Rethinking the World Trade Organisation

The global trading system has long served the interests of global corporations over developing countries. It's time for a more inclusive form of multilateralism.

Xavier Carim
15 April 2019, 8.38am
MSC Gaia. John Bugg / Flickr. Some rights reserved.

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This article is part of a series by openDemocracy and the Bretton Woods Project on the crisis of multilateralism. The views expressed are those of the author's only, and are not necessarily representative of either organisation.

In recent years the World Trade Organisation (WTO) has experienced a number of challenges. Some of these relate to a wider ‘crisis of multilateralism’, but others can be understood as the result of a confluence of factors rooted in the legal commitments that WTO members undertook at the establishment of the organisation in 1995.

These commitments not only helped to propel an unbalanced form of globalisation, where the massive extension of global markets alongside stronger protection for intellectual property rights delivers enormous benefits for corporations and global finance, but also a growing concentration of wealth, inequality, job losses and insecurity. The backlash against globalisation, trade and trade agreements have fed economic nationalist pressures and a concomitant shift in the terms of engagement of many developed countries at the WTO.

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This recent backlash follows longstanding concerns by developing countries that WTO agreements are unbalanced and prejudice their trade and development interests. They point to the unfair exchange of concessions where they undertook deep tariff reductions without a commensurate reduction of tariffs in sectors of their export interest. Imbalances are evident in agriculture where developed countries can continue to provide massive trade distorting support to their farmers, whereas developing countries confront constraints on measures to enhance food security. The regime of rules on industrial subsidies constrains the policy space developing countries need to nurture their industries, but allows advanced economies that have the financial means to provide substantial support to high-tech, knowledge-intensive industries deemed critical to their future prosperity. Underpinning all of this are rules on intellectual property that facilitate monopoly rents but diminish the possibilities for technology transfer that could spread growth and development more widely.

While the majority of developing countries played a marginal role in the initial WTO negotiations, they signed onto the outcome in the expectation that the unilateral and discriminatory trade measures of the past would be disciplined, that agricultural reform would continue and that flexibilities to meet legal obligations on trade and industry would be entrenched. As the impact of WTO rules became clearer, developing countries began to advocate a ‘rebalancing’ to favour development and inclusivity. The launch of the Doha Round in 2001 promised “to place developing countries needs and interests at the centre of the work program” and at the heart of that agenda was reform of trade distorting subsidies in agriculture; securing public stockholding for food security; and policy space for industrialisation and technology transfer. The fact that this agenda has been frustrated and that developed countries appear intent on abandoning the entire Doha developmental mandate is a source of deep frustration and resentment amongst many developing countries.

The rise of some large developing countries with greater trade and economic weight, large domestic markets and growing productive capabilities, has also altered the negotiating dynamics at the WTO. More generally, developing countries are more fully aware of the implications of trade on their development prospects, and they have demonstrated enhanced negotiating skill and capacity, particularly when their efforts are coordinated. The negotiating impasse at the WTO is in part a function of a shift in the distribution of trade and economic strength in the global economy.

Recent dynamics

Over the course of 2018 a series of seemingly disparate actions increasingly coalesced into a coordinated strategy by major developed countries and their allies to fundamentally reconfigure the WTO. In March 2018, using national security as its rationale, the US unilaterally raised tariffs on steel and aluminium imports to levels that overshoot its WTO obligations. In offering certain Members exemptions from the tariff increases, the non-discrimination cornerstone of the trading system was undermined. Retaliatory actions on somewhat questionable legal grounds, further unilateral measures and additional threats are all now at the heart of a burgeoning ‘trade war’ that is eroding the rules based system.

In parallel, the USA’s continued opposition to filling new vacancies in WTO Appellate Body (AB) poses a further risk to the rules-based trading system. While there is sympathy for some of the complaints levelled against the AB, there is growing concern that all attempts to address them have been rebuffed. Unless the matter is resolved by December 2019 when all positions become vacant, the AB that lies at the heart of the rules-based trading system would be entirely disabled.

This impasse has led some to speculate that the objective is to revert to a situation where trade disputes would no longer be subject to rules or due process but to negotiations where stronger parties prevail. Others suggest that the unilateral trade measures and the AB impasse are aimed at leveraging a particular agenda on WTO reform. Indeed, the US has joined others, notably the EU and Japan, to propose a series of reforms under the banner of ‘WTO modernisation’. Three are particularly critical. First, there appears to be a targeted effort to circumvent the principle of consensus decision-making to allow smaller groups of Members to advance negotiations in new areas that lack multilateral consensus.

Specifically, they seek a plurilateral agreement on digital trade that would not only fragment the trading system but constrain possibilities for ‘catch-up’ policies by ‘latecomers’ to digital transformation. The WTO remains deeply divided on these matters, and many Members consider the priority now should be to continue to explore and assess the wide ranging implications of the digital transformation. Questions of data sovereignty, data for development and digital industrial policy imply that rule-making on digital trade is premature if not misguided.

Second, there are proposals to narrow the flexibility now available to developing countries under the principle of special and differential treatment (SDT). In these proposals, limited (time-bound) SDT would be granted only to least developed countries, while developing countries, particularly the more advanced amongst them that still confront the policy challenges associated with the so-called ‘middle-income trap’, would be required to give up SDT and accept the same commitments as developed countries in future. The notion that developing countries no longer require flexibility has already been rejected as a matter of principle.

Thirdly, the USA, EU and Japan have all signalled that they would like stronger rules that would further restrict technology transfer, government support for industry, and state-owned enterprises. While China appears to be the immediate target of this proposal, such rules in the WTO would apply to all Members, further constraining their ability to climb the development ladder.

Towards an inclusive, developmental WTO

The resort to unilateral measures and the impasse in the AB have exposed the fragility of the rules-based trading system. Nevertheless, defending the system does not mean accepting either inherited inequities or new proposals that would worsen imbalances. We need an alternative conception of WTO reform premised on the principles of inclusivity and development that responds to the underlying causes of the backlash against trade. We need more honest assessments of the costs and benefits of liberalization and an acknowledgement that adjustment support is not simply a matter for domestic policy but is built into trade agreements themselves. Rules must deliver shared prosperity and not privilege narrow commercial interests over the wider interests and values of society and its citizens.

Inclusivity would require, at a minimum, preserving consensus decision making in the WTO. It would also require a recognition of the value of economic and institutional diversity, eschew one-size-fits-all outcomes and reaffirm the principles of SDT and the right to regulate in the public interest. It should, in short, enshrine the right of states to pursue national development strategies within the broad framework and principles of a rules-based system.

On development, we should consider reversing the ‘overreach’ in WTO rules that constrain industrial policy and technology transfer. Such an agenda would revive many of the developmental considerations embedded in the Doha mandate, notably with respect to agricultural and food security. Concerns about the AB can also be addressed in a reasonable manner that preserves its independence and impartiality.

The debate on WTO reform should be reframed from zero-sum, ‘winner-take-most’ binaries towards more flexible and cooperative approaches that are based on meaningful and constructive dialogue. It can advance proposals that progressively widen spaces for development by harnessing a virtuous cycle of increased productive investment, fair and balanced trade, and innovation-sharing for global economic growth from which all can benefit.

Ambassador Xavier Carim is the former South African Permanent Representative to the WTO. He writes here in a personal capacity.

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