WTO: The Multilateral Trading System in Danger

WTO-Building © BDI/Eckart von Unger

International trade has contributed considerably to economic growth and development worldwide. The World Trade Organisation (WTO) has played a pivotal role in advancing market access, setting rules to ensure fair play on global markets, and solving trade disputes. After years of stalemate in the so-called Doha Development Round, the WTO’s dispute settlement is now seriously endangered. The global economy needs a strong and effective WTO. Thus, members need to lay their opposition aside and engage in serious reform efforts. 

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, public procurement, digital trade). Moreover, many countries – including 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 draw up new rules and liberalise trade. It also provides for transparency in world trade, monitors existing treaties, and mediates disputes between its member. 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 “environmental goods” (Environmental Goods, EGA) are, however, currently on hold – not least because of the opposition of the current U.S. administration.

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, and small- and medium-sized enterprises. They are to serve as stepping-stones in 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. From January to September 2019, 16 new complaints were filed at the WTO. This is considerably higher than in previous years: in both 2017 and 2016 17 new disputes were registered. 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 is putting 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.

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 profounder reforms further down the road. The reform proposals also aim at making the dispute settlement process more timely and efficient, improving compliance, and finding a better balance regarding the obligations of industrialised and developing countries. Thus, the EU proses that special and differential treatment of developing countries should in the future depend on objective, economic criteria instead of self-declaration of development status.

Without doubt, the WTO needs serious reforms. Among other things, this includes incentives to comply with reporting obligations (e.g. on trade-related subsidies) and establishing clear rules for state-owned enterprises. Furthermore, the WTO Secretariat needs to be equipped with new competences and resources (including for rule monitoring). The world economy needs a strong and effective WTO. It is high time to act!