Talking Trade blog
Three reasons for the WTO
Published 01 March 2016
As global members of the World Trade Organization (WTO) struggle to figure out where the multilateral trade system ought to go in the future, it is worth reposting an earlier brief on why we all need the WTO to be healthy.
The WTO is needed for at least three broad reasons: for businesses struggling to operate in an increasingly complex environment, for resolving disputes around trade, and for the smallest and most vulnerable countries in the global system.
To address the first issue, consider a question posed to me by my chiropractor. He wanted to know whether or not trade agreements have made it easier for him to operate a chiropractic clinic in South Korea and Taiwan and whether it is possible to train people to deliver this service in both places.
This sounds like a relatively straightforward question. But answering it took me several hours and highlighted the difficulties that companies (and individuals) have in using the existing system of trade agreements.
To begin with, services like chiropractic care were barely opened in the last, Uruguay round of multilateral trade talks. Since medical services are often considered a sensitive sector, few governments made any commitments at all. Chiropractic services do not appear to have been opened for foreign trade by most governments in the WTO.
This means that determining of these markets are open requires examining various preferential trade agreements (PTAs) to see if they have different rules.
Taiwan (Chinese Taipei), thus far, has only two PTAs with New Zealand and with Singapore. Taiwan appears to have taken up quite broad exceptions for medical care: “Foreigners are not allowed to set up clinics, pharmacy, physical therapy clinic, occupational therapy clinic, clinical laboratory, medical radiation clinic, dental laboratory, nursing institution, midwifery institution, hearing therapy clinic, speech therapy clinic, psychological therapy clinic, psychological counselling clinic, or other medical care institutions in Chinese Taipei.”
Companies can often use different PTAs to deliver services. South Korea has signed many PTAs and examining them all takes a lot of time. South Korea and Singapore are covered by the ASEAN + Korea agreement, which does not appear to open up chiropractic care.
The most comprehensive agreements signed by Korea have been with the European Union and another bilateral with the United States. So determining whether the sector is likely to have been opened anywhere is made easier by starting with the most likely suspects.
The situation is still complicated. The Europeans and the Americans negotiate services differently. Understanding whether or not chiropractic care is open depends on knowing which approach has been used to schedule (or open) sectors.
For the European agreement, if chiropractic care is listed, it means it might be opened for foreign competition from EU firms. However, determining the extent of the openness requires both knowing and understanding four different modes of supply, as different methods for delivering the service might be differently opened. Then, it requires knowledge of the apparently backwards use of terminology to determine if what appears to mean open really does mean that the sector is open. (If it says “none” it means fully opened, with no limitations, while "unbound" means no commitments have been taken to open the market and government may impose limitations.)
In the American bilateral, if chiropractic care is NOT listed, it IS opened for foreign competition from American doctors. Thus, my doctor would have had to find this agreement online, found the relevant annexes for services in the bilateral, and searched for his sector. However, having not seen the service listed, he might have assumed it would be closed. But this does not appear to be true in the case of chiropractic care into South Korea. This situation is, to put it mildly, confusing for a company to sort out.
This takes us back to the need for robust agreements at the multilateral, system level. A deal that includes 160 countries is infinitely easier to use for companies than a thicket of sometimes overlapping bilateral or regional deals. It would have been far better for my chiropractor to only have to visit one place to discover the commitments for this service across every WTO member. (This would be true even if not every member had identical pledges, since they would all at least be in one place with one method of understanding the outcome.)
A second good reason for wanting the global trading system to remain healthy has to do with what is often called the “crown jewel” of the system—the dispute settlement mechanism (DSU). One thing the WTO has continued to do for the past 20 years while the negotiating function has been stuck is to adjudicate disputes over trade.
The DSU allows one government to sue another if the rules outlined in the agreement have not been properly followed. There is plenty to say about this system, but for now, the key point is that the rules and commitments that member states must follow at the global system are getting increasingly archaic. A government can only sue in areas where a rule actually exists.
As larger and larger segments of the modern economy, including vast swathes of services, new goods, investments and other important aspects of economic life are outside the existing rulebook, the DSU will also become less and less relevant to companies and governments. It is not possible to use the WTO DSU to argue about provisions contained in preferential trade agreements (unless a violation of the PTA rules is also mirrored by a violation in global rules).
Finally, while countries are increasingly finding it necessary to open up areas like chiropractic care in bilateral or regional settings, this stampede is deeply problematic to the smaller and poorer countries in the international system. Not all WTO members make attractive PTA partners. For some countries, there is just not enough trade between parties to make it worthwhile to negotiate a PTA. For the excluded parties, they are increasingly stuck with the older, out-of-date rulebook at the WTO and without the preferences that most of their potential rivals might receive into various trading partners. This puts them further and further at a disadvantage, making it more likely that they remain stuck on the periphery.
For at least three reasons then—ease of use by companies, increasing challenges in managing disputes and marginalization of the smallest and poorest—it is important that the global trading system continue to function. Unfortunately, fixing what ails the WTO is a challenging task.
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