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Talking Trade blog

What does 2017 mean for the WTO?

Published 05 January 2017

Last year ended with a whimper for the World Trade Organization (WTO). The multilateral trade institution had hoped for several big announcements that would show the organization could do more than just fight trade disputes.

But as the last day fell in 2016, the countdown on the number of countries that have ratified with Bali Trade Facilitation Agreement (TFA) remained stubbornly stuck.  For the agreement to come into force, 108 members have to ratify it. 

The countdown has now been changed to show that only six more ratifications are needed before TFA comes into force.

Because it has been so long, readers may have forgotten what TFA is intended to do.  In December 2013, WTO members agreed to 13 articles intended to ensure a common base for members.  For some, the implementation of Bali will mean little change in customs procedures.  For others, the extent of changes could be significant.

The first 12 articles essentially set out what customs officials are obligated to do in member countries.  The final article stipulates the institutional arrangements for the agreement at the WTO. 

Given that the TFA is designed to move goods faster and cheaper and that doing so generally brings benefits, why has it taken so long to get approval? First, although in the long run, in the aggregate everyone benefits from TF, in the short run, some could be harmed.  Second, the potential costs of implementation could be substantial.

But the benefits are also critically important and most of the gains will be felt in the poorest countries.  This is because trade in many developing countries is often unnecessarily slow, restrictive, cumbersome or expensive.  It drives up costs for consumers and producers alike. 

Figures produced by the OECD have highlighted the impact.  If fully implemented, the Bali deal could reduce costs by 14.1% for low income countries, 15.1% for lower middle income countries and 12.9% for upper middle income countries.  Gary Hufbauer and Jeffrey Schott calculated the gains from trade facilitation implementation at more than $1 trillion.  

Hence, it is disappointing that the WTO has been unable to announce the start of the agreement more than 3 years after the deal was signed.  Every year, TFA is held up as a shining example of the coming rejuvenation of the institution.  Perhaps 2017 will be the magic year.

Also missing in action in 2016 was the closure of the Environmental Goods Agreement (EGA).  If the full membership of more than 160 countries has proven unable to get things done, perhaps a smaller subset of committed countries could succeed.  Unfortunately, EGA talks foundered at the end of the year.

The EGA talks were meant to reduce tariffs on a selected list of products with environmental credentials.  The purpose was to get more countries to buy and use environmentally friendly products without the additional barrier of paying high duties on such products.

The problem, however, is that defining environmental goods quickly gets tricky.  While everyone can agree that wind turbines are “earth friendly,” the list of potential products quickly narrows.  Many items have “dual” uses—they can be environmentally friendly but may not be used in this manner alone.  Lowering tariffs on such products means a lot more market opening than some members had planned.

Talks crashed over various lists of acceptable products.  Thus, in the WTO, even smaller groupings of member states have struggled to get a job done.

Another subset of members, the Trade in Services (TiSA) coalition, held on the sidelines of the WTO, also failed to make progress in 2016.  Given the upheaval coming in the United States, TiSA negotiations are likely to remain moribund for some time.

Despite a lot of deep reflection, the WTO seems no closer to figuring out its long term objectives for updating the global rulebook.  The last negotiating round closed in the mid 1990s.

Trade ministers will be meeting at the end of the year in Argentina.  There is no talk of a broad negotiating agenda.  Instead, officials are hoping to make progress on a small set of narrower topics, including something on digital trade, more work on “green” goods and fishing subsidies.  These will require commitment, however, from all members to make something happen.  The signs are already not so promising.

If the WTO not working on a large negotiating rounds, then the default becomes its transparency and enforcement mandates.  Both, however, are also looking rather wobbly.

The quest for improved transparency took a detour in 2016 with a late revision to the Trade Policy Review Mechanism (TPRM) schedule.  Previously, countries were expected to participate in review exercises on a rotating schedule of 2,4,and 6 years.  (The interval between reviews is determined by market size, with larger markets receiving more frequent reviews.)

But a revision to the schedules lengthened the period between reviews to 3,5 and 7 years.  This was due to the administrative burden of preparing the reports. 

In between reviews, members will be urged to prepare more frequent, shorter updates.  Should we take odds now on members submitting such reports in a timely manner?

The most likely outcome for the WTO in 2017 is a year spent largely on an endless set of trade disputes.  The calendar is already filled with a series of contentious topics. 

However, the rulebook continues to get older.  At some point, governments may find it harder to continue to find a way to use WTO provisions.  Existing free trade agreement dispute settlement systems may finally come into their own and displace the last “crown jewel” for the multilateral trade system.

In any case, here’s another shot for the eternal optimist that the WTO will finally have a year to celebrate something in 2017.  Maybe, if nothing else, the institution will get around to dealing with the hopelessly out-of-date website…

[Related to trade facilitation and trade, note that a new set of HS codes came into effect on January 1, 2017.  At the 6 digit category there are now 5,386 products, up from 5,205 in the 2012 edition.]

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Dr. Elms is Head of Trade Policy at the Hinrich Foundation in Singapore. Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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