Reforming the WTO:Making international trade regain momentum.

The World Trade Organization (WTO) has 164 members, and 98% of international trade occurs among its participants. It has three functions: providing a negotiation room for further trade liberalization and rules; overseeing and implementing international trading rules; to provide resolution panels for controversies among members.

International trade and COVID-19.

It is estimated that global trade will shrink by 30% on a yearly base, and the international system is still lagging.

Member states have taken measures to mitigate the economic crisis’s impact by amending WTO rules to protect the domestic market. As of 21 August 2020, members had filed more than 200 notifications in response to the COVID-19 pandemic; given many member states are either reluctant or dysfunctional in issuing notices, there is room to assume the number of derogatory measures is far higher.

Indeed, measures to shield domestic markets could jeopardies the WTO system. Moreover, as members are coming out of the pandemic at an asynchronous pace, will the international trade system cope with such deep mutations in the pre-COVID environment?

The Rise and Fall of global trade.

In this video, the Financial Times explains how global trade developed through centuries in a non-linear way. Indeed, the world lived global and non-global phases.

Reforming the WTO.

The US and the European Union (EU) are preeminent critics of the WTO’s current rules and operations. During the Obama presidency, the US government had expressed concerns for the implicit enlargement of scope enacted by Appellate body members, who often moved further from the panel’s core issue, recommending amendments to laws and policies, not to mention a consistent use of previous judgments. The advent of the Trump presidency put the Appellate body activity at a standstill.

The EU has promoted several multilateral panels to reform the international trade system. Trilateral discussion among the EU, the US and Japan is the most remarkable initiative to amend the WTO, which has proven unable to reform itself through its rounds. The EU has worked with China to resolve the Appellate body stalemate and be part of the “Ottawa group”, a small group of WTO members that promote a bottom-up reform of the WTO.

The proliferation of multilateral negotiations is the outcome of the paralysis mentioned above in WTO rounds: today, more than 300 agreements rule international trade, and it is a vast shift from less than 60 in 1995.  The single undertaking principle (read: either approve or reject a whole round of negotiations) has proven to be a predicament. Countries often used it as a bargaining tool to promote over-ambitious agendas. Under WTO rules, multilateral agreements are discriminating as they amend the most favoured nation (MFN) principle, not to mention the creation of alternative dispute settlements bodies.

The WTO still innovates on minor issues: the Trade Facilitation Agreement (TDA) is a small yet meaningful step forward in making the international trade system closer to contemporary dynamics.

The WTO in numbers:

0
Members
0%
World trade
0%
Negative effect of COVID

Developing countries and the role of the state.

The status of developing county is significant controversy. As some G-20 members are developing countries under WTO terms, the US, the EU and Japan are the most vocal critics calling for revising such a privileged status. As a response, China and India reaffirm that per capita indicators are the most appropriate parameter to justify developing countries’ position. However, these countries have reached a noteworthy development, and their low GDP per capita is more an internal cleavage than an international trade matter.

The US, the EU, and Japan have launched a multilateral forum to assess and address Chinese public activism in international trade, lobbying for a significant makeover of WTO rules. However, the COVID-19 has brought states on the defensive, and state interventionism has grown to make any reform unfeasible in the near to medium term. Prominent WTO members also complain about the state’s role in the Chinese economy, as public funds have helped Chinese firms act aggressively in the international trade arena, leading to substantial unfair competition policies.

The WTO faces an existential need to reform. Otherwise, members will seek to manage international trade elsewhere, making it an open book. Regionalism plays a role in making the WTO regime less appealing; hence the stalemate in negotiation at the global level shall regain momentum at soonest.

A world of opportunities.

We help SMEs face the world stage with the right tools. Contact us to know more.

Contact us