All agree the WTO needs reforms - but not which. With trade at the centre of rising geopolitical tension, rebuilding a multilateral system all sides trust is vital.
By Dmitry Grozoubinski
This year the 12th World Trade Organisation (WTO) Ministerial Conference explicitly mandated work toward “necessary reform of the WTO,” the multilateral organisation where the baseline rules of international trade are negotiated, monitored and adjudicated. Yet mandating reform may have been the easier challenge; agreeing on what it should entail looks much harder.
As an international organisation, the WTO remains important. It underpins a baseline of common rules for the flow of goods, services, capital, people and ideas necessary to operate 21st-century economies. It also offers a predictable process and forum for the peaceful resolution of trade-related disputes.
"If reform isn’t able to maintain and rebuild that shared investment in the system, the system will dwindle and collapse."
Since its inception in 1995, the WTO has made only patchwork progress towards reforming itself - with just two new agreements added and mostly marginal progress on trade facilitation, export subsidies in agriculture and subsidies for illegal fishing. Indeed, it can be seen largely as fighting a rear-guard action as even some of the members instrumental in its creation increasingly chafe at the restrictions being a WTO member entails. This poses an existential threat to WTO relevance as the organisation relies almost entirely on a shared belief among members in its underlying mission and ethos. Most WTO members participate in the WTO’s processes and follow most WTO rules most of the time because they believe doing so is in their interest and that others will do the same. If reform isn’t able to maintain and rebuild that shared investment in the system, the system will dwindle and collapse.
The June 2022 12th WTO Ministerial Conference (MC12) was hailed a success, but primarily because its modest achievements exceeded incredibly low expectations:
- After decades of negotiations members concluded the first WTO deal with explicitly environmental objectives - a practically modest but symbolically important agreement limiting subsidies to the fishing of overfished stocks;
- A year after the demand for Covid vaccines and protective equipment peaked and in the face of an intense global advocacy campaign, members agreed to clarify and very slightly broaden the rules under which governments could waive the intellectual property protections of Covid-19 vaccines;
- With global food inflation rising, members agreed not to impose restrictions on the exports of foodstuffs purchased by the World Food Programme;
- Members narrowly averted the apoplectic rage of much of the international business community by extending for another few years a moratorium against charging tariffs on electronic transmissions such as e-mails, digitally delivered products and data.
These are all laudable but hardly a transformational 21st-century agenda. No clarity emerged on how the organisation would reconcile its rules and procedures with growing efforts to tackle climate change, the emerging geostrategic rivalry between the US, EU and China, the stagnation of Least Developed Country export growth, digital trade, the disengagement of the business community and civil society with its work or many other questions.
The WTO has never achieved consensus on new or updated rules addressing the core issues it was founded to tackle: tariffs, subsidies and discriminatory regulations. More recently, profound disagreements within its membership have seen its “crown jewel” of binding dispute settlement neutered by a US boycott and an increasing trend toward unilateral actions that either exploit loopholes in the WTO rules or ignore them entirely.
Cries for reform are many, and yet members are divided fundamentally on what “reform” should address:
- Some members believe reform means updating the trade rules, whether to close loopholes for state-influenced enterprises, to allow greater policy space for governments to tackle environmental challenges, or to introduce greater flexibilities for developing countries.
- Some members believe reform should strengthen enforcement, transparency, and monitoring of existing obligations, with greater incentives for compliance and penalties for transgression.
- Some see potential in an expanded role for the institution and its secretariat, taking the lead from the current Director-General in expanding the analytical, convening, and persuasive power of the WTO to tackle emergent challenges.
There are also stark divisions over the role of stakeholders as active participants in the discussion. The WTO is traditionally a closed-door forum for government representatives. Some members believe an expanded role of civil society and business is critical to maintaining the organisation’s relevance and momentum, while others are deeply sceptical.
Any reform conversation is also going to have to face the question of the plurilateral initiatives, sub-groups of members seeking to do deals that are simultaneously within the broad WTO framework but without being reliant on or applying to the full WTO membership. These initiatives include work on facilitating investment, new common rules on electronic commerce, and making the regulation of services more transparent and predictable. These have had some success but have also proven controversial philosophically, legally, procedurally and politically, and reform discussions will inevitably have to tackle the currently uncertain and ad-hoc organisational approach toward them.
If this were not enough, an elephant in the room is the demise of the WTO Appellate Body, the organisation’s highest and some would say defining tribunal of appeal which made it among the few multilateral organisations with binding, inescapable dispute settlement. In implementing its blockade of the Appellate Body, the US eventually provided a list of grievances that any reform conversation hoping to revitalise this body will have to tackle (though even then, some believe the US has simply judged a binding legal arbiter of trade rules is not in its national interest).
Geopolitically, major players will go into these negotiations starkly divided.
The US and China increasingly view international issues through the lens of their escalating geostrategic competition. They will scrutinise every reform concept suspiciously, wary of signing on to anything that will curtail their ability to use the trade tools at their disposal or which might free up their rival to do the same.
The European Union will aim to navigate these turbulent waters while defending the trade interventions it needs to build its “Strategic Autonomy” vision, to promulgate its regulatory model, and to “defend” its markets against attempts by others to profit from regulatory arbitrage as the EU surges ahead with an ambitious social and environmental agenda.
Emerging economies and developing country groups will enter these talks more assertive and confident than ever before, but also more divided, with traditional blocs occasionally fracturing as individual members pursue different paths reflective of their own development strategies and how they perceive the role of trade rules.
"If faith in the WTO as a forum for discussing, agreeing, monitoring and refining the rules of trade diminishes or erodes entirely, these discussions will move into smaller formats and forums where the market power of larger players could further distort outcomes in their favour."
These diverging positions mean the context for the reform conversation is a troubled one, but the need for reform remains. If faith in the WTO as a forum for discussing, agreeing, monitoring and refining the rules of trade diminishes or erodes entirely, these discussions will move into smaller formats and forums where the market power of larger players could further distort outcomes in their favour. Smaller formats are likely to be less inclusive, less transparent, and are unlikely to provide members with the universal veto power offered by the WTO’s consensus mechanism.
Whether by consensus, plurilaterally or through steps taken by the WTO Director-General, Dr Ngozi Okonjo-Iweala, under her own auspices, it is clear that the WTO needs to reinvigorate its relevance. The challenges of an increasingly volatile 21st century demand a trade response and imply tensions and frictions as governments reach for their regulatory and legislative toolkits. In both cases, a single trusted multilateral forum for discussion, with transparent procedures for the airing of grievances and the settling of disputes will be vital. Those interested in such a vision should make their voices heard.
About the Author
Dmitry Grozoubinski is the Executive Director of the Geneva Trade Platform, based at the Graduate Institute’s Centre for Trade and Economic Integration and a consultant on negotiations and trade policy with ExplainTrade. He has previously served as an Australian trade negotiator at the World Trade Organisation and has a Master of Diplomacy and Trade from Monash University.
The opinions expressed in this publication are those of the authors. They do not purport to reflect the opinions or views of the Geneva Policy Outlook or its partner organisations.