Building capacity to help Africa trade better

What is happening to the WTO?


What is happening to the WTO?

What is happening to the WTO?

Freedom of trade and equal market access were central to the plans for reconstructing the post World War II international order. International peace had to be secured through, amongst other things, arrangements to prevent the conditions that caused the Economic Depression of the 1930s. These ideals were written up in the 1948 Havana Charter for the International Trade Organisation (ITO), which was planned at about the same time that the Bretton Woods Agreement was concluded.[1]

However, the ITO did not materialize.[2] Only the chapter on tariffs and trade was implemented; giving rise to the GATT (The General Agreement on Tariffs and Trade). The GATT was not an international organisation in the true sense of the word but did provide a platform for several rounds of negotiations to lower tariffs on goods and to implement the rules on non-discrimination in international trade. It was only during the Uruguay Round of the 1980s that it was decided to establish the WTO as an international organisation. It came into existence on 1 January 1995.

It should also be recalled that the GATT preceded the decolonialization process. Most developing nations joined the GATT after their independence in the 1960s. They brought with them new needs and new demands.

The WTO is based on detailed agreements providing for new disciplines (trade in services and regulating the trade related aspects of intellectual property rights) as well as institutional arrangements in the form of the Secretariat and the machinery necessary to implement the Dispute Settlement Understanding (DSU). The latter consists of Panels and the Appellate Body.

The WTO is a member-driven organisation. The Secretariat provides a number of support services to the Members, but it is not a policeman and cannot discipline any of the Members. It does assist in important matters such as the promotion of transparency. Members must notify technical measures impacting on trade regulation; such as standards, trade remedies and safeguard measures.

The WTO has been created to promote open trade under agreed global rules. It has been functioning well and now counts 164 members. Its system for the settlement of trade disputes (which forms part of the Single Undertaking and binds all Members) has been hailed as a particular success.

However, things are not well in the WTO. One of the reasons is the different expectations which the Members have. Since the failure to conclude the Doha Development Round there have been repeated calls by Developing Countries to prioritize pro-development reforms. In the words of the former South African Minister of Trade: “Our view is that the reform of the WTO should fundamentally be about reform for development and inclusivity.”[3] The Developed Countries, on the other hand, want to focus on the adoption of new outcomes such as rules on e-commerce.

The adoption of new multilateral agreements (of which there has only been one since 1995[4]) is very difficult since this requires consensus decision making.

And then there are the very specific issues raised by the American administration regarding the unfair practices they accuse China of. The US also refuses to cooperate in the appointment of new members to serve on the appellate Body. By the end of this year it will not be able to function any longer.

One of the most important reasons for the stalemate in the WTO is that there is a trade war between two of its most important Members. This paralyses the Organisation. The US demands systemic reforms about decision-making, the role of the AB and disciplinary action against China.

How can this impasse be broken? In the words of the Deputy Director General of the WTO, it is ultimately about political leadership:

To succeed, the process of reform calls for leadership and vision of the kind that existed at the founding of the multilateral trading system; it calls for enforcement of current obligations; it calls for restoring the ability to make new rules to meet current needs; and it calls for the restoration of legitimacy in the eyes of all of an improved dispute settlement process. The result should be a more effective organisation in all aspects, to deliver benefits for all Members, and the creation of an updated and strengthened multilateral trading system.[5]

The multilateral trading system finds itself in a situation of huge uncertainty. This lowers investment, consumption and growth everywhere. A system of rules-based trade is essential for reversing this trend. It will not be easy. The world has moved on since the adoption of the results of the Uruguay Round. International relations are more tense, there is little agreement on how to tackle major problems such as climate change and inequality. And there are far-reaching technological developments about which there is no consensus on how to blend them into multilateral agreements. The result may be, as demonstrated at the Buenos Aires Ministerial, that ad hoc solutions and plurilateral agreements binding those willing to accept new rules, will be the way forward in some of the areas now on the multilateral agenda.

[1] See the Blog in this Newsletter on the adoption of the Bretton Woods Agreement at 75.

[2] The United States Congress refused to ratify the Havana Charter.

[3] https://www.polity.org.za/article/dti-minister-davies-arrives-in-france-for-an-informal-gathering-of-wto-ministers-2019-05-22

[4] The Trade Facilitation Agreement.

[5] Alan Wolff: The opportunity for reform of the trading system must not be squandered. https://www.wto.org/english/news_e/news19_e/ddgaw_16jul19_e.htm

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