Aug 7, 1998

DEVELOPING COUNTRIES AND NEGOTIATIONS IN THE WTO

BY VINOD REGE*

Geneva, 4 August (TWN) -- Trade negotiations in an organisation like the WTO are mainly motivated by two broad objectives:
improvements in access to markets, through removal of tariffs and other barriers to trade; and, wherever possible, harmonising rules and regulations which countries apply to goods and services exported and imported.

Developing countries generally are at a disadvantage in participating in international trade negotiations for varied reasons -- their weaker bargaining position... and their inability to carry out technical preparations for participation in such negotiations. These difficulties are more pronounced in the negotiations on rule making because of the more technical and complex nature of the issues discussed.  

Two case studies done under the Commonwealth Secretariat's technical assistance programme, applying a public policy approach to the negotiations (on the Customs Valuation and Pre-Shipment Inspection agreements) give some insight into the problems and difficulties which developing countries encounter in participating in international trade negotiations on rule making......

The public choice approach seeks to analyze the political process, and the inter-action between the economy and the political life within the country and relations with other countries, by using tools of neo-classical economic analysis.

The public choice approach ... proceeds on the basis that there is not one but many actors who influence the negotiating approach that is ultimately adopted by the country in international economic trade and other negotiations. These include the various sectoral interest groups which lobby for the protection of their sectoral interests, the political leaders who may wish to use the negotiations to fulfil their election promises or to build up their own political future, the bureaucrats who may have an interest in promoting the importance of their ministries or in same cases their own and lastly the negotiators themselves, who may have their personal axe to grind. This could result in the negotiating approach that is ultimately adopted, being not necessarily always in the interest of the general public or the consumers who are ultimately expected to benefit from trade negotiations.  

Secondly, the public choice approach assumes that these various actors may have differing self-interests, but pursue them rationally and in a systemic way to maximise their economic benefits taking into account political, institutional, and other constraints under which they operate.  

Thirdly, it assumes that the various actors who influence the decision-making process are not always fully informed on all aspects which the issue under consideration raises and are thus often 'rationally ignorant'. Thus, various actors who influence the decisions, even though they may act rationally, are not always fully informed on all aspects of the issues under discussion.  

In the multilateral trade negotiations on rule making, such 'rational ignorance' on the part of the negotiators may relate to the economic and non-economic factors that make it necessary for the other countries to adopt administrative rules, procedures and practices that are different from their own or to the reasons that make it difficult for them to accept the rules which are proposed as a basis for negotiations.  

It is however always possible for negotiators to get over such rational ignorance by seeking information, holding consultations on a bilateral basis and if necessary visits to the countries concerned.

The resources and time spent for this purpose is however the result of cost benefit calculations. Negotiators would be more willing to seek such information, if necessary through consultations and visits, to countries which are in strong bargaining positions and without whose full support it would be difficult to reach compromise solutions. They may not make such effort if the countries which are expressing concerns about the proposed rules are those which, because of the lack of political and economic clout, have weaker bargaining position and are on the periphery in the negotiating process.  

In the Tokyo Round for instance, the EU negotiators were honest enough to recognize that one of the reasons why no progress was being made in the negotiations was their insufficient understanding of the US and the Canadian valuation systems. They, therefore, went at the invitation of the American and Canadian authorities on a four week study tour to Washington and Ottawa to get first-hand information on how the valuation systems of these two countries worked, helped them in drafting a compromise proposal, that was to provide a basis for the Agreement that was ultimately negotiated.  

The opposite situation however was noticeable, in the attitude of developed countries towards the concerns and problems expressed by developing countries in relation to the Agreement's basic provisions. Developing countries came out of the Tokyo Round negotiations on customs valuation with a great degree of dissatisfaction. In particular, they felt that the accession to the Agreement would limit the ability of their customs officials to deal with the cases where goods were deliberately under or over-valued by the importers.

The inability of developed country negotiators to understand and appreciate the reasons advanced by the developing country negotiators for the wide prevalence of valuation malpractices in their countries could in part be attributed to the existence of 'rational ignorance' on the part of the developed country negotiations of the economic conditions and the trading environment prevailing in the developing countries, which provided traders incentive to indulge in such practices. On hindsight, it would appear that if the EU officials had also visited the customs services in a few developing countries, there would have been better appreciation of the concerns that were being expressed by the negotiators from developing countries.  

In the event, it took nearly twelve years of discussions at international level to satisfy the developed country negotiators of the legitimacy of developing country concerns and to secure in the Uruguay Round of negotiations the acceptance of the solution, that would considerably improve the ability of the customs to deal with valuation malpractices under the provisions of the Agreement.  

In the case of negotiators from developing countries, further additional handicap arises because of their lack of knowledge of the precise implications for their economies and their trade of the proposals that are under discussion.

he case studies suggest that participants from developing countries may even during the most crucial stage of the negotiations, remain uncertain of the probable effects on the economy and trade of their countries of the proposed rules.... the majority of them participate in the multilateral trade negotiations under the 'veil of uncertainty' and not on the basis of 'prism of interest' which assumes that the negotiators are fully aware of the consequences to their economies of the new rules. Such uncertainty often makes them adopt negotiating strategies 'to contain the damage' that they perceive could result from the acceptance of the rules rather than negotiate for the maximization of the benefits of their trade. 

Thus (in the customs valuation area) during the Tokyo Round, they tried to contain the damage by negotiating a Protocol, that would provide them a grace period of five years to implement after accession, the discipline of the Agreement. 

Again in the area of preshipment inspections (in the Uruguay Round)... their strategy in the negotiations in the final phase was to contain the damage by agreeing to a compromise formulation, which they hoped would not require the PSI companies to change significantly their existing practices.  

The analysis in the case studies brings out three main features of international trade negotiations that were held in the past in GATT. Firstly, because of the hegemony exercised by the two major players, namely, the USA and the European Union, the agenda for the negotiations as well as the principles on which the new rules should be based and their content is largely determined by them.  

Secondly, as the subjects for negotiations are brought to organisations like WTO by these two major players generally after the preparatory work at inter-ministerial level has been completed and after consultations with concerned national interest groups and discussions with other developed countries have been held in such fora as OECD, they are far more prepared for discussions and negotiations than the developing countries in participating in multilateral negotiations. The latter suffer from further handicaps in participating in such negotiations, as the bureaucrats in these countries often lack technical expertise; financial and human resources that could be applied for the examination and study of subjects that are discussed at international level are limited; the mechanism required for inter-departmental cooperation and consultation to identify negotiating interests and to decide on the negotiating approaches is not as yet well developed; and the various interest groups which through lobbying assist and influence the governments in determining the policy approaches either do not exist or where they exist are not effective.  

The influence of these factors, on the effectiveness with which different delegations are able to follow their perceived national interests, may vary from country to country. As a general proposition, however, it may be possible to say as a result of these handicaps most of the developing country negotiators remain 'uncertain' even during the crucial and even concluding phase of the negotiations about the benefits that would accrue to their trade and of the economic costs they would have to bear, when the proposals that are under negotiations are accepted and implemented.

This uncertainty makes them during the negotiations only to react to the proposals, with a view to avoiding the negative effects and to contain the damage rather than negotiate for the maximisation of their economic benefits.

Thirdly, the existence on the part of the negotiators of the 'rational ignorance' particularly of non-economic conditions, like trading practices and environment and the attitude of the people towards abiding by law in countries with whom they are negotiating may pose problems of communications and even vitiate the process of negotiations. Such lack of detailed knowledge may be found on the part of negotiators irrespective of the countries which they represent. In multilateral trade negotiations however, the existence of such rational ignorance on the part of negotiators from developed countries, may affect solutions being adopted that meet fully the concerns that are expressed by some of the developing countries....

The case studies further bring out that negotiations are often carried out in small groups and as such are not always transparent to those who are not invited to participate.  

In the Tokyo Round for instance, the draft text of the Agreement on Customs Valuation was brought to the GATT for discussions and negotiations only after tentative agreements were reached on the main provisions among developed countries. To ensure that such experience was not repeated in the Uruguay Round, developing countries had pressed and secured, immediately after the launching of the negotiations, acceptance of time framework and programme for work, in each of the areas that were selected for the negotiations.

The elaboration of such negotiating programmes and other steps taken by the Secretariat went a long way in creating conditions for improved participation of all countries, particularly of developing countries in the negotiations.

However, during the last crucial and bargaining phase of the negotiations in a number of areas, the negotiations were carried out on an informal basis in small groups. Participation in these meetings was restricted to a limited number of delegations. The other delegations were informed of the progress made in the meetings of such small groups by holding at periodic intervals, the formal meetings of the main negotiating groups.

In adopting such procedures, the leading delegations and the Secretariat were influenced by the consideration that the detailed negotiations in most of the areas like anti-dumping, subsidies and countervailing measures or in new areas (like trade-related aspects of intellectual property rights and trade and services) were becoming highly technical in nature. It was felt that because of the highly technical nature and the lack of technical expertise not all delegations would be able to make useful contribution, if they were to participate in the negotiations on all subjects. The delegations were therefore encouraged to participate in the negotiations on the subjects in which they had vital negotiating interests and had also members who had the necessary expertise.  

The motivation for the adoption of these procedures was thus to ensure that purposeful negotiations take place among members who are knowledgeable and had the necessary expertise.

In one crucial area however, the motivation of both the leading delegations and the Secretariat in arranging meetings in a small group was different. This was the area of the negotiations on institutional framework. The initial negotiations which ultimately resulted in agreement on the establishment of the World Trade Organisation, were started early in 1990 and were carried out in the first half of the year in absolute secrecy, in meetings arranged over lunches and dinners among a limited group of fourteen or so Ambassadors to which two or three representatives of the Secretariat were invited to attend.  

The main reason on the part of delegations who had taken the initiative for starting the discussions on the subject to keep them secret and confined to a limited number of delegations, representing countries belonging to different regions, was the extreme politically sensitive nature of the proposal. The proposal for the establishment of an international organisation in the trade field, similar to the organisations like IMF and the World Bank in the financial fields had been under discussion at international level for over four decades with countries holding widely different views. The pubic opinion at least in some of the countries was far from favourable to the establishment of such an organisation.

Because of this, those who were initiating the discussions did not desire that the proposals should be known to all participants and to the general public unless agreements were reached among key delegations representing countries at different stages of development. It was their expectation that once such agreement was reached in such a small group of key delegations on the broad elements of the proposal, it would not be difficult to reach at a later stage consensus in the negotiations on a multilateral basis among all countries. In this, later developments proved them right.

The Secretariat, with its understandable self-interest in enhancing its role and improving its image, through transformation of GATT into WTO, was only too willing to act as a midwife for the birth of the new organisation.

Apart from the establishment of the WTO, the main thrust of the proposal was to ensure that all member countries accept all of the associated agreements that were negotiated in the Tokyo Round as well as those that would result from the negotiations in the Uruguay Round. Many of the developing countries, which had not acceded to the Tokyo Round agreements, were however not fully aware of these proposals that were being considered secretly in the small group. 

Throughout the first nine months or so of 1990, they seemed to have proceeded on the assumption that they would have an option not to join the Agreement, if they considered that the changes and improvements being negotiated, did not meet their expectations and requirements.

It is evident from the case study on Customs Valuation that these negotiations in the small group were kept secret and most of the developing country participants did not know that the acceptance of the agreement would be mandatory on all countries.... Likewise, in the negotiations in the area of preshipment inspection, the lack of transparency resulted in the delegations from developing countries that were actively participating in the negotiations, being not aware that they would have to accept the Agreement on Customs Valuation till only a few months before agreement was reached at technical level on the outstanding issues.... 

The public choice approach is critical of the assumption that the nations, while they may consult the various interest groups, base their negotiating policies and approaches on identified national interests and negotiate in international economic and trade conferences with a view to maximising their social welfare. It holds on the other hand that because of the personal perceptions and preferences of bureaucrats, the interests of their political masters and the pressures exerted on them by the interest groups, they may adopt negotiating approaches that may serve narrow sectoral or other interests rather than the larger economic and trade interest of the country....

It is also not uncommon for the ultimate policy approach adopted by a country to be influenced by the perceptions, ideological beliefs, interests and behaviour of the bureaucrats responsible for the policy formulations and of the political masters to whom they report.

Most of the issues discussed in the international organisations require inter-departmental cooperation. It is however well known that bureaucrats do not always like to cooperate and share work with other departments; they therefore tend to choose an option that would enable them to advance their individual perceptions and interests of the department where they work in order to control the policy rather than choose the one that would bring the highest benefit to the nation as a whole. And even within the framework of the policy approach decided at the national level after consultations with the various departments and interest groups, the actual positions taken by the negotiators may be influenced by such factors as their desire to project themselves, to secure recognition and acceptance from fellow delegations or to gain prestige by getting elected as chairmen of the committees.

 It has not been possible to analyze the extent to which the interest groups were active at the national levels in the examination of the issues that were discussed in the area of customs valuation and preshipment inspections. They show, however, that at the international level, the views taken by the International Chamber of Commerce at the various stages of negotiations, were to have significant impact on the attitude taken of the two major players, the United States and the EU, in the negotiations on both these areas.

They also bring out how the policy approach adopted at national level could be influenced by the desire on the part of the negotiators, to build up the importance of their department or organisation. For instance, during the Tokyo Round, the decision on the part of the EU negotiators to change their negotiating approach from developing valuation rules based on BDV in favour of the system that was to be ultimately embodied in the Agreement on Customs Valuation, was influenced both by their view that the new system would not only mark an improvement over the BDV system but would also enable the Commission bureaucrats to gain and enhance control over the customs administrations of member states.

The flexibility which the national bureaucrats and the actual negotiators have in adopting negotiating approaches on the basis of their personal perceptions and views is more where the subjects discussed are of technical nature or relate mainly to administrative rules and procedures that do not raise significant conceptual issues of the policy ... (as) the subjects are far removed from the attention of the interest groups and of the press, which could mould the opinion of the general public.  

In general, it would further appear that the possibility of the negotiating approaches being determined on the basis of such personal views and perceptions are far more in the case of negotiators from developing countries than in the case of their counterparts from developed countries.... In a large number of the developing countries, the mechanism for arranging inter-departmental consultations in order to determine policy approach the country should adopt on the subjects under discussion in international fora has not been well established in all countries. And where such mechanism exists, it is not always used, because of the inter-departmental rivalries.... in most cases the policy is determined by a few bureaucrats from the ministry responsible for representing the country in the concerned international organization, on the basis of their own assessment of the perceived state interest taking into account, where possible, the views of the foreign ministry and negotiators on the scene.

They are able to do this, as in most cases, the industrial and other interest groups, whose interests may be affected by the new rules and disciplines that may be developed at international level, are not vocal and active in expressing their concerns. Given the magnitude of the economic and social problems which most of these countries face at domestic level, the political parties and general public have also so far shown little interest in the issues discussed at the international level, particularly in the rule-making area....

It is not therefore, unusual for the negotiators, at least from some of the developing countries, to declare proudly that the

policy of their governments on many of the subjects discussed in the international organizations in which they represent, is largely made by them. The freedom and autonomy which they enjoy, also makes them more vulnerable to persuasion by the delegations with whom they are negotiating to their point of view. In reaching compromises on the basis of such persuasion, the possibility of the negotiators' decision being influenced by the interest he would have in securing acceptance and recognition and in building up his reputation as an effective diplomat who avoids confrontation and knows when and how to compromise, cannot be entirely ruled out. 

But the extent to which negotiating approaches may be influenced by such personal considerations should not however, be exaggerated. Most of the negotiators are men of honour, great integrity and intellectual honesty, who abide by basic values and attach highest importance to their countries' national interests....It would be therefore, both unrealistic and wrong to hold, as is sometimes done that whenever compromises are reached that are not looked with favour by the critics that the negotiators must have 'given in' for personal recognition or other advantages... negotiators from developing countries participate in multilateral negotiations on the basis of inadequate knowledge of the economic consequences that the adoption of new rules or the modifications of the old ones, may have on their trade or economies....

The autonomy and the freedom, which the bureaucrats may have at present, are also partly due to the lack of interest on the part of the general public in the economic and trade issues that are discussed at international level. However, recent years particularly have witnessed in a number of developing countries, trend towards greater interest bot on the part of the industry and other interest groups as well as the general public, in the issues that are discussed in organisations like WTO.... (Under the WTO) all developing countries would be further required to accept and abide by the obligations which the various WTO legal instruments impose. The flexibility that is available to developing countries in the implementation of some of the obligations under the provisions for special and differential treatment to these countries would gradually disappear... by the year 2005... the WTO legal system would have to be applied by all countries on a uniform basis.

These developments, would inevitably lead to the industry, trade and the general public taking active interest in the activities of WTO. This would gradually make negotiators from those developing countries which at present enjoy a considerable degree of autonomy, reluctant to go by their personal perceptions, views and assessments and look for instructions from home, before taking any initiatives...

Apart from national delegations, the other actors which could influence both the process of negotiations and its outcome are the international organizations and the bureaucrats working in these organizations.

The international organizations help the negotiating process by preparing background documents analysing the various issues under discussion... and provide technical assistance to developing countries and increasingly to the economies in transition for their improved participation in the negotiations.

But each international organization has however its own 'ideal' which is determined both by the reasons which lead to its establishment, its stated objectives and its mandate. Like public interest groups, they also in pursuance of their specific mandate and ideal pursue policies which, while securing fulfilment of their objectives, increase their importance and build up their image. In expressing their views in background documents or in providing technical assistance, the organizations are however often constrained by the functional role which the secretariats are expected to perform as well as the political realities under which they operate....

The views taken by the international organisations on the subjects under negotiations could thus vary.... because of the different perspectives from which the organisations study and examine the issues.

International organisations by their very nature, cannot however act on their own. Their policies are evolved by interaction among three sets of actors -- delegates representing the member states who give broad directions and determine the work programme through meetings of the general assemblies, councils, executive boards and budget committees; the elected head of the organisation and his deputies who provide leadership to the organisation and are responsible for execution of the work programme; and the professional staff which work in these organisations.

This professional staff is drawn from different countries and have different cultural backgrounds. But for this difference... their behaviour pattern is similar to that of the national bureaucrats. In fact, the public choice approach would suggest that the economic incentives which apply to the behaviour of the national bureaucrats also apply to the international bureaucrats. Thus, they may show the same reluctance to cooperate with other organisations or even with their colleagues from the same organisation as the national delegations may show in cooperating with other ministries. Where they have a choice between alternative courses of action they will ordinarily choose one that gives the organisation or the department in which they work more power and prestige. Like bureaucrats at the national level, they may be also 'rationally ignorant'. Such rational ignorance may relate to the work which other organisations are doing or even of the work which the other divisions in the same organisations are doing.

Some public choice analysts however consider that these characteristics, which depict the behaviour of the bureaucrats at national level 'are more pronounced in the international than in the national setting'. (at international level) member states are not in a position to exercise direct control on international bureaucrats because the objectives of different member stats in relation to the work done by bureaucrats may not be the same and may even conflict.

(While in theory), the international bureaucrats, even at the middle level (Directors or Chiefs of Division) are considered to have... far more discretionary authority and freedom to act on the basis of the objective analysis and assessment of the situation and according to their intellectual persuasion, leanings, beliefs and convictions than their counterparts in national governments. In practice, however, such freedom of action may be constrained by the political realities surrounding the organisation in which the officials are working. In most of the organisations, the countries which have economic strength and politically important exercise disproportionate power and authority. This is so whether the formal decisions are taken by a system of weighted voting, as is the case in the case of organisations like the World Bank and the IMF or by consensus where decisions are taken on the basis of one country one vote, as in the case of WTO..... (in actual practice) the United States and the EU exercise at present overall hegemony over the activities in all these three organisations.  

These realities could influence the way the discretion and freedom of action that is available to the international officials is used by them. They may be more forthcoming when the initiatives taken or actions contemplated are consistent with the policy approaches of the dominant players or conform to the dominant ideology or views prevailing at the time. They would be only willing to take initiatives that may not be liked by these players.... only if in their judgement the initiatives taken may be tolerated and not objected to by the major players.

Moreover, member states with economic and political strength often use formal and informal means to ensure that international civil servants exercise discretion in ways that in their view are neutral, impartial and responsible. The formal means used, include curtailment of the financial resources for activities that are considered to be superfluous or not in the national interest. In extreme situations, in order to chastise an organisation, they may threaten or even withdraw from the organisation for a temporary period. In the alternative they may protest to the management against officials who have taken initiatives that they do not approve of and press for their being shifted from the positions they hold or their contracts not being renewed.....

Most of the studies that have been so far undertaken on the application of public choice approach to international organisations primarily deal with the behaviour of delegations and its impact on the process and outcome of the negotiations or on the functioning of the international organisation. The few studies that also cover the behaviour of the international bureaucrats relate to the functioning of the staff of the IMF and the World Bank. ... in a recent public choice analysis of the political economy of the IMF, Rolad Vaubel observes that the unwillingness of the staff to adopt some of the policy measures that could reduce the rigour of conditions imposed by it in making loans to countries was mainly due to their apprehensions that their acceptance would reduce their 'power' over recipient countries and thus their prestige. The fact that in most cases the loan policies and the attached conditions would be supported by the Executive Board in which developed countries because of the weighted system of voting have a dominant voice further encourages such behaviour on the part of the staff.  

These views differ significantly from the 'dirty work hypothesis' developed in the past by some political analysts.. (who viewed) bureaucrats working in organisations like World Bank and IMF, as 'selfless' individuals and dedicated internationalists, who had nothing but the recipient country's interests in mind...  

WTO officials take pride in saying that they are the only international bureaucrats who remain true to the oath to remain neutral which all persons joining international civil service have to take. They express no views and take no sides. They only prepare factual papers that provided basis for discussions and prepare reports reflecting the main points made in the discussions. The responsibility for taking views is entirely with the member states acting jointly either in the meetings of the Council or of the Committees.

This of course is a fiction; it is promoted because it suits the interests of both the secretariat and the member states. In practice, as the two case studies show because of it being a secretariat of a negotiating body as well as a body responsible for the settlement of disputes, the officials tend to be more cautious and circumspect in expressing opinions and weigh carefully, the possible reactions of member states in expressing opinions on subjects on which differences of views exist among member states.  

The role which the officials from the secretariats of international organisations should play and the mechanism that should be adopted for the supervision and control of the discretionary authority available to them, is indeed too wide a subject to be addressed on the basis of the case studies of negotiations in two areas.  

It also raises important related questions of personnel policy, particularly in relation to the background and experience of the officer responsible for work, the steps that may have to be taken, through training, field visits and study tours, to reduce their 'rational ignorance' and to increase their awareness of the political and economic realities in which people in different countries live. These questions would merit separate study and further research.

(Vinod Rege is a retired senior official of the GATT secretariat, and is currently a consultant in the Commonwealth Secretariat. The above general views of relevance to the negotiations at the WTO has been extracted from a paper presented by him at a recent seminar on the WTO Preshipment Inspection Agreement)