The WTO is regularly in crisis, but this time could be different

The WTO Ministerial Conference is almost upon us. The chorus of calls for “WTO reform” puts too much emphasis on Geneva when the real solutions require fundamental changes in and between the capitals of its 164 members.

It’s down to them and their counterparts: G20 trade ministers meeting, Sorrento, October 12, 2021 | Italian G20 Presidency, CC-BY 3.0

New dates
On February 23, 2022, WTO members meeting as the General Council
agreed to reschedule the Ministerial Conference for the week of June 13

The Ministerial Conference had been “postponed indefinitely” on November 26, four days before it was due to start, as Switzerland tightened travel restrictions because of the new omicron COVID-19 variant

By Peter Ungphakorn and Robert Wolfe

On December 8, 2019, The New York Times predicted the possible “end of the […] World Trade Organization itself.” Earlier, a Bloomberg headline spoke of a “fatal blow” to the WTO.

Two years later, the WTO is still up and running. Even the crisis in dispute settlement, where first-stage rulings can no longer be appealed — the cause of those doom-mongering news reports — has failed to stop it.

Yet the WTO does face serious problems. Dealing with them has become more urgent.

This piece was originally published in September. We are now only days away from when WTO ministers are due to meet in Geneva, where “WTO reform” is a major item on the agenda.

We have heard various upbeat statements from events like the G20 trade ministers’ October 12 meeting in Sorrento, the G7 ministers in London 10 days later, the optimistic sounds coming from Geneva, and apparently a new signal from Washington.

A cacophony of cans being kicked down the road

As the November 30–December 3 Ministerial Conference approached, activity increased, including from some ministers.

The US strengthened its call to talk.

Canadian Trade Minister Mary Ng visited Geneva to rally delegations to produce “concrete outcomes on key initiatives” at the Ministerial Conference. She met the Ottawa Group of members working on WTO reform, the WTO director-general, the chair of the fisheries subsidies negotiations, ambassadors from India, South Africa, EU and Mauritius, and the US chargé d’affaires.

Nevertheless, the only likely deal to be struck is on services regulation among a small group of members. We are also told a last-minute WTO-wide breakthrough on fisheries subsidies might be possible — after 20 years of negotiation and at least one missed deadline. In reality a lot of difficult issues still remain at the last minute.

Aside from those two subjects, we remain sceptical that anything substantial will be delivered.

Continue reading or jump down the page to:
Round the clock activity | No stranger to crisis | The misunderstood role of the WTO | Dispute settlement | The real problem: low priority | ‘Reform’ and the ministerial conference | Two strands of WTO reform | Find out more

See also: Hamid Mamdouh — WTO reform imperative: a possible way forward

Round the clock activityBack to top

The problem may not be in Geneva. In the final days leading up to the Ministerial Conference, delegates worked round the clock to deliver as much as they could for the ministers.

They produced yet another draft agreement on fisheries subsidies, along with the chair’s explanations. A number of differences were narrowed down but some significant ones remained. A new draft on agriculture was circulated, but mainly reflecting the differences.

New Zealand ambassador David Walker circulated a three-part document on the WTO’s proposed response to the pandemic — a report on all the meetings he held, a draft ministerial declaration on points where members were close to agreement, and an action plan including points where they differed.

Numerous other documents and draft declarations were being prepared for the ministers, including on new subjects such as the problem of plastic waste.

And yet many of the differences are intractable, but not because the delegations in Geneva are idle. They are grappling with too many red lines, some drawn in capitals. Communication between the Geneva delegations and their capitals is often weak.

If governments are now trying to achieve consensus, they may have left it too long. Too much emphasis is still on demanding that others change. The one exception could be on fisheries subsidies but even that could be too little too late.

As a result, we can expect lots of work programmes and declarations of good intention — a cacophony of cans being kicked down the road

On November 15 the EU told an agriculture negotiations meeting:

We often talk about the need to reform the WTO. It is maybe not so much the WTO that needs to undertake reforms. It is members that seem unable to agree on even the simplest issues and this is very disappointing.”

Perhaps the EU had read an earlier version of this article.

No stranger to crisisBack to top

In its 26-year history, crises in the WTO are nothing new. But the current batch of problems are so numerous, and in some cases so serious, that member governments now really do have to demonstrate their commitment to multilateralism in trade policy and act to avoid those predictions coming true.

That means the solutions must come from the capitals of the WTO’s 164 members before anything significant can be done at the WTO’s Geneva headquarters.

The upcoming Ministerial Conference is the next milestone. These meetings are the WTO’s top decision-making body. They usually take place every two years, but this conference has already been postponed by two years, partly because of the Covid19 pandemic. How governments respond to the pandemic in their trade policies will be added to an agenda already crowded with a mix of old issues (such as agriculture) and new ones (digital trade).

Failure to crack these problems still won’t kill the WTO, not in the foreseeable future. But it would further undermine the organization’s credibility and the confidence of governments that they can resolve their differences by talking to each other. The WTO will become increasingly irrelevant in the eyes of the general public.

Eventually, that could mean the end of the WTO.

What have journalists and headline writers missed with their dramatically wrong predictions?

But we should not be tempted to conclude that everything would be fine because countries can simply work in smaller groups. They do already, in regional trade deals such as the US-Mexico-Canada trade agreement, the 11-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and the many agreements of various depths between the European Union and its trading partners. At the time of writing, the WTO’s 164 members have notified 350 bilateral or regional trade agreements currently in force.

Those agreements improve on WTO rules, but they can’t replace them. Losing the WTO would be disastrous for the groups of countries that have additional trade agreements. They need fully multilateral rules for issues such as subsidies and fair trading practices — for example, anti-dumping measures (known collectively as “trade remedies”). None of the regional trade agreements has strong institutional arrangements comparable to the WTO’s Secretariat and its dispute settlement system.

But we are getting ahead of ourselves. To understand what’s going on, we need to look first at what the WTO is and does, how it works, and then at some of the challenges that make a change of approach in its member countries so necessary.

Underlying this state of affairs are tensions among major players — the United States, the European Union, China, India, and others — and often a disconnect between governments in capitals, their representatives at the WTO in Geneva, and their publics back at home.

What have journalists and headline writers missed with their dramatically wrong predictions?

This is not the way to have a real discussion about reform: G20 trade ministers, Sorrento, October 12, 2021 | Italian G20 presidency, @g20org on Twitter
No way to really discuss reform: G20 trade ministers, Sorrento, October 12, 2021 | Italian G20 presidency, @g20org on Twitter
The misunderstood role of the WTOBack to top

The journalists and headline writers were wrong because they overestimated the importance of one of the WTO’s functions — dispute settlement — which is now handicapped because of American objections to the way appeals are handled.

The New York Times spoke of “the loss of the world’s primary trade referee,” and predicted the WTO’s demise because “the system for settling disputes has long been its most effective part.”

In that, the WTO has been pretty successful. It still is

The New York Times missed the point completely.

While the WTO is often defined as a forum for negotiations, or as a means of settling trade disputes, those two functions are only some of the tools created to serve the WTO’s real objective: to help international trade flow as smoothly and as freely as possible, within a system of predictable and transparent rules.

In that, the WTO has been pretty successful. It still is. In normal, non-pandemic times, US$20 trillion worth of goods and services per year — and growing — flows freely around the world. Most of that is trade between WTO members, and its compliance with WTO rules can almost always be taken for granted.

WTO rules are written by member governments. They are the product of negotiations and agreed by consensus. They are, officially, “WTO agreements.”

For the system to work effectively, it needs three elements:

  • Rule-making — ie, negotiations among members, resulting in agreements.
  • Implementation — so that the agreements are put into practice and are not just words on paper.
  • Dispute settlement — to resolve any legal questions about whether the agreements are being implemented properly.
Often misunderstood: How the WTO works | CC BY-SA 2.0
Often misunderstood: How the WTO works | CC BY-SA 2.0

All three elements are essential for the WTO to function properly and for the multilateral trading system to be stable and predictable. Certain principles are also crucial, particularly transparency.

What the headlines miss is the critical role of implementation. WTO members notify each other through the WTO Secretariat when they introduce new trade measures. If they have any problems, they discuss them in the WTO’s committees. That is the main, routine work of the WTO that keeps trade flowing smoothly within the agreed rules. Any remaining legal problems can then be taken to dispute settlement.

How important is this implementation role?

Take standards and regulations applied to goods, potentially some of the most significant trade barriers aside from tariffs (or import duties).

Out of the tens of thousands of measures notified in the WTO, only about 2% are questioned in the committees, meaning 98% are accepted without any query.

Eventually, only about 0.07% become full-blown legal disputes — 99.93% are not challenged legally.

How is it doing? The WTO’s purpose is free-flowing trade | CC BY-SA 2.0. Click the image to see it full size
How is it doing? The WTO’s purpose is free-flowing trade | CC BY-SA 2.0. Click the image to see it full size. More details here

Dispute settlement is important for clarifying WTO law. Some disputes also have a high profile politically, such as the cases about subsidies given to Airbus and Boeing. Even so, governments largely comply with the WTO agreements.

The New York Times missed the point completely

That’s why the WTO is still a success story. It’s why “the world’s primary trade referee” is not only the dispute settlement system, but — especially — the members themselves, in those all-important routine meetings on implementation. It’s why US$20 trillion per year of trade flows largely without any hitch.

Yet the WTO is indeed in crisis.

On the plus side, negotiations have produced sporadic agreements on, for example, some service sectors, cutting red tape at the border, scrapping export subsidies in agriculture, and eliminating import duties on information technology products.

But an ambitious attempt to negotiate a package of issues, known as the Doha Round, effectively died in 2008. Talks on many of the issues continue, but only a few have reached a conclusion. As a result, WTO rules are lagging behind developments in both traditional and new forms of trade.

Dispute settlement is handicapped because appeals can no longer be heard. Even implementation needs to be strengthened through improvements in transparency.

The negotiation function of the WTO is not dead, but its revival is overdue. To resolve all of this requires real engagement by governments in capitals, not just the usual rhetorical flourishes. They have to sort out major problems in their relationships with each other. That has to start with the major powers. Inevitably, many of the WTO’s problems involve the United States. But not all of them.

Dispute settlementBack to top

When Joe Biden replaced Donald Trump as US president, many thought the WTO’s most serious problems would ease. Eight months later, little has changed.

The biggest issue is the deadlock that has blocked the appeals stage of dispute settlement. US concerns date to the Obama Administration, or even earlier. They are about the methods appeals judges have used in their rulings.

The issue is legally complicated, but it boils down to the complaint that the judges have altered the rights and obligations negotiated in the WTO agreements, resulting in legal interpretations that go beyond what was agreed.

The Trump Administration worsened the crisis by blocking any appointments to extend existing Appellate Body judges’ terms or to replace them. By December 2019, too few judges were left to hear appeals and now there are none at all.

The US under Obama, Trump, and Biden has said what it thinks is wrong. But it has never offered its own solutions nor responded to those proposed by various groups of members, including the EU and Canada.

This impasse has not stopped the WTO from operating. It has not even prevented new disputes coming before the WTO, as first-stage rulings are still possible. Some countries have developed ways of working round the Appellate Body blockage, either by agreeing among themselves not to appeal, or by using a less formal type of appeal known as arbitration.

The Appellate Body crisis has not stopped new disputes, but slowed them down | CC BY-SA 2.0
The Appellate Body crisis has not stopped new disputes, but slowed them down | CC BY-SA 2.0

Nevertheless, the deadlock does seem to have had a damping effect on new disputes, which were down to only five in 2020 and are up slightly to nine so far this year. The average, over the life of the WTO, is about 22.5 per year.

The problem is not only legal. Shortly after taking office, Joe Biden declared “America is back.” In the WTO, that is only partly true.

Almost a year into the Biden administration the US still does not have an ambassador at the WTO

The US has made some concrete proposals in some WTO negotiations. At first, it raised hopes of new engagement by endorsing the idea of suspending intellectual property protection to deal with Covid19 (known as the “TRIPS waiver” — ie, waiving some protection under the WTO agreement on “Trade-Related Aspects of Intellectual Property Rights”). But since then it has offered no concrete suggestions about which provisions would be waived, on which products, and how. Nor has it supported the actual proposed text on the table.

Having created this blockage in dispute settlement, the best the US seems to be able to offer as a remedy is the possibility of working on the problem after the Ministerial Conference.

Almost a year into the Biden administration the US still does not have an ambassador at the WTO. The Senate still hasn’t confirmed the appointment of nominee María Pagán.

Outside the WTO, it has maintained many of the Trump Administration’s policies, notably with respect to China.

The real problem: low priorityBack to top

The fact is that governments are not really making the WTO a priority. That seems to be true of almost every country, except a handful. The lack of engagement — or in some cases lack of constructive engagement — is a more serious problem for the WTO than the tinkering with its structures and other proposals under the fashionable but distracting rubric of “WTO reform.”

The US was once a leader in driving the WTO forward. Now it pays lip service to the need for results. It has almost no ambition for the Ministerial Conference.

“We see little scope for negotiated outcomes and caution against a host of new work plans or working groups on issues where there is little chance of consensus,” the US told a meeting of all ambassadors discussing the WTO negotiations in July.

The US does seek a handful of decisions from the conference — revised transparency rules, a statement on food safety and animal and plant health, and an agreement on fisheries subsidies that includes a ban on forced labour — but all are controversial among WTO members.

The lack of engagement — or in some cases lack of constructive engagement — is a more serious problem for the WTO than the tinkering with its structures

US Trade Representative Katherine Tai’s October 14 speech in Geneva and her answers to questions were watched closely for signs of a change in position that might help move the WTO forward. Some observers were encouraged by the tone, which sounded constructive. But beyond that she said nothing that indicated movement.

Rather, she seemed to align herself with the Trump administration’s position on dispute settlement. She bizarrely accused other WTO members of not listening to the US when a large group have proposed ways of addressing US concerns, and it’s the US that has failed to respond to them.

Then, on October 26, María Pagán, the nominee American ambassador to the WTO, told a US Senate Finance Committee hearing on her nomination that the US does want to “restore the Appellate Body”. This is a point that had never been clarified since the Trump administration blocked the appointment of appeals judges, leaving none in office and appeals no longer possible.

Pagán said:

“I think there’s consensus that the WTO, and particularly the Appellate Body, need to be reformed. I guess on the other hand, we all have different views of what reform means, and particularly with respect to the Appellate Body. What we want, and if confirmed what I will work hard to do, is to have conversations so that we can restore the Appellate Body and the dispute settlement system to what we thought we had agreed to.”

To underscore that this is an official position, Adam Hodge, Tai’s spokesperson, tweeted Bloomberg’s story on the statement, quoting the headline “Biden’s nominee to WTO wants to restore Appellate-Body function.”

Pagán’s remark came on the day the US blocked the appointment of appeals judges for the 47th time at a WTO meeting in Geneva. It was the first sign of any new thinking in Washington. But it was too late for anything to happen in time for the Ministerial Conference.

Trade lawyer Simon Lester said the remark is “positive” but that restoring the system “to what we thought we had agreed to” may prove to be “tricky”, a point Pagán herself acknowledged.

(A transcript of Pagán’s replies to questions is here.)

In general, however, the main focus on trade in Washington under Biden has been on issues outside the WTO, including reworking the US-Mexico-Canada Agreement, particularly on labour, and other regional deals.

Here, the priority is China. Although some see at least part of the solution in the WTO, the US is content to deal with its grievances outside the WTO. Tai’s recent statements reflect that, whether the October 4 speech specifically on the subject, or the October 14 session in Geneva.

The strained US relationship with China is hampering cooperation not only on trade but also on a range of other issues, including climate change. An apparent breakthrough at the Glasgow climate change talks on November 11, 2021 shows that the two can talk when they want to. Whether that transfers to other topics such as trade remains to be seen.

The strained US relationship with China is hampering cooperation not only on trade but also on a range of other issues

On trade, the US accuses China of exploiting loopholes in WTO rules and in China’s WTO membership agreement. This, the complaint goes, has allowed China to get away with providing subsidies and other policies that favour real or quasi state enterprises. A few Western lawyers argue that WTO dispute settlement is still the best way to deal with these issues since China tends to comply with WTO rulings, but that is not enough for many governments.

Relationships with China also preoccupy other members, notably the EU and Japan. To resolve many of the issues in the WTO, including negotiations on a range of new and revised rules such as on digital trade or agricultural subsidies, key members will have to sort out their broader political relationships as well as their narrower differences on trade.

With China playing a lower-key role most of the time in the WTO, the only other potential leader comparable to the US is the European Union. Like the US, the EU is preoccupied with other matters, including its own free trade agreements and a proposed new carbon border adjustment mechanism — effectively a new tax on carbon embodied in imports. It is also resisting WTO rules on fisheries subsidies that would require major changes to its own policies.

India and South Africa have submitted numerous proposals on a range of subjects, with little regard for whether they can build a consensus around them. Their general line is that they want blanket exceptions for all developing countries — a loose category in the WTO because it is based on self-identification and includes a wide range of levels of development.

Some countries have tried to be constructive. In an attempt to broker compromises that would help the WTO to progress, Canada created an Ottawa Group of 13 WTO members (or 40 if the EU’s 27 member states are counted separately as well as the EU itself). The group deliberately does not include the US and China.

‘Reform’ and the ministerial conferenceBack to top

A long list of subjects could be put to WTO ministers when they meet at the end of this year. Two of them are crucial for the trading system and its reputation: reviving the appeals stage of dispute settlement, and fisheries subsidies. They require urgent solutions.

A third is specific to Covid19. It could be a short-lived conversation, or it could produce changes that last long term. It is about the way governments respond in trade to the pandemic.

Over 50 sponsors (counting the EU as 28) have proposed a declaration on Trade and public health: Covid19 and beyond. Although a declaration is non-binding legally, this one would aim politically to ensure access to essential goods, including therapeutics and vaccines, by avoiding unnecessary restrictions and enhancing transparency. The draft carefully fails to mention the proposed waiver on intellectual property rights.

How much of that has fed into Ambassador Walker’s separate exercise for the General Council has not been reported, although he is bound to have included the sponsors in his consultations and their thoughts in his own proposed declaration and action plan.

At this stage, the prospects for the other two topics are not promising. On resolving the problems in dispute settlement, the US has clearly signalled it will not move until after the conference at the earliest.

A deal on fisheries subsidies would take the WTO into new territory

As for the talks on curbing harmful fisheries subsidies, they are as much a symbol as a real issue. Even if they produce a ban on all harmful subsidies, this is unlikely to be enough to conserve depleted marine fish stocks.

But it is a necessary condition, it was written into the United Nations’ Sustainable Development Goals, and WTO member governments have already missed the UN’s 2020 deadline for completing the negotiations.

Failure to reach agreement before the end of this year will cause serious damage to the WTO’s already dented reputation.

A deal on fisheries subsidies would take the WTO into new territory. Existing WTO disciplines on subsidies are about avoiding unfair competition, an important traditional trade concern. The fisheries subsidies talks, by contrast, are about conservation and sustainability.

They can be seen as a symbol of member governments’ willingness to tailor trade rules to climate change and other environmental priorities. They could also be a model for tackling subsidies on fossil fuels. Carbon border adjustment taxes are already becoming an issue outside the WTO and are bound to be brought into the discussions in the WTO as members focus increasingly on climate change.

The talks on fisheries are in the WTO because it has tools for disciplining subsidies and because in normal times, it has a dispute settlement system to adjudicate whether agreements are being respected.

Judging from what we know about the state of play in these talks, governments will have to yield a lot of ground to meet in the middle. Some of the latest reports from Geneva suggest they may be starting to move, with at least a change of attitude on some subjects, but major gaps remain.

The governments may want to see it happen, but so far there has been little sign that they are really willing to compromise on the details such as exemptions for developing countries, dealing with fuel subsidies that are not specifically targeted at fishing, and whether money spent on managing fish stocks sustainably can be used to offset that provided in the form of harmful subsidies.

Two strands of reformBack to top

Dispute settlement and fish subsidies represent two strands of proposed “WTO reform.”

One is “fixing the machine” — ie, reforming a range of working practices, particularly dispute settlement, and priority areas for cooperation. The content includes how the Appellate Body interprets WTO law and improving transparency, a core WTO principle.

The EU is pushing the idea of a new working group on WTO reform — acknowledging that this is the most that can be expected on institutional issues at this ministerial.

The US and a number of other countries want governments to supply better information, more promptly, so that the membership can monitor how the agreements are being implemented. The pandemic has increased pressure on governments to provide more information on disruptions to supply and the way they’re reacting.

In addition to a general proposal on strengthened transparency, a number of others on specific subjects also contain new proposals for improving notifications and monitoring, including on agriculture, fisheries subsidies (a new subject), and the response to the pandemic (for example on export restrictions).

Some developing countries are resisting this, on the grounds that submitting currently-required notifications already imposes a heavy bureaucratic burden.

“Fixing the machine” also includes working methods, such as how negotiations are organized — dealing with differences in economic development, and whether negotiations among only part of the WTO membership can take place, and if so, how the results can fit into the WTO framework.

India, South Africa, and some other countries complain plurilateral talks violate the multilateral nature of the WTO

The consensus rule — a decision cannot be taken if any member objects — makes reaching agreement among all WTO members extremely difficult. Many see negotiating among subsets of the membership (known as “plurilateral” talks) as the way round this. Countries that are not ready to join do not have to, provided certain principles are respected so that non-participants are not disadvantaged.

But India, South Africa, and some other countries complain this violates the multilateral nature of the WTO. They may use the need for consensus to block incorporation of the results into the WTO, except where participants make new commitments that they apply to all other WTO members without discrimination.

However, the vast majority of WTO members (about 147 out of 164) are involved in at least one of the five subjects being negotiated among only part of the membership, only 17 are not:

(Figures are correct at the time of writing.
Updates, details and sources for all these numbers are in this technical note.)

The other reform strand is rule-making — the subjects of the negotiations. Some are traditional but unfinished business, for example, agriculture and services regulation. Others are new to the WTO, such as digital trade. All are supposed to modernize the rules.

None — except one — is likely to see concrete agreement on new rules at the conference. The plurilateral talks are making faster progress since they are negotiations among the willing, and this is where a deal might just be possible, on domestic regulation in services.

Apart from that, members will fall back on “work programmes.” Sometimes, work programmes genuinely give new direction to negotiations; too often, they’re just a way to keep deadlocked talks going. The Ministerial Conference might produce lots of them, along with multiple declarations of good intention, several issued by only part of the membership, but little else.

If it does fail to produce little substantial, the reasons will not be in the conference itself.

The reasons have already been with us for several years. Real reform has to come from WTO member governments back in the capitals before anything can be done at the WTO in Geneva.

If they really believe the multilateral trading system needs to be mended, they have to rethink their approach to these issues. They have to be more open with each other. And they have to be prepared to give ground when they negotiate in Geneva, not just issue demands. The signs so far are not promising.

Find out moreBack to top

Robert Wolfe is Professor Emeritus of Policy Studies, Queen’s University, Kingston, Ontario. He has written extensively on WTO reform issues. Follow him on Twitter: @BobWolfeSPS.

Peter Ungphakorn is a journalist and former senior information officer in the WTO Secretariat, currently blogging here at Trade β Blog. Follow him on Twitter: @CoppetainPU.

The authors thank Ronald Steenblik for helpful comments

February 24, 2022 — adding dates of rescheduled Ministerial Conference
November 26, 2021 —several revisions to reflect the situation on the eve of the Ministerial Conference, including latest activity and documents, particularly in the opening section, but also under “Reform’ and the ministerial conference” and “Two strands of reform”
November 24–25, 2021 — updating numbers on participation in plurilaterals
November 14–19, 2021 — adding latest developments since October 30 and a link to the transcript of Pagán’s replies to questions; updating charts on disputes; minor edits and corrections
November 9, 2021 — adding the link to Hamid Mamdouh’s proposal for WTO reform
November 4, 2021 — correcting the text on 48 full-blown disputes in the graphic “The WTO’s purpose is free-flowing trade. How is it doing?” Thanks to Mia Mikic for pointing out the errors.
October 30, 2021 — adding G20 and G7 trade ministers’ meetings, Katherine Tai statements, recent tone from Geneva, latest prospects for agreement on new rules, updated graphics

Text and graphics © the authors
Graphics: made available under Creative Commons licence CC BY-SA 4.0
Photos: Italian G20 Presidency, CC-BY 3.0

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

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