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WTO reform: the quest to rescue multilateralism

Some 28 years after it came into existence, the World Trade Organization is facing something of an existential crisis. Where are the prospects for current institutional reform efforts?

To date, no government has expressed a view that the WTO no longer matters, or turned its back explicitly on multilateralism.

But the sense of commitment to the multilateral rules-based international trading system has visibly weakened over the past decade or so – and faith in the WTO as either a guarantor of stability for trade relations, or a potential agent of change, has declined.

It is against this backdrop that the WTO membership is undertaking a review of how the organisation functions, for the first time since its creation in 1995.

These WTO reform negotiations are up and running, after trade ministers mandated a reform process as part of the ‘Geneva package’ agreed at MC12 last June.

But nothing moves quickly in Geneva. And as the reform talks struggle to pick up momentum, there is a prevailing sense of anxiety about where the organisation, and the trading system which it supports, might be heading.

Many WTO officials take the view that the successes scored at MC12 saved the organisation from a possibly terminal slide into irrelevance.

But there is also a contrary view which sees the patched-up deal from last June as having side-stepped the kind of political crisis which might in turn have triggered intense soul-searching – and a greater urgency to seek reform.

Addressing the WTO’s negotiating sclerosis

The most visible manifestation of the dysfunction which is now affecting the WTO is the collapse of the appellate body, and the consequent gumming-up of the dispute settlement system.

But among the diplomats and officials with whom Borderlex spoke recently, the predominant focus was on the process by which the organisation negotiates new agreements and updates its existing rulebook.

Since the WTO came into being 28 years ago, only two multilateral negotiations of any substance have been brought to a conclusion – the trade facilitation agreement agreed in 2013, and the fisheries subsidies deal struck last summer.

In the latter case, agreement was only reached by deferring talks on the trickiest area of the negotiations until a later stage.

The evident difficulties in getting things agreed among a membership which has now swelled to 164 countries has led to a proliferation of negotiations conducted among ‘coalitions of the willing’.

Four sets of negotiations on so-called ‘joint statement initiatives’ were launched in 2017.

One of these, on services domestic regulation, was finalised in 2021. But as if to underline the political issues which this process has thrown up, India and South Africa both recently lodged objections to the resulting revisions of the services schedules of 35 of the SDR contracting parties.

Of the other three JSIs, one on investment facilitation should be concluded this summer, another on e-commerce is targeting conclusion by the end of the year, and the informal working group on micro, small and medium-sized enterprises is continuing its deliberations.

And new issues are likely to enter the WTO arena in the years to come.

The EU’s latest proposal for a WTO agreement to discipline state subsidies in the industrial sector, for example, has the potential to become just as complex an issue as the longstanding deal on agricultural subsidies – and it could easily get just as bogged down in arguments over substance.

Is ‘plurilateralisation’ of the WTO inevitable?

The prospect of yet more negotiations continuing for years – perhaps decades – without resolution is fuelling growing interest in countries cutting deals with like-minded ‘fellow travellers’.

But does an increased reversion to negotiating in plurilateral mode represent the WTO’s best hope of making progress in vital new areas, like digital trade or the trade response to climate change – or does it point towards the death of the multilateral ideal?

“We may not be able to avoid a growing plurilateralisation of the WTO negotiating process,” one senior figure said.

He noted that all of the current JSI negotiations were being negotiated openly and transparently, and that participants were generally leaning towards the idea of applying commitments made under these agreements on a most-favoured nation basis.

That would mean that non-participants would have “a free ride” in deriving benefits from a negotiation in which they had not been required to make concessions themselves.

India is unimpressed with this argument, and asserts that no change to the WTO’s legal framework should be permitted unless these have the express consent of all member countries.

But there is specific provision for plurilateral agreements in Annex 4 to the Marrakesh treaty on which the WTO is founded – and there is no reason in principle why other deals should not join longstanding plurilateral agreements within that annex such as those on trade in civil aircraft and on government procurement.

It is also clear that India’s confrontational attitude in WTO negotiations at all levels is not endearing the country to other members. The approach is rather tending to reinforce a determination among other delegations not to permit WTO initiatives to founder against a brick wall of Indian vetoes.

But an agreement on reform of the WTO’s structures and processes could only be reached by consensus. This means that there will be no avoiding the question of the role of plurilaterals as the reform discussions proceed.

Restoring a ‘well-functioning’ dispute settlement system

The issue which is driving the WTO reform agenda, both in terms of its high political visibility and in terms of the urgency of the mandated deadline for action, is dispute settlement.

The June 2022 Geneva package specifically referenced dispute settlement, calling on members to restore “a fully and well-functioning dispute settlement system accessible to all members by 2024”.

WTO officials are keen to stress that the system is still at least half-functional.

Disputes are still being referred to the dispute settlement body, and the first adjudications under the ‘alternative’ arbitration systems set up since the collapse of the appellate body in late 2019 have been delivered.

But these are the exceptions that prove the rule. Since December 2019, 21 dispute settlement cases have been appealed ‘into the void’ by the losing party – and it is unclear when, or how, that logjam will be cleared.

The United States, whose refusal to appoint replacement members to the appellate body sparked the dispute settlement crisis in the first place, has been conducting consultations with members over how to create a revised system that works for all parties.

Views in Geneva vary over the sincerity of the US’s outreach efforts. Some claim that the US is seeking above all to find a way of legitimising its de facto stance of refusing to allow WTO law to take primacy over domestic legislation, whether on steel safeguards on spurious ‘national security’ grounds, or on the labelling of imports from Hong Kong.

“I think the US does know what its wants on dispute settlement,” one diplomat told Borderlex. “But the rest of us might not like its proposals once we see what they are.”

No return to the geopolitics of 1995

At the root of all of these problems is a sense that global leadership on international trade issues is lacking.

Those with long institutional memories in Geneva long for the kind of leadership that transformed the moribund GATT organisation of the mid-1980s into a globally effective World Trade Organization, rooted in the Marrakesh treaty, some 10 years later.

But there is little sign of this kind of leadership at present, certainly not in the world capitals that matter the most.

And the 1990s are now viewed by at least one observer as ‘an accident of history’ – when something close to a global consensus was fleetingly established on the positive transforming power of a multilateral rulebook for international trade.

The very different geopolitical outlook of 2023 – in Washington, New Delhi, Beijing and elsewhere – does not bode well for the latest efforts to get a deal done on how to overhaul that system.

But at least WTO members are committed to giving it a go. The next few years will show whether the best efforts of world trade leaders will be enough to deliver positive change.

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