The urgent need for reforms at WTO
The next biennial meeting of WTO's ministerial council will be held in June 2020 in Astana, the capital of Kazakhstan. This meeting, known as MC12, will be an important milestone for the 164 members of WTO as the global economy faces increasing uncertainties in the face of trade wars between the US and China.
The last meeting of this group, MC11, was a total failure, and leaders of the member countries ought to recognise two things. First of all, the issues should be resolved well in advance of a ministerial council meeting since they end up in shouting matches. Secondly, future negotiations need to be speeded up to save WTO from irrelevance. As one participant, Pascal Kerneis of European Services Forum, commented about MC11, "Clearly this organisation is not working well. There are countries that came here and clearly said in their speeches that they don't want to move their positions at all." Areas of contention include e-commerce, subsidies, and illegal, unreported, and unregulated (IUU) fishing.
There have been behind-the-scene discussions in every major international summit on the urgency to reform the charter of WTO, which regulates annual merchandise trade worth more than USD 17 billion, to make it a more efficient and effective regulatory body. Unfortunately, progress has been very slow, and some members of WTO have resisted changes tooth and nail and jeopardised its existence. However, there is now a slight ray of hope as there is resurgence in support for a rules-based multilateral trading system with WTO as the regulator and arbiter.
The director-general of WTO, Roberto Azevêdo, is keenly aware of the demand for change and the urgency to thwart an outbreak of another round of tariffs, sanctions, quotas, and confrontations among the world's largest trading partners. Last September, he reassured the world that his organisation can change and it wishes to engage with member countries to "achieve reform in a range of areas, including its consensus-based decision-making process."
There are three broad areas where WTO is ripe for reform: enforcement of rules to ensure member compliance of its rules to counter market distortions, the dispute settlement mechanism, and creation of rules for e-commerce, technology transfers, and international investment. However, the existing "consensus rule," which allows a single country to exercise veto power, impedes any reforms. In addition, big countries such as the US and China have consistently defied existing rules. It is ironic, in this context, that the US trade representative Robert Lighthizer complained last year at MC11 that it was impossible to negotiate new rules while many of the current rules were not being followed. He also complained that WTO was losing its focus and becoming too litigation-oriented. However, US efforts to unilaterally fix this problem by delaying appointments to the arbitration body are damaging WTO.
Canada recently stepped up to the plate and invited a "small group of like-minded" trade ministers in October to a conference which it named the Ottawa Ministerial on WTO Reforms. Prior to the meeting, Canada released a proposal, called "Strengthening and Modernizing the WTO," and laid out some ideas to "modernize the WTO's rules to address 21st century trade practices involving digital trade, international investment, domestic regulations, state-owned enterprises, industrial subsidies and trade secrets."
The US and China were excluded but at a press conference following the talks, Jim Carr, Canada's Minister of International Trade Diversification, said the group will invite China and the US to join the discussion in future. He also announced that the group of 13 nations and EU will meet again in January 2019.
The agenda of the Ottawa meeting identified areas that need attention to strengthen WTO and make it more efficient. But, the Canadian proposal mentioned above also admits that due to resistance from members, "longer term deliberation will be required to make substantial improvements to the WTO and formally update its 23-year-old rule book."
The recently concluded G20 summit in Buenos Aires was expected to make some headway on WTO reforms as well as break the logjam in the US-China trade negotiations. Trump and Xi, Presidents of US and China, respectively, sat down over dinner to discuss some of the outstanding issues, and decided to suspend any tariff actions against each other for three months. However, it appears that very little has been achieved on the bigger issue of overhauling the WTO. The joint communiqué, "G20 Leaders' Declaration," is a testimony to the lack of progress in this area. In section 27, while it pays lip service to the role of international trade and investment as "important engines of growth, productivity, innovation, job creation and development," it fails to address any of the issues bedeviling the multilateral trading system. The section ends with more platitudes, stating: "The system is currently falling short of its objectives and there is room for improvement. We therefore support the necessary reform of the WTO to improve its functioning. We will review progress at our next Summit." This undoubtedly indicates that the leaders have nothing to suggest as a concrete proposal. Few reform efforts have succeeded so far, and many are stuck, including talks on cutting agricultural subsidies, increasing market access, reforming rules on access to medicines, improving the WTO dispute system and liberalising trade in services.
The next G20 summit will be held in Osaka, Japan on June 28-29, 2019. While negotiators for US and China will be very busy over the next three months to give any attention to WTO, the rest of the world can expect, or even demand, that other members of G20 gather the determination to draft an agreement on WTO reforms and many outstanding items including elimination of subsidies, transparency, e-commerce, and technology transfer. Other areas that must be overhauled are WTO's monitoring and transparency functions and the dispute settlement process.
Let me end this note with two observations. Experience over the last decade has shown us that WTO reform can be accomplished only if its members are willing to give and take. To avoid gridlock, negotiators must change the uncompromising attitude on display in the past which resulted in the gridlock we repeatedly witnessed in previous talks. As the ancient Chinese philosopher Lao Tzu warned, "If you do not change direction, you may end up where you are heading."
Open trade increases social welfare. But, it creates gains for some and losses for others. To paraphrase Pascal Lamy, the former WTO chief, it is the role of clearly crafted domestic policies and systems to redistribute fairly the economic gains of free trade and properly cope with the social pains that it creates.
Dr Abdullah Shibli is an economist and Senior Research Fellow at International Sustainable Development Institute (ISDI), a think-tank based in Boston, USA. His new memoir Fairy Tales: Stories from My Life will soon be published by Jonantik.
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