Is WTO reform necessary?
Published 07 December 2018
When the General Agreement on Tariffs and Trade (GATT) was first agreed by 23 original contracting parties in 1947, there were no guarantees that the rules would endure. Today, WTO membership stands at 164 countries – representing collectively, more than 98 percent of global trade. But for an institution to endure, it must remain relevant.
GATT was then
When the General Agreement on Tariffs and Trade (GATT) was first agreed by 23 original contracting parties in 1947, there were no guarantees that the rules would endure. But over the next five decades, through eight successful multilateral negotiating “Rounds,” those GATT rules were broadened, deepened, and extended to scores of new countries.
When the Uruguay Round concluded in 1994, establishing the World Trade Organization (WTO) in 1995, membership had grown to 123 countries, and tariffs among developed countries had fallen from about 40 percent to about 4 percent on average. Today, WTO membership stands at 164 countries which account, collectively, for more than 98 percent of global trade.
Preventing protracted trade wars
The WTO brought some innovations to the trading system, including a dispute settlement mechanism which would possess greater leverage to encourage members to honor their commitments than the old GATT panels had. In its first 24 years, the WTO Dispute Settlement Body has seen 567 disputes filed and it has worked reasonably well in balancing the imperatives of respecting members’ national sovereignty and rendering objective judgments. By and large, until very recently, the WTO has been a bulwark against harmful unilateralism, protectionism, and protracted trade wars.
Failure to continue liberalizing
But while the adjudicative function has worked reasonably well, the same cannot be said of the “legislative” function. Before the WTO was established in 1995, a new round of liberalization among GATT members was concluded, on average, once every six years. But since 1995 there have been no new successful rounds of liberalization.
The failure of ministers to reach agreement in the Doha Round — the first multilateral trade round to have ended without a deal — has called into question the practicability of the “consensus-based” model of liberalization, where one or two unwilling or unambitious members can block progress for all others.
There has been some plurilateral agreement in areas such as government procurement, information technology, and trade facilitation, but nothing significant enough to compete with the heaps of liberalization that have occurred outside the WTO. The increasing popularity of those non-MFN (or so-called “preferential”) agreements is hardening perceptions that the WTO is becoming an outdated relic, incapable of tackling newer forms of protectionism and liberalizing newer forms of trade.
What to reform?
The surge in interest in WTO reform, lately, is driven primarily by US criticisms of the system. Those criticisms have been perceived — when not explicitly stated — as US threats to withdraw from the WTO unless reforms are implemented. One US complaint, which is a concern of many other members, is that the WTO rules are too porous to discipline China’s transgressions. Although that theory probably hasn’t been tested sufficiently, there are efforts afoot to develop new rules to address those concerns. Relatedly, the United States is seeking reforms to address what it — and it alone — sees as a pro-China, anti-US bias at the WTO.
That anti-US bias, according to the USTR Robert Lighthizer among others, is especially evident in the WTO Appellate Body. Trump administration officials believe the Appellate Body usurps US sovereignty by overstepping its authority to interpret rights and obligations, and by failing to provide the deference to national authorities the United States expected when it agreed to join the WTO.
The US response has taken the form of a blanket refusal to consider any new Appellate Body jurists, which has metastasized into a real crisis. The Appellate Body is supposed to consist of seven members (judges) and each case requires the opinions of three. US blocking of new appointments has created the situation where there are now only three Appellate Body members remaining, two of whose terms expire next year. To say nothing of the intense work load burdens placed on the understaffed Appellate Body, we are rapidly approaching a situation where dispute settlement will cease to function.
To endure, first the WTO must remain relevant
There is also growing agreement that the WTO rules should be more explicit in their endorsement of plurilateral agreements, which are widely seen as a way to circumvent, rather than be held captive to, members who are unwilling to liberalize. If liberalization were to resume under the auspices of the WTO, it would likely help restore some of the institution’s relevance.
For an institution to endure it must remain relevant. Whether the World Trade Organization can remain relevant is a question many find themselves asking in Geneva and in capitals around the world. It is a question that demands some immediate answers.