The World Trade Organization (WTO) opens its annual public forum this week with an ambitious goal: to stabilize a global economy disrupted by the COVID-19 pandemic, trade wars and armed conflicts. Seeking to build on last June’s renewed commitment to a rules-based system, the WTO is now calling for more sustainable and inclusive trade rules.
Rewriting the regulations is both desirable and necessary given the widespread dissatisfaction with the institution. But reform will not be easy. Any fundamental change to the WTO must overcome long-standing disagreements among countries over market access. They will also demand to fix the broken WTO dispute settlement system.
“Inclusive rules” mean several things in international trade law. One is to promote equitable growth by leveling the playing field between rich and poor markets. On paper, the WTO was created so that every member country enjoys the same rights under the law, regardless of wealth, market size, or any other characteristic of a member’s economy. On the contrary, the rules grant special privileges to the less developed countries of the organization. For example, the poorest economies have longer deadlines to implement their trade liberalization commitments so that the opening of the economy does not shock the internal market too brutally. Smaller markets also commit to less onerous tariff “bindings”, which are the caps members place on their tariff rates. Higher bindings mean that smaller economies have more leeway in their tariff policies and their commitments are less restrictive than members like Japan, Canada and the United States, all of which have very little leeway. maneuver.
Despite what the WTO calls “differentiated provisions”, developing countries face several disadvantages. Even though wealthy WTO members (including the United States and the European Union) grant preferential access to less developed countries through their separate trade policies, poorer members still face barriers de facto commercial. Last but not least, farmers in developing countries face subsidies and price support measures that make it difficult to do business in the West. In the agricultural sector alone, subsidies have totaled more than $400 billion in the United States since the creation of the WTO. As a result, many poor members still suffer from limited access to key markets, particularly in textiles and agriculture, two sectors of vital importance to small economies.
This problem is not new. There has been a persistent debate (going back to before the formation of the WTO) on agriculture and textiles. (It is no coincidence that these two sectors have their own legal agreements.) Then, just last June, Director General Okonjo-Iweala noted that disagreements over agricultural policies have stalled progress at 12e Ministerial Conference, stating that “we could not reach consensus on a new roadmap for future work”.
Worse still, things are going in the wrong direction. Agricultural subsidies, which were already substantial, have actually increased in recent years in the face of market pressures caused by trade wars and the pandemic.
In theory, the WTO has a built-in mechanism to protect the rights of all members. Developing countries could fight discriminatory practices by suing rich countries under the WTO’s Dispute Settlement Understanding. But the dispute settlement system remains almost exclusively the domain of rich countries like the United States, the European Union and more recently China. The United States alone is involved in nearly half of the WTO’s 614 disputes.
Developing countries, on the other hand, rarely participate. Litigation consumes valuable legal and bureaucratic resources – two things that are lacking among smaller member governments. It is not surprising that only two African countries have ever engaged in disputes.
Recognizing this problem, the WTO Advisory Center has helped small countries build their capacity. But this does not guarantee better access to the system. Even if small states could afford litigation, concerns about trade retaliation often discourage them from targeting rich countries. When smaller countries initiate disputes, they often sue each other instead of suing wealthier members. Moreover, the current crisis facing the Appellate Body, where too few seats are filled to hear appeals, means that disputes cannot follow the full judicial process. The absence of a functioning Appellate Body means that panel rulings are now forgotten.
Drafts to fix or replace the dispute settlement system have been circulating for years, and WTO members have pledged to continue discussions at MC12. But a clear solution is hard to see. Dispute settlement concerns are complicated and divide the preferences of the United States and the European Union. While the big players fight, the poorer members don’t have the chance to defend themselves according to the rules.
None of this is to say that the WTO’s efforts to revive the rules-based system are wrong. Recent world events, from trade wars to real wars, highlight the dangers of unpredictable and volatile markets. Developing countries stand to lose the most from this volatility because their economies are more concentrated and often more dependent on trade. A more inclusive and modernized system – one that can add stability to the market – is worth pursuing.
Jeffrey Kucik is an Associate Professor in the School of Government and Public Policy as well as the James E. Rogers College of Law (courtesy) at the University of Arizona.