The consensus hurdle in WTO

The failure at Yaounde underlines the predicament faced by WTO members in trade talks. Decision by consensus is a legacy of the General Agreement on Tariffs and Trade (GATT) 1947 days and is difficult, if not impossible, to change. Although rules allow recourse to voting if consensus is not achievable, members are loathe to opt for this alternative on matters relating to trade negotiations. Developing countries attach importance to the consensus rule as it provides them with an important safeguard against action to impose new obligations on them without their consent.

On the other hand, on account of the diversity in the economic situations of member countries, the inescapable reality is that consensus is difficult to achieve. This was the main reason for the collapse of the Doha Round in 2008, and is the principal cause for the halting progress in multilateral negotiations since then. There is recognition that rules on decision-making are a serious hurdle in undertaking trade negotiations and the issue is listed on the agenda of future talks on WTO reform. In the preliminary discussions, the most promising solution that has emerged is that of plurilateral negotiations, by which the consensus problem is sidestepped. A group of major stakeholder countries willing to go ahead with a trade policy initiative concludes a plurilateral agreement, leaving others to join in when they are ready. The idea is not new—it is rooted in past practice.

The first notable instance in the GATT 1947 days of an agreement among a limited number of parties was the 1960 adoption of a declaration by 14 West European and North American countries to prohibit the use of export subsidies on non-primary goods (manufactures). This declaration was effectively a plurilateral agreement among industrialised countries that constituted a subset of parties to GATT 1947. Non-participating developing countries got the benefit without undertaking the obligations of the agreement.

The biggest set of plurilateral accords emerged from the Tokyo Round of multilateral trade negotiations in 1979, when developed countries and selected developing countries (including Brazil, India, Korea, and Yugoslavia) became parties to plurilateral agreements on five non-tariff measures—technical barriers, import licensing, subsidies and countervailing duties, anti-dumping, and customs valuation. These agreements were initially referred to as Codes to distinguish them from multilateral instruments. Negotiations in these areas had commenced with the aim of developing multilateral instruments but at the end of the Round, it became evident that the majority of developing countries were not ready to adopt the higher level of obligation envisaged in the Codes. Adoption of the accords on a plurilateral basis was the pragmatic way out.

Within five years of the establishment of the WTO, there were as many as three plurilateral agreements within its purview—the Information Technology Agreement (1996), the Telecommunications Agreement (1998), and the Agreement on Financial Services (1999). The Agreement on Expansion of Trade in Information Technology Products (2015) followed and the latest addition is the Agreement on Services Domestic Regulations (2024). The participants in these agreements were subsets of WTO members whose cumulative trade share was deemed to constitute a critical mass, enabling them to go ahead.

Past practice on plurilateral agreements has three notable features. First, although all of them began as agreements among a subset of GATT parties or WTO members as signatories, adherence was kept open to all. Second, benefits were extended on a most-favoured nation (MFN) basis to the full membership of the parent agreement, irrespective of whether any of them was a signatory to the plurilateral agreement. It was the non-discriminatory nature of liberalisation that made plurilateral agreements the driving force for the liberalisation of trade in the WTO’s early days. Third, to minimise free riding, the practice evolved to require a critical mass of WTO members to become participants before the plurilateral agreements entered into force.

It may appear paradoxical that the WTO Agreement also allows another variety of plurilateral agreements where benefits are shared only among participants on a strictly reciprocal basis, in sharp contrast to the customary practice of MFN treatment. Clearly, the intention was to confine plurilateral agreements based on reciprocity to a niche. For that reason, only a limited number of four agreements were originally listed in Annex 4 of the Marrakesh Agreement, of which only two have survived, viz. the Agreement on Civil Aircraft and the Agreement on Government Procurement. Furthermore, the Marrakesh Agreement stipulates the extremely tough requirement of decision by the Ministerial Conference, exclusively by consensus, for approving additions to Annex 4.

An important development in the ongoing discussions on WTO reform is that two major players, the EU and the US, have made proposals relating to plurilateral agreements. The EU has mentioned both MFN-based plurilateral agreements and those based on reciprocal sharing of benefits among participants. In keeping with the wind blowing in the Trump era, the US has given a big push solely to the notion of reciprocity-based plurilateral pacts.

Given the imperative of unlocking the process of trade negotiations on the one hand, and the challenge of decision-making by consensus on the other, recourse to the customary practice of non-discriminatory plurilateral negotiations appears to be the only way forward. The impetus given by the EU and even more by the US to the idea of reciprocity in plurilateral negotiations has, however, queered the pitch. Viewed together with the separate proposals of these major players for a rethink on the MFN principle, plurilateral agreements based on reciprocity raise the spectre of the trading system fragmenting into clusters of bilateral agreements that are governed not by rules but by power play.

Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.