town Hall:

If other nations are hanging back, then the UK will happily lead the charge for global free trade. We will corral coalitions of the willing who share a belief that a more open and free trading world is the one which will provide the brightest economic future for our citizens.

The UK is a full and founding member of the WTO, though we have chosen to be represented by the EU in recent years. As we establish our independent position post-Brexit, we will carry the standard of free and open trade as a badge of honour.

JUMP TO
In Legatum’s extraordinary words
WTO leadership: from Quad to G5
Next level leadership
Liberalising agenda
Why?

SEE ALSO
How to be a trade champion:
a guide for busy politicians

This should be a minor distraction. It isn’t. Although Legatum’s paper deals with a wide range of issues, it makes leadership in the WTO an over-riding objective, determining for example whether the UK should be in a customs union with the EU and what kind of regulatory system it should adopt.

Legatum is forever optimistic — nothing wrong in that so long as the optimism is justified. Its paper covers a wide range of topics including regulations, standards, customs cooperation, options for an interim or transition period for Brexit, and so on.

Much of it has been questioned. That includes a number of Twitter threads, for example by barrister George Peretz, law professor Steve Peers, and commentator Frances Coppola. And then there’s pro-Brexit Richard North, who wrote on his blog that Legatum was confused about regulations, standards, mutual recognition and conformity assessment. And Martin Sandhu in an FT article, who called the paper “a confidence trick”.

Many of the criticism are about the details. More broadly Legatum is also accused of painting a picture of a future that is too rosy and a past that was not as glorious as it claims — certainly not a model for modern trade:

A century ago, Britain was the “free trade nation”, a cause that brought crowds of tens of thousands to the streets in its defence, being vital both to the livelihoods of Britons and to the economic miracle Britain gave the world in the century to 1914. But in the century since, our trade — and the world’s — has been subsumed into a restrictive system that creates poverty. The global economy is essentially stuck (page 5).

Many have commented that much of the UK’s trade dominance was actually acquired by force and empire-building. As for the future, “free trade is not an unalloyed good, and we do have to consider the costs as well as the benefits” said Frances Coppola in an exchange on her Twitter thread.

She echoed a more general assessment by Friends of the Earth’s Sam Lowe, who tweeted in May 2017 that Legatum’s papers are “all upside, little acknowledgement of the down. The remotely possible portrayed as plausible.”

I’m not saying the paper is all wrong. Far from it. But I’ll leave it to others to debate the rights and wrongs of other details. Many of these are either beyond my expertise or are based on debatable assumptions about the future, about how the EU and others will react to particular positions.

What follows here is about that over-riding objective in the paper, leadership in the WTO, developed from my own Twitter thread.

In Legatum’s extraordinary wordsBack to top

There is a subtle difference between taking “the lead” in the WTO (Legatum) and “a leading role” (Fox). What did Legatum mean, and what other leading roles might be available to the UK?

These are some extracts from Legatum’s paper. It calls for much more than simply “a leading role”. In fact, what it proposes is pretty extraordinary.

It says that one of the UK government’s immediate actions should be:

Taking the lead in World Trade Organisation (WTO) membership and explaining why the UK and WTO members now share a trade liberalising agenda. (Page 4, and similar on page 10, my emphasis here and in other quotes).

Suddenly, it seems, according to Legatum, the UK can be at the peak of the WTO’s power structure. (Who is currently there? We’ll look at power politics in the WTO in a moment.)

But more than that, the UK will “explain” why all of a sudden Britain and all other WTO members “now share a trade liberalising agenda”.

Legatum does not clarify how, simply because the UK is leaving the EU, this remarkable change can take place. It could not possibly do so. After all, “WTO members” includes the EU and its member states (for now including the UK) as well as the 135 non-EU, non-UK WTO members. Brexit doesn’t change that.

There’s no earthly reason why the diverse agendas of all the 164 members (including the EU’s) should suddenly align once the UK has left the EU and “explained” the need for a different direction.

The idea of UK leadership is repeated through the paper, for example this on a customs union and the European Free Trade Association (EFTA):

Interim proposals are now being floated to remain in the Customs Union, part of it, or join EFTA and accede to the EEA Agreement. This is very dangerous: the EU will use such uncertainty to maximise its leverage, while other trading partners will re-focus their energies on the EU. The UK will lose its opportunity for trade leadership at the WTO, and the consequences will be serious. (Page 7)

And this on regulations:

The UK must therefore be able to regulate differently from the EU in areas like standards and regulatory issues. If it is locked into the EU regulatory model, it will not be able to make the adjustments necessary in order to sign comprehensive free trade deals with other countries, nor will it be able to lead in the WTO and other multilateral fora. (Page 21, and similar on page 23)

And this on tariff commitments and again a customs union:

Without control over tariff schedules [ie, lists of commitments in the WTO], time in the Customs Union prevents UK leadership within the WTO. (Page 29)

Also repeated is the notion that the UK’s role in the WTO is to “explain” what the world should do:

Beginning at the WTO, the UK needs to frame its case by explaining that making the global economy more prosperous over the long-term requires the urgent liberalisation of world trade. (Page 9)

Before Fox considers “corralling coalitions of the willing” in the WTO — or taking up Legatum’s fantasy of the UK leading and explaining — he might like to look at the many coalitions that already exist and how power is structured in reality in the organisation.

WTO leadership: from Quad to G5Back to top

Once upon a time, there was the “Quad”, occupying the summit of the power pyramid. They were the US, EU (including the UK), Canada and Japan, at that time the four largest traders.

Roughly speaking, nothing would be agreed if it couldn’t pass the Quad. But more importantly, if they could negotiate a breakthrough among themselves then the rest of the membership could be covered, provided some flexibility or opt-outs were included for smaller countries.

One historical breakthrough in November 1992 was bilateral, between the US and EU (the so-called Blair House accord on agriculture). Not even Canada and Japan were involved. Even in that structure, the UK on its own would hardly be the leader. But that structure no longer exists anyway.

The Quad dominated throughout the Uruguay Round — the 1986–94 negotiation that created the WTO in 1995 — and into the WTO’s early years. Then, as the century turned, trade was changing. By 2015, Canada and Japan had been jettisoned. In came Brazil, China and India.

At the peak, the Quad has been replaced by the “G5”, which was responsible for the breakthrough at the WTO Ministerial Conference in Nairobi in December 2015, when members agreed to scrap agricultural export subsidies.

Ironically, the UK was represented in that G5 — by EU commissioners Cecilia Malmström (trade) and Phil Hogan (agriculture). After Brexit, it’ll be on its own.

Next level leadershipBack to top

At a pinch the UK might have been able to get a seat in the old Quad beside Canada and Japan, but not now. In the WTO, the UK will be in the second or third tier of the power structure.

There’s nothing wrong with that. Many countries at that level play constructive roles and have won the respect of fellow-members.

However, none of them did it by marching in and proclaiming “I’m a leader now, let me explain.” Not even the US can get away with that.

Nor did they have to be major traders. New Zealand has supplied a succession of chairs in the crucial agricultural talks, its trade diplomats having acquired a reputation as professional, skilled, honest brokers.

(One of them, Crawford Falconer, is now a senior official in Fox’s department. He is also on Legatum’s Special Trade Commission, a move that did raise eyebrows.)

A more effective way of being heard in the WTO is to join an alliance. WTO alliances already have coordinators, so in another sense, the WTO already has lots of leaders.

Australia coordinates the Cairns Group campaigning to liberalise agriculture. Switzerland (an EFTA member) does it for the G–10, which is more defensive on agricultural trade. Brazil set up the G–20 group of developing countries. Taiwan (officially “Chinese Taipei”) coordinates a group of countries that recently joined the WTO. And so on. The WTO website has a long list of alliances in its trade negotiations.

What should the UK do? Take agriculture. If it really is keen on liberalising agriculture, it could join the Cairns Group, but not as its leader. Australia and the others would not appreciate that.

If on the other hand it wants to keep the more defensive policy it now applies as an EU member, it could join the G–10, but Switzerland, Norway and Japan would also not accept it as a leader.

Or, it could go it alone. Only the US and some countries with a minor interest in agriculture have done that, for example Singapore, Hong Kong and some Middle Eastern states. The UK would have a voice, but not a very loud one.

Coalitions in the WTO agriculture negotiations
Where would the UK fit in? The graphic is slightly out of date but it still shows how complex WTO power is, in just one subject (Click the image to see it full size)

But before it embarks on any of this, Britain will have to sort out what kind of trade policy it wants. Take agriculture again. What should the policy be?

Low import duties and low subsidies? Broadly speaking, consumers would gain, many farmers would lose (some would gain) and subsidies for protecting the environment might also be lost.

Continuing with present high duties and some subsidies? Food would remain fairly expensive but farmers would stay in business and British production would be sustained (although Brexit itself might affect that too).

Or something else? The discussion has barely begun.

The UK might face another struggle if it wants to be influential in the WTO. Several non-UK officials have remarked that the UK used to be respected as a sound, pragmatic player in trade and other issues. Brexit, they say, means the UK is now seen as confused, floundering and ineffective.

If that reputation can be repaired, then the UK could find itself among over a dozen second-tier “leaders” in the WTO. It would not have a seat at the summit, but it could be invited to unofficial meetings of 20–30 members (sometimes called “Green Room” meetings) alongside the “G5”, Canada, Japan, Australia, Switzerland, Norway, Argentina, South Africa and whoever chairs various groups of developing countries.

To be clear, for a country of the UK’s size and clout, there would be no disgrace in joining that group. It would also be more realistic than talking of leadership.

Nairobi delegates scrutinise final declaration 19.12.2015
Is Doha dead? Is it alive? Delegates at the WTO’s Nairobi Ministerial Conference scrutinise the final declaration, December 19, 2015
Liberalising agendaBack to top

Tied in with idea of leadership is the notion that Britain outside the EU can launch its independent WTO membership by “explaining that making the global economy more prosperous over the long-term requires the urgent liberalisation of world trade.”

The truth is that in the WTO a call to liberalise trade is a meaningless cliché. The UK can “explain” as much as it likes but the real difficulty is that there is little agreement on how and what to liberalise, what the downsides are for a widely divergent membership, and how urgent the need is.

In 2001, sixteen years ago, the start of a new set of negotiations was agreed. They are unofficially known as the Doha Round or the Doha Development Agenda (DDA). Launching the talks, WTO trade ministers declared:

We are determined, particularly in the light of the global economic slowdown, to maintain the process of reform and liberalization of trade policies, thus ensuring that the system plays its full part in promoting recovery, growth and development.

Sixteen years later, WTO members have failed to agree on how to achieve that, except in a limited number of issues such as cutting red tape at the border (“trade facilitation”) and scrapping agricultural export subsidies (whose use is now dwindling).

Worse, WTO members cannot even agree on whether the Doha Round is over or not. This is what their ministers declared at their last biennial conference in Nairobi in December 2015:

30. We recognize that many Members reaffirm the Doha Development Agenda, and the Declarations and Decisions adopted at Doha and at the Ministerial Conferences held since then, and reaffirm their full commitment to conclude the DDA on that basis.  Other Members do not reaffirm the Doha mandates, as they believe new approaches are necessary to achieve meaningful outcomes in multilateral negotiations. Members have different views on how to address the negotiations. We acknowledge the strong legal structure of this Organization.

Given how diverse opinions and interests are among WTO members, the notion that they will take heed when the UK “explains” is bizarre.

Why?Back to top

There are a number of other questionable assertions about the UK and the WTO in Legatum’s paper.

They include a claim that other WTO members will want a say in a future UK-EU trade agreement (there’s no precedent for this because WTO disciplines on free trade agreements are weak, except for blatant violations).

And Legatum says the UK should talk to other WTO members alone, without the EU, when setting up Britain’s WTO commitments on tariff quotas (difficult to achieve since processes for the UK and EU are intertwined, and British officials are far less experienced than the EU’s in negotiating tariff quotas). In any case the two are already working together.

One of the problems with Legatum’s obsession with WTO leadership is that it diverts attention away from the real issues it should be considering.

For example, the question of whether the UK should be in a customs union with the EU is really about a trade-off. The benefit is smoother trade (in goods) between the two. The downside is that the UK would not be free to set its own tariff rates and negotiating free trade agreements with other countries would be almost impossible.

And the argument in favour of having a customs union temporarily during a transition period is to give business more time to adjust to the final UK-EU relationship.

Legatum ignores all of those arguments on the grounds that the UK needs to grab WTO leadership and to do so fast. It does not say what the benefit of leadership will be other than the questionable claim that it is needed so other countries can take the UK seriously. And of course that it will bring pride and the futile hope that the world will be spurred into creating a free trade paradise.

If this were just about a paper from an ill-informed institute, it would not matter much. The problem is that misguided jingoism is common in the debates about Brexit. Legatum’s line feeds straight into Fox’s preoccupations, for example.

There are real trade-offs and real dilemmas that have to be tackled. Talk of UK leadership in trade is unrealistic, unhelpful and a distraction.


Updates: None so far

Photocredits:
• Major General Wellesley (mounted, the future Duke of Wellington) commanding his troops at the Battle of Assaye (J.C. Stadler after W.Heath). Public domain, National Army Museum

• Delegates at the 2015 Ministerial Conference, in Nairobi, © WTO. Courtesy of Admedia Communication


UK, EU, WTO, Brexit primer — 1. WTO membership

Let’s keep this simple. What lies behind the sudden surge in interest in the UK’s and EU’s relationship with the World Trade Organization? First: the UK’s WTO membership

By Peter Ungphakorn
POSTED OCTOBER 7, 2017 | UPDATED OCTOBER 10, 2017

Adam Sharpe is my editor at IEG Policy. On October 5, he emailed me. “I almost spat my coffee out,” Adam wrote, “when I turned on twitter and saw that ‘EU-UK WTO’ was trending this morning. Looks like TRQs are now ‘mainstream’.”

“EU-UK WTO” was trending because suddenly the media were reporting on some highly technical discussions related to the UK leaving the EU (Brexit) and the implications in the World Trade Organization (WTO).

Room W, WTO
In the WTO, the EU generally speaks on behalf of its member states, including the UK

JUMP TO
The UK is a member
The UK will still be a member

The surge in interest was sparked by reports of a “breakthrough deal” in the separation talks between the UK and EU. The two were about to agree on a common position in the WTO. More reports followed almost immediately saying the US, New Zealand and some other WTO members rejected that position. This sparked a flood of comments, in many cases reflecting misunderstandings.

So here are a couple of primers on what this was all about. We’ll get to the “breakthrough deal” and those “TRQs” in part 2. First, the UK’s WTO membership.

The UK is a memberBack to top

The UK is and will continue to be a WTO member. All experts agree that it is a member. All but a tiny minority also agree that there will be no break in its membership when it leaves the EU. There will be negotiations with other WTO members, but that will only be about some of the terms of membership — the commitments the UK makes in the WTO — not membership itself.

UK signed WTO agreement
The UK signed the 1994 agreement setting up the WTO. From the UN Treaty Collection

What matters in practice is that for now at least, all other WTO member governments accept the UK will continue to be a member. They are the ones who count because the WTO is run by them, and it’s the members that the UK will be dealing with.

For what it’s worth, the WTO Secretariat, also shares the view. Director-General Roberto Azevêdo has said it on several occasions including in an interview with the BBC’s Stephen Sakur (partial transcript here). But it’s not the Secretariat’s decision.

The WTO was originally the General Agreement on Tariffs and Trade (GATT). The UK helped create GATT in 1948 and was therefore a founder-member. Then in 1973, the UK joined what is now the EU.

Then, in 1995 the WTO was created out of the GATT system. The EU became a member of the new organisation. So did the member states. Right now, the WTO has 164 members. The EU is 29 — the EU itself plus each of its 28 member states.

Because the EU has a common commercial policy, in the WTO it generally speaks on behalf of its member states (including the UK, France, Germany, etc). The member states do speak independently on issues such as administration and the budget, but not on the bulk of WTO affairs.

This is one reason why people are confused about the UK’s WTO membership. Because the EU is a member it’s easy to think that by leaving the union, Britain will also lose WTO membership. That is not the case. The UK is a member in its own right.

The UK will still be a memberBack to top

The other source of confusion is the fact that the UK will have to negotiate something in the WTO. In fact, so will the EU, whose membership has not been questioned.

The UK will not be negotiating membership. It will be negotiating some of its promises to other WTO members.

This is linked to confusion about WTO “rules”. A common misunderstanding is that if London and Brussels cannot agree on a bilateral free trade arrangement, then trade between them will fall back on “WTO rules”, in practice tariffs and quotas.

To understand why this is a misunderstanding, we have to distinguish between the system’s “rules” and its members’ “commitments”.

Marrakesh Ministerial Conference 1994 end of Uruguay Round
Rules and commtiments: WTO agreements at the signing ceremony, Marrakesh, 1994. The rule book is on the far left. The rest are more than 20,000 pages of the original 123 members’ individual commitments

The WTO rule book is about 500 pages long. Its contents are the agreements the membership has negotiated over the years since the 1940s. They cover a wide range of issues, applying to all members:

Each of these includes principles such as non-discrimination, obligations to make information available, and special treatment for developing countries.

Individual members’ commitments are also the result of negotiations, but they are different for each member. Currently, they probably run to around 30,000 pages. They list what each member has agreed to do to open its goods and services markets and to limit certain types of subsidies. It’s all negotiated and some do more than others.

The lists of commitments are called “schedules” because they usually start off with timetables for achieving what was agreed, for example to reduce a tariff in equal steps over 10 years from 25% to 15%. They limit how much a country can protect its domestic producers, so if the listed tariff is 15%, then that’s a maximum. The country is free to apply a tariff below 15% but if it wants to go above (as Ukraine has done recently with some of its tariffs), it has to renegotiate.

WTO membership therefore requires both accepting the rules and making individual commitments. Does the UK do both?

Yes, both. But it’s the commitments that are most immediately related to Brexit. They determine the conditions of the UK’s trade with the rest of the WTO, particularly for import tariffs, quotas, farm subsidies and services. And they are what the UK and EU will “fall back on” bilaterally if they do not have a free trade agreement of some kind.

As an EU member, the UK’s commitments are bundled with the EU’s. (If you really want to look at the gory details you can see these pages on goods and services schedules. You have been warned.)

To most people that means the UK’s commitments can be inferred from the EU’s. The EU’s present tariff ceiling on some types of shoes is 8%. That’s currently also the UK’s tariff ceiling for those types of shoes, and will continue to be after Brexit unless the UK wants to change it.

A tiny handful of people say that when the UK leaves the EU it will have to create its schedules of commitments from scratch. The UK’s schedules cannot be inferred from the EU’s. Therefore, according to this argument, if there is no agreement on the commitments on the day Britain leaves the union then it will not have schedules and therefore its membership will lapse.

But, as I said, for the time being at least, the people who count — WTO member governments — do not share that minority view.

In any case, if by Brexit day, March 29, 2019 — when the UK becomes an independent WTO member — a set of documents called schedules has been agreed in the WTO, then it won’t matter whether they should be seen as inferred or created from scratch.

Still, between now and Brexit day, some hard talking in the WTO lies ahead particularly for the UK, but also the EU.

The bargaining won’t be about the 8% tariff on shoes. It will be about the almost 300,000 tonnes of sheep and goat meat from New Zealand and elsewhere, which can now be imported duty-free into the EU. It will be about similar conditions for a range of other agricultural products.

These are the famous tariff-rate quotas (TRQs). I’ll look at them as simply as I can in part 2.


Updates: October 9, 2017 —  minor edit to make text clearer; October 10, 2017 — adding links on UK in the WTO
Photocredits
: the author


Who put the boot into Canadian dairy and why?

When journalists don’t understand WTO work they jump to wrong conclusions. The questions Canada faced in the Agriculture Committee were not a geopolitical attack. They were more important than that

By Robert Wolfe and Peter Ungphakorn
POSTED JUNE 23, 2017 | UPDATED JUNE 24, 2017

Agriculture attachés from around the world may be surprised to learn that Vladimir Putin has taken an interest in their work in Geneva and is targeting Canada’s supply-managed dairy industry.

Or maybe they won’t as they realise a huge amount of journalistic licence has been injected into this account of a routine but important meeting at the World Trade Organization (WTO) on June 7 (The Globe and Mail, “Countries pile on in attack of Canada’s dairy regime”, June 18, 2017).

Dairy cow Canada
Canada has faced 156 sets of questions about its dairy policies, in almost every meeting except for a four-year lull

Does the Russian president really think the price of ultra-filtered milk is of such geopolitical significance that he ordered his agriculture officials at the WTO to intervene?

“Whoa. What? Russia — architect of central economic planning in the Soviet era — is lecturing Canada about the evils of supply management?

“That can’t be good.

“That Russian President Vladimir Putin has found common cause with some of Canada’s closest trading partners is a measure of the powerful forces lining up against this country’s embattled dairy industry.”

The Globe & Mail June 18, 2017

What really happened in that June 7 WTO meeting is much less dramatic and far more important than that. Canada should welcome Russia’s intervention, but for completely different reasons.

There were actually two separate issues in the meeting. One was an annual look at how countries are keeping their 2015 promise to scrap export subsidies. Canada still subsidises butter exports, which aroused comment from a number of countries.

But Russia “lecturing Canada about the evils of supply management” was no more withering than: “We’re interested too”, more or less.

(In fact, Russia did do a bit more than that. It joined Canada and other members of the “Cairns Group” of successful agricultural exporters in circulating a paper on export subsidies (pdf). There is no reference to anything related to supply management.)

Canada’s supply management (actually, milk classes) featured separately in 80 questions from New Zealand, Australia and the US. On this, Russia said nothing. Perhaps it should have.

Let’s take a step back. The WTO operates a system of agreements that its member countries have negotiated and signed. One of them is about reforming agricultural trade. WTO committees are where all its members can monitor how well the agreements are being implemented.

The Agriculture Committee does this three or four times a year. Questions and answers are key.

There are lots of them. Since the WTO was created in 1995, Canada alone has submitted 1,131 sets of questions on all agricultural trade issues in all but a couple of the 84 meetings. Canada did not lecture any other WTO member but occasionally asked whether a country’s policy was wise or legal.

In the same period, Canada has faced 156 sets of probing questions about its dairy policies, again in almost every meeting, except for a lull between 2000 and 2004.

And yes, the reason for those questions in both the WTO Agriculture Committee and in other meetings is surprise that a country supposedly in favour of liberalizing farm trade maintains strong protection for dairy. Such questions are not an “attack”, but Canada did have to defend the high import duties and subsidies that protect supply managed products in the stymied Doha Round negotiations.

In the June 7 meeting, the 80 questions Canada faced were grouped into 13 sets, one from New Zealand spread over five pages. Almost all were about Class 7 or other milk classes.

Canada wasn’t idle either. It asked 19 sets of questions, seeking answers from the US, EU, Ukraine, Panama, India and Turkey on a range of issues.

The meaning of questionsBack to top

A lot of these questions are just seeking information: what a new programme does, how a programme works and so on. Some focus on particular policies, such as Canada’s milk classes, because the countries asking the questions — mainly New Zealand, Australia, the US and EU — are worried that these policies are a sneaky way of hiding subsidies.

In the WTO the questions can only really be turned into an “attack” if New Zealand and co believe Canada is subsidising beyond the limits it has agreed. Canada has only ever faced two legal challenges on dairy products, both in 1997 and both involving milk classes (this and this).

This kind of work is crucial if trade negotiations are going to have any meaning. You don’t just wake up, negotiate, sign an agreement and go back to sleep.

The agreement has to be implemented and the countries that negotiated the deal have to be able to see that everyone is honouring it.

This is hard work. For agriculture, all countries have to share information with each other (technically, they “notify the WTO”) on how much they have subsidised each year, what policies they have that might affect prices, production and exports, and what has been happening with imports, particularly if quotas are involved.

Just compiling and sharing the information can be a huge task. Once it’s available it becomes an absolutely essential way for countries to ask each other about the data so they can understand better, to monitor how level the playing field is in agriculture, and for the world at large to do the same.

Treating questions as attacks is therefore about as useful as a teacher complaining about questions from the class. This is about understanding and feedback.

So Russia’s involvement should also be welcomed. Russia is a new WTO member. It only joined in 2012. It’s still learning how the WTO works. The greater the interest it pays to WTO proceedings, the more it will be able to be a responsible WTO member. If it can ask 1,131 questions in the next two decades it will be as good a world trade citizen as Canada.

Who knows? President Putin might even learn something too.


Robert Wolfe is Professor of Policy Studies at Queen’s University in Kingston, Ontario and co-editor of a new IRPP book, Redesigning Canadian Trade Policies for New Global Realities. Follow him @BobWolfeSPS

Updates: June 24, 2017 — added text and links on joint Cairns Group and Russia paper on export subsidies; added clarification that probing questions about Canada’s dairy policies do reflect concern

Photocredits: Public domain CC0 except Holstein cow in Nova Scotia 2015 by Dennis Jarvis, Halifax, Canada CC BY-SA 2.0