WTO-Building © BDI/Eckart von Unger

WTO: The Multilateral Trade Order Redeemed?

For decades, together with its predecessor, the General Agreement on Tariffs and Trade (GATT), the World Trade Organisation 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 remains under strong pressure today to reform even after unexpected consensus at the 12th Ministerial. What comes next?

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, as well as important elements of competitive distortion). Moreover, many countries – including India, Brazil and China – invoke numerous exceptions and special regulations.

Following two postponements due to the covid-19 pandemic, MC12 was held in Geneva in June 2022. Two days after its originally planned ending, the new Director-General shocked the world by revealing the Geneva Package, an unexpected group of multilateral consensus documents on global emergencies including food insecurity, the World Food Program, the covid-19 pandemic, and TRIPS waivers; on e-commerce, and a half-agreement on fisheries subsidies.

It is symbolically and publicly a success that the Geneva Package was agreed-upon. The WTO has been fighting for its legitimacy since the ambitious Doha Development Round failed and the previous Director-General stepped down before his term was up. Multilateral consensus has been increasingly more difficult as members’ differences in opinion over the pure function, framework, and role of development have called the entire consensus principle into question.

German industry welcomes in particular that MC12 resulted in an extension of the moratorium on customs duties on digitally traded goods and services at least until the 13th Ministerial. Progress on e-commerce protects companies from the administrative burden of imposing customs duties, recognizes the importance of digital trade as a growing reality of the 21st century, and can also contribute positive to resilient supply chains and allow consumers to stay connected to markets. However, the moratorium should be made permanent once and for all. The impact of the moratorium on customs revenues would be outweighed by significant benefits of keeping these transactions duty-free.

It is also positive that the outcome document committed members to working towards necessary reform of the WTO in all pillars, in an open and transparent way. Although we would have hoped for an earlier goal, members committed to conduct discussions and have a fully-functioning dispute settlement mechanism by 2024. Multilateral consensus on pandemic preparedness and food insecurity delineates a WTO capable of adapting and understanding the current challenges.

There is still major progress to be made. It is regretful that no significant conclusions to any plurilateral agreements were announced at MC12 amid India and South Africa calling for this important and timely work to be ended. Technical discussions moving forward on dispute settlement only commenced in spring 2022 and it remains to be seen how seriously the United States will engage on this issue to lift their blockade. Although with a narrower scope than initially feared, the declaration on TRIPS threatens to jeopardize future innovation. The real problems in vaccination campaigns and logistics chains cannot be solved by abandoning protection of intellectual property.

Wording and progress on competitive distortion issues, including industrial subsidies and state-owned enterprises, was cautiously missing from the outcome documents. Furthermore, the war in the Ukraine shows no signs of stopping and Russia must still be dealt with in both multilateral and plurilateral negotiations. The EU must continue to deliver concrete and precise proposals for reform and engage with like-minded partners to move forward.