Should the Singapore Issues, Initially in the Doha Round, Be Revived? If So, When? / Does Japan Need A Trade Barriers Regulation?

Date March 25, 2005
Speaker Jacques BOURGEOIS(Partner, Akin Gump Strauss Hauer & Feld LLP)
Speaker Marco C.E.J. BRONCKERS(Marco C.E.J. BRONCKERS)
Moderator YAMASHITA Kazuhito(Senior Fellow, RIETI)


Should the Singapore Issues, initially on the Doha Round, be revived? If so, when?

After the Tokyo Round of Multilateral Trade Negotiations, the European Commission (EC) created an interdepartmental group to work on the topics that should be on the next round of multilateral trade negotiations. At that time, it was suggested that international competition rules should be on the agenda. However, the then-chairman of that group did not think it likely to be accepted as part of the work program and the EC did not propose that it be included in the work program of the Uruguay Round. Few at the European Commission seriously defended the idea of having international competition rules in the work program, mainly because at that time it was felt that such proposal would not be accepted. However, after the Uruguay Round, the idea came up again that there should be negotiations about the relationship between trade and competition.

Quite a few years ago, I presented a report to the International Law Association, together with Professor Matsushita about the need for international competition rules.

When I recently reflected on the subject of international competition rules in connection with the World Trade Organization (WTO), I thought that a good title for a paper would be: "International Competition Rules: Cancún or the Legacy of a Misconception."

The first question that arises in this context is what is the rationale for having negotiations in the WTO about competition? There may be very different views about that, but it is generally agreed that international competition rules are needed. However, some have argued that there should not be an overarching international agreement in the WTO, while others have argued that there should be international competition rules negotiated at the WTO level.

The pressure for having negotiations on international competition in the WTO was coming from the European Union (EU), because within the EU itself, there was at the inception a link established between liberalizing trade within the EU and competition rules. The underlying idea was that in the absence of competition rules, the efforts undertaken to remove the barriers that are maintained by governments to intra-EC trade would be circumvented by private agreements between companies. It is thus not surprising that the EU would, on the basis of its own experience, propose to have negotiations on competition rules at the WTO level. This is also borne out by the existence of a number of cartel-like agreements that are jeopardizing the efforts made by governments in the WTO to eliminate obstacles to international trade. That was one rationale, and it was generally accepted in the group that was established within the WTO on trade and competition.

Then something strange happened during the course of the discussions. Some delegates in that group were arguing that from a competition theory point of view, international competition rules whose sole purpose would be to ensure market access would not be enough: competition rules at the WTO level should go further than simply ensuring market access. Ultimately, at the Doha Ministerial Conference launching the Doha Round, competition rules and the other Singapore Issues were put on the work program conditionally. So they had a lower degree of priority than the other items of the program, such as agriculture. At the subsequent Cancún Ministerial Meeting, however, it was decided that the Singapore Issues, except for the issue of trade facilitation, would no longer be on the work program.

Why this should have turned out to be the case? What was then on the table was certainly not the type of international agreement that had been worked out and that carried the name of the Munich Code, which is an international code of antitrust rules that a certain number of academics had drafted. What was then on the table was firstly, a commitment to a set of core principles, which were transparency, non-discrimination, and procedural fairness; secondly, a commitment to act against hardcore cartels; third, the development of modalities for cooperation; fourth, technical assistance and capacity-building; and finally, that there should be a standing WTO committee on competition. These limited issues were on the table prior to Cancún.

There are a number of reasons why agreeing that such issues should be on the Doha work program encountered difficulties at Cancún. One of them is that many delegations considered that these were new issues; a number of WTO members were not yet satisfied that the older issues had been satisfactorily resolved; they were unhappy about the way earlier commitments about these issues had been implemented; as a result, they were opposed to the introduction of new issues. A certain number of developing countries came out of the meeting at Cancún and said, "We have won," because they had avoided having international competition rules on the agenda. I was surprised that they considered that as winning, bearing in mind that a study by the World Bank showed that in 1997 U.S. $81 billion of developing countries' imports were affected by international cartels.

Apart from improving market access, there is another rationale for international competition rules. If there is not a rapprochement between the competition rules of countries, there should be at least a system of cooperation between cartel authorities. To that effect, the International Competition Network (ICN), among competition authorities, was set up. I attended the first meeting of the ICN in Naples with representatives of many of the 90 countries that had competition laws in place. Cooperation is needed to avoid not only jurisdictional conflicts about extraterritoriality, but also conflicts of substance. Such conflicts have, for example, arisen between the United States and the EU regarding clearance of the same merger. There are other examples of this where one authority is taking a decision in its own market, but that decision is going against the decision of another authority: the result is that an international transaction cleared by one country and prohibited by another has to be abandoned. Therefore, as a first step at least, there is a need to have cooperation amongst authorities in antitrust matters.

My reply to the question of whether the Singapore Issues should be brought to life again, is that they certainly should. There is still opposition from WTO Members, but some of this opposition may be due to the fact that some WTO Members are badly informed or perhaps it is done in bad faith. E.g., in American literature, the view has been defended that WTO rules on competition would result in the WTO becoming a super antitrust agency. That has never been the case. Another reason for international competition rules not being wanted is because they will take away one of the main arguments for maintaining anti-dumping rules: one of the main policy arguments for having anti-dumping rules is the absence of international competition rules. That is my first point.

My second point is trade and investment, which is another of the Singapore Issues that was dropped after Cancún. This is not a new subject for the WTO, because there are provisions on investment in the General Agreement on Trade and Tariffs (GATT) itself and in other instruments that show that the WTO system is already dealing with investment, albeit in a haphazard, mosaic-like way.

The subject is a fascinating one from an international law perspective. There are no international multilateral rules on investment. There is customary international law. There is, however, not much agreement on what customary international law on investment really says. For example, there is the Hull Doctrine and the Calvo Doctrine that are difficult to reconcile.

The 1974 Charter of Economic Rights and Duties of States proclaims that each State has the right to regulate and exercise authority over foreign investment within its national jurisdiction. The Charter also states that each State has the right to regulate and supervise the activities of transnational corporations within its national jurisdiction, and that no State can be forced to grant preferential treatment to transnational corporations. This sounds nice on paper, but a country that needs foreign investment may not be in a position to insist on the Charter.

So again, at Cancún, developing countries considered it as a victory that there would not be rules on investment within the WTO. In theory, they won but in practice, I think they lost. My view is that it would have been much better for developing countries to negotiate an agreement on a certain number of rules of investment within the WTO framework where they represent the majority, rather than negotiating individually on a case-by-case basis bilateral investment treaties where they are in a weak position. It would therefore be worth having a revival of that Singapore Issue as well in the WTO.

The interesting question is why the EU insisted on having that item on the agenda in Doha. One possible explanation is the so-called bicycle theory. Like a bicycle an international organization needs to be on the move, otherwise it falls down. Members may be proposing to put new items on the WTO agenda, not so much because they have a clear trade interest, but to keep the 'bicycle' running.

Does Japan Need A Trade Barriers Regulation?

It is not my intention to clearly tell Japan whether or not it needs a trade barriers regulation (TBR). However, I was a bit puzzled and intrigued when I realized that of the four major trading powers in the world-the United States, the EU, China and Japan-it is only Japan that does not have such procedures, and I wondered why that should be the case.

A TBR is a procedure that allows private companies and industries to go to their government or to a specific agency within their government to report a market access barrier abroad and ask the government to deal with it, subject to due process standards that the company is entitled to. This is the type of complaint procedure that has existed in the United States since 1974. In the EU, there has been something similar since 1984, and since 1994 it has been known as the Trade Barriers Regulation. Most recently, China has adopted similar procedures, which were revised as of March 1.

Some of the considerations from a government perspective in establishing a certain procedure include a number of operational concerns and one major policy concern. In terms of operational concerns, the first is that private interests in the international trading system should be accommodated and to make sure that the private sector feels encouraged in their commitment to further trade liberalization in their home market. So it could be said to be a gesture of goodwill on the part of the government to the private sector. It is also a way to channel the disposition of such a complaint more efficiently from a governmental management perspective. It could also be a way in which just one agency coordinates internally the process of investigating these complaints and one agency that communicates with trading partners about resolving the complaint. However, there is also a cost from the government perspective. If such a procedure is in place, there will also be less discretion on the part of government to deal with such private complaints.

The Japanese government has been reluctant about implementing such a procedure, although the private sector has become increasingly vocal in its requests to the government to establish one. The Nippon Keidanren paper published last year formalized the idea.

So is there another consideration that Japan, from a governmental perspective, could take on board? When the United States put its policy in place in 1974 and when the EU put their procedure in place in 1994, in both instances it meant that the United States and EU were signaling to their trading partners that they were going to be more offensive in their pursuit of trading rights. This stance was quite characteristic of the U.S. in trade negotiations. However, it was significant for the EU, when it established the Trade Barriers Regulation, to say that they were also going to be on the offensive, as it was quite a change in the EU position. So that raises an interesting question as far as Japan is concerned.

My impression is that for a long time, even after the establishment of the WTO, Japan was not necessarily the most assertive or aggressive member of the WTO community. It did not allow other countries to play with its interests, but it was not always in the front line in asserting its interests and rights. There may have been some remnants of the 1960s, '70s, and '80s, in the early days of GATT, when the general impression was that Japan was never going to be very aggressive in enforcing rights, because Japan was benefiting from the system. However, that has changed. It is no longer true that Japan is seen to be the beneficiary par excellence of the world trading system. So that could no longer be a reason for Japan to be more modest in its claims than it used to be.

The recent announcement of the Japanese government last February to the EU would seem to indicate that Japan is going on the offensive. Japan has gone on record saying that if the EU adopts the legislative project on the treatment of chemicals in the way it has been drafted, it will challenge the EU in the WTO. This may be one case, but if one adds up Japan's role in the trading system, it is possible to say that Japan is close to signaling that it also will assert its rights when it feels that they are being infringed. The question arises of whether there any better way to signal this assertiveness to domestic industries than adopting a Japanese trade barriers regulation? That is really the question at hand.

Questions and Answers

Q: It is difficult to have a lot of bilateral agreements. So we need to revive investment negotiations or discussions in international fora on competition and investment in the WTO, but how can it be realized? Secondly, what are the technical limitations in the context of WTO negotiations?

Mr. Bourgeois: I agree that the big question is how agreement on competition and investment can be realized multilaterally. In this round, I think it is no longer a possibility. The train has already left the station. So the question is, in what other forum could such a multilateral agreement be reached?

First, as far as a multilateral agreement on competition rules is concerned. In the Organisation for Economic Co-operation and Development (OECD) there is work ongoing on the issue of competition, but it is not really meant to come up with binding commitments. While the ground work could be done in the OECD, I do not think it would be the right forum where a genuine international agreement would be negotiated and concluded.

At the first meeting of the International Competition Network, I raised a question about the status of ICN codes of good practice. The reply was that competition authorities may agree on such codes, but they are not binding rules, as only the respective ministries of foreign affairs can negotiate international agreements, not competition authorities.

So these are the difficulties in reaching an agreement in competition, and that is why the WTO offered that opportunity. In my view, one has to continue to insist and to work on it, and to keep on demonstrating that the lack of an international agreement has certain disadvantages for countries and for industries.

Second, as far as investment is concerned, I think that we are in a similar situation. I do not think that the OECD would be the proper forum for a new exercise on that point. It will have to be taken up as part of multilateral trade negotiations. In the meantime, I can see why Japan would have difficulties with its current number of 12 bilateral investment treaties (BITs). Frankly, however, I do not have much hope for a genuine multilateral agreement in the very short term.

In theory it is possible to have individual bindings in GATS schedules on investment protection. My question is how to generate a consensus to do it? I cannot very well see a WTO Member making a purely unilateral commitment without obtaining something in return from other WTO Members. There has to be a certain number of WTO Members who agree to proceed in that manner.

Mr. Bronckers: I must say that there must be a way to do that. For instance, the GATT schedules may indeed be a good vehicle to do so. But the real question is how we will be able to garner sufficient momentum and support for countries to engage in that effort. One of the challenges for the WTO after the Doha round is that, for better or worse, we are now engaged in a very modest exercise. Compared to the ambitions of the original agenda, what we are doing now is much more modest in scope.

So what does that mean for the WTO? Are we going to wait for 10-15 years before we do something else? Or is there more optimism that it is possible to move forward with individual agreements, such that if there is an issue about which all the countries feel that they should move ahead with, it is possible? For me, investment may well be the area in which we want to move ahead quicker and where it might be able to persuade countries which have so far been reluctant for the wrong reasons. This may be an area that stands on its own and has merits for them as well.

Some countries want to get rid of the Singapore Issues because they are dilutive of what are considered to be other more important negotiations, notably agriculture. So the Singapore Issues were viewed, perhaps wrongly, as a ploy of the EU to keep agriculture on the back burner. So now that agriculture is on the front burner, and being optimistic, if we assume that we get some settlements, it is then possible for countries and industries to say that the WTO is not such a bad organization. Therefore, it makes sense to move ahead as this could be a win-win situation for many people, and move ahead on that particular issue before the next round.

Frankly, I do not see another alternative. The World Bank is not the right forum, because there is no conception of enforcement. I think the WTO holds more potential, and maybe in one or two years people will be able to recognize that.

Q: You briefly touched on the question of whether or not the Singapore Issues were raised by the Europeans and maybe the Japanese in order to obfuscate and keep agriculture from going anywhere. Could you comment on that?

Mr. Bourgeois: I am a practicing lawyer and part-time academic, and not an official of the EU, but I do think that this characterization is wrong. This argument has also voiced time and again about the trade-related aspects of intellectual property rights (TRIPS). Some in the U.S. claimed that the EU was pushing for an early solution of the issue of compulsory licensing of pharmaceutical patents for export (Art. 31f TRIPS) in order to gain favors, and so as not to make too big concessions on agriculture. The EU was not the only one that was pushing for an amendment to the TRIPS agreement. By the way, generics are also produced in the EU. For the EU, the issue "trade and competition" goes back to just after the Tokyo Round. So that certainly has nothing to do with agriculture. Trade and investment may have been raised also for a purely internal reason. It is no accident that in the draft constitution of the EU, protection of investment is included in the trade policy powers. If investment protection becomes a WTO matter, this eases the path for including investment protection in the trade policy powers of the EU even if the draft constitution were not to enter into effect. Then there was an element of the bicycle theory.

Q: You raised the question of what would be the best way for Japan to manage without making its own trade barriers? Could you provide an answer?

Mr. Bronckers: It was a rhetorical question on my part, but perhaps someone from the floor could answer.

Comment from floor: First, with the TBR, of course it has been an issue, but we should see it in the light of how Japan would cope with the WTO system as a whole. In that regard, the Ministry of Economy, Trade and Industry (METI) has been issuing reports that address unfair trade policies in light of the WTO rules. So METI is continuously discussing with industries what problems they face and how to assess those in terms of WTO rules.

The reason Japan has not been so active in using this regulation is not because there has been a lack of pipelines between industry and ministry, et cetera, but it is probably because of the basic attitudes of Japanese companies. For example, when they face certain trade obstacles, their instinct is to overcome them rather than to challenge them. Now, there have been some changes and since 1995 METI has been bringing cases - about one a year - on trade. Japan has also introduced a limited version of this system of TBR or U.S. Section 301 in the field of counterfeit products and intellectual property. So it is not something unknown in the Japanese system.

In that vein, what do you think is the real interest of business toward the WTO rules in general, particularly given the stalemate of the Doha round?

Mr. Bronckers: I am still struck by one or two things. Although key, the TBR or the Section 301 have not proven to be panacea. Less than half the cases that the EC brings to the WTO are the result of a formal TBR complaint. This suggests that the old informal route is still alive in Europe, the United States, and certainly in Japan too. Still, I can only note that industry, represented here in the Nippon Keidanren is increasingly arguing for the adoption of such procedures, not because the existing process is always wrong, but because there are a number of difficult cases. These are not cases that are necessarily bad or wrong, but more technical cases, for which an unstructured government process proves to be very difficult. For those more difficult cases - TRIPS cases, intellectual property cases, telecom cases - there is a need to be organized both from the government and from the industry side. A procedure like the TBR allows the organization of the process from both sides. In those cases, it is industry that will feel the benefit of a TBR. That is sort of an untapped need that is not necessarily replaced by more macroeconomic reporting.

With regard to a waning of interest in the WTO, I think it is fair to say that industry has not allowed itself to be heard as much in the Doha Round as it did in the Uruguay Round. There may be any number of reasons for that, and it is clearly of some concern. However, I do not see that this will also mean a waning of industry interest in the enforcement of the rules. In fact, I see an increasing interest in industry to find out how these rules can be of use. However, there are not a lot of options here. For the most part, industries do not really know what the WTO holds for them. This is an extremely complex system of rules with a lot of potential, but industry does not really understand it. It is similar to the negative reception to the EC laws in the 1960s, so maybe 20-30 years from now, there will be a similar visceral reaction from companies doing international business.

Mr. Bourgeois: The main political obstacle to the first trade barrier regulation of the European Union was that EC Member States did not want to give industry the right to complain. The obstacle came up not only on the side of EC Member States, but even some people within the European Commission had doubts. There was the attitude on the part of governments and bureaucracy of "Father knows best." and not wanting to let industry have the initiative. The interest of industry in the EU for the WTO is growing although slowly.

Q: In relation to your earlier comments about the private sector, I was surprised that the private sector may not know enough about WTO implications to their business. So maybe it is time to do more for capacity-building in terms of private sector appreciation of the WTO and the risks and benefits that they might incur. Is that the case?

Mr. Bronckers: Capacity-building is not necessary just for developing countries, et cetera, it is certainly necessary and advisable domestically. It is interesting that the European Commission, for the last four or five years, has organized biannually the Market Access Symposium, where they have almost a thousand industrial representatives, non-governmental organizations, et cetera, coming to Brussels to hear about how the WTO can be of use to them. There is a great demand for it, and every time the European Commission organizes this, a special session is devoted to the Trade Barriers Regulation to say that this is also relevant to industry.

*This summary was compiled by RIETI Editorial staff.