‘Do trade deals to escape the WTO.’ So why bother with it? — a presentation

The WTO has become a weapon in a war of words over other issues. For some Brexiters, it’s a deal to look forward to. For some Remainers, it’s a wreckage. For Trump, it’s “unfair”. That’s the worst possible way to get to know the trading system almost all of us rely on

Screenshot of slide showing different degrees of blockage in the WTO

By Peter Ungphakorn
POSTED FEBRUARY 13, 2019 | UPDATED FEBRUARY 13, 2019

This page is based on a presentation given on February 7, 2019, introducing the basics and current issues in the World Trade Organization (WTO). It includes a link to download a handout of the presentation.

It was part of a contribution to a “Westminster Workshop” on parliamentary oversight of trade agreements organised by the Commonwealth Parliamentary Association UK in London, February 6–8, 2019.

The presentation can be downloaded as a handout here (pdf).

It covers:

Screenshot of slide 2
The WTO as a weaponBack to top

In the UK the WTO has become a weapon in the battle between Leavers and Remainers. Some leavers argue that leaving the EU on WTO terms is fine. Some Remainers counter that the WTO is “as restrictive as you can possibly get”. Neither is true.

One Remainer called it #WreckedTradeOrganisation and claimed WTO rules had not been updated since 1995.

The truth? The WTO rule-book has been updated several times since 1995:

  • financial services 1995 and 1997
  • movement of natural persons 1995
  • telecoms 1997
  • information technology agreement 1996 and 2015
  • intellectual property 2005
  • government procurement 2012
  • trade facilitation 2014
  • eliminating agricultural export subsidies 2015

In the US, President Donald Trump complains about the WTO in his trade war with China and others on a range of issues: “The WTO is unfair to the US.” The accusation is surprising considering the US played a large part in creating the WTO, its agreements, and China’s WTO accession deal.

Screenshot of slide on the WTO supporting shell and its achievements
A shell of rules governing all trading relationsBack to top

WTO agreements (its rules) provide a supporting shell for trade relations among its members.

In 71 years (since 1948), members have used the multilateral trading system — originally GATT and now the WTO — to gradually liberalise trade and create a system based on rules instead of the law of the jungle.

Key principles include non-discrimination, transparency, and predictability/stability in trade.

Exceptions to non-discrimination include free trade agreements and unilaterally-given preferences for developing countries. They build on WTO fundamentals but are disciplined by WTO rules. They are within the shell.

Free trade agreements are quicker to negotiate but increase the complexity of trade. From time to time countries decide to simplify the rules by making them multilateral, in the WTO.

What about Brexit and WTO rules? What do the UK and EU face with each other if they have no deal? New tariff barriers and non-tariff barriers.

The picture for tariffs is complex and depends on the product. Averages, even for particular categories, don’t give the whole picture.

EU and UK tariffs outside the single market average 35.9% for dairy products, but within that, some products face tariffs of close to 200%.

Some in the UK talk about unilaterally lowering tariffs, which is possible although the implications have barely been discussed in the public debate. But the EU is unlikely to change its tariffs, so UK exporters would face these when selling to the EU.

Screenshot of the elephant and its 4 legs
The four legs of the WTO elephantBack to top

Even experts differ in their perception of the WTO, like the blind men trying to identify an elephant by touching different parts of it.

The WTO elephant has four legs:

  • Negotiations — the starting point of everything in the WTO, where trading “rules” are agreements struck by consensus. Some commentators judge the WTO only on how well the negotiations are going
  • Implementation and monitoring — the essential, unnoticed, day-to-day work conducted by WTO members, which keeps trade flowing smoothly. Member governments implement the rules and their own commitments. Fellow-members monitor, comment and discuss. A lot of problems are resolved quietly without resorting to legal challenge
  • Dispute settlement — a legal process used as a last resort to establish whether countries are keeping the promises they made in the agreements. Some lawyers think the WTO stands or falls only on this leg. It doesn’t even thought it limps
  • Development — the WTO is not a development agency but it brings together donors and recipient countries so aid is properly tailored to trade. WTO agreements also contain easier terms for developing countries, increasingly with aid built in

More on the WTO elephant is here.

Screenshot of slide of the member-driven WTO’s organigram
It’s all about meetings: the WTO’s organisation chart consists only of committees

Friends and influence in the WTOBack to top

Can the UK “take a leading role within the WTO”? The answer lies in two features of the power structure.

The official structure is represented by an organigram that consists entirely of meetings of the membership.

At the top is the ministerial conference, which meets about every two years. Below that are councils and committees almost all of them performing the role of the elephant’s second leg: implementing and monitoring.

The only exceptions are dispute settlement (also managed by the full membership) and negotiations (the bottom right box in the graphic).

Screenshot of unofficial power structure in the WTO
Informal power structure: after Brexit, the UK is likely to drop from the G-5 to a middle level

Even in the informal power structure, ultimate authority lies with the full membership through consensus decision-making. The key phrases are: bottom-up, inclusive and internally transparent.

In practice real give-and-take does not happen in meetings of the full membership, so smaller group meetings are needed for breakthroughs to be achieved. This usually involves a middle level of 20-30 countries, many representing alliances, and ultimately a small number — the latest version is five key members: Brazil, China, the EU, India and the US.

Whatever is achieved in smaller groups still has to go back down to the full membership.

As an EU member, the UK is in the G–5. On its own, the UK could be in the middle level, but it would have to be a credible player.

For more on this, see “What WTO leadership means and where the UK would fit in” and “How to be a trade champion: a guide for busy politicians”.

Is the WTO undemocratic? This is a phantom issue.

Its latest incarnation is in the use of the WTO as a weapon in the Brexit debate. Leavers complain that the EU is undemocratic, so Remainers have countered that the WTO is even less democratic because there aren’t even elected members of a WTO parliament.

It’s a false comparison because the UK and EU have completely different functions. The WTO deals only with negotiating trade agreements and implementing the results. It is democratic among governments, with decisions by consensus. Would a system of directly elected representatives work? Probably not.

More on the WTO and democracy is here.

Screenshot of slide showing different degrees of blockage in the WTO
Blocked, not so blocked and not blocked at allBack to top

All too often the press have reported blockages in the WTO system when that is not the case.

This is particularly how the media have reported on the UK re-establishing itself as a WTO member independent of the EU.

To do that, the UK (and in some cases the EU too) has to submit its own separate commitments, instead of having the commitments bound up within the EU’s. WTO members have then exercised their right under WTO procedures to discuss the drafts. They are not blocking anything. Not yet anyway, although one issue is proving difficult — “tariff quotas”.

More on the UK’s and EU’s modified tariff quotas in the WTO is here.

Where there really is a blockage is in dispute settlement, where the US is holding out against a consensus to appoint or reappoint appeals judges as their terms expire. By the end of 2019 there will only be one judge and appeals in legal disputes will no longer be possible.

Meanwhile, the Doha Round negotiations (launched in 2001) have stalled but there has been a steady drip of agreements from those talks, eg trade facilitation and scrapping agricultural export subsidies. WTO members are trying to reach agreement on fisheries subsidies by 2020.

Finally, the implementation/monitoring function is working well, although improvements are needed in the information members are required to share in the process. It helps keep $20 trillion of trade in goods and services flowing smoothly.

This is boring and essential “plumbing” work, even though public attention focuses only on the “poetry in the plumbing”.


Updates: None so far
Photocredits
: Presentation slides by the author. Photos and elephant drawing used in the slides CC0 except WTO building, screenshot of EU tariff profile, and Havana Conference (WTO), graphic of Asia-Pacific trade agreements (APTIAD/UNESCAP), and WTO agreements signing in Marrakesh (author)


Author: Peter Ungphakorn

I used to work at the WTO Secretariat (1996–2015), and am now an occasional freelance journalist, focusing mainly on international trade rules, agreements and institutions. (Previously, analysis for AgraEurope.) Trade β Blog is for trialling ideas on trade and any other subject, hence “β”. You can respond by using the contact form on the blog or tweeting @CoppetainPU