WTO-Building © BDI/Eckart von Unger

WTO: The Multilateral Trade Order in Danger

The World Trade Organisation (WTO) serves as the guardian of global trade. For decades, together with its predecessor, the General Agreement on Tariffs and Trade (GATT), the Organization has contributed to the opening of markets and to the creation of fair rules to regulate trade between Members. Thus, it has promoted economic growth and prosperity worldwide. However, the multilateral trade organization is under strong pressure today to reform. It is high time to act.

Under the auspices of the WTO, the organisation’s Member States have committed to 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 to foster prosperity worldwide. 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 which counteract unjust discrimination and trade barriers.

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 rules at the multilateral level or to no such regulation at all (for example, investments, competition, digital trade, public procurement, trade in services). Moreover, many countries – including India, Brazil and China – invoke numerous exceptions and special regulations.

WTO – Objectives and Initiatives

The WTO not only provides a negotiation platform for its members to liberalise trade and draw up new rules that address modern trade challenges. It also provides for transparency in world trade, monitors the obligations under existing treaties, and mediates disputes between its members. 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 Agreements (ITA I and II)

The GPA and ITA are so-called plurilateral agreements because only some WTO members have signed on. In addition, several WTO members commenced negotiations on a new agreement on trade in services (Trade in Services Agreement, TiSA) in 2013. These negotiations as well as the negotiations on a plurilateral agreement on the removal of tariffs on so-called "nvironmental goods” (Environmental Goods, EGA) are, however, currently on hold – although in recent months, multiple global governance fora have expressed interest in restarting the negotiations.

Significant Challenges Facing the WTO

Beginning in 2001, WTO members launched a major round of negotiations intended to modernise the WTO framework, to achieve new binding market access expansion, and to better integrate emerging economies into global supply chains – the Doha Development Agenda. The negotiations failed, however, after over ten years, mainly due to differences between industrialised nations such as the United States and emerging economies like China and India. Merely one, albeit very valuable, multilateral agreement resulted successfully from the Doha Round, the Trade Facilitation Agreement of 2017, which simplifies customs procedures. Plurilateral negotiation forums have emerged for the topics of electronic commerce, investment facilitation, trade and gender, and micro, small- and medium-sized enterprises. They are to serve as stepping stones for the multilateral process.

Dispute Settlement Mechanism (DSM) under Pressure

The DSM enables the settlement of trade disputes in a (mostly) timely, unpolitical, and amicable fashion and thereby promotes enforcement of WTO rules. The number of disputes peaked in 2018 with 39 new conflicts. This is considerably higher than in previous years: in both 2017 and 2016, 17 new disputes were registered. However, in 2019 only 19 conflicts were registered and in 2020 a mere five. As of June 2021, only four new complaints were filed. This could be linked to (see below) the crisis of the dispute settlement mechanism.

Many of these disputes are highly political in their nature. Currently, the United States is blocking the appointment of new members to the Appellate Body. This led to a paralysis of the entire dispute settlement mechanism in December 2019, which put the credibility of the WTO into question. The United States has complained for quite some time that the Appellate Body overreaches its mandate by creating new rules to which members have not explicitly agreed. They also criticised the long duration of processing dispute settlement cases, and that Appellate Body members were on occasion allowed to continue handling cases after leaving the body. Under the Trump administration, they went as far as to publish a 174-page report critiquing the Body, including the accusation that in their decisions the Appellate Body erroneously interpreted several terms and obligations in global trade law.

Pursuing Reform, Step by Step

Reform is urgently needed in order to end gridlock at the WTO and thwart paralysis of the DSM. The European Union (EU) and other members have, often jointly, submitted several reform proposals. These have, among others, addressed the United States’ criticisms of the DSM in order to free the way for filling the open positions in den Appellate Body and to allow for more profound reforms further down the road. Reform proposals also aim to make the dispute settlement process timelier and more efficient, improving compliance with obligations, and finding a better balance regarding the obligations of industrialised and developing countries. Thus, the EU proposes that special and differential treatment of developing countries should in the future depend on objective, economic criteria instead of self-declaration of development status. The B7 under the British presidency recommended an urgent G7 work plan on dispute settlement. It remains to be seen under the leadership of Dr. Ngozi Okonjo-Iweala what progress can be made on this issue by MC12.