Educational (and more): The TFA, or negotiating about standards

My editorial

Today, I am taking on discussing the Trade Facilitation Agreement  signed, and, since recently, enforced under the auspices of the World Trade Organization. This is basically educational content, mostly for the Graduate Master’s students in their curriculum of International Economic Transactions, but it can serve other curriculums just fine, like Microeconomics or Economic Policy. It is also pertinent regarding those few notes about how the opportunity for new business is connected to the growth of markets, which I put on this blog in my last update in French (see Stratégie fin 17ème , stratégie fin 18ème ). So, on the 27th of November 2014, the General Council of the World Trade Organisation adopted the Protocol of Amendment to insert the WTO Trade Facilitation Agreement into Annex 1A of the WTO Agreement (“the Protocol”). The Protocol quickly gained that nickname of Trade Facilitation Agreement. As it had been opened for acceptance by Members, a member country formally accepts the Protocol by depositing a so-called instrument of acceptance for the Protocol with the WTO. The Trade Facilitation Agreement (TFA) entered into force on 22 February 2017. It applies only to the WTO members that have accepted it. In respect of each member that accepts the TFA after its entry into force, it will take effect upon acceptance, in accordance with Article X:3 of the Marrakesh Agreement Establishing the World Trade Organization.

I am going to practice my favourite method of analysis, which goes from the end towards the beginning. It means I start studying a legal document from its last provisions (bottom of the last page). This is a place, where many people don’t even bother to look, and, kind of by acceptance, those last provisions turn into the proverbial ‘small print’ in a contract. The TFA ends with Annex 3, which specifies the Code of Good Practice for The Preparation, Adoption and Application of Standards. Annex 3, in turn, ends up with substantive provision (Q), which states: ‘The standardizing body shall afford sympathetic consideration to, and adequate opportunity for, consultation regarding representations with respect to the operation of this Code presented by standardizing bodies that have accepted this Code of Good Practice. It shall make an objective effort to solve any complaints’. Good. So now, we know that whatever grand goals and intentions are declared in the preamble of the TFA, we have a network of the so-called standardizing bodies, which interact with other, local standardizing bodies, and they do so with sympathetic consideration, offering adequate opportunities, and making objective effort.

This little technical provision at the very end of the TFA opens up on two important aspects of international relations in general, as well as of trade specifically. If you look at the phrasing, it essentially means that standardizing bodies commit to being nice to each other, which in nice in general, but could be seen as odd in a contract. After all, the TFA is a contract between countries. Have you seen many private contracts, where the contracting parties engage into being nice? Probably you haven’t seen that many. So, what’s the point? The point is one of the most fundamental principles in the international public law, namely the principle of national sovereignty. Each country is sovereign in their national territory, just as each government is. It means that technically countries cannot force each other into doing anything, and they cannot prevent each other from doing things. Every single country is a sovereign entity. Sometimes, sovereign countries are in disagreement about things important to them. Actually, this type of sometimes happens quite often, and even between countries signatories of the same treaty or agreement.

This provision (Q) in the Annex 3 to the TFA shows, in practice, two techniques that can be used to soften the edge of controversies when such arise: standardization, and legal precedent. First of all, whilst countries cannot be forced into doing or not doing anything, private entities inside those countries can. I want to do trade with Cameroon. Let’s say I want to export frozen pork meat to Cameroon. The government of Cameroon wants imported food to meet some standards, and the process of import should occur according to some expected rules. The government of Cameroon cannot, technically, force the Polish government into doing anything about frozen pork meat. Still, both governments can agree on a system of standards. If a private entity in Poland wants to export frozen pork to Cameroon, it has to comply with those standards, just as the private entity in Cameroon, which is the first wholesale buyer of said frozen pork. At the end of the 18th century, the European economy saw a sudden flourishing of standardized money based on bank notes. There was suddenly much more money in circulation, and that money was becoming more and more standardized. Now, if we look at what happens today, in international trade, we can see two things: trade is mostly trade in technologies or for technologies. We trade complex goods based on complex technologies, and even when we trade simple goods, they are frequently an input to complex technologies. Even frozen pork makes such an input. If you have ever seen the way that large quantities of food are being handled in international trade, there is a cartload of technology in the process. This frozen pork is likely to stay in places, where humans are hardly ever allowed and only robots can go inside (high storage warehouses, loading spaces on ships etc.). If a technology is to grow its market, it needs a phase of standardization (see for example Mahoney 1988[1]). Standardization does things that direct relations between governments cannot: it makes business go just smoothly so as (almost) everybody be happy with the end result.

Good, now we pass to the second technique of blunting sharp disputes: the legal precedent. Maybe you remember those times, when you refuse to do someone wants you to do, and then the someone in question gently reminds you ‘But you promised…’. Past promises make a frame, made of precedents, and that frame limits the freedom of future action. Notions like ‘objective effort’ or ‘sympathetic consideration’ have their force of precedent, as well. If a national standardizing body addresses another standardizing body with some complaint, or is the addressee of a complaint, someone in the interaction could, technically, stick their middle finger up in a big, juicy f*** you. They could, but they probably are not going to, as all the countries agreed that it should ‘give sympathetic consideration’ and ‘make objective effort’. These, in turn, translate into procedures. When a complaint is being filed, it should be handled according to procedures, which reflect sympathetic consideration and objective effort. Moreover, those procedures can be reviewed and evaluated according to how sympathetically considerate and objectively effortful they are. Legal precedents form something called ‘customary international law’, which is really important in international relations (see for example Goldsmith & Posner 1999 [2]).

When we discussed the GATT 1994, I explained that it was being signed in a climate of tension between countries as it regards trade. This is why the GATT 1994 is so strange an agreement, stating that whatever the signatory governments have done so far is just fine, provided it can be presented as a rational policy. Right now, tension builds up in international trade as well. The geography of trade is changing, progressively. The so-called ‘resource curse’, which is the Ricardian paradigm of comparative advantage gone bad, and on steroids, is really kicking many asses. The world is changing and that creates tensions.

Let’s scroll further back to the beginning. Substantive provisions (O) and (P) in Annex 3 state, respectively, that: ‘(O) Once the standard has been adopted, it shall be promptly published (P) On the request of any interested party within the territory of a Member of the WTO, the standardizing body shall promptly provide, or arrange to provide, a copy of its most recent work programme or of a standard which it produced. Any fees charged for this service shall, apart from the real cost of delivery, be the same for foreign and domestic parties’. We can see that the TFA, whilst technically being an agreement between governments is, in fact, a base for technical cooperation between standardizing bodies. The core issue if is smooth communication: whatever we agree on, as well as whatever any of us has come up with individually, should be made known to the others. This is the deep sense of standardization: quick communication with quick feedback.

I scroll further back towards the beginning, and in the same Annex 3 there is the substantive provision (F): ‘Where international standards exist or their completion is imminent, the standardizing body shall use them, or the relevant parts of them, as a basis for the standards it develops, except where such international standards or relevant parts would be ineffective or inappropriate, for instance, because of an insufficient level of protection or fundamental climatic or geographical factors or fundamental technological problems’. It shows an interesting aspect of customary international law: the intentional ambiguity. What does it mean ‘imminent completion’? In a week or in a year? Who assesses whether standards are effective or not? How can anyone say, which technological problems are fundamental? These ambiguities make this provision hardly applicable directly, as such, to any standards, but it creates the frame for negotiating about those standards.

[1] Mahoney, M.S., 1988, The History of Computing in the History of Technology, Princeton, NJ, Annals of the History of Computing 10(1988), pp. 113-125

[2] Goldsmith J.L., Posner, E.A., 1999, A Theory of Customary International Law, JOHN M. OLIN LAW & ECONOMICS WORKING PAPER NO. 63 (2D SERIES), THE LAW SCHOOL, THE UNIVERSITY OF CHICAGO, This paper can be downloaded without charge at: The Chicago Working Paper Series Index: http://www.law.uchicago.edu/Publications/W orking/index.html or at The Social Science Research Network Electronic Paper Collection: http://papers.ssrn.com/paper.taf?abstract_id=145972

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