Double Issue Economics THIRD WORLD2 Third World Economics 1 – 31 January 2019 No 680/681 THIRD...

1Third World Economics 1 – 31 January 2019No 680/681

conomicsTHIRD WORLDE

TRENdS & ANAlySiS

Published by the Third World Network KDN: PP 6946/07/2013(032707) ISSN: 0128-4134 Issue No 680/681 1 – 31 January 2019

Also in this issue:

Double Issue

Addressing concerns ofdouble standards in the WTO

Amid the deadlock in making appointments to the Appellate Body(AB) that has focused attention on the WTO’s dispute settlementsystem, it is worth recalling that this system for resolving trade dis-putes between member states has adopted some questionable deci-sions in the past. Remedying this as well as other apparent deficien-cies in WTO operations that have weighed against developing-country interests now needs to be a matter of priority, along withending the AB impasse.

●●●●● The WTO, its secretariat and bias against theSouth – p2

Trade tensions, policyuncertainty weakening growth p18

A new multilateralism for aglobal green new deal p23

Coping with World Bank-ledfinancialization p27

Global inequality is 25% higherthan it would have been in aclimate-stable world p28

2 Third World Economics 1 – 31 January 2019 No 680/681

THIRD WORLD

Trends & AnalysisEconomics

131 Jalan Macalister10400 Penang, Malaysia

Tel: (60-4) 2266728/2266159Fax: (60-4) 2264505

Email: [email protected]: www.twn.my

Contents

CURRENT REPORTS WTO

The WTO, its secretariat and biasagainst the SouthDeveloping-country members of the WTO have long found the deckstacked against them in the operations of the trade body and its disputesettlement regime, points out Chakravarthi Raghavan.

GENEVA: Almost from its inception,with Renato Ruggiero (of Italy) as WTODirector-General (DG) from May 1995,the double standards of the WTO, itsleadership and secretariat began to be-come evident.

This initial bias has steadily in-creased over the years, with every DGmaking his predecessor look better. It hasnow reached a stage where current DGRoberto Azevedo and senior officials ofthe WTO secretariat not only openly sidewith the US to promote its ever-chang-ing agendas and stances, but are alsopublicly commended for it by the US,without any disclaimers from the secre-tariat.

Before Ruggiero became DG, therewas a short interlude, from 1 January(when the WTO came into being) to 30April 1995, when the late PeterSutherland, the DG of GATT 1947 (dur-ing whose tenure the Uruguay Roundtrade negotiations were successfully con-cluded, with the Marrakesh Agreementestablishing the WTO signed in April1994), had functioned during the transi-tion from the GATT to the WTO. Duringthat brief tenure of his, the secretariat hadfunctioned on behalf of all memberstates. But since then, it has been openlypartisan.

Those that concluded the UruguayRound negotiations which establishedthe WTO had taken the correct and wisedecision that in a member-driven, rules-based organization like the WTO withcontractual rights and obligations formembers, there could be no scope for anyinitiative from the head of the indepen-dent secretariat. In fact, it was the US atthat stage that had vehemently opposedany such role for the WTO DG.

Ensuring that the WTO DG and thesecretariat he/she leads strictly abide bytheir independent mandate, and endingthe present impasse in filling vacanciesin the WTO’s Appellate Body (AB) in or-

der to secure a fully functioning andbinding dispute settlement system, areamong the highest priorities now facingthe WTO-MTS (multilateral trading sys-tem) and its members.

The solutions might need amend-ments to the Marrakesh Agreement. Ifthe US does not agree to abide by andimplement the amendments to the treatyin good faith (if the amendments are car-ried out against its wishes), it should beinvited to withdraw from the WTO.

In the feudal Middle Ages, the sov-ereigns of Europe saw themselves as law-givers but as being above the law them-selves. But after two sovereigns of thatera (Charles I in Britain and Louis XVI inFrance) “lost their heads” in the wake ofrevolutions, this doctrine slowly gaveway to rule of law.

There is no time-machine to take usback a few centuries that would enablethe US to function like sovereigns of thatera. Otherwise, with a “transactional” USPresident and a US Trade Representativewho wants a dispute settlement systemthat applies to all others but not the US,the WTO-MTS will be broken beyondrepair.

And whether any amendment to theMarrakesh Agreement is needed and car-ried out or not, if the US continues asnow, the rest of the membership have tomake up their minds whether to acqui-esce or ask the US to withdraw from theWTO. Without an amendment, the UScannot be compelled to withdraw, butsuch a request nevertheless will be in thespirit of the second sentence in Article X.5of the Marrakesh Agreement.

This too is among the hard choicesthat the WTO and its members face.

WTO bias

The bias against the South at theWTO and the dancing to the tune of theUS became evident as early as the first

CURRENT REPORTS2 The WTO, its secretariat and bias

against the South

6 Delhi meet calls for strengthening WTO-MTS, promoting development

8 South countries soundly reject USproposal on “differentiation”

9 WTO GC gets progress report onprocess to resolve AB crisis

11 South denounce efforts to hijack Dohatalks on e-commerce, agriculture

13 China tables comprehensive proposalon WTO reform

18 Trade tensions, policy uncertaintyweakening growth

21 Number of commodity-dependentcountries reaches 20-year high

23 A new multilateralism for a global greennew deal

OPINION27 Coping with World Bank-led

financialization

28 Global inequality is 25% higher than itwould have been in a climate-stableworld

THIRD WORLD ECONOMICSis published fortnightly by the Third WorldNetwork, a grouping of organisations and

individuals involved in Third World and develop-ment issues.

Publisher (1990-2019): S.M. Mohamed Idris; Editor:Chakravarthi Raghavan; Editorial Assistants: LeanKa-Min, T. Rajamoorthy; Contributing Editors:Roberto Bissio, Charles Abugre; Staff: Linda Ooi (Ad-ministration), Susila Vangar (Design), Evelyne Hong& Lim Jee Yuan (Advisors).

● Annual subscription rates: Third World countriesUS$75 (airmail) or US$55 (surface mail); India Rs900(airmail) or Rs500 (surface mail); Malaysia RM110;Others US$95 (airmail) or US$75 (surface mail).

● Subscribers in India: Payments and enquiries canbe sent to: The Other India Bookstore, Above MapusaClinic, Mapusa 403 507, Goa, India.

● Subscribers in Malaysia: Please pay by credit card/crossed cheque/postal order.

● Orders from Australia, Brunei, Indonesia, Philip-pines, Singapore, Thailand, UK, USA: Please payby credit card/cheque/bank draft/international moneyorder in own currency, US$ or euro. If paying in owncurrency or euro, please calculate equivalent of US$rate. If paying in US$, please ensure that the agentbank is located in the USA.

● Rest of the world: Please pay by credit card/cheque/bank draft/international money order in US$ or euro.If paying in euro, please calculate equivalent of US$rate. If paying in US$, please ensure that the agentbank is located in the USA.

Visit our web site at http://www.twn.my.

Printed by Jutaprint, No. 2, Solok Sungei Pinang 3,Sungai Pinang, 11600 Penang, Malaysia.

© Third World Network


CURRENT REPORTS WTO

year of the WTO’s establishment, in theprocess for selecting the initial slate ofseven AB members.

During that process, candidates from23 countries were interviewed and theselection from among them was made bya small committee made up of DGRuggiero and the respective chairpersonsof the Dispute Settlement Body (DSB)(Australia), Council for Trade in Goods(Japan), Council for Trade in Services(Sweden) and Council for TRIPS (HongKong, then a separate customs territoryunder the UK).

WTO members were “consulted”and views ascertained on their preferredcandidates and why, on the basis of “cri-teria agreed by the DSB”. However, theUS was effectively given the “privilege”of objecting/vetoing names (an optionthat was not posed to others).

Though that initial slate was ac-cepted by consensus at the DSB, Indiaand Switzerland, while not blocking theconsensus, announced that they were notjoining, and made statements on therecord. Switzerland complained that theselection committee had not followed thecriteria agreed upon and had taken a “re-stricted view” of the European entity.India detailed how one member alonehad been given the option of saying “no”to individual candidates. The EU, whilejoining the consensus, also expressed itsdissatisfaction. (For more details on this,see “WTO establishes Appellate Body”,http://www.sunsonline.org/trade/pro-cess/followup/1995/11300095.htm.)

As a result, the AB became knownas “pro-American”. Everyone involved inthat process must be held responsible,but the major ones were the DSB chair-person and the WTO DG; the two hadenabled the Americans to exercise sucha “privilege”.

Since then, in several of its rulings,the AB “interpreted” the WTO accordsto be cumulative, increasing the obliga-tions of developing countries and reduc-ing to nullity some rights they thoughtthey had secured in the Marrakesh treaty.Those rights arose from the decisions ofGATT Contracting Parties (functioning intheir collectivity under GATT Art. XXIII)in disputes raised by the US and/or theEU under GATT 1947 and were thus partof the GATT acquis incorporated into

GATT 1994 (in Annex 1A of theMarrakesh Agreement). In these severalrulings, the AB opened up the marketsof developing countries to thetransnational corporations of the US.

Dubious decisions

Some egregious examples of ques-tionable dispute settlement rulings (bydispute panels as well as the AB) areworth recalling:

1. In the Indonesia vs US, EU andJapan disputes (WT/DS54, DS55, DS59and DS60), the panel ruled that when anumber of international agreements areentered into by the same parties at thesame time, there has to be a presump-tion that there are no conflicts. This isdespite the fact that a plain reading ofthe texts of Annex 1A and its general in-terpretative note, which is couched inmandatory “shall prevail” language,shows that conflicts had been envisagedby the negotiators of the agreements.

The panel arrived at its conclusionthrough circuitous arguments, ruling theAgreement on Trade-Related InvestmentMeasures (TRIMs) to be a full-fledgedgoods agreement and making a speciousdistinction between the obligations ofGATT 1994 (including its Art. III) and theAgreement on Subsidies andCountervailing Measures (SCM), but notas between the TRIMs and SCM Agree-ments.

For this last, the reference to GATTArt. III in Art. 2 of the TRIMs Agreementwas ruled to be a reference not to theArticle as such, but only to its substan-tive contents! What “Art. III” wouldmean without its contents was knownonly to the panellists (and the secretariatthat “serviced” the panel), and not speltout for the DSB and its members.

In no judicial, quasi-judicial or ad-ministrative proceedings anywhere inthe world can the title of a law withoutits contents be cited as law or given anymeaning.

Indonesia did not appeal the panelruling but implemented it, bowing to theconditionalities attached to its then loanfrom the International Monetary Fund(IMF). The cumulative outcome of theruling and a much-circulated photo-graph of Indonesian President Suharto

signing the IMF loan agreement underthe stern gaze of the IMF Managing Di-rector, sealed Suharto’s fate and broughtabout regime change.

There was a similar run of rulingsagainst other developing countries, wel-comed by the US. But when some rul-ings went against the US itself, particu-larly in relation to its anti-dumping mea-sures (aimed at protecting specific indus-tries and enterprises), it began to cry foul.This reached a crescendo in its veto ofthe reappointment to the AB of SeungWha Chang of South Korea for his al-leged role in rulings against the US.

2. In another set of rulings, despiteits own so-called “collegiality” rule(whereby the AB empowered itself tohave consultations at all stages betweenthe three members of a division benchhearing an appeal, and the four other ABmembers), there were two differentviews in AB rulings on the same word-ing in two different accords in Annex 1A.These were more or less contemporane-ous disputes.

In the Turkey vs India dispute (WT/DS34 – import restrictions by Turkeyover textile and clothing products), theUruguay Round Understanding on Ar-ticle XXIV (on customs unions and freetrade agreements) was involved. In theIndia vs US dispute over India’s quanti-tative restrictions (QRs) imposed on bal-ance-of-payments (BOP) grounds, theUruguay Round Understanding on Art.XVIII.B was involved.

Both Understandings, in identicallanguage, ensured that the right of mem-bers to raise disputes under Art. XXII andXXIII “with respect to any matters aris-ing from” Art. XXIV and XVIII.B waspreserved.

In the India QR dispute, this lan-guage in the Understanding was ruledto provide jurisdiction to both the WTO’sBOP Committee and dispute panels tohear and decide. This, when the US alonein the BOP Committee had blocked con-sensus on accepting India’s contentionsand programme for phasing out QRs,and then, with such a not-so-clean hand,invoked the provisions in the DisputeSettlement Understanding (DSU) to raisea dispute.

In the Turkey vs India case, the ABhanded down a ruling contrary to this


CURRENT REPORTS WTO

view on the same wording in the Under-standing on Article XXIV. The AB ruledthat the issue of compliance of a customsunion with Art. XXIV was for the relevantWTO body to decide, but that a panel orAB could go into the dispute only withrespect “to any matters arising from theapplication of these provisions relatingto customs unions ... or free trade areas.”

Moreover, in the Turkey vs Indiadispute, in obiter dicta on points of lawnot raised in appeal by either India orTurkey, the AB opened the way for cus-toms unions to depart from GATT obli-gations other than in the MFN provisionin GATT Art. I, but gave no ruling,merely expanding its own jurisdiction todecide in future cases!

3. In a dispute raised by India, Ma-laysia, Pakistan and Thailand against theUS over restrictions on shrimp imports[WT/DS58/AB/R – see South-North Devel-opment Monitor (SUNS), No. 4301, dated14 October 1998], the AB:

(a) Cleared the way for non-govern-mental organizations (NGOs) to file am-icus curiae briefs and intervene. In effect,it ruled that the panel’s right to “seek”information also enabled it to use infor-mation it did “not seek” – thus making“seek” and “receive” synonyms in theWTO’s dictionary. Despite its initial viewpromising to provide detailed reasons,the AB failed to do so.

While the DSU enables panels to“seek” information from any source,there is no such provision in relation tothe AB, which is only mandated to de-cide “all points of law raised by parties”in the appeal.

Nevertheless, in a subsequent dis-pute on anti-dumping and subsidy issuesvis-a-vis the US steel industry, the ABapplied this to itself (accepting a brieffiled by the US steel industry). Thisplaced amicus curiae briefs from non-members of the WTO on a superior foot-ing. Under the AB’s own rules of proce-dure, only third parties to a dispute, giv-ing notice to the AB, can file briefs. OtherWTO members don’t even have thisright.

The AB even made the rather ex-traordinary claim that the DSU rules andprocedures did not prohibit the AB fromdoing so, and hence it could! In the rules-based WTO system, one of its creations,

the AB, thereby claimed the right to thusfunction, as if enjoying “residuary pow-ers” that are not prohibited (See SUNSNos. 4654, 4655 and 4666 for rulings anddiscussions; for the AB’s claims, see“Ruleless Appellate Body and powerlessDSB”, SUNS No. 4684, 9 June 2000.)

(b) Imported and expanded thescope of Art. XX of the GATT on “excep-tions” to set aside the panel ruling in theshrimp dispute as a “serious error” oflegal reasoning, for not examining theordinary meaning of Art. XX.

There was no discussion (unlike inthe Indonesia dispute ruling above)whether this meant the “substance” orthe entire Art. XX, nor on the applicationof the Art. XX measure.

Rather, the AB focused on the “de-sign” of the measure and “a particularsituation” where a member has takenunilateral measures which, by their na-ture, “could put the multilateral systemat risk.”

The AB held that the treaty inter-preter must interpret the treaty in thelight of “contemporary concerns” of thecommunity of nations about protectionand conservation of the environment.

While Art. XX of GATT 1947 (reflect-ing the understanding at that time onmineral and living resources) was notmodified by GATT 1994 in the UruguayRound, the AB conceded, the MarrakeshAgreement had “the objective of sustain-able development” in its preamble, andthe term “natural resource” used in Art.XX(g) of GATT 1994 was not static but“by definition, evolutionary.”

As a matter of fact, the 1992 UN Con-ference on Environment and Develop-ment (UNCED) had addressed a wholerange of environment, conservation anddevelopment issues. Among others,UNCED adopted the UN FrameworkConvention on Climate Change, wit-nessed nations signing the Conventionon Biological Diversity, and adoptedother decisions and recommendationsunder the title “Agenda 21”. However,the US and some others resisted any andall reference to these in the Marrakeshtreaty and its annexed agreements in-cluding GATT 1994. Only the objectiveof “sustainable development” was al-lowed into the preamble of the treaty.

And yet, in the space of about five

years, the WTO saw an “evolution” – aborn-again Charles Darwin at the AB!

4. In a ruling (DS163/R) againstSouth Korea in a dispute raised by theUS on the plurilateral Government Pro-curement Agreement (see SUNS No.4670 dated 18 May 2000), a dispute panelchaired by Michael Cartland, formerHong Kong representative to the GATT/WTO, gave an expanded interpretationof the rarely invoked “non-violation”clause in GATT Art. XXIII.1(b), on the im-pairment or nullification of benefits to theUS.

The panel spoke of impairment tothe US arising out of “reasonable expec-tation of an entitlement” to a benefit thathad accrued “pursuant to the negotia-tion”, rather than “pursuant to a conces-sion exchanged in the negotiations,” thetraditional view of public internationallaw [the pacta sunt servanda principlecodified in Art. 26 of the Vienna Conven-tion on the Law of Treaties (VCLT)].

This enabled the panel to furtherfind lack of “good faith” in negotiationsor “treaty error” on the part of SouthKorea that could invalidate a part of thetreaty (Government Procurement Agree-ment). This “treaty error”, the panel said,could be rectified by substituting the in-validated part of the treaty with a suit-ably worded DSB recommendation(adopting a panel ruling), and by thisprocess a party would be enabled towithdraw reciprocal concessions.

This expanded view of pacta suntservanda was achieved by delving into thenegotiating history not of the Govern-ment Procurement Agreement, but of theVCLT itself, citing the statement of theInternational Law Commission whentransmitting the draft VCLT to the UNGeneral Assembly that adopted theVCLT. (See SUNS No. 4670 dated 18 May2000.)

Strangely, the only relevant negoti-ating history of the VCLT – the initialmandates to the International Law Com-mission and discussions leading to it inthe Sixth Committee of the UN GeneralAssembly or the General Assembly itself,or the discussions on the Commission’srecommendations in the same SixthCommittee – does not seem to have fig-ured in the panel’s discussion.

However, in the end the panel ruled


CURRENT REPORTS WTO

against the US on the ground that the UShad not exercised “due care” in the ne-gotiating process! The US did not appeal,and the panel report was adopted, put-ting the DSB/WTO imprimatur on thisexpanded interpretation of the scope of“non-violation” complaints, “good faith”in negotiations, and the ability of panelsto remedy “treaty error” and “lack ofgood faith”.

A legal high-wire act, without thenormal safety net!

The manner in which the WTO dis-pute settlement process was being in-voked and rulings handed down, elicitedsome criticism at that time from a formerGATT law official, Frieder Roessler, aGerman national who had headed its le-gal division during the Uruguay Roundnegotiations and into the WTO.* Roesslerlater headed the Geneva-based AdvisoryCentre on WTO Law set up to help de-veloping countries, in particular leastdeveloped countries, with legal assis-tance in disputes.

In a critique of the functioning of thedispute settlement system – in particu-lar the way panels and the AB made useof the procedural rights in the DSU tovirtually nullify the substantial rightsand obligations of members under theagreements – Roessler said that the com-petence of panels and the AB could notbe determined by themselves exclusivelyon an interpretation of the DSU, but onlyin the context of the complex institutionalstructure of the WTO and the division ofdecision-making among different or-gans, as set out in the Marrakesh treaty,reflecting legitimate, negotiated policyobjectives.

Dispute panels, Roessler said,should respect the competence and dis-cretionary powers of the political bodiesestablished under the WTO agreementsand should not reverse their determina-tions. And if a competent WTO body hadnot yet made its determination, panelsshould not step in and preempt that de-termination.

The role of panels should be limitedto protecting WTO members against anabusive resort to provisions governing,for example, BOP measures and regionaltrade agreements – against measures thatfall outside the discretionary authority ofthe BOP Committee or the Committee on

Regional Trade Agreements.The US voiced no criticism of the

panels and the AB at that time, when theywere siding with it. This “bias” of pan-els and the AB came into play during the1996 US presidential election campaign(Bill Clinton vs Bob Dole), in which theWTO, the DSU and “loss of US sover-eignty” was an issue: one of the cam-paign slogans was “Two strikes, and weare out”. The panels and the AB seemedto be trying to ensure there was no suchopportunity.

5. Appeals against panel rulings intwo separate disputes (WT/DS98 andWT/DS121 – one against South Koreaand the other against Argentina), bothrelating to the Agreement on Safeguards,were heard and rulings handed down atthe same time by two different divisionbenches of the AB.

Commenting on them critically,trade expert and former Indian ambas-sador to the GATT Bhagirath Lal Daspointed incidentally to an “extraordinarycoincidence” in the two AB reports: sixparagraphs in each having the samewording – paragraphs 84, 85, 86, 87(part), 88 and 89 in the South Korea casereport; and paragraphs 91, 92, 93, 94(part), 95 (part) and 96 in the Argentinacase report.

Das said: “The members of the ABdivisions in these two cases were twototally different sets of members ... Eachof these reports is signed by the respec-tive sets of three members each. It is sur-prising how these two different sets ofpersons ended up writing exactly thesame language in some parts of their re-spective reports. The AB is like a judicialbody in the WTO. One has to presumethat the AB in a case writes its own re-ports, and does not get it written by someother persons. This presumption seemsto be hit by the exact convergence of thelanguage in some parts of the two reportsas mentioned above.”

After Das’s article, WTO officials ex-plained to this writer about the “collegi-ality” rule under the AB’s working pro-cedures. This rule was not in the publicdomain then. It was only later, during thetime of the US veto of a second term forthe AB member Seung Wha Chang, thata letter by the six remaining AB mem-bers to the DSB chairperson brought it

on public record: the division bench ofthree hearing an appeal invariably con-sults and interacts throughout with thefour other members of the AB who didnot participate in the hearing of the ap-peal.

(For Das’s critique of the AB, on pro-cedures and substance, see SUNS No.4689 dated 19 June 2000.)

Also not on public record then, butknown to this writer at that time (aftertalking to some panel and AB membersafter their rulings), was the way the sec-retariat functioned beyond its mandateto service panels. After the hearing ofparties and third parties in a dispute,panels, in reaching conclusions, are“guided” by the legal (and substantive)divisions of the WTO secretariat “servic-ing” the panel. In most cases the secre-tariat also draws up a draft report.

(Panel members told the writer af-ter their reports were published, that inone or two instances, when they dis-agreed with the secretariat, they weretold they would never again be namedto a panel!)

In the case of the AB, the three-mem-ber division bench interacts throughout,without the presence of the parties andthird parties to the appeal, with othermembers of the AB, and their reports tooare drafted with the AB secretariat’s le-gal assistance.

In any domestic jurisdiction underany system of law, this is enough to makea ruling or decision (judicial, quasi-judi-cial or administrative) illegal and invalid.

The WTO is a different animalthough; thus, part of the DSU reviewprocess to be undertaken, in priority toany other negotiations at the WTO, mustaddress and remedy this and any otherbasic adjudicatory flaws. It is also essen-tial to ensure that adopted rulings at theDSB do not “add to or diminish the rightsand obligations provided in the coveredagreements” (DSU Art. 3.2).

6. In its ruling on a US vs EU dis-pute, the AB ruled against the US oncountervailing duties under the SCMAgreement, but in the process raisedmore controversies.

In its notice of appeal, the US hadnot spelt out the legal grounds and paneldecisions thereof, as required under theAB working procedures. When the EU


CURRENT REPORTS WTO

asked for dismissal of the appeal on thisground, the US said there was no suchrequirement in the DSU.

Instead of upholding its own work-ing procedures, the AB division “re-quested” the US to file its grounds ofappeal and accepted it, though the timelimit for the appeal had expired!

The AB also asserted its right to re-ceive amicus curiae briefs, this time froman industry association, but then decidedthere was nothing in the brief! In the pro-cess, it gave NGOs superior rights overWTO members, as third-party memberswhich had not notified their intention tointervene in the appeal or members otherthan third parties can’t claim any rightto be heard.

On substance, the AB turned downUS arguments about when a “benefit” isconferred, but refused to provide anyauthoritative ruling that would end fu-ture disputes. (See SUNS No. 4666 dated12 May 2000, and No. 4684 dated 9 June2000.)

7. In the EC-Canada patent case(DS114/R), the panel used the “negotiat-ing history” of the TRIPS Agreement pro-vided in a note by the secretariat (Annex6 of its report). This purported to drawup a history of the negotiations “on thebasis” of draft legal texts in the negotiat-ing group in the spring of 1990, a secre-tariat composite text, and the subsequentchairman’s informal text and revisions,as well as (in an appendix to Annex 6)“parallel work” in the World IntellectualProperty Organization (WIPO) Commit-tee of Experts on preparations for aPatent Harmonization Treaty.

The secretariat admitted that thesetexts had not been circulated to the TRIPSnegotiating group, but (drawing on itsinternal notes) still cited them on theground that WIPO representatives hadkept negotiators “informed” of develop-ments! (See SUNS No. 4630 dated 21March 2000, and Nos. 4654 and 4655dated 26 and 27 April 2000.)

At Marrakesh when all formal docu-ments and reports were derestricted, noreport of minutes of various meetings ofthe Negotiating Group on TRIPS wasavailable even to Uruguay Round del-egates; they only had draft minutes (sub-ject to editing and corrections from del-egations); the reports were finalized andmade public only in 1995 or 1996, long

Delhi meet calls for strengtheningWTO-MTS, promoting developmentTrade ministers from several developing countries met in New Delhi inMay to discuss ways to work towards a more inclusive and development-oriented WTO.

by D. Ravi Kanth

GENEVA: Trade ministers from 17 devel-oping and least-developed countrieshave called for strengthening the WorldTrade Organization and promoting “de-velopment and inclusi-vity” in the mul-tilateral trading system (MTS).

In the face of multiple challengesconfronting the WTO and its multilateraltrading system, the trade ministers andsenior officials from the 17 countries –Egypt, Barbados, Central African Repub-lic, Nigeria, Jamaica, Saudi Arabia, Ma-laysia, Bangladesh, China, Benin, Chad,India, Indonesia, Malawi, Uganda, SouthAfrica and Oman – agreed to “work to-gether” as a like-minded group at theWTO to make the global trade bodymore effective.

This came in an outcome documentissued at an informal ministerial meet-ing hosted by India in New Delhi on 13-14 May.

But five countries – Brazil, Argen-tina, Guatemala, Kazakhstan and Turkey– chose not to join the outcome documentbecause of their opposition to building alike-minded group for emphasizing the“development dimension” in the globaltrading system.

Brazil, which had created the G20coalition of developing countries for

bringing about equitable and balancedtrade rules in agriculture, has now be-come the chief opponent to building adeveloping-country coalition to addressunilateral and protectionist measures,said an African trade minister who askednot to be quoted.

The five countries also raised severalconcerns about forming a like-mindedgroup for pursuing multilateral negotia-tions based on the consensus principle.

Joining hands

India’s commerce and industryminister Suresh Prabhu, who chaired themeeting, emphasized that developingcountries must join hands and work as astrong coalition to avert the “existentialcrisis” facing the WTO. Without a strongWTO based on a development dimen-sion, the developing and poorest coun-tries will not be able to integrate into theglobal trading system, he said.

Prabhu also said the Appellate Body(AB) is vital for the smooth functioningof the WTO’s dispute settlement system.Without the AB, it would be difficult fordeveloping countries to secure indepen-dent and impartial rulings in trade dis-putes, the Indian minister told his coun-

after the WTO came into being, and thusnot part of the cache of documentsderestricted in April 1994.

8. While the AB has shown willing-ness to create law and do what it wantsto play to the gallery over NGO briefs,on the sequencing issue – compliancepanel first before request for authoriza-tion for right of retaliation – on whichthe Quad (Canada, the EU, Japan and theUS) disagreed, the AB noted the lack ofclarity and ambiguity, and ruled it wasfor the members to clarify through inter-

pretation or change of rules! (See SUNSNo. 4812 dated 12 January 2001.)(SUNS8894) ❐

This article is the fourth in a series on the currentAB impasse and other issues related to the WTOdispute settlement system. The first three partswere published in TWE Nos. 676, 677 and 678/79. Part 5 will appear in the next issue of TWE.

Note

* Frieder Roessler (2000), “The Institutional Bal-ance between the Judicial and Political Organsof the WTO”, in M. Brocken and R. Quick (eds.),New Directions in International Economic Law,Boston: Kluwer Law International, pp. 324-45.


CURRENT REPORTS WTO

terparts at the concluding session, ac-cording to trade envoys present at themeeting.

Commenting on the “ongoing im-passe” at the AB following the decisionby the United States to block the selec-tion process for filling four vacancies inthe AB, the trade ministers urged “allWTO members to engage constructivelyto address this challenge without anydelay.”

The WTO Director-General RobertoAzevedo, who attended the dinner meet-ing on 13 May, asked the trade ministersto join the plurilateral initiatives, argu-ing that they provide flexibility, said atrade minister from Africa who asked notto be quoted. Azevedo also said that hedid not know what would happen to theAB after 11 December 2019, the ministersaid.

(If the impasse in the AB persists, thebody will be left with just one memberfrom 11 December, short of the threemembers required to hear any appeal.)

Several trade ministers and seniorofficials from China, Barbados, Jamaica,Indonesia, Benin (on behalf of the Afri-can Group), Egypt and Nigeria, amongothers, endorsed Prabhu’s assessment forensuring the development dimension inthe global trading system.

A senior Chinese trade official saidthat China wants a developmental out-come based on multilateral principles.The official also said that China will hostan informal ministerial meeting in No-vember to focus on the need to preservethe multilateral trading system.

The Chinese official said it is impor-tant to stay in the joint initiatives on elec-tronic commerce and investment facili-tation, as otherwise there is a danger thatrules will be crafted without the partici-pation of the developing countries.

Upholding multilateralism

Without naming the US, which hasresorted to unilateral protectionist mea-sures by imposing additional duties onsteel and aluminum imports, the tradeministers said “an inclusive multilateraltrading system based on equality andmutual respect should ensure that allWTO Members abide by WTO rules andabjure any form of protectionism.”

The ministers emphasized that “thecore value and basic principles of themultilateral trading system must be pre-served and strengthened, particularlywith a view to building trust amongmembers.” They urged WTO members“to adopt measures that are compatiblewith WTO rules to avoid putting themultilateral trading system at risk.”

Against the backdrop of sustainedattempts by developed countries to un-dermine the consensus-based decision-making at the WTO, the developing-country trade ministers stressed that“multilateral avenues, based on consen-sus, remain the most effective means toachieve inclusive development-orientedoutcomes.”

In this context, the ministers said“Members may need to explore differ-ent options to address the challenges ofcontemporary trade realities in a bal-anced manner.”

As regards the joint plurilateral ini-tiatives that have been launched on e-commerce, investment facilitation, do-mestic regulation for trade in services,and disciplines for micro, small, andmedium-sized enterprises, the trade min-isters merely said that “the outcomes ofthese initiatives should be conducive tostrengthening the multilateral tradingsystem and be consistent with WTOrules.”

Commenting on attempts to bringabout “differentiation” to deny specialand differential treatment to several de-veloping countries in the WTO, the min-isters said “special and differential treat-ment is one of the main defining featuresof the multilateral trading system and isessential to integrating developing mem-bers into global trade.”

More important, “special and differ-ential treatment provisions are rights ofdeveloping members that must be pre-served and strengthened in both currentand future WTO agreements, with pri-ority attention to outstanding LDC [least-developed country] issues.”

In effect, the trade ministers rejectedthe concept of “differentiation” that theUS has sought to introduce in the cur-rent and future WTO negotiations.

On the so-called WTO reforms be-ing proposed by the US and other devel-oped countries, the trade ministers em-phasized that “the process of WTO re-form must keep development at its core,

promote inclusive growth, and fully takeinto account the interests and concernsof developing members, including thespecific challenges of graduating LDCs.”

“The way forward” on reforms, ac-cording to the trade ministers, “must bedecided through a process that is open,transparent, and inclusive.”

“We agree to work collectively withthe aim to develop proposals to ensurethat our common interests are reflectedin the WTO reform process,” the minis-ters maintained.

“In order to instill confidence amongthe Members” in the WTO rules, thetrade ministers said, “it is imperative thatthe Ministerial Conferences of the WTOare organized in a more open, transpar-ent and inclusive manner.”

Without naming the US and otherdeveloped countries which are insistingon stringent transparency and notifica-tion requirements, including naming andshaming provisions, the trade ministerssaid “WTO notification obligations mustconsider the capacity constraints andimplementation-related challenges facedby many developing countries, particu-larly LDCs”.

“In the WTO, a more cooperativeand gradual approach is the best way indealing with the issue of transparency,where many developing Membersstruggle to comply with their notificationobligations.”

The trade ministers also called forremoving the “imbalances and inequi-ties” in the WTO agriculture and otheragreements. There is a need “to provideadequate policy space to the developingMembers to support their farmersthrough correcting the asymmetries andimbalances” in the Agreement on Agri-culture. The ministers underlined theneed for flexibilities for LDCs and netfood-importing developing countries,and called for expeditious resolution oftrade-distorting domestic subsidies incotton.

The 17 countries also agreed “to con-sult on various issues of common inter-est to developing Members, includingcomprehensive and effective disciplineson fisheries subsidies with appropriateand effective Special & Differential Treat-ment provisions for developing Mem-bers.” (SUNS8907) ❐


CURRENT REPORTS WTO

South countries soundly reject USproposal on “differentiation”Developing countries have spoken out against proposals that wouldeffectively erode the flexibilities they enjoy in the WTO rules.

by D. Ravi Kanth

GENEVA: A large majority of develop-ing and least-developed countries haveflatly rejected a proposal by the UnitedStates to introduce “differentiation” inavailing of special and differential treat-ment (S&DT) at the WTO.

The developing countries and theLDCs said that the divide-and-rule prin-ciple behind the US proposal would un-dermine the existing WTO architecturefor S&DT flexibilities, trade envoys toldthe South-North Development Monitor(SUNS).

South Africa and many other devel-oping countries also challenged a Nor-wegian proposal on development thataims to bring about differentiation in anuanced format.

Discussion on these two proposalsdominated the proceedings of the WTO’sGeneral Council on 7 May, with repeatedinterventions by several countries.

Members also addressed the im-passe at the WTO’s Appellate Body (AB)due to the US repeatedly blocking theselection process for filling four currentvacancies in the AB. The AB will becomedysfunctional by 11 December if the va-cancies are not filled.

The US, however, turned a deaf earto the concerns of members over the ABimpasse. Despite repeated concernsvoiced about its lack of engagement inthe ongoing consultations being held toresolve this issue, the US merely repeatedits previous arguments about the AB’sfailure to adhere to the WTO rules.

US and Norwegian proposals

Although the US proposal on differ-entiation had already received a frostyresponse at various WTO meetings pre-viously, the US Ambassador to the WTODennis Shea resubmitted it for consider-ation on grounds that it had receivedsupport from several countries over thepast two months. Shea quoted the state-ment made by Brazilian President Jair

Bolsonaro during his March visit toWashington about Brasilia’s decision toforgo S&DT in current and future tradenegotiations.

The US trade envoy argued thatWashington’s proposal is not aimed at theLDCs but rather seeks to introduce dif-ferentiation among developing coun-tries, insisting it is necessary for the WTOto remain a viable and credible organi-zation.

He defended the four criteria pro-posed by the US to disqualify WTOmembers from availing of S&DT, includ-ing membership in the Organization forEconomic Cooperation and Develop-ment (OECD) and in the G20.

The WTO, he added, “needs reform,not sentimentality.”

In its proposal, Norway has arguedthat “while the principle of S&DT isfirmly embedded [in various WTO agree-ments] and should not be put into ques-tion, there is not one single predefinedoperational S&DT modality that can beapplied horizontally to every subjectunder negotiation.”

“What is practical and possible inone area may not be practical or possiblein another area,” Norway said.

“We cannot predefine the result of anegotiation; it has to be negotiated; it hasto be negotiated in a specific context; andit cannot be negotiated in the abstract.”

Norway said its proposal should notbe interpreted as suggesting “some kindof request/offer process or that access toagreed provisions have to go throughsome kind of notification and question/answer process of approval.”

Norway said that “the LDCs repre-sent a separate category, and there is con-sensus that the special treatment of LDCsshould be maintained.”

In effect, Norway subtly suggestedthat the same special treatment hithertoavailable to the developing countriessince 1978 cannot be continued.

While referring to several agree-

ments on S&DT, Norway did not men-tion the agreement in paragraph 44 of theDoha work programme, said a trade en-voy who asked not to be quoted.

Rejected

A large majority of developing andleast-developed countries, including In-dia, China and South Africa, flatly re-jected the resubmitted US proposal ondifferentiation.

South Africa, in a sharp critique,pointed to the underlying ramifications/dangers arising from the separate pro-posals by the US and Norway on S&DT.

It urged members “to respect multi-lateral mandates by ensuring that de-bates on development and S&DT do notundermine mandated negotiations.”

It drew attention to paragraph 44 ofthe Doha Ministerial Declaration that“provides a clear mandate”, and said theSpecial Session of the WTO Committeeon Trade and Development (CTD) wasthe only mandated body for discussionsof this kind.

“We find it highly disturbing thatcertain Members would object to man-dated negotiations in the CTD SpecialSession only to raise the very same issuesin the General Council, a body which hasno mandate in this respect,” South Af-rica said emphatically.

It reminded the chair of the GeneralCouncil about the key points it had con-sistently raised on “S&DT in conjunctionwith the implementation issues.” Theseissues “remain key to unlocking the de-velopment component of the Doha De-velopment Round,” it maintained.

South Africa referred to the remarkby former US Trade Representative Rob-ert Zoellick in 2010 that “If 1989 saw theend of the ‘Second World’ withCommunism’s demise, then 2009 saw theend of what was known as the ‘ThirdWorld’...” South Africa told the GeneralCouncil that “much like FrancisFukuyama’s false herald of the ‘end ofhistory’, Mr. Zoellick’s premature obitu-ary to the ‘Third World’ suffers from thesame defect”.

It reminded the US and other devel-oped countries that “very early on in theGATT era, Contracting Parties took stepsto accommodate specific concerns of de-veloping countries prevailing at that timein order to better meet their developmentneeds and objectives.”

“During this time developing coun-


CURRENT REPORTS WTO

tries sought to emphasize the uniquenessof their development problems and chal-lenges and called for treatment thatwould be different and more favourablethan was provided in the GATT 1947.”

Against this backdrop, South Africasaid, “it made sense to allow developingcountries not to liberalize their own tradeand to be granted preferential access todeveloped country markets, [and] thiswas no different from exemptions ac-corded to developed countries from gen-eral trade rules, often times to the detri-ment of developing countries.”

South Africa said “in many areaswhere WTO rules apply, one can detectreverse S&DT in favour of developedcountries” and “there is no rationale orjustification for the egregious and delete-rious consequences that such flexibilities[for developed countries] have had fordeveloping countries in areas where theyhave comparative advantages.”

Broken pledges

On the current debate on S&DT fordeveloping countries under the WTOagreements, South Africa said severalquestions have been raised “whetherdeveloped countries have lived up to thespirit of commitments identified in WTOAgreements.”

It reminded members that “the pre-amble of the Agreement Establishing theWTO calls for the need for positive ef-forts to ensure that developing and leastdeveloped countries secure a share in thegrowth in international trade commen-surate with the needs of their economicdevelopment.”

South Africa pointed to the pledgesthat were made to reform agriculturetrade more than two decades ago. “Forover two decades the pledge to reformagricultural trade has fallen on deaf ears,market access for developing countriesis still undermined by application of un-clear and non-transparent tariff protec-tion, tariff escalation, high domestic sup-port and stringent sanitary andphytosanitary measures,” South Africasaid.

The failure to bring about crediblereforms in global farm trade enabled thedeveloped countries to avail of “specialtreatment through large bound Aggre-gate Measures of Support (AMS), moreaffectionately known as ‘trade-distortingdomestic supports’, whilst developingcountries bound their AMS to zero,”

South Africa pointed out.Consequently, the developing coun-

tries can only provide AMS limited bytheir de minimis support. “This was not avoluntary choice on the side of develop-ing countries since at that time they didnot provide this kind of support andwere otherwise constrained by structuraladjustment conditions,” South Africasaid.

“Clearly, a lack of capacity was amain driver of this kind of outcome; yetwe are now asked to make the same kindof commitment in fisheries subsidies ne-gotiations where capping proposals bearan uncanny resemblance to de minimisoutcomes under domestic support,” saidSouth Africa.

“Such an outcome will tend to lockin the level of subsidies that big subsi-dizers provide, even if certain cuts areundertaken, whilst most developingcountries are locked into an absolute ceil-ing with no flexibility to sustainably in-crease their subsidies over time in orderto address their development needs,”South Africa maintained, calling this“manifestly anti-development and un-fair”.

South Africa emphasized “the im-portance of the principle of self-selec-tion which in itself is an expression ofthe principle of sovereignty” as “morethan two-thirds of the WTO Mem-bers are developing countries.”(SUNS8903) ❐

WTO GC gets progress report onprocess to resolve AB crisisThe WTO General Council meeting also took stock of ongoing efforts tobreak the deadlock in appointing new members to the Appellate Body.by Kanaga Raja

GENEVA: The WTO General Council

(GC), at its meeting on 7 May, heard aprogress report from Ambassador DavidWalker of New Zealand, the facilitatorof the informal process initiated underthe Council’s auspices to find ways toresolve the current crisis in the Appel-late Body (AB).

The United States has been repeat-edly blocking, at various meetings of theWTO Dispute Settlement Body (DSB), theselection process to fill four current va-cancies on the AB, arguing that its con-cerns over the functioning of the AB re-main unaddressed.

The US has so far not tabled any pro-posal of its own, nor engaged meaning-fully on any of the proposals tabled byother members in an effort to address itsconcerns.

In his progress report, the facilitatortouched upon the issues of the 90-dayrule for appellate review, the question ofmunicipal law, advisory opinions by theAB, binding precedent, and alleged“over-reach” by the AB. These are someof the concerns that the US had high-lighted at various meetings of the DSB.

In his report, Walker said that he hadattempted to capture what had been said

by the members. It was clear that the pro-cess was not going to be easy, and thatthere was a need to keep trying and tofind a way forward, he added.

Walker’s remarks came under theagenda item of the informal process onmatters related to the functioning of theAB. Four proposals were submitted fordiscussion under this agenda item: a pro-posal from Brazil, Paraguay and Uru-guay on guidelines for the work of pan-els and the AB; a proposal from ChineseTaipei on guideline development discus-sion; a proposal by Japan, Australia andChile on the informal process on mattersrelated to the functioning of the AB; anda proposal from Thailand on a GeneralCouncil decision on the dispute settle-ment system of the WTO.

Solution-oriented

According to participants at themeeting, in his progress report, Walkersaid a series of meetings had been heldsince the previous General Council meet-ing in February, including an open-ended meeting that took place on 9 April.Five other meetings were held in smaller


CURRENT REPORTS WTO

groups, comprising members who hadeither tabled written proposals, raisedconcerns or made oral proposals.

He said that there were two objec-tives to these meetings, namely, to havea constructive review of the concerns thathad been raised, and to try and encour-age members to put forward more pro-posals or raise more concerns or ideas.This was a solution-oriented spirit,Walker said, adding that in the meetingsin March, there was a lot of discussionon AB “over-reach”, the issue of prece-dent, and the distinctions between lawand fact.

In April and May, four proposals hadbeen put forward, and these had been thefocus of the discussions for the last fewweeks. Walker said that these proposalswere horizontal in nature and that theywere seeking to frame the issues in a waythat could produce results.

His assessment was that a great dealof energy had gone into this process.There was a great deal of understandingabout the urgency, and it was clear thatit would not be easy.

On the 90-day rule for appellate re-view, Walker said there were no diver-gences on this issue, in that 90 daysmeant 90 days. Some of the proposalssuggested that if there is a very complexcase, the AB could flag this early on andthen meet with the parties to the disputeto suggest an extension and, if so,whether it should be a time-limited ex-tension.

On the question of municipal law,members said that it was very importantto ensure that fact-based findings by thedispute panel were not the subject of re-view. According to Walker, there was aconvergence among the members to en-sure that there was not going to be anyunnecessary appeal of facts by parties tothe dispute.

On the issue of advisory opinions bythe AB, Walker said there was concernthat parties should not be putting for-ward for appeal anything that might notbe relevant to solving the dispute andthat the AB needed to focus strictly onthose areas that were indeed relevant tosolving the dispute. If they were not is-sues raised by either of the parties, theAB should not be taking them up.

On the issue of binding precedent,the facilitator agreed that there was noth-ing in the Dispute Settlement Under-standing (DSU) that said the precedent

set by other AB rulings should be thebasis for future or current rulings. On theother hand, he added, it was importantto have a degree of consistency.

Walker said the issue of AB “over-reach” was the most complex, and thepopular notion that had been advancedon how to deal with this issue was toperhaps hold annual meetings betweenthe DSB and AB members.

Walker said he had attempted tocapture what had been said by the mem-bers. It was clear that the process was notgoing to be easy, and that there was aneed to keep trying and find a way for-ward. He said that he would continue toreport at the next General Council meet-ing.

Vital importance

Introducing the proposal by Brazil,Paraguay and Uruguay, Brazil high-lighted the vital importance of the dis-pute settlement mechanism for all mem-bers. It said it was important not to alterthe DSU in any way but to provide guid-ance. There was a clear pathway aheadbut engagement was needed.

Chinese Taipei said that its proposalwas a guideline approach. Proceduralconsiderations were something thatshould be applied in terms of the exist-ing rules. This was guidance and it wasthe preferable way to address the prob-lem, it said.

Japan introduced the proposal byJapan, Australia and Chile, saying thattheir idea was to build on other propos-als. It said the AB should not add to ordiminish the rights and obligations ofmembers, and there should be regularmeetings of the DSB with AB members.

Thailand introduced its proposaland mentioned, among others, Rule 15of the Working Procedures for AppellateReview, the 90-day rule, and the issue ofprecedent. It also said that regular annualmeetings between the DSB and the ABwould be important.

Korea, the European Union, Mexico,Canada, Switzerland, Ukraine,Singapore, Colombia, Nigeria, Jamaica[on behalf of the Africa, Caribbean andPacific (ACP) Group], the Philippines,Argentina, Benin (on behalf of the Afri-can Group), Guyana, India, Egypt,China, Chad (on behalf of the least-de-veloped countries), Malaysia, Peru, In-donesia, Vietnam, Bolivia, Turkey, Hon-

duras and the United States then took thefloor under this agenda item.

According to participants at themeeting, the US was called upon bymany members to either put forward itsspecific concerns or put forward a differ-ent proposal (than those of the othermembers).

Korea said the informal process wasa good channel for ensuring that the pro-posals could be discussed. It noted that11 proposals were now on the table. Itwas of the view that the EU proposal (co-sponsored by the EU, China, Canada,India, Norway, New Zealand, Switzer-land, Australia, Korea, Iceland,Singapore, Mexico, Costa Rica andMontenegro) was the most comprehen-sive, and the proposal by Thailand wascomplementary to this. Now was thetime to progress, it said, so that theseproposals could be analyzed and a com-pilation put together that enabled mem-bers to get a clear view of what was outthere, it said.

The EU expressed support for theinformal process, saying that solving thecrisis was urgent and should be a matterof the highest priority. This was why theEU and many others had made sincereefforts to address the concerns of a singlemember (the US), it said. It said that itsproposal took account of all the concernsraised by this single member.

The EU also called on all members,especially the only one that had blockedthe AB selection process, to engage.

Canada agreed that the engagementof all members was required. It called onthe US to either comment on these pro-posals or propose solutions. All stake-holders would be affected if the disputesettlement system became paralyzed, itadded.

Switzerland welcomed the new pro-posals. Some referred to guidelines, itsaid, while others referred to amend-ments to the DSU. It called for a prag-matic approach and for all members toengage constructively.

Singapore said it was encouraged tosee that members had not given up hope.It was important for the members towork together with the facilitator, and forall members including the US to helpfind a landing zone.

Jamaica, on behalf of the ACPGroup, welcomed the report by the fa-cilitator, saying it was still considering anumber of the proposals. It added that


CURRENT REPORTS WTO

the dispute settlement system was essen-tial to the primacy of the multilateraltrading system and that its independenceand impartiality must be respected. Itwas very important that no actions by thedispute settlement system add to or di-minish rights and obligations of mem-bers, it stressed.

Speaking on behalf of the AfricanGroup, Benin said that the discussionsmust take up the views of the develop-ing countries. It said that the AfricanGroup would be tabling a proposal soon.

Guyana said there was concern thatthe discussion might become circular andnever-ending without a solution. Therewas a need, it said, to settle the impassein the AB and look at the question of re-form as well.

India said it was extremely impor-tant to find a solution to the AB impasse.It noted that many members had submit-ted proposals and that there were com-monalities in these proposals. Some is-sues, including a dialogue between theDSB and the AB, seemed to be gainingtraction, it said, but there should be asystem of dialogue that does not in anyway threaten the independence of the ABor apply any undue pressure on ABmembers. It added that all WTO mem-bers must adhere to the commitments toappoint AB jurists.

China welcomed the proposals, say-ing that this was another example ofmembers committing themselves to ad-dressing common concerns. In this case,they were addressing the US’ concerns.The ball was now in the US court, it said.The US would need to meet membershalfway by engaging in consultations,making specific comments on the pro-posals or tabling an alternative proposal.

Chad, on behalf of the LDCs, saidthat even though the LDCs were not com-mon users of the dispute settlement sys-tem, this was very important to them.The impasse in the AB must be resolvedas soon as possible, it said. There couldnot be any solution that calls into ques-tion the rights and obligations of mem-bers or the independence of the AB.

Repeating what it had said at theDecember General Council meeting, theUS said that the WTO was responsiblefor upholding the rules-based multilat-eral trading system. The AB must followthe rules that all members agreed to, itsaid, adding that 90 days (the time limitfor appellate review) was supposed to be

90 days.The AB had not been able to stick to

the rules that had been put forward bythe members, the US claimed. The ABmay not change a member’s significantrights and obligations. It could not addto or diminish members’ rights or obli-gations.

It said this issue was not somethingit had been concerned about for 16 days

South denounce efforts to hijack Dohatalks on e-commerce, agricultureThe positions of WTO member states on such issues as electronic com-merce, agriculture and WTO reform are still far apart, as reflected in arecent meeting of delegation heads.

by D. Ravi Kanth

GENEVA: Trade envoys from a largemajority of developing and least-devel-oped countries on 3 May denounced ef-forts by the United States and other de-veloped countries to hijack the multilat-eral talks on electronic commerce andagriculture of the Doha WorkProgramme at the WTO.

The sharp reactions and warningscame at an informal heads-of-delegation(HOD)-level meeting of the WTO’s TradeNegotiations Committee (TNC).

The large majority of developingcountries, including India and China,also warned against the proposed “re-forms” of the WTO mooted by the US,the EU and other developed countries tointroduce “differentiation” among devel-oping countries in availing of special anddifferential flexibilities.

Venezuela and Cuba severely criti-cized the US for its unilateral actions,including trade sanctions and the pro-posed enactment of the condemnedHelms-Burton Act. Both Cuba and Ven-ezuela also expressed their frustrationover the WTO’s failure to address theirexistential concerns.

A large majority of developing anddeveloped countries charged the US withrefusing to engage in resolving the crisisat the WTO’s Appellate Body (AB) andcontinuing to block the selection processfor filling four vacancies at the AB.

The US, in its remarks at the HODmeet, however, remained silent on theAB crisis, while demanding immediatenotifications of subsidies andcountervailing measures by 30 June, par-

ticularly on fisheries subsidies.The European Union came out for

the first time to caution about the dan-gers posed by the proposed US-Chinaagreement to the multilateral trade or-der at the WTO. It argued that “any ar-rangement between these members [theUS and China] might further underminethe WTO, if implemented in a discrimi-natory manner, setting harmful prece-dent that undermines the basic tenets ofthe rule-based order.”

While countries expressed supportfor accelerating the negotiations on fish-eries subsidies, many developing coun-tries expressed alarm over attempts todilute special and differential treatment(S&DT) for developing countries.

E-commerce concerns

At the informal HOD meeting, In-dia, the Africa, Caribbean and Pacific(ACP) Group of countries, Benin on be-half of the African Group, the least-de-veloped countries, Bolivia, Cuba andVenezuela, among others, derided at-tempts to pursue the plurilateral nego-tiations on e-commerce and domesticregulation for trade in services.

On e-commerce, India reminded thesponsors of the plurilateral negotiationsthat there was a multilateral programmeon e-commerce agreed to by ministers atthe WTO’s eleventh Ministerial Confer-ence in Buenos Aires in 2017.

“In our view,” said India, “goingagainst this exploratory mandate [estab-lished in 1998] and starting negotiations

or 16 months, but for 16 years, throughmultiple administrations. It wonderedwhy members were now coming aroundto seeing that there were these problems(with the AB) and why the DSB and othermembers had not addressed this.

The US said that it would not nego-tiate a further weakening of the rules ordiminish the accountability of the AB.(SUNS8903) ❐


CURRENT REPORTS WTO

on e-commerce [at the plurilateral level]strikes at the very roots of the multilat-eral system.”

Most developing countries, accord-ing to India, were not ready for bindingrules on e-commerce.

India said it was finalizing a nationale-commerce policy that “seeks to useIndia’s data for its own developmentrather than allow its value to be appro-priated by others.”

New Delhi will preserve “flexibilityof imposing customs duty on electronictransmissions to protect domestic indus-try and leverage technology for creatingjobs and wealth, by ensuring competitionand a level playing field,” India said.

It asked members at the WTO to “as-sess the extent of sacrifice of revenue in-volved [in imposing a moratorium oncustoms duties on electronic transmis-sions], and the distribution of this lossamong Members, when new technolo-gies like additive manufacturing will re-sult in electronic transmissions cascad-ing and many dutiable goods beingmanufactured by digital printing.”

Attacking the so-called plurila-teralJoint Initiative on e-commerce launchedby Japan, Australia and Singaporeamong others, India said some of the pro-posed plurilateral rules would have aserious impact on “existing trade rules,particularly the GATT [General Agree-ment on Tariffs and Trade] tariffs, whichprotect our industry, and GATS [GeneralAgreement on Trade in Services] sched-ules that provide us useful flexibilities.”

“Both the GATT and GATS couldwither away due to the onslaught of theso-called ‘high standard’ e-commerce el-ements” as proposed in the Joint Initia-tive proposals,” India warned.

The ACP Group said it was now“more than ever convinced that the workunder the current mandate of the 1998Work Programme on Electronic Com-merce has not been exhausted and thatthere is much more that needs to be doneunder the development dimension.”

The ACP Group, which consists ofmore than 90 countries, said that the cur-rent moratorium on customs duties one-commerce would have revenue impli-cations.

Members of the Group were con-cerned about “the loss of policy space”because of the plurilateral negotiationson e-commerce.

Benin, on behalf of the AfricanGroup, expressed sharp concern over the

ongoing efforts to undermine the 1998multilateral work programme on e-com-merce.

Several other developing and least-developed countries warned about theimplications of the plurilateral negotia-tions on e-commerce.

Agriculture imbalance

Commenting on agriculture, theACP Group reminded the big subsidiz-ers that “the current imbalance in entitle-ment to the use of domestic support pro-visions is having a serious negative im-pact on ACP countries’ productive capac-ity and international competitiveness.”

As agriculture “remains one of, ifnot, the most difficult areas of the DohaWork Programme”, the ACP Groupurged WTO members to “accord duepriority to advancing the negotiations.”

Any outcome in agriculture, said theGroup, “must be in line with the man-date of Paragraph 13 of the Doha Decla-ration and subsequent mandate issuedby Ministers, especially as it relates to thespecial circumstances of developingcountries and LDCs as well as NFIDCs[net food-importing developing coun-tries].”

India demanded an outcome onmandated issues like finding a perma-nent solution for public stockholding forfood security. It cautioned against at-tempts to raise extraneous demands “foradditional information and endless de-bates, with the objective of wriggling outof past commitments.” Such a strategyby the US and the Cairns Group of coun-tries, India warned, “is clearly a recipefor failure.”

As regards WTO reforms, Indiacalled for “a balance in the reformagenda by addressing some of thelongstanding demands of developingcountries.” It said that it was ready towork with other like-minded membersto make specific proposals to facilitatework on WTO reforms. Members mustpursue a reform agenda that is balancedand inclusive so as to solve the problemsbeing faced at the WTO rather than im-posing “additional burdensome obliga-tions,” India argued.

India called for paying “urgent andundivided attention” to “getting theAppellate Body on its feet and preserv-ing the independent dispute settlementsystem of the WTO”.

Trade envoys from many develop-

ing countries expressed alarm on severalWTO reform proposals that have beentabled.

The ACP Group, for example,pointed out that the paramount impor-tance of WTO reforms must be to pre-serve “an independent, impartial andwell-functioning dispute settlement sys-tem”, which is a sine qua non for “pre-serving the legitimacy and credibility ofthe multilateral trading system.”

“The continuing impasse in the ap-pointment of the Appellate Body mem-bers,” said the ACP Group, “poses thereal threat of eroding the effectiveness ofthe WTO as a rule-making institutionand undermines the adjudicating func-tion of this House.”

Commenting on the transparencyand notification proposals of the US, theEU and Norway on behalf of the so-called Ottawa Group, the ACP Groupmaintained that developing countriesface significant capacity constraints incomplying with the notification require-ments.

On attempts to truncate special anddifferential flexibilities and differentiateamong developing countries in availingof S&DT, the ACP Group expressed sharpconcern about discussing the S&DT is-sue at the General Council instead of theDoha negotiating body on trade and de-velopment. The S&DT discussion wasnot being conducted under paragraph 44of the Doha Work Programme, the Groupmaintained.

Moreover, “arbitrary classification ofWTO Members and the suggestion thatsome developing members are not en-titled to S&DT or are excluded fromclaiming flexibilities, deviate from theS&DT provisions enshrined in theMarrakesh Agreement [which estab-lished the WTO],” the ACP Group ar-gued.

The choice of self-declaration foravailing of S&DT flexibilities must be leftto the developing countries to decide, theACP Group said.

“The basic principles of inclusivity,transparency, development and particu-larly S&DT for developing countries andLDCs must be fully adhered to,” it de-manded.

China cautioned that the paralysisover the selection process for filling theAB vacancies posed “the most severe cri-sis” at the WTO.

It also said most members did not


CURRENT REPORTS WTO

support any punitive approach for com-plying with notification provisions.

Without naming the US proposal ondifferentiation in availing of S&DTflexibilities, China said “we don’t agreeto continue the unproductive and polar-ized discussions on differentiation orgraduation of developing members.”

“Nor we will accept the explicit orimplicit case-by-case approach to erodethe unconditional special and differen-tial treatment for developing members,”China said.

The only pragmatic way out, accord-

China tables comprehensive proposal onWTO reformChina has proposed “necessary reform” of the WTO to address the tradebody’s “existential crisis” and enhance its relevance, efficiency andinclusiveness.

by Kanaga Raja

GENEVA: China has tabled a compre-hensive proposal on WTO reform that,among others, calls for resolving what itsays are the crucial and urgent issuesthreatening the existence of the WTO andenhancing the inclusiveness of the mul-tilateral trading system.

Among the urgent issues that needto be resolved, the Chinese proposal said,is the appointment process of AppellateBody members, which should be initi-ated without delay so as to ensure theeffective functioning of the dispute settle-ment mechanism.

China also said WTO membersshould act in good faith and exercise re-straint in invoking provisions on nationalsecurity exceptions.

It is also necessary to effectively curbunilateralist measures of raising tradebarriers and imposing import tariffs inan arbitrary way and without authoriza-tion from the WTO, said China.

In its eight-page proposal circulatedon 13 May, China said that the necessaryreform of the WTO should cover the fol-lowing four areas for concrete actions:resolving the crucial and urgent issuesthreatening the existence of the WTO;increasing the WTO’s relevance in glo-bal economic governance; improving theoperational efficiency of the WTO; and

enhancing the inclusiveness of the mul-tilateral trading system.

China said it supports necessary re-form of the WTO so as to overcome itsexistential crisis, enhance its authorityand efficacy, and increase its relevancein terms of global economic governance.

To this end, China said it put for-ward in November 2018 the followingthree basic principles on WTO reform:

First, the reform shall preserve suchcore values of the multilateral tradingsystem as non-discrimination and open-ness, with a view to creating a stable andpredictable environment for interna-tional trade.

Second, the reform shall safeguardthe development interests of developingmembers. In particular, said China, it isimperative to eliminate the developmentdeficit in the existing WTO rules, resolvethe difficulties encountered by develop-ing members in their integration into eco-nomic globalization and help attain theUN Sustainable Development Goals.

Third, the reform shall follow thepractice of decision-making by consen-sus. The specific issues subject to reform,work agenda and final results should beagreed upon after extensive consulta-tions on the basis of mutual respect,broad participation and dialogues on an

equal footing.China said it believes that the multi-

lateral process is the most desirable chan-nel to promote liberalization and facili-tation of trade and investment on a glo-bal scale. At the same time, opportuni-ties and challenges have been broughtabout by the new wave of the science andtechnology revolution and transforma-tional power of the digital economy.

“In this context, we may consider anopen, transparent, inclusive, pragmaticand flexible approach to explore a newset of rules on international trade andinvestment, responding to the develop-ments of the times and the needs of busi-ness communities. In this process, theinterests and capacity constraints of de-veloping Members should be taken intofull account,” China suggested.

Challenges facing the multilateraltrading system

In its communication, China said theworld’s economic landscape is undergo-ing profound changes. With the rise ofunilateralism and protectionism, eco-nomic globalization is encounteringtwists and turns. The authority and effi-cacy of the multilateral trading systemare facing severe challenges.

Against this backdrop, China said itsupports “efforts to make necessary re-form to the WTO, in order to help it tacklethe current crisis, respond to the needsof our times, safeguard the multilateraltrading system and promote the build-ing of an open world economy.”

International trade is an importantengine for growth of the global economy.The multilateral trading system, with theWTO at its centre, is the cornerstone ofeconomic globalization and free trade. Asan important pillar of global economicgovernance, the WTO has, since its in-ception, made remarkable contributionsto expanding international trade, pro-moting full employment, stimulatingeconomic growth and raising standardsof living, said China.

In the past 24 years, the membershipof the WTO has kept increasing, with thetotal trade volume of its members ac-counting for 98% of the world’s total,which fully demonstrates the represen-tativeness of the multilateral trading sys-tem and its appeal to the membership.

ing to China, was “to encourage devel-oping members to contribute accordingto their capacity to do so, instead of re-quiring them to prove the case upfrontby themselves”.

In short, the HOD meeting exposedthe deep divide between the developingcountries on the one side, and the devel-oped countries on the other over theplurilateral negotiations on e-commerce,the proposals on S&DT and WTO re-forms, trade envoys told the South-NorthDevelopment Monitor (SUNS).(SUNS8901) ❐


CURRENT REPORTS WTO

World merchandise exports have in-creased from $4.3 trillion in 1994 to $17.7trillion in 2017, lifting hundreds of mil-lions of people out of poverty around theworld and significantly raising the liv-ing standards of citizens of relevantcountries and regions.

In the fields of trade liberalizationand facilitation, the WTO has made anumber of important achievements, saidChina. The conclusion and full imple-mentation of the Agreement on TradeFacilitation are expected to reduce thecosts of global trade by 14% and wouldgenerate $1 trillion in additional globaltrade each year. The full elimination ofagricultural export subsidies is condu-cive to levelling the playing field for ag-ricultural trade. The elimination of tar-iffs on information technology productshas increased the export of the productscovered from $549 billion in 1996 to $1.7trillion in 2015. All these have contrib-uted tremendously to the recovery andgrowth of the world economy, saidChina.

It noted that in the field of disputesettlement, 574 dispute cases have beenfiled with the WTO dispute settlementmechanism by the end of 2018. Themechanism has been playing an impor-tant role in resolving trade disputes, pre-serving the balance of the rights and ob-ligations of the members under the WTOagreements, and providing security andpredictability to the multilateral tradingsystem.

In the area of trade policy reviewand monitoring, more than 430 tradepolicy reviews have been conducted,covering 155 of the 164 WTO members.These reviews have significantly in-creased the transparency of members’trade policies and deepened their under-standing of each other’s trade regime.

However, said China, the recenttrend of rising unilateralist and protec-tionist practices has dealt blows tomultilateralism and the system of freetrade.

“The enduring blockage of the ap-pointment process of Appellate Bodymembers risks paralyzing the AppellateBody by the end of 2019, which will sig-nificantly affect the effective operation ofthe dispute settlement mechanism,” itwarned.

The abuse of the national security

exception, unilateral measures inconsis-tent with the WTO rules, as well as mis-use or abuse of existing trade remedymeasures have severely damaged therules-based, free and open internationaltrade order.

Moreover, such practices have ad-versely affected the interests of the WTOmembers, especially the developingmembers, and undermined the author-ity and efficacy of the WTO. “As a conse-quence, the Organization is facing anunprecedented existential crisis,” saidChina.

It pointed out, however, that theWTO itself “is not impeccable.”

The objectives set out in theMarrakesh Agreement Establishing theWorld Trade Organization have not yetbeen fully attained. As for its function ofnegotiations, progress has been slow onissues such as agriculture, developmentand rules, although it has been 17 yearssince the launch of the Doha Develop-ment Round. In China’s view, such newissues as electronic commerce and invest-ment facilitation that reflect the realityof international economy and trade in the21st century have not been timely ad-dressed. By contrast, remarkableprogress and achievements have beenmade in the field of trade liberalizationand facilitation through bilateral and re-gional trade agreements.

As for the WTO’s function of tradepolicy review and monitoring, transpar-ency of trade policies of its membersawaits enhancement, while the opera-tional efficiency of the WTO stands inneed of improvement.

Existential concerns

According to China, among the cru-cial and urgent issues threatening theexistence of the WTO that need to be re-solved is breaking the impasse in theappointment process of Appellate Bodymembers.

As a pillar of the WTO, the disputesettlement mechanism plays a crucialrole in providing security and predict-ability to the multilateral trading system,it said. If the blockage of the appointmentprocess of Appellate Body members con-tinues, there will be only one AppellateBody member left in office by December2019. “Such a situation would severely

threaten the proper functioning of thedispute settlement mechanism and there-fore pose an imminent and institutionalrisk to the Organization,” it said.

The appointment process of Appel-late Body members should be initiatedwithout delay to fill the vacancies so asto ensure the effective functioning of thedispute settlement mechanism, Chinasaid.

China noted that together with someother WTO members, it had submittedjoint proposals on Appellate Body re-form, urging members to actively partici-pate in the informal process under theauspices of the General Council and en-gage in substantive text-based discus-sions. These efforts are made to addressthe concerns of certain members such ason the transitional rules for outgoingAppellate Body members, 90-daytimeframe for appellate proceedings, thestatus of municipal law, findings unnec-essary for dispute resolution and the is-sue of precedent. The proposals also em-phasize the need to preserve and rein-force the independence and impartialityof the Appellate Body and to initiate theappointment process of the AppellateBody members without any further de-lay.

China also called for tightening dis-ciplines to curb the abuse of the nationalsecurity exception, saying that a certainmember (in reference to the UnitedStates) has imposed unwarranted tariffson steel and aluminium products andthreatened to raise tariffs on auto andauto parts to protect its domestic indus-tries, using national security as a pretext.It has also improperly extended the cov-erage of export control measures and ad-ministered such measures in a non-trans-parent or unjust manner.

“These actions have disturbed theinternational trade order and interna-tional market, impeded normal techno-logical exchanges and applications, im-paired the interests of Members con-cerned and undermined the relevantrules of the WTO,” said China.

The WTO members should act ingood faith and exercise restraint in invok-ing provisions on national security ex-ceptions. Such provisions need to be fur-ther clarified and regulated within theWTO framework, China suggested.

It is also necessary to enhance the


CURRENT REPORTS WTO

notification requirements on measuressuch as imposing import tariffs on theground of national security exceptions,and carry out multilateral reviews onsuch measures. “Meanwhile, WTOMembers whose interests have been af-fected should be entitled to take promptand effective remedies, so as to maintainthe balance of their rights and obligationsunder the WTO.”

China further called for tighteningdisciplines to curb unilateral measuresinconsistent with the WTO rules.

It said that a certain member (againin reference to the United States) hastaken unilateralist measures of raisingtrade barriers and imposing import tar-iffs in an arbitrary way and without au-thorization from the WTO. In addition,it has imposed economic sanctions onother countries and extended “second-ary sanctions” to overseas business ac-tivities of third-country nationals or com-panies, without authorization from theUnited Nations or legal basis under in-ternational treaties.

Such actions have severely violatedinternational commitments and the WTOrules, said China. Although suchunilateralist measures are manifestlyWTO-inconsistent and have caused seri-ous consequences, the current WTO rulesoffer no timely or effective discipline andremedy.

China said that it is necessary to ef-fectively curb such unilateralist mea-sures, reinvigorate the efficiency andauthority of the WTO, safeguard therules-based multilateral trading systemand protect the legitimate rights of theWTO members.

“Such unilateralist measures shouldbe constrained through, inter alia, en-hancing the multilateral review mecha-nism, authorizing the Members affectedto take prompt and effective provisionalremedies in cases of urgency and accel-erating relevant dispute settlement pro-ceedings.”

Raising WTO relevance

China also proposed several actionswith respect to increasing the relevanceof the WTO in global economic gover-nance. These include rectifying the ineq-uity in the rules on agriculture; improv-ing the trade remedy rules; accelerating

negotiations on fisheries subsidies; ad-vancing the joint (plurilateral) initiativeon the trade-related aspects of e-com-merce in an open and inclusive manner;and promoting discussions on new is-sues.

On agriculture, it said that signifi-cant inequity, imbalance and unfairnesspersist in current rules on agriculture, inparticular the provisions regarding theAggregate Measurement of Support(AMS). A number of developed membersenjoy high levels of AMS and thereforeare able to provide much higher levelsof support than their de minimis level withrespect to a number of specific products,seriously distorting agricultural produc-tion and trade. By contrast, the majorityof developing members have no entitle-ment to AMS. Furthermore, they couldnot implement domestic public stock-holding programmes necessary for foodsecurity purposes.

It is necessary to rectify the inequityin rules on agriculture so as to promoteagricultural trade and create a level play-ing field for developing members. It isalso necessary to enhance their abilitiesto safeguard food security and livelihoodsecurity so that they could benefit morefrom the multilateral trading system, saidChina.

The AMS entitlements of developedmembers should be eliminated ingradual instalments. In the meanwhile,members should reach an agreement onthe permanent solution for public stock-holding for food security purposes, itsuggested.

On the issue of improving the traderemedy rules, China noted that atpresent, there exist a number of gaps andambiguities in the existing rules. Misuseand abusive application of trade remedymeasures abound. Discriminatory prac-tices based on country of origin and en-terprise type have been on the rise. Thespecial situations of developing membersand small and medium-sized enterprises(SMEs) as well as the public interest arenot accorded adequate or appropriateconsideration. As a result, trade remedyrules have failed to exert their due func-tions or respond to the needs of the de-velopment of the multilateral tradingsystem to the detriment of the normalcourse of international trade.

It is necessary to further clarify and

improve relevant WTO rules on subsi-dies, countervailing measures and anti-dumping measures. “We should curb themisuse and abuse of trade remedies,eliminate discriminatory rules and prac-tices, and give consideration to the spe-cial situations of developing Membersand SMEs as well as public interests,”China suggested. In this way, the spiritand principles of relevant agreements ofthe WTO could be more faithfullyhonoured and free trade and levelling theplaying field better safeguarded. Suchimprovements of rules could answer tothe needs of the world and the WTOmembers for sustainable development.

Firstly, China proposed that the pro-visions on non-actionable subsidiesshould be reinstated and their coverageexpanded.

Secondly, efforts need to be made toclarify and improve relevant rules on andrelating to price comparison in anti-dumping proceedings, improve the ruleson sunset review and explore the possi-bility of harmonizing the rules on anti-circumvention.

Thirdly, the subsidies andcountervailing rules relating to subsidyidentification, calculation of benefits con-ferred and application of facts availableshould be clarified and improved to miti-gate abusive applications ofcountervailing measures.

Fourthly, transparency and due pro-cess of anti-dumping and countervailinginvestigations should be improved andthe assessment of their effectiveness andcompliance reinforced.

Fifthly, more consideration shouldbe given to the special situations of de-veloping members and SMEs as well aspublic interests.

In calling for accelerating the nego-tiations on fisheries subsidies, China saidthat the negotiations are among the ar-eas where the WTO could help achievethe Sustainable Development Goals.Swift conclusion of the negotiations isimportant.

It is necessary, it said, to conclude thenegotiations on fisheries subsidies in ac-cordance with the decision adopted bythe 11th WTO Ministerial Conference.The agreement to be reached should pro-vide comprehensive and effective disci-plines to prohibit certain forms of fisher-ies subsidies contributing to overcapac-


CURRENT REPORTS WTO

ity and overfishing and to eliminate sub-sidies contributing to illegal, unreportedand unregulated fishing.

On advancing the joint initiative ontrade-related aspects of e-commerce,China said e-commerce has created un-precedented opportunities for interna-tional trade and economic growth. Mean-while, the digital divide still needs to bebridged. Issues such as cybersecurity anddata security have gained in prominence.Members, particularly developing mem-bers, have their own challenges in devel-oping e-commerce. And they have diver-sified interests and concerns with respectto international rules on e-commerce.However, in the past two decades, theWTO did not launch the rule-makingprocess on trade-related aspects of e-commerce.

China maintained that businesscommunities have made a strong call fore-commerce rules. It is important formembers to work on pro-multilateralrules. Such efforts will be conducive tobolstering inclusive trade, revitalizingthe WTO negotiating function and en-hancing the relevance of the multilateraltrading system. These rules, once agreedupon, would create new opportunities ofinternational trade for members, particu-larly developing members, as well asSMEs, women and youth. With theserules in place, e-commerce will generatemore benefits for businesses, consumersand the global economy.

China and 75 other WTO membershad issued a joint statement on e-com-merce confirming their intention to com-mence negotiations on trade-related as-pects of e-commerce on the basis of ex-isting WTO agreements and framework.

China proposed the following ac-tions: First, conduct the rule-making pro-cess in an open, transparent, inclusiveand flexible manner, and welcome par-ticipation of all members.

Second, uphold the developmentdimension and focus on cross-bordertrade in goods enabled by the Internet,as well as on such related services as pay-ment and logistics services; and establishrules on cross-border e-commerce facili-tation, electronic signature, electronicauthentication and online consumer pro-tection etc.

Third, formulate provisions on de-velopment cooperation so as to

strengthen technical assistance and ca-pacity building for developing members,particularly least-developed countrymembers.

Fourth, respect members’ right toregulate and accommodate specific con-cerns of developing members.

Fifth, strike a balance between tech-nological advances, business develop-ment and such legitimate public policyobjectives as Internet sovereignty, datasecurity and privacy protection, so as toreach a balanced and pragmatic outcomeacceptable to all through equal consul-tations.

Sixth, continue in-depth discussionsin relevant WTO bodies pursuant to the1998 work programme on e-commerce.

On promoting discussions on newissues, China said that trade and invest-ment are closely interlinked in today’sworld, underlined by the in-depth devel-opment of global value chains. Invest-ment facilitation measures play an in-creasingly important role in improvingbusiness environment, attracting in-bound cross-border investment and pro-moting trade and sustainable develop-ment.

However, said China, cross-borderinvestment by businesses is still hinderedby opaque policies and government in-efficiencies. Micro, small and medium-sized enterprises (MSMEs) make signifi-cant contributions to job creation andtechnology innovation but are con-fronted with challenges in connecting toglobal value chains, such as limited ac-cess to information and high costs oftrade financing.

It is crucial to meet the developmentneeds of business communities and topromote inclusive trade, so as to ensurethe multilateral trading system keepspace with the times, said China. “Con-tinued efforts should be made to bringthe discussions on relevant issues into anew phase while adhering to the prin-ciples of openness, transparency and in-clusiveness.”

On investment facilitation, a dedi-cated mechanism should be establishedto enable members to carry out efficientpolicy coordination and explore the es-tablishment of a multilateral framework.This process should focus on such ele-ments as improving transparency,streamlining administrative procedures

and enhancing international cooperation,while paying due respect to members’right to regulate.

With the process centring on devel-opment, developing members will ben-efit from technical assistance and capac-ity building.

On MSMEs, those enterprises couldbetter participate in and benefit morefrom international trade with improvedaccess to information, easier corporatefinancing and reduced trade costs.

Operational efficiency

China also called for improving theoperational efficiency of the WTO, inparticular improving compliance withnotification obligations, and improvingthe efficiency of the WTO’s subsidiarybodies.

On improving compliance with no-tification obligations, China said atpresent, members’ overall fulfilment ofnotification obligations still falls short ofthe requirements under various WTOagreements. Due to their limited capac-ity and other constraints, some memberscould not submit the notifications ontime. Meanwhile, the quality of counter-notifications submitted by some mem-bers still needs further improvement.

“It is imperative to enhance thetransparency of Members’ trade policies.Greater transparency will help create anopen, stable, predictable, equitable andtransparent international trading envi-ronment, and raise Members’ confidencein the multilateral trading system,” saidChina.

Among the actions proposed byChina in this regard are that, firstly, de-veloped members should lead by ex-ample in submitting comprehensive,timely and accurate notifications. Sec-ondly, members should improve thequality of their counter-notifications.Thirdly, members should increase ex-change of their experiences on notifica-tions. Fourthly, the WTO secretariatneeds to update the Technical Coopera-tion Handbook on Notifications as soonas possible and intensify training in thisregard. Fifthly, developing membersshould also endeavour to improve theircompliance with notification obligations.Technical assistance and capacity build-ing should be provided to developing


CURRENT REPORTS WTO

members, in particular LDCs, if they areunable to fulfil notification obligations ontime.

On improving the efficiency of theWTO subsidiary bodies, China said thatthe potentials and functions of these bod-ies have not been fully tapped. Some is-sues on the agenda of the regular meet-ings have not been resolved despite pro-longed discussions for years. There isconsiderable room for improving theoperational efficiency of the subsidiarybodies.

It is important to elevate the WTO’srole in global economic governance, saidChina. In this regard, its subsidiary bod-ies and the secretariat should find waysto better respond to the interests andneeds of members. Viable options shouldbe explored to improve the efficiency ofthe WTO in the following areas, amongothers: First, improve the rules of proce-dures of the subsidiary bodies. Second,adjust the frequency of regular meetingsin light of the specific situation of eachbody. Third, encourage the secretariat toconduct more research on important eco-nomic and trade issues, enhance coop-eration with other international organi-zations, and help developing membersaddress and resolve specific trade con-cerns at regular meetings. Fourth, furtherimprove the representation of develop-ing members in the secretariat andsteadily increase their share in the staff.

Inclusiveness

China further proposed strengthen-ing the inclusiveness of the multilateraltrading system. In this context, it under-lined the need to respect the right of spe-cial and differential treatment (S&DT) ofdeveloping members.

It said the development issue is atthe centre of the WTO work. The WTOagreements have set forth S&DT provi-sions for developing members. However,most of these provisions are best-endeav-our clauses in nature and their imple-mentation leaves much to be desired.

Furthermore, some members arechallenging the entitlement of develop-ing members to S&DT, disregarding thesystemic gaps between developing anddeveloped members. They even requestsome developing members to assume thesame obligations as those of developed

members.Development remains an important

theme of the times. It is crucial for theWTO to safeguard the rights of develop-ing members to S&DT and make S&DTprovisions more precise, effective andoperational, said China. “This will beconducive to reducing the developmentdeficit in trade rules and contributing tothe achievement of the Sustainable De-velopment Goals of the United Nations2030 Agenda.”

China, together with some otherWTO members, had submitted a jointproposal on S&DT and called for contin-ued preservation of the rights of devel-oping members to S&DT.

China said that it further proposesthe following: First, enhance the imple-mentation and monitoring of existingS&DT provisions, particularly the imple-mentation of duty-free and quota-freetreatment and preferential treatment toservices and service suppliers of theLDCs.

Second, provide more targeted andconcrete technical assistance to ensurethe integration of developing membersinto the multilateral trading system andglobal value chains.

Third, advance the negotiations onS&DT provisions in accordance with theDoha Ministerial Declaration.

Fourth, accord adequate and effec-tive S&DT treatment to developing mem-bers in future negotiations on trade andinvestment rules.

Fifth, encourage developing mem-bers to actively assume obligations com-mensurate with their level of develop-ment and economic capability.

China also called for adhering to theprinciple of fair competition in trade and

investment, saying that state-owned en-terprises (SOEs) engaged in commercialcompetition are equal players in the mar-ket as other types of enterprises. How-ever, some members have come to set dif-ferentiated rules on the basis of owner-ship of enterprises, it said. For example,they label indiscriminately all SOEs as“‘public bodies” within the meaning ofthe Agreement on Subsidies andCountervailing Measures, set forth addi-tional transparency requirements anddisciplines for SOEs, and discriminateagainst SOEs in foreign investment se-curity reviews. “Such practices are det-rimental to creating an institutionalframework for fair competition and, ifleft unchecked, would give rise to morediscriminatory rules in the future,” itsaid.

It is imperative to respect the diver-sity of development models amongmembers and promote fair competitionin the fields of trade and investment, saidChina. Such efforts would strengthen theinclusiveness of the multilateral tradingsystem. Actions should be taken in theWTO to uphold the principle of fair com-petition, so as to ensure that enterprisesof different ownership operate in an en-vironment of fair competition.

China proposed the following: First,during discussions on subsidy disci-plines, no special or discriminatory dis-ciplines should be instituted on SOEs inthe name of WTO reform. Second,foreign investment security reviews shallbe conducted in an impartial mannerand follow such principles as transpar-ency and due process. Non-discrimina-tory treatment shall be given to like in-vestment by enterprises with differentownership structures, it said.(SUNS8908) ❐

Connect to Third World Network’sWorld Wide Website for the latest on

International Relations ● ● ● ● ● Environment ● ● ● ● ●

Agriculture ● ● ● ● ● Science ● ● ● ● ● Economics ● ● ● ● ● Trade ● ● ● ● ●

Health ● ● ● ● ● Education ● ● ● ● ● Communications ● ● ● ● ●

Development ● ● ● ● ● Indigenous Peoples ● ● ● ● ●

Medicine ● ● ● ● ● Forestry

www.twn.my


CURRENT REPORTS Economic outlook

Trade tensions, policyuncertainty weakening growthA UN outlook report sees a decelerating world economy as persistenttrade tensions hurt countries’ growth prospects.

by Kanaga Raja

GENEVA: The global growth outlook hasweakened amid unresolved trade ten-sions and elevated international policyuncertainty, with growth projections for2019 downgraded across both developedand developing countries, a United Na-tions report has said.

In its World Economic Situation andProspects (WESP) mid-2019 report, theUN said while looser monetary condi-tions have contributed to some stabiliza-tion in global financial markets and capi-tal flows, the world economy continuesto face considerable downside risks aris-ing from persistent trade tensions, thebuild-up of financial imbalances, and in-tensifying climate change.

Against this backdrop, it said, worldgross product growth is now expectedto moderate from 3.0% in 2018 to 2.7%in 2019 and 2.9% in 2020, reflecting adownward revision from its forecastsreleased this January.

The WESP mid-2019 report, whichupdates its earlier report released inJanuary 2019, said in the face of thesemultifaceted challenges, tackling the cur-rent growth slowdown and placing theworld economy on a robust path towardsthe 2030 Agenda for Sustainable Devel-opment require more comprehensiveand well-targeted policy responses. Thisshould include a combination of mon-etary, fiscal and development-orientedmeasures, said the report.

“It is increasingly clear that policiesto promote sustainable development willneed to look beyond GDP growth andidentify new and more robust measuresof economic performance that appropri-ately reflect the costs of inequality, inse-curity and climate change,” said ElliotHarris, UN Chief Economist and UNAssistant Secretary-General for Eco-nomic Development.

According to the WESP report, theweaker growth outlook across most re-gions is attributable to a confluence of

external and domestic factors.On the external front, persistent

trade tensions and higher tariffs haveweighed on the trade performance ofmany developed and developing coun-tries. Rising barriers to trade have notonly directly impacted global trade flowsbut have also increased uncertainty, af-fecting business and consumer confi-dence. As a result, global merchandisetrade volume growth has slowed moresharply than expected, particularly inlate 2018 and early 2019.

Data from the United States CensusBureau showed that bilateral merchan-dise trade between the United States andChina has declined by more than 15%since September 2018, when the secondround of tariffs came into effect. This hasalso impacted global value chains in EastAsia and other trading partners, said thereport.

Elevated trade-related headwindshave been compounded by continuedvolatility in global commodity prices, itadded. Oil prices have recovered fromthe recent lows in December 2018, withthe Brent spot price reaching $75 per bar-rel in April 2019. The UN said that theassumptions underlying the economicforecasts in its report are for Brent spotprices to average $65.5 in 2019 and $65in 2020. However, these assumptions aresubject to high uncertainty. With globaloil demand expected to decelerate andUnited States crude oil production grow-ing, an effective extension of the OPEC-led production agreement is a key deter-minant of crude oil prices in 2019. Sig-nificant supply disruptions and a spikein oil prices due to geopolitical factorsremain possible, given the situation inIran, Libya and Venezuela.

Among other commodities, agricul-tural commodity prices are generallyexpected to remain weak in the nearterm. However, localized spikes of foodprices in parts of Western Asia and Af-

rica due to weather-related shocks andconflicts cannot be ruled out, said thereport.

Growth projections for 2019

According to the WESP report,growth projections for 2019 have beenrevised downward in all major devel-oped economies.

In the United States, the growthmomentum is projected to moderate asheadwinds from trade policy are com-pounded by the waning effects of fiscalstimulus. Economic sentiment indicatorsin the United States deteriorated in early2019, as tangible impacts from tariff hikesand trade tensions materialized, and con-sumer confidence was buffeted by thelongest federal government shutdown inhistory. The Congressional Budget Officeestimates that the five-week shutdown,which impacted 800,000 federal employ-ees, reduced the level of GDP in the firstquarter of 2019 by 0.2%, although muchof this will be recovered later in the year.

The United States’ GDP is projectedto grow by 2.3% in 2019 – down from2.9% in 2018 and a projection of 2.5% (inthe forecast released in January) – as theeffects of fiscal stimulus measures waneand export growth is hampered by on-going trade disputes. In 2020, GDPgrowth in the United States is expectedto moderate further to 2.1%.

In Europe, while the effects of autoproduction disruptions are expected todissipate, economic activity will bedampened by weaker confidence, softerexternal demand and prolonged uncer-tainty surrounding the Brexit develop-ments.

The EU is projected to expand by1.5% in 2019 and 1.8% in 2020. This con-stitutes a downward revision comparedwith the previous forecast, as the trade-related downside risks attached to thelast baseline forecast have started to ma-terialize. By contrast, private consump-tion remains relatively robust. Solidlabour market conditions underpin up-ward wage pressure, which togetherwith subdued inflation rates supportshousehold purchasing power and privateconsumption spending.

The report said that the postpone-ment of the United Kingdom’s exit fromthe EU without clarification as to the way



forward has increased the risk of a dis-orderly separation. This could have se-vere negative consequences in the formof a disruption or even breakdown intrade flows to and from the United King-dom.

In Japan, weak external demand hasweighed on investment in the manufac-turing sector, while household consump-tion remains sluggish. Japan’s growthforecast for 2019 has been revised downfrom 1.4% to 0.8%, with the revision re-flecting weakening external demand.

For the economies of the Common-wealth of Independent States (CIS), ex-ternal conditions, including demandfrom major economies and prices of non-oil commodities, are less supportive in2019. Growth is expected to moderate,especially as fiscal policies are largelygrowth-neutral and several countrieshave tightened monetary policy. The ag-gregate GDP of the CIS and Georgia isexpected to increase by 1.9% in 2019 and2.3% in 2020.

The growth outlook for many devel-oping economies has also weakened, saidthe report.

Southern Africa, Western Asia andLatin America and the Caribbean haveseen particularly large downward revi-sions for growth in 2019.

The economic outlook for Africa re-mains challenging. While growth is esti-mated to pick up, the region faces diffi-culties in embarking on a robust and sus-tained growth trajectory, amid a globalslowdown, tepid commodity prices andprotracted fragilities in many commod-ity exporters. Aggregate GDP growth forthe region is projected at 3.2% in 2019 and3.7% in 2020, after an estimated expan-sion of only 2.7% in 2018.

The weaker prospects for SouthernAfrica are attributable to the devastationcaused by Cyclone Idai, coupled with asubdued outlook for South Africa’seconomy, which is severely hampered bypower shortages.

In Western Asia, growth in SaudiArabia is projected to slow amid oil pro-duction cuts, while Turkey will onlygradually emerge from recession follow-ing a sharp contraction in domestic de-mand in the second half of 2018.

The downward revision of the out-look for Latin America and the Caribbeanreflects weaker-than-expected activity in

the region’s largest economies – Argen-tina, Brazil and Mexico – and a furthersevere contraction in Venezuela. GDP forthe region is projected to expand by only1.1% in 2019 and 2.0% in 2020, followinggrowth of 0.9% in 2018.

In contrast, growth prospects remainfavourable in other developing regions,most notably East Africa and East Asia.

In China, recent policy stimulusmeasures will largely offset the adverseeffects from trade tensions. Growth inChina is projected to moderate graduallyfrom 6.6% in 2018 to 6.3% in 2019 and6.2% in 2020. Recent monetary and fis-cal stimulus measures are expected tobolster domestic demand, partially off-setting the adverse impact of trade tar-iffs on overall growth. Nevertheless,these measures could also exacerbatedomestic financial imbalances, raisingthe risk of a disorderly deleveraging pro-cess in the future.

Despite downward revisions,growth in India remains strong amid ro-bust domestic demand. The Indianeconomy expanded by 7.2% in 2018.Strong domestic consumption and in-vestment will continue to supportgrowth, which is projected at 7.0% in2019 and 7.1% in 2020.

According to the report, in the sec-ond half of 2018, gross fixed capital for-mation growth moderated, including inseveral large developing and transitioncountries.

The prolonged period of high uncer-tainty in the global policy environmenthas hampered business sentiments andweighed on capital spending, particu-larly in trade-oriented sectors.

“A sharper and more protracteddownturn in international trade activitycould significantly impact the medium-term growth outlook of trade-dependenteconomies,” said the report.

In many developing countries, in-vestor confidence has also been ad-versely affected by elevated domesticpolicy uncertainties, amid persistentstructural challenges.

In several large economies, such asBrazil, Mexico and South Africa, the in-ability to achieve a sustained revival ininvestment could weigh on already weaklong-term productivity growth, furtherimpeding their sustainable developmentprospects.

Economic projections for the least-developed countries (LDCs) have alsobeen downgraded (from the forecastsreleased in January). After expanding by4.8% in 2018, GDP growth in LDCs isprojected to decline slightly to 4.6% in2019, before improving to 5.8% in 2020.Thus, Sustainable Development Goal 8.1(at least 7% annual GDP growth in theLDCs) remains distant, said the report.

In the near term, living conditionsin countries such as Afghanistan, Angola,Burundi, Haiti and Lesotho are expectedto improve only slightly. In addition,Cyclone Idai has caused a humanitariancrisis in Mozambique, a country that al-ready faces extremely difficult economicconditions, amid a prolonged debt crisisand political instability. Against thisbackdrop, there are concerns over thecapacity to manage mounting publichealth and food security challenges, andto mobilize financial resources for recon-struction.

Monetary and fiscal policy stances

According to the report, the slow-down in global economic activity hastriggered a shift towards easier monetarypolicy stances across many developedand developing economies. This shift istaking place in an environment of sub-dued global inflation, amid weakeningdemand and a moderate outlook for glo-bal commodity prices.

Among the developed economies,headline inflation generally remains be-low central bank targets. Across the de-veloping regions, including Africa andLatin America, inflationary pressureshave also eased, in part reflecting morestable exchange rates and improved ag-ricultural production.

In March, the United States FederalReserve (Fed) lowered its expectationsfrom two rate hikes to none in 2019, whilemaintaining the target range for the fed-eral funds rate at 2.25-2.50%. The Fed willalso begin to slow the pace of its balancesheet normalization.

In efforts to boost credit growth, theEuropean Central Bank (ECB) recentlylaunched a new series of targeted longer-term refinancing operations and delayedany increase in interest rates until at least2020.

Meanwhile, the People’s Bank of



China further lowered the reserve re-quirement ratios for banks in early 2019to improve domestic liquidity conditions.

Given increased uncertainty overgrowth prospects, a few large develop-ing economies, including Egypt, Indiaand Nigeria, have also reduced their keypolicy rates.

Recent monetary policy shifts havehelped stabilize global financial condi-tions and pushed up asset prices. Aftersignificant financial pressures in the sec-ond half of 2018, capital flows to emerg-ing economies recovered in early 2019,with a modest increase projected for therest of the year. However, financial mar-kets remain prone to abrupt shifts in in-vestor sentiments and risk assessments.Furthermore, emerging economies con-tinue to face the challenge of translatingcapital inflows into productive domes-tic investments.

“The easing of monetary policy mayhave reduced some short-term risks, butis unlikely to significantly boost domes-tic demand in countries with highly le-veraged household and corporate sec-tors,” said the report.

Moreover, high policy uncertainty,particularly surrounding unresolvedtrade disputes and the Brexit process,may also limit the effectiveness of mon-etary policy.

For many economies, said the report,a more protracted period of monetaryaccommodation could exacerbate finan-cial imbalances, thus raising medium-term risks to financial stability.

As monetary policy space remainslimited, more countries worldwide areadopting easier fiscal policy stances tobolster growth, said the report. For manyeconomies, however, their ability to in-troduce large-scale fiscal stimulus mea-sures is limited, given persistent fiscaldeficits and elevated public debt levels.For commodity-dependent economies,fiscal space remains constrained as com-modity prices are still well below levelsseen before 2014.

The report said the extended periodof low global interest rates fuelled in-creasing borrowing by governments.Many countries have seen a significantrise in interest burdens, undermininggovernments’ capacities to utilize fiscalpolicy to pursue development objectives.In 2018, interest payments alone ex-ceeded 20% of government revenue in

several countries in Africa, Latin Americaand South Asia. These countries are alsoparticularly vulnerable to shifts in finan-cial conditions, via a rise in borrowingcosts, currency depreciations or com-modity price shocks. Of particular con-cern is the rising number of low-incomecountries that are either already facingdifficulties in servicing their debt or at ahigh risk of debt distress.

Given increasing downside risks togrowth and limited fiscal resources,policymakers in many countries face thechallenge of simultaneously supportingshort-term economic activity and pre-serving fiscal sustainability. In this envi-ronment, said the report, there is a riskthat policymakers would delay structuralreform measures necessary to addresssustainable development challenges, in-cluding eradicating poverty, tackling ris-ing inequality and enhancing climatechange resilience.

For most countries, there is a needto improve the efficiency of fiscal spend-ing, channelling expenditure towardsmeasures that will promote more inclu-sive and sustainable growth prospects.In addition, measures to improve fiscalmanagement are also important tostrengthen public finances and preserveconfidence. These measures include im-proving the allocation of expenditure,expanding the tax base and ensuring thatpublic borrowing is channelled towardsproductive investment, said the report.

Major downside risks

According to the WESP report, thebaseline scenario rests on the assumptionthat current economic and financial con-ditions will not deteriorate further. How-ever, with major downside risks prevail-ing, there is a significant possibility of asharper slowdown or more prolongedweakness in the global economy thatcould impact development progress, itcautioned.

A further escalation of trade disputesamong the world’s largest economiesposes a significant risk for both short- andmedium-term global growth prospects.Alongside unresolved trade tensionswith China, the United States recentlysignalled its intention to impose addi-tional tariffs on the European Union, pri-marily targeted at the aircraft and foodindustries. This is in addition to the im-

position of steel and aluminium tariffsthat are already in place.

“The impact of a spiral of additionaltariffs and retaliations would not onlydampen growth of these large econo-mies, but also have severe spillover ef-fects on the developing economies, par-ticularly those with high export exposureto the impacted economies,” the reportwarned.

The report also cautioned that inaddition to rising global trade tensions,the effectiveness of the present rules-based multilateral trading system is un-der threat. The WTO’s dispute settlementprocess may become constrained bymember states’ failure to fill the vacan-cies of the Appellate Body (AB) whichmakes the final binding decisions on ap-peal cases. As of 1 April 2019, only threeAB members remained, the minimumnumber for a quorum to review a case.Since two serving members’ terms endon 10 December, failure to secure newappointments to the AB would leave theWTO without an appeal function by theend of 2019. “Paralysis in the AppellateBody would critically weaken the rules-based multilateral trading system, at atime when the number of active tradedisputes has risen significantly.”

The report also said that recent shiftstowards more accommodative policiesmay have lifted investors’ sentiment inthe short term. However, the impact onasset prices and risk-taking behaviourcould increase financial risks in the me-dium term. Prolonged loose financial andlending conditions – including lower ex-pectations over the federal funds rate inthe medium term – will fuel search-for-yield behaviour, contributing to a furtherbuild-up of debt.

The high level of indebtedness hasbecome a prominent feature of the glo-bal economy. The global stock of debt isnearly one-third higher than in 2008 andmore than three times the global GDP.Elevated levels of debt are not only a fi-nancial risk in themselves, but also asource of vulnerability in case of an eco-nomic downturn. If the slowdown in theglobal economy becomes more acute,firms and households may struggle toroll over debt, triggering a disorderlydeleveraging process, large corrections inasset prices and spikes in risk aversion.

In this context, a particular riskstems from the recent upsurge of lever-


aged loans in the corporate sector in somedeveloped countries. The global lever-aged loan market has grown to about$1.3 trillion, more than double its size adecade ago. In the United States, it nowexceeds the size of the high-yield corpo-rate bond market. Rising investor de-mand, coupled with firms’ willingness totake on more debt, has led to a deterio-ration in underwriting standards andcredit quality of these loans.

The report noted that in 2018, theaverage global temperature was thefourth highest since 1880. The 20 warm-est years on record have occurred in thepast 22 years amid continuously risingcarbon dioxide levels. The degree ofwarming during the past five years hasbeen remarkable, both on land and in theocean. The last five years now hold therecord for the hottest period since mod-ern measurements started. The year 2019might prove to be warmer still, givenforecasted El Nino conditions.

In 2019, the level of carbon dioxidein the atmosphere is projected to witnessone of the largest ever increases in 62years of measurements. A large propor-tion will remain in the atmosphere forthousands of years, said the report.

The Atlantic hurricane season thisyear is predicted to be slightly belowaverage, but the impacts of long-termglobal warming are increasingly present.Last year’s season was the third in a se-ries of above-average seasons, causingdamages of about $51 billion. There werealso devastating floods in India and amajor typhoon in the Philippines. The2018 wildfire season includedCalifornia’s largest and deadliest wildfireyet and an extremely rare event whenwildfires broke out north of the ArcticCircle in Scandinavia. These and othersevere costly events made 2018 thefourth-costliest year in terms of insuredlosses since 1980. Three insurance and re-insurance firms (Aon, Munich Re andSwiss Re) estimate the economic cost ofnatural disasters in 2018 at $155-225 bil-lion, with only $79-90 billion insured.

The report also said that the num-ber of conflict-related forcefully dis-placed persons, including refugees andinternally displaced people, is estimatedto have continued to rise in 2018. Accord-ing to the United Nations High Commis-sioner for Refugees, the number of refu-gees under its mandate exceeded 20 mil-lion in June 2018, while the conflict-re-lated internally displaced population

CURRENT REPORTS Economic outlook/Commodities

Number of commodity-dependentcountries reaches 20-year highThere has been a rise in the number of countries dependent on commod-ity exports, especially in the developing world, finds a UN agency report,rendering these countries vulnerable to negative commodity price shocksand price volatility.

by Kanaga Raja

GENEVA: The number of commodity-dependent countries increased from 92in the period 1998-2002 to 102 in the pe-riod from 2013 to 2017, reaching its high-est level in 20 years, the UN Conferenceon Trade and Development (UNCTAD)has said.

In its State of Commodity DependenceReport 2019, released on 16 May,UNCTAD said that more than half of allcountries – 102 out of 189 – and two-thirds of developing countries are com-modity-dependent.

According to UNCTAD, a country isconsidered to be export-commodity-de-pendent when more than 60% of its totalmerchandise exports are composed ofcommodities.

“Given that commodity dependenceoften negatively impacts a country’s eco-nomic development, it is important andurgent to reduce it to make fasterprogress towards meeting the Sustain-able Development Goals (SDGs),” saidUNCTAD Secretary-General MukhisaKituyi.

According to the UNCTAD report,in the period 2013-17, 102 out of 189countries (54%) were commodity-depen-dent.

By region, 89% of sub-Saharan Afri-can countries are commodity-dependent,compared with two-thirds of the coun-tries in the Middle East and North Af-rica, half of the countries in LatinAmerica and the Caribbean, and half ofthe countries in East Asia and the Pacific.

On the other hand, only a quarter ofcountries in South Asia and in Europeand the Central Asia region are consid-

ered commodity-dependent, while thereare no commodity-dependent countriesin North America.

UNCTAD said that commodity de-pendence is almost exclusively a devel-oping-country phenomenon. Only 13%of developed countries are commodity-dependent, compared with almost two-thirds (64%) of developing and transitioneconomies.

Commodity dependence is particu-larly concentrated in the least developedand most vulnerable country groups:85% of least-developed countries (LDCs),81% of landlocked developing countries(LLDCs), and 57% of small island devel-oping states (SIDS).

Using the World Bank country clas-sification by income groups, UNCTADfound that 91% of low-income countriesare dependent on their commodity ex-ports, compared with less than one-thirdof high-income countries.

The number of commodity-depen-dent countries increased from 92 in 1998-2002 to 102 in 2013-17. However,UNCTAD said, the number of countriesdependent on the export of agriculturalproducts declined from 50 to 37 betweenthese two periods, while the number ofmineral-dependent countries steadilyrose, from 14 to 33, and the number ofenergy-dependent countries increasedfrom 28 to 32.

UNCTAD also pointed out that com-modity dependency is a persistent prob-lem. During the period 1998-2017, thedominant export product groups (agri-culture, minerals, energy, or non-com-modities) of 142 countries out of the 189

stood at 39.7 million. Existing politicalinstabilities and social tensions couldlead to a further increase in forcefullydisplaced people in 2019.

About 95% of conflict-related force-fully displaced persons are hosted in de-veloping countries, pressuring fiscal bal-ances. Despite financial support from the

international community, many hostcountries divert substantial financial re-sources from already-strained budgets tosupport forcefully displaced residents.This may impinge on other social provi-sions as well as on the policy space avail-able to react to external shocks, said thereport. (SUNS8913) ❐


in the sample (75%) remained un-changed.

Commodity prices increased sub-stantially between 1998-2002 and 2008-12, but fell in 2013-17, although they re-mained significantly higher than theprices registered in 1998-2002 or even in2003-07.

But price increases varied by com-modity group: the prices of energy andminerals increased much more thanthose of agricultural and manufacturedgoods. Therefore, said UNCTAD, relativeprice changes among these differentcommodity groups and relative to theprice of manufactures contributed tochanges in the dominant product groupsexported.

For example, during the period2008-12 when energy prices peaked, non-commodity-exporting countries with asizeable energy sector, such as Egypt andIndonesia, became temporarily energy-export-dependent. Similarly, some coun-tries switched from being dependent onagricultural exports in 1998-2002 to en-ergy- or mineral-dependent (e.g., Boliviaand Mozambique) in 2008-12 as energyand mineral prices soared.

Vulnerability

UNCTAD further said that commod-ity-dependent developing countries(CDDCs) are vulnerable to negative com-modity price shocks and commodityprice volatility. The average commodityprice levels in the period 2013-17 weresubstantially below their peak of the2008-10 period. For example, energyprices fell by 23.5%, mineral prices by13.7% and agricultural prices by 12.8%.

The negative terms-of-trade shock,together with other factors, both exter-nal and domestic, contributed to an eco-nomic slowdown in 64 commodity-de-pendent countries, with several of themregistering a recession in 2013-17. Astheir economies slowed down, the fiscalsituation of many CDDCs deteriorated,resulting in the accumulation of publicdebt, often in the form of an increase inexternal debt.

Indeed, said UNCTAD, the externaldebt of 17 CDDCs increased by morethan 25% of GDP between 2008 and 2017,with a large proportion of them (82.3%)being either mineral- or energy-depen-dent countries. These 17 countries areKazakhstan, Djibouti, Uganda, Ghana,Azerbaijan, Gabon, Niger, Montenegro,

Senegal, Mauritania, Tajikistan,Kyrgyzstan, Zimbabwe, Armenia,Mozambique, Papua New Guinea andMongolia.

During commodity price booms, thesudden inflow of additional public rev-enues provides resources to finance in-creases in public consumption, saidUNCTAD. However, such increases, fu-elled by a temporary increase in publicincome, may be difficult to contain orreverse after sudden declines in com-modity prices. For example, it said, pub-lic consumption grew in Mozambiqueand Zambia during the period 2011-16when aluminium and copper prices stag-nated or fell.

Diversification

UNCTAD also found that in someenergy-export-dependent countries, suchas Egypt, Iran, Oman, Saudi Arabia, andTrinidad and Tobago, the share of chemi-cals (manufactured products down-stream from their main exports) in totalmerchandise exports increased by morethan five percentage points between1998-2002 and 2013-17. Oman increasedthe share of chemicals in its exports from1% to 9.5% during this period, mainlydue to the increase in its exports of fertil-izers and other derivatives. Trinidad andTobago increased the share of chemicalsin its exports from 19.4% to 27.7%.

Some countries such as the UnitedArab Emirates, Qatar and Saudi Arabiasignificantly increased their refining ca-pacity and production of processed pe-troleum and gas products. Some of thesecountries and a few others like Bahrainalso took advantage of their abundantenergy resources by diversifying intoenergy-intensive aluminium production.

However, UNCTAD said that insome energy-export-dependent develop-ing countries, value-added in down-stream activities stagnated or fell. Forexample, in Azerbaijan, Nigeria and Ven-ezuela, production of petroleum deriva-tive products fell. Similarly, productionof aluminium fell in energy-dependentdeveloping countries such as Azerbaijanand Venezuela and stagnated in otherssuch as Nigeria.

UNCTAD said that despite highercommodity dependence, some CDDCsmanaged to expand their manufacturingexports. For example, in Brazil, the shareof commodity exports increased from44.3% in 1998-2002 to 62.8% in 2013-17.

While its non-commodity exports, nota-bly its auto industry, grew by 160% andaccounted for 29.1% of the growth of ex-ports, its agricultural exports grew evenfaster, at 390%, and accounted for 42.8%of the increase in export value during thisperiod. In Colombia, commodity exportdependence increased from 66.5% in1998-2002 to 80.6% in 2013-17, mainlydue to a large increase in the value ofenergy exports (petroleum and coal). Itsnon-commodity exports also grew, by110%, and accounted for 14% of the in-crease in the country’s total exports dur-ing this period.

UNCTAD said some CDDCs depen-dent on energy and mineral exports alsodiversified their exports by boosting ag-riculture. For example, Rwanda has be-come a mineral-export-dependentCDDC over the last 20 years. However,it has also boosted its agricultural ex-ports, which explains 34.2% of the in-crease in export value. Especially dy-namic have been its exports of tropicalbeverages (coffee and tea) and other ag-ricultural products. Cameroon has re-mained an energy-export-dependentCDDC, but its agricultural exports haveincreased significantly in value termsover the past 20 years. Their increase ac-counted for 38% of the increase in thecountry’s total export value during theperiod. This was due, in particular, to thedynamism of its cocoa exports and, to alesser extent, some agricultural raw ma-terials, fruits and nuts, said UNCTAD.

UNCTAD also found that in someCDDCs dependent on energy and min-eral exports, the agricultural sector con-tracted, and export concentration in-creased. In Chad, for example, the valueof its exports boomed after oil extractionstarted in 2003. However, cotton exportsfell by 40.3% in value terms between1998-2002 and 2013-17, resulting from alarge reduction in their production andarea under cultivation. Despite some in-creases in exports of oilseeds and gumArabic, the value of Chad’s agriculturalexports fell by 16%. This led to the shareof agricultural exports in total exportsshrinking from 92.5% to 5.8%. In Equa-torial Guinea, petroleum productionstarted in 1994 and peaked in 2004.The cocoa sector, which had beenimportant before the oil boom, regis-tered a fall in production of 93.9% be-tween 1990 and 2017. By 2013-17, en-ergy accounted for 91% of exports, most-ly in the form of crude petroleum.(SUNS8910) ❐

CURRENT REPORTS Commodities


CURRENT REPORTS Development policy

A new multilateralism for a globalgreen new dealDecrying the ills of present-day “hyperglobalization”, a report by twodevelopment experts frames an agenda for a more balanced internationaleconomic order that would deliver greater stability, shared prosperity andenvironmental sustainability.

by Kanaga Raja

GENEVA: A renewed multilateralism isrequired to provide the global publicgoods needed to deliver shared prosper-ity and a healthy planet, to cooperate andcoordinate policy initiatives demandingcollective action, mitigate common risks,and ensure that no nation’s pursuit ofthese broader goals infringes on the abil-ity of other nations to pursue them.

This is the main conclusion high-lighted in a recent report, A NewMultilateralism for Shared Prosperity:Geneva Principles for a Global Green NewDeal, by the Global Development PolicyCenter at Boston University and the UNConference on Trade and Development(UNCTAD).

The report was authored by KevinP. Gallagher, professor of global devel-opment policy and Director of the Glo-bal Development Policy Center at Bos-ton University, and Richard Kozul-Wright, Director of the UNCTAD Divi-sion on Globalization and DevelopmentStrategies.

In the report, the authors outline aset of “Geneva Principles for a GlobalGreen New Deal.” These, they say, ad-vance an urgent research and policyagenda for a New Multilateralism thatrebuilds the rules of the global economytowards goals of coordinated stability,shared prosperity and environmentalsustainability, while deliberately respect-ing the space for national policy sover-eignty (see below).

“We once had a version ofmultilateralism that permitted nations toregulate international markets and topursue strategies for equitable prosper-ity and development. This system re-flected the fact that leaders who believedin managed capitalism and full employ-ment were put in charge after WWII,”said Gallagher and Kozul-Wright.

With their experience of the Great

Depression and defeating fascism, theseleaders aimed for a value-driven andrules-based global economy. “The systemwas far from perfect, yet its core prin-ciples did provide a rough template fora more balanced form of prosperity in aglobally interdependent world,” said theauthors.

That system began to break down inthe late 1970s, when giant global banks,corporations and their allies in govern-ment regained the reins of power thatthey had temporarily lost in the GreatDepression and the War. “Once powerwas recaptured, these actors rewrote therules of the global system. The systemlater became an instrument for the dif-fusion of a neo-liberal order that has trig-gered crises of financial instability, in-equality, and climate change,” the twoleading economists said.

Balanced multilateralism

According to Gallagher and Kozul-Wright, multilateralism once promised avalue-driven and rules-based interna-tional economic order, tasked with pro-moting coordinated actions to delivershared prosperity and mitigate commonrisks. The initial goals of the BrettonWoods institutions created after WorldWar II were to promote full employment,regulate capital and prevent importeddeflation and austerity. The system wasintended to prevent beggar-thy-neighbour policies that could upset thestability of the global economy. It pro-vided institutional and ideological sup-port for governments to raise living stan-dards of their populations, leaving policyspace for sovereign states, at all levels ofdevelopment, to pursue their particularnational priorities.

“In practice, multilateralism in thethree decades after Bretton Woods never

lived up to this ideal,” said the authors.Managed capitalism coexisted with apersistent and widening technologicaldivide between North and South, waste-ful military spending under a tense East-West divide with proxy wars cripplingeconomic prospects in many developingregions, colonialism and lingering racialprejudice, unequal trade relations that in-hibited productive diversification inmany countries, and carbon-heavygrowth that was heedless of the environ-mental cost.

Yet its core principles did provide arough template for a more balanced formof economic development in an interde-pendent world. The goal, as stated byHenry Morgenthau, the US Treasury Sec-retary at the time of Bretton Woods in1944, was a “New Deal in internationaleconomics” based on the fundamentalprinciple that “prosperity, like peace, isindivisible.”

The pursuit of multilateral principleswas possible because of a particular po-litical alignment. At the geopolitical level,there were contending systems in Eastand West which each sought to demon-strate superior results for citizens. In theWest, most governments of the era rec-ognized and remembered that the ear-lier laissez-faire policies privileging capi-tal above all else had led to instability,inequity, depression, mass unemploy-ment and, ultimately, violent conflict.

A new generation of political lead-ers from the South endeavoured to breakthe bondages of colonialism and createnew economic opportunities for theirrapidly growing populations. They werealso willing to challenge the rules of themultilateral game when they stymiedthose efforts.

Laissez faire

But, following the dislocations of the1970s, private capital and financial elitesreclaimed political power, and set aboutusing the multilateral system to re-en-throne and universalize laissez faire.These elites, both in national govern-ments and in the financial and corporatesectors, have pursued the expansion ofglobal markets and cross-border finan-cial flows as ends in themselves.

Under the umbrella of the WorldTrade Organization (WTO), with the ac-



tive engagement of the InternationalMonetary Fund (IMF) and the WorldBank, and through a plethora of tradeand investment treaties, they have putin place a set of enabling norms and rulesthat allows footloose finance and firmsto move freely within and across bordersand into ever-expanding spaces forprofit-making through privatization ofpreviously (and properly) public func-tions.

Concomitantly, these norms andrules restrict national policies that mightlimit the opportunities for capital to gen-erate larger rents. They outlaw manybona fide regulatory actions that govern-ments could take to steer trade and in-vestment towards broader goals and tomitigate divergence between private re-turns and societal costs.

What is more, these norms and rulesare actively enforced by a combinationof market disciplines, privatized regula-tory systems, and “investor-state disputeresolution systems” where the interestsof foreign investors carry undue weight.

“Today we live in a more intercon-nected world, where trade and foreigndirect investment have grown by ordersof magnitude,” the authors said. Moststriking, however, is the “hyper” growthof global finance and, behind this, finan-cial actors, institutions, markets andmotives. But while financialization hasreigned supreme over the globaleconomy, the big promise that this wouldgenerate a dynamic investment climatehas not materialized.

There has been a surge infinancialization over the past three de-cades but a reduction in real investmentin productive capital formation, theysaid, adding that economic growth wasboth stronger and more stable in the eraof multilateral managed capitalism.

Moreover, as footloose private capi-tal has moved production and invest-ment around the globe, the bargainingpower of capital has increased greatlycompared with that of labour. This hasallowed corporations to repress wagesand working conditions in both devel-oped and developing countries, exceptin those few cases where governmentshave actively intervened on behalf ofworkers.

Extremes of inequality both withinand between many countries have hit

grotesque heights. Investment in publicgoods, at the global as well as the na-tional level, has stagnated. Growth hasbecome dependent on punishing levelsof debt and a pace of resource extractionand energy consumption that is threat-ening the survival of the planet itself.

These policies produced the globalfinancial crisis, a moment of deep distressthat should have discreditedhyperglobalization, just as the Crash of1929 and the ensuing Depression dis-graced the sponsors of that era’s laissezfaire. “But such was the political powerof global elites that no fundamental re-form ensued. Under the auspices of theWTO, the influence of financial marketsand the cajoling by major multinationalcorporations, pressure has increased –demanding even more intensive uses ofglobal rules to privilege banks and cor-porate interests, in the financial, digital,pharmaceutical industries, and beyond,”said Gallagher and Kozul-Wright.

While policymakers readily ignoredneoliberal strictures against public debtand spending by pumping trillions ofdollars into their financial systems, theyotherwise left their operations largelyintact. After years of proclaiming theimpotence of public policy, the hypocrisyof this response has added to a growingpopular frustration and sense of distrustof the political and technocratic elite.

“This comes at a moment when eco-nomic, social, political and environmen-tal breakdowns demand urgent, ambi-tious and coordinated political actionacross borders. Such action requires newglobal norms and rules to restore a placefor diverse policies that allow nationalautonomy while converging toward thegoals of economic stability, widelyshared prosperity, development, and de-carbonization.”

Achieving such a new approach willrequire confronting and contesting thefuries of hyperglobalization: the benefi-ciaries in financialized sectors, monopo-lists, footloose firms and their apologistsin the academic and policy realms, saidthe authors.

Global anxiety

Gallagher and Kozul-Wright arguedthat the current state of global anxietyhas been a long time in the making. As

the system began to erode, nations inpayments difficulties and debt distresswere obliged to prioritize the demandsof private creditors, open up their capi-tal accounts, and pursue austerity andother pro-cyclical policies as a conditionof IMF support. Unleashing private en-trepreneurship, embracing the disciplineof international competition, and allow-ing markets and businesses to regulatethemselves were deemed the only wayto regain stability, revive growth andguarantee widely shared prosperity.

The gross flaws of this model werequickly exposed in Latin America’s lostdecade of the 1980s and the devastatingdebt overhang, lasting well into the1990s, in much of sub-Saharan Africa. InEast Asia, following the collapse of theThai baht in 1997, speculative collapsesspread to much of the region. In eachcase, austerity was the prescribed policyresponse, “there is no alternative” theaccompanying political mantra. Despitesignificant improvements in research andrhetoric, the IMF promoted virtually theidentical austerity formula for adjust-ment in the case of Greece after 2010,producing similarly catastrophic results.

Over the course of these four de-cades, financial markets have acquiredunprecedented global reach. As obstaclesto the free movement of capital have beendismantled, its economic power has beenstrengthened through new rules (on fi-nancial services provision, investmentand intellectual property rights) in tradeand investment treaties.

In reality, unrestrained finance hasaimed less at boosting investment, pro-ductivity and jobs, and more at extract-ing rents through a whole new range ofpyramid schemes, toxic products and thebuying and selling of existing assets forquick returns.

Financial globalization has beenclosely associated with “surges” of capi-tal flows when times are good, and sharpreversals or “sudden stops” during dif-ficult times, resulting in financial crises.These surges and slumps have translatedto highly uneven patterns of develop-ment.

The economic glue keeping all thistogether has been the creation of and ac-cess to debt, both public and private. Thepace of credit creation over the last threedecades has been truly astounding, with


both developed and developing coun-tries going with the flow.

While a handful of powerful actorshave assumed ever greater control ofmarkets and supply chains, they havebeen far less inclined to use the resultingprofits to create decent jobs, deepen theskill base and invest in the local commu-nities where they reside. And the biggerthese players have become, the moreadept they have become at hiding howand where they make their money.

According to the authors, digitaltechnologies, “which hold out a prom-ise of ending the drudgery of work andenhancing our creativity, are, in practice,reinforcing the drive to monopolizationand corporate subterfuge, adding furtherto polarization pressures.” As robotsthreaten job security across a wideningswath of sectors, as fintech expands thepredatory reach of speculative finance,and as platform monopolies gain evertighter control of our data, “winner takesmost” has become the distributionalethos of the “superstar” firms dominat-ing the hyperglobalized world order –looking very much like a crocodile withcorporate profits devouring the labourshare of income, they argued.

Beginning in the mid-1980s, with thelaunch of the Uruguay Round, “trade-related” negotiations pretended that nor-mal and defensible forms of nationalregulation were violations of privateproperty rights and liberal trade norms.The new provisions since that roundhave extended the neoliberal agenda andlocked it in with hard rules.

Established instruments of nationaldevelopment policy, including subsidies,government investment and procure-ment, and diverse forms of national regu-lation such as the regulation of privatecapital flows and environmental safe-guards, were redefined as violations of“free trade” and restricted or bannedoutright.

Instability and inequality

The current state of uncertainty andinsecurity is the result of inherent finan-cial instability, rising inequality and cli-mate breakdown. Rising inequality andheightened instability are hardwired intothe rules of hyperglobalization, in bothgood and bad times. The global debt

splurge has transformed the businesscycle around recurrent (and often in-tense) episodes of financial boom andbust, best described by economistHyman Minsky’s stages of fragility.

Even during times of relative stabil-ity when growth has picked up, themiddle class has felt increasinglysqueezed in advanced economies; whilepoverty remains a blight on the lives ofmost families in the developing worlddespite the remarkable achievements ofChina in reducing levels of extreme pov-erty.

Households and governments havetaken on more and more debt to meettheir spending needs, providing fertilegrounds for a rampant financial servicessector to extend predatory lending prac-tices and further entrench the debt-driven growth model.

Informality and insecurity have be-come the lot of working people every-where, even as select skilled workers andprofessionals, in both the North andSouth, have achieved more privilegedpositions on the technological frontier ofhyperglobalization.

Growth spurts in the developingworld have produced a welcome assaulton extreme poverty since the start of themillennium, while the Global South hasgained a bigger manufacturing footprintthrough participation in global supplychains. But, in truth, this story is mostlyconfined to China and parts of East Asia.And even in China, incremental in-creases in the designated poverty thresh-old as well as sharply rising inequalityhighlight the ongoing policy challengeseven for the most successful countries.

Moreover, given the ability of mul-tinational corporations to shift produc-tion, the spread of industry is far lessstable or reliable than it seems. Too littleindustry is locally owned and controlled.The offshoring of activities through thespread of global value chains has contrib-uted to deindustrialization and the hol-lowing out of communities in many partsof the developed world, with concernsgrowing about the “vanishing middleclass”.

Meanwhile, in many developingcountries the adverse consequences of“premature” deindustrialization havebeen only partially hidden by commod-ity price hikes and easier access to inter-

national debt markets.According to Gallagher and Kozul-

Wright, the problem is that while tradeand investment flows have mushroomedunder hyperglo-balization, the packageof accompanying policies, including spe-cial processing zones and massive sub-sidies to attract multinationals, offeredby developing countries to encourageprocessing trade and by local communi-ties in advanced countries desperate toattract jobs, has brought limited benefits.

China’s exceptional status in this re-gard has rested on targeted industrialand other policies as well as tailored fi-nancing mechanisms, aimed at raisingdomestic value added in manufacturingexports. These are now being presentedas a threat by developed countries totheir own business interests, with effortsunderway to curtail their use.

The authors also pointed out thatwith global temperatures set to exceedthe desired 1.5°C increase by 2030, keep-ing that increase well below 2°C is nowthe urgent challenge and a core organiz-ing principle for the world economy. Thethreat of rising temperatures from highlevels of atmospheric carbon levels is inlarge part due to emissions from the rich-est 10% of people in the world. But theenvironmental breakdown is multi-di-mensional; species loss, land degrada-tion, extreme weather events, acidifica-tion of oceans, etc. are concurrent andcompounding.

“That the situation will worsen is notin doubt; the only question is by howmuch, and whether we will take thethreat seriously enough,” they said.

Need for reform

According to Gallagher and Kozul-Wright, the rules and practices of themultilateral trade, investment and mon-etary regime are in need of urgent re-form. These rules are currently skewedin favour of global financial and corpo-rate interests, and powerful countries,leaving national governments, local com-munities, households and future genera-tions to bear the costs of economic inse-curity, rising inequality, financial insta-bility and climate change.

These limitations are now widelyrecognized and a number of efforts areunderway, particularly in the developing



world, to establish policies for reform.The most effective efforts will be thosethat recognize the systemic nature of thechallenge, rather than piecemeal policytinkering.

“A renewed multilateralism is re-quired to provide the global public goodsneeded to deliver shared prosperity anda healthy planet, to cooperate and coor-dinate on policy initiatives that demandcollective action, to mitigate commonrisks, and to ensure that no nation’s pur-suit of these broader goals infringes onthe ability of other nations to pursuethem.”

The original New Deal, launched inthe United States in the 1930s and repli-cated in distinct ways elsewhere in theindustrialized world, particularly afterthe end of the Second World War, estab-lished a new social contract and accom-panying development path that focusedon four broad components: recoveryfrom Depression, extensive public invest-ment, regulation of finance, and redistri-bution of income.

While these broad features were con-sistent with specific policy goals tailoredto particular economic and political cir-cumstances, they made job creation, theexpansion of productive investment andfaster productivity growth common fea-tures of successful postwar economies.

“In building a global new deal to-day, we can learn from those core prin-ciples. As before, states require the spaceto tailor proactive fiscal and public poli-cies to boost investment and raise livingstandards, supported by regulatory andredistributive strategies that tackle thetriple challenges of large inequalities,demographic pressures and environ-mental problems,” said the authors.

However, the original New Deal wasneither directed at development of theGlobal South, nor at global climatechange. The specific challenges of in-equality and insecurity in the 21st cen-tury will require innovative and globalapproaches.

The Geneva Principles

The Geneva Principles for a GlobalGreen New Deal articulate a set of cohe-sive principles for the design of a re-formed multilateral trade and invest-ment regime.

According to the authors, five broadstrategic goals should frame any suchdeal:

1. A productive global economy builtaround full and decent employment atlivable wages, for all countries.

2. A just society that targets closingsocioeconomic gaps, within and acrossgenerations, nations, households, raceand gender.

3. A caring community that protectsvulnerable populations and promoteseconomic rights.

4. A participatory politics that de-feats policy capture by narrow interestgroups and extends the democratic prin-ciple to economic decision making.

5. A sustainable future based on themobilization of resources and policies todecarbonize growth and recover envi-ronmental health in all its dimensions.

Specific policy programmes andmeasures will necessarily reflect local cir-cumstances, but there will be a series ofinitiatives that will likely surface acrosscountries regardless of their level of de-velopment.

In this context, the authors called ongovernments everywhere to end auster-ity and boost demand in support of sus-tainable and inclusive economies; makesignificant public investment in cleantransport and energy systems and trans-form food production, supported by agreen industrial policy; raise wages inline with productivity; regulate privatefinancial flows; and curtail restrictivebusiness and predatory financial prac-tices.

At the global level, a newmultilateralism is urgently needed topursue these in a way that maximizes theeffectiveness of national developmentstrategies without creating negative glo-bal spillovers to partner nations.

A new multilateralism will requirethe following design principles:

1. Global rules should be calibratedtowards the overarching goals of socialand economic stability, shared prosper-ity and environmental sustainability, andbe protected against capture by the mostpowerful players.

2. States share common but differ-entiated responsibilities in a multilateralsystem built to advance global publicgoods and protect the global commons.

3. The right of states to policy space

to pursue national development strate-gies should be enshrined in global rules.

4. Global regulations should be de-signed both to strengthen a dynamic in-ternational division of labour and to pre-vent destructive unilateral economic ac-tions that prevent other nations from re-alizing common goals.

5. Global public institutions must beaccountable to their full membership,open to a diversity of viewpoints, cogni-zant of new voices, and have balanceddispute resolution systems.

Only through extensive reforms canthe financial and trading systems sup-port a more stable global economy, helpdeliver prosperity for all, and backstopthe public investment drive needed tomove, at the required speed, to carbon-free and inclusive growth paths.

“As things stand, current arrange-ments fall far short of providing coun-tries with the resources and predictabil-ity needed to support a global green newdeal,” said Gallagher and Kozul-Wright.

The crisis of the multilateral tradingsystem is also an opportunity to redirectit towards the goal of sustainable devel-opment.

Reforms to trade and investmentrules are perhaps the highest priority,given the laws and regulations in thetrade and investment regime now stretchacross the global financial, trading andinvestment system – as well as deep intonational policymaking.

Trade and investment rule reformmust ensure the maximum space to un-dertake financial regulations and debtworkouts, innovation and industrialpolicy, and policies for social welfare thatare in line with the demands of a globalgreen new deal, including the effectiveuse of subsidies to support structuraltransformation and the development ofalternative energies and to re-engineerthe production process of carbon-inten-sive industries.

Rolling back the numerous freetrade agreements and bilateral invest-ment treaties, which have been particu-larly destructive of policy space, is a pri-ority.

New efforts for reform at the WTOare an opportunity to put these GenevaPrinciples into forward-looking action,said the two leading economists.(SUNS8896) ❐



OPINION Development financing

Coping with World Bank-ledfinancializationJomo Kwame Sundaram and Anis Chowdhury flag the challenges posedto developing economies by a World Bank development blueprint thatunduly privileges private finance.

The World Bank has successfully pro-moted its Maximizing Finance for Devel-opment (MFD) strategy by embracingthe United Nations’ Sustainable Devel-opment Goals, internationally endorsedin September 2015. It has also securedsupport from the Group of Twenty (G20)biggest economies, and effectively pre-empted alternative approaches at thethird UN Financing for Developmentsummit in Addis Ababa in mid-2015.

As the main show in town, theMFD’s implications will need to be ad-dressed by developing countries, whichhave to respond proactively and collec-tively to tackle the new challenges itposes.

As the MFD agenda privileges for-eign investors and portfolio inflows,multilateral development banks (MDBs)should be obliged to clearly show howdeveloping countries will benefit.

Greater vulnerability and other ad-verse implications of being more closelyintegrated into fickle global financialmarkets, which detract from the osten-sible advantages of such integration, arenow widely acknowledged.

The International Monetary Fund(IMF) and other international financialinstitutions (IFIs) should also advise onthe efficacy of various policy instrumentssuch as macro-prudential measures, in-cluding capital controls, to ensure cen-tral bank control of domestic credit con-ditions.

Although portfolio flows are gener-ally recognized as pro-cyclical, IFIs rec-ommend capital controls reluctantly, andeven then, only after governments haveexhausted all other monetary and fiscalpolicy options.

After experiencing repeated boom-bust cycles in capital flows, many emerg-ing markets have learnt that they mustmanage such flows if they are to reapsome benefits of financial globalizationwhile trying to minimize risks.

In fact, many concerned economists

believe that monetary and fiscal policiescannot adequately address such systemicfragilities but may inadvertently exacer-bate them. For example, raising interestrates may attract more capital inflowsinstead of just stemming outflows.

After effectively eschewing capitalcontrols for decades despite its Article VIprovisions, recent IMF advice has beeninherently contractionary, calling for rais-ing interest rates and tightening fiscalpolicy instead of judiciously using“smart” capital controls.

Development-oriented governmentsmust include those familiar with chang-ing securities and derivatives markets,who will have to work with central bankson regulating cross-border flows andmanaging systemic vulnerabilities.

It is difficult for development-ori-ented governments to be pragmatic andagile when they are subject to the dic-tates of private finance, especially whenthese appear to be rules-based, anony-mous and foreign.

Financial systems are increasinglybeing reorganized around securitiesmarkets dominated by transnational in-stitutional investors who have trans-formed financial incentives and bankingbusiness models. Many banks have re-organized themselves around securitiesand derivatives markets where short-term profit opportunities are seen as sig-nificantly more attractive than traditionalalternatives requiring costly nurturing oflong-term, “information-intensive” rela-tions.

Meanwhile international financialliberalization has enabled further capi-tal outflows from most developing coun-tries, depriving them of much-neededresources to develop their economies.The economic fiction that open capitalaccounts would result in needed net fi-nancial flows from “capital-rich” devel-oped economies in the North to “capi-tal-poor” developing countries in theSouth has been disproved.

Thus, a significant share of themoney flowing into global shadow bank-ing (institutional investors, asset manag-ers) comes from developing countries.Such capital outflows are typically dueto tax arbitrage and avoidance practicesby transnational corporations andwealthy individuals. There is also con-siderable capital flight by those who haveaccumulated wealth by corrupt andother dubious means. The illicit sourcesof such riches encourage storing suchwealth abroad.

Effective cooperation to check andreturn such ill-gotten gains – often si-phoned out using illicit means such astrade mispricing and other forms ofmoney laundering – can go a long way.Equitable international tax cooperationwould increase financial resources avail-able all round, especially to developing-country governments.

The IMF and others should enabledeveloping-country authorities to effec-tively implement policies to more suc-cessfully mobilize domestic financial re-sources for investment in developingeconomies.

Ensuring transparent governmentguarantees and subsidies

The MFD approach seeks to commitfiscal resources to “de-risking” securitiesand other financial instruments to attractforeign institutional investments. It isthus reorienting governments to effec-tively guaranteeing profits for privateinvestors from financing “development”projects, effectively reducing public fi-nancial resources available for develop-ment projects.

To minimize abuses and to protectthe public interest, MDBs should insteadensure the transparency and accountabil-ity of the framework by making clear thelikely fiscal and other costs, includingopportunity costs, of de-risking projects.Public interest agencies, civil society or-ganizations and the media should helpgovernments closely monitor such costsand make the public fully aware of thecosts and risks involved. (IPS) ❐

Jomo Kwame Sundaram, a former economics pro-fessor, was Assistant Director-General for Eco-nomic and Social Development at the UN Foodand Agriculture Organization (FAO), and receivedthe Wassily Leontief Prize for Advancing the Fron-tiers of Economic Thought in 2007. AnisChowdhury, Adjunct Professor at Western SydneyUniversity and the University of New South Wales(Australia), held senior United Nations positionsin New York and Bangkok.


OPINION Climate change

Global inequality is 25% higher than itwould have been in a climate-stableworldClimate change has fuelled global inequality over the last few decadesand, if unaddressed, will continue doing so in the future.

by Nicholas Beuret

Those least responsible for global warm-ing will suffer the most. Poorer countries– those that have contributed far less toclimate change – tend to be situated inwarmer regions, where additional warm-ing causes the most devastation. Extremeweather events such as Syria’s prolongeddrought, South Asia’s catastrophic mon-soon floods and Cyclone Idai in South-East Africa, the third deadliest cycloneon record, are becoming more likely andmore severe.

These events are disproportionatelybringing death, displacement and cropfailure. As a result of this, projections es-timate that the economies of poorer,warmer countries will be gravely harmedby climate change over coming decades,while the cooler, richer countries respon-sible for the vast majority of the extracarbon dioxide in the air may even ben-efit in the short term. But as new researchreveals, this is not just a future concern –the economic injustice of climate changehas already been operating for 60 years.

The study, published in the Proceed-ings of the National Academy of Sciences,compared different countries’ GDP percapita – a measure of the averageperson’s economic standard of living –between 1961 and 2010. It then used cli-mate models to estimate what eachcountry’s GDP would have been withoutthe effects of climate change. The find-ings are stark.

Many poorer countries’ economieshave rapidly grown in the last 50 years,albeit often at great social and environ-mental cost and to the benefit of the glo-balized economy. But even that growthhas been held back substantially by cli-mate change – the gap in GDP per capitabetween richer and poorer countries is25% higher than it would have been in aclimate-stable world. And with mostricher countries sitting below and poorercountries above the 13°C average annualtemperature at which economic produc-

tivity peaks, global temperature rise isan immediate driver of this inequality.

Economic hit

Of the 36 countries with the lowesthistorical carbon emissions, which arealso some of the poorest and hottestcountries in the world, 34 have sufferedan economic hit compared with a worldwithout warming, losing on average 24%of GDP per capita. The poorest 40% ofcountries, many of which are located insub-Saharan Africa, Asia, and Centraland South America, have lost between17% and 31% of GDP in the last half-cen-tury.

India, one of the lowest emitters percapita, has been regarded as an economicgrowth champion in recent decades – butclimate change has slowed its progressby 30%. While the country’s services sec-tor has boomed, the agricultural sector –which employs half of India’s totalworkforce – has suffered greatly. A three-fold rise in extreme rainfall events andincreased severe droughts have reducedcrop yields and cause between $9 and 10billion in damage per year to the agri-cultural industry alone.

The same events also regularly bringIndia’s urban economic hubs to a stand-still. With 12 million inhabitants,Mumbai has the world’s largest popula-tion exposed to coastal flooding. Delugesin 2005 and 2014 forced the city’s inter-national airport and roads to close, andcost millions in property damage.

Increasingly intense Indian sum-mers that now regularly hit above 45°Creduce productivity, kill thousands andcause thousands more to commit suicide.Add to this the multi-billion-dollar costsof rescue and rebuilding from cyclonessuch as 1999’s Odisha storm, which lefttwo million homeless, and it’s easy to seehow climate change can stunt the eco-nomic growth of India and similarly af-

fected countries.For the world’s wealthiest countries

however, climate change has added tothe coffers – 14 of the 19 highest-emit-ting countries now find themselves in abetter economic position than theywould have been if the planet’s tempera-ture had stayed constant, with an aver-age boost of 13%. The US economy hassuffered, but by a minuscule 0.2%, whilethe UK finds itself 10% better off. The2018 heatwave there posed its own risksto health and crops, but it also providedhuge boosts to ice cream sales and tour-ism.

As is becoming increasingly clear,there are no quick fixes or easy solutionsto climate change or inequality. Reduc-ing emissions is, sadly, not enough, andproviding yet more high-interest loansto “help” poorer nations adapt to awarmer world will only deepen globalinequality. Alongside radically chang-ing the economies of the world’swealthiest nations, we must demandthat reparations for past injustices bepaid, that the debts of the Global Southbe cancelled, that privatization of localindustries and lands be reversed, andthat the brutal border regimes surround-ing the world’s wealthy nations be torndown. Only then can global inequalitytruly be tackled. ❐

Nicholas Beuret is a lecturer at the University ofEssex in the UK whose work focuses on the envi-ronmental politics of climate change and resourceuse. This article originally appeared in The Con-versation (theconversation.com).

Third World Economicsis also available in Spanish.

Tercer Mundo Economicois the Spanish edition of

Third World Economics, editedand published in cooperation with

Red del Tercer Mundo,Uruguay.

For subscription details,please contact:

Third World Network/Red del Tercer Mundo,Av 18 De Julio 2095/301

Montevideo 11200, UruguayFax (5982) 419222

Email: [email protected]

Double Issue Economics THIRD WORLD2 Third World Economics 1 – 31 January 2019 No 680/681 THIRD...

Documents

Transcript of Double Issue Economics THIRD WORLD2 Third World Economics 1 – 31 January 2019 No 680/681 THIRD...