The Discouraging Effect of Risks in WTO Negotiations: Determinants and Perceived Changes

Abstract

The observation has frequently been made that uncertainty about the legal meaning and the economic and political effects of WTO agreements exert a discouraging effect on the progress of multilateral trade negotiations. This article identifies the determinants of uncertainty and risk in the WTO. It also examines changes in these determinants over time, pointing to increasing levels of uncertainty and risk. The argument is based on a series of interviews conducted with members of national delegations to the WTO and with WTO employees.

Notes

¹ The Economic Times, Aug. 14, 2008.

² Knight (1921) refers to risk in situations where decision-makers can assign mathematical probabilities to the possible outcomes, while he speaks of uncertainty when decision-makers are unable to assign probabilities to the randomness which they face. The present article departs from this terminology by employing the notion of uncertainty with reference to all types of situations involving uncertain outcomes, whereas the concept of risk includes the availability of countermeasures. This corresponds to the common use of these words by members of the national delegations to the WTO which did not differentiate between different types of uncertainty along the lines proposed by Knight, but to whom the notion of risk was inextricably linked to issues such as exceptions, renegotiations, and sanctions.

³See also Jara and Dominguez (2006) on service negotiations and, specifically on environmental services, Kirkpatrick, Clive, and Serieciu (2006).

⁴See O'Connor (2003). The result that has not been expected by developing countries during the Uruguay Round is that OECD farmers' receipts from governmental support have remained largely unchanged at 30% of their income, with two-thirds of support directly raising product prices and thus strongly distorting trade. This contributed to the surprising effect that growth of trade in agricultural products has slowed down after the Uruguay Round and that the share of developing countries in agricultural trade has stagnated. See OECD (2005).

⁵ Keohane, Moravcsik, and Slaughter (2000, 460). On considerations that guide panelists and members of the Appellate Body and on factors that shape their independence, see Broude (2004), Cass (2005), Ehlermann (2003), Greenwald (2003), Smith (2003), Steinberg (2004), and Weiler (2001). See also Alter (2000), Burley and Mattli (1993), Garrett, Kelemen, and Schulz (1998) and Pollack (2003) for comparable analyses of the European Court of Justice.

⁶The effect of legal independence on states' concerns about initial uncertainty at the time of negotiations needs to be differentiated from the subsequent clarification achieved through independent courts. The statement that countries are more concerned about legal uncertainty with more independent dispute settlement bodies when concluding an agreement is compatible with the belief that more independent dispute settlement bodies establish greater legal predictability in the course of the agreement's implementation.

⁷See Section 3.

⁸See, for instance, Walkenhorst and Dihel (2006) on the effects of new border security measures.

⁹See WTO (2005) on the difficulty of understanding foreign technical regulation and its complex effects on market access. See also WTO (2006) on the difficulty of assessing the protection granted through subsidies.

¹⁰Not only the magnitude of effects but even their direction is uncertain. For instance, the nature of the relationship between the level of intellectual property protection and the degree of knowledge diffusion is contested. See McCalman (2005).

¹¹For example, Finger (2002) mentions that fitting the WTO-required valuation accounting into developing countries' present customs systems would likely increase the opportunities for informal negotiations with customs officials rather than an objective valuation.

¹²See VanDuzer (2005). See also Clive and Kirkpatrick (2004), Sampson and Whalley (2005) and Wallach and Woodall (2004) on the multitude of (potential) effects of WTO agreements on non-economic values.

¹³One interviewee reported that governments were “scared to death by the idea of having Bové [a famous French NGO activist] on their back.”

¹⁴Interestingly, small to medium countries appear to have the greatest concerns about securing countermeasures. Large and influential countries can be more confident to have the influence necessary to attain a negotiated remedy and to withstand sanctions. Very small and poor countries are to some extent shielded from enforcement of unwanted obligations as other countries do not deem it worthwile to bring a case to the WTO.

¹⁵Agreement on Safeguards, Article II:1.

¹⁶Agreement on Safeguards, Article V:1.

¹⁷Agreement on Safeguards, Article VII.

¹⁸Agreement on Safeguards, Article VIII.

¹⁹ Ethier (2002), however, notices that discriminatory exceptions, such as antidumping measures, result in an ‘insurance triangle’. They benefit third actors who do not employ the exceptions themselves but gain from the discriminatory trade restrictions imposed on other exporting countries that are more competitive. In this way, discriminatory trade restrictions may mitigate uncertainty about market access gains abroad.

²⁰The cases were United States — Wool Shirts and Blouses, Korea — Dairy, Argentina — Footwear (EC), United States — Wheat Gluten, United States — Lamb, United States — Line Pipe, Chile — Price Band System, Argentina — Preserved Peaches, and United States — Steel Safeguards.

²¹Since reaching their peak in 2002 at 34, safeguard notifications have come down to 16 in 2006, 6 in 2007, and 3 during the period between 1/1/2008 and 19/06/2008. Turkey has been responsible for 5, 3, and 1 of these notifications, respectively.

²²Agreement on Safeguards, Article XI:1(b).

²³GATT, Article XXVIII, and GATS, Article XXI.

²⁴The ability of the negotiating partners to exploit their situation is restrained, however, by the provisions of GATT, Article XXVIII: 4 c and d, and of GATS, Article XXI: 3 a. It stipulates that an arbitration body is established if the parties fail to agree on adequate compensation.

²⁵See Hoda (2001) and the overview of re-negotiations provided by the WTO Secretariat at http://www.wto.org/english/tratop_e/schedules_e/goods_schedules_table_e. htm#fntext24.

²⁶See Nottage and Sebastian (2006) for an excellent review.

²⁷WTO, Article IX:3.

²⁸WTO, Article IX:2.

²⁹WTO, Article X.

³⁰WTO, Article IV:2.

³¹WTO, Article IX:1.

³²WTO, Article IX:1.

³³WTO, Article IX:4.

³⁴Dispute Settlement Understanding, Article 22:4.

³⁵Dispute Settlement Understanding, Article 22:3.

³⁶WTO, Article XV.

³⁷During the ratification process of the Uruguay Round results, there has indeed been serious debate in the U.S. Congress about a clear exit route from the WTO. Eventually, a ‘three strikes and we are out’ clause that threatened U.S. withdrawal should the U.S. find that three dispute settlement system decisions had arbitrarily ruled against U.S. interests was dismissed. See Sarooshi (2004).

³⁸ Cronin (2001, p. 122) summarizes the paradox of hegemony: “Hegemons have the material resources to promote their interests through unilateral action, yet they cannot remain hegemons if they do so at the expense of the system they are trying to lead. … They can most easily violate organization rules and procedures with impunity, yet their violations have the greatest negative impact on the stability of the hegemonic order that they work so hard to maintain.”

Adlung, R. 2005. Public Services and the GATS. WTO Working Paper ERSD-2005-03.

Francois, J. 2000. Assessing the Results of General Equilibrium Studies of Multilateral Trade Negotiations. UNCTAD Policy Issues in International Trade and Commodities Study Series No. 3. Geneva, Switzerland: UNCTAD.