Blog Post
The Need for WTO Reform
Mon, Jul 18, 2022
by
Anthony Elson
Body
The recent WTO Ministerial Conference MC12 that concluded on June 17 has been hailed as an important achievement of the WTO, given its agreement on a number of substantive issues that have been under discussion for some time, as listed in the MC12 Outcome Document. It also came after an unusually long lapse of nearly 5 years (instead of the normal 2) since MC11, in large part due to the onset of COVID. MC11 was notable for its lack of agreement on any Outcome Document.
The successful outcome of MC12 has shown that countries are committed to restoring the WTO to the center of the global economic governance arrangements, along with the IMF and World Bank. However, its failure to conclude any multilateral agreements on trade liberalization since its founding in 1995 have led many to question whether it can play its intended role in the management and oversight of the global trading system. In this light, three reform issues dealing with the governance of the WTO should be considered, which are discussed below.
The WTO’s dispute settlement system is a key issue for reform. This function has been severely hampered by the fact that its Appellate Body, which considers appeals of decisions taken by its trade dispute panels, has not been able to function since 2019. This failure is the result of the unwillingness of the United States to agree to the nomination of new judges to replace those whose terms have expired, leaving the body with an insufficient number of judges to hear cases. The US government, in particular under the former administration, has raised a number of concerns about certain procedural and substantive aspects of the Appellate Body’s activities (see USTR report), some of which have been shared by other members.
A major challenge the WTO faces in reaching agreement on procedural and substantive issues is the general operating principle that its decisions require unanimity on all aspects of a proposal before they can be considered final (the rule of “consensus and single undertaking”). In an organization of 164 members, this decision rule is obviously a severe limitation on its efficiency and effectiveness and explains why many agreements require extensive and time-consuming debate and why multilateral trade agreements have not been completed. (Notably, the substantive agreement on fisheries subsidies by MC12 had been under discussion for more than 20 years.)
Many observers have argued that WTO operations could be improved if it adopted the administrative structure of the IMF and World Bank with full-time Executive Boards of 24 members representing the full membership for decision-making that operate under various rules of majority voting in response to initiatives of its chief operating officer and secretariat. Such proposals have not received support among the WTO membership, mainly because they would represent a major departure from its “member-driven” character. Instead, further thought should be given to how so-called plurilateral agreements involving groups of countries representing less than the full membership of the WTO could be recognized by the WTO (without consensus), which non-participating countries could join over time.
The current practice of “special and differential treatment” (SDT) of developing countries in complying with WTO rules and procedures is another important reform issue. Under current practice, there is no agreed definition of which countries qualify for SDT, as countries are allowed to self-select their status (beyond 35 developing countries that have been classified as least-developed for WTO operations). As a result, more than two-thirds of the WTO membership has qualified itself for SDT status, including countries such as China, Korea and Singapore and half of the G20 membership. With this arrangement, the major burden of WTO membership has fallen on a relatively small share of developed countries, such as the United States, the EU, Canada and Japan, whose share of global trade has declined significantly since 2000. Ideally, objective criteria would exist for determining which countries qualify as developing. But determining those criteria for the WTO at this stage would be difficult to negotiate. Some thought should be given to using IMF, World Bank or UN country classifications, as was done for the least developed group.
The agenda for WTO reform is a challenging one that needs to be addressed if the organization is to deal successfully with major substantive issues in the future (e.g., rules for e-commerce, trade and the environment). MC12 has called on the WTO’s General Council, which oversees its work until the next MC, to develop specific reform proposals for discussion at MC13. These will provide an important sense of the potential scope and future course of WTO reform.
Mr. Elson is a former senior staff member of the IMF and the author of a number of books on economic and financial globalization, including most recently “The Global Currency Power of the US Dollar – Problems and Prospects” (2021).
The Need for WTO Reform
Mon, Jul 18, 2022
by Anthony Elson
The recent WTO Ministerial Conference MC12 that concluded on June 17 has been hailed as an important achievement of the WTO, given its agreement on a number of substantive issues that have been under discussion for some time, as listed in the MC12 Outcome Document. It also came after an unusually long lapse of nearly 5 years (instead of the normal 2) since MC11, in large part due to the onset of COVID. MC11 was notable for its lack of agreement on any Outcome Document.
The successful outcome of MC12 has shown that countries are committed to restoring the WTO to the center of the global economic governance arrangements, along with the IMF and World Bank. However, its failure to conclude any multilateral agreements on trade liberalization since its founding in 1995 have led many to question whether it can play its intended role in the management and oversight of the global trading system. In this light, three reform issues dealing with the governance of the WTO should be considered, which are discussed below.
The WTO’s dispute settlement system is a key issue for reform. This function has been severely hampered by the fact that its Appellate Body, which considers appeals of decisions taken by its trade dispute panels, has not been able to function since 2019. This failure is the result of the unwillingness of the United States to agree to the nomination of new judges to replace those whose terms have expired, leaving the body with an insufficient number of judges to hear cases. The US government, in particular under the former administration, has raised a number of concerns about certain procedural and substantive aspects of the Appellate Body’s activities (see USTR report), some of which have been shared by other members.
A major challenge the WTO faces in reaching agreement on procedural and substantive issues is the general operating principle that its decisions require unanimity on all aspects of a proposal before they can be considered final (the rule of “consensus and single undertaking”). In an organization of 164 members, this decision rule is obviously a severe limitation on its efficiency and effectiveness and explains why many agreements require extensive and time-consuming debate and why multilateral trade agreements have not been completed. (Notably, the substantive agreement on fisheries subsidies by MC12 had been under discussion for more than 20 years.)
Many observers have argued that WTO operations could be improved if it adopted the administrative structure of the IMF and World Bank with full-time Executive Boards of 24 members representing the full membership for decision-making that operate under various rules of majority voting in response to initiatives of its chief operating officer and secretariat. Such proposals have not received support among the WTO membership, mainly because they would represent a major departure from its “member-driven” character. Instead, further thought should be given to how so-called plurilateral agreements involving groups of countries representing less than the full membership of the WTO could be recognized by the WTO (without consensus), which non-participating countries could join over time.
The current practice of “special and differential treatment” (SDT) of developing countries in complying with WTO rules and procedures is another important reform issue. Under current practice, there is no agreed definition of which countries qualify for SDT, as countries are allowed to self-select their status (beyond 35 developing countries that have been classified as least-developed for WTO operations). As a result, more than two-thirds of the WTO membership has qualified itself for SDT status, including countries such as China, Korea and Singapore and half of the G20 membership. With this arrangement, the major burden of WTO membership has fallen on a relatively small share of developed countries, such as the United States, the EU, Canada and Japan, whose share of global trade has declined significantly since 2000. Ideally, objective criteria would exist for determining which countries qualify as developing. But determining those criteria for the WTO at this stage would be difficult to negotiate. Some thought should be given to using IMF, World Bank or UN country classifications, as was done for the least developed group.
The agenda for WTO reform is a challenging one that needs to be addressed if the organization is to deal successfully with major substantive issues in the future (e.g., rules for e-commerce, trade and the environment). MC12 has called on the WTO’s General Council, which oversees its work until the next MC, to develop specific reform proposals for discussion at MC13. These will provide an important sense of the potential scope and future course of WTO reform.
Mr. Elson is a former senior staff member of the IMF and the author of a number of books on economic and financial globalization, including most recently “The Global Currency Power of the US Dollar – Problems and Prospects” (2021).