A Critical Analysis of the Singapore Issues - Research Paper Example

A Critical Analysis of the Singapore Issues Name: Course: Tutor: Date: Introduction The first World Trade Organisation (WTO) Ministerial Meeting held in Singapore in 1996 established exploratory work programmes on four issues, which have come to be known as the “Singapore issues”.1 The ministers proposed talks for WTO agreements through working groups that would be in tandem with WTO’s existing dispute resolution mechanism and which would (1) restrict the right of governments to control foreign investors (trade and investment); (2) bar governments from supporting domestic businesses against overseas competitors trade and investment (trade and competition policy); (3) necessitate governments to be involved in binding obligations for expensive changes in government procurement processes to ease or enhance foreign bidding, enquiry as well as disputes (transparency in government procurement); and (4) demand that governments undertake binding obligations to aid costly changes in domestic processes for the release of traded merchandise (trade facilitation).2 The four subjects were initially included in the Doha Development Agenda (DDA), and the cautiously-negotiated mandate for the talks was supposed to commence after the Cancun Ministerial Conference of 2003. It was proposed that the negotiations would proceed on the basis of a decision to be taken by an unambiguous consensus on the modalities of the talks. However, there was no consensus as the issues were regarded controversial,3 and the WTO members proposed that they would commence the negotiations on August 1, 2004 but on only one subject – trade facilitation.4 Thus, the other three subjects were dropped from the Doha Agenda. However, the Singapore Ministerial adopted the issues as study programmes rather than as a negotiating project.5 Against a backdrop of the issues that have been highlighted, this paper critically appraises the Singapore issues. It begins addressing the reasons that led to the failure of the Singapore issues to take effect, and then looks at the issues with specific facts brought up by the countries that did not support the issues. The paper also discusses the reasons that generally influenced the choices made by the WTO member states regarding the choices they made. Controversies surrounding the Singapore issues The Singapore issues elicited mixed reactions from different countries. For instance, a number of developed countries, the European Union (EU) included, argued that the issues should be placed on the agenda of the WTO.6 Yet the United States was lukewarm about negotiating the issues, and to many developing countries, discussing these issues looked distinctly threatening.7 In general, as Evenett and Hoekman (2006) point out, too few countries were persuaded that a deal that would benefit them would actually be realised and that the EU’s enthusiasm for the Singapore issues was not matched by similar enthusiasm for reforms in the agricultural sector 8(which mostly affect the developing countries). A paper prepared by the European Community after the Fifth Ministerial in Cancun (which collapsed on 14 September 14, 2003) argued that the objections raised by several countries regarding negotiations and modalities of the Singapore issues were based on (1) reluctance of some developing countries to enter into lasting international agreements that could limit their policy space; (2) apparent lack of negotiating capacity for some of the developing nations; and (3) the unwillingness of some developed states to tie their hands to a multilateral rather than a unilateral or bilateral approach to competition and investment.9 The lack of consensus over the Singapore issues led to the suggestion to unbundle the issues, and the EU accepted this strategy, saying that it would accept one or more issues falling outside the proposed negotiating structure.10 Despite this, many countries were still reluctant to be associated with the Singapore issues. For instance, Bangladesh raised concern regarding the undue emphasis falling on the Singapore issues and suggested that more attention should rather be focused on development issues.11 On its part, India supported a multilateral deal to enhance the power as well as abilities of customs authorities.12 Yet South Africa noted that the Singapore issues needed not hold up talks in other areas, and that investment and government procurement were no longer a component of the single undertaking.13 Thus, South Africa opposed a plurilateral approach to the Singapore issues. But Korea was keen to have all the four issues taken to the negotiating agenda of the WTO.14 Nonetheless, the view of many developing states was that the Singapore issues should be dropped in totality.15 It is therefore important to address the issues and why many developing countries wanted them dropped altogether. From a first look, the four issues seem not to be harmful to developing countries. After all, as Winters (2003) argues, “all four address issues that correlate with development and growth”16 and by pursuing them, the concerned states would in a way increase their capacity to alleviate poverty. Therefore, the point of concern regarding the Singapore issues is not whether they are intrinsically deleterious to the interest of the developing states, but as Winters points out, there is need to attempt to answer the following questions:17 Are the key points implied by the DDA the right ones for developing states? Does bringing the four issues to the discussion table through the WTO, with its focus on market access and its ambience of international pressure and compulsion, actually help progress in them? Do developing nations have the resources to manage the resulting institutions or to conduct investigations on any complex and intrusive areas of policy? The answer to the first question above can be derived from the standpoint taken by Bangladesh regarding the Singapore issues - that WTO developing countries would rather focus their effort on enhancing development rather than discussing these issues. Further, it is worthwhile to ask if a government should give priority to issues such as international competition policy over so many more pressing reforms that preoccupy legislative bodies as well as enforcement authorities as pointed out by Lloyd and Milner.18 But there is need to analyse this question further since the four issues may as well be related to development as mentioned by Winters above. The answer to the second question can be found from the fact that even if addressing the issues were beneficial, the process would be hampered by the “convoy problem.”19 This is a situation where the pace of talks is held back by the least willing member or members. In addition, the negotiations, like all other talks under the WTO, would remain cumbersome because of the huge WTO membership,20 with different countries only trying to address the issues to their best interest. The third question is straightforward given that most developing countries have limited resources to eve facilitate their own development. Additionally, the least developed countries do not even have influence in the WTO system. As such, to expect developing countries to have extra resources to manage the institutions created as a result of the Singapore issues would be putting too much burden on them. This is even likely to hold back their development especially in terms of trade. The four issues Trade and investment Investment is critical to development, and where it is available it is likely to be featured with foreign direct investment (FDI). But the key factors behind FDI include sound trade and macroeconomic policies, political stability, as well as secure popery rights.21 It is therefore crucial that even as efforts are made to promote trade and investment, these issues should be looked into. In line with the statements above, the EU, through its negotiator Pascal Lamy, argued that developed countries, if not the least developed countries, needed to understand that agreements on investment and competition are worthwhile because they contribute to their economic growth and development.22 Thus, EU’s main argument was that developing countries should not block agreements that would facilitate FDI and competitive economies.23 Japan and Korea also supported negotiating the issues of trade and investment on the WTO table. The positions taken by the two countries were in tandem with the argument made by the EU that investment rules based on the principles of Most-Favoured Nation (MFN), national treatment, transparency and the right to establish businesses overseas are essential to contribute to a stable and predictable business climate for FDI.24 But the depth of these statements cannot be understood without analysing the underlying issues. For instance, governments usually have reasons for restricting the operations of foreign companies in the domestic market. Developing countries particularly maintain strict controls over investment by foreign firms, for a number of reasons including the desire to protect local companies, the worry that the government will lose political control over large, foreign multinational firms, and the fear of technological and industrial dominance by the large firms.25 Obviously, developing countries cannot be expected to benefit wholesomely if most of the capital flows in their jurisdictions are foreign-owned. Back to the controversial issues, paragraph 22 of the Doha Declaration informed the Working Group (of the WTO) on the Relationship Between Trade and investment to focus on the clarification of seven issues: scope and definition; transparency; non-discrimination; modalities for pre-establishment commitments based on a General Agreement on Trade in Services (GATS)-type positive list approach; development provisions; exceptions and balance of payments safeguards; and consultation and the settlement of disputes between member states.26 However, dissenting WTO members argued that the list above is not comprehensive and should, for example, include performance requirements. The disgruntled members also wanted the special development, trade and financial needs of least developed states be taken into consideration as an integral part of any framework.27 This, they argued, would enable such countries to undertake obligations and commitments commensurate with their individual needs and prevailing conditions. The same factors are essentially post-establishment issues relating to the treatment of foreign firms once they have arrived. Winters argues that these issues are primarily domestic and in countries where they are not, they are at least partially addressed by development institutions.28 Further, binding agreements in the WTO supported by sanctions may augment countries’ credibility in the said areas and thereby increase FDI somewhat, but did not seem to be the agenda of the WTO at that time. Trade and competition policy Although most WTO members are in agreement that there is a strong relationship between trade and competition, there is significant controversy on whether or not measures should be implemented to create a multilateral set of principles governing competition. This issue is particularly intricate because the absence of antitrust and other competition regulations can affect markets both at the domestic level and in foreign markets. Players in international trade hold divergent views regarding the issue of competition, as is commonplace of the different interests among different countries. For instance, the EU would like to see international standards of competition policy developed, but which would enable the developing countries to opt out of them in the sectors they deem fit to.29 As regards the DDA, developing countries were divided on the issue of competition, with some Latin American states favouring the suggestion, while many Asian states were less enthusiastic. The reason for the divergent positions taken by the various countries is that some developing countries fear that large, multinational firms, which tend to have their headquarters in developed nations, will expand into their domestic markets and pose a threat to their young and developing domestic firms.30 Several developing countries also oppose the multilateral competition measures because they perceive them to be too intrusive; in that believe that competition policy is something that a government can create at its own pleasure because such policy relies upon a nation’s unique market conditions.31 Additionally, some developing countries were wary of adding more issues to the agenda of the WTO even before other more pressing issues had been resolved by the same forum.32 Despite all these discrepancies, the United States and the EU both vigorously supported the establishment of international competition policy, with a major argument that unfair competition distorts trade as much as differential tariffs do, and thus should be regulated by the WTO instead of being bestowed to individual country governments’ discretion.33 Nonetheless, the United States and the EU did not agree on how their proposals would be implemented. Having an international competition policy as suggested by the EU and the United States may be a good idea, but is not the panacea for development. Mitschke (2011) is of the opinion that competition policy is not the best idea for developing countries because the success of economies such as the People’s Republic of China, Singapore and South Korea attests that strict competition policy is not the crucial factor for the economic growth of developing countries.34 The author further assets that “free trade, good governance, state-led development, and national flexibility with regard to the application of trade policy seem to be the decisive factors for the success of developing counties.”35 Thus, even though the Doha Round sought to “place developing countries’ needs and interests at the heart of the Work Programme,”36 it can be said that this objective cannot be accomplished by merely establishing an international competition policy. Transparency in government procurement According to paragraph 26 of the DDA, WTO members recognised the case for a multilateral agreement on transparency in government procurement as well as the need for enhanced technical assistance and capacity building in the same area.37 They thus agreed to hold negotiations after the Fifth Session of the Ministerial Conference based on a decision taken by explicit consensus at the same session on the modalities of negotiations.38 However, not much was achieved by the Working Group in the respective due to the divergent views taken by WTO members. At the Seattle Ministerial Conference, several countries realised that they had been invited to partake in a number of meetings (referred to as Green Room deals). These countries then aired their dissatisfaction with the EU, the United States and Japan for closing off some of the negotiations to the least developed countries.39 Further, many developing countries considered the proposals by developed countries to be intrusive, and many of them supported India’s attempt to limit the scope of the discussions in this area. But the EU, the United States and Switzerland sought to increase the scope of issues to be discussed. While India underlined the importance of using government procurement as one of the few policy mechanisms available for achieving socio-economic objectives, the United States maintained that greater transparency would not lessen that function.40 The reluctance to change WTO procedures as regards transparency in procurement is due to lack of consensus on a number of issues. For instance, members disagree on whether or not it is within the domain of the WTO to increase public awareness and to what extent the proceedings should be made public.41 While most countries agree to increase transparency within the WTO system, others fear that the objectives of external transparency will endanger the capacity of all members to participate equally in negotiations.42 There was no agreement, for instance, on who should be responsible for increasing public awareness of WTO activities. Some WTO member states (India, Pakistan and Egypt) pointed out that the issue of external transparency should be left to individual states rather than the WTO. These countries were of the conviction that WTO member countries should be responsible for disseminating information and documents about WTO procedures within their own jurisdictions, leaving the WTO as a whole to focus on other more important issues.43 There is no gainsaying the fact that transparency is vital in situations where general rules can only have a limited impact on the conditions of trading, and where governments are freest to make decisions at their discretion.44 Indeed, transparency aims at ensuring that when governments are involved in procurement, information about the dealings is made available and that decisions are taken fairly. Transparency provisions also aid in monitoring to ensure that governments abide by their obligations and particular agreements – that they will not discriminate against suppliers and supplies from other WTO members. Transparency is one means of achieving the objective. The transparency provisions aim to ensure that adequate information on procurement opportunities is made available and that decisions are fairly taken. They also support monitoring to ensure that signatory governments abide by their commitments under that agreement — commitments not to discriminate against suppliers and supplies from other signatory countries. But only 28 WTO members supported the existence of the transparency provisions.45 Majority of the developing states were concerned that given a chance, wealthier states will able to flood the discussion panel with issues that only favour their position as regards procurement. They also argued that having transparency as an issue on the WTO agenda would be a departure from WTO’s traditional market-opening agenda.46 It should be noted that wealthy nations are likely to influence procurement processes in their favour because majority of the large suppliers in the world have origins in these countries. On the other hand, promoting transparency in government procurement would ensure that procurement procedures are subjected to scrutiny, thus ensuring that all countries are treated equally and are assured of worthwhile deals with reliable and trusted suppliers. Because of the controversies surrounding the issue of transparency under the WTO, the subject was dropped as an agenda of the Doha Rounds on August 1, 2004.47 Trade facilitation Trade facilitation is the only Singapore issue remaining on the active agenda of the WTO as it has been adopted by the July Package of the Doha Work Programme.48 The concept is defined by the WTO as “the simplification and harmonisation of international trade procedures.”49 The Doha Ministerial framed the matters regarding in manner such as to consider the prospect of developing countries by touching on issues of market concessions by developing countries on products of export interest to developing states and less than full reciprocity from developing countries in market access bargaining. Importantly, it dealt with ensuring that developing countries are supported through expanded trade-related assistance.50 Trade facilitation appears to be more or less acceptable to many developing states, as it is perceived to bring benefits to all.51 But even then, it is worthwhile to ask if trade facilitation is all about the benefits that accrue. Also, another question regards whether the benefits to be reaped from trade facilitation are good enough in relation to the anticipated costs, especially given that developing states are faced with financial constraints and other development priorities. Further, as Nanda (2008) observes, there has been no conclusive study that decisively shows that the expected benefits would outweigh the expected costs, both indirect and direct.52 Nonetheless, perhaps the major reason why developing countries welcomed trade facilitation as an item to be negotiated is the gains they are likely to derive. According to the United Nations Conference on Trade and Development (UNCTAD), the costs of trade transactions equal 7-10 percent of the total worth of global trade, and that trade facilitation measures could reduce this by one quarter.53 Along this line, it is important to note that because developing countries are faced with many challenges in trade vis-à-vis developed states, they are likely to be the major beneficiaries of improvements in trade facilitation. According to Nanda, developed-country traders are more constrained than their developed-country counterparts because of the unnecessary bureaucracies that affect these developing countries.54 And since developing-country traders are relatively small and also export or import smaller amounts of merchandise, they find the cost of documentation and other related costs disproportionately higher as in most cases such costs are usually fixed and do not vary with the size of the consignment.55 From the discussion above, it is evident that even though trade facilitation is still an issue on the WTO agenda. There still are many factors that need to be taken into consideration. It for this reason that Kernohan (2005) argues that there are obstacles to smooth negotiation and commitment in this area (trade facilitation) that the WTO will have to address.56 For instance, developing countries, in spite of their general agreement with the objective to facilitate global trade, may not have the requisite resources to update their customs procedures to more contemporary technological standards. Developing countries are also often reluctant to take on additional legal commitments that may increase their exposure to dispute settlement.57 Conclusion The Singapore Ministerial Meeting held in Singapore held in 1996 came up with four issues that it intended to have discussed as part of the WTO agenda through work programmes, which were thus referred to as the Singapore issues. These issues included trade and investment; trade and competition policy; transparency in government procurement; and trade facilitation. Although these issues were perceived to promote trade and development among countries of the world, most developing countries opposed them as they believed that discussing them would tend to benefit developed countries only. Among the key reasons for the opposition include the need for additional resources to implement the decisions made and the fact that developing countries would suffer as they have more pressing issues to attend to. Due to the controversies surrounding the Singapore issues, three of the issues were dropped in the subsequent meetings, leaving only trade facilitation as an active issue to be negotiated. But even this issue has been a subject of debate, as although increasing trade facilitation would benefit all countries, developing states are wary that they may end up losing because they do not have adequate resources to change their systems in tandem with new trade requirements, and are also keen to avoid additional costs such as those involving trade disputes due to more involvement in trade References Arrowsmith S & Anderson, R D (2011) The WTO Regime on Government Procurement: Challenge and Reform, Cambridge University Press, Cambridge, MA: Deese, D A (2008) World trade politics: Power, principles, and leadership, Taylor & Francis, New York. Evenett, S J & Hoekman, B M (2006) Economic development and multilateral trade cooperation, World Bank Publications. Finger, J M & Wilson, J S (2006) Implementing a WTO agreement on trade facilitation: What makes sense? World Bank Publications, Washington. 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