GFJ Commentary

December 31, 2019 

There’s Something Only WTO Can Do

By OGATA Rintaro

Let me begin by illustrating importance of the World Trade Organization (WTO) together with its historical background. While the General Agreement on Tariffs and Trade (GATT) proved itself of its significant role through the six trade rounds, it has also become apparent that the GATT rules did not meet some of emerging demands. Under the circumstance, a comprehensive negotiation round named the “Uruguay Round” was launched in 1986. The reason why it was named after Uruguay was that the Ministers’ meeting that initiated the negotiation was kicked off in Punta del Este, Uruguay. Similarly, city names were included in the official title of historic documents, for example, in the cases of the Marrakesh Agreement Establishing the World Trade Organization (Morocco); Doha Development Round (Qatar), or on the climate change treaty framework, Kyoto Protocol (Japan).

Though it exceeds my ability to comprehensively explain the 7 year-long negotiation process, in brief, such a wide range of areas ---trade of goods, services, intellectual property rights, dispute resolution procedure, quarantine, policy planning, licensing, etc.--- were ambitiously discussed. In particular, the negotiation on trade of goods, the agriculture part was specifically put on table, and domestic and export subsidies, as well as pricing support policy were discussed for the first time. The establishment of a new, official and international organization, the World Trade Organization, was discussed, too. It may not be as inclusive or highly motivated as what John Maynard Keynes dreamt of the International Trade Organization to be, the WTO can be recognized as “the ITO came 50 years late.”

As stated above, the uniqueness and remarkableness of the GATT Uruguay Round was that it discussed the agriculture area separately. Among the agendas, ”tariffication with no exception” and “subsidies” were notable. The situation of the agricultural trade during 1980s was nothing but rough. The European Commission (EC) and the United States had an aggressive export strategy, by protecting their domestic agricultural products with a special measures, and subsidized plenty. The U.S. government did not provide the export subsidy, but their domestic subsidy and loan had a de facto effect to promote its trade.

Then they had the idea of “tariffication with no exception.” It is a rule for any kind of protection to be switched to tariff. The tariff here is basically on percentage (ad valorem tax), or yen/kg (tonnage tax), so in my understanding, the tariffication is a protection with simple scheme.

Japan stuck to oppose the tariffication-with-no-exception until the end, to protect its rice industry, and won the exceptional treatment. They won, but they turned to the tariffication 4 years after the WTO treaty went effective, by having realized the treatment was not beneficial after all. This case must be remembered as a lesson: although the tariffication-with-no-exception must had been avoided that time, the best effort to do so ended up as a failure. Foods other than rice ---wheat, barley, some dairy products, starch, beans, peanut, elephant roots, cocoon silk and pork--- were all tarifficated in some way.

The WTO’s Agreement on Agriculture is the only trade agreement that slashes the subsidy. The idea is that no matter how much the trade is liberalized, the meaningfulness of the trade liberalization will be lessened if the advanced economy protects itself with subsidy, and worse, devastates the agricultural market of the other country. The EU’s export subsidy was especially given a hard look. We have to be reminded the universal rule on agricultural subsidy has not been progressed after the WTO agreement (though, countries are reforming their subsidy scheme by their own due to financial difficulty). No matter how much progress Trans-Pacific Partnership (TPP), Japan-EU Economic Partnership Agreement or Japan-US trade agreement show, the subsidy is untouched, and no country is willing to reduce the subsidy based on the bilateral or multilateral agreement. We hear an opinion “WTO is not needed, like-minded countries can deal with this” these days, but we shall not forget there are some affairs only WTO can take care.

Having been through such Uruguay Round negotiations, the WTO agreement was settled at the end of 1993, signed in April 1994, and came into effect on January 1, 1995 after the discussions in the Diet councils. A new international organization, WTO, was established as the agreement became effective.

The GATT Director-General, Peter Sutherland assumed the first DG position of the WTO. The de facto first DG, however, was Renato Ruggiero, a former Minister for Foreign Trade of Italy. I am not going into detail, but the selection process of that time was a bitter experience for Japan, as being clearly betrayed by Korea’s double-tongue. I joined the Ministry of Foreign Affairs of Japan, with the belief written in “Diplomacy” by Sir Harold George Nicolson, that honesty is the best practice, lying will be a loss in long term. So Korea’s behavior at the selection of WTO DG was a strong sucker punch to me. Since then, I have no trust in Korea, which was an unfortunate experience.

(This is an English translation of the article written by OGATA Rintaro, former Member of the House of Representatives, which originally appeared on the e-forum “Giron-Hyakushutsu (Hundred Views in Full Perspective)” of GFJ on November 13, 2019.)