Policy Briefs

Decision-Making in the WTO

by Jeffrey J. Schott, Peterson Institute for International Economics
and Jayashree Watal, Peterson Institute for International Economics

March 2000

 


Jeffrey J. Schott is a senior fellow at the Institute. Jayashree Watal was formerly Director in the Trade Policy Division of the Ministry of Commerce, Government of India, and is now a visiting fellow at the Institute. They developed this analysis as part of the Institute's effort to suggest responses to the problems that led to the failure of the World Trade Organization's Ministerial Conference at Seattle in December 1999.

© Institute for International Economics. All rights reserved.

 

Seattle will be remembered as the city where street demonstrations stopped global trade talks cold. But the Seattle protesters don't deserve such notoriety. The meeting actually fell victim to serious substantive disagreements among the member countries of the World Trade Organization (WTO) over the prospective agenda for new trade talks. These policy differences probably could have been bridged, if the WTO's decision-making process had not broken down. Much of the damage to the WTO was self-inflicted.

Efforts to relaunch new trade negotiations will likely face similar difficulties until member countries agree to rationalize decision-making within the WTO.1 We analyze the WTO's main problems in this area and propose management reforms to ensure that all WTO members are fully represented at the bargaining table.

 

How the GATT used to work and why the WTO doesn't work like
that any more

Throughout the postwar era, governments worked together in eight rounds of multilateral trade negotiations in the General Agreement on Tariffs and Trade (GATT) to produce concrete benefits for all participants. GATT agreements substantially opened industrial country markets (although high barriers remain in agriculture and apparel) and contributed importantly to economic growth in developing countries, particularly in Asia and Latin America.

Countries came to the GATT to “do business” and largely left their political rhetoric to the talkathons of the United Nations and its agencies. The system worked by consensus: no votes on senseless resolutions; no decisions by majority rule.2 The consensus rule was not abused. Developed countries, particularly the United States and the European Community, drove the GATT agenda and negotiations but did not insist on full participation by all countries. In turn, developing countries did not block progress in trade talks—both because the accords posed few demands on them and because they made huge gains from the commitments of the developed countries extended to them on a most-favored nation basis. Moreover, as the weaker partners in the GATT, they benefited significantly from the well-functioning of the multilateral rules-based system.

The WTO still operates by consensus, but the process of “consensus-building” has broken down. This problem emerged long before the WTO ministerial in Seattle; indeed, it was evident at the birth of the WTO itself.3 It has two main causes:

First, WTO membership has greatly expanded, encompassing many developing countries that previously were outsiders or inactive players in trade negotiations. The GATT had 23 signatories when it came into effect in January 1948, and 84 signatories by the end of the Tokyo Round in 1979. More than 110 countries signed the Uruguay Round accords in Marrakesh in April 1994 (including several countries with observer status in the GATT). As of January 2000, the WTO has 135 members with an additional 31 in the process of accession. As a result of domestic economic reforms, including trade liberalization undertaken unilaterally and pursuant to GATT negotiations, developing countries now have a greater stake in the world trading system and a greater claim on participation in the WTO's decision-making process.

Second, WTO members can no longer “free ride” on negotiated agreements. Starting with the Uruguay Round accords, countries have had to participate in all of the negotiated agreements as part of a “single undertaking.” This requirement means that developing countries have to commit to substantially greater reforms of their trade barriers and trade practices than they did in the past. Consequently, they need to be better informed about issues under negotiation. In the Uruguay Round, many countries had to accept obligations developed without their participation, and which required the implementation and enforcement of regulatory policies that they have had great difficulty in fulfilling.

In sum, GATT decision making worked in the past because there were fewer countries actively engaged and there was no compulsion for all countries to adhere to the results. Decisions could be taken by the “Committee of the Whole” because only a few countries were significantly affected by the results. Consensus-building engaged a small group of countries; the rest were relatively passive. This process has fallen victim to the GATT's success in integrating developing countries more fully into the trading system and requiring them to be full partners in new trade agreements.

More active participants, representing more diverse interests and objectives, have complicated WTO decision-making. China's prospective accession will amplify this problem by adding another politically powerful player that will demand a strong voice in the WTO. In addition, WTO decision-making has become more complicated as member countries face increasingly complex issues (for example, intellectual property rights) on the WTO negotiating agenda.

The traditional “Green Room” process, in which a relatively small number of self-selected developed and developing countries get together to decide on divisive issues, excluded too many newly active players in WTO negotiations and thus had problems building consensus. In the course of preparations for the Seattle Ministerial, developing countries tabled about half of the proposals made for the WTO agenda. The Geneva decision-making machinery could not accommodate the diversity of views.

While it is unfair to characterize the Green Room process as “medieval,” it does need to be modernized. At present, participation in the Green Room varies by issue and has increased over time. For instance, in the Tokyo Round, these talks normally involved less than 8 delegations while today it is not uncommon to have up to 25-30 participants in a “full” Green Room. There is no objective basis for participation in these meetings but generally only the most active countries in the negotiations participate. As it has evolved over time, Green Room consultations typically include the Quad (i.e. United States, European Union, Canada, and Japan), Australia, New Zealand, Switzerland, Norway, possibly one or two transition economy countries, and a number of developing countries. Developing countries that often participate in the Green Room include Argentina, Brazil, Chile, Colombia, Egypt, Hong Kong, China, India, Korea, Mexico, Pakistan, South Africa and at least one ASEAN country; most smaller developing countries stay out for lack of adequate resources or capabilities.4 For instance, 18 of the WTO members from Africa have no representation in Geneva.

Decisions taken in the Green Room are conveyed to the larger membership for final decision. Prior to Seattle, the larger membership rarely differed with proposals developed by the small group. But the system broke down in preparations for and deliberations in Seattle.5

In sum, the current system provides input into the decision-making process by a number of large developing countries but excludes representation of the interests of the majority of WTO members. Ironically, these largely developing countries are the ones being asked to undertake more substantial liberalization of their trade barriers and reform of their trade practices than their industrialized partners; they deserve more of a voice in the WTO's decision-making process.

 

How to make WTO decision making more inclusive and more efficient

The WTO has outgrown its increasingly unrepresentative system of decision-making. A new, permanent management or steering group needs to be established to make WTO procedures more equitable and efficient.

At first blush, reforming the Green Room process seems easy; in fact, the task has long been opposed by the very countries it would have benefited. Previous attempts to establish a smaller steering group or executive board (akin to those in the World Bank and the International Monetary Fund) to represent the broader membership in the negotiation of trade accords have failed due to strong resistance from the majority of developing countries. These WTO members, especially the small and least-developed countries, have objected to smaller groups in which they have no input. Accordingly, they did not want to institutionalize a system of proportional representation and thus formally undercut the myth of majority rule in the GATT/WTO if issues were taken to a vote on a one-country, one-vote basis. Ironically, they opted by default for decision-making dominated by the Quad countries.

As the preparations for and talks in Seattle demonstrated, the current ad hoc arrangement for Green Room debates has become unwieldy. The number of participants continues to grow; the process threatens to become so inefficient that it may eventually break down.

What needs to be done? Simply put, the WTO needs to establish a small, informal steering committee (20 or so in number) that can be delegated responsibility for developing consensus on trade issues among the member countries. Such a group would not undercut existing WTO rights and obligations nor the rule of decision making by consensus; we are not advocating proportional or weighted voting. Each member would maintain the ultimate decision to accept or reject such pacts.

Participation should be representative of the broader membership, and be based on clear, simple, and objective criteria:

Table 1 shows the top 25 countries based on the value of their trade in 1996, a pre-Asian crisis year.6 The EU is taken together, in terms of its extra-EU trade, as it speaks with one voice in the WTO, having its own internal rules and procedures for arriving at intra-EU consensus. Under the world trade share criterion, a large number of the current Green Room participants would continue, including important Asian and Latin American developing countries. However, some of the regions, notably Sub-Saharan Africa, the Andean Community, the Caribbean and Central America would not be represented. That is why the second criterion is needed to ensure global geographic representation.

As proposed above, the Green Room would have 20 seats, with a certain number reserved for representatives from previously under-represented regions in Latin America and the Caribbean, Africa, and Asia. Of course, there will be competition for the slots. Some countries will qualify simply because of their dominant trade share; most others, however, will have to coordinate with other trading partners to ensure that their cumulative trade passes the bar.

Groups of countries, based on existing regional arrangements or formed on an ad hoc basis, would be encouraged to pool resources and share representation (just as the Nordic countries did for many years during GATT negotiations). In fact, several groups of developing countries have already done so in preparing for the new round (for example, the Mercosur and the Caribbean Regional Negotiating Machinery). The formation of groups would be voluntary; each group would then select its representative for a particular meeting from among its membership, based on the interests of its members and the expertise of their WTO delegates.

Such arrangements would not impede, and may encourage, issue-based alliances among different groups in the Green Room. For example, the Cairns Group on agriculture might find support among a sizeable share of Green Room delegates.

To be sure, many countries, especially those who normally attend the Green Room talks, oppose reforms fearing that their influence would be diluted if participation was limited or contingent on group representation. But these countries would be even worse off if the Green Room process was marginalized–which is the most likely alternative to Green Room reform.

The idea of a group of countries represented by only one of them in an international organization is not new. Presently, both the World Bank and the IMF have country groupings represented by a single director on their boards. The current country groupings in the Executive board of the IMF are given in Table 2. The list in Table 2 is only illustrative of the point that country groupings are possible and does not in any way suggest similar groupings in the WTO. Indeed, since the EU speaks with one voice in the WTO and many countries in Table 2 are not members of the WTO, the IMF groupings are not relevant for the WTO.

The formation of groups of countries would serve two important functions. First, it would significantly increase the number of WTO members represented in the Green Room process. Second, it would provide a forum for information sharing and consultation among group members, and a channel for the provision of technical assistance on WTO matters. Small countries in particular would benefit from such pooling of resources.

An illustration of how the Green Room could be reconstituted is given in Table 3. The new, previously unrepresented regions/countries could be:

Clearly, Table 3 illustrates only one way in which country groupings could afford broader representation in the WTO decision-making process. Some countries may fault our proposal because many WTO members can only be represented if they volunteer to participate as part of a group. For instance, Sub-Saharan African members or even North African and the Middle Eastern members will only be represented if they form groups. Smaller developed and developing countries may lose their current individual participation but normally would be represented if they aligned themselves to their regional partners. But, in return, they would benefit from the more efficient and equitable operation of the Green Room process, involving a workable number of participants representing all major geographical regions.

The proposal made in this Policy Brief presents one approach for resolving problems with the WTO decision-making processes, so clearly evidenced in Seattle. There can surely be other ways of representing WTO members in the Green Room process, including by allocating a fixed number of seats on a regional basis. However, we believe that the more objective the basis for selection, the more acceptable it would be to the entire membership of the WTO. The merit of our proposal lies in the twin criteria chosen, viz. the value of trade and global geographic representation. This is both objective and relevant to decision making in the WTO and causes the least disruption to existing Green Room players, while bringing in others previously excluded.

 

Notes

1. By decision-making we mean the process by which member governments resolve issues concerning the conduct of trade negotiations and the management of the trading system. We do not include rulings by dispute panels, which are not inter-governmental decisions, although changes to the WTO's Dispute Settlement Understanding (DSU) under which those panels operate would be relevant. The broader issue of transparency of WTO decision-making to the general public is beyond the scope of this brief.

2. Consensus is achieved if no member present disagrees with a decision. Votes can be held if a decision cannot be arrived at by consensus, but rarely occur.

3. See Jeffrey J. Schott, The Uruguay Round: An Assessment. 1994. Washington: Institute for International Economics, pp. 138-140.

4. Thus, even today about half to two-thirds of any “full” Green Room process would be comprised of developing country participants.

5. Adding insult to injury, many developing countries actively engaged for the first time in WTO preparations for a new round, and were angered at their exclusion from the decision-making process in Seattle.

6. This exercise can also be done using 3 or 5 year averages.

7. This grouping could also be that of the Southern African Development Cooperation (SADC) region. In this case it would include South Africa but would exclude Burundi, Gambia, Kenya, Nigeria, Sierra Leone and Uganda.

Table 1: Value of trade, 1996 (in billions of dollars)


  1. European Union+ (extra-EU) 2065*
  2. United States+ 1805
  3. Japan+ 914
  4. Canada+ 446
  5. Hong Kong, China+ 369
  6. Republic of Korea+ 331
  7. Peoples' Republic of China^ 326
  8. Singapore+ 299
  9. Switzerland+ 231
10. Mexico+ 207
11. Malaysia+ 170
12. Australia+ 158
13. Thailand+ 155
14. Brazil+ 116
15. Norway+ 113
16. Indonesia+ 104
17. India+ 97
18. Turkey 94
19. Poland+ 78
20. Israel 67
21. South Africa+ 66
22. Czech Republic+ 63
23. Philippines+ 60
24. Argentina+ 55
25. Venezuela 40

Source: Compiled from Table 15: Balance of Payments Current Account and International Reserves, World Development Report 1998/99, The World Bank.

* Taken and adapted from the WTO Annual Report, 1997, Tables 1.6 and 1.7.
+ Presently likely participant in Green Room. Other likely current participants not shown include Chile ($39 bn.), New Zealand ($37 bn.), Hungary ($35 bn.), Egypt ($34 bn), Colombia ($32 bn.) and Pakistan ($25 bn.).
^ PRC is not yet a member of the WTO but is included as its accession is imminent.

 

Table 2: Country Groupings in the Executive Board of the IMF
(listed in order of importance by voting power)


1. United States
2. Germany
3.  Japan (same total votes as Germany)
4. France
  5. United Kingdom
 6. Belgium (Austria, Belarus*, Czech Republic, Hungary, Kazakhstan*, Luxembourg, Slovak Republic, Slovenia, Turkey)
 7. Netherlands (Armenia*, Bosnia and Herzegovina*, Bulgaria, Croatia*, Cyprus, Georgia*, Israel, Macedonia*, Moldova*, Romania, Ukraine*)
8. Mexico (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Spain, Venezuela)
9.   Italy (Albania*, Greece, Malta, Portugal, San Marino*)
10. Canada (Antigua and Barbuda*, The Bahamas*, Barbados, Belize, Dominica, Grenada, Ireland, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines)
11. Denmark (Estonia, Finland, Iceland, Latvia, Lithuania*, Norway, Sweden)
12. Saudi Arabia*
13. Angola (Botswana, Burundi, Eritrea*, Ethiopia*, Gambia, Kenya, Lesotho, Liberia*, Malawi*, Mozambique, Namibia, Nigeria, Sierra Leone, South Africa, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe)
14. Australia (Kiribati*, Korea, Marshall Islands*, Micronesia*, Mongolia, New Zealand, Palau*, Papua New Guinea, Philippines, Samoa*, Seychelles*, Solomon Islands, Vanautu*)
15. Egypt (Bahrain, Iraq*, Jordan*, Kuwait, Lebanon*, Libya*, Maldives, Oman*, Qatar, Syrian Arab Republic*, UAE, Yemen*)
16. Thailand (Brunei Darussalam, Cambodia*, Fiji, Indonesia, Lao Peoples' Democratic Republic*, Malaysia, Myanmar, Nepal*, Singapore, Tonga*, Vietnam*)
17. Russia*
18. Switzerland (Azerbaijan*, Kyrgyz Republic, Poland, Tajikistan*, Turkmenistan*, Uzbekistan*)
19. Brazil (Colombia, Dominican Republic, Ecuador, Guyana, Haiti, Panama, Suriname, Trinidad and Tobago)
20. India (Bangladesh, Bhutan*, Sri Lanka)
21. Iran* (Algeria*, Ghana, Morocco, Pakistan, Tunisia)
22. China*
23. Chile (Argentina, Bolivia, Paraguay, Peru, Uruguay)
24. Gabon (Benin, Burkina Faso, Cameroon, Cape Verde*, Central African Republic, Chad, Comoros*, Congo, Cote d'Ivoire, Djibouti, Equatorial Guinea*, Guinea, Guinea Bissau, Madagascar, Mali, Mauritania, Mauritius, Niger, Rwanda, Sao Tome and Principe*, Senegal, Togo)

* Not members of the World Trade Organization
Source: http://www.imf.org/external/np/sec/memdir/eds.htm

 

Table 3: Value of trade, 1996, with country groupings
(in billions of dollars)


  1. European Union (extra-EU) 2065*
  2. United States 1805
  3. Japan 914
  4. Peoples' Republic of China and Hong Kong, China 700
  5. ASEAN1 (extra-region) 570
  6. Canada 446
  7. EFTA2 (extra-region) and Turkey 334
  8. Republic of Korea 331
  9. Mexico 207
10. Australia and New Zealand 195
11. CEFTA3 (extra-region) 190
12. North Africa & the Middle East (Egypt, Bahrain, Kuwait,
      Morocco, Qatar, Tunisia, UAE)
148
13. South Asia (India, Bangladesh, Sri Lanka, and Pakistan) 143
14. MERCOSUR4 (extra-region) 129
15. Andean Community5 (extra-region) 75
16. Israel 67
17. South Africa 66
18. Africa 1 (see Table 2, Angola et al.) 60
19. Africa 2 (see Table 2, Gabon et al.) 40
20. CACM6 & CARICOM7 38

Source: Compiled from Table 15: Balance of Payments Current Account and International Reserves, World Development Report 1998/99, The World Bank; from Tables 1.6, 1.7, 1.8 and 1.9 of the WTO Annual Report, 1997; and from Annex A and B from the Inter-American Development Bank's Periodic Note, October 1999.
1 ASEAN: Singapore, Malaysia, Indonesia, Thailand, Philippines, Brunei Darussalam and Vietnam.
2 EFTA: Iceland, Liechtenstein, Norway, Switzerland
3 CEFTA: the Czech Republic, Hungary, Poland, Slovenia and the Slovak Republic.
4 MERCOSUR: Argentina, Brazil, Paraguay and Uruguay.
5 Andean Community: Bolivia, Colombia, Ecuador, Peru and Venezuela.
6 CACM: Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.
7 CARICOM: Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago and the dependent territory of Montserrat.



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