Belief in the multilateral trade system is eroding, and that spells trouble

Don’t be fooled by the smiles. The next WTO Ministerial Conference is only a year away but the atmosphere is worse than before the previous one

Collage: At the 2022 WTO Ministerial Conference, Geneva. From left: Piyush Goyal (India), Ebrahim Patel (South Africa), Wang Wentao (China), Valdis Dombrovskis (EU), Katherine Tai (US)

By Peter Ungphakorn and Robert Wolfe

Time flies. It was only last June that the World Trade Organization (WTO) emerged from a morale-boosting Ministerial Conference, hailed as a success simply because members could at least agree on what to do next, often in the vaguest possible terms, and not on everything.

They did strike a deal on curbing harmful fisheries subsidies but even that was gutted of its most important element: tackling subsidies that contribute to overcapacity and overfishing, the top priority of UN Sustainable Development Goal 14 Target 6.

The June success is already a distant memory.

The Ministerial Conference is the WTO’s top decision-making body, and it’s due to meet again in just 12 months’ time, in the week of February 26, 2024 in Abu Dhabi.

The trade landscape is bleak. It features rampant subsidisation, great-power competition, systemic fragmentation, inward-looking policies and an absence of US leadership.

The immediate challenge is to achieve anything meaningful in WTO negotiations over the next 12 months. And that’s only one of the three main areas of WTO work.

A second area is the system for settling legal disputes. It’s in serious trouble but there is little evidence of any movement towards a resolution by the next Ministerial Conference (the actual target date is 2024).

The best indication that this is lacking is their failure to reach out to each other to find a way through so many of the current deadlocks

The third area — the regular work of implementing and monitoring the existing agreements that underpin most of today’s global trade — is coasting along reasonably well, although that too needs better information-sharing and other improvements.

In its latest paper on WTO reform, the EU places this third area under the “deliberative function”, alongside broader activities. They include analysis, and developing non-binding best-practices to meet new trade policy challenges such as subsidies, the environment and ensuring policies are inclusive. The EU wants to draw countries’ positions closer together so that discussion can eventually turn into negotiations and new rules.

It’s too soon to say how other countries will respond.

For now, the main focus of this article is on the multilateral system itself, particularly on the negotiations, on writing new multilateral rules to meet the latest challenges in trade such as the expansion of e-commerce, tackling the environment and climate change, and increased subsidisation.

We still hear statements of commitment to the WTO and multilateralism, from the G7, G20, trade ministers in Davos, and elsewhere. But for years the pledges have been ringing hollow.

True commitment needs more than talk. It requires governments to really want agreement.

The best indication that this is lacking is their failure to reach out to each other to find a way through so many of the current deadlocks. After all, some issues, like subsidies that encourage overfishing, are important for everyone.

They prefer to talk within their like-minded groups in order to further entrench their arguments, rather than search across the divides for a solution that works for everyone. They can be deadlocked on the smallest issues.

[It’s] absolutely consistent for us to be at the same time completely committed to multilateralism and the World Trade Organization as an institution and at the same time completely committed to our national security responsibilities to our own people and to our allies and to their people.

— US Trade Representative Katherine Tai, Februrary 17, 2023

It’s not enough to say “yes, I favour multilateralism, but only if it’s done my way”.

Sometimes a legal text is cited in the name of “multilateralism” to justify blocking actions by groups of the WTO membership.

The WTO’s multilateral system is more than legal. It’s political. It does not require that everyone participate in all agreements as long as certain principles are observed. Sometimes that means non-discrimination — extending commitments to all non-participants. It always means being open to all other members to join in when they are ready.

Multilateralism only works when countries recognise that might-is-right is damaging for everyone, when they acknowledge others’ concerns.

There’s little sign of any genuine enthusiasm for multilateralism in trade in the present climate other than to stick to the nitty-gritty of implementing the present agreements.

If actions speak louder than words, then what we are hearing is at best a whisper.

‘MC13’ — only a year awayBack to top

Next year’s meeting will be the 13th WTO Ministerial Conference, and we increasingly hear that this-that-or-the-other needs to be done by “MC13”. The cliché says nothing concentrates minds better than a looming deadline. But will that be enough?

In the lead up to last June’s meeting we could afford to be moderately optimistic (“The WTO is regularly in crisis, but this time could be different”).

For the next phase little has emerged so far, publicly at least, to inspire any confidence. It took half a year until January 27 of this year for WTO members to finally agree on new chairs for the fisheries subsidies and agriculture talks, preventing any negotiations from taking place on the current two big WTO subjects.

During that time, there have been numerous squabbles, including controversy over talks among only part of the WTO’s membership (the “plurilaterals” or “joint-statement initiatives”), which some see as the only way forward.

Where there has been activity, it has often been “retreats”, mostly in the WTO headquarters anyway. They have been on the missing piece in fisheries subsidies, the total failure in agriculture last June, and WTO reform. These are little more than returning to the many drawing boards rather than building on what has been achieved.

Everything here is the long game. And so sometimes it looks like we’re in the midst of failure. And sometimes we are. But for example on fish we were able to pull out, after 21 years of negotiations, an agreement that is binding and meaningful.

Angela Ellard, WTO deputy director-general, Februrary 13, 2023

There are exceptions. For example, in the Sanitary and Phytosanitary Measures (SPS) Committee, the WTO membership is hard at work on how to meet modern challenges in food safety, and animal and plant health, acting on a decision from last year’s Ministerial Conference.

The bottom line is, we shouldn’t expect much from the next Ministerial Conference, although we could be pleasantly surprised if the EU’s paper on the deliberative function — and others we hear are in the pipeline — leads to anything.

As usual, there’s talk of “outcomes”. It’s a much-abused word that simply means agreeing on a text, anything from a full-blown agreement or final decision, to a string of well-intentioned platitudes.

Not everyone is as pessimistic as we are. WTO Deputy Director-General Angela Ellard is more positive about the last Ministerial Conference, and prospects for the next one, without overlooking the obstacles (here, from about 8 minutes, 12 seconds in).

To repeat: the problems are in the capitalsBack to top

As we have said several times before (in late 2021 and June 2022), the main problems are not at the WTO, but in the major players and particularly between them.

The WTO is nothing more than its members. If their trade policy attention is elsewhere, it will flounder. If they lose interest in collective action, nothing will happen in the WTO.

For multilateralism to work, domestic politics has to be favourable, or at least not obstruct it.

The problem now is not just trade. It’s about inwardly-looking national policies that aim to serve domestic interests without the constraint of recognising the need for international cooperation.

And it’s about using honourable objectives, such as tackling climate change, as a pretext to undermine the key principle of multilateralism: non-discrimination.

Most countries now spend more time defending their pet objectives (‘security’, ‘jobs’, ‘development’, ‘policy space’) than striving for cooperative solutions

Some countries are more constructive than others in genuinely seeking to preserve multilateralism.

The Ottawa Group on WTO reform (Canada, New Zealand, Australia, Switzerland, Japan, the UK, Brazil and others) are battling against the gale to make the system work. They continue to meet among ministers and officials (most recently in January in Davos) but their ambition seems reduced to trying to maintain US engagement.

Most countries now spend more time defending their pet objectives (“security”, “jobs”, “development”, “policy space”) than striving for cooperative solutions.

The truth is, nothing much will happen if China, the EU and the US are unable to work together. Worse, they are being let off the hook by obstructionism from India and South Africa (details below).

The problems for trade multilateralism go beyond the US, EU and China. Former India diplomat Shivshankar Menon recently warned in Foreign Affairs about the danger of seeing global politics only from a trans-Atlantic perspective, particularly in the light of conflict with Russia over Ukraine.

Menon wrote:

“The war in Ukraine is about the future of Europe, not the future of the world order, and the war has become a distraction from the more pressing global issues of our time. …

“For many parts of the globe, a year of war in Ukraine has done less to redefine the world order than to set it further adrift, raising new questions about how urgent transnational challenges can be met. …

“Many countries now feel that they have been left to their own devices in the absence of a working multilateral system or international order. But this malaise has yet to produce a coherent or organized response.”

The major powers are distracted. Great power rivalry and more recently the war in Ukraine do not provide any direction for multilateral trade cooperation. The fate of the WTO is far from the most pressing concern for anybody, let alone developing countries.

Is consensus undermining multilateralism?Back to top

Preferential trade agreements, bilaterally or within groups of countries, have proliferated since the WTO’s Doha Round negotiations collapsed in 2008. So have talks among only part of the membership within the WTO: the plurilaterals or joint-statement initiatives.

This is a natural response to the difficulty of reaching consensus in the WTO.

Nobody should be surprised if negotiations move outside the WTO, particularly on issues not properly covered under its current rules

The joint-statement initiatives are preferable, because they are under the WTO umbrella. But if the WTO’s consensus decision-making rule is abused so that it becomes a way of blocking their full implementation, nobody should be surprised if negotiations move outside the WTO, particularly on issues not properly covered under its current rules.

This would be much more damaging for multilateralism. It would contradict the arguments of India, South Africa and some supporters that when they try to obstruct plurilateral negotiations they are defending multilateralism. Few experts think they have a legal basis for their complaints, even if they might have the legal power to block adding new agreements to the WTO’s rule-book (ie, Annex 4 of the WTO Agreement).

That said, the consensus rule is not itself the problem. It’s necessary for any agreement to be reached in the WTO. The problem is its misuse. Most if not all of the major players have been guilty of that, from the US vetoing the appointment of Appellate Body judges with no support from anyone else, to India and South Africa blocking a long list of issues (details below)

The idea that cooperation provides net benefits for everyone, if it’s handled properly, is often too abstract and too broad for political debates that focus on issues that are closer to home and on narrower concerns, such as a handful of industries or services.

One subject where the message is starting to get through is climate change. The political debate now recognises that everyone has to give something so that everyone can benefit, but negotiations are still bogged down on how much various countries should give and why.

The fisheries subsidies deal agreed in the WTO last June achieves that in a limited way, but still ended up missing its most important piece.

No alternativeBack to top

Is multilateralism in trade worth rescuing? There is no alternative.

The mid-size players, such as those in the Ottawa Group, know that they need the multilateral system. The EU is actually a member of the Ottawa Group, so its position is closer to those mid-sized players, but it is torn and often tempted to exploit its size and clout.

The US is happy to act unilaterally, relying on its power. Washington and Beijing take multilateralism for granted, and yet they ought to know they need the framework of predictable rules on which trade depends. And they depend on everybody believing in non-discrimination.

Meanwhile, India and South Africa pay lip-service to multilateralism while their actions further erode belief that it is feasible.

And too many small players think multilateralism is a burden, which is a tragic error.

(Details of what the key players are doing are below.)

We might have to accept (or hope) that enthusiasm for multilateral systems is cyclical. It took decades for the US and EU to realise they had to have a ceasefire on farm (production) subsidies, and even then, only when finance ministers called time on the game.

Maybe we have to wait for the big powers to realize, again, that their industrial policies are hurting themselves as much as the rest of the world.

That may be a realistic hope for the long run.

Can we expect them to come to their senses in time act a year from now at the next WTO Ministerial Conference?

Probably not.

United StatesBack to top
Photo of US Trade Representative Katherine Tai
US Trade Representative Katherine Tai

The US is unwilling to lead on multilateral trade, or even to make any significant moves as a participant.

It sees itself as big and powerful enough to act unilaterally without consequences. It has cited its own security issues more or less as a blank cheque, to justify acting in ways that are probably violations of WTO agreements and principles.

The Biden administration is not interested in new trade agreements but is pursuing several “frameworks”: the Indo-Pacific Economic Framework for Prosperity (IPEF) with 13 countries; the Trade and Technology Council with the EU; and the Americas Partnership for Economic Prosperity with 11 other countries in the Western Hemisphere.

What unites these frameworks is the US’s unwillingness to pay a domestic price. They are designed so that none will require Congressional approval, which would be hard to obtain given the current stance of both major parties on trade. None offer the inducement of binding American commitments.

Without such inducements, new agreements in the WTO are even less likely. But an administration focused on creating American jobs with little concern for trading partners — as with the Inflation Reduction Act, which caused concerns in the EU and elsewhere — doesn’t care much about agreements anyway.

This was ex-WTO Deputy Director-General Alan Wolff’s reaction to the 2023 State of the Union address: “President Biden said repeatedly on Tuesday night, ‘Let’s finish the job.’ He might have added, ‘Let’s return to the job we have abandoned.’”

At the WTO, the US held a number of meetings — at long last — on its concerns about the way appeals are handled in WTO dispute settlement. But absolutely no information emerged from these meetings. Some sceptics believe they did not really go anywhere.

The consultations are now over, WTO Deputy Director-General Angela Ellard told a conference on February 23 (here at about 17:49, Her whole discussion of dispute settlement starts here at 16:47.)

Other aspects of the WTO reform agenda appear to be on the back burner since the Americans may have lost interest in their own proposal on improving notifications — how information is shared with other countries through the WTO. They show little support for discussing efforts to make working procedures in the committees more dynamic.

US Trade Representative Katherine Tai has denied the suggestion. “I wanted to highlight that every single committee that the United States participates in, we have shown up this year with proposals on paper for how to improve and reform the work that is being done in those committees,” she told a recent conference, according to Inside US Trade.

However a quick search of WTO Documents Online for this year so far (2023) only found three US proposals for regular committees. For the past 12 months the number is about five. The WTO has about 30 committees.

The US is also reluctant to engage on a new understanding of a country’s “national security” in trade rules. But one is needed as former USTR official Bruce Hirsh wrote recently. Nor is it willing to examine how to manage relations with China in a multilateral framework. These go way beyond any faults of the WTO.

Friend-shoring — prioritising supply-chains in countries considered to be friends — carries big risks for multilateralism. This could not work without extending discriminatory trade preferences to “friends”.

Isolating Russia in the WTO (and in the G20, as happened in November 2022) is awkward for daily work but probably does not matter much.

China, by contrast, cannot be isolated. Maintaining a rules-based trading system without the active engagement of one of the world’s largest traders is nonsensical.

European UnionBack to top
Photo of EU Commission vice-president and Trade Commissioner Valdis Dombrovskis
Commission Vice-President and Trade Commissioner Valdis Dombrovskis, EU

The EU has responded to US industrial policy and Chinese subsidies in a way that only a big player can rather than relying on the rules — for example, actions taken in the face of US tariffs on steel and aluminium.

On the other hand, it has developed the option of arbitration within the WTO dispute settlement system as a workable alternative to the non-functioning appeals system.

It says rescuing dispute settlement is still its priority, but its latest paper on WTO reform focuses on WTO deliberations as a way to move forward.

The paper is full of ambitious but practical ideas on how to improve this in a way that might defuse tensions — for example on industrial subsidies — while leading over time to changed understandings of the potential for new negotiations.

If other members respond positively, this would be grounds for optimism as the next Ministerial Conference approaches.

But this is not the first time the EU has produced a detailed paper on WTO reform. Its 2018 effort saw little response. Nevertheless, the EU’s present tone sounds more constructive than the US’s negativity and repeated accusation that the WTO is on “thin ice”.

Those examples sum up the EU’s position. It’s torn.

It half wants to preserve multilateralism but faces its own internal pressures to be inward-looking, or at least to use trade policy to support non-commercial objectives, like climate change (as in the Carbon Border Adjustment Mechanism), or labour rights. Nicolas Lamp of Queen’s University, Ontario, calls it “multipurpose trade policy”.

The European Union has also moved toward more overt industrial policy at the EU level (as distinct from member states doing their own thing), especially for the “Green Deal”. And yet it is also apparently promoting a working group on industrial subsidies to be created at the next WTO Ministerial Conference.

The EU has also responded in some detail to US criticisms of appeals in WTO dispute settlement, a response the US seems to have ignored, at least in its dismissive public claims that “not enough members listened”.

ChinaBack to top
Photo of Commerce Minister Wang Wentao, China
Commerce Minister Wang Wentao, China

China is preoccupied by domestic issues: the 20th Party Congress in late 2022, an economy that is slowing down, and the struggles with the aftermath of zero Covid policies.

It’s also preoccupied with its growing confrontation with the US, and so far to a lesser extent with the EU. Are its trade practices, indeed its economic system, compatible with a liberal order? Are finances and the role of state enterprises transparent enough for other members and the WTO dispute settlement system to judge whether subsidies are involved?

The conventional political wisdom blames China for exploiting loopholes in the rules, and considers the WTO to be impotent to deal with it. But some experts say the solution lies in re-invigorating the multilateral trading system.

China wants to be seen as the good player in the WTO. It highlights its contributions to the organisation, but except in the early years of its membership it does not highlight the benefits it receives. Chinese tourists no longer arrive in droves to take selfies outside the WTO’s gates in Geneva.

Unlike India and South Africa, China is an active participant in plurilateral negotiations in the WTO. It is a driving force behind a deal to create new rules for investment facilitation for development, said to be imminent.

It’s still unclear how this new agreement would be incorporated into the WTO, but if it means formally adopting a new plurilateral agreement (under Annex 4 of the WTO Agreement), then this could put China in direct conflict with India and South Africa.

That said, China is unwilling to stick its neck out too far, to assume a leadership role in sustaining and building the system. It’s also unclear how the US and EU would react if it did.

India, South AfricaBack to top
Photos of Commerce Minister Piyuch Goyal, India, and Trade Minister Ebrahim Patel, South Africa
Commerce Minister Piyuch Goyal, India; Trade Minister Ebrahim Patel, South Africa

India’s and South Africa’s approach to the WTO has increasingly looked like “block everything”, except their own proposals to relax rules for developing countries. That is, all developing countries, no matter how big or small, how advanced in their development, or how much or how little they trade internationally.

Any attempt to discipline trade distortion caused by major developing-country players in a sector such as agriculture is seen as a divide-and-rule attack on the whole Global South.

They have adopted this line in a wide range of issues. Agriculture. Fisheries subsidies. The proposal to waive intellectual property protection for anything related to the COVID-19 pandemic, producing a hard-fought compromise, which so far no country has moved to implement. The plurilateral talks among subsets of WTO members. The chairs of the negotiations. Even the WTO budget.

For India, scepticism about the system has a long history, dating back at least to the mid-1980s. Fellow-travellers from that time, like Argentina and Brazil, have long since turned away, but others are still willing to go along with India’s tactics in the name of developing-country solidarity. 

It’s unclear what lies behind India’s and South Africa’s apparently obstructionist positions.

Are they just trying to disrupt WTO work wherever they can, or do they genuinely believe that WTO disciplines are massively biased against developing countries?

Or are they simply doing exactly the same as the big players, such as the US, in insisting that domestic politics overrides multilateral rules. India’s position on domestic support in public stockholding could be seen in that light.

This is as fundamental to the WTO’s problems as conflict between the US, EU and China, but it receives less attention.

See also

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. See all articles he has written on here.

Updates: none so far

Image credits:
Ministers | Jay Louvion, WTO

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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