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Challenges of the WTO and ideas for reform

In these uncertain times, a smoothly functioning World Trade Organization (WTO) would be a key instrument to ensure free and fair world trade. But at present, the WTO is rather characterized by stalemate and diverging interests of the member countries. Until the Ministerial Conference in Abu Dhabi at the end of February 2024, the organization must address some urgent ongoing issues.

The World Trade Organization (WTO) - like its predecessor, the General Agreement on Tariffs and Trade - contributes to opening markets and creating fair rules for trade between member countries. Despite the growth of regional and bilateral free trade agreements in recent decades, the WTO's Most Favored Nations (MFN) tariffs still regulate much of trade outside the EU. Germany´s membership has had an immensely positive impact on the growth of its trade in goods and services and its rulebook remains indispensable in many areas of world trade, especially anti-dumping, technical barriers to trade, intellectual property rights and trade facilitation.

Distortion of competition and deadlock paralyze the multilateral trading system

However, the foundation of the multilateral rules-based trade order has recently increasingly been questioned. Frustrated with the lengthy processes and lack of multilateral consensus, members are increasingly turning to unilateral solutions to policy problems such as circumvention, overcapacity, foreign subsidy distortions and serious trade disputes. Stronger and more precise rules are desperately needed for these varieties of competitive distortion. The restrictions of the second instance of the dispute settlement system has led to a paralysis that prevents the multilateral trading system from enforcing violations of its own rules.

The consensus principle does ensure full unanimity and a balance between member states' interests regardless of their size or export strength. But at the same time, it has allowed members to increasingly politicize negotiations and hinder an outcome in favor of their own national interests. In the absence of clear criteria for special and differential treatment of individual members, even states with an increasing share of global exports are enabled to take advantage of numerous exemptions and therefore benefit from a system that is especially designed for countries that are not yet as economically developed.

Plurilateral approaches as a complement or advancement

Current discussions around the WTO show a trend towards more plurilateral approaches that attempt to regulate global trade while avoiding the pitfalls mentioned above. Although the multilateral system remains the ideal, these approaches are well-founded and understandable. Kolev/Matthes (2021) propose a plurilateral trade partnership of like-minded countries. This partnership would include Japan, the United Kingdom, Canada, Australia, Chile and Mexico in addition to the European Union and the United States. The partnership would expand WTO rules to an extent that further includes areas that the EU and its allies have already prioritized for many years and where it would be or actually is, difficult to reach consensus with China and India. These include, for example, industrial subsidies and the issue of State-Owned Enterprises (SOEs). Under this logic, the partnership would serve as a template for WTO reform if cooperation with China deepens and proves more successful or, more likely, develops into a permanent alternative structure to the WTO. This proposal focuses on issues of distortion of competition, including subsidies and state-owned enterprises, as well as data protection.

BDI: Multilateralism has priority, nevertheless, pursue alternative agreements

The German industry community is fully behind the multilateral, rules-based system as the foundation of international trade. The priority remains the preservation and further development of multilateral rules for the global trading system. However, the BDI welcomes the idea of deepening cooperation with G7 partners, other EU member states and other like-minded allies such as Chile and Australia. This remains important in the current multilateral system. In addition, it is important to consider all possible alternative arrangements that remain to achieve goals on which consensus is not possible or foreseeable in the current system - for example, those mentioned above, which would contribute to a global level playing field.

The BDI supports the proposal of the Confederation of Swedish Industry (SN) for increased business engagement in the WTO. Businesses and sectoral associations are best placed to inform the WTO about the impact on global trade. For the organization to move forward and adequately address the challenges of modern trade, business needs to deepen its engagement. The current annual forums (Public Forum and Trade Dialogues) are particularly useful for networking but remain too broad and less results driven.

Particularly in view of the difficulties in maintaining the momentum of multilateral negotiations against the backdrop of the aforementioned challenges and the war in Ukraine, German business strongly supports a stronger focus and faster conclusion of the Joint Statement Initiatives (JSI) on e-commerce, investment facilitation for research and Small and Mid-Sized Enterprises (SMEs). The BDI is in favor of more flexible approaches like these to bring the WTO into the 21st century in terms of modern rulemaking.