Is it time to expect less from the WTO?

A quarter of a century after the World Trade Organization (WTO) was founded, one may wonder if our original expectations for the organization were unrealistically high. Even a generous assessment of the WTO’s accomplishments in comparison to its stated objectives would be discouraging. The WTO’s global trade liberalization agenda is dead in the water. Its dispute settlement mechanism (DSM) is on life support. Even negotiations on a comparatively “easy” agreement to limit fisheries subsidies have dragged on for roughly two decades without success.

But rather than wring our hands over the WTO’s inability to deliver on its core objectives, perhaps it would be better to recognize and accept that significant portions of its foundational mandate – however well-intentioned in the 1990s – are simply unachievable in the current world. We may have to acknowledge that there are no realistically achievable reforms which could empower the WTO to be the organization we originally hoped it would be.

A glass half full or half empty?

Acknowledging that we had unrealistically high expectations for the WTO should not be seen as a condemnation of the organization. It certainly does not imply that the organization lacks any redeeming qualities or that it should be thrown onto the scrap heap. Quite to the contrary, the WTO makes significant contributions to advancing trade every day through its work on capacity building, technical cooperation, best practices, transparency, and information sharing. While not particularly glamourous, these contributions are valuable and should not be underestimated.

But in its two most important areas of responsibility – acting as a global trade referee and driving global trade liberalization and rule-making – the WTO has come up short.

The Dispute Settlement Mechanism (DSM) is the primary instrument through which the WTO was intended to act as a global trade referee. Today, the DSM is largely inoperative due to the US blocking appointment of Appellate Body judges. Various proposals have been floated to address US complaints and resuscitate the DSM. But even if one could wave a magic wand and restore functionality to the DSM tomorrow, the problem would remain. The most vexing trade irritants of the day – massive, oftentimes opaque industrial subsidies, non-market activities by SOEs, and coerced technology transfers – are either not covered or not adequately covered by existing trade rules. Even a perfectly functioning DSM would be powerless to resolve the many trade disputes which as of today lie beyond the scope of existing WTO trade rules or fall into grey areas.

The solution should theoretically be simple: make new and better trade rules. Unfortunately, prospects on that front do not look any better.

But in any case, after the 13-year odyssey of the Doha Round, there is no appetite within the WTO for another comprehensive multilateral round. There seems to be a tacit understanding that the multilateral track – and with it, the prospects for a meaningful, comprehensive update of the rule book – are dead, at least for the foreseeable future.

Don’t blame the Director General

The appointment of an energetic, intelligent, and ambitious new Director General (Dr. Ngozi Okonjo-Iweala) in 2021 raised hopes that she could jumpstart the moribund organization. That was silly, and a bit unfair to Dr. Okonjo-Iweala. The Director General is a largely powerless administrator with little decision-making authority. All major WTO decisions are taken on a consensus basis by the member economies – and today, there is practically nothing on which those 164 members can unanimously agree. It was almost impossible to get WTO members to agree on the definition of “fish” in the context of the fisheries negotiations. What should we realistically expect on the infinitely more complex task of agreeing new trade rules?

A post-WTO world?

Continuing to expect the WTO to fulfill functions which are beyond its institutional capabilities leads only to lost time. The WTO is simply never going to be able to set and enforce trade rules in the ways we originally expected. Whether we like it or not, it’s time to think about a post-WTO world. This is not to suggest that the WTO will or should disappear. But its role, relevance and influence will remain a fraction of our original expectations.

What might a new post-WTO world look like? One possibility is for already existing trendlines to intensify and accelerate. Countries self-select for closer trade partnerships based on common levels of liberalization ambition and set and enforce their own rules in plurilateral agreements. WTO obligations would constitute the baseline and partners would agree to advance beyond WTO disciplines (or add new ones) according to their interests and needs. The RCEP (Regional Comprehensive Economic Partnership) and the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) are two recent examples, but the appeal of self-selected plurilateral deals has steadily grown over the years. This approach obviates both the seemingly impossible requirement to secure the unanimous consent of 164 diverse members as well as the dubious fallback of settling for consensus, lowest common-denominator WTO rules that accomplish little. The fastest runners would no longer be held back by the slowest runners, or so the reasoning goes.

In some instances, where there is insufficient commonality or ambition for broad trade agreements, countries might opt for a sector-specific approach. Digital trade comes to mind. The Digital Economy Partnership Agreement (DEPA) is a welcomed first step and its membership is likely to expand. US interest in a digital agreement in the Indo-Pacific is also encouraging. There are also potential synergies with the WTO, where e-commerce negotiations continue among 86 members Ideally, progress or innovative approaches developed in one forum can spill over to another.

But one wonders what real purpose a WTO agreement including only a portion of its members would serve if the DEPA or a US-led agreement proves to be “where the action is”. Some members – India and South Africa in particular – have already raised questions about the WTO-legality of the e-commerce negotiations and the stage seems to be set for extended bickering over how or if any agreements that might emerge will apply to the broader membership. Self-selected sectoral deals conducted outside the WTO framework seem to be a cleaner and more nimble approach. Nonetheless, these sectoral approaches driven by a subset of WTO members probably represent the best shot the organization has at constructively participating in rulemaking.

Countries also seem to be gravitating towards framework agreements with like-minded partners, which typically facilitate cooperation on a broader range of issues, such as standards setting in emerging technologies, infrastructure, and sustainability. Recent examples include the US-EU Trade and Technology Council, the proposed US-Indo-Pacific Framework, and the US-Japan Commercial and Industrial Partnership.

Beware the pitfalls

The potential pitfalls of this new post-WTO world are self-evident. Trade becomes balkanized, reducing economic efficiencies and potentially exacerbating antipathies between competing blocks. The inclusion of hot-button non-trade issues as a basis for forming these groupings would only deepen the fault lines between them. The position of less-developed economies could grow tenuous as they face a choice between joining trade agreements with difficult and ambitious standards or remaining on the outside looking in. The resolution of trade disputes between members of a given plurilateral agreement would be adjudicated by the dispute settlement provisions contained therein. However, trade disputes amongst members outside of plurilateral deals would be left with a diminished WTO system. Retaliatory trade actions would frequently result.

Far from the world we expected

This is a far cry from what we expected when the WTO opened its doors in 1995. Our vision then was for a single global trade community governed by a single set of regularly updated global trade rules. We would have a fair and effective referee keeping everyone in line and proactively spear-heading further liberalization and rule-writing on a timely basis. There would be little need for unilateral trade enforcement tools or sectoral or plurilateral agreements. We would all move together as one.

If such a vision were still achievable today, many would gladly sign on. Ample evidence suggests that it is not. Let’s begin to think deliberately about minimizing the downside risks of the prospective new world we seem to be heading towards and maximizing the potential benefits. Let’s not stumble into a post-WTO world because we failed to recognize that it is upon us.

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