World Trade Organisation Talks: Make or Break
The second postponement of the World Trade Organisation’s 12th Ministerial Conference, may only compound its woes. When they meet, a looming North-South divide and the long-standing consensus rule could stymie progress in many areas.
The World Trade Organisation (WTO) was supposed to have gone into critical talks this week at the 12th Ministerial Conference (MC12) in Geneva. The conference, slated for 30 November to 3 December, would have been the first since 2017.
A last-minute postponement of the in-person meetings due to a new Covid-19 variant of concern, Omicron, has compounded the WTO’s woes. Even before the second postponement was decided on Friday, countries were already bracing themselves, with a crowded agenda and deep divisions on major issues.
It is not certain when the in-person meetings will resume. When they do, the odds will remain stacked against significant breakthroughs. To begin with, there has been no major agreement since the 2013 Trade Facilitation Agreement (TFA) and 2015 ban on agricultural export subsidies, leading some observers to warn that this is a make or break moment for an organisation that has succumbed to gridlock. Mr Zhang Xiangchen, the deputy head of the WTO, has described the outcome of the coming talks as a ‘critical test’ of the organisation’s credibility.
Director-General Ngozi Okonjo-Iweala was hoping for ‘“at least one or two’” tangible outcomes. Southeast Asian countries hope that a plurilateral agreement on services would be one, as well as progress on e-commerce. For United States Trade Representative Katherine Tai, a “successful” MC12 would need to deliver meaningful agreements on fisheries subsidies, pandemic response and WTO reform. Other countries are pressing for more action on climate change and digital trade.
To compound matters, a looming North-South divide is obstructing progress; if not resolved, this could harm the institution irreversibly (Southeast Asia aligns its interests mostly with the South). Members on opposite sides of the divide disagree on special and differential treatment for developing countries and exemptions for subsistence and small-scale fisheries. The developing South paints the disagreement as a case of the developed North being unsympathetic to their needs, indeed livelihoods.
Success is not guaranteed as all 164 parties have to approve any deal by consensus.
The North-South split and the consensus requirement look likely to block a deal on the issue of waiving intellectual property (IP) rights for Covid-19 vaccines and drugs. India and South Africa are leading a push for such a waiver among developing countries. To get ASEAN on board, India has promised deals on joint production of vaccines and generic drugs.
But the European Union is spearheading opposition to the waiver; in its place, it is proposing reductions in export restrictions and, expanding production under existing IP rules.
A top priority is to end the paralysis of its dispute settlement processes. The appellate body ceased operations in December 2019 after the Trump administration blocked new appointments over concerns that the body was exceeding its mandate and other disagreements.
Following close on the recent Glasgow Conference of Parties (COP26) climate summit, there will be pressure to include a statement on the role of trade policy in addressing climate change and other environmental challenges. Both China and the US have joined the discussions on a potential ministerial statement at MC12 but do not expect too much as consensus is unlikely. Initiatives to phase out fossil fuel subsidies are unlikely to go beyond what was agreed at COP26, but one that tackles plastic pollution from a trade perspective is expected.
All members agree that a rulebook change is overdue for the 27-year-old organisation. The trouble is there is little agreement on how to go about it.
A top priority is to end the paralysis of its dispute settlement processes. The appellate body ceased operations in December 2019 after the Trump administration blocked new appointments over concerns that the body was exceeding its mandate and other disagreements. Ms Tai also wants a broad overhaul of what Washington sees as a cumbersome and bureaucratic system, but others are not prepared for major change. The upshot: expectations of progress under the Biden administration are likely to be dashed.
As a consequence of the inability to achieve consensus on numerous issues, plurilateral talks (or Joint Statement Initiatives, in WTO parlance) governed by majority voting have proliferated. The five areas currently underway are electronic commerce; domestic regulation of services; investment facilitation; micro, small, and medium enterprises; and trade and gender.
India and South Africa have challenged the legal status of these joint initiatives and their negotiated outcomes.
They argue that such initiatives undermine the universality of the rules-based multilateral trading system. This appears a minority view for now. If progress is made on these plurilateral initiatives at MC12, it could provide workarounds to the consensus requirement.
As and when the 12th MC is held, progress is most likely in the push to cut red tape in the services sector, and a plurilateral agreement is expected. The trade facilitation measures on services will likely go far beyond those in the WTO’s 1995 General Agreement on Trade in Services, with new disciplines mitigating the trade-restrictive effects of technical standards, licensing and qualification requirements, and increasing transparency. ASEAN, which has struggled with liberalising services, could greatly benefit from such a deal.
Digitalisation and e-commerce were small clouds on the horizon when the WTO was established, and there is a pressing need to extend coverage to keep up with a proliferation of bilateral and regional deals. Singapore is at the centre of several of them.
So far, participants have agreed to provisions on spam, electronic signatures and authentication, and e-contracts and are close to finalising provisions on open government data and online consumer protection. Sensitive issues such as data localisation may remain unresolved, however.
Separate from the plurilateral initiative, a temporary moratorium on customs duties on electronic transmissions has been renewed at each ministerial meeting, but there are no guarantees this time.
The developing South, led by India and South Africa, consider it to be a potential revenue stream, highlighting the erosion of ‘policy space’ as more things turn digital, while supporters of the moratorium cite evidence of its economic benefits.
Overall, this is a large bundle of issues. Fisheries subsidies are of little interest to most members, but talks have dragged on for two decades. The aim is to remove subsidies that encourage overfishing that if unresolved could lead to a collapse of fishing stocks. That said, limited progress in difficult areas, such as agricultural subsidies or e-commerce, has been a feature of the WTO since its establishment in 1995.
Institutional reform covers the entire operation of the WTO. The key obstacle is the consensus requirement, which is being tested. In the Uruguay Round (1986-1994), this was eventually overcome by the original ‘“Quad’” (US, EU, Japan and Canada) playing a leadership role while ensuring that all members would accept the final text.
In 2021, however, more countries from the South want to be included in the leadership group; otherwise, they stand ready to withhold their agreement.
The fundamental institutional change that is required is a way around such gridlock without seriously compromising reform. The postponement of the in-person meetings is only a temporary reprieve. For WTO members, the future of a rules-based multilateral trading system depends on deep-seated change, now more than ever.
Jayant Menon is a Senior Fellow at ISEAS – Yusof Ishak Institute. He was formerly Lead Economist in the Office of the Chief Economist at the ADB.
Richard Pomfret is Professor of Economics Emeritus at the University of Adelaide and Adjunct Professor of International Economics at Johns Hopkins University SAIS Europe.