E-commerce & services, Perspectives, WTO crisis and reform

Perspectives: WTO plurilateral agreements should be welcomed

News of agreement on the Joint Statement Initiative on Services Domestic Regulation were a highlight of last week’s World Trade Organization’s Public Forum. Given that full-blown multilateral deals look unlikely in the immediate future in the global trade institution, deepening the trade rulebook among selected countries is better than the alternative.

These are worrying times for global trade politics. Divisions between major trade powers most notably the United States and China look likely to prevent any significant agreement between all World Trade Organization members in the coming years.

The last hope for this year’s 12th ministerial meeting, an agreement on fisheries subsidies, seems at best in the balance. Talks on an intellectual property waiver on COVID-19 related pharmaceutical seem to be going nowhere.

Without the prospect of a major breakthrough this year, news stories last week suggested WTO DG Ngozi Okonjo-Iweala may be on the verge of quitting. While denied, any frustration was understood by specialists as the almost inevitable consequence of major capitals refusing to compromise.

There have been different strands of thought as to what the WTO should do if major agreements cannot be reached. Some urge focus on technical amendments to hopefully allow the organisation to keep functioning and in particular restore its Appellate Body. Others have suggested plurilaterals i.e. coalitions of the willing, as the best alternative. On the contrary, some see these as likely to undermine the multilateral system, with only agreements of all 164 members of the institution being legitimate.

Value over time

A new agreement allows us to test these different ideas about the future. Given the realistic alternatives, it appears to be something we should welcome.

Judging by the Reference Paper negotiated by the parties the immediate gains for business will be limited. The basics seem to be that signatories will confirm that applications for licenses or assessments of qualifications will be treated fairly and promptly, according to published information, for reasonable fees.

It seems unlikely that the 65 countries making these commitments will intend this to mean significant legislative changes. Rather, they will confirm existing practices.

Yet, with signatories including EU member states, China, the US, and Brazil, such confirmation should generate value over time. Most importantly it should provide some measure of reassurance to businesses that these countries do not intend to close their services markets. In some cases, it may help open markets or generate new opportunities.

One can make a similar argument about the digital content of many recent plurilateral agreement agreed outside the WTO, including the Digital Economy Partnership Agreement between New Zealand, Singapore, and Chile. These countries already facilitate digital trade, so in that sense there is little to immediately gain.

Beyond the reassurance to business offered through these agreements, however, what the DEPA and the services domestic regulation agreement deliver is a new baseline for best practice in international trade. Countries want to sign up to these as a demonstration of intent to businesses, offering the prospect of creating a virtuous circle.

Insurance against WTO failure

At a time when there are so many new issues taxing the trade policy world, from climate change to digital trade, making progress on some of them, however limited, cannot but be welcome.

These agreements also spark debate, such as the EU’s proposals for a Carbon Border Adjustment Mechanism now leading to consideration as to whether the OECD should seek a solution involving more countries.

Making progress on new issues is welcome, but equally it should not be denied that some of those involved in negotiating plurilateral agreement are explicitly insuring against WTO failure. This is controversial, for other countries would suggest by doing so they are actively undermining the chances of future WTO success.

There has to be some truth in that, if energies devoted to plurilateral rather than multilateral negotiations. But there are good reasons.

Alternative to plurilaterals is worse

More plurilateral agreements potentially mean increasing fragmentation of international trading rules. The ‘spaghetti bowl’ of differing agreements first described 25 years ago by Jagdish Bhagwati continues to grow, which increases complexity for businesses. Small and Medium sized companies are particularly badly hit.

The agreement on services digital regulation is probably not a particular culprit in this regard, as signatories will write commitments into their GATS schedules.

However, the various digital agreements do have subtle differences and are yet to be fully tested. The WTO’s own e-commerce plurilateral agreement, if finalised in the coming years, should be a step forward, though still not multilateral.

That a similar subject is being discussed in a number of different settings suggests that a shortage of resources is not a major issue. The opposite might be the case, that trade teams are desperate to find the structures in which they can progress. If that was to be multilateral they would be more than happy to participate.

It is evident that the political barriers to multilateral agreement are greater than those for plurilaterals. Compromise seems harder to achieve, and balancing priorities of different members almost impossible. The result is a WTO in crisis, with worries as to future survival.

In the absence of a WTO the spaghetti bowl would lack any underpinning principle. Business would be harder, disputes potentially more acrimonious.

Ultimately plurilaterals prove countries can still negotiate and compromise. They also raise the hope that if the political barriers to multilateral agreement can be removed, negotiations across all members could still be successful. For that alone, they are worthwhile.

 

 David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.

 

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