Reforming the WTO requires political will

Cecilia Malmström, non-resident senior fellow at the Peterson Institute for International Economics (PIIE) in Washington, DC.

The world is in acute need of global rules and a functioning multilateral system. The trade wars under President Trump, the pandemic and now Russia’s war in Ukraine, are not only creating immense human suffering, but are also destabilising the whole global economy. Together with raising energy prices, inflation, and lack of food, we are seeing worrying tendencies towards export restrictions and increased protectionism. There is talk of the death of globalisation. This is probably not true, but we do see an increased regionalisation of trade and a polarisation between democracies and authoritarian states. Companies must to a larger extent take geopolitical considerations into account when they make business choices. Today’s challenges require a renewed commitment to global cooperation, including in trade. 

The World Trade Organisation (WTO) has been in crisis for a long time. The rules are not up to date, the daily work is not efficient and there have been difficulties in reaching big agreements. In fact not much has been agreed over the last years apart from a few small agreements on agriculture and cotton, a trade facilitation agreement (TFA) in 2013, and an information technology agreement (ITA) at the ministerial in Nairobi 2015. 

As the WTO Ministerial starts next week, after having been postponed several times, there is frankly not much we can expect. Several countries refuse to be in the same room as the Russian delegates, so the preparatory meetings have been difficult. The long over-due agreement on fisheries’ subsidies is still not concluded, and the intense discussions on a modest easing of intellectual property rules for vaccines are also in peril. The lack of political will is the main reason for the stagnation.

Most ministers will probably not show up at all in person in Geneva. They will send pre-recorded video messages paying lip service to the importance of the WTO. That is of little help when it comes to advancing negotiations. Still, the mere fact that there is a conference, and that the dynamic and hardworking Director-General Dr. Ngozi Okonjo Iweala can give a few harsh messages, is useful. The meeting needs at least to show that the organisation is in trouble - but still alive. Without the WTO, the trade world would be a jungle to the detriment of all members, but, mostly, of the developing world. Businesses are already struggling to recover after the pandemic, and now they have to face the consequences of the war and knock-on-effects of the sanctions. Updated rules and an effective dispute resolution mechanism will greatly benefit them; hence, they are one of the main actors that should put greater pressure on governments to engage in the discussions on WTO reform. 

Creating a new WTO with only like-minded trade partners is also not the answer, since the WTO is an organisation where different views must be heard but where a set of common rules and norms still allow non-like-minded members to co-exist.

What needs to be done? 

First of all, there has to be political will to engage in discussions and agree on the necessary measures to reform the multilateral trading system. That will has been lacking, especially from the United States. The European Union and members of the so-called Ottawa group, led by Canada, have, for several years, tried to propose reforms and ways forward. As a consequence of the crisis of the WTO Appellate Body, the EU, together with 25 other countries, have created a separate ad-hoc appeal system for trade disputes. This is not ideal; we need to start a serious conversation about how the dispute settlement mechanism should work. The response from the U.S. has been poor and it has changed little with the Biden Administration. The U.S. apparently wants a tougher line on China and does not see the WTO being able to deliver on that. 

Nevertheless, the trilateral dialogue between the U.S., the EU and Japan, aiming to re-write and update WTO rules on subsidies and on forced technology transfer, is useful. That work should continue and involve a larger group of members. The WTO clearly needs updated rules on trade distorting subsidies. The U.S. has also come up with amendments to an old proposal on how to increase transparency on national legislation. That is a good sign. Members should also appoint a group of countries who could work with the Secretariat to write an agenda or a road map on the way forward for the WTO, to be endorsed at the next ministerial. 

The plurilateral initiatives must also continue; there is already important work done in the field of digital rules. Plurilateral agreements are probably the only way forward in the short-term, but that does not need to be a problem as long as they remain open to all members. 

Finally on the urgent issues of vaccines and food shortages, the WTO must show more muscle. Export restrictions at a time when we face the acute risk of famine, cannot be tolerated. The attempt to reach some conclusion on a vaccine intellectual property waiver seems to be stalled. There are important discussions ongoing between the WTO, WHO, OECD, the World Bank and IMF. Those meetings must continue and lead to some concrete proposals. 

Furthermore, the issue of trade and sustainability, both from a climate change and a labour law perspective, must be discussed within the WTO, even if not all members want to be a part of such discussions from the beginning. There are several ongoing initiatives on carbon pricing to learn from and the WTO should support initiatives to reduce carbon leakage, while trying to avoid unnecessary trade tensions. 

Ultimately, it all boils down to political will. The WTO is still a very important organisation with 164 members, covering 95% of the world’s trade. We have seen some global statements from the G20 on the need to find a way forward, but there needs to be a true global commitment. Maybe we cannot hope for a new Bretton Woods, but after the pandemic, the war and the challenges of starvation, global health threats, and climate change, what better way forward could there be than a renewed focus on global cooperation. It has worked in the past; it will work again.    

The views and opinions expressed in this blog are solely those of the original authors and contributors. These views and opinions do not necessarily represent those of TradeExperettes, the TradeExperettes editorial team and/or any or all contributors to this site.