World Trade Organization decision-making for the future

Patrick Low interviewed by Romesh Vaitilingam, 20 November 2009

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<p><em>Romesh Vaitilingam interviews Partha Dasgupta for Vox</em></p>
<p><em>November 2009</em></p>
<p><em>Transcription of an VoxEU audio interview [</em></p>
<p><strong>Romesh Vaitilingam</strong>: Welcome to Vox Talks, a series of audio interviews with leading economists from around the world. My name is Romesh Vaitilingam, and today's interview is with Patrick Low, Chief Economist at the World Trade Organization. Patrick and I met at the &lsquo;Thinking Ahead on International Trad&rsquo;e conference in Geneva in mid September 2009, where he presented a paper called &quot;WTO Decision Making for the Future.&quot; I began by asking him to explain the significance of this issue.</p>
<p><strong>Patrick Low:</strong> The WTO consists of a membership that is extremely varied: big countries, small countries, rich countries, less rich countries. And we need to think about how to make decisions in a context where we value universality. We need to be sensitive to differentiated levels of interest in particular things and priorities. And so one way of providing space to do that is to think about involvement in agreements being a function not necessarily of simply being a member of the WTO but of having certain characteristics, certain interests, in particular types of decisions and in different needs or areas.</p>
<p>So it's really about not obliging everybody to sign on to everything, especially if they're being asked to sign on to agreements that do not necessarily serve their best economic interests.</p>
<p><strong>Romesh</strong>: Can you explain the tools that you use, as an economist, to think about these issues of decision making?</p>
<p><strong>Patrick</strong>: Well, I think the literature on voting is useful for this, partly because it deals with the notion that the welfare implications of different types of agreements and different types of international cooperation can be highly varied. It's quite possible that a group of countries could get together, agree on something that actually made welfare worse, but they still benefited from it because they were able to extract economic merits from the rest. Even if an agreement was Pareto improving, that means that globally there was a benefit from it, you could still have a situation in which some won and others lost, because when we talk about negotiating rules, we're talking about some element of harmonization.</p>
<p>So this element of harmonization is what throws up costs and benefits, which traverse national boundaries. Unlike in standard trade liberalization, where for the most part, under usual assumptions, the winners and losers from trade liberalization will be located in the same jurisdiction and governments can deal with it in their own terms, in their own territories. With this, you have a distributional implication, which needs to be attended to as part of the deal cutting exercise at the international level.</p>
<p><strong>Romesh</strong>: Can you explain in a little more detail how the process of decision making currently works at the World Trade Organization and what the alternative systems might be?</p>
<p><strong>Patrick</strong>: At the moment, most decisions in the WTO, practically all of them, are taken on the basis of consensus. Consensus, in the WTO, is defined as not objecting. That's how you define it. So it's a bit different from unanimity. But, in practice, of course, there are large countries and small countries that are more influential and less influential players. In practice, this could be argued to be a hidden majority voting system. We don't use voting very much, and I don't suppose there would be much chance whatever of using voting. It would be extremely difficult.</p>
<p>We certainly wouldn't be able to use voting on the basis of one country, one vote. We would have tremendous difficulty working out how to weight the voting, and we'd then have additional difficulty in deciding what an acceptable majority was.</p>
<p>So I think this is not a practical option. And so, if we're not going to do things by consensus, what is left? And that's where critical mass comes in.</p>
<p>Critical mass decision making would be a situation in which a subset of governments could decide that they wished to pursue a particular negotiation. The presumption would be that they wouldn't have to involve all the membership in the negotiation, nor implicate them in the results of the negotiation.</p>
<p>However, in order to allow that to happen and to make it a viable system, we would need to have certain provisions linked to establishing a critical mass negotiation and approving the outcome. I don't think it would fly if it created a situation in which some countries who were not party to the agreement would be discriminated against.</p>
<p>So I think it would have to be&hellip;everyone would have to enjoy the benefits, and those who wanted to be part of the critical mass would obviously assume the responsibilities and the costs of the agreement, such as they would be.</p>
<p>Now, that raises a fear amongst some that countries would decide not to sign the critical mass agreement and free ride on the benefits of it. So we have to think quite hard about what a free rider is in this context. My argument is that a free rider is only a party that can destabilize the agreement.</p>
<p>Now, if you're a party that could destabilize the agreement, in order for the critical mass arrangement to prosper in the first place, you would have had to be inside of the tent. You couldn't be outside, because the others wouldn't do it. It's a self defining group of players who recognize the necessity of having particular countries inside, because if not, then you truly have a free riding problem.</p>
<p>Those who are left outside are the ones who are not perceived as being able to free ride, because they're too small to influence the outcome. At the moment that an agreement is signed, I think the question of whether or not you have free riders is quite clear, and it will be determined by parties who would take on commitments.</p>
<p>Now, over time, perhaps the argument would be, well, later on these countries who are not free riders today could become free riders tomorrow. How are we going to make sure that they come on board when they are in a position to destabilize the agreement?</p>
<p>The argument there is a bit more subtle, but it is essentially the notion that the perception of free riding would not be well rewarded. Much is fungible at international corporation. So the incentive to free ride is not nearly as high as some people think it might be.</p>
<p>And secondly, if the agreement makes sense and is welfare enhancing, why wouldn't you, as a country that is in a particular position in developmental terms, why wouldn't they want to be part of this agreement? One assumes that these agreements are not impositions, but they carry net benefits.</p>
<p>So I think even over time, the notion that free riding is a big problem is more of a red herring than a reality, and I don't think it weakens the case for cooperation via critical mass decision-making such that you get an additional degree of freedom that allows a sub group of countries to go ahead with an agreement without worrying about the implications that that has for the entire membership. And, at the same time, enjoying the possibility of maintaining multilateral oversight and the essential globality of the multilateral trading system.</p>
<p><strong>Romesh</strong>: How would critical mass decision making in the WTO compare with it in other organizations like the European Union, where they have these ideas of variable geometry and the enhanced corporation?</p>
<p><strong>Patrick</strong>: Well, I think the community enhanced corporation arrangements are very interesting as an example of an attempt to do something like critical mass, but they are so well covered with safety valves and guarantees against a situation in which a sub set of the membership could do something that would be against the interests of the rest of the membership, that actually, the enhanced decision-making procedures haven't ever been used. But it was an interesting example of such an attempt to design decision making. But for many of the other agencies that you might think, or institutions that you might think we could make comparisons with - like the World Bank, the IMF - they have weighted decision making. They have weighted verdict decision making, so it's not really applicable.</p>
<p>As we know from current discussions, they're having a huge amount of difficulty in dealing with the fact that the weighting was a reflection of how the world used to be, and is not a reflection of how the world is today. And it's creating a huge amount of difficulty for them in the whole discussion and ongoing discussion on what should happen about that.</p>
<p><strong>Romesh</strong>: Are there particular issues in world trade at the moment that you think critical mass decision making would particularly help with? I think, for example, of this issue of regional trading arrangements and some potential conflicts with the multilateral trade system.</p>
<p><strong>Patrick</strong>: I don't think that this is really much to do with regional trading agreements. I think there's a relationship between what we might do multilaterally with critical mass, and what governments attempted to do regionally, that the prospect of critical mass might help us to manage the regionalism issue, but I think in lots of areas where you might want to go more deeply into disciplines, or where you might want to develop new disciplines, there may be an argument that these things would be easy to carry forward if there was a critical mass option. So some of the recent issues which didn't make it on to the agenda, I&rsquo;m not necessarily advocating for them as part of the agenda, but they are illustrations of issues that could have been dealt with in this way. I'm thinking of competition policy, rules on investment and so on.</p>
<p><strong>Romesh</strong>: Final question in particular. What do you think the chances of something like this actually happening? Is it something that lies in the future, something that would have to come after the completion of the Doha Round?</p>
<p><strong>Patrick</strong>: I'm certain if this was ever to be given serious consideration, it would not be in the context of the Doha Round. I'm equally certain that governments are not ready for this kind of conversation in any systematic way until they've got the Doha Round off their agendas. Because the Doha Round is everyone's preoccupation and I don't think there's any convincing scenario under which the WTO fails to close the Doha Round and prospers there after. So it's a <em>sine qua non</em> of any of this, that we complete the Doha Round first.</p>
<p><strong>Romesh</strong>: Patrick Low, thank you very much.</p>
<p><strong>Patrick</strong>: Thank you.<br />

Topics:  Institutions and economics International trade

Tags:  WTO, Doha, Thinking Ahead on International Trade, critical mass

Chief Economist (Director of Economic Research and Statistics) at the World Trade Organization


CEPR Policy Research