National autonomy and global regulation
Avadhoot Nadkarni
With the conclusion of the Uruguay Round of multilateral trade negotiations, the multilateral trading system has, under the aegis of the World Trade Organisation, become all pervasive. This is leading to, in some sense, a loss of domestic sovereignty over areas of policy which had hitherto been jealously guarded in the national realms. At the same time, global structures are being visualised for managing the spill-over of the trade policy regime into other realms of policy.
Loss of national autonomy and the transfer of power to supranational structures are, of course, in the present context, two sides of the same coin. Yet the more important question is not whether, or even how, national autonomy is being sacrificed, but to what kind of global structures is power to be transferred as a consequence of world trade liberalisation. This chapter, therefore, deals not only with the issue of the loss of national autonomy due to the emergence of an all- pervading multilateral trading system, but also with the question of the global structures. Three kinds of structures are distinguished, those which are developing in the multilateral trading system, those which are sought to be developed by modifications of this system, and those which, in our view, should be developed, independently of the multilateral trading system.
The chapter is divided into four sections. Section I brings out the extent to which trade policy has over the years become broader in scope influencing areas that were hitherto in the realms of domestic policy. The remaining sections deal with the issue of global regulation. Section II discusses the concept of global governance that is implicit in the WTO model of trade liberalisation. The model gives primacy to the needs of an open non-discriminatory trade system over all other considerations. We illustrate this with reference to the relationship between trade and the environment. Section III brings out the northern non-governmental organisations (NGO) model for managing the interaction of trade policy with social and environmental policy. This model relies on social and environmental clauses within the multilateral trading system in the pursuit of broader social and environmental objectives and, in some sense, seems to be in favour of the strengthening of the global structures that are emerging out of a system whose primary purpose is trade liberalisation. Section IV attempts a critique of this approach and suggests that desired structures of global governance will have
to take cognisance of broader policies, like global redistribution policies, and go beyond the multilateral trading system.
I
Trade liberalisation and the loss of national autonomy
The experience of world trade liberalisation over the last few years seems to have led to an erosion of national autonomy for the following reasons:
1 The international trade policy regime has become much wider in its reach, covering areas which had hitherto been an exclusive preserve of domestic policy regimes.
2 With the establishment of the World Trade Organisation (WTO), the obligations of national governments to the multilateral trading system (MTS) are being more effectively enforced.
3 Given their obligations to the MTS, national governments seem unable to deal with the problems created by the expansion of international trade and the all-pervading character of the MTS. Moreover, it is being perceived that legitimate objectives of other policy areas (the social and environmental spheres, for example) are being increasingly subordinated to the requirements of an ‘open, unrestricted and non-discriminatory’ trading system.
Increasing scope of the multilateral trading system
The MTS under the WTO has come a long way since the time it merely provided a multilateral forum for tariff negotiations under successive rounds of GATT.
Tariffs on products traded between industrial countries reached a historical low in the 1970s and, under the impetus of the economic difficulties of the period, protectionism in the form of non-tariff barriers gained grounds. The Kennedy Round and, in particular, the Tokyo Round turned their attention to non-tariff barriers to trade. Unlike tariff measures which essentially operate at the border, many of the so-called non-tariff measures operate within the domestic economies and any attempt at codification of these measures essentially impinges on the powers of the national governments to deal with domestic policy matters. The Tokyo Round negotiated six codes on non-tariff measures, viz., the standards code, the subsidies code, the customs valuation code, the anti-dumping code, the Agreement on Import Licensing Procedures and the Agreement on Government Procurement. All these codes, except perhaps the one on customs valuation, attempt in varying degrees to discipline measures that are not necessarily border measures, and thus have implications for the powers of national governments in areas which were hitherto outside the purview of the MTS.
Under the provisions of the Tokyo Round, governments were, however, able to choose to a large extent which of these agreements they would join. This
freedom was no longer available at the conclusion of the Uruguay Rounds.
Under the ‘take-it-or-leave-it’ arrangements, countries had to accede to all the so- called Annex 1, 2, 3 multilateral agreements of the WTO. Governments had a choice only in the matter of joining the so-called plurilateral agreements in Annex 4 of the WTO Agreement.1 The implications are clear: countries had no option but to bring under the scrutiny of the MTS their regulations in matters like technical standards and subsidies.
The Marrakech Agreement concluding the Uruguay Round succeeded in increasing the scope of the MTS in more important ways than codification of non-tariff barriers. All of this had implications for what governments could hitherto more or less freely do in the respective areas. We note below some of these important extensions of the MTS:
1 The Agreement on Sanitary and Phyto-Sanitary Measures has clear implications for the ability of governments to set health-related food standards in their domestic jurisdictions.
2 The trade in sensitive sectors like agriculture and textiles and clothing was made GATT consistent. This has long-run implications for the domestic support and export subsidies that advanced country governments can provide to the agricultural sector; as also for the protection they can offer through quota restrictions on imports of labour-intensive products like textiles and clothing. Social implications in the developed countries would be tremendous if the built-in negotiations in agriculture, slated for the year 2000, produce substantive results and if the dismantling of the Multi-Fibre Agreement proceeds as scheduled. (It is this realisation that has generated the feeling in some quarters in the developing countries that there will be, in one way or the other, a default on the implementation of the Agreement on Textiles and Clothing.)
3 Trade in services was brought under the aegis of the MTS through the General Agreement on Trade in Services (GATS). In some of its provisions, GATS goes beyond GATT in circumscribing the powers of national governments. The enshrining of the right to establishment under GATS for the purpose of domestic delivery of services, however circumscribed in itself, could be a pointer to the ways in which things could shape in the future.
4 Domestic legislation providing intellectual property protection is to be made WTO-consistent through the Agreement on Trade-Related Aspects of Intellectual Property Rights. Legislation providing the required private patent, copyright and trademark rights have always been in place in the advanced countries. Governments in the third world would have to substantially change their intellectual property protection regimes to make them TRIP- consistent. The private property rights that would thereby be created could further have adverse implications to the rights of local communities as distinct from the rights of national governments.
5 Even investment measures that were hitherto freely adopted, especially by the developing country governments in regulating investment, have, through the Agreement on TRIMS, been brought under the aegis of the WTO to the extent that these measures could have trade implications. Measures like local-content requirement and foreign-exchange requirement have been made GATT-inconsistent and hence no longer available to these governments.
The missing clauses and annexes of the WTO Agreement
It is true that the TRIMS Agreement is a much narrower version of a full-fledged agreement on investment that was being visualised on par with the multilateral agreements on trade in goods, the GATS, and the Agreement on TRIPS. In the event, partly because of the opposition from some quarters to such an agreement being under the WTO, what came in was the Agreement on TRIMS as one of the multilateral agreements on trade in goods and not an independent multilateral agreement on investment in its own right; though GATS has its own provisions on investment in conjunction with the right of establishment.2
The issue of investment is, however, far from dead in the WTO. It has been kept alive through the establishment of a working group on trade and investment at the first ministerial meeting of the WTO in Singapore in 1996. The relationship between trade and investment continues as a new issue in the WTO along with a large number of so-called new issues. Largely because of new forms of interaction between trade policy and other policy areas, a large number of issues have been arising around the MTS. These issues include the relationships between trade on the one hand and investment, environment, labour standards, competition, and even illicit payments, on the other.3 As these issues mature beyond the stage of working groups through negotiating mandates, WTO Agreement is expected to be augmented with new clauses and whole new annexes. Each of these clauses and agreements will further circumscribe the domestic policy options of the Contracting Party governments in dealing with the areas covered by these agreements.
Stricter enforcement of the obligations
The increasing scope of the MTS is, in a way, a continuation of a trend initiated by the Tokyo Round codes to discipline non-tariff barriers; though, as we have noted above, governments then had an option not to accede to these codes. What is new under the present dispensation, though, is that the WTO Agreement has definite provisions to enforce its annexed agreements. This is secured through two means.
Contracting Parties have a definite obligation to adopt legislation to make their systems consistent with the provisions of the WTO Agreements in a definite timeframe and, in the meantime, to report all inconsistent measures. Liberal time-
frames have been provided in many cases especially since many of the changes sought are of a fundamental nature.
The implementation is effectively controlled through the WTO dispute settlement procedure. It provides final and binding decisions. Whereas previously Contracting Parties have been able to ignore panel rulings through the exercise of an effective veto, the decisions of the WTO panels and appellate bodies cannot be ignored except by providing compensation to the affected party.
Inability of national governments to deal with trade-related problems
The proof of the pudding is, of course, in the eating, and the WTO recipe would not have been visualised as affecting national autonomies if national governments dealt with domestic problems that are seen as having been engendered by liberalisation of trade and investment, and the solution was not seen as being impeded by obligations to the WTO. Examples of such problems abound.
In the economic sphere, the problem of unemployment in Europe and that of falling real wages in the US is frequently attributed to trade and investment liberalisation and competition from low-wage economies. In the non-economic sphere foremost examples are provided by inability of governments to enforce health and animal welfare standards. The US–EU beef hormone dispute is the case in point so far as health standards are concerned. In the realm of animal welfare, the tuna-dolphin disputes provide the classic examples. So does the issue in the EU about ‘battery’ eggs and ‘free-range’ eggs.
Loss of national sovereignty: some caveats
Not all the perceived loss of autonomy in dealing with these problems is real.
More often than not, the balance of domestic interests groups may require a government to abstain from taking the necessary measures to safeguard jobs and wages. Keeping protectionist interests at bay has actually been identified as one of the important functions served by a rule-based MTS (Hoekman and Kostecki, 1995). Also, a clear distinction needs to be made between measures sought to be enforced within national jurisdictions and those which could have extra-territorial implications.4 It could be argued that what is important is national sovereignty over matters in one’s own jurisdiction and that national sovereignty over extra- territorial matters is a contradiction in terms; though, admittedly, it is the opening up of trade which leads to a blurring of these distinctions.5
Nor can all the problems be attributed entirely to the working of the MTS.
Clearly not all of the unemployment in Europe or the fall in real wages in the US can be attributed to trade, whether with developing or developed countries.
Fundamental forces, such as changes in technology, are at work.
There are also other considerations involved. At some level, this alleged loss of national autonomy represents a voluntary surrender of autonomy by sovereign governments in return for presumed national benefits obtained in other areas, although these may benefit different sections of their respective populations. For another, national sovereignty need not in itself be sacrosanct in a world where, more often than not, such sovereignty is forged at a tremendous cost to local communities and through a sacrifice of local autonomy There is currently no dearth of examples of such sacrifices extracted in the interest of international trade. This suggests that any discussion of loss of national autonomy through trade liberalisation, should pay attention to the distribution of benefits both between and within countries.
The more important question therefore is not whether national autonomies are being sacrificed but to what kind of global structures is power sought to be transferred as a consequence of world trade liberalisation. It is to the consideration of this question that we turn in the following sections of the chapter.
II
The neo-liberal perspective on global regulation
The conflicts between the trade policy regime and other policy areas has given rise to a need for developing global institutional mechanisms for dealing with these conflicts. Thus Cottier (1998) discusses the WTO in the context of the need to develop institutions with ‘constitutional’ functions of ‘balancing a variety of equally legitimate interests and policies’. It would be illustrative to examine the response of the multilateral trading system to the postulation of such conflicts before we look at the concept of global regulation and governance that seems to be emerging in the WTO.
Two responses, at two different levels, can be identified in the multilateral trading system in dealing with conflicts that inevitably arise between the needs of trade liberalisation and other policy objectives:
1 an outright denial that, in principle, a conflict of objectives exists; and 2 an assertion, in practice, of the primacy of the needs of the multilateral
trading system.
Attempts have thus been made to show that, in principle, the conflict between trade liberalisation and other policy areas is minimal, or even that the relationships are not one of conflict but of mutual benefit. In practice, in the event of any conflict of the trade system with other policy areas, the interests of the trade system have been consistently upheld through the dispute settlement process of the WTO. We illustrate this with reference to the areas of interaction between trade and environment. All issues of relationship between trade and environment can be discussed under the following three categories:6
1 environmental effects of trade liberalisation;
2 use of trade measures to secure multilateral environmental objective;
3 trade effects of national environmental regulations and environment-related product standards.
The denial of conflict is clearly seen in the case of the environmental effects of trade liberalisation and trade measures in pursuit of multilateral environmental objectives, where the primacy of the needs of the trading system is asserted in settlement of disputes about national environmental regulations and product- related environmental standards.
Environmental effects of trade liberalisation
Important in this context are the Ministerial Decision on Environment establishing the Committee on Trade and Environment (CTE), the Report of the CTE adopted for the First WTO Ministerial Meeting and, of course, the work of the WTO Secretariat.
The CTE was established, through the above-mentioned ministerial decision, along with the WTO in January 1994. The decision clearly noted that there should not be nor need be any policy contradiction between upholding and safe- guarding an open, equitable and non-discriminatory multilateral trading system on the one hand and acting for the protection of the environment on the other.
The discussions in the CTE have clearly been guided by this neo-liberal sentiment expressed in the Ministerial Decision establishing it. As noted by the Committee in its Report adopted for the First Ministerial Conference in Singapore in 1996:
The two areas of policy-making are both important and they should be mutually supportive in order to promote sustainable development.
Discussions have demonstrated that the multilateral trading system has the capacity to further integrate environmental considerations and enhance its contribution to the promotion of sustainable development without undermining its open, equitable and non-discriminating character [Para.
167].
Economic growth is postulated as the main link between trade liberalisation and environmental protection. Trade liberalisation is supposed to be a powerful engine of economic growth as shown by the performance of outward-oriented economies in contrast to that of inward-looking ones. Growth itself helps environmental protection in two ways. First, it leads to alleviation of poverty supposed to be the single most potent source of environmental degradation and, second, it provides resources that can be devoted to environmental protection.
Trade liberalisation achieves all this by getting the prices right. Pricing failures, working through market access restrictions, domestic support policies and export
subsidies, are supposed to be a major cause of environmental degradation.
Getting prices right thus not only leads to more rapid growth with indirect benefits to the environment, but also has direct beneficial consequences to the environment through efficient allocation of resources.
This principle, of course, also guides the work undertaken in the WTO Secretariat on the relationship between trade and environment. A note prepared by the Secretariat ‘Environmental Benefits of Removing Trade Restrictions and Distortions’ enumerates existing trade restrictions and distortions and the environmental benefits of removing these restrictions in seven sectors, viz., agriculture, fisheries, forestry, energy, non-ferrous metals, textiles and clothing, and leather.
The Director-General of the WTO speaks of a newly emerging consensus that trade liberalisation and environmental protection are not only compatible goals, but are also two sides of the same strategy to achieve sustainable development on a global scale (Ruggiero, 1998a). This insistence on a denial of a conflict is also seen in the area of the relationship between the multilateral trade system and the multilateral environmental agreements, though, as we will see below, there are more problems in this case.
Use of trade measures to secure international environmental objectives
The multilateral environmental regime has been developing simultaneously with the multilateral trading system to regulate transboundary environmental concerns and also to co-ordinate efforts aimed at solving environmental problems, the solution of which requires action at the international level. There are about 185 extant multilateral environmental agreements, about 20 of which can be identified as including trade measures in pursuit of their objectives.7 The provisions of these agreements are well known and in most cases could come into conflict with the provisions of the multilateral trading system under the aegis of the WTO. If the trade provisions of these agreements have not come in open conflict with the multilateral trade regime it is not because there are no inconsistencies between the two in law, but because of restraint exercised at the political level. Thus, Hutton and Chitsike (1998) show how the provision of
‘Stricter Domestic Measures’ under CITES can be an ideal candidate for a future flashpoint between the CITES and the WTO and how, in the past, Zimbabwe and the US were on the brink of a WTO dispute on the issue of crocodile leather exports:
The Nile crocodile population of Zimbabwe was transferred to CITES Appendix II in 1983 in recognition of a conservation programme of sustainable use that was leading to real conservation gains for the species [which should have enabled restricted exports of crocodile leather products], but despite the best efforts of the Zimbabwe Government,