3:45 PM Apr 26, 1995

WTO SECRETARIAT'S BLESSINGS FOR REGIONAL PACTS ?

Geneva 26 Apr (Chakravarthi Raghavan) -- There is no evidence to support the view about the increasing regionalization of world trade nor of the emergence of trading "blocs" centred in North America, Western Europe and Asia-Pacific, the secretariat of the World Trade Organization has announced in a report produced by it.

Trade partners in the same region and with partners in other regions have both become increasingly important in national economies throughout the post-war world, it says, and goes on to add:

The legal foundations for more open trade have been laid by the multilateral trading system - global in its coverage - with regional integration agreements serving to deepen relations with neighbouring countries and that thus "the regional and multilateral integration initiatives are complements rather than alternatives in the pursuit of open trade".

Having given this "good chit" to the regional trading arrangements and blocs and tendencies, the report refers to the WTO rules and procedures governing the regional integration agreements and says "... it may be that governments will consider that reforms are necessary in order to put the mutually supportive relationship between multilateralism and regionalism on a more solid foundation".

Neither the provocation for this "research" work and conclusion nor its publication (at this stage), is spelt out in the report.

But it is clearly a study, initiated by the secretariat on its own, without any mandate or demand from the collective membership of the WTO (which came into being on 1 January) or of GATT Contracting Parties earlier. At a breakfast meeting with UN Correspondents on Tuesday, outgoing WTO Director-General Peter Sutherland made a pointed reference to the report (which had been in the hands of newsmen for a week, but embargoed for publication on 27) and said that he had been asked to consult or get consent of the members, but had refused and had gone ahead on the secretariat's own its initiative.

The WTO's charter, while providing for the appointment of the DG, and for him to appoint his secretariat staff, does not provide for any such secretariat initiative.

It is well known "secret" that in the final stages when the text of the agreement was being negotiated and cobbled together, GATT Director-General, Peter Sutherland and the secretariat tried to get a provision for a role for the secretariat ala those of other international organizations.

But all the major trading partners and the key countries from the South joined to reject it, taking the view that the WTO and its agreements were a contractual relationship, and the work of the WTO and its bodies should not be "secretariat-driven" process, but one determined by the contracting parties and members, and the secretariat should undertake work that the members want it to do from time to time (as in the past in the GATT).

Subsequently (after Marrakesh), in the preparatory committee, (apart from the unsuccessful efforts to get WTO staff salaries and employment conditions equated to those of the Bretton Woods institutions, a failure for which the staff now blame Sutherland), there were attempts to get an expanded budget for the WTO "research", and through this for a secretariat role.

That too failed, with the preparatory committee members and the budget committee taking the view in terms of the work expected, not much additional staff was needed.

In his meeting, (in responding to a question on labour standards debates) Sutherland did concede this view about the role of the secretariat, but argued (in terms of work on new issues, including labour standards yet in the stage of 'debate about a debate', and needing analysis and discussions for a consensus) that the OECD with its narrow membership in the North was not the place and hence the WTO was the place for this work. In this context he cited the regional bloc study and report.

Other senior WTO officials, who did not want to be named or quoted, conceded that the WTO agreement provided for no such role for the secretariat, that in terms of negotiating history (it is still being debated within the secretariat whether to publish, or even publish all the proposals, amendments and working papers to enable others to draw their own conclusions) such a role could not be deduced.

Neverthless, one of them suggested, that it was based on "precedent", namely, a report or study done by it on trade and environment and published in 1992.

It was something done in 1991, by Jagdish Bhagwati, when he was 'advisor' to the GATT D.G.Arthur Dunkel.

Whether there was any formal decision or not (and GATT functions in a non-transparent way, with decisions often in 'green room' consultations), it was really something done in the context of the Rio UNCED meeting, and the call from the Preparatory Committee and the UN General Assembly asking all international bodies to make a "contribution" in the area of their competence.

With the Uruguay Round in a limbo, with CPs divided on the trade and environment question, but with everyone worried about the "protectionists" cloaking themselves in an environment banner, the secretariat and Bhagwati were encouraged to do something on their own and forward it to Rio as "GATT's contribution" but on its own authority.

That study, report or contribution, was published in 1992 in the GATT's "International Trade 90-91, Vol I, in a chapter on trade and environment.

The GATT secretariat, with the consent and understanding of the CPs (who did not want to give it any particular role, but allowed it or the DG to sound out in speeches or in an annual publication) began bringing out the "International Trade" containing trade statistics, and with some two or three chapters giving a secretariat view on some economic and trade issues.

The secretariat itself discontinued the publication of these "views", and over the last 2-3 years has been publishing only the statistics.

If this was the precedent, it may be a poor one; for since then only factual data are being published and not any views, and this could also be interpreted that the precedent was discontinued!

Another official said the latest study is so innocuous, without any real views of its own, that it was not worth bothering about, and that if anyone had reason to find fault with it, perhaps it should be the majors, and developing countries should not.

But perhaps that is the purpose of the study: one on which the majors may have some questions, but knowing their own effective control over the secretariat on the "important" would not publicly raise or object to the study, while developing country delegations could think it is supportive to them and hence would let it go by, thus laying the ground work for future ideologically motivated studies and reports.

These would come in terms of the items on the "Marrakesh shopping list" -- subjects mentioned by the Chairman of the Marrakesh meeting in his final statement, as subjects mentioned by various Ministers for future work in the WTO, but on which no agreement could be reached, but could be pursued within the WTO.

The incoming WTO Director-General, Renato Ruggiero, has already "unveiled" his agenda of further trade liberalization by 'accelerating' the implementation of the Marrakesh agreements on tariffs, agriculture, textiles and TRIPs.

Apart from this 'sting in the tail', unless the implementation period is cut, Ruggiero whose term itself will end in 2000 will not be able to take any new initiatives and new rounds!

The regionalisation report itself is fairly pedestrian.

From the bibliography cited at the end, it would appear that in large part, the "research" and "analysis" is one involving a "search" through other published literature and material (mostly, if not solely, those published in the North, and of a particular neo-classical view). The available studies, discussion papers, literature and reports of the United Nations, the UN Conference on Trade and Development, and the UN Economic Commission for Europe are not mentioned.

That is in the "culture" of the Bretton Woods Institutions who quote each other, and the OECD, but never other studies critical of their views. It is like the New England ditty about the Cabots and the Lodges talking only to each other, and the Cabots talking only to God.

To give a flavour of its ethno-centric quality, the report gives in a box as evidence of 'long history' of reduction or elimination of barriers between states, England's proposal for union with Scotland in 1547-48, the 1803 union of crowns and the 1703 Act of Union of England and Scotland. the French 1664 plan to unite all the provinces, the American colonies and the abolition of barriers among them in the 1789 Constitution and the German history from 1813-1871!

In economic history, this period would fall in the stages of feudalism and emerging mercantalism -- certainly not the free market that Adam Smith formulated to bury neo-mercantlism in the 18th century or Ricardo's later Free Trade theories to open European markets for the industrialized centre of England.

And if one were to go back to those periods of "preferential trade", one wonders why the GATT secretariat ignored Chinese or Indian feudal history or even British history, the English conquering Ireland or of the colonial period of integration of Asian and African economies (with Europe) or more recent (comparatively) Admiral Percy's opening up of Japan for "free trade with the United States"?

While the European Community's Rome Treaty was the major Art XXIV agreement, spawning in due course a number of agreements and revisions involving the EC itself, and its various association agreements, by the time of the WTO entry into force there were over 90, but with still only a few like Mercosur aiming to be a full fledged integration agreement and customs union.

The report also relates the EU process to the strong political integration commitments in Europe to make the point that the EU experience and the results may not be useful for any generalisation.

With some of the more recent ones (NAFTA, Mercosur etc) too recent for any useful conclusions on the basis of trade, the study falls back on a systemic examination of the agreements and their impacts.

It cites the data on intra-regional and inter-regional or global trade of the regional agreements to show that except for Europe which has a very high (69.9%) intra-regional trade, other regions have both aspects in their trade relationships.

It then cites the uniqueness of the European example -- in terms of the political commitment to integrate Europe - to suggest that it would be risky to draw conclusions for other agreements (that don't have this political commitment).

But if the growth figures of GDP and Merchandise trade over the periods 1870-1900, 1900-1913, 1913-1950, 1950-1973 and 1973-1993 were to be used to draw any conclusion about the GDP/Trade growth dynamics, can the small political events in Europe -- of two wars, Hitler's regional integration efforts, and the depressions -- be so completely ignored.

There does lurk in the report some passages that could be viewed as contrary to those of Europe (the EU and its web of agreements) and of the USA and its current thrusts in terms of the Americas and Asia-Pacific.

But it is also written in such a "bromide way" that for any view, it cites a counter-view too (without any conclusion of the researchers and the GATT economists, who recently some statistical gymnastics to show that monopolistic competition produces best welfare outcome for the Uruguay Round).

The only discernible aim would appear to be to give a quietus to the controversies over the regionalization vs multilateralism, the Triad capitalism version of the globalized markets that the transnational corporations are trying to create vs the neo-classical views of the 'market' and 'free trade' -- leave aside the views of developmental economics.

The report discusses the way the Art XXIV agreements (the GATT provision for Customs Union and Free Trade Agreements) began and how they were dealt with by the General Agreement.

As of the WTO entry over 90 such agreements are there, and of the 69 working parties that went into them, only six were able to reach a consensus on their conformity with Article XXIV.

It brings out that starting with the Rome treaty, virtually none of the agreements (except the Caricom one) has ever been formally approved by the General Agreement, but also notes (the European view) that since it has not been disapproved, it is legal!

Since those parties to the agreements could always block a consensus or decision about non-conformity, does the approval or disapproval imply anything contractually? Could the fact of few disputes over them (during a period of the GATT history when panels had to be set up by consensus, and their reports can be adopted only by consensus) mean anything either?

These are controversial questions that the 48 years of GATT have been unable to resolve, and the secretariat can do no more than state them and not draw conclusions.

The report also makes the point that except for the original Rome Treaty, and later the Latin American Free Trade Association (LAFTA) agreement, none of them were notified or considered by the GATT CPs before they came into force.

Some don't even notify the new trade preferences and tariffs before they become effective.

Other areas where the differing views have been set out include the controversies over the Art XXIV requirement that any agreement should cover "substantially-all-trade" among the signatories, the "not-on-whole-higher-or-more-restrictive" market access for outsiders, and the "rules of origin" that the signatories to such agreements specify visavis imports from outside.

The Art XXIV agreements and the way they were dealt with resulted during the Uruguay Round (in the group on GATT articles) India putting forward this particular Article for study and revisions.

But it didn't got anywhere, and only an Understanding (on the interpretation of the article) emerged, dealing with some of the technical problems and minor grievances, but not the substantive ones. The report notes that while the Understanding clarifies some of the areas where there had been controversy in the past, particularly on the external policy of customs unions, it fell short of addressing the issues of interpretation.

Most of the problems that have plagued the working party process have not been resolved, it adds.

On the rules of origin problem visavis the XXIV agreements, it notes the decision for a work programme to lead to harmonization of the rules of origin that could influence future agreements.