By Jasper Emmanuel Y. Arcalas & Cai Ordinario
THE temperature was 15 degrees Celsius outside the 93-year-old Centre William Rappard in Geneva, Switzerland, when Jose Antonio S. Buencamino walked into the atrium of the World Trade Organization (WTO) headquarters and presented a warm future for the Philippines within the multilateral organization.
It was the 15th of May and Buencamino, Philippine Mission to the WTO Special Trade Representative, had just come out of a meeting, his last for the day.
The issues surrounding the WTO are real and should be addressed, he told the BusinessMirror after the perfunctory introductions.
“[The] WTO has to adapt to the times. Twenty-four years is a very long time for a very dynamic issue that is trade policy,” Buencamino said from a red chair, an olive tree at his back.
Buencamino would know: he was part of the country’s negotiating team when the Philippines was acceding to the WTO in 1995.
“It remains very relevant but there’s a need for few adaptations or reforms to make sure it functions even better,” he added. “But a complete overhaul of the WTO treaty, I don’t think that’s we’re talking about.”
A lost cause?
What was once viewed as a beacon of hope for countries like the Philippines to spur trade in the global arena is now being seen as a lost cause.
The dream created by the WTO when it was established in 1995 has slowly become a mere fantasy with the stalemate at the Doha Round. No resolution is in sight for the talks, which began in 2001.
The collapse of the talks in 2008 forced many countries to intensify efforts to carve their own corners in the world through regional and various bilateral trade agreements. This has left many to believe the WTO has lost its effectiveness; hence the question to Buencamino, economists and stakeholders on the relevance of the WTO.
Real hopes
FOR Asian Development Bank (ADB) Economic Research and Regional Cooperation Department Lead Economist for Trade and Regional Cooperation Jayant Menon, the hope created by the WTO remains real, despite the disenchantment created by the collapse of the Doha Round.
The ADB executive told the BusinessMirror the WTO remains the curator of the multilateral trading system, which is the only one that allows developed, developing, and poor countries to sit at a table as equals.
“We have to imagine a world without the WTO to recognize its importance. The WTO is an organization where every country has an equal seat at the table. This does not exist in bilateral and regional negotiations taking place right now,” Menon said. “More countries can be bullied in so many different implicit ways into agreeing to all kinds of things in these agreements.”
He added that “with the WTO, which is consensus-based, every country must be on board, different countries can form coalitions to protect their special needs and they can use that as a way of ensuring that they don’t get bullied into concessions or making allowances that do not protect their sovereign rights.”
Menon explained that “these things can happen only with a multilateral institution.”
He also noted that the WTO has pushed for the aid for trade initiative to bring rich and poor countries together to find ways to improve trading capacity of developing and poor countries.
Menon said the aid for trade initiative helps developing countries address bottlenecks in trading that prevents them from accessing markets or bars international markets from trading with them efficiently.
These initiatives, he said, address both hard and soft infrastructure as well as “behind–the-border issues” that have blocked trade flow between and among countries.
Complaints, cases
THROUGH the years, Menon said the WTO has helped developing countries expand their trade horizons. The WTO has been instrumental in bringing down tariffs and removing nontariff barriers worldwide.
Menon added that under a multilateral trading system, countries can resort to the trade dispute mechanism at the WTO to fight for their sovereign rights. This is a result of the rules-based system enforced by the WTO.
The WTO considers dispute settlement as one of its core activities. The institution said that a dispute occurs when a member government believes another member government is violating an agreement or a commitment it has made to the body.
WTO said that since its establishment, over 500 disputes have been brought to the WTO and over 350 rulings issued.
Menon said the Philippines has used the WTO’s dispute mechanism. Based on WTO documents, the Philippines has been a complainant in five cases.
The country has also been a respondent in six complaints filed against it by several countries. (See sidebar)
“So, all of these agreements, bilateral and regional, still have to comply with a broad set of rules set by the multilateral system and governed by the WTO as institution. And I think that remains important despite the proliferation of bilateral agreements and now major regional agreements,” Menon said. “It remains important and plays a very useful role in keeping a rules based world order and providing an effective dispute settlement mechanism.”
A slew of issues
ASIDE from dispute mechanisms, other key issues hounding the WTO involve: member-countries’ obligation to report relevant information such as subsidies; special and differential treatment; and, the Appellate Body.
The US has raised its concerns on the noncompliance of member-countries with a requirement to report to the WTO information in relation to fulfillment of obligations under the treaty.
The US has tabled a proposal for a stronger transparency among member-states by imposing “administrative” punishments for noncompliance.
Among the sanctions for member-countries failing to notify the WTO in a timely and transparent manner is the non-election to committee chairmanships.
Buencamino said he supports the call for a “strong, transparent, timely and full” notification of member-states’ obligations to the WTO.
However, he said “he cannot go along with the punitive measures” proposed by the US.
Buencamino explained that member-countries have valid reasons for not notifying or reporting to the WTO their obligations, such as administrative and logistical concerns.
For example, countries are required to notify licensing requirements that they implement to provide other members predictability in trade. However, it is tedious to do this as it entails dealing with a lot of government agencies.
“See, you have capacity constraints. Agencies are weak, data collection is weak. And those are real problems across all members,” Buencamino said.
“The solution there is to ask for technical assistance. But you should be forgiven for not notifying. What should be sanctioned is willful non-notification of commitments,” he added.
Large, small economies
Buencamino said the issue of special and differential treatment shouldn’t be a case of categorization. He explained that what matters most in trade negotiation is that a country fulfills its commitments and obligations under the WTO treaties.
Proposals have been tabled at the WTO to provide clear-cut guidelines on how to determine if a country is a developed or developing one.
One proposal pointed out that countries that belong to the G20, or are applying for the Organisation for Economic Co-operation and Development, are classified as high-income class and accounts for more than 0.5 percent of global merchandise trade should be considered developed country.
Large economies, such as China and India, would be adversely affected by such proposal as they are still considered developing countries at the WTO arena.
At present, WTO member-countries are just asked to classify themselves as either developed or developing countries.
Under WTO agreements, developing countries enjoy a longer timetable to implement the body’s agreements and commitments. They can also utilize trade measures to safeguard their interests.
“For me, it should be pragmatic. We do not need to judge if a country is developing or not,” Buencamino said. “What matters most is that they comply with the rules and commitments.”
Appellate body
The WTO’s appellate body, which serves as its Court of Appeals, has been under scrutiny by big member-countries, especially the United States, in recent years.
The US’s concerns include the appellate body’s noncompliance with the mandated 90-day release of reports on disputes, and its alleged projection as if it were the sole interpreter of the WTO treaty.
The US pointed out that the appellate body has interpreted WTO rules beyond what was negotiated at the Uruguay round in 1986.
Due to these concerns, the US has repeatedly blocked proposals to fill in the vacancies for appellate body judges.
The appellate body has seven judges but it has gone down to three, the minimum number for it to be able to act on disputes.
“The vacancies in position must have been filled yesterday—not next week, tomorrow, or whenever, but yesterday,” Buencamino said. “What is happening now is the threat of the future of dispute settlement. If the appellate body ceases to exist, then disputes could forever stay in appeal, hence, there’s no victory.”
Sending officials
WTO officials told the BusinessMirror that the multilateral organization remains a relevant arena for to the Philippines, especially for issues it is interested in, such as agriculture.
“This is a place that provides the Philippines an avenue to express their views and make things work to provide a better life for Filipinos,” WTO Spokesman Keith Rockwell said in an interview in May at the WTO headquarters in Geneva, Switzerland.
“And if this organization is placed in a position that is under threat, that forum in which the Philippines has thrived and prospered over the years runs the risk of not being there for the Filipino people,” Rockwell added.
He pointed out that the Philippines’ sending of officials to represent it to the WTO shows how the archipelago deems the organization important.
“[The WTO] offers a place where you can stand, you can fight your corner, you can express your views, and you can iron out problems before they get too big,” Rockwell said.
“It’s a place where the utility of it is obvious to the people in Manila because it keeps sending top-quality people here. It’s most obvious that this is a place that they hold dear,” he added.
Opening up
THE Philippine economy started opening up to the world even before the WTO came into existence, according to Ibon Foundation Executive Director Jose Enrique A. Africa.
Africa said this occurred through the efforts of the International Monetary Fund (IMF) and the World Bank as far back as the 1980s.
As a result of nearly 40 years of trade openness, Africa said the share of trade in the country’s gross domestic product (GDP) grew to 130 percent in 2017 from 88 percent in 1994.
He lamented, however, that this openness to global trade and foreign players did not lead to Filipinos and domestic firms making it big. The country’s openness to foreign locators only increased the country’s imports instead of exports.
Africa added that local firms found it difficult to compete with cheap imports and this has been observed, especially in recent years, with the country’s widening trade deficit.
In the past three years alone, the country’s merchandise trade deficits based on data from the Philippine Statistics Authority (PSA) reached as much as $43.533 billion at the end of 2018.
On a monthly basis, the country’s trade deficits would run anywhere from $1.554 billion in April 2017 to $4.415 billion in October 2018.
“The Philippines is more open and trade accounts for a much larger share of the economy than before,” Africa said.
Regional agreements
HOWEVER, Africa said that “the economic forces of trade have, unfortunately, weakened rather than developed domestic production and the share of agriculture and manufacturing in GDP have fallen to lower levels today than in the 1990s before the WTO.”
“Domestic producers have not been and are not able to compete with cheap imports, and have not and are not able to export commensurate to the opening up of the domestic economy,” he added. “Our chronic and recent record trade deficits expose the country’s trade and development failure under the WTO.”
The failure to compete, Africa explained, also led the country to become a more service-oriented economy rather than an economy that produces food and non-food products.
He added this also forced millions of Filipinos to seek greener pastures abroad to earn a living as Overseas Filipino Workers (OFWs).
The PSA said that based on the 2018 Survey on Overseas Filipinos, there were 2.299 million OFWs. This is composed of 1.016 male and 1.284 million female OFWs.
“The Philippines after the WTO has become a service and labor export-dependent economy more than a producing economy. This keeps job creation low, unemployment and underemployment high, incomes poor, and productivity and dynamism stifled,” Africa said.
Apart from these, Africa said the multilateral trading system is still not inclusive since it prevented the Philippines from “undertaking vital national industrial policies such as subsidies, protection, technology transfer and other regulation of foreign investment.”
However, Africa said bilateral and regional trade agreements are also “not necessarily any better” than the WTO for the same reasons cited by Menon that make these agreements difficult to undertake, especially for developing and poor countries.
Discipline is absent
THINGS could have been worse for the Philippines, particularly to its small-scale farmers, without the WTO, Federation of Free Farmers (FFF) National Manager Raul Q. Montemayor believes.
“A rules-based trading system is beneficial to small countries like the Philippines who can end up being bullied by large trading partners in the absence of rules,” he told the BusinessMirror.
“For example, the absence of disciplines on domestic support and export subsidies would have allowed our trading partners to continue subsidizing their exports and protecting their producers without limits to our disadvantage. Or other countries could easily block our exports with arbitrary changes in their tariffs,” he added.
Montemayor said the rules-based system is far from perfect and the impasse in the Doha round negotiations have made it difficult for member-countries to reform the WTO.
For one, the consensus approach that WTO undertakes should be changed as it seems to be unworkable in this time and age, he explained.
“So, it might be better to negotiate and come to an agreement on specific issues, much like a legislative system where Congress passes bills on particular issues from time to time,” Montemayor said. “The disadvantage here is that there will be limited room for trade-offs.”
He also noted that the impasse in WTO negotiations has led to the proliferation of free trade agreements to advance the interests of countries in global trade.
Impasse effect
THE impasse in Doha round negotiations also meant a halt in the reforms that could have led to an improvement of the Philippines’s agriculture sector.
Montemayor pointed out that uncompetitive sectors of agriculture were adversely affected by the accession of the Philippines to the WTO due to influx of cheaper imports.
“While we have tended to focus on our defensive interests by blocking/managing the influx of imports, we have not devoted enough attention to promoting our agricultural exports. As a result, I think we have consistently had agricultural trade deficits in the last 25 years,” he said.
“Although rules have been set to put a cap on subsidies and arbitrary tariff changes, these are far from perfect and many large economies continue to provide large subsidies to their farmers and exporters and use various trade barriers on imports. The country has also become more vulnerable to price and supply volatility in the world market,” he added.
If there was one big mistake that government negotiators made in acceding to the WTO, it would be the lack of consultations with private stakeholders, Montemayor said.
“The lack of stakeholder involvement in the formulation of negotiating positions led to doubts on the motives of government in pushing for the country’s accession to the agreement,” he added.
Not right time
Segfredo R. Serrano, formerly the Agriculture Undersecretary for Policy and Planning, told the BusinessMirror in an interview in 2018 that it was not yet the right time for the Philippines to accede to the WTO in 1995.
Serrano, who was still with Philippine Rice Research Institute during the 1994 negotiations, pointed out that the country had every reason to delay the ratification.
“We are a developing country!” he said.
“We wanted government to frontload domestic support measures for farmers before ascending. But what happened is that our negotiators fast-tracked the ascension,” he added.
If Serrano had been the chief trade negotiator then, he would have decided to postpone accession to the WTO for two years.
“If I [were] the one followed, we should have conducted consultations first. And then promised to the people that domestic support would be frontloaded two years prior to accession,” he said.
Serrano became part of the country’s trade negotiating team in 2000s and served as one of the top negotiators for agriculture when he assumed position as Undersecretary in 2005. It was a position he likened to an operator of a vulcanizing shop.
“Lagi ko sinasabi sa stakeholders na iyong gulong natin nabili na. Ako ho taga-vulcanize na lang kasi yung gulong maraming butas yung interior,” he said. [I always tell stakeholders our tire has been sold. I just perform the vulcanizing because our tire has too many holes.]
“Wala na tayo magagawa para maibalik iyon kung hindi magpatse-patse na lang. Ang magagawa na lang natin ngayon, how do we extract the best deal for the benefit of our country. [We can’t return to 1995 and, hence, we can only plug the holes. What we can only do today is find out how we can extract the best deal for the benefit of our country],” he added.
An opportunity
WHILE Menon and Africa may have different perspectives on the WTO and its role in the growth of developing countries like the Philippines, they both believe that what is happening right now to the multilateral trade system is an opportunity.
Menon said that with the countries’ disenchantment with the WTO and its ability to promote free and fair trade worldwide, the institution must now recalibrate its efforts.
He said the WTO should move forward and consider the Doha round of talks “dead.”
According to Menon, what is happening right now is countries and regions have “sliced up” the Doha into pieces that serve certain countries and regions.
This is not ideal in the sense that it removes the ease by which certain concessions and agreements are reached with just a single undertaking. Menon said it also removes the opportunity to reach an agreement where countries or regional players would all “give up something for a mutual benefit.”
“[These] will be lost if you carve it [Doha] up into sectoral agreements because you’re dealing with each on its own rather than trading them off in search of an overall better outcome. That’s the cost of slicing up Doha in this way, but that seems to be the only way forward, unfortunately, at the moment though. This kind of cherry picking that starts with the easiest, the trade facilitation agreement, is the only way forward without losing everything that was negotiated in Doha,” Menon explained.
Reforms, reforms
As a multilateral institution, Menon said, the WTO should also reform especially given the current trading milieu.
He said when the WTO was created, there were no global value chains (GVCs) that existed and there were still countries producing goods from start to finish.
Today, Menon said, no single product is solely produced in just one country and every product now enters a GVC or a regional value chain where it is assembled and completed.
Further, more economies are now service-oriented. Menon said this was also not the circumstance in 1995 when many economies were either purely agricultural or industrial or a combination of both.
“I think the WTO also has to reform. It’s a very different world today that we trade in that is dominated not by arm’s length trade as was the case when it was set up, but by global value chains,” Menon said.
Intellectual property
FOR Africa, the “crisis of multilateralism” is also a good time for countries to reflect on the economic challenges that came along with the birth of the WTO in 1995.
He said the WTO should reform and “become more democratic” by limiting the influence of “small groups of powerful nations” in terms of policy and direction.
However, Africa said, he was not too optimistic about this kind of reform being done in the WTO. But it was noteworthy that “big powers” in the institution like the US want the Doha discarded.
“The US, EU and Japan for example want stricter intellectual property rights, restrictions on government support for industry and state-owned enterprises, and limits on special and differential treatment (SDT),” he added.
Optimism on changes
STILL, WTO Deputy Director-General Alan Wolff said the WTO’s purpose remains relevant to the Philippines as it ensures fairness and predictability in global trade.
For one, the organization ensures that a product produced by the Philippines would be treated fairly by other member-states and would not be prejudiced, Wolff explained.
Secondly, WTO offers predictability in trade and business. It provides countries a platform to ensure that their goods would be able to enter or not other global markets, Wolff added.
“WTO provides rules for international trade and administers them. The WTO is essential for all members including the Philippines,” he said in an interview with the BusinessMirror in Geneva in mid-May.
On the issue of the WTO reform, Wolff said it is the responsibility of all member-countries to follow suit the mandate of the G20 to engage in efforts that would improve the organization and resolve the issues surrounding it.
For Buencamino, the WTO needs to be “modernized” based on “today’s realities” as the global trade system has evolved beyond what was imagined in 1995.
“Twenty-four years ago, we did not have a powerful unit like China. Now you have a powerful unit like China, which doesn’t play fair.” he said.
Despite the different opinions on which road the WTO should take, it is clear that the current challenges faced by the multilateral trade system should bring about reform.
And the WTO, being the curator of such system, may not have any choice if it seeks to remain relevant in the lives of billions of people worldwide—especially developing and poor countries.
The Doha may be dead, but all hope is not lost. It is up to the WTO to keep the dream alive.
Image credits: Jasper Emmanuel Y. Arcalas