Alternatives to consensus at the WTO

Philip Levy 19 June 2010

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The trade negotiations known as the Doha Development Agenda were launched in 2001 and scheduled to conclude at the end of 2005. That did not happen. Nor did they conclude in 2006, 2007, or 2008, despite urgent importuning and gatherings of dignitaries. Although the G20 repeatedly endorsed the goal of concluding the WTO talks in their 2009 proclamations, progress was not sufficient even to merit a ministerial review in the spring of 2010 (Baldwin 2009, Hufbauer et al. 2010).

So what went wrong?

The WTO was the shiny new construct that was meant to replace the makeshift GATT in the mid-1990s. Emerging from the Uruguay Round of trade talks, it was to be robust, strong, and efficient. It was to bring all of its membership together in a single undertaking, moving past the 1970s practice of clubs to which only some nations belonged (“codes” in WTO jargon).

There are a number of potential explanations. Jones (2010) addresses the complaints of developing countries about their obligations under the last trade round and their difficulties with the WTO and its bargaining structure. In Levy (2005), I noted that the Uruguay Round’s single undertaking was a one-time trick whereby reluctant countries could be coaxed into consensus; they either joined or they were not founding members of the WTO.

A central obstacle to a Doha agreement has been the inability to reach consensus, with a particularly prominent split between the large developed nations (the US and Europe) and the large developing nations (India and China). It is not clear whether this split is insurmountable, but it is at least worth considering alternative paths to advance without complete agreement among the 153 members of the WTO.

Suppose there is agreement between a significant subset of member countries on a set of new trade-related measures. Then there are two obvious alternatives to consensus:

  • The subset of countries could strike an agreement that would apply only to them. This is sometimes known as “variable geometry” because of the myriad potential country groupings that might emerge; or
  • The rules could be altered to allow this agreement to apply to the entire membership of the WTO – qualified majority voting.

Each of these would mark a drastic change from the status quo. Variable geometry would directly undo one of the signal achievements of the Uruguay Round, the single undertaking. Qualified majority voting has no precedent in the post-war global trading system.

Club of clubs approach

Lawrence (2006) argues for the variable geometry approach. He advocates a “club of clubs” in which the WTO would provide a home and operating framework for a number of plurilateral groupings. His analysis highlights some of the conceptual challenges posed by plurilateral groups within the WTO. A major concern stems from the way the plurilateral agreements of the 1970s were dealt with in the Uruguay Round. Countries that had not played any role in crafting those agreements later were compelled to accept them under the Uruguay Round’s “single undertaking”. They may fear a similar consequence of accepting a variable geometry approach in the WTO.

In trying to address such concerns, Lawrence’s proposal opts for a significantly tamer approach. All WTO members would be welcome at the negotiations, though not compelled to join. This would seem to invite mischief, when countries with no intention of participation are allowed to stymie or water down efforts to achieve deeper integration. Further, Lawrence’s proposal to forswear any future “single undertaking” incorporation of these plurilaterals into broader WTO rules poses a serious strategic question. Is it better to tackle an issue such as investment rules in a plurilateral setting now if doing so precludes future chances at broader applicability?

A second related question concerns linkages between issues in plurilateral agreements. If plurilaterals on investment and services were being negotiated in tandem, for example, could countries trade off concessions in one against the other? And could countries seek enforcement of those concessions through cross-issue retaliation? Again, Lawrence advocates a more limited approach. He would preclude such linkages.

Thus, within the realm of plurilateral considerations, there would be difficult choices to be made about how far subgroups could proceed under the WTO aegis. One consideration would have to be the inescapable competition with the existing proliferation of plurilaterals outside the WTO – bilateral and regional free trade agreements. North-North agreements have generally tackled a broader range of issues than those covered at the WTO and some North-South agreements have offered developing countries a means to commit to a broad range of policies in a way they cannot under the WTO (see Levy 2009). If we imagine a spectrum of plurilateral permissiveness within the WTO, with the current system at an “impermissive” extreme, the question is how much more permissive the WTO would have to be to allow meaningful agreements that would be attractive relative to the FTAs already permitted under GATT Article XXIV?

Majority voting

Whereas a permissive approach to plurilaterals has past precedent under the GATT and WTO, there is no such tradition for qualified majority voting. There is abundant experience with the practice in international institutions, however (Tijmes-Lhl 2009). The EU, IMF, and World Bank all allow select actions in the face of objections by a sufficiently small minority. The UN Security Council can also be interpreted this way, since it is a small but important subset of the membership of the General Assembly.

A central question in any such setting is how to persuade the disgruntled minority to comply with the decision of the qualified majority. When the IMF or the World Bank decides to move forward on a project, the funds are already at hand. An unhappy objector could threaten to leave the institution or could withhold future payments, but this seems relatively unlikely over a single decision. If the unhappy nation found itself overruled on the vast bulk of the organisation’s decisions, it might well consider such drastic action.

A major difficulty with applying such a model to the WTO is that it would almost certainly mean that a dissenting nation would be losing on really big issues, not small ones that would be easy to overlook. The global trading system has concluded only two big multilateral agreements in the last 40 years – these are not minor votes.

For example suppose there were a Doha package on the table, as there was in the summer of 2008. Imagine a scenario with qualified majority voting. Would the voting rules require major nations such as India and China to be part of the approving majority? If so, the rules would not have changed the result. If not, it begs the question of how such countries could be compelled to adopt the broad range of measures that a Doha package would entail. Trade packages, after all, have to be implemented by changes to domestic law. Would the US Congress or Indian Parliament change its laws to comply with new WTO rules that it disagreed with? The prospect is daunting, to say the least. It is difficult enough to push through (limited) legal revisions required by the rulings of the Dispute Settlement bodies of the WTO.

Conclusions

The persistent ill-health of the Doha trade talks poses a serious risk to the global trading system and justifies an exploration of new and potentially radical remedies. Of the two discussed here, the variable geometry option of strong plurilateral agreements under the WTO seems the most promising. Such an approach has its own share of problems, but may be preferable to waiting and hoping that a consensus will finally spring up among the 153 nations of the WTO.

References

Baldwin, Robert (2009), “Standstills in WTO trade negotiations are not that unusual”, VoxEU.org, 15 December.

Jones, Kent (2010), The Doha Blues: Institutional Crisis and Reform in the WTO, Oxford University Press.

Lawrence, Robert Z (2006), “Rulemaking Amidst Growing Diversity: A Club-of-Clubs Approach to WTO Reform and New Issue Selection”, Journal of International Economic Law, 9(4):823-835

Levy, Philip I (2005), “Do We Need an Undertaker for the Single Undertaking: Considering the Angles of Variable Geometry,” Chapter 14 in Simon J Evenett and Bernard M Hoekman (eds.), Economic Development and Multilateral Trade Cooperation, Palgrave-McMillan and World Bank.

Levy, Philip I. 2009. “The US-Peru Trade Promotion Agreement: What Did You Expect?” American Enterprise Institute Working Paper Series on Development Policy No. 1, October.

Hufbauer, G, J Schott and W Wong (2010), “Figuring out the Doha Round”, VoxEU.org, 22 February.

Tijmes-Lhl, J (2009), “Consensus and majority voting in the WTO”, World Trade Review, 8(3),417-437.

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Topics:  Global governance International trade

Tags:  WTO, Doha Round, international trade

Resident Scholar, American Enterprise Institute

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