Summary
At the time of writing, the world is experiencing a deadly pandemic that brings to the fore vulnerabilities linked to the interconnectedness of the global economy. Once the immediate crisis has been overcome, there will be a need to reorient policies for reconstruction and, in that context, review the work of institutions responsible for managing global interdependence. In principle, two scenarios can be imagined. In the absence of a global hegemon, and in a world of increased geopolitical tensions, countries may opt for retrenchment, choose their camps and deepen the tendency to decouple their economies. This was the path followed after the 1918 global pandemic… The other path is for the leading powers to assume joint responsibility for the management of interdependencies and revitalise and renew global institutions so that they are fit for purpose. Common goals for the international community have already been identified in the UN Sustainable Development Goals. What is needed is that each relevant institution is adapted to make the contribution that best suits its mandate. In some areas like health or climate change, it is already clear that this calls for substantially reinforced international cooperation. The strengthening of the welfare state also needs to be supported by a reform of the rules applied to the taxation of international income. But the trading system is a vital artery of the global economy and the legacy of the GATT/WTO system is too precious to discard. Rather than levelling down by weakening cooperation on trade, the requirement is to level up cooperation across a broad range of interconnected policy areas.
This paper has argued that the GATT/WTO system has acted as the essential anchor for the global economy by facilitating progressive liberalisation, ensuring the stability provided by commonly agreed rules and providing a neutral and objective system of third-party adjudication. As such it has made a major contribution to growth and development.80 While the GATT was originally sustained by a common commitment to combine openness with domestic stability through welfare policies, the WTO has proven unable to identify a common sense of purpose that reflects its almost universal membership. While the drafters of the WTO treaty inscribed sustainable development in the preamble, there has never been a common understanding as to how the new body should respond to those lofty words. To this lack of common purpose has been added the tectonic geopolitical shift resulting from the emergence of China as the world’s largest economy and trading nation.
This paper argues that for the WTO to retain its relevance, it needs to reform. And such reform would need to be jointly promoted by the three main trading powers as part of an inclusive process that also integrates the concerns of all other WTO members. Of particular importance is to integrate the concerns and interests of those developing countries that currently play a marginal role in trade and investment flows, many of which are in Africa. As the African Union develops the project of an African Continental Free Trade area, there is a strong case to make support for African integration in the global economy a central pillar of WTO reform.
The advantages of an ambitious WTO reform agenda would appear to be self-evident:
• Cooperation on trade will contribute to economic recovery from the pandemic and reduce the tensions affecting the global trading system. It would also facilitate reinforced international cooperation to tackle other global challenges such as climate change.
• Multilateral trade liberalisation would send a signal of confidence to traders and investors with a positive impact on the world economy at a time of reconstruction and significant downward risks. It would also make a direct contribution to sustainability objectives.
• Heads of state and government would renew their commitment to multilateral rule-based trade and provide political guidance on the contribution of trade to SDG implementation.
• The WTO would be reinforced both in terms of its effectiveness and its legitimacy. This reinforcement would also ensure a better balance between the role of members, secretariat and Appellate Body.
While the agenda is ambitious, it is also realistic. The market access commitments by many WTO members would essentially consist of binding the existing level of openness. Liberalisation commitments could be undertaken without affecting core sensitivities, thereby avoiding the pitfalls that led to failure of the Doha Development Agenda. While China would need to accept more constraints on its industrial policies, it would be on the basis of disciplines that are even-handed and apply to other WTO members. Those disciplines would only be subject to enforcement through a legitimate process of third-party adjudication. The US and the EU would benefit from an improved balance of commitments and a level playing field with China which would see its leading role in the trading system recognised and protected against unilateral pressures. Cooperation on WTO reform would also provide a stronger political glue to the transatlantic relationship and lead to reduced bilateral tensions.
The postponement of the WTO Ministerial Conference provides time to properly prepare the launch of an ambitious reform agenda. Reform would, of course, need to proceed in different stages and not every issue would necessarily be ripe for decision by the time of next year’s conference (MC 12). But it is important that a sense of direction is provided with the overall goal of seeking to reach substantial results over a time frame of not more than four years. Early implementation of results should be possible and open plurilateral agreements should be integrated within the WTO framework. At the time of writing, one cannot predict what would be the state of the world economy in 2021 owing to the uncertainties created by the global pandemic. A sense of crisis could, it is hoped, lead to greater boldness and a decision to agree by MC12 on some urgent steps to restore confidence in rule-based trade and launch an ambitious agenda for reform.
There are in particular three areas where WTO members could give a strong signal of support for multilateral cooperation and show the organisation’s relevance when it comes to delivery on the broader goals of the international community. These would include agreement on the elimination of trade distortive fisheries subsidies, a trade and health initiative and the elimination by as many countries as possible of tariffs both on medical products and on environmental goods. Ideally, a decision could also be taken to proceed to the appointment of Appellate Body members on the basis of a decision to improve the appellate function.
Beyond such a boost of confidence, the Ministerial should launch a broad programme of WTO reform that includes pursuing open plurilateral initiatives on drawing up new rules, exploring the scope for negotiations on industrial and agriculture subsidies as well as on tariffs and services/investment, improvements in the dispute settlement understanding and clarification of rules on trade remedies as well as reinforcing the policy monitoring and deliberation function with the overall objective of contributing to SDG implementation. The ministerial meeting that follows in 2023 should be able to identify further progress in the reform agenda and define more precisely the steps needed to conclude reform negotiations. By 2025, a summit meeting at heads of state and government level could seal the process of WTO reform and agree on a statement that includes political commitments to implement the SDGs along with a work programme to deliver on such commitments.
This article has sought to make the case for an ambitious WTO reform agenda. Before concluding, it is worth discussing the issue of political feasibility. The new European Commission has identified WTO reform as its main trade policy priority. The EU can be expected, therefore, to actively promote WTO reform. Of critical importance would be to place such reform within a broader political context of global efforts to recover from the consequences of the pandemic and to renew multilateral institutions’ capacity to act not only on trade, but also on climate change, health and other global challenges. An outward-looking EU should be ready to invest politically to strengthen alliances in support of multilateralism. Here, the key determinant for the prospects of moving forward on the reform agenda depends on the interaction between the EU and three other key players: the US, China and the African Union. This is not intended to minimise the contribution of other WTO members, but simply to illustrate that little can be achieved in the absence of sufficient common understanding amongst those four players.
An essential building block for WTO reform is a high degree of convergence in the reform agenda between the US and EU. Throughout the history of the multilateral trading system, EU-US cooperation has been the main driving force for progress achieved in GATT/WTO negotiations. With the demise of TTIP, cooperation on WTO reform can also restore a climate of transatlantic trust and cooperation on trade with positive spill overs for the bilateral WTO Crisis and Reform. Looking into the agenda of WTO reform, there is likely to be a high degree of convergence between EU and US on ideas to restore the credibility of the WTO negotiating function. So far, the US has not been active in discussions relating to the relationship between WTO reform and sustainable development, although its position is likely to depend on the outcome of the November elections. The main area of substantive disagreement is the reform of WTO dispute settlement. The hope of this author is that the ideas presented in this paper, together with others that may come from the US side, could facilitate a transatlantic dialogue to identify a package of reforms that restores a properly functioning binding dispute settlement system. As they are the two main users of WTO dispute settlement, there is a h likelihood that other members would be ready to support changes to which both the US and the EU can subscribe.
Beyond convergence on the detailed reform agenda, the fundamental political question is whether the US is ready to accept that its trade relationship with China cannot be managed exclusively at the bilateral level and that priority should be attached to negotiations in a multilateral setting. This paper argues that the phase one agreement with China does not have the potential to develop into an instrument to secure Chinese reforms or to level the playing field. Instead of relying on bilateral purchase commitments, the US would be better served if China were to agree to autonomously reduce tariffs and to further open its market to investments. A suspension of retaliatory tariffs, as well as restrictions linked to the steel and aluminium national security actions and the civil aircraft dispute, would provide a signal of confidence for the world economy and create the conditions to enter into good faith negotiations on WTO reform. Whether the US would be ready to go in this direction is a question for which an answer can only be provided after its November elections.
How would China react if there was a joint transatlantic offer to cooperate in the launch of WTO reform negotiations? In the absence of signals from the US, it is difficult to gauge what Beijing’s position would be. China has been highly critical of US proposals on special and differential treatment as well as on the trilateral proposals on industrial subsidies. In reality, however, China has little to gain from claiming special treatment in rules negotiations and could even find an interest in market access negotiations provided a solution could be found on the issue of free riding. Even on the issue of subsidies, China has been careful not to rule out negotiations at the same time as signalling its interest on certain issues such as restoring the Uruguay Round green box.82 The fundamental political question is whether China is ready to accept responsibilities commensurate with its weight in the global economy. Much may depend on whether it is possible to restore a climate of trust by de-escalating the current conflict.
It may be, of course, that China refuses to engage and insists on maintaining the status quo. In that case, the US and the EU could seek to enhance leverage by intensifying cooperation on making use of WTO-compatible instruments to respond against distortive Chinese practices. This could include sharing information on Chinese subsidies for the purpose of countervailing duty cases as well as intensifying cooperation on investment screening and export control procedures. The EU should still seek to persuade the US to cooperate in reforming WTO dispute settlement, as well as moving forward on those aspects of WTO reform not linked to the US-China conflict, notably those relating to sustainable development, trade and health, support for Africa and institutional reform.
Agreement on an agenda by the three main trading powers, while critically important, would not suffice on its own to launch a reform process that has the necessary legitimacy and restores a sense of common purpose to the multilateral trading system. Africa is the region of the world that is least integrated within the world economy and would suffer most from a collapse of the rule-based trading system. African countries can, moreover, be expected to play a key role in developing an acceptable approach on the two key enabling conditions for restoring the WTO negotiating function, i.e. the new architecture for plurilateral agreements and a new approach to special and differential treatment. They are also likely to insist on the importance of agriculture reform and strong commitments to inclusiveness and support for capacity building. At this stage, the African Union is engaged on the major political project of establishing the African Continental Free Trade Area. The synergies between regional integration and fuller participation in global value chains is a key challenge for African development. How to develop these synergies should therefore be one of the central objectives of the WTO reform agenda.
The task of winning political support for an ambitious reform agenda is therefore far from being simple. Political developments in the relationship between the US and China will have a major bearing on the prospect to restore trust in multilateral institutions. But all participants in the trading system would need to contribute if the WTO is to regain its place at the centre of a rule-based trading system. While there are no reasons for optimism, the world has already witnessed the consequences of a collapse of cooperation on trade – and the challenge of recovering from the global pandemic and managing the climate transition makes cooperation even more essential.
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