The difficulties faced by the World Trade Organization are becoming ever more apparent in the run-up to the 12th ministerial meeting. It is time to act – or face difficult truths about its future prospects.
It was inevitable that the future of the WTO would feature on the agenda of this week’s G20 trade ministers meeting in Sorrento. This has been a feature of recent G20 meetings: last year’s last year’s virtual summit hosted by Saudi Arabia committed all members to working to undertake necessary reform.
Since then, the WTO has been able to nominate a new director-general, but little has otherwise changed. The Appellate Body remains suspended, multilateral negotiations are struggling, but smaller groups are doing better, and numerous organisational issues remain outstanding.
Most importantly too many leading members, notably the United States, China, the European Union, and India, remain unable to put aside enough national interests in the name of broader compromise. Even in the face of a pandemic the WTO is unable to agree a response around intellectual property waivers.
For some years trade specialists have assumed that the problems afflicting the WTO would be fixed, that their technical discussions would lead to solutions acceptable to the key powers. While these discussions continue, the general mood seems to be changing, with an acceptance that they are going nowhere.
This mood should be heeded.
After several years of struggles to keep the WTO afloat and up-to-date, it is time to take stock of the possible future paths for the organization and the global trading system more generally.
In particular, we need to think about the worst cases for the future, not least as to whether we can prevent them, and if not what we can salvage.
A scenario of WTO revival: too optimistic
It is worth starting though with how a positive scenario, one in which the WTO is revived, at least as a baseline.
At the very least this would have to mean: an Appellate Body restored and multilateral negotiations succeeding, starting with the long-sought agreement on fisheries subsidies.
Longer-term trade issues would then be fixed, including conclusion of the e-commerce plurilateral agreement, some meaningful initiative on trade and climate change, and even a broader agreement of all members covering agriculture. Institutionally, the process of claiming special and differential treatment would require reform, while obligations on member parties to notify their trade policy measures would be improved.
Right now, much of this simply seems unachievable. Indeed the longer the Appellate Body is suspended, the harder it seems restoration would be. Current splits, on agriculture between US and EU, and politically between US and China, don’t have easy solutions and impact negatively on the chances of success.
A WTO in which only a few plurilateral agreements are concluded and all other issues remain outstanding would not class as revived. Indeed, it may then be vulnerable to losing members or key principles.
A disintegration scenario: already happening, could get worse
At the heart of the WTO is the most-favoured nation principle, which provides that all members charge other members the same tariffs at the border, unless they have a preferential agreement covering ‘substantially all’ trade. While there is no real definition of the latter, it must mean more than reducing a few tariffs.
Yet, the US-Japan trade agreement of 2019 is estimated as covering only 5% of bilateral trade, with the US reducing or eliminating 241 tariff lines, and Japan 600. It is suggested a further deal could follow, at least showing some awareness of WTO rules. But to all intents and purpose this looks like a clear breach of the WTO rule-book.
Reports in the last week suggest India could follow this model in mini-deals with the UK and Australia.
If core principles can be breached without consequence, we already have a disintegrating WTO. It is not hard to see how this could be followed by the loss of members, particularly if Trump was to return to the White House.
Most likely the WTO would keep going even if the US withdraws. But in that situation it risks a slow descent to irrelevance as more and more trade policy activity happens outside. Regional trade blocs would then be presumed to become the core building blocks of the world trading system.
Disintegration is not a conversation the trade community wants to have, perhaps worried that even to do so will make it happen. That though, seems a mistake, for this is already a live scenario in a limited way.
Regression scenario: the most likely
Despite the institution’s flaws, the absence of new issues from its rule-book, and proliferating regional trade agreements, without a WTO global trade would be affected. Its rules and principles may only provide a loose framework, but that is the foundation for so much more. Trade agreements with only a few like minded members can never fully take the place of global norms.
Given that there is continuing broad desire for such a framework, outright disintegration of the WTO seems unlikely. Rather, the path currently leads towards regression, almost a WTO-lite.
In this diminished form the WTO would continue to be the reference point for basic trade rules, but with little means of enforcement. It would be a forum for debate, and for agreements among subsets of countries. The gaps between aspirations and realities would grow as more members took actions barely compatible with its rules.
For globally trading businesses this might not look too different to their current situation, which is have to consult various relevant agreements and regulations for whatever they are doing. However, there would obviously be less chance of their issues being addressed at the WTO. Certainty would diminish, as trade conflicts became less rule-bound.
Ultimately, the problem with regression, and indeed the reason the WTO got to this point, is that few players have enough incentive to change this situation.
The cost of changing track, particularly where it involves compromise, is perceived to be greater than the value of a fully functioning organization.
So, for the moment, we are stuck with regression with risk of disintegration. This will change only when DC, Beijing, Brussels, and Delhi decide otherwise and align. With that a distant prospect, preservation may be the most important task ahead of us.
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.