How feasible are WTO Joint Statement Initiatives?

 How feasible are WTO Joint Statement Initiatives?

Phot by Văn Long Bùi

Introduction

In the recent years, the World Trade Organization (WTO) has been subject to severe criticisms on account of its inability to conclude any negotiations. The lack of consensus among its diverse membership, who differ considerably in terms of their economic and socio-political structures and interests, has been at the core of the discussion. In an attempt to navigate the decision-making deadlock, some like-minded members proposed the innovative approach of Joint Statement Initiatives (JSIs) during the 11th Ministerial Conference (MC11) held in Buenos Aires in December 2017. However, this new approach has faced criticisms and is still hotly debated.

In this context, our research analyses the feasibility of JSIs and their possible negotiating outcomes, considering the WTO’s Most-Favoured-Nation principle (MFN) and consensus decision making practice. Moreover, it provides a tentative concept for JSIs and possibilities of adopting them within the WTO system. The methodology builds on a qualitative analysis of data collected from primary and secondary sources. This research involved 17 interviews, conducted during the period of June to December 2020, with academics, general practitioners and WTO missions. Anonymity is guarded at all times, as it was requested by interviewees. 

The following sections of the paper focus on the understanding of JSIs and their possible insertion into the WTO system, taking into account the political, economic and legal feasibility.

A tentative definition for JSIs

JSIs can be broadly defined as a plurilateral negotiating tool triggered by a group of WTO members who start negotiations on certain issues without adhering to the rule of consensus decision making. They are primarily driven by developed like-minded members, although there is also some participation from developing countries that seek to tap into opportunities in sectors with limited WTO jurisprudence (such as e-commerce or investment). However, these negotiations also face many challenges which vary based on the sectors they cover. 

Through the interview process, several constitutive elements of JSIs were identified. In general, there seems to be an agreement on JSIs being open in membership and used primarily as a negotiating tool. However, MFN treatment and market access remain some of the overarching issues of controversy. A vast majority of the interviewed actors, especially general practitioners and developed WTO missions, reluctantly agreed that only JSIs which have conditional MFN would be advantageous in terms of future negotiations. As a result of these discussions, the authors crystallised the following four designs for administering conditional MFN (see Figure 1):

  1. The first option is that only members within the JSI will be granted all the advantages of the JSI. The MFN granting condition here would be that the member is a party to the JSI.
  2. The second option is that the JSI would extend some benefits to all WTO members. However, for specific provisions or sectors within that particular JSI, the benefits would be extended only to the signatories of the JSI.
  3. The third option is to extend some benefits to the whole WTO membership, while other benefits (again specific provisions or sectors) would be extended only to WTO members (either parties to the JSI or not) which meet certain conditions. Those conditions would most likely be of a regulatory nature, such as free data flow or consumer protection.
  4. The last option is the most restrictive form of a conditional JSI and has been brought up especially in discussions surrounding e-commerce. The starting point would be that benefits under this JSI will be granted only to the JSI signatories, similar to the first option. However, this option further divides the JSI in two parts: (i) the normal agreement; and (ii) something similar to a JSI+ section. Under the normal JSI section, benefits would be extended to all signatories of the JSI; whereas JSI+ benefits, additional benefits, would only be available to those signatories who meet certain, again mostly regulatory, conditions.

Possible insertion of JSIs in the WTO system

After the JSIs negotiations finalise, if successfully concluded, the outcome will be a set of rules that the like-minded group has agreed upon. The next question would be how to implement them. 

To answer this, our research followed a multi-disciplinary approach. The political and economic feasibility sections are based on two simplified scenarios: (i) whether benefits derived from JSIs will be delivered on an MFN basis to the entire WTO membership; or (ii) whether JSIs’ benefits will be kept within the group, similar to Plurilateral Agreements (PAs) under Annex 4 in terms of MFN violation. The first scenario even includes alterations available to members in some WTO treaties to claim MFN compliance through a “conditional” approach, i.e., subject to the fulfilment of certain requirements. These options are particularly relevant for the JSIs negotiating e-commerce and domestic regulation of services rules. It also includes the innovative scenario where some JSIs (or certain provisions within them) can be granted through an MFN basis, while others do not. By contrast, the second scenario refers to JSIs acting similar to PAs under Annex 4 in terms of MFN violation.

Finally, the legal feasibility subsection summarizes the discussion and provides concrete options to insert JSIs into the WTO system.

Political feasibility

MFN-compliant JSIs

The first scenario, namely if JSI members agree to extend benefits to non-signatories, initially appears to be less controversial from a political perspective. As it would be MFN compliant, in principle, consensus would not be the primary concern. For instance, they could include the new obligations, only applicable to them, in their respective schedules of concessions under the General Agreement on Tariffs and Trade (GATT), or schedules of commitments under the General Agreement on Trade in Services (GATS). This would however trigger the negotiation process under GATT Article XXVIII and GATS Art XXI. (The procedures for modifying GATS commitments can be found in documents S/L/80 and S/L/84). 

Nonetheless, when analysing the adoption of new rules through dynamic lenses, the scenario still presents a series of political challenges given its long-term implications. Even if MFN-compliant JSIs are more feasible as a result of the factual circumvention of the consensus rule, this does not mean that the option has no downsides (see section 3.3. below). Indeed, one of our main findings is the additional layer to discussions besides MFN compliance regarding JSIs. Namely, the general dislike of JSIs within the WTO by a group of developing countries (led by India and South Africa), regardless of the form they take. 

Our interviews with stakeholders underlined the divide between the expectations of the developed and the developing countries. Developed countries and most of the academic discussions consider the MFN treatment of JSIs to be contentious with respect to the developing world. However, the concerns of developing countries stem from another facet, namely that, following our interviews, with developed countries, JSIs should be a stepping stone to multilateral rules. This triggers the fears of the developing countries and LDCs of JSIs rules being eventually multilateralised. As argued by Draper and Dube (2013), the previous multilateralization of the Tokyo Codes feeds this current fear. This is further aggravated by their limited or abacent participation in the negotiating process. Other complications highlighted by the interviews with some developing countries and LDCs, as well as organisations representing them, were that JSIs do not build on the Doha topics and that JSIs would set a baseline within the WTO system. Moreover, concerns preside over JSIs building on cutting-edge issues that less developed countries do not understand and do not have domestic capacity for, thus hindering their regulatory space. 

 

Table 1 summarises this clash, which seems to be the greatest challenge as it shows strong contradictions in the expectations regarding the future of JSIs.

Table 1. Comparison of JSI-related fears and expectations

Fears of developing countries and LDCs Expectations of developed countries
  • Setting up a baseline for future agreements.
  • Previous experiences (Tokyo Codes + multilateralisation process).
  • Limiting policy space.
  • Developed countries cheating the system (“dishonest”).
  • JSIs as “negotiating tool” to achieve future multilateral agreements.
  • Moving forward with cutting-edge issues.
  • Misleading assumption: as long as it is MFN extended, developing countries won’t mind.

Source: Own elaboration

 

MFN-violating JSIs

Under the current state of the WTO, if JSIs are not extended through an unconditional MFN basis to the entire WTO membership, they would opt the form of PAs under Annex 4. Consensus is needed for initiating formal negotiations or for amending the WTO Agreements to introduce a new Annex 4 agreement. Having previously identified the general dislike of some Members to JSIs, it is important to note that even if they have not been able to block JSIs’ negotiations, they can always block an outcome within the WTO system. In this sense, the second scenario presents additional political challenges. The need for consensus to introduce JSIs as Annex 4 agreements is further discussed in section 3.3.

Economic feasibility

The way in which a JSI could impact  its members and non-members economically can vary depending on the distinctive features of each country and the nature of the subject matter of each JSI. Like accession to any other agreement, the member’s decision to join a JSI is contingent upon its cost-benefit analysis. 

Generally, if a country has adequately invested in building expertise to participate in the WTO system, then the marginal bureaucratic cost of joining JSI negotiations and eventually the JSI itself, would be low. However, if a country has inadequate expertise with a small trade ministry that has low political influence domestically, then joining a JSI would be difficult. As with any other WTO negotiations, any country deciding upon joining a JSI also has to determine if the JSI would complement or cause friction with its existing commitments under any previous regional or bilateral agreements.

Conducting an econometric analysis to assess economic feasibility of JSIs is beyond the scope of this study. 

MFN-compliant JSISs

Providing an unconditional MFN to every member of the WTO would not disincentivise the economic rationale of forming the JSI as long as all major players in the sector are on board (that is, achieve a critical mass). Building on the logic behind critical-mass agreements presented by Low (2011), if all dominant players are a part of the JSI, then the risk of free-riding no longer remains a relevant concern. This thus highlights the importance of a key player like India not being part of the e-commerce JSI. Moreover, extending the provisions on an MFN-basis would also reduce the associated costs in administering the JSI agreement. 

On the other side, assuming that a JSI extends its rules and benefits (but not the obligations) on an MFN basis to the entire membership and the country does not trade significantly in the sector under consideration, it might economically not be worthwhile for a new country to join the JSI. In this case, by joining a JSI in a sector where the country currently does not trade much, it accepts to bind itself with rules and regulations in an unfamiliar domain with no significant economic benefits derived in the present.

MFN-violating JSIs

Countries that are part of the JSI might opt to subject provisions of the agreement on a conditional-MFN basis to mitigate the risk of free-riding, especially when other key players are not onboard. They might choose to extend benefits and markets access based on conditions which ensure maximisation of their own economic and political interests. 

If this was to be the case, it might not be of consequence to a country deciding to join the JSI which is not trading much in the sector as long as there is no fear of the JSI being made multilateral. However, if a country trades extensively in the sector, then it needs to evaluate the losses it will incur by not joining.

Legal feasibility

The consensus constraint

The G20 Trade and Investment Communiqué (2020, 12) perfectly summarises the opposed opinions on the status of consensus within the WTO system, as some, members consider it to be just a practice, while others consider it to be a principle

In this context, some possibilities to incorporate JSIs into the WTO system would require consensus by the membership. This becomes a problem given the strong opposition toward JSIs by some countries. Therefore, to evaluate the legal feasibility of insertion of JSIs, it proves useful to first analyse the legalities surrounding the consensus obligations and possible ways to depart from it.

Articles IX and XII of the WTO Agreement provides for a firm consensus-based decision making. However, the same articles also lay down the possibility of majority voting, should consensus fail. Although this majority voting option has been largely ignored by the membership, it is still important to note that, at least theoretically, it does exist. 

Nevertheless, not all options are subject to a default majority voting rule. Some exceptions, where consensus is non-optional, are of importance for the possible insertion of JSIs and have to be noted. First, Art. X of the WTO Agreement provides that any amendments to GATT Art. I referring to the MFN principle may be adopted exclusively by consensus, as well as any additional PAs to Annex 4. As previously noted, inserting JSIs over Annex 4 of the WTO Agreement could be an option for the adoption of JSIs. However, in this case, the consensus mechanism would have to be respected. 

Theoretically speaking, to entirely avoid the consensus rule, one option for members interested in JSIs would be to amend the GATT 1994 and GATS to include an Art. XXIV-like option for JSIs. In both scenarios, the WTO Agreement itself would have to be amended, which, as seen by Art. X:1, is possible through majority voting.

Another option that is starting to gain momentum is to flexibilise the overarching concept of consensus. Low (2011, 2) presented the notions of substantive and procedural decision making, where procedural aspects deal with organisational matters, transparency, representation, conditions of access, etc. In contrast, substantive decisions involve the creation of new obligations and rights for WTO Members. In a recent discussion about the Appellate Body (AB) crisis, Hoekman and Mavroidis (2020) argued for the possibility of process-related procedural changes being subject to vote if necessary, while strongly defending consensus decision-making for substantive matter. Several mentions of this approach were advanced during the conducted interviews.

Given that PAs do not create obligations or rights for non-signatories, the inclusion of a new agreement under Annex 4 would fall under the procedural category. Hence, the option of relaxing the notion of consensus for procedural decisions would allow JSIs to be inserted under Annex 4. To be noted, the research does not mean majority voting as an exclusively coercive means. Rather, the authors highlight the difference between consensus and unanimity, as well as the importance of providing a legitimate platform to voice concerns regarding the initiatives. 

Insertion options  

From a legal perspective, there are several possible options for the insertion of JSIs into the WTO. It is important to note that, from a purely legal point of view, there is not a great difference between MFN-breaching and -compliant JSIs in terms of insertion. The legal insertion mechanisms would stay vastly the same with procedural rules very similar to the consensus prevailing. Regardless, factually speaking, unilateral schedule modifications could not be challenged by other members. The legalities are once again outperformed by reality. 

This section presents seven options for inserting JSIs in the WTO. Four of these are means available without modifying the current system; whilst the research also draws up three innovative approaches that build from the understanding that a WTO reform is due.  

To begin with, following are the four options without modifying the current WTO system:

  1. A JSI could be added to Annex 4 of the WTO Agreement as a PA. 

However, as noted earlier, such an addendum would need to be adopted by consensus, which is extremely unlikely.

  1. A JSI could be formed under GATT Art. XXIV or GATS Art. V (under the framework of an RTA).

This option, however, would have one major legal drawback. To form such an RTA the members would have to meet certain legal conditions. Namely, the liberalisation of “substantially all the trade” under GATT Art. XXIV and the “substantial sectoral coverage” under GATS Art. V. Most of the current RTAs do not fulfil these requirements, it thus seems questionable whether the WTO Members would want to further aggravate this misuse.

Importantly, representatives of developing countries and LDCs, as well as general practitioners dealing with development issues, voiced that this option is their preferred one. In other words, developing countries and LDCs would favour that Members who would like to enter a JSI, would do so over the framework of an RTA. Representatives of developed countries in turn responded with the fear of fragmentation surrounding RTAs, which was especially prevalent at the beginning of the century. They also noted that this option would be less optimal for developing countries, as it would not extend the benefits to them. However, as has been noted earlier, developing countries’ concerns are not based on MFN benefits as such, but rather about creating a baseline within the WTO limiting their own policy space. 

  1. JSIs’ benefits could be added via an Annex to GATS Art. II.

 At least, with regard to JSIs covering trade in services, adding certain commitments to the Annex to Art. II GATS would be an option. Even if this option has never been used previously and needs consensus to be approved, theoretically such a possibility exists. Moreover, as stated in the conditions of the Annex itself, such unilateral exceptions should be maintained for a maximum of 10 years, and shall, in any case, be subject to elimination under the next negotiation round. 

  1. JSIs’ benefits could be included via Amendments of GATS’ schedules of commitments.

GATS schedules can be amended under GATS Art. XXI to include conditions of market access and national treatment. With regard to JSIs revolving around trade in services, this option could be a feasible approach. 

GATS Art. XXI, together with the 1999 Decision on Modifications of Schedules (S/L/80) provides that if a member would like to modify its schedule, it shall enter into negotiations with affected members. Given the current negotiation deadlock, it seems questionable how far such an approach would be fruitful. 

However, academics and practitioners have stated that an introduction of further commitments (meaning, better treatment) on an MFN-basis into the GATS schedule could only require a unilateral change and would not be subject to negotiation. This idea builds on the “certification” procedure pursuant to the 2000 Decision on Procedures for the Certification of Rectifications or Improvements to Schedules of Specific Commitments (S/L/84). Even if other members are allowed to “raise objections” to the amendment of the respective schedule, in practice WTO members change their schedules unilaterally irrespective of possible objections. Departing from the purely legalistic approach to the amendment or certification process, it thus seems unrealistic that an opposing member would be able to stop the insertion of JSI commitments via schedules.

It is important to circle back to the divide between developed and developing states in the discussion surrounding JSIs. Following our interviews with practitioners and academics, this amendment of GATS schedules seems to be a preferred way for developed countries. On the other hand, some developing countries and LDCs perceive this option as a dishonest and unfair practice that circumvents the system. Indeed, they fear that by inserting JSI commitments over schedules, which form a part of the WTO agreements, developed members will introduce a baseline for future commitments. Thereby, depriving developing countries of their policy space.

The above four options exhibit that, given the prevalence of consensus in the current system and the contradictory preferences of developed and developing countries, implementing JSIs without changing the WTO framework would be a problematic task. Building on the understanding that a WTO reform is due, the authors present three innovative approaches for inserting JSIs:

  1. JSIs added via Annex 4, based on a loosening of the procedural consensus rule.

This option builds on the previously presented idea of dividing the overarching consensus rule into procedural and substantive consensus, while relaxing the rigidity for procedural matters. In this scenario, a JSI introduced via an addendum to Annex 4 could be subject to a feasible majority voting. 

  1. A new GATT and GATS Article for sectoral agreements.

If WTO members would be willing to amend the obligations of the GATT and GATS (as discussed above, subject to majority voting), one could include GATT Art. XXIV / GATS Art. V look-alikes for agreements with sectoral coverage (meaning JSIs). This would lay down the foundation for all other JSIs and at the same time provide future JSIs with a threshold within WTO law to which they would be accountable. It would also prevent or minimise the misuse of GATT Art. XXIV / GATS Art. V for these purposes, while accommodating the idea of developing countries to outsource JSIs into constructs similar to that of RTAs.

  1. Reinterpretation of the MFN principle.

There is some space for the AB to elaborate on the interpretation of the MFN principle based on Canada – Autos (DS139) and EC – Seals (DS400). This case law showed that only conditions based on a “detrimental impact on competitive opportunities” shall be prohibited. However, as most conditions might inherently have an impact on competitive opportunities, it is unclear what the AB meant with this interpretation. It could be driven by the AB differentiating between “unconditionally” as per the legal text of GATT Art. I:1 and “not attaching any conditions”, thereby giving some freedom for conditioning benefits within the JSIs.

Regardless, given the current WTO deadlock, such reinterpretation either by the AB or by the Membership seems unfeasible for the time being. Importantly, even if the AB reinterprets the MFN principle, this might be regarded as another example of judicial overreach and face strong resistance. 

Conclusion

As the WTO is a member-driven organisation, any decision ultimately lays on the will of its members. Currently, the organisation faces three main challenges related to its dispute settlement mechanism, the development dimension, and the negotiating deadlock. These interconnected challenges have to be dealt with simultaneously involving a holistic approach.

JSIs seem to be the most feasible way forward given the current geopolitical scenario. In this context, the research identifies two preferred options to insert JSIs into the current WTO system: (i) through RTAs, preferred by developing countries and LDCs; or (ii) through an amendment of the Members schedules, most likely in the area of trade in services, preferred by developed countries. The feasibility analysis shows two general implementation challenges. First, whether JSIs would be MFN-compliant or not, taking into consideration that MFN breach will face greater resistance. Second, the clash of expectations between developed and developing countries concerning the future of JSIs.

Our research brings to the forefront the inherent dichotomy in the approaches to dealing with sectoral issues between the developed countries and the developing countries and LDCs. The assumption of MFN compliance facilitating the eventual multilateralization of JSIs to create a baseline is exactly what the developing world fears. As it stands now, the fears of developing countries seem to be the desired goals of the developed countries. However, this contradiction is being swept under the carpet for the time being. 

 

Fiama Angeles, Riya Roy & Yulia Yarina

Fiama Angeles, Riya Roy and Yulia Yarina are MA candidates of International Affairs, Trade and International Finance The Graduate Institute, Geneva, Switzerland.

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