Wanted: A spirit of creativity and realism on WTO reform

The World Trade Organization’s logo is pictured outside its headquarters in Geneva, Switzerland, on October 2, 2018. (Reuters/Denis Balibouse)

For better or worse, the Trump administration has encouraged new soul-searching at the World Trade Organization (WTO) in Geneva over the need for reforms to the multilateral trade system. But even well before Donald J. Trump was elected president of the United States in November 2016, the United States and other WTO members were already confronting a series of existential questions.

At the WTO Ministerial Conferences in Bali in 2013 and Nairobi in 2015, there were discussions over the fate of the Doha Round of trade negotiations among WTO members and the prospects for new WTO rules to update the multilateral trade system playbook and provide new relevance for the organization in an age of rapidly changing economic, social, and political facts of life.

It’s hard to argue against the need for new agreements in the WTO.  The core rules of the system remain sound, including those in the founding General Agreement on Tariffs and Trade (GATT) and those that were put into place multilaterally after the conclusion of the Uruguay Round in 1994 and with the establishment of the WTO in 1995.  However, these rules have not been substantially extended and updated since then, with the notable exception of the Trade Facilitation Agreement, concluded in Bali in December 2013, and the lesser exception of rules on agricultural export promotion programs, agreed in Nairobi in December 2015.

Important plurilateral trade liberalizing agreements on information technology goods and financial and basic telecommunications services were concluded in the first few years of the WTO.  After these early successes, the ambitious Doha Round negotiations to build on them essentially failed and virtually all WTO members have left those efforts behind. Many now argue that it is time to find new approaches for negotiating in the WTO, in order to update the old rules and extend the system to new areas of trade, such as digital commerce given global efforts to develop 5G networks.

In assessing what might work and what might not, it should be more reassuring to note that the multilateral trade system has faced crises in the past and proven flexible enough to respond and adapt, when driven by forces of creativity.

This first happened at the creation of the multilateral trade system with the conclusion of negotiations on an International Trade Organization (ITO) in 1947.  The GATT became the default multilateral trade organization when the US Senate failed to ratify the ITO.  In the 1970s, at the end of the Tokyo Round, GATT contracting parties faced a dilemma when developing countries refused to adopt new rules on non-tariff barriers.  Once again, creativity saved the day.  GATT contracting parties agreed to have these results come into force as plurilateral ones, with each country free to decide for itself whether it would be legally committed to live up to these rules.

Launched in 1985, the Uruguay Round was the most ambitious and successful round ever, covering sensitive sectors previously excluded—agriculture and textiles—but also extending to vast new areas of trade, services and intellectual property rights.  It also multilateralized the plurilateral codes.  The Uruguay Round created the WTO as a new institutional structure and also established a radically different system of dispute settlement in which panel reports were to be adopted automatically, with no veto right for a losing party, and with a new Appellate Body of sitting judges to consider appeals of panel reports.

In the early years of the WTO, the future was looking very good, with highly successful one-off negotiations on a series of leftover issues that resulted in plurilateral-like new agreements.  These included the Information Technology Agreement (ITA), as well as impressive market liberalization in basic telecommunications and financial services.

However, WTO members abandoned this incremental approach soon after the creation of the WTO based on a common perception that negotiations in areas such as agriculture and services could only be successful as part of a broad-based and ambitious round with greater opportunity for trade-offs.  In retrospect, this perception, whether borne of habit or hubris, may have significantly closed the door to a variety of one-off new agreements in the years that followed. The result was the Doha Round. After more than a decade of negotiations, the Doha Round proved too ambitious, with expectations too colossally mismatched.  The single notable exception was the conclusion of the Trade Facilitation Agreement in Bali in 2013, when the WTO membership effectively abandoned the “single undertaking,” which was based on nothing being agreed until all things were agreed.

At this moment in the history of the multilateral trade system, when it covers nearly all of global trade, it would be wise for WTO members to learn their history and move forward in a new spirit of creativity and realism. Some immediate observations come to mind:

It’s important to keep the faith: The multilateral trade system, as embodied for decades in the GATT and more recently the WTO, has served as the platform for remarkable increases in global trade and played a critical role in promoting global economic growth.  Legions of economists have attested to this and the WTO Secretariat’s economic team, complemented by the World Bank, International Monetary Fund, and national economic experts, regularly churns out relevant trade statistics to continue to make the case for upholding the system and building on it.

In 1947, at the dawn of the multilateral trade system, global trade accounted for less than 5 percent of global GDP, whereas it is roughly 25 percent now.  And over the years, officials from the countries in the system have proven adept at steering the multilateral trade system forward, negotiating new trade liberalizing agreements and deploying the elaborate GATT and WTO infrastructure to identify and resolve measures that undermine the system.

The WTO is certainly at a crossroads, perhaps its most challenging yet, but this moment is not the first time that the system has faced an existential crisis and this should not be the only instance in which it fails in confronting and resolving the crisis.

Leadership matters: Historically, the United States has probably played the most important leadership role in establishing the multilateral trade system and propelling it forward.  If the United States is not willing to maintain that role at this moment, the challenges ahead will be more difficult to address, particularly in pursuing new approaches to negotiating new rules and making the system more relevant to how trade takes place in a truly global marketplace.

But all WTO members bear a responsibility in demonstrating leadership, whether that is by breaking out of too-long-established habits that are in serious need of updating or by bringing new creativity to promoting engagement among such a large group of countries.  This kind of leadership can only be successful if exerted across a broad cross-section of the WTO membership, large and small, very rich and very poor.

Although there likely has been too much made of a loss of US leadership — the United States certainly is still taking a leadership role on electronic commerce and fisheries subsidies — it is clear that others are stepping up and more should join the cause, including making greater efforts to support the critical work of WTO standing committees.

There is no time to waste; seize the opportunity now: Looking back over the nearly 20 years since the Doha Round was launched with much fanfare, the big successes in the WTO as a negotiating forum have been too rare.  Only one such success — the Trade Facilitation Agreement — has been truly multilateral.  And the few plurilateral ones, although significant, were concluded years ago.

The Appellate Body dilemma, involving the United States insisting on much-needed reforms but using questionable hardball tactics such as blocking the appointment of judges, has serious implications for dispute settlement in the WTO but has unfortunately been dominating much of the attention of members and stakeholders. That could all change with the announcement at Davos of the commencement of plurilateral negotiations on electronic commerce. Hopefully negotiations on electronic commerce can flourish through serious efforts to devise creative ways to bridge gaps while ensuring a high-standard agreement at the end of the day. This and potentially other similar efforts (perhaps on fisheries subsidies if multilateral negotiations fall short) might echo previous plurilateral successes, such as the Tokyo Round codes and the sectoral agreements in the first days of the WTO.  It may well be that plurilateral options again are the best approach for the foreseeable future.

With vision and a greater sense of responsibility among all members, the future of the WTO’s negotiating arm could be quite bright. It should include a stronger commitment to the everyday work that takes place in the standing committees to ensure transparency in trade-related measures of WTO members and provide a higher degree of certainty in how members abide by the existing rules of the road.  And there is now a present crisis that can even serve as a transformative moment.

As with so many things in the present day’s complicated, intermeshed circumstances, the alternative — a multilateral trade system that withers and loses relevance over time or collapses more suddenly in a series of impulsive actions — is something the global community should avoid at all costs.

Mark Linscott is a senior fellow with the Atlantic Council’s South Asia Center. He served as the assistant US trade representative (USTR) for South and Central Asian Affairs from December 2016 to December 2018. He previously served as the assistant US Trade Representative for WTO and Multilateral Affairs from 2012 to 2016 with responsibility for coordinating US trade policies in the WTO.