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At a Crossroads
Reforming the WTO is imperative but consensus will be necessary
By Xu Feibiao | NO. 36 SEPTEMBER 6, 2018


The World Trade Organization headquarters in Geneva, Switzerland (XINHUA)

To be, or not to be. That is the question facing the World Trade Organization (WTO) as it welcomes its 70th anniversary this year. Founded in 1948 as the General Agreement on Tariffs and Trade, the WTO, together with the World Bank, the International Monetary Fund and other international organizations built on the ruins of World War II, was once an important pillar of the international economic order dominated by the United States. However, the WTO is currently facing unprecedented challenges. Ironically, these grave trials are posed by its creator-cum-leader, the United States, itself.

Heated debate

As a product of globalization and a model for international governance, the WTO is home to 164 members, which cover 95 percent of the world's trade volume. It was the first international organization to employ a dispute settlement mechanism and has successfully resolved hundreds of international trade disagreements this way. Over the decades, the WTO has contributed greatly to the defense of the international free trade system.

Yet criticism of the WTO has never quite gone away and has become fiercer than ever in the 21st century, as seen in the breakdown of the Doha Development Round of trade negotiations which began in 2001, and the subsequent failure of revival attempts ever since. The lengthy bureaucratic process of dispute settlement and the principle of consensus have led to the inefficiency of the organization. Moreover, the rapid development of the new-type economy as well as the flourishing of new business models in the information age have left the WTO behind, its current rules outdated and ill-suited to the realms of e-commerce, data flow, environmental protection, competition policy, investment facilitation and other contemporary international economic and trade issues. Coupled with a growing trend of regional and trans-regional free trade agreements, especially among developed countries, the WTO has been relegated to the margins.

In recent years, the organization has been facing even more severe and direct challenges, with the election of Donald Trump as U.S. president, Britain's exit from the European Union (EU) and the surge of protectionism and anti-globalization worldwide. Its reputation was first damaged when the United States and the EU violated their commitments to China's accession by refusing to recognize its market economy status.

The policy measures of the Trump administration have unleashed a string of fatal blows to the WTO. Proclaiming the policy of America First, Trump then flouted WTO rules by unilaterally imposing tariffs on his country's trade partners under the pretense of national security. Later, the United States initiated a trade war against China and the EU, unprecedented in scale, by slapping tariffs on thousands of commodities worth tens of billions of U.S. dollars, while the WTO could only stand by and watch, leaving the organization to exist only in name.

The United States has even threatened to withdraw from the organization and has doggedly disrupted the nomination process for the WTO Appellate Body. Ricardo Ramirez-Hernandez, a recently retired WTO judge, said that the organization is being strangled gradually by the United States.

Different arguments

The WTO has reached a crossroads and its members now face the choice of whether to restore or abandon it. This predicament has been brought about by two major factors. Firstly, the international economic structure has been undergoing a major transformation. Globalization, following its rapid uptake, has fallen to a relatively low ebb as the negative side effects to unfettered integration become more apparent. Secondly, the willingness of traditional hegemonic powers to share global responsibility has declined and they now instead want to reshape the international economic and trade order to cope with the competition of emerging powers. It is impossible for the WTO to return to the past and its future now depends on the choice of the countries involved.

The United States has long been vocal about its dissatisfaction with the WTO. During Barack Obama's tenure as president, the White House sent repeated signals about WTO reform and blocked the nomination of new members to the WTO Appellate Body. It also excluded China and initiated the giant regional trade negotiations Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership, in an attempt to rewrite international economic and trade rules in its favor.

Trump has taken this line of thinking several steps further and considers the WTO a disaster for his country. Trump has rattled the saber of unilateralism and protectionism as well as restarting bilateral and regional trade negotiations, attempting to reshape the international order according to his America First policy.

Although the two presidents have employed different methods, their aims are consistent. By signing a new generation of bilateral and regional trade and economic treaties, the United States is attempting to bring China and other countries to heel and finally reshape the WTO based on its own interests. In July 2017, the United States officially issued reform proposals to the WTO, requiring that the organization make new rules on trade and improve its dispute settlement mechanism. It specifically advocated discussion over whether or not to retain the policy on the special and differential treatment of developing countries.

Besides the United States, European Council President Donald Tusk and French President Emmanuel Macron have both called for greater WTO reform to respond to the current chaos of international trade and prevent the risk of the proliferation of trade wars in the future.

WTO Director General Roberto Azevedo agreed that the reform of the organization could better solve the current challenges of world trade. Thus, the organization is set to accelerate its restructuring by honing the rules and improving its governance and decision-making mechanisms, so as to respond to the new realities of the information age and the development of emerging powers.

The way out

The expense of totally abandoning the WTO is massive, not to mention impractical, and so reform of the organization is an issue with widespread support worldwide. Macron has proposed that the EU, the United States, China and Japan should, alongside other countries, make more efforts to build consensus concerning a common reform plan at the G20 Summit in November.

But the question of how to reach a common reform plan remains. Both developing and developed countries wish to pursue their own interests and have divergent ideas on what form any reform should take.

Developed countries have already strengthened coordination to reach joint consensus and take the initiative in the pursuit of change. Following the WTO ministerial-level conference in December 2017, the United States, the EU and Japan issued a declaration announcing that they would strengthen cooperation to eliminate unfair trade practices caused by problems such as excess capacity. In May 2018, the three parties reaffirmed their agreement on regulatory technology transfer and industrial subsidies, and revealed plans to take internal action before the end of 2018 with an eye to start negotiations shortly thereafter, with all major trading partners to be included in these negotiations.

Japan and the EU signed a free trade agreement as recently as July 17. The United States and the EU reached an arrangement on July 25 by agreeing to push for the reform of intellectual property rights and to crack down on forced technology transfers, industrial subsidies and overcapacity, among other things, leaving little doubt that China is the main target of the reform plan of developed countries.

Communication between the global North and South has progressed. On July 27, Canada's new Minister of International Trade, Jim Carr, invited a dozen trade ministers to meet in October to discuss how to fix the WTO. Australia, Brazil, Chile, the EU, Japan, Kenya, Mexico, New Zealand, Norway, Singapore, South Korea and Switzerland were all on the guest list, while China and the United States were left off.

Negotiations between developing countries are also in full swing. During the BRICS Summit in July, the representatives of 22 countries acknowledged that the WTO now faces unprecedented challenges and called for the world to defend the rule-based economic order and build a more open world economy.

China is a firm supporter of the WTO's core status in international trade and the global economy, and has strived to strengthen cooperation with other countries through ongoing negotiations such as the China-EU Investment Agreement, the China-Japan-South Korea Free Trade Agreement as well as the Regional Comprehensive Economic Partnership.

Still, there is a divergence of opinion on matters such as industrial subsidies, developing country status and state-owned enterprises, among other issues. Reform of the WTO is bound to be complicated, but it must ultimately be successful. Without coordination and concerted effort, any attempt to change the WTO will likely die on the vine and the world economy will regress to the law of the jungle which predominated before the organization's inception 70 years ago.

The author is an associate researcher with China Institutes of Contemporary International Relations

Copyedited by Laurence Coulton

Comments to yulintao@bjreview.com

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