Previously published in VoxEU.org
In thinking about preparations for the WTO's critical eighth Ministerial Conference in Geneva in mid-December, we should think about the nature of the WTO, how it has evolved, and take a careful look at the challenges that lie ahead.
The WTO – What is it?
Many observers tend to equate the current round of trade negotiations, the Doha Development Agenda, with the WTO. Although this is not the case, there are risks in this widespread perception because the danger is that the WTO's constituency may conflate the fate of the one with the fate of the other. It is, therefore, important to consider what the WTO is.
- First, and foremost, the WTO is the world's basic trade agreement.
- Second, the WTO administers the various WTO agreements.
This administration needs to be a policy-oriented one that ensures the proper implementation and monitoring of the sixteen separate multilateral agreements that constitute the WTO. This important activity has been neglected. For instance, notifications to the Committee on Trade and Agriculture from various WTO members have fallen behind. Fortunately, steps have recently been taken to begin to rectify this problem.
- Third, the WTO resolves disputes among its members.
The WTO's unique dispute-settlement system has become the default dispute-settlement system for international trade agreements. The system has now been invoked 427 times which is a real vote of confidence from WTO members.
There is a direct connection between the health of the WTO itself and the long-term viability of the WTO's dispute-settlement system. As WTO disputes break new ground – especially on issues where there is little or no negotiating history – the legitimacy of the findings of the dispute-settlement system are called into question. Court decisions are no substitute for negotiations to develop rules relevant to new challenges. This problem is becoming more serious.
- Fourth, the WTO reviews and monitors in the context of the Trade Policy Review Mechanism.
This includes the regular trade policy reviews of WTO members. Since the global financial crisis of 2008 the WTO has begun providing semi-annual reports identifying trade measures taken by G20 countries. This new work is based on the authority given to the Director-General to assist the Trade Policy Review Body (TPRB) to undertake an annual overview of developments in the international trading environment. It is a credit to the Director-General, and to the flexibility of the WTO as an institution, that the organisation has been able to adapt this provision to the circumstances of the global economic crisis. This reporting by the WTO has helped keep protectionist measures in check.
- Fifth, the WTO provides technical assistance to developing countries.
Much has been done in this area over the last few years notably with respect to aid for trade.
- Sixth, it provides a forum for negotiation.
This heading is divided into three parts: accession negotiations, multilateral trade negotiations, and plurilateral negotiations.
Since 1995, 25 WTO members, including China, have negotiated their accession. In 1995 there were 128 members so the new members add significantly to the total membership. In addition 30 countries are currently negotiating their accession to the WTO including Russia whose accession has been effectively completed. Taken as a whole these accession negotiations represent a very significant extension of the scope of discipline and liberalisation provided by the WTO system. Indeed, nearly 20% of world trade in goods is generated by recently acceded members and countries negotiating their accession.
Another aspect of the negotiating function of the WTO is the negotiation of new multilateral agreements, about which more follows below.
Lastly, I would note that the WTO can be a forum for plurilateral negotiations. Currently such negotiations are engaged with a view to improving the provisions and enlarging the coverage of Government Procurement Agreement. These negotiations are progressing well and a successful completion could occur in December.
While the negotiating function is central to the WTO, we have seen it is not the only function of this important institution.
The last 65 years have seen enormous changes to the multilateral trading system. Only 23 contracting parties signed the GATT in October 1947. Today there are 153 members of the WTO. The numbers tell only a small part of the story.
Who the key players are has changed dramatically as have the informal alliances among them. The most important development since the WTO's formation has been the accession of China in 2001. China's share of world merchandise exports has exploded from some 4.3 % in 2001 to 10.4% in 2010.
My first involvement with the GATT began in 1973 as preparations for the Tokyo Round of negotiations began in earnest. A quick look at how that round was launched tells a lot about how much things have changed. The preparatory process was launched by two separate joint declarations one by the US and the EC and the other by the US and Japan. The formal preparatory process in the GATT took less than six months. The product was a draft of the Tokyo declaration with only two sets of square brackets.
In 1973 the developing countries were prepared to let the developed countries run the show provided they were given special and differential treatment and the principle of nonreciprocity was applied. The developed countries did not at that time see the participation of developing countries as being essential to the development of a satisfactory reciprocal package, because their share of world trade was relatively small and they were not seen as competitive threats except in a few labour-intensive industries such as textiles and clothing. It was not long after the Tokyo Round that both developed and developing countries concluded this was not a satisfactory way to proceed.
The early days of the Uruguay Round and its preparations were the heyday of the old Quad (then consisting of the US, the EC, Japan, and Canada). This grouping met frequently at ministerial level and played a significant role in shaping the negotiations. However, the role of developing countries was becoming increasingly important leading to other gatherings involving ministers from both North and South. The Cairns Group of agricultural producing countries emerged as a constructive force in the negotiations putting great pressure on agricultural protection. Importantly, this group cut across North-South lines.
To conclude the Uruguay Round, it became clear that there would need to be a meeting of minds between the US and the European Communities. And indeed, the Blair House agreements set the stage for the final conclusion of the negotiations on agriculture and subsequently the entire package. While there was a lot of griping about the fact that the US and the EC had 'set the terms' of the final package there was also recognition that this was probably the only way the negotiations would be brought to a conclusion. Things have changed. No longer can the US and the EU dictate the terms of the outcome. The G20 led by Brazil has become a major force and many think that what is needed to conclude the Doha Round is a meeting of minds between the US and China.
The changing issues
The subject matter of international trade negotiations is also changing dramatically.
The new challenges include:
- The implications for trade of national and international efforts to reduce carbon emissions. Schemes to reduce carbon emissions run into difficult territory when considering how to deal with imported goods produced in a different national regulatory environment. Many schemes envisage some sort of border restriction. Rather than turning to dispute settlement, it is clearly preferable that such problems be discussed, and if need be negotiated, among governments in the WTO.
- The formation and spread of global supply chains. The 'made in the world' phenomenon has changed the way in which international business is conducted and has obliterated the traditional distinctions between trade in goods, trade in services, investment, and intellectual property. We need a full discussion in the WTO about the implications of this development for the WTO system.
- Another major challenge of the trading system arises from the development of regulations and their use. Systems of regulation are expanding and are having an impact on trade as can be seen by looking at the agendas of the Dispute Settlement Body, the Committee Technical Barriers to Trade, or the Committee on Sanitary and Phytosanitary Measures. WTO members need to consider how to respond to these developments.
- The growth in bilateral and regional free trade agreements and negotiations. Virtually all members of the WTO are now in at least one FTA. This situation poses important systemic challenges. The WTO needs to consider the nature of its role in this new era, including which negotiations are best done in the WTO and how it can foster the multilateralisation of regionalism. Let us not forget that most businesses, whether large or small, find it much easier to operate in a world with one global set of trade rules rather than a myriad of regional and bilateral disciplines.
- The security of supply of various primary commodities. The WTO needs a policy-oriented discussion regarding the increasing use of export restrictions both in agriculture and the industrial sector. Once again something more creative than dispute settlement is needed.
These issues are already upon us. WTO members have started to deal with them and this process will continue. The way in which these issues are addressed will have major implications for the trade rules and the WTO system. The WTO needs to begin to address these issues in depth. The Ministerial Conference in December would be a good opportunity to consider the importance of this task.
Doha Development Agenda
The negotiations in the Doha Round over the last 10 years have produced many important and valuable potential results. However, it has become painfully clear that the negotiations are not going to be concluded in the near future on the basis of what is now on the table. Frankly, the whole negotiating effort is in serious trouble. WTO members must not let the failure to conclude the Doha Development Agenda impair the WTO itself.
Even high-level political involvement has not brought needed progress on the ground in Geneva. There has been a disconnect between leaders' statements and what officials have been prepared to negotiate. Unfortunately there seems to be a lack of understanding at political levels about the importance of trade and the WTO system to the functioning of the global economy and to the prosperity of each WTO member.
One of the reasons members are having trouble concluding the Doha Round, is because the preparatory process for the round was inadequate. To a considerable extent the Doha Round agenda is a continuation of what was negotiated in the Uruguay Round, and is based on the work programme that had its origins in the early 1980s. That work programme emerged at the GATT ministerial meeting in 1982. It provided the intellectual capital for the Uruguay Round. This programme was very broad and took place across international institutions, in capitals, in think tanks and also heavily engaged the business community. The work also engaged ministers and after much debate, generated a solid consensus about what needed to be done and why it was important.
New thinking needed
New thinking is needed in the WTO. The approaches of 20 years ago are no longer adequate to today's challenges. This is a time for reflection and soul-searching. We need to begin a process that will revitalise the WTO and equip it to deal with the challenges that lie ahead. Failure to do so would put the project of international trade cooperation at risk.
The process of reflection and thinking has already begun in various quarters including in the WTO notably through successive world trade reports. The recent report by task force of the US Council on Foreign Relations on US Trade and Investment Policy shows that there is valuable new thinking on these matters going on in the US.
We need a new work programme in the WTO similar to the one undertaken by ministers in the GATT in 1982. This may take some time. But going down this road may offer us the best prospect of harvesting what WTO members have elaborated through 10 years of work in the Doha Development Agenda negotiations.
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