WTO: Shaping the Multilateral Trade System

WTO-Building © BDI/Eckart von Unger

Trade is a driver for economic growth and sustainable development. To what extent fair play prevails in trade depends on the regulations governing world trade and their enforcement. With its 164 member states, the World Trade Organization (WTO) establishes a basic set of rules for free and fair global trade. However, this multilateral framework requires constant development, which must keep up the pace with globalisation. But the forthcoming WTO Ministerial Conference in December 2017 threatens to end in deadlock.

Germany is one of the leading trade nations. Each year, our economy exports goods and services worth well over 1 trillion euros. Industry accounts for the bulk of German exports. Every fourth job in Germany – and every second in German industry – depends on exports. At the same time, a large part of German industrial production is possible only because of imports: around one third of all German imports are intermediate goods. Trade barriers on world markets have a direct impact on the performance of German industry and thus on prosperity in Germany.

Under the auspices of the WTO, the organisation’s member states have reached an agreement on a comprehensive catalogue of binding and non-discriminatory rules. Each member has an equal say in the drawing up of new rules and guidelines. Decisions are made by consensus. The common goal is the dismantling of obstacles to trade. With its transparency mechanisms and the binding settlement of disputes, the WTO is the indispensable legal backbone of the international trading system. Companies engaged in international trade can depend on a worldwide uniform set of rules and do not have to adapt to different trade conditions with each trading partner. 

However, the 164 WTO members still have a long way to go before worldwide trade is freed from all major restrictions and clearly regulated in every aspect. Many important areas of world trade are still subject either to insufficient regulation at the multilateral level or to no such regulation at all (for example, investments, competition, public procurement, digital trade). Moreover, many countries – including Brazil and China – invoke numerous exceptions and special regulations.

WTO – mandate and objectives 

The WTO not only provides a negotiation platform for its members to draw up new rules and liberalize trade. It must also provide for transparency in world trade, monitor existing treaties, and mediate disputes between member states. The diverse tasks of the WTO are laid down in several individual treaties: 

  • General Agreement on Tariffs and Trade (GATT)
  • General Agreement on Trade in Services (GATS)
  • Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
  • Government Procurement Agreement (GPA)
  • Information Technology Agreement (ITA)

The GPA and ITA are so-called plurilateral agreements because only some WTO members have signed up to them. At the same time, a number of WTO members have begun to negotiate new agreements on trade in services (Trade in Services Agreement, TiSA) and trade in environmental goods (Environmental Goods Agreement, EGA). While both negotiations are currently stalled – not least because of the opposition of the current U.S. administration – plurilateral agreements can serve as a stepping stone for multilateral trade liberalization and rules-setting. An important prerequisite is that such agreements comply with the WTO rules on “preferential trade agreements”. 

WTO faces major challenges

International trade in goods and services continues to be hampered by numerous import duties and other trade barriers. Non-tariff barriers can take very different forms. They include complicated registration procedures, the obligation to pass on company know-how, and price setting by the state. During the global economic crisis that began in 2008, the G20 tasked the WTO with monitoring such potentially protectionist trade measures of the G20 countries and to regularly report on them. The WTO reports show that the number of such trade barriers has grown constantly, even though all G20 governments have committed themselves to putting a stop to, and doing away altogether with, state interference of this kind. Until October of this year, 1321 trade-restrictive measures by G20 members have been counted.

The best means to combat growing protectionism and strengthen the WTO would be the conclusion of the so-called Doha Round. In 2001, the WTO members agreed in Doha (Qatar) to this comprehensive negotiating agenda. But to this day, only a handful of items on that agenda have been successfully concluded. They include an agreement on trade facilitation (Trade Facilitation Agreement, TFA), which entered into force in 2016. The same year, the expanded WTO agreement on information technology products (Information Technology Agreement, ITA II) went into effect; however, only 50 or so WTO members have signed the agreement to date.

Ahead of the WTO Ministerial Conference in Buenos Aires MC11) in mid-December 2017, the BDI and B20 Germany – the official platform for the G20 business dialogue – are advocating for strengthening the WTO and paving the road for a modern trade agenda. Even though a breakthrough in the Doha Round can be expected neither in Argentina nor over the next few years owing to the lack of support and willingness to compromise from the United States and important emerging markets such as China, progress could be made on some promising initiatives. These include, for example, digital trade, improvements for small and medium-sized enterprises, investment facilitation, and stronger transparency mechanisms at the WTO against protectionist measures.

G20 trade-restrictive measures imposed since october 2008