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Policy Analysis

Reforming the World Trade Organization

Whether the World Trade Organization is "fit for purpose" will be a major focus at the 13th Ministerial Conference. Alice Tipping predicts that the diverse perspectives on topics such as the dispute settlement system, the plurilateral treaty on investment facilitation, and special and differential treatment may pose challenges in reaching common ground.

By Alice Tipping on January 11, 2024

Discussion of whether the World Trade Organization (WTO) is “fit for purpose” and whether and how it should change the way it works has moved forward since the last ministerial and will be a major feature of next month’s Thirteenth Ministerial Conference (MC13). The decisions for ministers on some issues are immediate and clear. Will members agree on changes that enable the dispute settlement system to function properly again? Will they agree to include a plurilateral treaty on investment facilitation in the WTO’s legal architecture? Decisions on other issues, such as whether entitlement to special and differential treatment (SDT) should be changed, are a way off—if they are possible at all. On these issues, MC13 will likely function more as an opportunity for opposing points of view to be expressed and for any common ground to be recorded in a ministerial statement.

Dispute Settlement System: Light at the end of the tunnel?

After years of complaints about the WTO’s dispute settlement system, including the length of time appeals took and interpretations that challenged the rights the United States believed it had negotiated, Washington in 2017 started blocking the appointment process of new members to the WTO Appellate Body, rendering it unable to hear appeals after December 2019, the point at which there was no longer a quorum of members who could hear appeals. Consequently, many dispute settlement panel decisions continue to be appealed “into the void,” making them unenforceable under the WTO system. Some members have built a workaround, the Multi-Party Interim Appeal Arbitration Arrangement, which allows appeals to be heard under the arbitration article of the WTO’s Dispute Settlement Understanding. This system seems to be working relatively well; its first decision was issued swiftly and apparently to the satisfaction of the involved parties. But it’s no substitute for a multilateral system of dispute settlement.

At MC12 in June 2022, ministers outlined their aim to establish a “fully and well-functioning dispute settlement system accessible to all Members by 2024.” Since then, a very informal process initiated by the United States and since passed on to an experienced Guatemalan delegate, Marco Tulio Molina, has made significant progress in developing amendments to procedures governing disputes in the WTO. The changes aim to improve the efficiency of the dispute settlement process and therefore its affordability and, as a result, its accessibility to all WTO members. Members have not yet been able to agree on a few key issues, though, including whether there should be an appeal mechanism at all or how it would function.

The underlying challenge lies in two distinct views of the role of the WTO’s dispute settlement system.

The understanding in Geneva is that the underlying challenge lies in two distinct views of the role of the WTO’s dispute settlement system. The United States seems to approach it from a contractual perspective on international treaties, viewing the system as a means to resolve bilateral disputes exclusively. The European Union and others see the system through the lens of supranational governance, embracing the concept of a permanent international court whose decisions contribute to a body of jurisprudence.

MC13 is informally considered the deadline for 2024, although some are mindful of a potential shift in the political landscape due to the U.S. election in November. Director-General Ngozi Okonjo-Iweala has prioritized the restoration of the dispute settlement system as one of her top goals for the ministerial, placing it high on the list alongside the completion of the remaining provisions of the WTO Agreement on Fisheries Subsidies (see Tristan Irschlinger’s article in this publication). At the time of writing, the most likely outcome seems to be an almost-full package of improvements to the system put to ministers for endorsement while work continues on bridging differences on the most difficult issues.

Negotiations: What’s on the agenda, who decides what’s on the agenda, and what about SDT?

The second major area of discussion is the WTO’s negotiating agenda: what topics it should tackle and who gets to decide what topics it should tackle, as well as whether, and if so how, the principle of SDT for developing country members in WTO treaties needs to change.

Environmental issues are edging their way toward the centre of the WTO’s agenda. The first big shift, in the lead-up to MC12, was the launch of three informal discussions on environmental topics: the Trade and Environmental Sustainability Structured Discussions, the Dialogue on Plastic Pollution and Sustainable Plastics Trade, and the Fossil Fuel Subsidies Reform initiative. The initiatives, driven by groups of convening countries and open to all members that wish to join, were born out of a frustration that crucial topics on the international agenda, including climate change, could not be discussed in the WTO’s formal committees, such as the Committee on Trade and Environment, as some members simply refused to allow it. The initiatives have, by and large, been a useful forum for knowledge building and discussion of topics, both easy and hard, that could not make their way onto a multilateral agenda.

What is different in the lead-up to MC13 is that numerous members are calling for environmental issues to be taken up at a multilateral level, arguing that the WTO’s agenda should change to respond to key issues of concern in trade policy, including environmental measures but also the broader issue of industrial policy. In practice, the two topics overlap considerably: many of the largest industrial policy shifts in recent years have been to boost domestic renewable energy or electric vehicle production. The informal senior officials meeting in October 2023 included sessions on both industrial policy and trade and climate. Exactly what might be able to be agreed in this hypercompetitive policy space is not clear, but it is a crucial policy discussion for the multilateral trade system for the next few years, yet it may end up taking place not on one but on two different workstreams, one per group of requesting members.

What is different in the lead-up to MC13 is that numerous members are calling for environmental issues to be taken up at a multilateral level.

The more immediate decision for ministers at MC13, however, is what should happen to the treaty text developed under the Investment Facilitation for Development (IFD) Joint Statement Initiative (JSI). After several years of negotiation among a subset of members, the IFD JSI has produced completed treaty text. The proponents would like it included as a plurilateral agreement within the WTO’s treaty architecture, but this requires consensus among all members, and some are not inclined to agree. The second treaty in line, still under development by a different subset of members, is the e-commerce JSI. These treaties and the legal architecture issues around them are discussed in more depth in Rashmi Jose’s article in this publication.

The deep underlying issues from a WTO reform perspective, however, are the political questions of how the organization’s agenda is set and whether new deals on issues like digital trade can be negotiated in parallel to (or, as the investment facilitation JSI shows, before) long-standing issues like agricultural support are resolved. Many members (the Ottawa Group, for example) argue that they can, while others (India and South Africa in particular) say they shouldn’t, as this risks abandoning progress on issues of fundamental importance to them, like rules on agricultural trade. They seem likely, at least at first, to block consensus on including the IFD JSI in the WTO’s treaty architecture.

Changing the Way Members Make Decisions

The environment initiatives and the JSIs are examples of the “reform-by-doing” approach some members have suggested as a complement or replacement to painfully slow formal reform decisions. For some members, though, reform by doing is essentially equivalent to reform by stealth, and they have argued that decisions about the WTO’s functioning must be kept inclusive, formal, and based on the organization’s principle of consensus decision making. The question of whether and how the WTO’s ways of working can incorporate decisions and initiatives endorsed by less than the whole membership is one of the most fractious points in the reform debate.

Consensus ensures that decisions on packages of rules on economic policies (such as subsidy or tariff reductions) with real impacts on sectors, businesses, and jobs, consider every member’s views. The principle gives those decisions the legitimacy needed to justify the fact that violations of those rules can bring real economic consequences. For the balance to work, though, members would need to block consensus only where their fundamental economic interests are at stake. Some members believe others are abusing their ability to block consensus, holding progress on some issues (including some related to the functioning of the organization, such as the appointment of committee chairs) hostage for political reasons or to gain leverage in other issues. No member seems to favour wholesale abandonment of the consensus principle, though, and many are wary of introducing voting on even some issues.

What happens to the IFD text, and what the MC13 ministerial statement says (or doesn’t say) about discussions on newer issues, will be among the most important political discussions at MC13.

What happens to the IFD text, and what the MC13 ministerial statement says (or doesn’t say) about discussions on newer issues, will be among the most important political discussions at MC13. The senior officials meeting in October 2023 reflected a call for the use of responsible consensus, which may—through a formal decision or simply behaviour—reflect a way forward. MC13 may, in fact, be the next opportunity for members to use consensus responsibly to ensure the package of outcomes reflects the needs of all members.

Special and Differential Treatment

A further issue in the context of the negotiating function of the organization is the question of development in the system of WTO rules. My colleague Rashid Kaukab explains two aspects of this debate, on least developed country graduation and on SDT provisions throughout the WTO agreements, in his separate article. The top remaining issue is the highly controversial topic of which members should be entitled to use the SDT flexibilities in WTO agreements.

The current system is distinctly flexible: members can designate themselves as developing countries for the purposes of WTO agreements, as they choose. This self-designation, especially China’s self-designation as a developing country, has been the target of numerous proposals for change. For example, the United States has proposed that all members of the Organisation for Economic Co-operation and Development, all G-20 members, any member considered “high income” by the World Bank or which account for more than 0.5% of world merchandise trade should be excluded from using SDT Several developing country members, notably the Africa Group and India, have argued vehemently that the right to self-designate is an inalienable right within the WTO system. Other members have proposed middle-ground approaches (discussed here). A practical approach, reflected in the Trade Facilitation Agreement and which will be key to the second phase of the agreement on fisheries subsidies, is to shape rights, obligations, and flexibilities so they are appropriate to the specific issue in question.

It seems unlikely that WTO members will agree to a revamped system of entitlements to SDT across the board at MC13. More likely is a wrangle over language in the MC13 statement, where those favouring change and those opposed both try to notch up a point to support their side of the argument. Diplomatic solutions in these circumstances usually involve including everyone’s language or no one’s. Watch for how SDT is handled in the MC13 statement, and for how SDT is tackled in the fisheries subsidies deal.

Committee Work: Efficiency and transparency

Last but not least is the discussion around improving the humdrum but important daily work of the many committees at the WTO. One of the WTO’s main functions is to provide stability and predictability to the international trading system. As part of this, most WTO treaties require members to notify measures they are going to take, or have taken, that have trade implications, allowing other members to see what changes are coming and respond, as well as their businesses to adapt. Notifications also enable other members to see whether the measures taken comply with WTO obligations. The extent to which governments fulfill these obligations varies tremendously by topic. Notifications of industrial subsidies are notoriously poor, while notifications of agricultural subsidies are slightly better, and notifications on technical or sanitary regulations are being submitted at a satisfactory rate. There are many reasons members don’t notify, or notify poorly, including lack of institutional capacity, both in terms of time and knowledge; a reluctance to reveal too much about policies, such as subsidies, that might attract scrutiny; and the simple fact that there is usually no consequence for not notifying.

Members still disagree on which of these reasons is the most important, and therefore should be the focus of solutions to improve the rate of notifications. A group of developed and developing members plus the European Union has suggested providing tools and resources to make it easier to notify. Other developing countries, including the African Group, argue that the fundamental problem is human capacity. A more detailed summary is here. It’s not clear that these differences will be overcome in time to produce a decision for approval at MC13, but members may be able to agree to mandate further work on the topic.

More encouragingly, each WTO committee has reviewed its procedures and ways of working to identify improvements. These changes (like making better use of electronic document management systems) will be reported to the ministerial and, it’s expected, will begin to be implemented over the months to come, making life easier for delegates, particularly from smaller missions. The Council on Trade in Goods adopted its own set of changes in late 2023. Some Members have also identified ways of making the WTO more open to stakeholders, ideas discussed here. Speaking of making life easier, several members have proposed changing the procedures of the ministerial conference itself (like holding it annually instead of biennially) in an attempt to “de-dramatize” the event by reducing the backup of difficult decisions that ministers must tackle in one exhausting 4-day meeting.

Ministers have tangible decisions to make about how their WTO works.

For now, MC13 is slated to run for the usual 4 exhausting days. Ministers have their work cut out for them, and for the first time in a long time, they have tangible decisions to make about how their WTO works.

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