A moment of truth for the WTO

GENEVA, Switzerland — An aura of gloom as dark and dispiriting as any wintry cloud over Lake Geneva shrouds the headquarters of the World Trade Organization.

A sense of foreboding is prevalent among delegations to the multilateral institution’s 164 members and the highly respected WTO Secretariat as they enter the final weeks before their 13^th Ministerial Conference at the end of February in Abu Dhabi. It is a biennial gathering few are relishing this time and even fewer believe will end successfully.

Ministerial conferences are not exercises in alchemy where leaden negotiating documents are magically spun into golden agreements.  Months of studious preparation are required for delegates to haggle their way through technically dense negotiating documents and frame for ministers the landing zones where compromise lies. 

Absent the grunt work on technical issues pertaining to definitions, legal status of agreements, and enforcement of trade rules, the trade ministers representing the WTO’s highest decision-making body cannot take the decisions needed to get the negotiations over the goal line. The meeting will only last three and a half days and if too many issues are too far from resolution, ministers cannot bridge gaps.

There are teething technical issues still to settle. It is widely known that unless governments curb the fisheries subsidies that encourage too many ships to track down an ever-dwindling numbers of fish in the sea, then all too soon fish stocks will wane and then simply disappear.

Negotiators know that slapping an import duty on digital goods will generate little revenue, discourage digital trade transactions, and hurt smaller and poorer entrepreneurs especially in developing countries. An October study from the Organisation for Economic Co-operation and Development illustrates that the potential gains from taxing electronic commerce are minute and would be offset by the decline in trade and higher input costs for local companies. According to the OECD, such a tax on e-commerce would generate an average of only 0.68% of total customs revenue and only 0.1% of total government revenue.

It would be the poorest countries which will suffer the most, with imports expected to fall 32% and exports to decline 2.5% should such a tax be imposed. Moreover, it is smaller companies which most heavily rely on digital trade to reach foreign markets and which would suffer the most from a decline in competitiveness arising from the resulting higher trade costs.¹

All Members know that giving India, the world’s largest rice exporter and third-largest regime of farm subsidies, carte blanche to ladle out even more support to its rice farmers will further distort agriculture trade.

Large numbers of members hope to sign agreements that would facilitate investment in developing countries and provide an important framework for electronic commerce transactions. The content of these agreements is not terribly controversial. Essentially, they provide transparent templates and guidance of benefits largely to smaller companies which otherwise would lack the resources to wade through the bureaucracy which confronts them when they do business in most foreign markets.

The investment agreement, in which more than 110 members are participating, streamlines administrative procedures, offers foreign investors information on how to invest, who to contact, and where to bring any complaints. It does not include protections for foreign investors, and it does not include an investor-state dispute settlement mechanism.

The 13 elements of the electronic commerce so-called “plurilateral” to which 90 WTO members have agreed provide international rules and guidelines on consumer protection, e-contracts, e-signatures, and privacy. Politically charged issues like forced transfer of source code, cross border flows of data, or requirements to hold data in local servers are, for the moment, off the table.

In a predictable pantomime that precedes WTO Ministerial Conferences, some countries are positioning themselves as obstacles to consensus. India and South Africa oppose both the investment and e-commerce agreements. They are pledging to stand in the way of a longstanding agreement to hold back taxes on electronic commerce transmissions. They are joined by other countries in rejecting an agreement that would prohibit subsidies that lead to overfishing and overcapacity.

On fisheries subsidies, New Delhi wants an agreement that would permit India and all developing countries to provide unlimited subsidies for any fishers operating within a country’s 200-mile exclusive economic zone. India further demands that Japan, European Union countries, the United States, and other developed countries agree to a 25-year ban on subsidies for fleets fishing in international waters.

But India’s number one objective is to extend and make permanent a provisional arrangement in which it buys grains from domestic farmers at above-market prices and stockpiles the grain for later distribution. A handful of other countries currently employ such a system – including China, Indonesia, Pakistan, and the Philippines.

The Indians justifiably claim that ministers had pledged to come up with a permanent solution to such a scheme, known as "public stockholding", back in 2013 but have failed to do so since. WTO members have become wary of writing India – not to mention China – a blank check which could be used to support exports of rice. So far, India has twice exceeded its subsidies limits though the use of public stockholding, twice overshooting its support limit of $4.6 billion annually for rice. But the provisional agreement reached in 2013 shields India from any WTO action for breeching its subsidy limits. Today, opponents of the program argue that the public stockholding discussions should be held in the context of wider agriculture subsidy reform negotiations.

In January, the United States infuriated the Indians by saying there was no possibility of agreeing on a deal in Abu Dhabi to enshrine public stockholding. The chair of the agriculture negotiations, Alparslan Acarsoy of Turkiye, originally suggested that since no consensus had emerged thus far, public stockholding should be set aside until the next Ministerial Conference. Inclusion of this option in his negotiating text triggered a fierce Indian response which led him to revise the text and include two possible outcomes, one which calls for agreement in Abu Dhabi and one which sets the issue on a slower track.

But the writing is on the wall: there will be no deal on public stockholding in February. Given that India has plainly stated it will not discuss any other agriculture issues without a deal on public stockholding, there is unlikely to be agreement on any agriculture issue – in itself a symptom of the WTO’s decision-making sclerosis.

As important as the fisheries subsidies and agriculture negotiations are, the agenda issue which carries perhaps the greatest symbolic importance is the fate of the organization-wide moratorium on duties applied to electric commerce transactions. This moratorium has been in place since the 1998 Ministerial Conference and has been extended at every Ministerial Conference since. The importance of this issue to businesses around the world cannot be overstated. Business confidence in the WTO is at its lowest ebb on record and a ministerial outcome in which WTO members decide – for the first time – to raise tariffs would lead many, particularly in the United States, to disengage even further.

Withholding support for something others deem desirable has long been the New Delhi way. But this time, it may not work. Threats to upend the Ministerial Conference are only effective if other WTO members are deeply invested in the issue.

This was once the case, but no more.

Traditionally, the United States had played the role of the member which yields at the 11^th hour to secure New Delhi’s reluctant approval on the overall package. Today, Washington holds the WTO in contempt.

At the last WTO Ministerial Conference in 2022, US Trade Representative Katherine Tai bluntly told the Indians that she was not terribly concerned about the possibility of the moratorium expiring and that in any case she would not pay for it by agreeing to a deal on public stockholding or unlimited Indian fisheries subsidies. In October, Tai enraged the US private sector when she withdrew US support for global rules on data flows, data localization, and code transfers. The livid response from businesses caught the Biden administration off guard, as did accusations from Congress that USTR had decided on this position without consulting lawmakers or engaging in an inter-agency consultation process, as has been the norm for such major policy decisions.

The fierce blowback from business has put USTR in a defensive posture and led them to pay lip service to the continuation of the moratorium. How active Tai will be in pushing to keep the moratorium is an open question at MC13.

While most WTO Members are committed to reform dispute settlement at the Ministerial Conference, the United States is not on board. It was always wishful thinking to assume that a fully functioning WTO dispute settlement system would be operational before the November US presidential election.

So here’s what we can expect: No deal on agriculture. No deal on fisheries subsidies. No continuation of the moratorium on e-commerce duties. No reform of dispute settlement or the WTO more generally.

Supporters of the plurilateral deals on e-commerce and investment facilitation hope to have their ministers sign the agreements at the Ministerial Conference. But India and South Africa, which both oppose all plurilateral negotiations – largely because they cannot block agreement -- say they will sabotage these efforts by withholding approval of the legal documents which outline individual members’ plurilateral commitments to their WTO trading partners.

Proponents of these pacts should call their bluff and proceed to sign them anyway in Abu Dhabi. Holding up the schedules of commitments of three-quarters of WTO members will not go down well, particularly if these members hold New Delhi and Pretoria responsible for the failure to agree on other issues. Moreover, absent a functioning dispute settlement system, South Africa and India have little legal recourse if others ignore their complaints and implement what they consider to be WTO agreements.

Those rules and guidelines include tariff levels for all members, standards for trade remedies, patent protection and food and product safety. They are the rules which underpin the global trading system and by which business is conducted globally – to which dozens of least developed countries like Timor Leste and Comoros still aspire to join for the sake for their economic development. These rules represent the starting point for virtually all regional and bilateral agreements. As difficult as it would be to reform the WTO, it would be impossible to build a new system from scratch.

One place to start is by choosing to negotiate areas of interest even if some members are opposed. Any agreements that emerge would be extended to all members – just as they would be in the investment and e-commerce pacts – but those not participating would be under no obligations.

Dispute settlement may require root-and-branch reforms which rely more on mediation and less on litigation. Difficult concepts on which members have been sharply divided including what development means, who is a developing country, and what constitutes national security, should be the subject of serious introspection.

All of this will be difficult. But good-faith interaction on these issues can no longer be postponed.

As trade ministers gather in Abu Dhabi to ponder the future, perhaps the question they should be asking is not what my country wants, but what do I consider in the WTO worth saving?

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[1] https://www.oecd-ilibrary.org/docserver/59ceace9-en.pdf?expires=1706525585&id=id&accname=guest&checksum=4E65C8992C7496DF51DF7457AFDFBE74.
[2] https://economictimes.indiatimes.com/tech/technology/customs-duty-on-electronic-transmissions-will-hit-semiconductor-design-locally-industry-bodies/articleshow/107150992.cms?from=mdr.

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