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 conflict. Seeking to build on last June’s renewed commitment to a rules-based system, the WTO now calls for more sustainable, more inclusive trade rules.
Rewriting the rulebook is both desirable and necessary given widespread dissatisfaction with the institution. But reform will not be easy. Any fundamental changes to the WTO have to overcome long-standing disagreements among countries over market access. They will also require fixing the WTO’s broken dispute resolution system.
“Inclusive rules” mean several things in international trade law. One of them is promoting equitable growth by leveling the playing field between rich and poor markets. On paper, the WTO was created so that each member country enjoys the same rights under the law regardless of wealth, market size or any other feature of a member’s economy. If anything, the rules grant special privileges to the organization’s less developed countries. For example, poorer economies are given longer periods to implement their trade-liberalizing commitments so that opening the economy does not shock the domestic market too abruptly. Small markets also commit to less burdensome tariff “bindings,” which are the ceilings members place on their tariff rates. Higher bindings mean that small economies have greater leeway in their tariff policies, and that their commitments are less restrictive than members like Japan, Canada and the United States, all of whom have very little room to maneuver.
Despite what the WTO calls “differential provisions,” developing nations face several disadvantages. Even though wealthy WTO members (including the United States and European Union) extend preferential access to less developed countries through their separate trade policies, poorer members still run up against de facto trade barriers. Not least, developing country farmers run up against subsidies and price supports that make it harder to do business in the West. In agriculture alone, subsidies have totaled over $400 billion in the United States since the WTO was created. As a result, many poor members still suffer from limited access to key markets, especially in textiles and agriculture, two sectors vitally important to smaller economies.
This problem is not new. There has been enduring debate (dating back to before the WTO’s formation) over agriculture and textiles. (It is no coincidence those two sectors are the subjects of their own legal agreements.) Then, as recently as last June, Director General Okonjo-Iweala noted that disagreements over agricultural policies stunted progress at the 12th Ministerial Conference, stating that “we could not achieve consensus on a new roadmap for future work.”
Making matters worse, things are trending in the wrong direction. Farm subsidies, which were already substantial, actually increased in recent years amid the market pressures brought on by trade wars and the pandemic.
In theory, the WTO has a built-in mechanism for protecting all members’ rights. Developing countries could fight back against discriminatory practices by suing richer nations under the WTO’s Dispute Settlement Understanding. But the dispute system remains almost exclusively the domain of wealthy countries like the U.S., European Union and more recently China. The U.S. alone is involved in almost half of the WTO’s 614 disputes.
By contrast, developing countries rarely participate. Litigation consumes valuable legal and bureaucratic resources — two things in short supply among smaller member governments. It is no surprise that only two African nations have ever initiated disputes.
Aware of this problem, the WTO’s Advisory Centre has helped smaller countries build capacity. But that does not guarantee greater access to the system. Even if small states could afford litigation, concerns over trade retaliation often discourage them from targeting rich nations. When smaller countries do initiate disputes, they often sue one another instead of bringing grievances against the wealthiest members. Moreover, the current crisis facing the Appellate Body, wherein too few seats are filled to hear appeals, means that disputes cannot proceed through the full legal process. Not having a functioning Appellate Body means that panel rulings are now left in limbo.
Plans to repair or replace the dispute system have circulated for years, and the WTO membership committed to further discussions at MC12. But a clear solution is difficult to see. Concerns about dispute settlement are complicated and divide the preferences of the United States and European Union. While the big players argue it out, poorer members are left without opportunity to defend themselves under the rules.
None of this is to say that the WTO’s efforts to reboot the rules-based system are misguided. Recent global events, from trade wars to real wars, highlight the dangers of unpredictable, volatile markets. Developing countries stand to lose the most from that volatility because their economies are more concentrated and often more trade-dependent. A more inclusive, modernized system – one that can add stability to the marketplace – 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 (by courtesy) at the University of Arizona.