The WTO at a crossroads

This edition of Talking Trade, highlighting the WTO, marks either the beginning of the end of the organization or the point at which the institution starts to rebound, having nearly reached bottom. 

But first, a recap of events thus far.  The original Talking Trade post, in February 2015, was titled, “The World Trade Organization, Or What Happens When A Tree Falls And No One Cares.”  It was about the inability of the Members to agree on a work program (after more than 13 years of trying) during the November 2014 General Council meeting. 

In July 2015, I noted the missed deadlines as the Nairobi Ministerial meeting approached, including the lack of forward progress on the promised work program, the removal of a deadline entirely for implementation of the 2013 Bali Trade Facilitation Agreement (which meant that the inability of Members to have met the original timetable would no longer be an issue), and the difficulty of updating the Information Technology Agreement (ITA2).

I provided an update in October on the meager harvest of outcomes for Nairobi.  This was, in fact, confirmed in what was a rather inspired post that no one actually read in December called “A New Awakening? The WTO And Star Wars.” 

The WTO featured again in January 2017 which noted that the Bali agreement was still awaiting implementation.  The Environmental Goods Agreement (EGA) was stuck.  The Trade in Services (TiSA) talks with a subset of members was not making progress, especially after the election of Donald Trump in the United States. 

There was a rare spot of good news in February, when 108 Members finally ratified Bali and the TFA agreement came into force. 

Which brings us to December 2017 and the Buenos Aires ministerial where . . . almost nothing happened.  Quite literally nothing.  Members flew all the way to Argentina to spend three days arguing over whether or not the WTO is a multilateral institution for free trade.  They agreed to return to Geneva and keep trying to get things moving.

There was no agreed upon final declaration.  Only a handful of Members signed on to a declaration in support of the multilateral trading system. 

The inability of Members to advance any common positions lends weight to the proposition that the WTO, which has clearly been limping along for some time, has reached the point of crisis. 

This situation is exacerbated by the position of the United States.  While USTR Robert Lighthizer was not as confrontational in Argentina as many had feared, the US was nevertheless quite clear that it would not play the same role in supporting the WTO system that it has always done.  Given the outsized importance of the Americans in the multilateral system across more than seven decades, this change is significant.

Perhaps as a result, WTO members took a step they have been largely resisting.  In what trade geeks call “variable geometry,” and normal people might call a coalition of the interested, Members agreed to start negotiating on some topics without all 164 members involved. 

The idea is not entirely new.  The GATT/WTO has some past agreements, like the Information Technology Agreement (ITA) or the Government Procurement Agreement (GPA), that were not negotiated by every member. 

There are two variations of these agreements.  Some, like the ITA, are negotiated by a subset of members, but the benefits are extended to all when the agreement is finished.  Others, like the GPA, have benefits that extend only to the members that agreed to participate. 

In general, however, the idea of breaking off into subgroups for negotiations has been opposed because it conflicts with one of the core ideas of the multilateral system—non-discrimination.  By definition, an agreement negotiated by a subset discriminates, or has the potential to discriminate, against some members. 

Having agreements that may not apply to all members also makes using the final agreements trickier for companies.  The main reason for negotiating trade rules in the first place is to create common practices for businesses to help reduce risk and uncertainty in the trade environment.

However, as the WTO has gotten bigger and as some members have grown bolder in their obsession with using the consensus principle as a means for blocking all actions, the institution has clearly gotten bogged down.   One way to move forward is to allow smaller groupings to proceed with issues that matter to them.

This process is now, apparently, going to begin again at the WTO.  First on the agenda is the start of a possible work program on electronic commerce, supported by about 70 members. 

While this is a positive step, firms should be aware that this is still likely to take some time to deliver.  The actual text of the commitment reads:

We share the goal of advancing electronic commerce work in the WTO in order to better harness these opportunities.

 We recognize the particular opportunities and challenges faced by developing countries, especially LDCs, as well as by micro, small and medium - sized enterprises, in relation to electronic commerce.

We also recognize the important role of the WTO in promoting open, transparent, non - discriminatory and predictable regulatory environments in facilitating electronic commerce.

 We, as a group, will initiate exploratory work together toward future WTO negotiations on trade - related aspects of electronic commerce. Participation will be open to all WTO Members and will be without prejudice to participants' positions on future negotiations. A first meeting will be held in the first quarter of 2018.

Members also have agreed on a few other topics, like the informal beginning of a work program on small and medium enterprises.  Members could not agree to stop subsidizing illegal fishing just yet.  The moratorium on applying customs duties to digital products was extended for another two years after a protracted battle. (Note, however, that taxes like VAT or GST are different from duties.)

In all, it was a rather meager harvest in Buenos Aires for the WTO.  The institution might be able to transform into something much more productive with the recognition that negotiations could be started on smaller topics.  But getting deals done that can provide win-win outcomes in smaller settings can also prove more challenging.

The jury remains out on whether this is the start of a beautiful rebound for the WTO or the continuation of a longer-term trend.  At least the WTO has finally begun to address their awful website as we close out 2017.