Is it time for the WTO to Shade Weight?
The shift by many of the major economies of the world toward mega-regional agreements is posing new question and concerns for the future of the World Trade Organization (WTO) and the way trade is undertaken among countries. Prominent in the list of these agreements are three sets of negotiations—the Transatlantic Trade and Investment Partnership (TTIP) negotiations between the United States and the European Union (EU); Trans-Pacific Partnership (TPP) agreement among Australia, Canada, Japan, Mexico, the United States, and seven other countries; and China’s pursuit of the Regional Comprehensive Economic Partnership (RCEP) negotiations.
The earlier motivations towards entering into Regional Trade Agreements(TRAs) by the United States and the EU, each with different countries, were to enable them to include deeper integration approaches not covered in the General Agreement on Tariffs and Trade (GATT). While the 1994 North American Free Trade Agreement (NAFTA) with Canada and Mexico tended to negotiate the WTO-plus provisions (which expands on provisions already undertaken multilaterally: import tariffs as the main example) the EU RTAs tended to negotiate the WTO-extra provisions (for which there were no WTO likes). Much of these provisions were not exactly enforceable.
Today, however, the new set of WTO-Plus and WTO-Extra provisions contained in the TPP and TTIP will make some rules that were initially under earlier RTAs enforceable. Particularly, TPP updates the provisions in earlier RTAs like NAFTA to include labour and environmental standards, digital trade and electronic commerce, disciplines on state-owned enterprises (SOEs) and government procurement. The TTIP negotiations have even embraced the issue of ensuring coherence in regulatory practices among member countries, accompanied with not only indications for rules to be applied but also an institutional process to promote cooperation in the policy and practice of regulation among these economies. An important feature which defines these new set of provisions is the emphasis on new rules to coordinate the lowering of identified nontariff inferences to trade. This is not unconnected with the inability of Article XXIV of GATT 1994 in dealing with the matters brought about by regionalism.
While the WTO may have done well in much of the past two decades, it needs to do more in the face of new challenges. The WTO has been the key source of a multilateral framework of rules which govern international trade relations, an essential mechanism for preventing and resolving trade disputes. It has also been a veritable platform for addressing trade-related issues that impact all WTO members. However, the major challenge facing it today is whether it should strive to keep up the pace with other plurilateral fora in its rules-making process on dealing with advances in e-Commerce and the conversations around environmental good, for instance, or simply systematically “shed weight” through the introduction of forum choice clause under its dispute settlement proceedings.
The WTO will have to contend with this new wave of RTAs as it strives to remain relevant in the years to come. The RTAs have definitely come to stay, and the WTO rules-making process must take cognizance of the efficacy of these RTAs as building blocks and not crumbling or stumbling blocks to its continued relevance in the multilateral trading system. The question is how the WTO will manage to achieve this, and seamlessly so? An important point to consider in this regard will be for a systematic “shedding of weight” by the WTO through a reform of its rule-making processes. The WTO needs to consider a clause on forum choice as a way of avoiding jurisdictional conflicts between the WTO and RTAs, as RTAs continue to blossom. There is no effective rule to harmonize the overlapping of jurisdiction. Article XXIV of GATT (General Agreement on Trade and Tariff) 1994 is obviously too narrow since it entirely focuses on the formation stage of RTAs. Introducing forum choice clause in the WTO legal text will help to clarify the basis for which items requiring dispute settlement will be handled either at the WTO or RTA level.
The WTO will have to contend with this new wave of RTAs as it strives to remain relevant in the years to come. The RTAs are here to stay, and the WTO rules-making process must take cognizance of the efficacy of these RTAs as building blocks and not crumbling or stumbling blocks to its continued relevance in the multilateral trading system. In other words, regional integration should complement the multilateral trading system and not threaten it. The question is how the WTO will manage to achieve this?
An important point to consider in this regard will be for a systematic “shedding of weight” by the WTO through a reform of its rule-making processes. The WTO needs to consider a clause on forum choice as a way of avoiding jurisdictional conflicts between the WTO and RTAs as RTAs continue to blossom. There is no effective rule to harmonize the overlapping of jurisdiction. Article XXIV of GATT (General Agreement on Trade and Tariff) 1994 is obviously too narrow since it entirely focuses on the formation stage of RTAs. Furthermore, WTO’s criteria in Article 24 that any regional trade arrangement should enable freer trade flow among members of the group without barriers being raised on trade with non-members, is not a concrete enough in addressing possible jurisdictional conflict. Therefore, introducing forum choice clause in the WTO legal text could help to clarify the basis for which items requiring dispute settlement will be handled either at the WTO or RTA level.
I propose three parameters for determining what will be the preferred jurisdiction for dispute settlement on particular items or sectors either at the WTO and the RTAs level. (1) The first parameter is the extent of “geographical boundedness” of an item of multilateral trade. Items of trade with higher levels of geographical boundedness have a higher potential of been efficiently and successfully settled at the RTA dispute settlement level. Sectors with a potentially high level of geographical boundedness include road or rail transport.
(2) The second basis is the degree to which member countries of RTAs have historically shown compliance to RTA provisions for which they are members, and the extent to which disputes have been successfully settled at the RTA level. While member-countries trade agreements have not shown any particular pattern in compliance or non-compliance with rules, we believe that a higher (lower) level of compliance with RTA provisions and success dispute settlement at RTA level, for instance, in the past may depict a higher(lower) possibility that such level of compliance will be achieved in the future.
(3) The third basis is the extent of regulatory compatibility at regional levels. In other words, to what extent do we find compatibility on a certain class of regulations and policies among RTA member-countries? Due to the historical convergence of member countries of particular RTAs, we believe that countries that already share a high level of compatibility in regulatory policies and practices in particular sectors would typically find it more efficient to ensure and enforce compliance at the RTA level than at the WTO level. In addition, agreements with a limited number of partners make it possible to tailor the provisions to the priorities and adjustment capacities to its members.
In conclusion, while I see prospects in these newly proposed parameters in resolving potential jurisdictional conflicts between the WTO and RTA’s, this may not imply the same outcomes for all RTAs. These parameters must be applied on case-by-case bases. Additionally, a corresponding forum clause needs to also exist in the respective RTAs agreeing with that of the WTO such that member countries are in agreement on either of the dispute settlement mechanisms has jurisdiction for on particular items. However, the WTO will remain relevant at the Dispute Settler of Last Resort (DSLR) and final arbiter for member countries of various RTAs and the WTO in cases where the RTA’s dispute settlement mechanism completely fails. By doing so, the WTO can further strengthen and sustain its most prominent function.