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The Crisis of the WTO

The World Trade Organisation (WTO) serves as the guardian of free and rules-based world trade. Unfortunately, the multilateral organization finds itself confronted by significant challenges. The central problem is the discord among the 164 member states. In the light of rampant protectionism, state interventions, and national go-it-alone strategies, the WTO must be reformed to give it the necessary teeth to ensure a global level playing field.

The overarching goal of the WTO is to remove barriers to trade worldwide. This is to be achieved through binding, non-discriminatory rules. Thus, the negotiation of new rules for market access is designated the first pillar of the WTO. However, since its foundation from the previous organization 25 years ago, members states have only been able to agree on one truly multilateral agreement (the Trade Facilitation Agreement) that is valid for all. The large-scale Doha negotiation round has not yet been formally concluded. This sets the path for disagreement about the way forward.

The reform gridlock threatens to make the World Trade Organisation less relevant for business. After all, global trade continues to develop in a dynamic way – through technological progress, digitalisation, the growing importance of trade in services, but also the increasing significance of global competition issues linked to the economic ascent of state-capitalist China. None of these areas is appropriately multilaterally regulated in a WTO context.

Since an agreement among all WTO members does not seem promising at the present time, the EU and others are counting on plurilateral agreements among ambitious members. Such agreements could ideally lead to multilateral rulemaking at a later stage. Five years ago, plurilateral WTO negotiations for further tariff reductions on information technology products were successfully concluded.

Currently, plurilateral negotiations are being conducted on digital trade (e-commerce), investment facilitation, services, trade and gender, and small- and medium-sized enterprises. The WTO can only move with the times and hold onto its relevance if it soon demonstrates new successes.

Crisis of Transparency

Next to the negotiation of new trade rules, another important WTO pillar is monitoring of compliance with already established WTO rules. This includes the collection of trade data in order to make trends in global trade transparent and to analyse them. The entrance of the WTO onto the world stage as a think tank is often thought of as a further pillar of the organization. The foundation for monitoring and transparency, however, is that the members duly notify the trade-facilitating and trade-restrictive measures they have introduced to the WTO. This obligation to notify is unfortunately not being met adequately. For example, the number of members that have not notified subsidies has risen sharply in recent years. The number of unreported subsidies is thus presumably growing. German industry therefore supports proposals for more effective notification rules, further support measures, and new sanction options. 

Crisis of Dispute Settlement

Another central pillar of the WTO is dispute settlement, which enables member states to act against potential violations of global trade law and to systematically resolve disputes. However, since December 2019, the second instance of the dispute settlement mechanism has been paralyzed by a U.S. blockade of the appointment of new Appellate Body members. A binding resolution of current and new disputes is not possible at the moment; several reform initiatives to overcome the blockade were not able to find support from United States.

The EU and 19 other WTO members, including Brazil, Canada, and China, have therefore established a pragmatic interim solution. As of April 2020, the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) allows participants, among one another, to continue to benefit from a functioning two-stage dispute settlement system. Under the umbrella of the WTO, the mechanism provides the MPIA signatory states with an independent and binding appeals body, which will be dissolved as soon as the WTO’s multilateral Appellate Body is once again operational. To this end, negotiations with the U.S. administration must intensify and the concerns of the U.S. resolved in consensus with all other members. 

Crisis of Leadership

After a tumultuous six-month consensus-finding process that included candidates from four different continents and an American blockade in the final stages, Dr. Ngozi Okonjo-Iweala from Nigeria was sworn in as the WTO Director-General in spring 2021. The new Director-General has spoken out on several key priorities for the Ministerial Conference (MC12) in December 2021, namely concluding the multilateral agreement on fisheries subsidies and advancement on dispute settlement. Among her other strategic priorities are equitable access to the Covid-19 vaccine for developing countries, advancing women in trade, and meaningful progress in agriculture.

BDI remains confident in the WTO. With Biden in power and Dr. Okonjo-Iweala in office, it is not unlikely that a more constructive spirit of cooperation will be restored in Geneva. All WTO members have a strong common interest in an orderly, functioning world trade system.