Reforming the World Trade Organization

This report from UK think tank Chatham House looks at the prospects for transatlantic cooperation and the global trade system in the WTO.

The World Trade Organization (WTO), which has been the cornerstone of the multilateral rules-based global trading system since its inception in 1995, faces a make-or-break moment. Even before the COVID-19 pandemic, all three of the organization’s functions – providing a negotiation forum to liberalize trade and establish new rules, monitoring trade policies, and resolving disputes between its 164 members – faced challenges. To reinvigorate the WTO, reform needs to cover all three pillars. Of particular note is the need for a permanent solution to the crisis of the WTO’s Appellate Body and dispute settlement system. The Appellate Body’s operations have effectively been suspended since December 2019, as the US’s blocking of appointments has left the body without a quorum of adjudicators needed to hear appeals. Ending the impasse will require both the procedural and substantive concerns of the US to be addressed. For the most part, these reflect long-standing and systemic issues that not only have been voiced by previous US administrations but are shared by many other WTO members (even if they do not approve of the Trump administration’s tactics).

The crisis with the dispute settlement function of the WTO is closely linked to the breakdown in its negotiation function. While the global trade landscape has changed significantly over the past 25 years, WTO rules have not kept pace. Modernizing the WTO will necessitate the development of a new set of rules for dealing with digital trade and e-commerce. WTO members will also have to deal more effectively with China’s trade policies and practices, including how to better handle state-owned enterprises and industrial subsidies. Addressing the issue of subsidies is becoming more important due to the implications of COVID-19 for state provision of economic support in many countries.

A better alignment of trade policy and environmental sustainability is also needed to keep the WTO relevant. To make progress on all these fronts, an increased focus on ‘plurilateral’ negotiations – which involve subsets of WTO members and often focus on a particular sector – could offer a way forward. Reform will be impossible without addressing the problem that no agreed definition exists of what constitutes a developed or developing country at the WTO. Members can currently self-designate as developing countries to receive ‘special and differential treatment’ – a practice that is the subject of much contention. WTO members will also have to take steps to improve compliance with the organization’s notification and transparency requirements. It is in the interests of the US and its European partners to maintain and reform the rules-based international trading system which they helped to create. The US and the EU agree that new rules for 21st-century trade are needed. They share many concerns regarding China’s trade policies and practices, but transatlantic differences remain over how to tackle these problems. The largest area of disagreement concerns how to reform the Appellate Body. If the US and the EU cannot work together bilaterally, reform of the WTO is unlikely. If progress is to be made, underlying frictions between the major trading partners need to be addressed, with China – as the world’s largest trading nation – included in the discussion. In short, transatlantic cooperation is a necessary, though not sufficient, condition for WTO reform.

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