Strengthening the multilateral trading system
Business In The WTO: Two Suggestions To Increase Their Involvement Jappe Eckhardt
Think piece for the E15 Expert Group on The Functioning of the WTO
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Introduction It is widely acknowledged that the interest of the business community, and hence their willingness to invest time and resources, in the Doha Development Agenda (DDA) has eroded over time. At the same time, business representatives have indicated time and again that they still see the WTO as a very important institution. In other words, business not so much turned their back on the WTO as a whole (e.g. support for the DSM is widespread), but mainly on thecurrent Doha Round because of (a) the slow pace of WTO discussions in general and the lack of progress in the DDA negotiations in particular, and (b) a growing feeling that the WTO members do not effectively take into accounttheir concerns. It is crucial for the WTO to reverse this trend of decreased business support for multilateralism. Especially now. The ninth Ministerial Conference in Bali at the end of this year will be a pivotal moment for the DDA and the WTO as an institution more broadly. The new head of the WTO,Roberto Azevedo, has indicated that he his very committed to find a way out of the current impasse and that there is a great need to inject trust and confidence into the WTO negotiating system.Putting in place
arrangements which increase business involvement in the WTO, could very well play a critical role in re-energizing the Doha Round and making the WTO more effective and strengthen its legitimacy.In the remainder of this think piece I will discuss two such arrangements: a business forum(which should take place at the same time as the ministerial meetings) and a business advisory council.
Problem statement It is clear to everyone who follows the DDA negotiations closely and talks to representatives of the business community that the interest of firms in the current trade round has watered down substantially. Although it is difficult to measure the exact (lack of) commitment of business to the Doha Round, one could use the (official) participation of associations representing the interests of the business community during WTO Ministerial Conferences over time as a proxy. Figures 1 and 2do exactly that. Figure 1 illustrates the development of total interest group participation (business, NGOs and labor unions) in WTO Ministerial Conferences in the 1996-2009 period. It shows that, after a peak at the Cancun Ministerial in 2003, the number of attending nonstate actors as decreased substantially afterwards.
Figure 1: Interest Group participation during WTO MCâ€™s, 1996-2009 1000 900 800
Number of interest groups
700 600 500 400 300 200 100 0 Singapore
Source: De BiĂ¨vre and Hanegraaff (2011)
When looking at the participation over time of each of the three earlier mentioned groups separately
(figure 2), we see that especially attendance of business groups has gone down since Cancun.
1 Without claiming to define these countries, I am thinking of China, Korea, India, Brazil, Mexico and several of the ASEAN group â€“ Thailand, Malaysia and Indonesia. We might add Turkey and Argentina or Chile. I note that Korea and Mexico have already been OECD members for some time. I note too that Hong Kong and Singapore are in statistical terms leading trade entities and centres of trade, investment and shipping. 2 This has led to negotiations with Korea (completed) and with Indiaand with ASEAN countries, especially Singapore and Malaysia (ongoing).
Figure 2: Participation of Business, NGOs, and Labour organizations at WTO MC’s, 1996-2009
400 Business NGOs Other Labour
350 300 250 200 150 100 50 0
Hong Kong Geneva II 2005
Source: De Bièvre and Hanegraaff (2011)
The decreasing political activity of corporations and business associations in the Doha Round has been the subject of heated debate among academics and decision-makers alike. Some have argued that the lack of business interest in the DDA negotiations can be traced back to the well-functioning of the WTO dispute settlement mechanism. That is, it may be that in a “number of countries, firms seem to have concluded that the technical, comparatively less
public, disputes process offers better opportunities for their non-market strategy than supporting the negotiating process” (McGuire 2012: 332). If this were to be true, one would see an increase in the number of disputes brought to the WTO. However, as figure 3 reveals,the number of DS complaints has decreased, not increased, over time (with a record high of 50 complaints in 1997 and a record low of 8 complaints in 2011), especially from 2003 onwards.
Figure 3: total number of WTO dispute settlement cases per year, 1995-2012
Source: Eckhardt (2013)
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Another often heard explanation for the absence of business involvement in the Doha Round is that most of what matters to firms has already been achieved during the Uruguay Round. In other words, the decreased support of business for the DDA negotiations may be partly due to the fact that many firms nowadays take the free flow of goods and services for granted. Although it’s probably true that complacency plays some kind of role here (mainly for developed country firms), this cannot explain why at first the interest of business in the Doha Round sharply increased. As figure 2 shows, during the Cancun Ministerial (2003) the attendance of business groups was very high. It was only after the 2003 MC that the interest of business started to erode. A more plausible explanation for the lack of business involvement in the Doha Round is that the business community sees the current Doha Round as a dead end street and thinks that the issues they care about most [mention them here?] are not on the negotiating table at the moment. Why is this a problem? For an organization desperate for increased trust and confidence into its negotiating system, lack of support from the business community (one of the groups most influenced by decisions on global trade rules) is very bad news. If businesses have the feeling that their interests and concerns are not taken into account, they will not help to promote an understanding of the core principles of the WTO, nor will they invest resources in trying to get out of the current impasse. Moreover,by not engaging with business more, the WTO misses a great opportunity to tap the expertise and knowledge of the business sector. The latter could vey well help to enrich the nature and the quality of the information the WTO receives, which in turncould help to solve some of the pertinent problems it faces at the moment.
Respsonses If the WTO wants to reverse this trend of the business sector partly turning its back on multilateralism, it seems vital for the WTO to engage much more than it does at present with large and small businesses in both developed and developing countries. I suggest two ways through which the WTO could try to accomplish this: a) a business forum and b)a WTO business advisory council (WTO BAC).In the remainder of this section I will discuss both options. Before I do that,
however, it is important to note that at present the WTO is one of the fewinternational/regional/ etc organizations that does not have either a proper business forum, nor a business advisory council. As table 1 shows [more info needed? Other organisations?], most other organizations have at least one of the two and in many cases even both. A business forum At the moment business hasalready the opportunity to get engaged in WTO affairs. The WTO organizes a number of outreach events in which it engages with business, such as briefings for non-state actors on WTO council and committee meetings, plenary sessions of ministerial conferences and symposia on specific issues, which representatives from the business sector and other non-state actors can attend, and the annual public forum, which the WTO has been hosting since 2001. However, business representatives have stressed(during the E15 meeting) that more business involvement requires a stronger commitment from the WTO membership to give businesses the possibility to provide high-level input, especially when it comes to ‘agenda setting’. If business has no possibility to have high-level contacts at the WTO Ministerial Meetings, for instance, the WTO should not be surprised about poor business attendance. As indicated during the E15 meeting, a business forum should have the following objectives: Information exchange and the possibility for business to provide input to the deliberations of the ministers and agenda setting. Function as a reality check for governments, since they do not only need business’ support for the negotiations but also for the ratification of the results agreed. The forum (e.g. in Bali) should give the business community a possibility to be heard. Business would not appreciate, and therefore not participate in, a discussion of ‘done deals’. If the meetings have no substance, the business sector will not get involved. Business should have a chance to have an interactive discussion with negotiators/ministers. The idea wouldbe to organise a business forum at the same time (or perhaps starting a few days earlier) as the Ministerial Meeting. It will be a forum where business leaders meet to share
and learn and advice the heads of state and government. The prime purpose isto present concrete suggestionsto decision-makers. More specifically, like the B20, “its main purpose consists in developing recommendations and issuing relevant commitments from the business leaders and business organizations to deal with nowadays issues.” During the forum, members of the business community will meet and gather in a number of thematic working groups, which could for instance be chaired by a company CEO and a President of business organization, and come up with concrete recommendations. These proposals will be presented to the Heads of State and Government and should be taken into account in the final conclusions of the Ministerial Meeting.Throughout the entire process, the WTO business forum“participants will often meet with the Government representatives, to share views about the orientation of its working groups and the status of its works.” The practical organization of the forum should be a joined initiative by the WTO secretariat and representatives of the business community (the organization could be in the hands of the advisory council mentioned below). The former could for instance arrange the venue, whereas the latter group should be responsible for the content of the programme and inviting all participants. Present should be the presidents of the business associations/Chamber’s of commerce (national or regional?) of all WTO members (or of all regions of the world), as well as CEOs and Chairmen from a selected number of global companies from developed and developing countries. A business advisory council
for business and industry. respond when the various WTO fora request information about business-related issues or to provide the business perspective on specific areas of cooperation. organize the aforementioned business forum.
Several questions should be addressed (could perhaps be on the agenda during the first business forum?):
Should the WTO be responsible for organizing or should it be the business community? Should it be like BIAC (i.e. an independent international business association) or less institutionalized? Should it only include regional business/umbrella associations to keep it manageable? Or like in the ABAC, which comprises of members of the private sector from each economy. “ABAC members are appointed by their respective Leaders, and represent a range of business sectors, including small and medium enterprises. The economy determines the term of membership of each appointee as well as its own administrative arrangements and staff support.” Should it have a secretariat in Geneva? One could think of a rotating membership? Which topics/themes will be addressed?
A more far-reaching proposal is to establish a WTO business advisory council. I have looked for inspiration at how the organisations mentioned in table 1 have organised their advisory councils. The WTO BAC would promote the interests of the business community by engaging, understanding and advising the WTO secretariat and WTO members on a broad range of issues with the overarching objective to: identify priority areas for consideration by the WTO and its Members. provide policy recommendations to the WTO and its Members
Conclusion and recommendations In this think piece I have argued that the interest of the business community in the DDA negotiations has eroded mainly because the WTO does not offer sufficient opportunities for business to get involved in WTO affairs in a meaningful way. Engaging the business community more in the work of the WTO is important, as it could help to solve of the challenges the WTO faces today. I have suggested two concrete initiatives that could increase business involvement: a business forum and an business advisory council.
provide the WTO and its members with timely information on WTO policies and their implications
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Annex Table B shows data for 2011, exports and imports, goods and services combined, with intra-EU trade excluded. In $ billion: GOODS
In a first group 1-10: China, Korea, Hong Kong, India and Singapore. In a second group Mexico (for goods) and Brazil, Turkey and three members of ASEAN.
Roderick Abbott began by clarifying that, in his opinion, the EU has not abdicated its role of multilateral trade promoter, but the current changing global trade framework makes its task much more complicated.
are involved in the supply process, which is well illustrated by the example of the production process of the Volvo car which is made of around 25 different components coming from different regions of the world.
This new context is the result of several trends that have developed over the last few years.
In this respect, the WTO has launched the initiative called ‘Made in the World’9 in order to take the new global supply chain system into account within international trade issues, particularly concerning the measuring and the analysis of trade in terms of value added. Classical statistical measurements of trade flows are inadequate since they do not take into account the effective added-value added created during each stage of the production chain. A typical example is the production process of the iPhone which shows that, in terms of value added, almost 60% is owned by the US – from the design to the conception – while less than 2% is owned by China – deriving from last stage of the production process (final assembly and packaging). From the point of view of conventional trade flow statistics the iPhone is a Chinese export, but in terms of value added it is an American product.
Firstly, there is a very clear shift of trade and FDI activities to Asia where economic growth – triggered by trade and investment – is dynamic and robust. For instance, two years ago developing countries soundly complained about China’s central role in attracting FDI, who is now dominating world production as a result of massive European direct investments in China. The second trend concerns major changes in the pattern of trade, represented by the phenomenon of the global supply chain. This new supply architecture is completely different from the classical production pattern based on one single exporting country. Indeed, the global output chain is much more fragmented and a large number of countries Figure 1. Distribution of value for Phone, 2010
Source: ‘Capturing Value in Global Networks’, Kenneth L. Kraemer, Greg Linden and Jason Derick, July 2011.
Thirdly, the so-called emerging economies – which include the BRICS10 and the post-BRICS11 – have an increasingly active role and weight within the global economic and trading system. In fact, some of these emerging countries have already emerged, as testified by China, currently the first global exporter in goods and by India, the fifth global trader in services. Moreover, the list of major traders in goods now
includes Mexico, South Korea, and Malaysia. This new phenomenon implies that policy-makers must rethink their trade strategies due to the existence of a fourth group of countries within the WTO. Indeed, alongside the developed, developing and least developed countries (LDCs), has appeared a new group of emerged economies. In this respect, it is critical to understand the relationship between the
9 For more information, see: http://www.wto.org/english/res_e/statis_e/miwi_e/miwi_e.htm 10 Brazil, Russia, India, China and South Africa. 11 Indonesia, Argentina, Chile and Turkey.
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emerged countries – mainly China, Brazil and India – and the developed and the developing countries, respectively. It is also clear that emerged countries do not need the same degree of assistance in trade policies as is needed in marginalised LDCs, such as Bangladesh, Lao and Cambodia. This new dynamic explains one of the reasons why the Doha Round is deadlocked. Essentially, there are two central negotiating groups: on the one side, the coalition composed of the US, the EU, and occasionally Japan and Australia, and on the other side, Brazil, China and India. The stalemate is due to the fact that the relationship between these two groups is no longer clear. The developed countries demand further commitments regarding tariffs and services liberalisation aimed at market access, and in return they offer some efforts as regards agricultural export subsidies; while the emerged economies claim that they are still part of the developing group and that, under the WTO rules, they should be reserved a ‘special and differential treatment’. Therefore they refuse the trade-off proposed by developed countries since it is formulated on the basis of the principle of reciprocity.
To conclude, Abbott reiterated that the WTO is not simply a forum for trade negotiation – it also has other fundamental functions, such as ensuring transparency and monitoring, which have both been accomplished quite successfully by fighting off protectionist measures at the G20 level. The WTO will continue to ensure the completion of these critical missions, regardless of the future Doha Round developments. Discussion During the discussion, the audience raised issues such as the inclusion of agricultural modalities in the Bali agenda, the current protectionist revival, the role of China in the DDA negotiations, the ambiguity of the EU towards the multilateral trading system on the one hand, and preferential trade negotiations on the other hand, and the best instruments to effectively measure added value in world trade. A participant questioned the complementary link between the DDA negotiations and the EU Deep and Comprehensive FTAs.