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Is the World Trade Organisation coping?


Is the World Trade Organisation coping?

Is the World Trade Organisation coping?

The World Trade Organisation (WTO) has been in trouble for some time. Disagreement about how its dispute settlement system (once called the jewel in the WTO crown) should function is an example. In 2016, the United States began to block the reappointment of Appellate Body (AB) members and rejected proposals to fill the remaining vacancies.[1] Since 2019 the AB stopped functioning. The final settlement of trade disputes became impossible, leaving the door open for unilateral retaliation, which is exactly what a rules-based trading system such as the WTO wants to avoid.

The United States (which is not alone in its criticism of certain AB judgments and practices) is concerned that AB reports have gone beyond the text of the WTO agreement, on matters such as subsidies, antidumping duties, anti-subsidy duties, standards and technical barriers to trade, and safeguards. The US government claims that this restricts its ability to regulate in the public interest or protect American workers and businesses against unfair trading practices.[2] These are legitimate objectives recognised by the WTO legal instruments.

The Biden administration says it supports multilateralism but has not changed course on the AB issue. It wants fundamental reforms (in particular in order to deal with Chinese subsidies to state owned firms) before it will support the appointment of new AB members.

There have been new disputes. In December 2022, a WTO Panel ruled that the US had violated the WTO agreement when the Trump administration imposed tariffs on stainless steel and aluminium products; invoking the national security clause (Article XXI) of the General Agreement on Tariffs and Trade (GATT). The Biden administration condemned this Panel ruling as further proof that the WTO dispute settlement system needs fundamental reform. It would not remove the duties that President Trump had imposed.

Now there is tension between the US and the European Union (EU) about how governments may respond to the disruptions to global supply chains caused by Covid 19 and the war in Ukraine. The EU has condemned the subsidies offered to American companies in the Inflation Reduction Act (IRA).[3] The EU claims it discriminates against European firms since also it commits approximately $370 billion for funding energy security, tax credits for US-made electric vehicle manufacturers and consumer subsidies.

When these examples are discussed and it is said that the WTO “must get its house in order”, it has to be recalled that the WTO is not a supra-national entity. It is a member-driven organisation. Disputes about the interpretation or application of the WTO agreements (which the member states, not the Secretariat, may file against each other) are decided under the rules of the Dispute Settlement Understanding (DSU). Officials in the WTO Secretariat cannot take decisions binding on the member states. New WTO agreements are adopted on the basis of consensus; all 164 member states must agree. This obviously makes it very difficult to change and expand WTO law. And this is the main challenge. The WTO must be able to deal with new challenges, adapt to a changing environment, and accommodate technological developments within its legal disciplines. This is the only multilateral trade forum for doing so.

At the Ministerial Conference of June 2022 (MC 12) the WTO membership adopted important decisions on fisheries subsidies, responding to the pandemic, food insecurity, e-commerce and other issues. This included the following decision: “We acknowledge the need to take advantage of available opportunities, address the challenges that the WTO is facing, and ensure the WTO’s proper functioning. We commit to work towards necessary reform of the WTO”.[4] Areas where the WTO is perceived to be falling short are its capacity to negotiate new agreements (on vital matters such as digital trade), its enforcement of legal disciplines, the monitoring of national policies and how to ensure transparency.

Specific issues in need of attention include the following:

  • Dispute settlement – the collapse of the Appellate Body and cessation of a multilateral dispute settlement function

  • Development – the special and differential treatment (SDT) debate, and the balance of rights and obligations among members (market access and regulatory issues)

  • Decision-making – consensus perceived too often as a veto; can non-consensus decision-making be consistent with non-discrimination?

  • Transparency – the persistent failure of many members to notify to the WTO their policies and changes in them.

More specific issues are:

  • The role of markets in international trade: how to deal with state-owned enterprises and state overrides of markets beyond public policy regulation

  • Subsidies, including fisheries subsidies: addressing the pervasiveness of subsidies in light of their trade effects; desire of some to revisit basic rules; fisheries subsidies – a special problem with a fugitive resource (absence of property rights) and sustainability implications

  • Environment and climate change: stalemate on trade in environmental products; emerging problem over border tax adjustments.

  • Trade and health: how to deal with situations such as COVID-19 to avoid protectionism and address the intellectual property issue relating to vaccines (TRIPS waiver)

  • Agriculture: stalled negotiations on further market opening (import barriers and export support); public stockholding for food security and export subsidisation issue

  • Digital trade (e-commerce): this is an ongoing joint initiative negotiation involving some 86 members accounting for the bulk of digital trade.

  • Investment facilitation for development: This is an ongoing joint initiative involving 112 members

  • Gender: An Informal Working Group on Trade and Gender was established in 2020, arising from the 2017 Buenos Aires Declaration on Trade and Women’s Economic Empowerment

  • Labour standards: In 1996 WTO member governments agreed to a set of internationally recognised “core” standards — freedom of association, no forced labour, no child labour, and no discrimination at work (including gender discrimination).

  • MSMEs: An Informal Working Group on Micro, Small and Medium Sized Enterprises was established in 2017.[5]

The membership of the WTO has its work cut out for it. The Ukraine war has prompted a hasty exit from Russia by Western firms. Similar aspirations for China have also cooled amid concerns over human rights and unfair trade practices. The multilateral trade environment has become more complex and difficult to navigate.

[1] United States Continues to Block New Appellate Body Members for the World Trade Organisation, Risking the Collapse of the Appellate Process. American Journal of International Law, Cambridge Core

[2] Ibid.

[3] The IRA was signed into law by President Biden in August 2022

[4] WT/MIN(22)/24, Para. 3.

[5] At the tralac Annual Conference held in October 2022 in Nairobi, Patrick Low, former Chief Economist of the WTO, suggested and discussed this list.

About the Author(s)

Gerhard Erasmus

Gerhard Erasmus is a founder of tralac and Professor Emeritus (Law Faculty), University of Stellenbosch. He holds degrees from the University of the Free State, Bloemfontein (B.Iuris, LL.B), Leiden in the Netherlands (LLD) and a Master’s from the Fletcher School of Law and Diplomacy. He has consulted for governments, the private sector and regional organisations in southern Africa. He has also been involved in the drafting of the South African and Namibian constitutions. He grew up in Namibia.

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