Published 05 March 2024
Save a Pyrrhic victory and small gains on e-commerce and a plurilateral agreement on domestic services, WTO members came up empty at the conclusion of last week’s MC13 on virtually all major issues. A collapse of the organization is not impending, but its relevance remains the biggest question looming over the WTO.
Success at last week’s Ministerial Conference of the World Trade Organization was always going to be a long shot. The unfortunate alignment of the political stars virtually assured the meeting in Abu Dhabi would end badly.
Looming elections in India, the United States, and Mexico, plus a newly installed administration in Indonesia, severely restricted the room for maneuver and crushed any inclination to compromise.
Where the negotiating efforts fell short of agreement – in agriculture, fisheries subsidies, and reform of the organization’s crippled dispute settlement system – the outcome was almost preordained. India was not going to risk blowback from its farmers or fishers and the US was not going to yield on a newly minted Appellate Body.
In her concluding press conference, WTO Director-General Ngozi Okonjo-Iweala referenced the many strong headwinds confronting MC13 including the wars in Ukraine and the Middle East, slumping demand in many economies, and pending elections in more than 60 countries in 2024. She tried to put a brave face on the results from the five-day meeting by suggesting what trade ministers achieved was “pretty amazing” and that the glass was "three-quarters full."
To be sure, there were some positive results, including the accessions of Comoros and Timor Leste and the entry into force of the 2021 agreement on Domestic Regulation in Services.
But on the major issues, WTO members came up empty.
No deal on agriculture
Agriculture talks ran asunder on India’s demand to make permanent a "peace clause" agreed in 2013 which shields New Delhi from any legal ramifications for breaching its limits on allowable farm subsidies used in its public stockholding program. The building of food stocks is permissible under WTO rules, but India purchases rice from farmers at inflated levels through its Market Price Support system which leads to greater production. Many of India’s trading partners believe the rice reserves, meant to build up domestic stocks, are later exported.
During one small group meeting, Thailand’s ambassador to the WTO, Pimchanok Vonkorpon Pitfield, alleged that 40% of rice held in the subsidized Indian public stocks was being exported. Infuriated Indian officials, including trade minister Piyush Goyal, told Okonjo-Iweala and the conference chair that India would not attend further meetings if Pitfield was present.1
No deal on fisheries
Negotiations to expand on the 2022 agreement curtailing fisheries subsidies likewise ran aground. The agreement struck at MC12 banned subsidies for illegal, unreported, and unregulated fishing. This was an important achievement but the subsidies most responsible for depleting fish stocks globally are those that lead to overfishing and overcapacity. The goal at MC13 was to ban subsidies for fishery-related shipbuilding, labor, and fuel, among other things. Once again, India was front-and-center arguing that its fishers should be able to receive unlimited subsidies if fishing in sovereign waters. Developed countries, India proposed, would meanwhile ban all deepwater subsidies while developing countries could continue such support for 25 years.
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Pacific island nations argued that subsidies for deepwater fishing must be banned, something the Chinese could not accept. About one-third of the world’s fishing vessels are Chinese-owned and many of them fish waters throughout Asia but also off the coast of Africa and Latin America. China also objected to US demands that any vessels that use forced labor must register themselves as such.
No deal on dispute settlement
Earlier efforts to reform the dispute settlement system had borne fruit in the form of a document produced by former Guatemalan delegate Marco Molina. Molina’s text, widely praised by delegates, proposed increased emphasis on arbitration and mediation and stricter limits on the length of submissions.2
Molina avoided in his text the fractious issue of the WTO’s Appellate Body, which remains scuttled by a US embargo on bench appointments. But none of this mattered when Molina was mysteriously fired by his own government shortly before MC13 began.
Without Molina, it seems a tall order to bridge the vast differences separating members on appellate reform.
Pyrrhic victory on e-commerce
Even the surprising decision to extend a moratorium on the application of import duties on e-commerce transmissions rang hollow. India, South Africa, and Indonesia sought an end to the moratorium, which was first agreed at that 1998 Ministerial Conference in Geneva. These countries maintain that the application of such duties will boost their revenues, though many studies indicate otherwise. The Organisation for Economic Co-operation and Development said in a report that such a tax would generate only 0.1% of India’s total government revenue while raising costs and hampering competitiveness of poorer economies and smaller companies.3
The hardline taken by India, South Africa, and Indonesia led many to suspect that compromise was not on the cards. But India has a close relationship with the MC13 host United Arab Emirates.
So when the Emirati trade minister Thani bin Ahmed Al Zeyoudi asked Goyal to extend the moratorium as a personal favor, Goyal agreed. The South Africans and Indonesians then went along with the growing consensus.
The pledge to keep digital trade duty-free will come to an end at the next ministerial meeting or 31 March 2026, whichever comes first. Individual WTO members may choose to roll the moratorium over or make it permanent, but as an organization the duty-free commitment will be dropped. For the first time, the WTO will open the door for tariff hikes and create the conditions for the unprecedented application of duties on trade in services. Call it MC13’s Pyrrhic victory.
Plurilaterals make small gains
Hopes ran high before MC13 that ministers would greenlight two plurilateral agreements so that they could be incorporated into the WTO’s legal architecture. Plurilateral agreements are a way for smaller groups of WTO members to build consensus as it gets increasingly harder for the full membership to move as one.
However, India and South Africa have long opposed plurilateral negotiations.
These two members have couched their protests on plurilateral negotiations in arcane legal arguments, but the reality is far simpler – New Delhi and Pretoria abhor these negotiations because they cannot block them.
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This hostility was made plain in Abu Dhabi when the two members blocked proponents’ efforts to incorporate plurilaterally agreed text on Investment Facilitation for Development into the WTO rulebook.4
The plurilateral agreement on Domestic Regulation in Services met a better fate. The legal structure of this agreement, which includes 71 participating members and covers 92% of world trade in services, is based on individual members’ commitments to the others and is thus much more difficult to undermine. Aware of the shaky legal foundation of their objections, India and South Africa partially lifted their blockade on the agreement, allowing it to come into force.5
So, six key takeaways in the aftermath of MC13:
- The WTO is not going anywhere. Prognosticators enjoy using phrases like death knell when examining the WTO’s shortcomings but the collapse of the organization and the system it oversees is not going to happen. A foundation based on 75 years of rulemaking is too ingrained in the trading practices of nations and businesses. If every country applied different and variable tariffs on its trading partners, chaos would swiftly ensue. The question about the WTO is not whether it will continue to exist, but how relevant it will be.
- MC13 underscored that if members want to accomplish anything, plurilateral negotiations are the only viable option. Some important lessons were learned in Abu Dhabi about how results from these negotiations might be implemented. This will have meaningful ramifications particularly with respect to the 90-member negotiations on electronic commerce. The plurilateral process is increasingly the WTO’s only e-commerce game in town.
- When the new dispute settlement is reformed, it will have a very different look. Many smaller, poorer members seek ways to access the complex and costly process of dispute resolution. One way to do that would be through incentives to use mediation and arbitration. It’s unclear how a new Appellate Body would look but it’s inconceivable that there will be a return to a powerful WTO "court." A pared-down and less heavy-handed mechanism is inevitable.
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- Economies still want to join the WTO. With the accessions of Comoros and Timor-Leste, the WTO will have 166 members. There are 22 candidate countries still in the accession queue. None of the current members have ever expressed a desire to leave. Whatever criticisms there may be on the WTO, governments still believe there is value in membership.
- Several major systemic issues were not really addressed at MC13, including the use of national security exemptions. The dispute settlement cases on the national security exception have strained the system to its breaking point. Given the tense state of the world today, such cases are unlikely to disappear. There are also unresolved questions over China’s formal status in the WTO as a developing economy that is also the world’s largest trading nation.
- Okonjo-Iweala’s future is uncertain. Her term expires at the end of August 2025. The process of reappointing her or choosing her successor will start in December. The US may not back her for a second term, especially if Donald Trump wins. In Abu Dhabi, Okonjo-Iweala worked around the clock and to the very end to broker deals. But her tactics angered two powerful members, India and Brazil, and some delegates in Geneva say they are weary of her work style.
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[1] https://timesofindia.indiatimes.com/india/thailand-recalls-envoy-to-wto-after-india-protest-govt-official/articleshow/108134325.cms
[2] https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=303682
[3] https://www.oecd-ilibrary.org/trade/understanding-the-potential-scope-definition-and-impact-of-the-wto-e-commerce-moratorium_59ceace9-en
[4] https://www.wto.org/english/docs_e/legal_e/04-wto.pdf
[5] https://tradebetablog.wordpress.com/2024/02/28/objections-dropped-services-nothing-other-plurilaterals
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Author
Keith M. Rockwell
Keith M. Rockwell is a Senior Research Fellow at the Hinrich Foundation. Prior to his retirement in June 2022, Keith served as a Director at the World Trade Organization (WTO) and spokesperson for the organization for more than 25 years. He also is Global Fellow at the Wilson Center.
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