Development, WTO and a few dilemmas

Sonia Rolland's new book "Development at the WTO" seems to be a brilliant exposition of the relationship between "development" and multilateral trade rules. What roles does the developmental agenda have in the context of a rule-based trading regime? Some would argue that the WTO's role and the role of trade rules is not to address the complex issues of development. Other disagree and posit that the developmental agenda is very much, or should be, a central part of the multilateral system. The book takes us through the complexities of this debate and touches upon many pertinent issues like "policy space, developing countries interests at the WTO and "non-trade" issues like labour, environment being part of the agenda.

The Introduction, which is only accessible online (and which is what I have read), puts forth two views of development in the context of the WTO:

1. Development as an Idiosyncrasy 

2. Development as a Normative Co-constitutent

As the Introduction states:

"The first paradigm treats development as a second-order normative considera- tion that does not fundamentally displace the objective of trade liberalization as the primary mandate of the WTO. In this framework, the needs of develop- ing members arising out of their economic, social, and political constraints are dealt with on a case-by-case basis rather than at a systemic level. Exceptions and carve-outs dealing with development issues, whether in general agreements or in individual members’ schedules of commitments and accession protocols, are idiosyncratic—ad hoc solutions rather than instantiations of an overarching normative principle. 

The key feature of the idiosyncratic paradigm is the absence of a principled approach to incorporating development at the WTO. Of course, that does not mean that no development issues will be included in WTO rules, but simply that there will be no systematic or coherent approach, no overarching legal obligation, or, at best, only a very loose and soft one, such as the statements in the preamble to the Marrakesh Agreement."

Explaining the Normative Co-constituent concept, she states:

"In this paradigm, development constraints are balanced against the trade liber- alization objective of the WTO. Unlike the more pragmatic underpinning of the idiosyncratic model, this paradigm has an explicit normative underpinning. As a result, the need for derogations, safeguards, and escape clauses should be reduced because the mainstream rules are designed to account for development concerns. The issue then is how the WTO legal architecture would be redrawn if develop- ment were to be on par with trade liberalization."

Which stand should a developing country take in terms of addressing development at the WTO? IS there a unified stand of all developing countries? Would the stand of China, India and Brazil be the same at the negotiating table? What impact would consideration of "development" as a source of differential treatment have on the "formal equality" that WTO rules professes? Should countries with differing levels of development be treated differently at the WTO, much more than the SDT provisions presently available? Should unequals be treated unequally? Treating countries that are on different stages of their development path equally, some would say, is a very discriminatory and unjust treatment. How does this fit into the "same rules for all - big or small" paradigm? 

This Book sure does offer some very interesting insights into the complex relationship between trade, development and multilateral rules - dilemmas to be addressed.

Joel Trachtman on the WTO, Legitimacy and Development

The WTO has often been criticised in terms of its legitimacy and democratic deficit - legitimacy in terms of it being equitable and representational of diverse interests. Critics argue that the multilateral system favours the developed world as well as powerful trading countries and is to the detriment of the least developed countries. They also argue that the WTO structure that permits only formal participation of the States is not entirely representational and thus suffers from a "democratic deficit". Further, it is said that decision making on vital policies affecting a country is transferred from "democratically" elected national representatives to "non-elected", international technocrats.

Joel Trachtman has provided a brilliant understanding of this debate in a Special editorial titled "The WTO, Legitimacy and Development" in the Trade, Law and Development Journal where he has argued that the criticism must move beyond the "generic" legitimacy debate into specifics of what the actual problems are. Arguing that criticism should be backed by strong empirical tools of data analysis, he avers:

"There is no doubt that the WTO has many faults. The problem is that different observers claim different faults, and one observer’s fault is another’s merit. So, instead of claiming illegitimacy, we should explain with greater precision what the problem is. In this context, actionable problems must be of one of two main related types, known in the literature as output legitimacy and input legitimacy, but I believe that calling them legitimacy only clouds the issue. Let’s call them instead “inadequate welfare” and “inadequate accountability”.   

Public policy, including rules of the WTO, can be attacked for failing to maximize welfare. It is easy to see that the claim of inadequate welfare requires a great deal more analysis than a claim  of illegitimacy. It will often require a comparison, using theoretical and/or empirical tools, of the effects of different proposed legal rules or institutions. Professional grade knowledge about what increases welfare and what does not, will  increasingly be viewed as essential to public policy discourse. Those who criticize professionalism and expertise as fundamentally illegitimate have selected ignorance as their guide to public policy formulation."

It is also often argued that the role of multiple interests, especially of civil society and non-State actors must be increased in decision making at the WTO, both at the time of negotiations and dispute resolution. The States "legitimacy" to represent all its citizens is the common refrain. How representative is the Government is the provocative question. Representational democracy is often dismissed as an adequate response.

Questioning the "representational character" of non-State actors, Joel Trachtman is cautious about the argument that non-State actors increase accountability and transparency and hence is more legitimate.

"Given this framework, it cannot simply be assumed that WTO dispute settlement should be more transparent than it is, or should allow greater participation by NGOs or other private actors. From a welfare standpoint, there are costs and benefits to transparency, and there may be circumstances in which the costs outweigh the benefits. We might establish a presumption that transparency in the strict sense – greater knowledge of governmental processes – is often welfare-enhancing, simply because it allows those interested to know, about decision-making and to express their preferences.   

But can we presume that allowing greater participation by NGOs promotes either welfare or accountability? Indeed, arguments for transparency that include NGO voice or control often pit representative democracy in the form of the state against a proposed discursive democracy, empowering organizations that may pejoratively be referred to as “special interests”. The argument for special NGO voice or control, like the argument for legitimacy, attacks agreed methods of doing procedural justice, assuming that there  is something deficient in representational terms about our agreed governmental processes. It would take a good deal of very specific analysis in order to determine whether the special interests add to the welfare analysis or to the quality of participation.  Presumably, they would add to the welfare analysis through expertise. At the WTO, developing countries have often argued that greater roles for NGOs may impair welfare from their standpoint."

Commenting on the efficacy of the "Special and Differential Treatment" (S&DT) provisions in the WTO, he concludes by proposing that though it is difficult to provide redistributive justice in a consent based multilateral system, international trade could provide some answers:

" If there were more consensus regarding the problem of what to do, it would be politically easier to do it. The problem of how to do it is, in part, dependent on the problem of what to do. But the problem of how to do it – politically – is crucial. As suggested above, it is difficult to find in a consent-based international legal system the possibility for strong redistributive action. However, in a consent based legal system, it is possible to find ways to share in the benefits of liberalization in such a way as to promote liberalization in favour of exports of goods, services and labour of the poor. This liberalization is a way to allow the poor to compete side-by-side with the wealthy, and is the key to wage convergence.  

Not every action urged in the name of development is beneficial to poor people, just as not every action urged in the name of legitimacy promotes either welfare or participatory values. On the other hand, measures that increase welfare, that enhance participation in a way that increases welfare, and that narrow distributive differences, will be attractive. Critics of the WTO, and others interested in public policy, would do well to focus on these parameters, and to develop analytical skills that will allow  them to frame their arguments in these terms, rather than in terms of legitimacy, or in terms of unverified assumptions about development or poverty reduction, like many of those involved with S&DT." 

A thought provoking editorial indeed! Throws open myriad questions about the criticism of the WTO, the high moral ground that "developmental" theorists take regarding their theories of poverty alleviation and role of international institutions, role of the WTO in an inequitable world order, globalisation and equitable growth as well as looking at addressing inequity in a refreshingly innovative way. When stereotypes are questioned and cliches are broken, there is always a lot of food for thought.

Alvaro Santos, Robert Howse and Andrew Lang on Domestic Policy space and WTO - Brilliant exchange

I was delighted to see an Online symposium in Opinio Juris on Alvaro Santos' article on domestic policy space and the WTO. The discussion on the article by two leading international trade law luminaries Robert Howse and Andrew Lang was extremely enriching and very engaging. I had written about the article in a blog piece here. In this blog I will reflect on this interesting exchange as well as my thoughts on the issues involved.

In his original article titled "Carving Out Policy Autonomy for Developing Countries in the World Trade organisation : The Examples of Brazil and Mexico" Alvaro essentially argues that there is sufficient policy space within the WTO Agreements for developing countries to pursue their developmental agenda provided they are legally equipped and capacity to engage with the multilateral system is strengthened. Providing a synopsis of this stand Alvaro in the Opinio Juris piece states:

"In “Carving Out Policy Autonomy for Developing Countries in the World Trade Organization: The Experience of Brazil and Mexico”, I argue against the commonly held assumption that WTO legal obligations overly restrict countries’ regulatory autonomy. Despite the presence of restrictions, I claim that there is still flexibility in the system for countries to carve out regulatory space for themselves. That countries can expand their policy autonomy means that governments of developing countries have more agency and responsibility than development scholars typically admit. At the same time, however, the asymmetry of power and resources between countries does affect their experience in the system and thus influences the outcomes to a greater extent than liberal trade scholars usually acknowledge.

         ...

However, to show that countries subjected to similar international obligations can pursue divergent trade and development policies is to make clear that there is policy space and that this space can be put to different uses with divergent outcomes. Developing countries’ governments should bear responsibility — and their citizens should hold them accountable — for the kind of developing strategy they pursue, or refrain from pursuing, within the international trade regime."

The basic thrust of this piece is that, subject to certain limitations, WTO rules do afford sufficient domestic policy space for developing countries to pursue their developmental agendas and as part of the strategic lawyering that is proposed, it is suggested that it should be part of this overall developmental discourse.

Robert Howse while giving the example of compulsory licensing in the TRIPS Agreement as an example of policy autonomy broadly agrees with the view that the WTO rules offer sufficient policy space. He comments on the lack of expertise of WTO law in many countries which perhaps hinder the serious engagement of many countries in the dispute settlement system as well as postulates the need for taking forward the learnings of Brazil and mexico to other countries.

"In some countries, there is no independent expertise about WTO law. The government and the people only hear the views of officials who have been more or less inducted into the global trade policy elite, or those of the WTO Secretariat, or those of interests who are using the notion of WTO illegality to block a policy they oppose for other reasons. Today, however, NGOs are playing an increasingly useful role in entering policy debates and contesting interpretations that are particularly restrictive of policy space (ICTSD’s work on TRIPs is a good example). To be able to do this NGOs had to reposition themselves at least partly from being anti-globalization advocates trying to oppose and delegitimate the system to knowledgeable and shrewd lawyers who see the tensions, flexibilities, and balances in the existing norms that can be a basis for contestation within the legal framework as it stands. I am still struck by how journalists (many, though not all), who can be important in transmitting the meaning of WTO law in a domestic policy debate, will go to the same experts-mostly trade officials, lobbyists, or retired officials, and a few professors who are also consultants or closely connected to the WTO Secretariat-and take their views as the correct ones concerning the meaning of WTO law."

Andrew Lang while agreeing with the broad principle the existence of policy autonomy within the WTO also highlights the need for analysing the receptivity of the dispute settlement mechanism to respond to the development strategies of the developing world. In other words, he states that "the power to shape the interpretation of the law in WTO dispute settlement, in other words, is not just a function of the legal capacities of the parties to a dispute, but also about the structural conditions which make certain legal arguments appear more convincing, persuasive, institutionally appropriate, textually grounded, and so on to legal interpreters." He makes the important point that in the coming decade the importance of the dispute settlement bodies is going to become very crucial and central to global trading and will need to respond to the growing strategic lawyering that Alvaro's article talks about.

"A related thought has to do with the pressures that this project will place on the WTO dispute settlement system. Alvaro, and other writing in this area, are right to say that struggles over the interpretation of WTO law are likely to become an even more central aspect of global trade politics over the next decades, partly as a result of more and more Members building their legal capacity in precisely the way Alvaro describes. Is the dispute settlement system equipped at present to respond to the challenges that this will pose? Does it currently possess a sufficient set of juridical tools and techniques to carve out both a legitimate and effective role for itself as it finds itself ever closer to the centre of trade politics? One of the tasks for the next decade or so it to try to craft a way of ‘doing law’ in international economic governance which bears the weight that strategies such as those described in this article will necessarily place on it."

Andrew Lang ends with a different idea in terms of the absence of the notion of Autonomy itself in a globalised world wherein national policy choices are determined by a host of international factors, WTO law being only one of them. Proposing a radical shift in perception, he proposes that positive experimental domestic autonomy and institutional pluralism should be advocated rather than the "negative" restraint on autonomy by the WTO rules. What this would entail, I assume, is that the international economic order will be based on pluralism of national economic policies rather than an exception of autonomy to globalised rules at present. I am not very sure how that translates into multilateral trade rules, non-discrimination and lack of protectionism? 

"A related thought has to do with the pressures that this project will place on the WTO dispute settlement system. Alvaro, and other writing in this area, are right to say that struggles over the interpretation of WTO law are likely to become an even more central aspect of global trade politics over the next decades, partly as a result of more and more Members building their legal capacity in precisely the way Alvaro describes. Is the dispute settlement system equipped at present to respond to the challenges that this will pose? Does it currently possess a sufficient set of juridical tools and techniques to carve out both a legitimate and effective role for itself as it finds itself ever closer to the centre of trade politics? One of the tasks for the next decade or so it to try to craft a way of ‘doing law’ in international economic governance which bears the weight that strategies such as those described in this article will necessarily place on it."

Finally Alvaro has brilliantly responded to the two responses. Reiterating his stand that developing countries should use the existing legal frameworks to pursue policy autonomy, he states:

" Finally, a word on the character of policy autonomy. Lang calls policy autonomy an illusion because international law –or multiple layers of transnational legal regimes- to some extent already structures countries’ economic policy choices when it comes to trade-related regulations. We can imagine procedural rules about sovereignty, state responsibility, jurisdiction and treaty-making, or overlapping substantive regimes of investment and finance, to name a few. So, a country is never entirely free from constrains. I think that diagnosis is right although once made visible, a country might also be able to influence those background legal regimes that affect its choices on trade measures.

At any rate, it might be that Lang’s understanding of policy autonomy and mine are not so far apart. I see policy autonomy not as some limitless or pre-regulatory status that developing countries should strive to inhabit but as a quest for empowerment within the existing international regulatory regimes that could yield better consequences for them. The call is not for disengagement but for a different kind of engagement. If there were a rallying cry it would not be “leave me alone” but “let me experiment and thrive in the system”."

This interesting exchange throws open many issues in the context of the engagement of developing countries in the WTO? What are the limits to domestic policy choice within the WTO. While it is recognised that WTO rules do provide for domestic autonomy, what are the contours and limits of it? Are there certain fundamental principles that even domestic policy choice cannot question? Can we generalise on these limits or do they depend on the facts of each case that are brought to the dispute settlement body? WTO law and interpretation are becoming increasingly complex quagmire of legalese and requirement of legal expertise is a sine qua non for effectively engaging with the trading system. Engaging and using domestic policy autonomy would perforce require a thorough understanding of the law as well as its nuanced interpretation. How many developing countries are capable of this journey? Is the domestic, political regime prepared for such an engagement? 

Another issue of recognising domestic policy autonomy within the WTO regime is to understand that the developed world too would be using this same policy space for protecting their interests. In today's globalised world as much as developing countries are markets for the developed world, developing countries are increasingly exploring markets in the developed world.  Further, using domestic policy space by another country has serious impact on an exporting countries exports. There will be essential trade offs a country will have to make. While using its domestic policy space in a particular context will serve its domestic developmental agenda, the use by another country will affect its trade interests which also may be part of its developmental agenda. How does one reconcile these interests? While countries want to protect domestic industry within WTO rules and it is a legitimate claim, they want reduced barriers and access to markets when their exports are affected. How does one balance the two policy choices of a developmental agenda and market access? In other words, where should the line between domestic policy space, protectionism and innovative interpretation of WTO rules be drawn? Can there be a legitimate domestic policy choice on the grounds of protecting one's domestic industry as part of a country's developmental agenda? Would it be permissible even if it is discriminatory vis a vis foreign competitors? Is there a danger of increased protectionism by the developed world (or even the developing world) by innovative policy autonomy interpretation that the developing world may not be able to use because of a lack of legal capacity? 

Is the assumption that reduced barriers to trade is not in the interests of developing countries? Is the assumption that international trade is not an ally of a country's developmental agenda? Isn't it possible that domestic policy autonomy is hijacked by "hegemonic" national business interests which may not always be co-terminus with national interests? At times domestic policy choice is not guided by developmental agendas but by vested interests to keep international competition at bay. Is this also a permissible domestic policy choice that a developing country should adopt? Does domestic business interest always constitute national interest?

One of the extremely positive outcomes I see from this exchange is the possibility of Law Schools providing independent, "development friendly" advice to developing countries to engage with the WTO. As Alvaro stated:

"Moreover, beyond the role of developing country governments and NGOs, Howse makes clear that there is also a role for legal scholars to play. I am enthusiastic about his idea of using law school clinics to provide independent and development-friendly legal advice to countries in need of counsel for WTO litigation and to other groups, like NGOs, for domestic policy debates about the meaning of WTO obligations. I am on board and hope that this exchange could be the beginning of a project of that sort."

I would be excited to study the journey of India and other developing countries in their use of the Dispute Settlement mechanism to further developmental agendas.It would be worthwhile to study a few developing countries engagement with the DSM in relation to their developmental paradigms like Alvaro did for Mexico and Brazil. One will have to go into the specific examples of measures taken and whether the domestic measure was part of the larger developmental agenda or a purely "protectionist" measure. I would indeed watch very keenly the progress of this project as it seeks to bring international law from its "rarified" confines as many see it to "grassroot" domestic policy making and the rigours of democratic political compulsions.

The debate around UNCTAD

Amid the controversy of a letter  written by former staff of the UNCTAD, the UNCTAD XIII Conference recently concluded in Doha. It produced what is called the Doha Manar. Stressing on development centred globalisation, the mandate, in the context of the importance of the multilateral trading system, stated:

"Our deliberations at Doha have clustered around four major themes relating to development-centred globalization. Firstly, we agree on the need to enhance the enabling economic environment at all levels in support of inclusive and sustainable growth and development. In this regard, international trade is an engine of economic growth and socio- economic development. The multilateral trading system must remain open, rules-based, transparent, non-discriminatory and inclusive to serve especially as a bulwark against all forms of protectionism. The successful conclusion of the WTO Doha Development Agenda remains crucial. Accession to WTO by developing countries, in particular the least developed countries (LDCs), and countries with economies in transition, enhances the universality of the trading system. A robust and development-oriented multilateral trading system is essential. In addition, the efforts towards appropriate reform and continued improvement of the international financial system are, we recognize, as difficult as they are urgent, and are the shared responsibility of all.

It concluded by placing development of countries as the cornerstone of globalisation:

" Development is a universal concern today, and development-centred globalization is our common cause. We recognize the need to make our common economic life more conducive to progressive structural change, more productive of inclusive and sustainable growth and development, and more effective in fostering broad-based inclusion in a new and more robust social contract. We are also cognizant of the differences in capabilities and resources available to nations in different development circumstances, which mean that nations will have different roles in building our common future. But we must all participate equitably in shaping the global economy to support this new consensus for development-centred globalization."

News reports extensively covered the Conference as well as the salient features of the resolution. The issue of the relevance of UNCTAD and debate around the scope and mandate of the institution was widely reported here , here  and here . The Doha Manar itself, was apparently concluded after a lot of last minute deliberation. As one report put it:

"After intense negotiations, which ended at 05:00 on the last day of the Conference, developing countries managed to get agreement on a text that did not alter fundamentally UNCTAD’s mandate. The crucial paragraph calls for UNCTAD to “continue, as a contribution to the work of the UN, research and analysis on the prospects of, and impact on, developing countries in matters of trade and development, in light of the global economic and financial crisis.” Commenting on this, the participating NGOs stated that “as civil society, we celebrate that this Declaration language gives a clear mandate to UNCTAD to continue its excellent and highly lauded work on the global economic crisis.”

The intense debate  over the mandate of UNCTAD and its role in the context of other multilateral institutions is interesting. Is the UNCTAD more "development" oriented as compared to the IMF, World Bank, OECD or WTO? Does it represent the interests of the developing countries more? Do the other institutions represent a particular ideological position as compared to UNCTAD? Is the language and paradigm of the UNCTAD's world view more critical of trade liberalisation without barriers and without addressing developmental needs than other multilateral institutions? How does one view the rule based multilateral system in the context of UNCTAD's mandate? Are they compiimentary or contradictory? While Doha failed in the context of the WTO, it succeeded in reaching a conclusion in the case of UNCTAD. Is this because the latter was more to do with broad principles of guidance the former negotiations was involved in specific rules that would govern trade? Is it a case of institutional jurisdictional overlap?

Argentina's tryst with the WTO - Justified or Protectionist?

The issue of Argentina's import licensing policy and measures being violative of it's obligations under the WTO has been raised consistently by a few WTO members. I have blogged about it earlier here. In the Import Licencing Committee meeting held recently at the WTO, certain members continued to raise the issue of Argentina's non-automatic licensing requirements alleging that they are against its commitments under the WTO. Earlier in a meeting of the Committee in October 2011, Argentina had this defence:

"2.23     The delegate of Argentina, in response to the previous speakers, indicated that the implementation of automatic import licensing in his country was the result of changes in international trade flows in recent years.  Resolution 45/2011 which, as many delegations indicated, was notified by Argentina on 21 March 2011, extended the coverage of products subject to licensing to 581; however, tariff lines subject to non-automatic licensing only represented 7 per cent of the total number of tariff lines in Argentina's Schedule of Concessions.

2.24     With regard to the concern voiced by the EU, he stated that the application of non-automatic licensing did not, in any way, lead to incompatibility with Argentina's commitments in the G-20 and in the WTO since this was a valid trade policy measure as provided for in Article 3.3 of the Agreement.  Additionally, importation of products subject to NAL indicated that the system was not ultimately intended to protect national domestic industry by controlling imports; if the imports trends of products subject to NAL were compared to those which are not subject to such licences the following conclusions could be drawn: (i)  in 2009, as a result of the international economic crisis, there was a decrease in imports both in terms of total numbers and for those subject to NAL;  (ii) in 2010, the total increase in imports also saw an increase in the number of imports subject to NAL as a result of the recovery of the world economic activity and; (iii) imports subject to NAL increased by 110 per cent in 2010 in comparison with 2006, whilst there was a 65 per cent increase of total imports over the same period.  Therefore, NALs did not operate as a protective trade measure to favour domestic industry.

2.25     With regard to the concerns voiced previously by Peru, Japan and Turkey, he stated that the predictability and transparency of the NAL system had enabled normal trading flows to continue. 

2.26     Regarding the concern already voiced by Korea on the exclusion of national treatment, Argentina pointed out that all imports subject to NAL, regardless of their origin, received the same treatment when applying the measures; the same requirements and processing time were also applied for requests and renewals thereof.

2.27     As to the concerns expressed by Switzerland and Australia in previous occasions concerning the functioning of NAL, he indicated that processing of applications did not exceed 60 days according to the period set for in Article. 3.5(g) and (h) of the Agreement.  As already conveyed to Members, since March 2011 the "Sistema Integrado de Comercio Exterior" (SISCO) had been implemented through various resolutions of the Ministry of Trade in order to increase transparency and predictability.  SISCO's objective was to ensure fair and equitable administration of import licensing through an on-line management system for applications.  In conclusion, he stated that the NAL system had been set up on the basis of the provisions of, and in compliance with the WTO Agreement on ILPs."

India has decided to take up the issue with Argentina bilaterally and not join the other countries. Are the measures leading to a case against Argentina in the DSM? The case would bring up many issues of law and fact regarding the interpretation of the Import Licensing Agreement, the actual factual measures of Argentina, its compatibility with the Agreement's provisions as well as interpretations regarding whether it is more burdensome than necessary as well as being transparent and neutral. Would it be considered within Argentina's legitimate domestic policy space or considered more restrictive than necessary. Will it be considered "protectionist" or legitimate exercise of a countries rights under the WTO agreements? These are complex questions of law and fact. Unless, a political solution is found, this case has all the characteristics of going right up to the Appellate Body!