Punta del Este Group (GPE)

In Defence of Multilateralism and Reform of the Organisation

Organisation

February 2019
http://grupopuntadeleste.com

Punta del Este Group (GPE)

In defence of multilateralism and World Trade Organisation reform

Organisation

1. Diagnosis
1.1. 1.1. The problem
1.2. The urgency: from dysfunction to paralysis
2. Necessary action
2.1. Urgent
2.2. Important

The Punta del Este Group (GPE) has been created to defend the multilateral trading system and reform the World Trade Organisation (WTO), inspired by the recent Declaration 1 of 33 Latin American international trade professionals. This group is an independent network acting in its individual capacity, on a voluntary basis and based on its direct and extensive personal experience in different responsibilities in the governance of the Multilateral Trading System (MTS).

The purpose of the group is to contribute to raising awareness of the seriousness and complexity of the current situation of the multilateral trading system, particularly in Latin America, and to contribute to identifying solutions to its problems by promoting a constructive and practical debate at the global level.

The group is composed of Fernando de Mateo, Hernando José Gómez, Alejandro Jara, Héctor Torres, and interacts with Arancha González, Pascal Lamy, Patrick Low, Carlos Pérez del Castillo, and former presidents at the beginning and end of the Uruguay Round, Enrique Iglesias and Sergio Abreu. Senior officials of international organisations were also consulted.

Logistical and general support was organised by Carla Antonelli, with the invaluable support of expert María Cassarino in taking notes during the three days of work. The group was initiated and supported by Horacio Sanchez-Caballero, mentor and inspirer of this group, for his initiative and support to the constitutive meeting that took place in Punta del Este, Uruguay, 8-10 January 2019.

DIAGNOSTIC

1.1. The problem.

Power politics, ever present in the international system, is replacing and stifling rules-based international cooperation. There is a rapidly growing predominance of unilateralism in the conduct of economic and trade relations and, at the same time, a dangerous erosion of the system of rules, institutions and principles that has been the basis for the growth of world trade and the world economy since 1947. Legal certainty is at stake and the resulting increased uncertainty has very negative consequences for business operators, investors, consumers and governments. In the short term, this weakens the prospects for economic expansion; and, in the long term, it hampers the potential of international trade to drive growth and finance development.
1.2. Urgency: from dysfunction to paralysis
The WTO’s dysfunctions are evident in three areas of its mandate, namely as a forum for negotiation, dispute settlement and administration of the implementation of WTO-covered agreements.
This dysfunctional situation could quickly turn into paralysis, from which it may be very difficult to emerge. Dispute settlement. The current state of affairs will immobilise the dispute settlement mechanism. The lack of the minimum number of “judges” in the Appellate Body will cause an unprecedented situation in the WTO. Out of a total of seven members, the Appellate Body currently functions with 3, which is the minimum. In December 2019, two members complete their term of office. With only one member remaining, it will cease to function. Although panels will continue to be constituted, it is highly unlikely that the Dispute Settlement Body will be able to adopt reports that are appealed and therefore will not be able to “issue a final ruling”.

Normative role. Legislative progress was made in 2013 (Trade Facilitation Agreement) and in 2015 at the 10th Ministerial Conference (elimination of agricultural export subsidies and exemption from certain measures on public stockholding for food security). However, the WTO has been unable to pursue agricultural policy reform (as committed in 1995) or to act multilaterally to address the challenges of trade in the 21st century (e.g. investment, regulatory coherence and the digital economy). The WTO has not been able to reach a multilateral consensus to address old but current problems and new challenges.
In the short term, this situation will worsen if, at the next Ministerial Conference in June 2020 in Kazakhstan, a minimum multilateral agreement on the prohibition of subsidies for illegal, unreported and unregulated (IUU) fishing is not reached.
Administrative function. The efficient functioning of existing multilateral agreements ensures transparency of trade policies and effective collective monitoring. However, it is notorious that many members do not comply with the notification – as required under existing agreements – of measures that affect trade. This especially affects countries with fewer resources to identify those that may affect them. This problem is particularly acute in the area of subsidies. The negative impact is aggravated by the decision to decrease the frequency of the review of members’ trade policies, which does not seem to be a measure that contributes to the necessary transparency.

2. THE ACTION REQUIRED

The collective task ahead involves rethinking multilateralism for trade and adapting it to the requirements of the 21st century. Not everything requires reform of the WTO and not all conceivable reforms are immediately possible. International trade is perhaps only one third of the problem; the other two thirds have to do with how we process both dissatisfaction with globalisation and dissatisfaction with unprecedented but poorly distributed global prosperity.
The shift in the world’s economic power structure seems to have a direct impact on the multilateral trading system. The post-war conditions that enabled GATT 1947 are certainly not present. The GATT evolved from an interim trade agreement into the strong institutional framework of the WTO. This took place against the background of a general convergence among its main Contracting Parties and with the increasing participation of developing countries in the world economy.
The changes were not only in terms of their share in world gross product. The major economies that participated in this convergence process were market economies, had high per capita incomes, were liberal democracies and had some strategic security dependence on the United States. In each of these four respects, the relationship with China is now very different. This poses a central challenge and we ask whether the system of rules to be rebuilt is not one that, while striving for convergence, accepts and preserves coexistence.

In the context of such profound changes, we realise that institutional re-launching will be a long-term task. This will not succeed without minimal understandings between the new G2 – China/US. We believe that Latin American countries and, in general, all those who stand to lose without the guarantees and certainties provided by the multilateral trading system, are called upon to promote understandings between China and the United States that will help preserve and improve the system.
As this happens, it is necessary to differentiate between what requires an immediate solution (the urgent) and what needs a patient consensus-building process (the important).
With these realities in mind, we have decided to make proposals to:
(a) Avoid irreversible damage to the multilateral system.
b) Restore confidence and gradually create the conditions for reform.
c) Process institutional changes in an organic, gradual and bottom-up manner.

2.1. The Urgency

A. In the dispute settlement function.

The most urgent is to avoid the collapse of the Dispute Settlement Mechanism with the paralysis of the Appellate Body.
A fundamental political and legal balance has been broken and needs to be restored as a matter of urgency. A binding arbitration system such as that of the WTO, with exclusive jurisdiction and a high degree of automation, but embedded in a strong intergovernmental body, is only viable on the basis of the principle that it can neither add to nor diminish the rights and obligations provided for in covered agreements reached by member states as a result of negotiation. This principle – arguably the cornerstone of the system – is enshrined in Articles 3(2) and 19(2) of the DSU.

Also of concern is the Appellate Body’s informal but doctrinaire elaboration of a kind of vertical system of “stare decisis” (binding precedents), according to which panels must act in accordance with precedents established by the Appellate Body.

Recommendation
A ceasefire is needed to begin the restoration of confidence. This requires a serious political dialogue to unblock the current situation and to appoint the members of the Appellate Body.

This dialogue seems to have started around Ambassador David Walker and this process should be seriously supported by all.

In our view, WTO members should, as soon as possible, start by reaffirming some elementary principles and basic understandings based on the provisions of the Dispute Settlement Understanding, such as:
(a) Dispute Settlement Body (DSB). The highest entity entrusted with the administration of the dispute settlement system is an intergovernmental body, i.e. the DSB, and not the Appellate Body. Both the latter and the Panels are subsidiary bodies that “assist” the political body (DSB) in making recommendations or rulings.
b) Objective. The objective of the DSB is to achieve “… a satisfactory resolution of the matter in accordance with the rights and obligations under this Understanding and the covered Agreements” (Article 3.4 of the DSB).
(c) Legitimate interpretation. As provided for in Article IX.2 of the Agreement Establishing the WTO, the Ministerial Conference or the General Council shall have the exclusive authority to adopt interpretations of this Agreement and the Multilateral Trade Agreements. This logically implies that panel and Appellate Body interpretations must be restrictive and respect the negotiated texts.

d) Supremacy of Members. Since the WTO is a member-driven intergovernmental institutional framework, there is no “secondary law” or other sources of law in the system other than the texts of the agreements and related instruments included in the annexes to the Marrakesh Agreement establishing the WTO.

(e) Soft law. Panel and/or Appellate Body reports adopted by the DSB establish obligations only for the parties to the dispute and constitute only a guide for subsequent disputes.
f) The reaffirmation of these principles would facilitate dialogue and could be a solution to the impasse in which the Appellate Body finds itself, allowing for the appointment of all its members. The proposal we put forward aims to address the urgency and does not imply, for the time being, amendments to the DSB text, but rather reaching an agreement that reaffirms the existing principles, which in recent years seem to have been challenged in the actual functioning of the system.
However, a serious effort is certainly needed on the part of Members to improve the dispute settlement mechanism. This could be achieved through political dialogue to build the necessary consensus to resolve the various problems identified in the functioning of the dispute settlement system. In section 2.2(a) below, we make a proposal in this regard.

B. In the negotiating function

WTO members urgently need to show that they can reach agreement on relevant issues. This could be achieved by reaching agreement without delay, however minimal, temporary and evolutionary, on comprehensive and effective disciplines that prohibit certain forms of fisheries subsidies that encourage overcapacity and overfishing, and eliminate subsidies that contribute to illegal, unregulated and unreported fishing.

This objective has been repeatedly committed to at the ministerial level, most recently in 2017 at the WTO Ministerial Conference in Buenos Aires. It has been 22 years since the issue of subsidies contributing to overfishing was first raised at the WTO and 14 since ministers agreed at the Hong Kong Conference to negotiate a ban. Meanwhile, the percentage of the fish stock exploited at biologically unsustainable levels has increased from 23% to 33%, according to the FAO. Overfishing is undoubtedly multifactorial, but the contribution of subsidies is significant and shows the extremely high opportunity costs we pay for inaction, both in terms of natural resources and in terms of employment opportunities and food security.

Beyond the benefits of such an agreement, if the conclusion of these negotiations is once again postponed, the damage to the WTO’s credibility, under the current circumstances, could be definitive. Several Latin American countries played a leading role in setting and defending this agenda. It would be important that, with pragmatism, they now contribute to reaching the necessary consensus for an agreement.

It is also important to recognise and support the initiative of almost half of the WTO membership to launch negotiations on e-commerce. Since 1998, the WTO has carried out work on e-commerce. Reaching an agreement now would be an important institutional boost for the WTO.

C. In the Agreement Administration Function
To restore confidence in the system and among members, it is equally urgent to strengthen transparency and monitoring mechanisms, especially with regard to violations of notification obligations. In this respect, we will make concrete proposals for measures that can be implemented quickly (see point 2.2.3.).

2.2. What is important

a) Political dialogues to restore trust and create the conditions for reform.

We believe that preparing an agenda for “policy dialogues” and creating a “closed” space where participants can dialogue and explore innovative solutions without prejudice could foster constructive discussions, enhance mutual trust and understanding, and awareness of common challenges.
Dialogue is needed to address the use of distorting trade policies that are of systemic importance, as well as to discuss the new challenges posed by the digital revolution.
“Political dialogues” can serve to build consensus and be a prelude to negotiation, but we conceive of them as separate from the latter. Defining the agenda of “policy dialogues” will be critical to their success. The practice of using consensus to block the initiation of political dialogues should be avoided. No less important will be the selection of a capable chairperson who has demonstrated independence and diplomatic skills, and who is a reliable consensus builder who can help participants assess the real problems in their practical dimension.

b) Five proposals to process change organically, gradually and from the bottom up. The multilateral system is not an end in itself, but it is impossible to imagine an interdependent world without a system and without rules. Consequently, focusing on the issue of WTO reform implies rethinking multilateralism in the 21st century. With this approach, we will elaborate five brief proposals in specific areas. Far from nostalgically trying to recreate a WTO that is no longer functional, we seek to contribute to a debate on the future and the necessary reform to have an organisation adapted to the needs of the 21st century. Initially, we will put forward proposals on:

Opening a political dialogue on Special and Differential Treatment appropriate to today’s realities.
Explore the possibility of an Integrated Agenda on Non-Tariff Measures.
Strengthening the transparency of trade policies through a robust system of notifications and monitoring.
Strengthen and bring coherence to WTO research and technical cooperation.
Facilitate institutional cooperation and coherence with other international organisations.
In conclusion, we in the Punta del Este Group are convinced that it is multilateralism and not unilateral policies that will respond to the multiple challenges of an inevitably interdependent global economy. It is necessary to rethink the multilateral system in accordance with the new economic, political and social realities, but without losing sight of the need for a system of rules that provides predictability and legal certainty to all actors. Only in this way will it be possible for trade to remain an instrument for achieving our sustainable development goals. The reform of the WTO must be carried out in a formal process, necessarily preceded by a restoration of trust and dialogue. Latin America must be fully aware of the challenges of the moment and we are ready to make our contribution in this regard. Likewise, we are ready to contribute to the global debate, bringing our knowledge, experience and proposals.