Published 14 June 2022
While the WTO continues to have an extremely useful role to play in areas like trade facilitation and capacity building, there is no evidence to suggest that a consensus-based organization riven by deep fissures can navigate the most complex issues of the day. As our ability to reach agreement in a single system diminishes, countries will increasingly look to self-selected trade groupings.
The pandemic-delayed 12th Ministerial Conference (MC12) of the World Trade Organization is now underway in Geneva. Realistic observers are not expecting major breakthroughs. There is hope, however, that a modicum of progress can be made on at least some of the critical issues on the agenda. It is a sad irony that at a time when the organization’s effectiveness appears to be at its nadir, the issues it faces are perhaps more important than at any other time in its history.
WTO agenda: from internal reform to food, fish, and vaccines
The crowded MC12 agenda reflects how badly battered the global trade system has been in recent years. Supply chain dislocations spawned by the Covid-19 pandemic and the war in Ukraine have generated critical shortages, especially in agricultural products. Enhancing food security is therefore a priority agenda item. The pandemic has led to a push to adjust WTO intellectual property protocols in order to ensure more efficient and equitable vaccine distribution. Action to address looming environmental catastrophes can no longer be deferred. Ministers will try to reach a deal to limit fisheries subsidies that have led to a dangerous depletion of global fish stocks. And the longstanding need for internal reform and an update of the trade rulebook has grown in urgency, as questions about the relevancy of the WTO become more pronounced.
Given these imperatives, why are prospects for meaningful progress so dim?
Wide fault lines divide the organization
The primary impediment blocking progress at the WTO can be neatly summarized: The 164 members of the organization are riven by sharply divergent perspectives, priorities, and positions, but major decisions require 100% consensus. Simply put, they can’t agree.
Even on those issues where agreement is ultimately achieved, it frequently takes too long to be relevant. On the toughest and most consequential issues, consensus appears beyond reach. There are multiple fault lines dividing the membership, but the following three are most important:
1. The market/non-market economy divide
Existing trade rules were based on the assumption that major trading nations would be market economies. China’s rise under a model of state-directed capitalism has exposed the inability of existing rules to adequately cope with the distortions created by non-market economies.
The US and other large market economies believe that the fundamental nature of China’s system leads to predatory practices that violate the spirit (and in some instances the letter) of WTO rules. China maintains that it is in full compliance with WTO regulations, reiterates its sovereign right to pursue its own development path, and countercharges that the US is simply determined to block China’s rise.
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These two perspectives cannot be reconciled within the context of a meaningful and comprehensive update of the rulebook. Hence, nothing substantial has happened.
However, some degree of progress on subsidiary issues is possible. The US had blocked the appointment of WTO appellate body judges in recent years, thereby disabling the dispute settlement mechanism (DSM). The US believes the judges had overstepped their mandate. It’s conceivable that some compromise can be worked out. Practical proposals have been tendered, and smart people are working hard to find acceptable common ground. But even if the impasse is resolved, absent a more fundamental overhaul of the rulebook, the most important points of friction between market and non-market economies will remain largely beyond the purview of the DSM. Simply putting judges back in place to oversee an out-of-date rulebook accomplishes little.
2. The developed/developing world divide
Developing countries have had significantly less access to vaccines than their developed world counterparts. They have suffered gravely as a result. Negotiating a mutually acceptable – and timely – waiver to WTO intellectual property rules would have helped alleviate the shortage by facilitating local generic production. The stakes could not have been higher as lives literally hung in the balance.
Although parties have presumably negotiated in good faith and to the best of their ability, a final agreement still had not been reached by the start of MC12, more than two and a half years after the pandemic’s onset. The four lead negotiators – the US, EU, India, and South Africa – have produced a draft text but it remains to be seen if the other 160 members will concur.
Wide differences between developed and developing members are evident. Less developed countries are pushing for a much more expansive waiver that they believe is required to achieve the desired results. Developed countries fear such a deal would undercut the incentive to conduct the research and development (R&D) which produced effective Covid-19 vaccines in record time. China strongly objects to provisions that would appear to treat China as a developed economy rather than a developing one.
The bickering between developed and developing members drags on as the clock continues to tick. Unfortunately, any agreement reached at this stage in the pandemic will likely be too little, too late.
The developed/developing world fault line is equally pronounced in other issues under discussion at MC12. Developed countries are pushing for an extension of a digital trade duty moratorium, while developing countries are increasingly concerned about lost tariff revenues. Developing countries are seeking wider exceptions or phase-in periods to any agreement to limit fisheries subsidies, which developed countries view as an attempt to shirk responsibility. The US is also pushing for tougher forced-labor provisions which many developing members oppose.
3. Geopolitical divides
For better or for worse, geopolitics and security considerations are moving towards center stage at the WTO. Russia’s invasion of Ukraine has split members over what role, if any, security considerations should play in trade governance.
In the months leading up to MC12, critical preparation time was lost because some members refused to fully engage with their Russian counterparts – or, in some instances, even sit in the same room. According to this view, the WTO simply cannot conduct “business as usual” with Russia in the aftermath of the Ukraine invasion. The anticipated lackluster results from MC12 will be at least partially attributable to the resulting disruption.
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Other members hold equally strong – and diametrically opposite – convictions. They have argued that WTO proceedings should be kept largely separate from security or geopolitical issues. In their view, introducing divisive and controversial geopolitical issues into the WTO process would only ensure that nothing gets accomplished. The debate will not resolve anytime soon, but the sharp divergence in perspectives already proves to be an additional impediment to progress.
Towards a more fragmented trade system?
Expect a mixed bag at the close of MC12. Overwhelming political imperatives will require that at least a few “successes” are announced, although any “accomplishments” might be more reflective of energetic spin-doctoring rather than actual substance. Any positive outcomes – even modest ones – should be welcomed.
However, it is time to recognize that on the most pressing issues on the organization’s agenda – institutional reform, trade and the environment, trade and security, trade and non-market economies – the organization is simply too divided to make meaningful, game-changing progress.
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As this realization sinks in and confidence in the WTO continues to wane, expect to see a gradual drift towards a more fragmented trade system. While the WTO continues to have an extremely useful role to play in areas like trade facilitation and capacity building, there is no evidence to suggest that a consensus-based organization riven by deep fissures can lead the charge on the toughest and most complex issues of the day. As our ability to reach agreement on updated rules for a single, global trade system diminishes, like-minded countries will increasingly look to self-selected trade groupings to advance their collective and individual interests.
© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).
From 2014 to January 2024, Mr. Olson was a Senior Research Fellow of the Hinrich Foundation. Mr. Olson began his career in Washington DC as an international trade negotiator and served on the US negotiating team for the NAFTA negotiations.
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