The club approach to multilateral trade lawmaking.
The World Trade Organization (WTO) stands at the center of an emerging structure of global economic governance. Its rules affect important aspects of everyone's lives--how much people pay for the products that they purchase, what types of employment are open to them, and which medicines they can access. And yet, while the WTO was conceived as a "negotiating machine" that would develop rules in sync with an increasingly dynamic global economy, negotiations on a new set of global trade rules have now been deadlocked for over a decade. This impasse is all the more surprising in light of the fact that the multilateral trade regime was, up until the establishment of the WTO in 1995, one of the most productive engines of international lawmaking. The present Article explores why multilateral trade lawmaking used to work, and why it is no longer working today.
A key part of the answer is that before the establishment of the WTO, the multilateral trading system worked as a "club," which allowed the major trading powers to manipulate the circle of participants in trade negotiations depending on how these powers weighed the costs and benefits of the participation of additional states. The Article identifies three factors that led the major trading nations to adopt this approach: (1) the greater practicality of negotiations among a smaller group of countries, (2) the insiders' greater influence on the outcome of the negotiations, and (3) the chance to subsequently compel outsiders to join the agreement on the insiders' terms. The Article shows how the major trading powers were able to implement the club approach to multilateral trade lawmaking throughout the pre-WTO era-an ability that accounts for much of the legislative dynamism of that time. The Article then argues that the founding of the WTO, while itself an example of the successful employment of the club logic, has made the use of the club approach in the multilateral trading system much more difficult, if not impracticable. As a result, the pace of lawmaking in the multilateral trading system is now circumscribed by the need to seek the support, or at least acquiescence, of all WTO members.
Table of Contents I. Introduction II. Conceptualizing Clubs in Multilateral Trade Lawmaking III. The Club Approach in the History of Multilateral Trade Lawmaking A. The Club Within: GATT and the ITO B. The Self-Perpetuating Club: Participation in GATT Negotiations 1. Who Can Negotiate: The Principle of Payment and the Principal Supplier Rule 2. What Can Be Negotiated: Limitations on Products and Policies 3. Who Needs to Agree: Critical Mass Approaches to Lawmaking 4. Who Gets to Be in the Room: From the Bridge Club to the Green Room C. The Self-Transcending Club: The Single Undertaking and the Founding of the WTO D. The Internalized Club: Lawmaking in the WTO 1. Accession Negotiations 2. Variable Geometry 3. Differentiation of Obligations IV. Conclusion
The World Trade Organization (WTO) stands at the center of an emerging structure of global economic governance. Its rules affect important aspects of everyone's lives-how much people pay for the products that they purchase, what types of employment are open to them, and which medicines they can access. And yet, while the WTO was conceived as a "negotiating machine" (1) that would develop rules in sync with an increasingly dynamic global economy, negotiations on a new set of global trade rules have now been deadlocked for over a decade. This impasse is all the more surprising in light of the fact that the multilateral trade regime was, up until the establishment of the WTO in 1995, one of the most productive engines of international lawmaking. The present Article explores why multilateral trade lawmaking used to work, and why it is no longer working today.
A key part of the answer, the Article suggests, is that before the establishment of the WTO, the multilateral trading system worked as a "club." It is not uncommon to see the institutions of the multilateral trade regime-the General Agreement on Tariffs and Trade (2) (GATT) in particular-described as a "club." (3) Some use this label to evoke the pragmatism, informality, and insularity that characterized the GATT. (4) Others employ the concept to highlight the extent to which many countries, especially developing countries, have historically been excluded from meaningful participation in trade lawmaking and from the benefits of the trade regime. (5) However, the concept has remained more of a political catchphrase than a systematically developed analytical tool. The present Article takes inspiration from economic theory to give the club concept more analytical depth and then employs the refined concept to explore the history, legal ramifications, and political implications of the club approach to multilateral trade lawmaking.
Economic theory defines clubs by reference to the characteristics of the goods that the members of the club share. (6) Put simply, a club good is a good that is best shared with some, but not too many, others. (7) As a consequence, the club members seek to exclude those whose participation would pose higher costs than benefits. (8) To say that states adopt a club approach to multilateral lawmaking, then, is to say that they seek to manipulate the circle of participants depending on how they weigh the costs and benefits of the participation of additional states.
The observation that the major trading nations have perceived participation in multilateral trade lawmaking as a club good is by no means trivial. In fact, there are good reasons, as well as historical precedents, for treating participation in trade lawmaking as a private or a public good, rather than a club good. As recently as the early twentieth century, both the United States and the United Kingdom saw trade lawmaking as a private good that was best "shared" with no one else. In the United States, Congress was for the most part unwilling to let anyone interfere with its autonomy in setting tariff levels. (9) And the United Kingdom was "stubborn[ly] unilateral ..." for different reasons; the status of free trade in its political culture was such that it saw any attempt to bargain over trade policy as heresy. (10) Conversely, it is not implausible to see participation in trade lawmaking as a public good. U.S. Secretary of State Cordell Hull, the intellectual father of the Reciprocal Trade Agreements program, (11) famously saw one of the principal objectives of an international trade regime in the promotion of international peace. (12) Arguably, the regime was more likely to serve this function when more states participated in its creation and subsequently adhered to it. Indeed, many international lawmaking endeavours aim for universal adherence and are therefore as inclusive as possible. The U.S. plans for an International Trade Organization (ITO) were no exception. (13) The ITO was supposed to be a universal organization with low barriers to entry, (14) negotiated in the framework of the United Nations through a process culminating in a multilateral conference open to all members of the United Nations (the Havana Conference). (15)
What, then, prompted the major trading nations to complement this universal ambition with, and eventually abandon it in favor of, the club approach to multilateral trade lawmaking that is embodied in the GATT? Examination of the historical material reveals three factors that led these nations to see participation in multilateral trade lawmaking as a club good: (1) the greater practicality of negotiations among a smaller group of countries, (2) the insiders' greater influence on the outcome of the negotiations, and (3) the possibility subsequently to compel outsiders to join the agreement on the insiders' terms (leverage). As shown below, these three rationales for using the club approach help explain the patterns of participation in multilateral trade lawmaking from the GATT/ITO preparatory negotiations to the present. While the tools employed by the major trading nations to implement the club approach, and the constraints that they have faced in doing so, have evolved, these underlying rationales have largely retained their force.
There are at least three reasons why it is important to understand the club approach to multilateral trade lawmaking. First, an understanding of how multilateral trade lawmaking has worked in the past can shed light on the reasons why, except in certain constellations, it no longer works today. While the club approach has been a pervasive feature of lawmaking throughout the history of the trading system, the opportunities for employing the club approach in the WTO are much diminished. This is not only due to the requirement that new plurilateral agreements can only be added to the WTO Agreement (and thus made subject to the dispute settlement system) with the consensus of the entire membership. (16) The Article also argues that the club approach has become a victim of its own success. In the Uruguay Round of trade negotiations, (17) the major developed countries managed to leverage the club approach to force the developing countries to assume an unprecedented level of obligations. It is unlikely that they will ever be able to replicate this feat: not only have developing countries become adept at resisting the club dynamics of the GATT era, but the very success of the club approach in the Uruguay Round also means that the multilateral trading system is now too valuable to the developed countries for them to credibly threaten to abandon it in favor of a new club. Based on the history of multilateral trade lawmaking, one would expect that the most promising avenues for lawmaking are those in which elements of the club dynamic are still present, such as negotiations for accession to the WTO, negotiations in the context of existing plurilateral agreements, (18) negotiations of agreements whose benefits are concentrated among a clearly circumscribed group of members (so-called "critical mass agreements"), (19) and negotiations of bilateral and regional preferential trade agreements outside the WTO. (20) And indeed, most lawmaking activity since the establishment of the WTO has taken place across these fora. By uncovering the rationales for using the club approach in the history of multilateral trade lawmaking, the Article provides an explanation for this trend.
A second reason why it is important to analyze the history of participation in multilateral trade negotiations is that it allows one to gain a critical understanding of how the institutions, principles, practices, and legal rules that shape the trade regime to this day were established, defended, and made to work. Why did the major trading powers decide to establish the exclusive GATT alongside the universal ITO, and how did they try to reconcile the two institutions? How did the United States and its developed country allies succeed in entrenching the principle of reciprocity as the basis for trade lawmaking, and which tools did they devise to exclude potential "free-riders" from the benefits of the trade regime? How did the "Quad" countries (the United States, the European Communities, Canada, and Japan) manage to get the developing countries to sign up to an agreement enshrining substantive intellectual property rights in the Uruguay Round--even those who had been vehemently opposed to such an agreement throughout the negotiations? As the Article will show, the dynamics of the club approach to multilateral trade lawmaking are at the heart of the answer to all these questions.
Finally, a keen appreciation of how the club approach has been employed in the multilateral trading system can also provide the basis for a normative evaluation of this lawmaking technique. While such an evaluation is beyond the scope of this Article, it remains a desideratum for future research, especially in light of recent suggestions to employ the club approach that was pioneered in the trading system in other areas of international lawmaking, such as climate change regulation. (21)
The Article consists of three Parts. The first gives a brief overview of how the club concept has been used in the academic literature so far and lays out the conception of the club approach employed here. The second Part provides a detailed discussion of the use of the club approach throughout the history of multilateral trade lawmaking. The final Part concludes.
II. Conceptualizing Clubs in Multilateral Trade Lawmaking
Many authors who describe the GATT as a club do not explain what exactly they mean by this term. Gerard Curzon and Victoria Curzon, in their paper on the "trader's club" of GATT, give little indication of what makes the GATT a club, except that they note the need to pay an "entrance fee" in order to be admitted. (22) Several other authors report the developing countries' perception of the GATT as a "rich man's club," without exploring this notion further. (23) In contrast to Curzon and Curzon's focus on the relationship between members and nonmembers of the GATT, the "rich man's club" notion appears to locate both the insiders and outsiders within the GATT membership; it refers to a lack of participation by developing countries in the GATT, including those developing countries that were contracting parties to the GATT. (24)
More recently, several authors have defined the club concept more explicitly, but in ways that appear to be at odds with older conceptions. Robert Keohane and Joseph Nye have described the "club model" of lawmaking as based on the exclusion of "officials in other government bureaucracies and in international organizations in different issue areas" on one hand and as operating largely outside the view of the public on the other hand. (25) Their conception is less concerned with the participation of developing countries in trade lawmaking, but refers primarily to the insularity of trade lawmakers both in relation to domestic constituents and other areas of global governance. Robert Wolfe has employed the club concept in yet a different sense, namely to describe coalitions and informal groupings in WTO lawmaking. (26)
Little is gained by giving a meaning to the club concept that is at odds with how that concept has been understood for most of the GATT's history, however vague that understanding may have been. Instead, this Article draws on the economic theory of clubs to give the club concept more analytical depth. The economic theory of clubs, focusing as it does on limitations imposed on participation in the enjoyment of a good, is broadly consonant with the way in which the club concept has traditionally been employed in the context of the trading system. At the same time, the economic theory of clubs can add some rigor to an analysis of the club approach to trade lawmaking. It does so, first, by providing a conceptual framework for thinking about the alternatives to treating participation in trade lawmaking as a club good, and, second, by defining the circumstances in which states face incentives to adopt a club approach to trade lawmaking.
The economic theory of clubs, as first formulated by James Buchanan, starts from the premise that "there exists some most preferred or 'optimal' membership for almost any activity in which we engage." (27) Buchanan distinguishes club goods from "purely private" goods on the one hand and from "purely public" goods on the other hand. For "purely private" goods, "the optimal sharing arrangement ... is clearly one person (or one family unit)." (28) For "purely public" goods, on the other hand, "the optimal sharing group ... includes an infinitely large number of members." (29) For Buchanan, the "interesting cases are those goods and services, the consumption of which involves some 'publicness,' where the optimal sharing group is more than one person or family but smaller than an infinitely large number"--in other words, club goods (and services). The "central question in a theory of clubs," then, "is that of determining the membership margin, so to speak, the size of the most desirable cost and consumption sharing arrangement." (30) This optimal club size is reached "when the marginal benefits that [a club member] secures from having an additional member ... are just equal to the marginal costs that he incurs from adding a member." (31)
In applying Buchanan's insight to multilateral trade lawmaking, the first question that needs to be answered is in relation to which good the club dynamic is to be analyzed. This is an empirical question; this Article therefore derives the answer from the historical record analyzed below. As suggested below, the club good in question is participation in multilateral trade lawmaking, in the sense of involvement in negotiations and decision making.
This first question is inextricably linked with a second question: What did the major trading nations perceive the benefits and costs of the participation of additional countries in trade lawmaking to be? This is also an empirical question, which is explored in the following Part. The contribution of the economic theory of clubs to the argument at this stage is simply that it clarifies what it means to say that states have treated participation in multilateral trade lawmaking as a club good: it means that, more often than not, the major trading nations have considered the costs of the participation of additional states in multilateral trade lawmaking to outweigh the benefits of such participation.
III. The Club Approach in the History of Multilateral Trade Lawmaking
When U.S. and British officials started negotiating about the structure of the postwar trading order in the early 1940s, they envisaged a universal international organization that would be the counterpart of the United Nations in the economic sphere. (32) This "impulse to universality" (33) was reflected in the United States' ambition to negotiate a charter for an international trade organization through "United Nations machinery" (34) and in the persistence with which it sought the cooperation of the Soviet Union and, to a lesser extent, China, in this endeavor. The United States also agreed to add chapters on employment--and later and more hesitantly, development--to its draft charter in order to widen the appeal of the organization. (35)
It was during the discussions on the procedures for tariff reductions that the U.S., UK, and Canadian negotiators first considered an alternative paradigm of participation for the multilateral trading system: the club. Subpart A discusses what prompted these nations to see participation in tariff negotiations as a club good. It will also explore how these countries attempted to reconcile the club approach with their ambition to establish a universal organization. Subpart B traces how the club dynamic manifested itself in the practices of participation in multilateral trade lawmaking throughout the history of the GATT. Subpart C argues that a fundamental recalculation of the costs and benefits of the participation of developing countries in the trading system led the major developed countries to conclude the Uruguay Round with the establishment of a new club with very different characteristics from the GATT, namely, the WTO. Subpart D shows that the establishment of the WTO has made the use of the club approach in the multilateral trading system much more difficult, if not impracticable. The club dynamic of participation survives in three incarnations: overtly in accession negotiations, formalized in negotiations in "variable geometry," and disguised in the increased differentiation of obligations. However, it is heavily constrained: procedurally, by transparency and reporting procedures that have been put in place, and substantively, by the need to keep other WTO members, who can now block an outcome that they perceive as unfavorable, on board.
A. The Club Within: GATT and the ITO
There is ample evidence that the U.S. design for the postwar trading order was originally of a universal nature. During the Second World War, the United States leveraged the aid that it was granting its allies to secure their commitment to enter into discussions on the postwar international economic order with the United States and other governments. (36) This commitment was embodied in Article VII of the mutual aid agreements under which the United States provided material and logistical support to its allies. Article VII committed the parties to "agreed action ... open to participation by all other countries of like mind, directed to the expansion, by appropriate international and domestic measures, of production, employment, and the exchange and consumption of goods." (37) The United States originally negotiated the wording of Article VII with Britain but copied it verbatim into all later mutual aid agreements, including those with the Soviet Union and China.
Even before the first exploratory discussions on the postwar economic order pursuant to Article VII took place between the United States and Britain, the British government suggested that the Soviet Union and China be notified that such consultations were planned and that they be kept "generally informed on the upshot of the discussion." (38) U.S. officials agreed; they were concerned not to "give the impression that the United States and Great Britain were coming to previous agreements on the matters [i.e., monetary and commercial policy, N.L.] before other governments were brought in and acquainted with the progress of the discussions." (39) Referring to Article VII of its mutual aid agreements, the United States further informed the British that "the United States [was] in a somewhat different position than that of the United Kingdom in respect to the Soviet Government and the Chinese Government, in that the United States ha[d] exactly the same commitments to those Governments that it ha[d] to the United Kingdom Government." (40) The U.S. government had therefore decided "to extend invitations [to hold exploratory talks] to the Soviet Government and to the Chinese Government identical to those which ha[d] been extended to the United Kingdom Government." (41)
In the following months, the United States reiterated its desire to enter into exploratory discussions on commercial policy with the Soviet Union. At the tripartite conference of foreign ministers in Moscow in October 1943, the United States presented a memorandum on the "Bases of Our Program for International Economic Cooperation," in which it suggested the "conclusion of a general convention to which all of the important countries of the world would be parties, which would lay down the rules and principles that should govern trade relations between nations." (42)
The United States also proposed the establishment of a "Commission comprising representatives of the principal United Nations," namely, the United States, the United Kingdom, the USSR, and China, and "possibly certain others of the United Nations," such as "Canada, the Netherlands and Brazil," to discuss and set up the necessary procedures. The United States further presented a memorandum summarizing the results of the exploratory discussions between the United States and the United Kingdom, (43) and stated that it was "particularly important that similar conversations be arranged soon between Soviet and American experts." (44) In 1944, President Roosevelt again urged the "establishment of United Nations machinery for postwar economic collaboration" in separate letters to Churchill and Stalin. (45)
While the exploratory talks with the Soviet Union and China never took place, the persistence with which the United States attempted to initiate discussions--especially with the Soviet Union-- is evidence of its expectation that the international economic arrangement of the postwar era would be firmly anchored within the framework of the United Nations, in which the Soviet Union was anticipated to play a key role. The United States also sought the inclusion of the Soviet Union in the inner circle of the negotiations "as a means of working out a solution of problems of [the] state trading system" (46)--a further indication of the universal scope ultimately desired for the proposed organization. Consistent with its ambition to pursue the establishment of a postwar international economic order through "United Nations machinery," the United States introduced a resolution calling for an "International Conference on Trade and Employment" at the First Session of the Economic and Social Council of the United Nations held in February 1946. (47) The resolution established a Preparatory Committee to elaborate a draft convention and appointed nineteen states as members of the Committee. One month before the first session of the Preparatory Committee in October 1946, the United States published a "Suggested Charter for an International Trade Organization of the United Nations" (the Suggested Charter). Consistent with the "impulse to universality," (48) the proposed organization was to have low barriers to entry: no more was supposed to be required of new members than to accept the obligations of the charter. (49)
The Suggested Charter, however, also embodied a different paradigm of participation with respect to one central issue: tariff negotiations. It was in the context of their discussion of alternative methods of tariff reductions that U.S., UK, and Canadian negotiators first considered the idea of holding negotiations initially among a "nucleus of important trading nations." (50) Three rationales for the "nuclear group," (51) or "club," (52) approach emerged during the discussions. First, given that the United States insisted on using the method of bilateral requests and offers to negotiate tariff reductions, the three states considered it more practicable to conduct tariff negotiations initially among a small group of countries. Recognizing the limited negotiating capacity of its partners, including the United Kingdom and Canada, (53) the United States granted that "the number of countries should be kept small since the greater the number engaged in simultaneous negotiations the more difficult the negotiating problem, particularly for countries other than the United States." (54)
Second, the club approach would allow the "nuclear" countries to agree on the procedure for tariff reductions, as well as disciplines on nontariff (55) barriers, without having to take into account the views of other countries. States that the nuclear countries feared would not be constructive or sufficiently ambitious could simply be excluded (unless their inclusion was essential for political or economic reasons). The Canadians argued, for example, that
a general conference of all countries might be dangerous, since the views of the many small countries might unduly weaken the bolder measures which the large trading nations might find it possible to agree upon.... [J]udging from past experience, the presence at a general international conference of the less important, and for the most part protectionist-minded, countries, would inevitably result in a watering down of the commitments which a smaller number of the major trading nations might find it possible to enter into. (56)
There were some differences of opinion between the United States and Canada regarding the extent to which legal disciplines on nontariff barriers, rather than just bilateral tariff bargains, should be definitely agreed among the smaller circle of countries. Given their ambition to build a universal organization, the Americans had "reservations" as to the "desirability of actually concluding the arrangements among the nuclear group prior to the holding of a general international trade conference at which the views of other countries would be obtained." (57) The Canadians, by contrast, were adamant "that the arrangements among the nuclear group should not be kept open and thereby made subject to changes at the general conference." (58) These differences notwithstanding, the proponents of the nuclear approach clearly saw it as a way to shield certain elements of the proposed trading arrangements--the procedure and level of ambition of the tariff negotiations in the case of the United States and the rules on nontariff barriers in the case of the Canadians--from the scrutiny and influence of outsiders.
A third, and related, rationale for the nuclear approach was that it would, at a later stage, present the opportunity to force outsiders into the arrangement on the nuclear group's terms. U.S. negotiators envisaged that the level of tariff reductions agreed among the members of the nuclear group "would create the standard by which to judge the requirements to which other nations joining the organisation should be expected to conform.... [It] would be the test of what other countries joining the organisation should do in this respect." (59) The proponents of the club approach expected that, given its members' share in international trade, the nuclear group would exert a pull on outsiders to join the arrangement, even though the latter would have had no part in its creation and little say about its terms. Harry Hawkins, who first brought up the idea of an agreement among a "nucleus of important trading nations," assumed that "other countries might be more or less obliged to adhere" to it. (60) The Canadians were greatly preoccupied with the question of how to achieve the "compulsion of outsiders"; they were concerned that the bilateral method of tariff reduction was not well suited for use "as a weapon to force" "reluctant countries" to participate in the agreement. (61) One approach discussed between the United States and Canada to deal with this question was to require new members "to negotiate their way in by entering into bilateral agreements with each of the countries making up the nuclear group," under the threat that tariff concessions that the members of the nuclear group had negotiated with each other might otherwise be withdrawn after a "probational period." (62) It was this approach that the United States ultimately incorporated into its Suggested Charter.
The Suggested Charter published by the United States in September 1946 envisaged the following reconciliation of the club approach to the tariff negotiations with the universal ambit of the ITO. The GATT and the ITO Charter would be negotiated on separate institutional tracks. (63) While the preparatory negotiations for the Havana Conference, at which the ITO Charter was to be concluded, were sponsored by the United Nations Economic and Social Council, the GATT would be, as the Suggested Charter explained, an "arrangement for the concerted reduction of tariffs and trade barriers among the countries invited by the United States to enter into negotiations for this purpose." (64) Once the ITO Charter came into force, the exclusive character of the GATT would be temporarily preserved within the ITO in the form of an "Interim Tariff Committee," which would originally consist of all ITO members that were also parties to the GATT. (65) The sole task of this Committee would be to decide whether an ITO member had complied with its obligation, under Article 18(1) of the Suggested Charter, to enter, upon request, into "reciprocal and mutually advantageous negotiations" with other members "directed to the substantial reduction of tariffs (or of margins of protection afforded by state trading) on imports and exports." (66) If the Committee determined that a member had failed to fulfil this obligation "within a reasonable period of time," it could authorize
the complaining Member, or in exceptional cases the Members of the Organization generally ... notwithstanding the provisions of Article 8 [General Most-Favored-Nation Treatment, N.L.] ... to withhold from the trade of the other Member any of the tariff reductions which the complaining Member, or the Members of the Organization generally ... may have negotiated pursuant to paragraph 1 of this Article. (67)
ITO members that were not original parties to the GATT could only join the Committee when, "in the judgment of the Committee," they had undertaken tariff reductions "comparable in scope or effect to those completed by the original members of the Committee." (68) In other words, they had to "negotiate their way in," as the United States and Canada had envisaged during their exploratory discussions. (69) Only when two-thirds of the ITO's members had become members of the Interim Tariff Committee would the Committee cease operation and its functions be transferred to the ITO membership as a whole. (70)
The Interim Tariff Committee, then, was to be the club within. Its members would have controlled admission, with wide discretion to decide whether the prospective entrant had earned the privileges of membership, (71) and would have been able to wield the ultimate power in the trade context--the power to authorize the suspension of tariff concessions--against any member who refused to engage in tariff negotiations to the satisfaction of its trading partners. Although the obligation to engage in tariff negotiations was to be couched in general terms ("Each Member ... shall ..."), it was clearly directed at those outside the club who had not already undertaken such negotiations (and had been excluded from the club in the first place partly on the basis of their presumed unwillingness to engage in them). Thus, the ostensible institutional "reconciliation" of the GATT with the ITO was from the start conspicuously informed by the third rationale for the club approach: the ability of club members to force others to join the club on the members' terms.
The U.S. draft of this arrangement survived the sessions of the Preparatory Committee in London and Geneva relatively unscathed (72)--perhaps unsurprisingly, since all members of the Preparatory Committee could expect to become original members of the GATT and thus of the Interim Tariff Committee envisaged in the London Draft (which became a permanent Tariff Committee in the Geneva Draft of the Charter). (73) At the Havana Conference, however, the arrangement faced a backlash from the prospective outsiders. They were particularly aggrieved that the draft charter did not provide for an appeal of the decisions of the Tariff Committee (either to the Executive Board, the Conference, the International Court of Justice, or through dispute settlement proceedings). (74) During the negotiations, the UK negotiator acknowledged that the
Tariff Committee's special membership and consequent independent character and function had caused confusion and even the suspicion that the Tariff Committee would be an exclusive club unaccessible to countries with no basis to carry out the undertakings contained in Article 17 [the obligation to carry out tariff negotiations, N.L.], and that the club's exclusiveness would enable the members to exercise unduly powerful influence over the work of the Organization. (75)
Canada likewise recognized the "fear of some countries" that, under the arrangement envisaged by the draft charter, "powerful countries might force substantial tariff reductions on weaker ones, and that in the case of refusal, the latter would be kept from participation in the Organization." (76) However, both the United Kingdom and Canada tried to reassure the opponents that these fears were unfounded, pointing to the experience of negotiating the GATT at the second session of the Preparatory Committee. The United Kingdom claimed that "most countries could find a basis for tariff agreements," and even countries that had not negotiated tariff agreements might still be admitted to the Tariff Committee. (77)
The United States was less apologetic. The U.S. negotiator explained that
the central objective of the Organization was the reduction of tariffs and other obstacles to international trade. Only countries which had carried out the negotiations required by Article 17 should be members of the Tariff Committee--some countries present at the Conference had already done so and shown what could be done. Experience between the two World Wars showed the danger of adopting resolutions at international conferences which lacked any provision making for their implementation. Article 81 was one of the articles in the Charter which ensured this practice was not to be repeated and his delegation regarded it as of the highest importance.
At the first meeting of a subcommittee set up to study the question, the official set out the U.S. position in even stronger terms, emphasizing
that the Organization was not to be a goodwill mission occupied in merely passing resolutions but it was to be an organization tied to action. The question before the Sub-Committee was not one of two international organizations--The Trade Organization and the Tariff Committee--but was one of two steps in a process towards obtaining the benefits of the Charter. One stop in this process was acceptance of the Charter; the other was the negotiations under Article 17, the conclusion of which gave automatic membership in the Tariff Committee. In connection with the second step it was correct that the necessary determination should be made only by Members which had carried out the negotiations themselves. (79)
What is striking is the peculiar meaning with which the United States imbued the concepts "doing" and "action" in these statements. It was certainly not the case that the countries against which this remark was directed did not want "action"; however, they wanted "action" that was different from the "action" envisaged by the United States. (80) By framing its demand that other countries engage in a particular practice, namely reciprocal tariff negotiations, as a generic call for "action" and for something that "can be done," the United States signalled that the way it imagined trade lawmaking was the only way to do it. And against the backdrop of the club dynamic, this was not mere rhetoric. The club approach allowed the United States to actually make their "action" (i.e., reciprocal tariff negotiations) the only game in town. It was this ability to marry institutional power to the imagery of "action" and "ambition" that allowed the United States and the other major trading countries to gradually entrench the conception of trade lawmaking as necessarily based on reciprocity.
The controversy between the prospective insiders and outsiders about the authority and composition of the Tariff Committee was ultimately resolved through a compromise. The United States had managed to establish a somewhat dubious parallelism between the Tariff Committee and a proposed Committee for Economic Development. (81) The compromise consisted of eliminating both the Tariff Committee and the Economic Development Committee from the Charter. (82) Even without its institutional embodiment, however, the club dynamic of the relationship between the GATT and the wider ITO membership was preserved. This was accomplished by reversing the burden of proof in cases where a GATT member considered that a non-GATT member had failed to carry out tariff negotiations to the former's satisfaction. Under the Geneva draft of the Charter, the GATT member would have had to refer the matter to the Tariff Committee, which would have had to authorize the suspension of tariff concessions. (83) Under the ITO Charter, a GATT member could unilaterally suspend tariff concessions towards any ITO member that had not acceded to the GATT two years after the ITO Charter had come into force unless the Organization decided, by majority vote, to "require the continued application" of concessions on the basis that the ITO member in question had been "unreasonably prevented" from acceding to the GATT. (84) While this arrangement made it easier for an individual member to suspend concessions in response to unsatisfactory negotiations, it allowed all ITO members a say in whether this suspension was justified.
Although the ITO Charter never came into force, the controversy about the Tariff Committee sheds light on what kind of institution the major trading powers intended the GATT to be. The club character of the GATT was designed to guarantee the principle of reciprocity, which the ITO Charter stated in the following terms: "No Member shall be required to grant unilateral concessions, or to grant concessions to other Members without receiving adequate concessions in return." (85)
The most-favored nation (MFN) principle--which obliged any ITO member to extend any trade benefit that they granted to any country to all other ITO members (86)--harbored the danger that tariff concessions that GATT contracting parties had granted to one another would go permanently unrequited. The provisions concerning the (Interim) Tariff Committee in the drafts of the Charter, and on the right to withdraw tariff concessions unilaterally in the final version of the Charter, were designed to allow GATT members to exact a payment for these concessions from other ITO members. More fundamentally, they gave GATT members the leverage to establish the principle of payment as the uncontested foundation for tariff negotiations. Whoever was not prepared to pay for tariff concessions could simply be excluded from the club.
B. The Self-Perpetuating Club: Participation in GATT Negotiations
The stillbirth of the ITO dispensed with the need for complicated derogations from the most-favored nation principle: since the most-favored nation rule now only applied among GATT members in the first place, derogations were no longer necessary to allow them to enforce the principle of payment vis-a-vis outsiders. (87) Instead of being "the club within" a larger organization, the GATT was now a club, period. The interaction between those inside and outside the GATT would henceforth be exclusively governed by the accession procedure of GATT Article XXXIII, which provided that governments could accede to the agreement "on terms to be agreed" between the government in question and the contracting parties to the GATT. The contracting parties took utmost care to ensure that every one of them could individually insist on receiving adequate payment in the accession process: when in 1948, the decision rule for admissions of new members was changed from unanimity to a two-thirds majority of the contracting parties (at the request of the ITO negotiators who hoped to minimize the risk that ITO members might be "unreasonably prevented" from joining the GATT (88)), the contracting parties added GATT Article XXXV, which allowed individual contracting parties not to apply tariff concessions, or the entire agreement, to a new contracting party as long as it had not entered into tariff negotiations with that party. (89) The negotiators perceived the new article as necessary because a two-thirds majority of the contracting parties could otherwise have "oblige [d] a Contracting Party to enter into a trade agreement with another country, without its consent." (90)
It was not primarily due to the provisions on accession, however, that the image of GATT as a "club" became ingrained in the imagination of observers and a steadily increasing subset of its contracting parties over the following decades. (91) In fact, the large majority of countries acceding to the GATT over the following decades were developing countries that had emerged from colonial rule and could join the GATT by simply succeeding into the obligations that their former colonial masters had assumed with respect to their territories. (92) The perception that the GATT operated as a club arose instead from the way in which the practices that determined who participated in and benefited from trade negotiations reproduced and perpetuated the club dynamic within the framework of the GATT itself. As the Article argues below, there were four such practices: (1) the practice of negotiating tariff concessions primarily, and often exclusively, with the principal supplier of a product; (2) the practice of excluding certain product categories and types of trade barriers from negotiations; (3) the practice of concluding agreements on tariff formulas and nontariff barriers among small groups of countries constituting a "critical mass"; and (4) the practice of conducting negotiations in an often informal and secretive way. These practices reproduced and perpetuated the club dynamic not so much because they de jure excluded any countries from most favored nation treatment. Rather, they de facto excluded a large number of GATT members, largely developing countries, from meaningful participation in multilateral trade lawmaking and from the benefits of trade liberalization.
Before discussing these practices in more detail, the Article will briefly recall the three major motivations for the club approach that had been made explicit in the preparatory discussions to the GATT: (1) the greater practicality of negotiating and reaching agreement among a smaller group of countries, (2) the ability to shape the content of this agreement more decisively than would otherwise be feasible, and (3) the possibility to compel outsiders to join the agreement largely on the insiders' terms. In the academic literature, the first factor is the most popular explanation for why the core GATT countries continued to operate as a de facto club in many respects. Many scholars emphasize the ease with which agreement could be reached among the likeminded core of the GATT countries. As Robert Hudec memorably put it, the GATT was "a place where the leading countries could go off to do business by themselves, unencumbered by the complexities of a larger organization ... [a] place (one might almost say a club) where likeminded people could get together and do their work in peace." (93)
As the discussion in this subpart will demonstrate, however, the other two factors are very much part of the explanation as well and significantly increased in importance over time. Thus, by contenting themselves with "do[ing] business by themselves," the "leading countries" could not only reach agreement more easily but could also keep doing things their way. During the first two decades of the GATT, "doing things their way" meant sticking to reciprocity and the principal supplier rule as the basis for tariff negotiations and limiting the scope of negotiations to tariffs on manufactured products. What stands out about the club dynamic of GATT negotiations during this time is that it was self perpetuating, in the sense that negotiating principles like reciprocity and the principal supplier rule automatically excluded those who were not able or willing to play by the "leading countries" rules from the benefits of trade
liberalization, hence providing them with a strong incentive to participate in trade negotiations on the insiders' terms.
This structure changed somewhat during the late 1960s and 1970s, as the focus began to shift from tariff negotiations to the negotiation of codes elaborating GATT provisions and formulating rules on the use of nontariff measures. The major trading nations largely continued to "do business by themselves" and thereby shaped the content of the codes. This was achieved by concluding agreements among a critical mass of (mostly developed) countries and by conducting the negotiations in a secretive and exclusionary manner. In relation to the codes, however, the ability of the core to compel the adherence of outsiders proved to be limited by the unconditional most-favored nation clause of the GATT. Towards the end and in the aftermath of the Tokyo Round, (94) this limitation led to increasing frustration on the part of developed countries, in particular the United States. As will be discussed in the next subpart, it was the increasing failure of the club approach to achieve the compulsion of outsiders, combined with a fundamental recalculation of the costs and benefits of the participation of developing countries in the trading system that led the developed countries to adopt a radical new strategy for the conclusion of the Uruguay Round: the constitution of a new club with the primary purpose of achieving the compulsion of outsiders.
In the following sections, however, the Article will first describe the four practices that governed participation in multilateral trade negotiations and that reflected and sustained the club dynamic of those negotiations, over the period from the early GATT until the Uruguay Round.
1. Who Can Negotiate: The Principle of Payment and the Principal Supplier Rule
The principle of payment, which governed GATT negotiations from the outset, played a central role in ensuring that trade negotiations continued to exhibit a club dynamic. Only those nations with something to "sell" (i.e., access to a lucrative market) were in a position to demand concessions from their negotiating partners. (95) As Winham has put it:
[I]nfluence in a tariff negotiation is a direct function of the size of a nation's trade. Nations with smaller trade flows simply are not in a position to offer many concessions to other countries and hence have little standing in a negotiation where the modus operandi is reciprocal exchange.... [T]he fact that GATT negotiations have traditionally been tariff negotiations has probably increased the tendency of developing countries to regard GATT as a rich man's club. (96)
By making effective participation in trade negotiations dependent on market size (i.e., on a country's ability to "sell" something of interest to other countries), the principle of payment reduced the role of small and less economically developed countries in trade negotiations.
Even if an economically less powerful country was willing and able to offer concessions in tariff negotiations, its ability to demand concessions from its trading partners was limited by the principal supplier rule. (97) This rule explicitly entitled participants in trade negotiations to reject requests for tariff concessions when the country requesting the concessions was not the principal supplier of the product in question. (98) As a result, it pushed any country that did not already have major export volumes of particular products to the sidelines of trade negotiations, limiting their potential to profit from trade negotiations to the accidental benefits from tariff reductions agreed between the major trading powers. (99)
The club dynamic produced by the principle of payment and the principal supplier rule was self perpetuating: the exchange of concessions among the major trading countries, whose markets were attractive to each other and who tended to be the principal suppliers of the bulk of each other's imports, expanded trade among these countries, making it more difficult for others to break into the core of the club. At the same time, these negotiating practices had a powerful assimilating effect. Any country that hoped to benefit from trade negotiations had to be prepared to play by the rules of the game, thereby perpetuating these rules. As a result, the GATT confined "its active membership to willing liberalisers." (100)
2. What Can Be Negotiated: Limitations on Products and Policies
The major trading nations further limited the scope for effective participation in trade negotiations by circumscribing the subject matter of negotiations to those products and trade policy instruments that were of most interest to them. This involved not only the effective exclusion of entire sectors, such as agricultural products and textiles, from meaningful liberalization commitments. It also meant the drawing of ever finer distinctions within product categories--in other words, the definition of subdivisions of products solely for purposes of tariff classification--in order to ensure that the benefits from a negotiated tariff concession did not spill over to countries that supplied a similar product but had not paid for the concession.
The special status accorded to agricultural products and textiles in trade negotiations within the framework of the GATT up until the Uruguay Round is well known. (101) In addition to the special treatment of agriculture, for example, in relation to quantitative restrictions, which was already enshrined in the GATT itself, the United States and European countries obtained waivers that left them with virtually complete freedom to protect their agricultural markets. (102) The protective instruments imposed for this purpose, among which quotas--normally prohibited by the GATT (103)--featured prominently, were largely excluded from the scope of GATT negotiations up until the Uruguay Round.
Developing countries faced a similar problem with regard to tropical products, which were often their major export items. (104) By contrast to agricultural commodities that could also be produced in temperate zones, tropical products did not face high market access barriers, but their consumption was often subject to internal taxes for revenue purposes, which were similarly excluded from the scope of trade negotiations under the GATT. (105)
But product selection also occurred in sectors that were at the center of the negotiations. Here, the desire to "concentrat[e] concessions on those products exported only by participants ... sometimes required that new product categories be developed." (106) The contracting parties achieved this by introducing new subdivisions into their tariff schedules. This so-called "tariff specialisation" (i.e., the "detailed classification of products for duty purposes") had long been recognized as a way "to evade most-favoured-nation obligations" (107)--or, at the very least, to minimize their effects.
The tension between tariff specialization and the MFN principle broke into the open in a number of trade disputes over the course of GATT history. These disputes demonstrate the importance that the GATT's contracting parties attributed to their ability to use tariff specialization as a means of excluding contracting parties that had not paid for a concession from the benefits of that concession.
One example is the Japan/Canada-Dimension Lumber case. (108) Canada argued that certain types of lumber falling under different headings in the Japanese tariff were "like" products, and that the different tariff treatment of these products--some of which were predominantly found in the United States, some predominantly in Canada--was therefore inconsistent with Japan's MFN obligations. While the tariff lines at issue had not been created for the purposes of negotiations, but reflected unilateral decisions by Japan in light of its import and protection needs, (109) the arguments of Japan highlight the important role that Japan attributed to tariff specialization for limiting the benefits from tariff concessions to those who pay for them. Thus, Japan argued that, if contracting parties were permitted to reclassify products in other contracting parties' tariff schedules on the basis that these products were "like," such reclassifications "could be used to undermine negotiated tariff concessions," as complainants could reclassify items "in order to gain an unbargained-for-concession." (110) By "attempting to build a case by establishing within existing sub-positions of the Japanese Tariff sub-groups of goods with a degree of similarity ... so as to find allegedly 'like products' that receive different tariff treatment," Canada was, in Japan's view, "forcing Japan into a concession that had not been negotiated." (111) Japan warned of dire consequences for a system of tariff negotiations based on payment if this approach was accepted, noting that
any moves to introduce tariff sub-classifications based on "end-use" criteria, would have the result that negotiators, when considering a concession-request on a given tariff position, would have to examine for "likeness", with the product covered by the requested position, all other products covered under any other tariff position, and, if there existed such "like" products, the negotiators would then have to decide whether, or not, they would be in a position, and willing, to grant the concession, bearing in mind reciprocity obligations and other relevant desiderata and requirements. (112)
Other countries took the opposite view and warned of the "dangers of allowing widespread abuse of the MFN clause through 'breaking out' a tariff line into numerous specialized and essentially arbitrary categories." (113) In this controversy, the conflict between the MFN rule and the principle of payment that had given rise to the principal supplier rule reappears in the tension between the prohibition to discriminate between like products and the imperative to concentrate the benefits of tariff concessions on those who are paying for them.
The panel in Japan/Canada-Dimension Lumber recognized tariff differentiation as a "legitimate means of trade policy," in that it was a "legitimate means of adapting the tariff scheme to each contracting party's trade policy interests, comprising both its protection needs and its requirements for the purposes of tariff and trade negotiations." (114) Robert Hudec reads these "rather opaque references to the needs of tariff negotiations" as owing to the abovementioned tension, noting that "it was no doubt awkward for the panel to acknowledge, in the face of all the fanfare proclaiming the MFN obligation to be a 'cornerstone' of GATT policy, that governments do need a bit of freedom to discriminate in tariff negotiations." (115)
Other authors have confirmed the importance of the product selection facilitated by tariff differentiation for the success of tariff negotiations. Hufbauer et al. note that, in tariff negotiations, "the legal devotion to an unconditional most-favored-nation approach often exceeded its economic substance." They speculate: "If 'product selection' had not been available as a way around a strict MFN approach, there would perhaps have been much less tariff cutting." (116) Product selection was indeed highly successful in concentrating the benefits of trade liberalization among those who actively participated in tariff negotiations. As Finger reports:
The participating countries with whom the United States exchanged concessions at the Geneva 1947, Geneva 1956, Dillon, and Kennedy rounds supplied in each case just under 70 percent of dutiable U.S. imports. At the first of these rounds, judicious selection of products managed to internalize 84 percent of U.S. concessions, and by the Dillon Round product selection had become a fine art, internalizing 96 percent of U.S. concessions. (117)
In sum, product selection, both in its blatant (exemption of entire sectors) and subtler (tariff differentiation) forms, played a significant role in concentrating the benefits of trade negotiations among the core countries. The exclusion of most policies other than tariffs from the ambit of negotiations for most of the GATT's history proved to be particularly problematic for developing countries and agricultural exporters, who were unable to achieve reductions in the major trade barriers facing their exports.
3. Who Needs to Agree: Critical Mass Approaches to Lawmaking
The dynamics described in the previous two sections were most characteristic of trade negotiations in the first two decades of the GATT's operation. The Kennedy Round in the 1960s brought two major changes. First, negotiations on nontariff barriers started to play a more prominent role. For a number of reasons, these negotiations were not subject to the self-perpetuating club dynamic that had characterized tariff negotiations. Thus, in negotiations on nontariff barriers, there were no conventions akin to the principal supplier rule that would have restricted who could request concessions from their trading partners. Moreover, even though the participants were still primarily interested in the practices of their major trading partners, in negotiations on nontariff barriers all countries potentially had something to offer, namely their consent to multilateral rules--at least in those areas where multilateral solutions, instead of bilateral accommodations, were sought. As Winham has observed:
Once non-tariff measures and other issues came onto the agenda of GATT negotiations--which occurred mainly at the Tokyo Round--developing countries were less inhibited by their trade profiles and were more able to make an impact on multilateral trade negotiations. In the negotiations over trade rules or codes of behaviour, large and small nations start on a footing of greater equality than they do in a tariff negotiation based wholly on the respective trading performances of the participants. Economic power and interest are still the principal variables in current GATT negotiations, but the correlation between bargaining position and trade performance has diminished and there is consequently greater scope for negotiating skill and perseverance on the part of individual national delegations. (118)
Second, even the dynamics of tariff negotiations changed in the Kennedy Round, at least superficially. The Kennedy Round was the first negotiating round in which tariff reductions were supposed to be achieved in accordance with a multilaterally-agreed formula, rather than through bilateral bargains. This held out the prospect that less economically powerful countries would not only profit from tariff reductions on a wider range of products, but would also have a say in the design of the reduction formula.
These developments ran counter to the club dynamic that had characterized past GATT negotiations: from the perspective of the core GATT countries, these changes posed precisely those dangers that the club approach was designed to avoid. First, the active participation of a wider range of countries in the negotiation of rules and tariff formulas would make reaching agreement more difficult. Second, in order to reach consensus under these circumstances, the core countries might have to make substantial concessions to other countries. Third, if agreement could not be reached and the core countries decided to implement agreements among themselves, the MFN obligation would make it hard to prevent the outsiders from benefitting from the agreement, thus making it difficult to force them to join it on the insiders' terms.
As the discussion in this subpart will demonstrate, the core countries found mechanisms to replicate the club dynamic under the changed circumstances in a way that addressed the first two concerns, but did little to remedy the third. Thus, the use of a critical mass approach to negotiations on nontariff barriers and tariff formulas prevented potentially non-cooperative countries from blocking agreement and from influencing the substance of the agreement in ways that would be unacceptable to the core. Moreover, the concentration of negotiating activity among a small group of core countries that used to occur automatically through the principal supplier rule was increasingly institutionalized in the form of exclusive negotiating arrangements. None of these instantiations of the club approach, however, allowed the core to internalize the benefits of their agreements to the same extent as had been possible under the traditional protocol of tariff negotiations.
Aside from the rules for the entry into force of the GATT itself, (119) one of the earliest examples of the use of a critical mass approach in negotiations on nontariff measures was the adoption of binding declarations containing additional obligations with regard to subsidies. The original version of the GATT contained only reporting and consultation requirements in Article XVI, a provision that had been agreed under the assumption that the much more stringent obligations contained in the ITO Charter would come into force soon. (120)
When the ITO Charter failed to enter into force, the contracting parties decided, at the Review Session in 1955, to amend Article XVI to include more specific obligations on export subsidies. The new paragraph 4 of the provision envisaged that contracting parties would cease to grant any form of export subsidies on non-primary products "as from 1 January 1958 or the earliest practicable date thereafter." (121) This was supplemented by a standstill provision whereby contracting parties would not extend existing subsidies or introduce new subsidies in the meantime (i.e., up until 31 December 1957). (122) An Interpretive Note clarified that the
intention of paragraph 4 is that the contracting parties should seek before the end of 1957 to reach agreement to abolish all remaining subsidies as from 1 January 1958; or, failing this, to reach agreement to extend the application of the standstill until the earliest date thereafter by which they can expect to reach such agreement.
Since the contracting parties failed to reach agreement on the abolition of all export subsidies on non-primary products by late 1957, they adopted, on November 30, 1957, a declaration extending the standstill provisions of Article XVI (4) for one year.123 124 Paragraph 4 of the Declaration stipulated:
This Declaration shall enter into force on the day on which it will have been accepted by the Governments of Belgium, Canada, France, the Federal Republic of Germany, Italy, Japan, the Kingdom of the Netherlands, the United Kingdom of Great Britain and Northern Ireland, and the United States of America. (124)
The Declaration and a Proces-Verbale extending it for another year entered into force on May 11, 1959, for those governments that had signed them. (125) In 1960, the contracting parties finally adopted a "Declaration Giving Effect to the Provisions of Article XVI, Paragraph 4," which contained a similar provision regarding the "critical mass" of countries that had to accept it in order for it enter into force. Thus, paragraph 2 of the Declaration read:
This Declaration shall enter into force, for each government which has accepted it, on the thirtieth day following the day on which it shall have been accepted by that government or on the thirtieth day following the day on which it shall have been accepted by the Governments of Austria, Belgium, Canada, Denmark, France, the Federal Republic of Germany, Italy, Luxemburg, the Kingdom of the Netherlands, Norway, Sweden, Switzerland, the United Kingdom of Great Britain and Northern Ireland, and the United States of America, whichever is later. (126)
Gallagher and Stoler have noted the implications of this declaration:
At a time when forty-two governments were [contracting parties] to GATT, only seventeen signed the declaration. The new obligations applied to the seventeen signatories, but rights under Article XVI:4 accrued to all forty-two [contracting parties]. Clearly, this apparent lack of reciprocity did not stop the seventeen from signing on because they must have considered that they collectively constituted a critical mass of [contracting parties] likely to engage in meaningful export subsidies on industrial products. (127)
The declarations on the standstill provision and the prohibition on export subsidies on industrial products implemented on a critical mass basis obligations that were envisaged in the (amended) GATT itself. The Kennedy Round Anti-Dumping Code, (128) however, marked a new departure: the negotiation of a legally separate agreement adding to GATT obligations but bypassing the amendment procedures of the GATT. The resort to "codes" during the Kennedy and Tokyo Rounds is often attributed to the difficulties of amending the GATT. (129) The amendment provisions of the GATT, however, foresaw that the GATT could be amended by a critical mass of contracting parties. Pursuant to Article XXX, amendments to the GATT (except to Part I, Article XXIX, and Article XXX itself, which all required unanimity) would "become effective, in respect of those contracting parties which accept them, upon acceptance by two-thirds of the contracting parties and thereafter for each other contracting party upon acceptance by it." (130) However, the core countries apparently found the threshold of two-thirds of the contracting party too high and therefore opted for the negotiation of separate "codes," which could be brought into force by fewer parties. (131)
The Kennedy Round Anti-Dumping Code did not even stipulate a minimum threshold for acceptances for its entry into force. Article 13 simply provided that it would "enter into force on 1 July 1968 for each party which has accepted it by that date." (132) Of course, among the states that had negotiated the code--principally member countries of the Organization for Economic Co-operation and Development (OECD)--acceptance was informally contingent upon the acceptance by the other participants (as well as the successful conclusion of the Round as a whole).
The second agreement on nontariff barriers negotiated during the Kennedy Round, regarding the elimination of the American Selling Price (ASP) system of customs valuation, was explicitly concluded among a limited group of countries, namely Belgium, France, Italy, Switzerland, the United Kingdom, the United States, and the European Economic Community. This agreement would enter into force only if accepted by all those governments. (133)
In both cases, the limited circle of parties who needed to agree made it easier to reach an agreement and allowed those parties to shape the content by themselves. It appears that in each case the benefits were sufficiently concentrated among the participants so that unrequited accidental benefits accruing to nonparticipants were not a major concern. (134) While the Anti-Dumping Code remained open to signature by additional parties, (135) the only obvious incentive would be the opportunity to participate in the Committee set up pursuant to Article 17 of the Agreement. However, John Jackson notes a more subtle way in which the Code could affect nonparties. Given that "the code is worded as an 'interpretation' of Article VI of GATT, its provisions could, over time, be accepted as the definite interpretation of GATT, thus binding all GATT parties." (136) Again, the outsiders would thus ultimately join the insiders on the insiders' terms. (137) Such multilateralization by stealth only had prospects of success as long as participation in the codes was not openly politicized--which may have been true for the Kennedy Round, but was no longer true for the Tokyo Round, as the following discussion demonstrates.
In the early 1970s, the "tight little club of the 1950s was gone," (138) and the negotiation of codes with participation of a critical mass of countries became the dominant modus operandi of the Tokyo Round. (139) At the same time, the limits of implementing the club approach through the use of critical mass became more evident in the Tokyo Round. At the conclusion of the Round, the developed countries were confronted with rival codes and amendments proposed by developing countries, with demands that only codes adopted by the Trade Negotiations Committee (TNC) with a two-thirds majority could enter into force, and (at least partially successful) resistance against the conditional-MFN elements of the codes. (140) Moreover, the negotiation of the one code on which the cooperation of developing countries was essential, the safeguards code, ended in failure. (141)
The Tokyo Round was from the outset driven by the United States, in conjunction with the European Community and Japan. (142) In 1973, the United States issued joint statements with the European Community (EC) and Japan, respectively, declaring their intention to initiate a new round of trade negotiations. (143) While the other developed GATT parties welcomed this initiative, developing countries were more skeptical and "made it clear that their association with the undertakings was conditional upon the details to be applied to their participation including the techniques and modalities to he worked out for the negotiations." (144) In an internal memorandum, U.S. negotiators reported criticism of the draft declaration launching the Tokyo Round by some developing countries, noting that "such discordant notes," if repeated at the Tokyo Ministerial, would be "regrettable," but
should not interfere with the basic objective which is approval of the declaration by the countries which are planning meaningful participation in the forthcoming negotiations. There is no requirement for any country to participate, and the election not to participate by a few developing countries will not affect the approval of the declaration. (145)
In effect, the entire Tokyo Round proceeded from the outset on a critical mass basis. (146) This allowed the developed countries, particularly the United States and the EC, to "essentially negotiate] ... among themselves" (147) and thereby realize the first two benefits of the club approach--facilitating agreement and shaping the content of that agreement decisively. At the same time, the United States and the EC became more reluctant than they had been in the Kennedy Round to forego the third element of the club approach--forcing outsiders to join the agreement on the insiders' terms--by extending the benefits of that agreement to nonparticipants, as required by the unconditional MFN clause of the GATT. Hence, for the first time in the history of the GATT, formal conditional MFN was openly considered as an element of the new "codes." (148) The report of the preparatory commission for the Tokyo Round negotiations noted the suggestion by "some delegations" that "the negotiations on certain non-tariff measures should be conducted on the basis that the benefits would accrue only to countries that are parties to the resulting arrangement." (149) The EC in particular had openly embraced conditional MFN as the basis for the code negotiations. (150) From the outset, the developing countries announced their opposition to this development. (151)
During the preparatory phase of the Tokyo Round, negotiations had already substantially advanced on a "Standards Code." (152) The working group that drafted the code had worked "on the hypothesis that benefits under the Code would accrue as of right solely to other adherents, without these benefits having to be extended to contracting parties which did not adhere to the Code." (153) This hypothesis did not extend only to the Code itself, but also to "multilateral schemes for assuring conformity to mandatory or quasi-mandatory standards" contemplated under the Code. (154) In the first draft considered by the working group, the hypothesis was inter alia reflected in a provision stipulating that such schemes "should not include any provisions which would prevent individual members from accepting assurances of conformity provided by non-participating countries, except where the non-participation of such countries is due to unwillingness to accept the obligations of membership." (155) The provision was accompanied by a note that "this somewhat tortuous phraseology is designed to make these schemes as 'liberal' as possible, but at the same time to discourage attempts to obtain the benefits of membership without accepting the corresponding obligations." (156) While the provision was later dropped, it indicates the spirit in which the negotiations proceeded.
The draft standards code that was ultimately forwarded to the Tokyo Round negotiating group on technical barriers to trade contained an explicit "critical mass" provision stating that it would enter into force after an as yet unspecified number of contracting parties ("[x]"), "including those listed in Annex 2," had ratified it. (157) Annex 2 was still "[to be added]" at this stage, but there proved to be little enthusiasm for doing so in subsequent negotiating sessions. (158) The provision does not appear in the final version of the Code. By all indications, there was an informal understanding between the United States and the EC that both would ratify the Code, and they were presumably unwilling to jeopardize the entry into force of the Code by making it contingent on the accession of other parties. (159)
This solution to the "critical mass" question was facilitated by the fact that, by its terms, the Code provided benefits only to those who were "Parties" to it, (160) which created an incentive for other contracting parties to join. In the case of the Standards Code, these benefits were not primarily substantive. Thus, many of the provisions of the code merely elaborate the national treatment obligation to which the parties were subject in any case with respect to all GATT contracting parties pursuant to Article 111:4 of the GATT. Rather, the benefits were procedural: the Code created new notification requirements that only applied with respect to other parties to the Code, and only parties were members in the Committee established pursuant to the Code. (161)
While the Standards Code was thus, like all other Tokyo Round codes, "conditional in important procedural respects," (162) the Subsidies and Government Procurement codes "fully embrace[d] the conditional MFN principle in their substantive elements" (163) in that, by their terms, they provided substantive benefits to signatories that were not enjoyed by other contracting parties to the GATT. Thus, while GATT Article III: 8 exempts government procurement from the scope of the national treatment obligation of the GATT, the Government Procurement Code provided for national treatment of "products and suppliers of other Parties" with respect to government procurement covered by the agreement. (164)
Similarly, the Subsidies Code imposed more stringent disciplines than the GATT on the use of subsidies that cause injury to the domestic industry--or serious prejudice to the interests--of "another signatory." (165) Moreover, Article 1 of the Subsidies Code stipulated that the imposition of countervailing duties (166) "on any product of the territory of any signatory imported into the territory of another signatory" had to be in accordance with the provisions of GATT Article VI as well as the Code. The most significant practical effect of this provision was that the United States could impose countervailing duties on subsidized imports from other signatories only after determining that these imports were causing "material injury" to its domestic industry--a requirement of GATT Article VI from which the United States was exempt with respect to the contracting parties of the GATT because its countervailing duty law, which did not require such a determination, predated the adoption of the GATT. (167)
The developing countries resisted both aspects of the club approach adopted by the United States and the EC in the Tokyo Round--critical mass negotiations and unconditional MFN--from the outset. Their first line of defense was to prevent the adoption of agreements on a critical mass basis within the framework of the Tokyo Round negotiations. At a meeting of the Trade Negotiations Committee in July 1978, Yugoslavia, speaking "on behalf of the developing countries," stated:
At this stage we are requesting that a rule be established for the decision-making process in the MTN [multilateral trade negotiations, N.L.] according to which no adoption of a negotiating document would be accepted unless the large majority of participants declared themselves in favour of it. We cannot proceed on the basis that a group of a few countries may consider it appropriate for others to be kept out of arrangements if they are not in a position to accept their conceptual approach. (168)
The developing countries were concerned that the critical mass approach was allowing the developed countries to develop the law without feeling the need to bring the developing countries on board. While the developing countries found it "understandable for there to be, in the process of negotiation, many stages and many bilateral and multilateral consultations," they saw these "as a technique for reaching universally acceptable solutions," (169) not as a way for small groups of countries to conclude agreements among themselves.
The developing countries kept up their resistance to the critical mass approach until the very end of the Tokyo Round negotiations. They attempted to amend the final drafts of the codes to the effect that they would only be open for acceptance "after adoption by the Trade Negotiations Committee." (170) This would have given developing countries a chance to prevent those codes that did not adequately reflect their interests from entering into force at all and would thus have given them leverage to effect changes in the codes. An alternative proposal advanced at the conclusion of the negotiations, which would have had a similar effect, was that the codes "should enter into force when two thirds of the participants in the MTN have accepted them." (171)
The question of whether an agreement among a subset of GATT contracting parties could only be concluded with the consent of all contracting parties went to the heart of what kind of institution the GATT was. In the developing countries' view, the Trade Negotiations Committee "could only proceed on the basis of consensus"; (172) the addition of any new body of law to the GATT framework required a positive consensus of the membership, even if only a subset of members would subscribe to it. In contrast to this collectivist conception of the GATT, the developed countries took the view that
the MTN was not a general diplomatic conference, that no agreement was being forced on any government but that on the other hand the Committee could not prevent a number of countries from entering into an agreement if they wished to, unless the provisions of the agreement were contrary to the GATT. (173)
These developed governments, then, viewed the GATT as a collection of bilateral or plurilateral contracts. Subsets of members who wished to enter into such contracts were free to do so as long as they "were not imposing anything on other governments but simply moving to higher levels of discipline." (174) Apart from consistency with the GATT, there was no substantive constraint on the content of bilateral or plurilateral agreements, such as would exist if they were subject to approval by the contracting parties as a whole. It was unsurprising that the developed countries took this view, as it was only under this conception of the GATT that the conclusion of critical mass agreements, and thus the realization of the first two benefits of the club approach--the greater ease of reaching agreement among a small group and the opportunity to shape the content of that agreement decisively--could be realized.
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|Title Annotation:||Abstract into III. The Club Approach in the History of Multilateral Trade Lawmaking B. The Self-Perpetuating Club: Participation in GATT Negotiations 3. Who Needs to Agree: Critical Mass Approaches to Lawmaking, p. 107-149|
|Publication:||Vanderbilt Journal of Transnational Law|
|Date:||Jan 1, 2016|
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