Does the Multilateral Trading System Suffer from a Legitimacy Deficit?
In its seven and a half decades of existence, questions regarding the legitimacy and democratic credibility of the multilateral trading system have often been asked on two fundamental grounds. The first stems from the questions regarding its internal legitimacy, essentially the transparency and inclusiveness of its decision-making processes. Questions regarding transparency have become more louder in recent decades, while issues regarding inclusiveness, especially from the point of view of the majority of its members, the developing countries have been raised even before the adoption of the General Agreement on Tariffs and Trade (GATT) (Irwin et. al 2008: 78) and has consistently grown through the functioning of the World Trade Organization (WTO).
A second set of questions have arisen regarding the institution’s external legitimacy. This relates to its ability to respond to external critics, namely, the non-state actors, who have argued that the institution is a “non-democratic, bureaucratic/autocratic supranational authority” (Steger 2003: 111). According to Buchanan and Keohane (2006, 407), “perception of legitimacy matters, because, in a democratic era, multilateral institutions will only thrive if they are viewed as legitimate by democratic publics”. They add that if there is a lack of clarity about “appropriate standards of legitimacy or if unrealistically demanding standards are assumed”, public support for these institutions “may be undermined and their effectiveness … may be impaired”.
I. The Background
This is an appropriate starting point for assessing the legitimacy of the multilateral trading system, whose importance during the current phase of hyper-globalisation cannot be underestimated. If the GATT was established in the late-1940s as a bulwark against trade protectionism and the repeat of the damaging “beggar-thy-neighbour” policies of the 1930s, the WTO is expected to play an equally important role to prevent unilateralism in the trade that has grown in many parts of the world, especially in an underperforming global economy (Colantone et. al. 2021). Since the multilateral trading system can play this role only when the members have a shared interest in consistently working towards its upgrading and maintenance, scholars have suggested that the GATT and the WTO are global public goods.
Scholars and commentators of GATT/WTO have long discussed the issue of the legitimacy of the organisation by taking a close look at the functioning of its dispute settlement system, once considered as the “jewel” in the organisation’s crown. The judicial arm of the WTO has attracted more attention since it has been seen as the organization’s functioning arm (Howse 2016; Howse and Nicolaidis 2003; Steger 2003). Moreover, it was argued that the members had reposed confidence in the dispute settlement system by seeking recourse to it more than 400 times even before the institution had completed 15 years of its existence.
The other arm of the GATT/WTO, its negotiating arm, has been beset with a legitimacy crisis even before the multilateral trading system was established, a point that was made earlier. It is this weakness that resulted in the failure of the GATT Contracting Parties to adopt the Havana Charter and to establish the International Trade Organization (ITO) as the third leg of the post-war global governance structure, which was agreed to at the Bretton Woods Conference in 1944. This meant that the multilateral trading system had to function on the basis of an ad hoc agreement without a formal institutional structure.
The functioning of the GATT system brought to the fore several questions regarding the negotiating arm. The General Agreement was adopted with an inclusive agenda, for addressing the post-war development challenges faced by both the more developed and the less developed Contracting Parties. Thus, the GATT was expected to facilitate improvements in standards of living by creating employment and income, and these objectives were to be realised through “reciprocal and mutually advantageous arrangements” amongst the Contracting Parties through “substantial reduction of tariffs and other barriers to trade” and “elimination of discriminatory treatment in international commerce”. However, the functioning of the GATT witnessed frequent occurrences of legitimacy crises stemming from the lack of inclusion in decision-making.
Within a decade of GATT’s endorsement, it became clear that the developing countries lacked the resources and the bargaining power for negotiating trade openness and securing benefits. For these largely primary producers, the situation became worse due to two factors. The first was unfavourable trends in commodity trade arising from adverse terms of trade and second, the steady growth in agricultural protectionism, which was legitimised by the GATT when the United States was granted a permanent waiver to impose import restrictions. These developments led many primary producing countries to argue that the “rules and conventions … applied to commercial policy and international trade lacked balance “unfavourable to their interest” (GATT 1958: 14). For the developing countries, the gap between their aspirations and what they achieved as GATT Contracting Parties remained significantly large for several decades.,
The functioning of the WTO Agreements that emerged from the Uruguay Round negotiations, was similarly under the scanner almost immediately after the organization was established. Market access opportunities for developing countries had not improved as much as they had expected. Despite the promises of increased market access in agriculture, tariffs continued to remain high (Tussie 2002: 487). Moreover, in the tariff negotiations, tariff cuts agreed to by the developing countries covered the same percentage of imports as tariff cuts by the advanced countries, but importantly, developing country cuts were deeper. (Finger and Schuler 1999: 4). And, finally, the “implementation burden” faced by these countries was “a real economic burden, beyond the difficult domestic politics …” (Finger 2001: 1097).
Developing countries brought the imbalances in the WTO agreements by formally raising the so-called “implementation issues” they had encountered while dealing with most of the covered agreements of the WTO. Concerns about implementation had their genesis in their limited capacity to participate in the Uruguay Round negotiations. Moreover, “implementation requirements were imposed in an imperial way, with little concern for what implementation will cost, how it will be done, or whether it will support their development efforts”. Consequently, many developing countries had neither the “economic incentive nor the political will to implement the obligations” Finger and Schuler 2002: 493).
The “implementation issues” raised by the developing countries were included in the Doha Ministerial Declaration, and they became a part of the Doha Development Agenda (DDA) (WTO 2001b). In the two decades since the introduction of the DDA, implementation issues found little reference other than a mere mention in the Hong Kong Ministerial Declaration (WTO 2005: 7). Hence, the negotiating processes since 2002 made little attempt of substance to address the legitimate implementation concerns of the developing countries, which remain as a “legacy issue”.
There is, therefore, a compelling case to examine the functioning of the negotiating arm (also referred to as the legislative arm) of the GATT/WTO and to identify the processes that have contributed to the legitimacy crises faced by the multilateral trading system. As mentioned earlier, in the literature that examines the legitimacy of the GATT/WTO, the functioning of the negotiating arm of the institution has been given much less attention, as compared to its dispute settlement arm. This is notwithstanding the fact that the negotiating arm performs critical functions, including formulating the rules, reviewing these rules on a continual basis, and shaping new rules. Therefore, the negotiating arm provides the raison d’etre of the institution, often called the “rules-based” institution.
This report examines the legitimacy of the norm-setting functions of the WTO in two specific phases, during the pre-WTO Uruguay Round negotiations, and the de facto “post-Doha” confabulations being conducted through the Joint Statement Initiatives, or JSIs, which were initiated after the 11th Ministerial Conference in 2017.
At the outset, the report would briefly discuss the concept of legitimacy, which is generally seen to hinge on “input-based” and “output-based” legitimacy. While the former is seen to capture the processes through which members of an institution arrive at the decisions, the latter refers to the realisation of the substantive purposes for which the institution was established, or in other words, the realisation of its core objectives. It may be pointed out that an important cog in input-based legitimacy is the principle of consensus in decision-making. The consensus-rule was emphasised in Article IX (Decision-making) of the Marrakesh Agreement Establishing the WTO, which states that the “WTO shall continue the practice of decision-making by consensus followed under GATT 1947”.
The report discusses two sets of norm-setting processes in the GATT/WTO. The first concerns the Uruguay Round negotiations through which the mandate of the GATT was changed comprehensively. Since it was adopted in 1947, the remit of the GATT was trade in goods, but at the end of the Uruguay Round, the multilateral trading system had much wider coverage, services and intellectual property rights being the two most important additions.
Another focus of the report is on the de facto post-Doha processes; de facto since the Doha Round has not yet been terminated by consensus. The view that the DDA is passe is strengthened by JSIs that have been taken by several groups of countries in what appears to be the post-Doha framework of engagement between countries for setting norms. The JSIs are discussing several issues, which are beyond the scope of the WTO. More importantly, the JSIs are a departure from the consensus-rule in deciding on the negotiating agenda. India and South Africa have raised these issues that we shall discuss in the last section of the report.
II. Legitimacy of a Multilateral Institution
The legitimacy of a multilateral institution, according to Keohane, can be visualised as a normative concept (Keohane 2011: 99). An institution meets the touchstone of legitimacy when it conforms to a set of standards that have been stated in course of its functioning. It may be added that the goals set for the institution by its founding fathers, together with their effective interpretation and implementation through the decisions the members of the institution take, play an important role in enhancing its legitimacy.
Over the decades, scholars have provided useful yardsticks for assessing the legitimacy of an institution. Institutional legitimacy has generally been viewed in terms of input-oriented and output-oriented legitimacy. Input-oriented legitimacy is assessed by considering the processes through which members of the institution take decisions, while output-oriented legitimacy, on the other hand, refers to the achievement of the substantive purposes for which the institution was established, or in other words, the realisation of its core objectives (Keohane 2006: 3)
Scharpf provides a set of distinct perspectives on the issue of legitimacy (Scharpf 1998), and though he lays them down for a democratic polity, they can be usefully applied to a multilateral institution like the GATT/WTO, which is designed to function democratically. Input-oriented legitimacy would require that decisions taken by the members of an institution must be dependent on the “authentic” expression of the preferences of those that are being governed. In output-oriented legitimacy, decisions should result in outcomes that secure the interests of the constituency or the community.
In purely input-oriented legitimacy, according to Scharpf, two sets of possibilities could arise. First, the decision-making processes should be consensual, based on the widest possible agreement among the individuals or groups, and second, there is an attempt to justify decisions based on the expressed preferences of a majority of the membership.
In the first instance, if all voices are heard, more counterpoints would be known. This would help in enhancing the level of deliberations and the decisions could then be widely accepted. Policy outcomes emerging from such processes are likely to be superior as compared to those that result from a truncated discourse within countries or a coalition of states having similar interests and aspirations. Simply put, input legitimacy is generated by the involvement of citizens and their control over the decision-making processes and is hence a democratic phenomenon. Thus, the fundamental basis for the input-oriented legitimacy of any multilateral institution is the diversity of representatives and inclusiveness in its decision-making processes.
According to Scharpf, from the viewpoint of internal legitimacy, “consensual democracy has first-rate credentials” for its rests “ultimately on the Roman-law maxim of volenti non fit iniuria (meaning that if you have consented you cannot claim damages)”. He is however quick to point out that in the face of conflicting preferences, as has been the case with the GATT/WTO, the search for consensus may prevent effective solutions. Under such circumstances, majoritarian democracy may be preferred since it has greater “problem-solving efficiency” (Schapf 1998: 5).
Output legitimacy, on the other hand, results from the effective problem-solving of institutions. In addition to requiring that institutions should be capable of achieving solutions to collective action problems, Scharpf argued that output-oriented criteria must define what an institution should not be allowed to do in order to be considered as one that functions for the betterment of its members. The emphasis should be on institutional arrangements that are meant to provide protection against the danger that the more dominant members will abuse their powers to the detriment of the smaller members. Assurance must be provided that the dominant members will further the common interests of all members. Institutional arrangements must be provided for public debate, reflection, and criticism.
In this report, we would use the yardsticks of input legitimacy to analyse the decision-making processes in the GATT/WTO, and to assess the extent to which the principles of inclusiveness and democratic participation were being adhered to.
III. The Uruguay Round Negotiations: How Well Do They Meet the Yardsticks of Legitimacy?
The first initiatives for launching a new round of trade negotiations in the 1980s, which eventually took shape as the Uruguay Round negotiations, were taken in the backdrop of growing signs of protectionism, especially in the United States (Bhagwati 1988), triggered by the steep increase in its trade deficit. In 1981, the United States had a surplus on its trade account, but by the mid-1980s, it had a deficit of $125 billion (Feldstein 1987). The dominant narrative was foreign competitors had an unfair advantage over America that prompting demands for trade protectionism. In 1980-81, twenty-six different legislations seeking to raise tariffs were proposed in the United States Congress and by the end of 1985, several hundred trade legislations were on the table (Finger and Nogués 1987: 721). The Reagan Administration persistently argued in the GATT that the only way to respond to domestic protectionist pressures was to initiate a new round of trade negotiations.
In this regard, the Administration tried to get an agreement among the GATT Contracting Parties in the 1982 Ministerial meeting, but its proposal was opposed, particularly by developing countries (Winham 1989: 280). Although it failed to get a consensus on initiating a new round of trade negotiations, the United States, along with the QUAD, succeeded in ensuring that Contracting Parties begin examining the applicability of GATT rules to two new area, namely, trade in services and commercial counterfeiting (GATT 1982a). This was meant to expand the coverage of the GATT beyond its original mandate of dealing with trade in goods (GATT 1982b). Commercial counterfeiting would eventually be considered in the Uruguay Round negotiations as trade-related aspects of intellectual property rights, which, along with trade in services, were among the most divisive issues in the Uruguay Round negotiations. The 1982 Ministerial meeting took another significant decision regarding integrating agriculture fully into the GATT system (GATT 1985: 4). This step was aimed at reversing the 1955 decision to grant a waiver to the United States, thus enabling it to impose import restrictions.
Three years later, several developing countries led lent their support to a new round of trade negotiations. India, for instance, “was not opposed to a new round of negotiations and appreciated that this was looked upon by many contracting parties as an opportunity for future trade liberalization”. However, India insisted that “there should be no linkage between merchandise trade and other areas not covered by the General Agreement” (GATT 1985a: 8). A Preparatory Committee was formed to guide the process of consultations in the run-up to the proposed Ministerial Conference for the launch of the new round of negotiations (GATT 1985b). During this process, two substantial proposals were submitted. The first was by the Group of Ten developing countries whose major argument was that the “aims of liberalization and elimination of distortions should be pursued through a new round of multilateral trade negotiations in the area of trade in goods”. The Group of Ten identified agriculture as one of the major areas in which their interests lay. Accordingly, these countries sought “liberalization and expansion of [agricultural] trade in all its forms, … unhindered by distortions in trade and the displacement of efficient producers from their traditional markets or by excessively low prices” (GATT 1986: 13).
In view of the Group of Ten, the negotiations should aim at “securing additional benefits for the international trade of developing countries” to achieve “diversification of their exports, acceleration of the rate of growth of their trade”, while “taking into account their development needs”. They sought “improvement in the possibilities for these countries to participate in the expansion of world trade and a better balance as between developed and developing countries in the sharing of the advantages resulting from this expansion” (GATT 1986d: 13).
A counter proposal was submitted by Colombia and Switzerland, claiming to represent “the culmination of intensive consultations among a large number of participants in the Preparatory Committee” (GATT 1986e: 1). This group, which Winham said consisted of 40 GATT Contracting Parties, included proposals for extending the GATT mandate by including trade in services, trade related aspects of intellectual property rights, and trade related investment measures. This proposal was clearly not a consensus document as informal members of the grouping did not agree on the language in the three new areas backed by the United States. Further, Winham reported that the United States and the European Economic Community disagreed with the provisions on agriculture, and the developed and developing countries in the grouping had differences on services.
While the GATT Contracting Parties disagreed over the two sets of proposals, Arthur Dunkel, the Chairman of the Preparatory Committee and the Director General of the institution played the key role in moving the process forward. Dunkel communicated to the Chair of the Ministerial Conference that “a large number of members of the Committee have indicated their preference” (GATT. 1986f) for the proposal tabled by Colombia and Switzerland, even when there was no consensus among the informal members of the grouping on the inclusion of the new areas. That the Colombia-Switzerland proposal would become the basis of the Ministerial Declaration adopted at Punta del Este, was hardly surprising.
The Uruguay Round negotiations were, thus, initiated in contentious circumstances, which can be summed up as follows. First, the new negotiating round was launched with full participation by developing countries, but without any explicit initiative to address the inequities that they had suffered in past four decades. Secondly, the negotiating mandate was adopted along the lines that the major economies had demanded, namely an expansion of the coverage of the GATT by including two new areas, namely intellectual property rights and trade in services. And, finally, the Director General of the institution became the key decision maker for the launch of the negotiations in what was a “member-driven” institution. But this was not the only instance when Arthur Dunkel had decided the future of the multilateral trading system, he played a similar role in breaking the deadlock at the end of the Uruguay Round negotiations, which we shall discuss subsequently.
At a critical turning point in the history of the post-war multilateral trading system, not only was the decision to chart out its future path not decided by consensus, as was the convention, but it was also not taken by the members of the institution but by an executive appointee of the members. Major developing countries like India (WTO 1986g), also reflecting the views of other developing countries, and Brazil (WTO 1986h) refused to negotiate on the new areas arguing that the GATT was not the forum to discuss these issues.
Countries opposing the inclusion of the new areas steered away from the norm-setting exercises in the Uruguay Round negotiations. Brazil explained that reluctance to join the negotiations on services “was a natural reaction of less powerful countries whose structural weaknesses in terms of negotiating strength are compounded, in the case of trade in services, by a very limited knowledge of the issues proposed for discussion and by a lack of negotiating experience in this complex new field” (GATT 1987: 1). As regards the negotiations on intellectual property rights, some participants argued that “the question of substantive standards [on intellectual property rights] fell outside the scope of the Negotiating Objective of the Group and should be dealt with in WIPO and other relevant international organisations”. India’s view was that “substantive matters relating to intellectual property rights are outside the mandate of the Group on trade-related aspects of intellectual property rights and the General Agreement” and that “international organizations, such as WIPO, UNESCO and UNCTAD [should] deal with these matters”.
These differences on the new issues became the main impediments to concluding the mid-term review of the Uruguay Round negotiations in 1988. The meeting was reconvened in April 1989 and developing countries blocking the negotiations until the Mid-term review were fully involved in the negotiations. The hegemonic influence of the dominant economic power was experienced by the countries opposing the Uruguay Round negotiations, and this changed the dynamics of the negotiations.
It can be argued that the United States had played the benign hegemon during the golden age of capitalism until the beginning of the 1970s, during which it allowed a number of changes in the GATT favouring the developing countries and the inclusion of provisions that can be classified under special and differential treatment (Finlayson and Zacher 1981: 582-84). But with a complete reversal of its economic fortunes in the 1980s, especially its unsustainable balance of payments situation, the American hegemonic influence was brought to bear in no uncertain terms in the reshaping of the GATT rules.
IV. United States’ Hegemonic Influence and the Formation of the WTO
The hegemonic influence of the United States was exercised through a series of unilateral actions. In 1988, the United States Congress enabled this by strengthening the powers of the United States Trade Representative (USTR) by enacting the Omnibus Trade and Competitiveness Act (OTCA). The OTCA spelled out the “negotiating objectives” that the United States was expected to pursue in the GATT, inter alia “to improve the operation and extend the coverage of the GATT and such agreements and arrangements to products, sectors, and conditions of trade not adequately covered”, implying the new areas that were included in the Uruguay Round negotiations. Section 301 grants the Office of the United States Trade Representative (USTR) a range of responsibilities and authorities to investigate and take action to enforce the United States’ rights under trade agreements and respond to certain foreign trade practices. In other words, this section allowed the USTR to initiate unilateral action against trade partners whose trade practices were deemed unfair since they were violative of American interests. In fact, with the enactment of OTCA, the United States changed its goalposts from free trade to “fair trade” (Bhagwati 1988).
The OTCA included two specific provisions, namely, Super 301 and Special 301 using which the USTR was required to take actions against foreign countries maintaining trade barriers that adversely affected United States’ commercial interests. Super 301 was expected to eliminate the major trade barriers of foreign countries and for employing this provision, the USTR would identify countries and trade barriers which, if removed, would have the greatest potential to increase exports of the United States. After identifying the barriers, the USTR would negotiate with partner countries, seeking to eliminate the unfair trade practices over a three-year period. The Congress “intended [Super 301] to be the primary tool for prying open closed foreign markets” (Hearing Before the Sub Committee 1990, 1) and consequently, trade practices in Japan, Brazil and India were targeted, thus providing “an opportunity to help pave the way for a successful Uruguay Round” (Hearing Before the Sub Committee 1990, 81)
Special 301 provisions targeted foreign countries that “deny adequate and effective protection of intellectual property rights”, or “deny fair and equitable market access to United States persons that rely upon intellectual property protection” (19 USC 2242). The USTR would identify foreign countries, which allow the most egregious piracy of American intellectual property as “priority countries” and initiate negotiations with them to end piracy. If negotiations failed within 6 to 9 months, the USTR was required to retaliate “against the exports of the pirate country”.
In the ultimate analysis, the USTR used the threat of unilateral action against countries blocking the Uruguay Round to move the multilateral trade negotiations toward the conclusion in the desired direction. Actions were initiated against India and Brazil under both Super and Special 301 provisions of OTCA. These countries were included in the “Priority Watch List” for action under Special 301 (USTR 1989), while the action was threatened under Super 301 (Hearing Before the Sub Committee 1990: 47-48).
The new areas were included in the outcome, but it did not take the shape of the expanded GATT until another unilateral push was given, this time by the Director General of the institution, Arthur Dunkel. After the GATT members failed to conclude the negotiations by the Brussels Ministerial Conference in 1990, Dunkel tabled his “Draft Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations” (the “Dunkel Draft”) a year, later labelling it as “a concrete and comprehensive representation of the final global package of the results of the Uruguay Round” (GATT 1991). The Dunkel Draft became the basis for the Uruguay Round Agreements (Stiles 1996).
The final act of the Uruguay Round negotiations that paved the way for the formation of the WTO, was the agreement between the United States and the European Union on agriculture, better known as the “Blair House” accord. Developing countries, which had identified themselves as the demandeurs of agricultural trade liberalisation remained outside the deal agreed to by the two most powerful GATT Contracting Parties.
The establishment of the WTO, therefore, raises several questions regarding the legitimacy of the negotiating processes or what we had discussed earlier as “input legitimacy”. Critical to realising the outcome were three sets of developments bypassing the principle of consensus in decision-making that was accepted as the norm from the inception of the GATT, as we had indicated at the outset. threats of unilateral action by the hegemon, as well as the bilateral agreement that helped in breaking the logjam over agriculture.
Keohane had summarised the formation of the WTO in the most appropriate manner:
“The WTO came into being coercively. The rich countries essentially abrogated the GATT and offered to allow other countries to join the new WTO only on condition that they would accept the Single Undertaking, which required them to adopt new rules on services and issues related to, but not directly involving, trade in goods. The WTO includes most of the countries in the world, but only on condition that they follow rules that the dominant members mandated. On the criterion of inclusiveness, therefore, the WTO is flawed” (Keohane 2011: 106).
Did Keohane’s comment on the flaw in the WTO as regards its adherence to the criterion of inclusiveness change during the functioning of the institution? The case of the Joint Statement Initiatives (JSIs) launched at the 11th Ministerial Conference in Buenos Aires provides the answers to this question.
V. The Legitimacy of the “Post-Doha” Negotiations
15 years after the Doha Development Agenda (DDA) was accepted on the basis of consensus among the WTO membership, discussions in the 10th Ministerial Conference at Nairobi gave the first indications that there was no consensus among the members on continuing the DDA. Although the Ministerial Conference ended without the adoption of a formal Declaration and a work programme for the institution, some members mentioned that the differences among the members on the DDA were difficult to “reconcile” (WTO 2015: 4). The “vacuum” in the negotiating space was filled two years later, in the 11th Ministerial Conference in Buenos Aires through the adoption of three Joint Statement Initiatives (JSIs) on electronic commerce (WTO 2017b), domestic regulation on services (WTO 2017c), and investment facilitation for development (WTO 2017d). Several countries endorsed each of the JSIs, thus initiatives, thus setting in motion negotiations on each of these areas without the agreement having been reached with the entire WTO membership.
A number of critical questions about the legitimacy of the JSIs arise in this context, many of which were raised by India and South Africa in their joint submission in 2021 (WTO 2021a). The JSIs have been proposed as “Plurilateral Agreements” but they have done so without following due process, as India and South Africa have pointed out. Plurilateral Agreements can be added to Annex 4 of WTO, by following the procedures stated in Article X.9 of the Marrakesh Agreement Establishing the WTO. This provision states that “Ministerial Conference, upon the request of the Members parties to a trade agreement, may decide exclusively by consensus to add that agreement to Annex 4”. This means that even if a group of countries takes the initiative to form a plurilateral agreement, it can be done only after a consensus is reached among the member countries.
The decision to initiate plurilateral negotiations through the JSIs were also in violation of Article IX.1 of the Marrakesh Agreement on two counts. One, this Article states that the “WTO shall continue the practice of decision-making by consensus followed under GATT 1947” and it further stipulates that where a decision cannot be arrived at by consensus, “the matter at issue shall be decided by voting”.
The decision to launch the JSIs is an attempt to forge agreements covering the three areas among the “like-minded” countries and to subsequently multilateralise them. However, if this is done, there will be yet another violation of the Marrakesh Agreement, of Article II.3, which states that “[p]lurilateral Trade Agreements do not create either obligations or rights for Members that have not accepted them”.
It is impossible for the agreements being negotiated under the JSIs to introduce fresh obligations on the entire WTO membership because of the overriding effect of Article XVI.3 of the Marrakesh Agreement. This article reads as follows: “In the event of a conflict between a provision of this Agreement and a provision of any of the Multilateral Trade Agreements, the provision of this Agreement shall prevail to the extent of the conflict”.
And, finally, the JSIs are overstepping the multilateral decisions taken by the entire WTO membership. Electronic commerce was introduced in the WTO through the “Work Programme on Electronic Commerce”, adopted by the General Council 1998. Consensus on the issues that would guide discussions on electronic commerce has been lacking since the decision was adopted and hence no progress was made in this area. As regards domestic regulation on services, the work programme on General Agreement on Trade in Services is currently discussing the issues involved with the entire membership. Investment facilitation is an issue that has the possibility of impinging on policies regarding foreign investment. But WTO members had agreed not to discuss issues relating to foreign investment when the work programme on “Trade and Investment” while agreeing to the decision adopted for reviving the failed Cancun Ministerial Conference (WTO 2004: 3).
Thus, the legitimacy deficit of the JSIs is quite considerable, and if momentum is kept on these initiatives in future, the multilateral character of the WTO would be at considerable risk. This, no doubt, is the most formidable challenge before the GATT/WTO system.
VI. By Way of Conclusions
In his commentary, Richard Steinberg made several interesting statements about the functioning of the WTO, which neatly summarises the processes that were gone through during the formation of the WTO. “The procedural fictions of consensus and the sovereign equality of states have served as an external display to domestic audiences to help legitimize WTO outcomes. The raw use of power that concluded the Uruguay Round may have exposed those fictions, jeopardizing the legitimacy of GATT/WTO outcomes and the decision-making rules, but weaker countries cannot impose an alternative rule (Steinberg 2003: 342)”.
Indeed, previously the GATT and now the WTO have been functioning through processes whose legitimacy is questionable. While the founders of the multilateral trading system had desired the institution to function democratically so as to ensure that the fruits of trade liberalisation are shared among members, the hegemonic influence of the powerful economies prevented the GATT/WTO from functioning as a global public good. Concerns about the legitimacy of the institution have been raised since GATT’s early years and have persisted ever since.
The legitimacy crisis facing the WTO is not likely to be resolved anytime soon unless the members of the institution address their short-sighted ambitions to maximise market access in their partner countries. Until that happens, powerful economies could continue to exercise their unfair influence on the smaller economies, undoing the spirit of multilateralism that had brought countries together with the expectation that global trade rules would be designed for the benefit of all.
 According to the then Director General, “[T]he dispute settlement system is widely considered to be the jewel in the crown of the WTO” (WTO 2009).
 Director General Lamy saw this development as “a vote of confidence in a system” (WTO 2009).
 A waiver was granted to the United States in connection with import restrictions imposed under Section 22 of the United States Agricultural Adjustment Act (of 1933) in 1955 (GATT 1959: 50).
 Evans pointed out that the early misgivings of underdeveloped countries had persisted. He quotes a spokesman for one of the largest of the less developed contracting parties who was looking back on the developments in 1965: “The developing countries of course had had no bargaining power, politically or economically. The rule of reciprocity has required them to give a matching concession, but clearly, they were not in a position to give any. While over the last fifteen years, tariffs on industrial products of interest to industrial nations have been gradually brought down, those on products of interest to developing countries have remained at a high level” (Evans 1968: 76).
 According to Tussie, “[f]or a good 40 years after World War II, most developing countries did not perceive the GATT as a friendly or fruitful institution in which to promote their interests” (Tussie and Lengyl: 485).
 Implementation issues included nearly 100 tirets (WTO. 2001a).
 The provision clarifies that the “body concerned shall be deemed to have decided by consensus on a matter submitted for its consideration, if no Member, present at the meeting when the decision is taken, formally objects to the proposed decision” (WTO Agreement. 1994).
 At the end of the 11th Ministerial Conference in Buenos Aires, the Chairman of the Conference reported that “there remain differences of opinion on the Doha Round and the Doha Development Agenda”, almost declaring that the future of the DDA was in jeopardy (WTO. 2017a).
 Mügge has argued that the distinction between input and output legitimacy is difficult to apply in practice. However his framework elaborates on the concepts rather than provide an radical alternative (Mügge 2011).
 Article IX.1 of the Marrakesh Agreement clarifies that “[a]t meetings of the Ministerial Conference and the General Council, each Member of the WTO shall have one vote (emphasis added).
 The European Economic Community, Canada, and Japan were the other members.
 The members of this group were: Argentina, Brazil, Cuba, Egypt, India, Nicaragua, Nigeria, Peru, Tanzania, and Yugoslavia.
 Informally known as the cafe au lait group, referring to Colombian coffee and Swiss dairy products.
 There is, however, no confirmation from the available documents of the Preparatory Committee that the Colombia-Switzerland submissions had the explicit support of 40 members that Winham had claimed.
 It may be pointed out that the United States had made submissions on each of these issues in the Preparatory Committee (GATT 1986a, GATT 1986b, GATT 1986c)
 Meier discusses the situation faced by the developing countries at the end of the Tokyo Round negotiations in 1979 (Meier 1980).
 The Indian Trade Minister in his statement in Punta del Este stated the following: “We are firmly of the view that the issues of investment, intellectual property and services do not belong to GATT. Services cover a wide range of heterogenous economic activities, some of which involve establishment in the country where service is to be provided … The Heads of State or Government of the Non-Aligned Movement who met at Harare only about a week ago recognized that GATT did not have jurisdiction in the areas of investment, intellectual property and services”.
 The Brazilian Trade Minister stated the following: “The position of Brazil regarding the so-called new subjects is very well known. The results of the discussions in GATT and in other forums on the question of services have only confirmed Brazil’s conviction that there is no clear concept of the subject-matter and much less a consensus concerning multilateral action in GATT”.
 19 USC 2901 “Omnibus Trade and Competitiveness Act of 1988.
 The then USTR, Carla Hills, was selected by President Bush “to pry open foreign markets” (Uchitelle 1990).
 This possibility was discussed by the WTO Deputy Director General, Angela Ellard when she argued, “[p]lurilateral negotiations can spark ambition and structure that, ideally, will translate eventually to the multilateral arena” (WTO. 2021b).
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Biswajit Dhar is an economist based in New Delhi.
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Scaling Up Finance for Sustainable Development
This month marks the 10th anniversary of the collapse of Lehman Brothers that set off a chain of events that led to the worst financial crisis since the Great Depression of the 1930s. The global financial crisis of 2008 was a watershed moment for the global banking industry as it revealed a pattern of excessive risk-taking by private banks to maximize short-term profits along with shortcomings in the regulatory framework. The financial crisis has reignited an intense debate on the ownership structures of the banking sector and the desirability of direct state interventions in the financial sector. The crisis has challenged conventional thinking on state ownership of financial institutions and forced policymakers to reconsider the role of the state in the financial sector, especially state ownership of banks and other forms of financial institutions.
In recent years, there is a growing recognition of critical role state-owned commercial banks, development banks, and DFIs can play through countercyclical lending as well as supporting economic development and structural transformation. The state-owned commercial banks, development banks, and DFIs can finance investments needed for the realization of the 2030 Agenda and the SDGs.
The report argues that in the new millennium, the role of development bank goes beyond the traditional framework of correcting market failures and extends to addressing broader societal challenges such as climate change, food security, inequality, and inclusive growth.
The report contends that as many more governments are taking a fresh look at various types of state-owned financial institutions, it is essential that greater attention should be paid to their governance, transparency, performance, and public accountability, given their mandate to serve the broader public interest.
To effectively contribute to sustainable development, it is crucial that development banks and other state-owned financial institutions should follow principles of good governance in the conduct of their business and take all necessary measures to avoid adverse impacts on human rights and environment, says the report. It provides a set of recommendations for strengthening the management and governance of state-owned banks and DFIs.
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To download this report in pdf format, click on ‘Download Now’ link given below.
India-EU FTA: Where is the Europe’s Trade Agenda Headed?
The internal documents of the European Commission reveal the disgraceful attempts to push for higher levels of commitments in trade in industrial goods and agricultural products, services and investment liberalisation, geographical indications and government procurement under the proposed India-EU free trade agreement (FTA).
The EC documents, which are not publicly available, were prepared just weeks before the 2012 India-EU Summit. The documents assume greater significance as the trade negotiations between India and EU are being held behind closed doors on India-EU FTA. The documents provide an overview of the current state of play in the India-EU trade negotiations. The EC documents are elaborated versions of the landing zones paper (released in November 2011) containing some additional detail to avoid ambiguities and “clearly establish conditionality of the EU’s offer.”
South Korea’s Experience with Banking Sector Liberalisation
South Korea has seen a rapid financial development in the past decade in line with financial liberalization policies that the government rigorously pursued. The government’s ambition to make South Korea a financial hub in Northeast Asia supported by the self-serving financial industry pushed the financial expansion far beyond the ability of the Korean economy to deal with risks and dangers inherent in financial development.
Eventually, the Korean financial sector has become the victim of its own success, suffering ill-fated overstretch. Benefits of the financial expansion for the overall economy remain elusive. The widespread belief that financial liberalization would deliver an efficient allocation of capital and smooth external shocks proved to be an illusion.
Banking Sector Liberalisation in Uganda: Process, Results and Policy Options
This study critically examines the major developments in the banking sector in Uganda over the past two decades. In particular, the study documents the outcomes of banking sector liberalization policies which were initiated since the early 1990s. It also deals with recent developments in the Ugandan banking sector in the aftermath of global financial crisis.
With a special focus on the entry of foreign banks, the study assesses the major impacts and consequences of market-led banking reforms on economy, development and poverty eradication. It examines the large presence of foreign banks with particular attention on access to credit to poor people, small and medium enterprises, rural and informal economy.
The findings of this study are relevant in the light of increased foreign ownership of domestic banks and financial institutions in many poor and developing countries. From a host country perspective, the study raises several policy-oriented issues related to the entry of foreign banks in the developing world. It highlights several adverse impacts of foreign bank entry which are not given due attention in policy and academic circles.