Is the World Trade Organization still relevant?

Industry News | 25 June 2019

There has been much talk about WTO reforms, but is its time actually up?


In May 2019, the International Chamber of Commerce (ICC) published a set of recommendations from the first round of debates to take place as part of the Global Dialogue on Trade.

Set up by the ICC and World Trade Organization (WTO) director-general Roberto Azevedo, this was established in 2018 as a means of contributing to the intergovernmental approach to reforming the WTO and multilateral trade.

The debates focused on three topics of discussion: how to deal with trade distorting practices; how to take account of the growing importance of e-commerce to global trade and what the role of plurilaterals and other negotiating tools will be.

As part of the ensuing recommendations, the ICC decided that pursuing more flexible and pragmatic approaches to negotiations will be key in making progress on new rules at the WTO, rather than large multilateral single undertakings.

Therefore, it suggested, plurilateral approaches and discussions such as the Joint Statement Initiatives processes may be a good way of developing new rules.

The results from the second round of debates are set to be published in a few days' time, but ahead of that, the WTO is facing what even its director-general has accepted as the biggest challenges in its history.

Rather than asking how this might be turned around, the question on some analysts' lips is whether or not the WTO can be saved at all.

Problems with the WTO

The current administration in the US White House has proven particularly obtuse concerning the WTO's rules, and in particular its Appellate Body in charge of resolving disputes.

It continues to block the nomination of new Appellate Body members, arguing the system is set up to rule against it. Since nomination requires unanimous consent, no new representatives can be appointed and in December this year, the terms of two out of the three current members expire.

This leaves the WTO without a quorum to hear fresh appeals. Although respondent states can still appeal panel findings, reports would not be enforceable and the Appellate Body would effectively be powerless.

Another issue is that structural shifts in markets since the 1990s have rendered the WTO less suitable than it once was as a rules-based order governing international commerce.

Finally, enormous changes in technology have further undermined the WTO's success, including the growth in cross-border digital trade.

Boundaries have become blurred concerning intangible goods such as downloadable software and trade has grown dependent on regulatory issues such as border or customs requirements, making the WTO less necessary in the everyday economy.

What next for the WTO?

In the 2019 edition of Chatham House Expert Perspectives, global economy and finance specialist Matthew Oxenford said he believes the WTO is unlikely to achieve a consensus on the dispute settlement impasse and so its current structure cannot be preserved.

"With a diminished role as a rule-setter, the WTO would likely focus on providing a forum for negotiation in more limited sectors and a repository for plurilateral agreements, as well as on monitoring and data collection," he suggested.

In the G20 Ministerial Statement on Trade and Digital Economy agreed in Tsukuba at the start of June 2019, member states agreed that "we strive to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, to keep our markets open".

It explicitly referenced the need for WTO reform, but did not contain any mention of a need to guard against protectionism, which had been a collective stance of the G20 until last year when trade wars started to bite.

In a speech at the Centre for Policy Studies, British international trade secretary Dr Liam Fox called on the US to help the rest of the G20 "overhaul global trade rules to meet the challenges of the 21st century".

"Our two great nations have done so much down the generations to open up our markets, and those of us who genuinely believe in free trade have a duty to uphold these values," he added.

However, since US president Donald Trump has previously said he "would withdraw" if the WTO doesn't "shape up" - and any changes must be based on the consensus of all members, no resolution looks to be forthcoming.

The forthcoming G20 summit in Osaka on June 28th and 29th could prove to be a turning point, but it remains to be seen whether it will be to revive the WTO or to push it towards its demise.

Unless all members can move away from unilateralism, the question may need to move from how to reform the WTO to what will replace it.