T

he World Trade Organization (WTO) — and the postwar order of open trade — is seemingly in crisis, largely induced by its richest and most powerful member, the United States. The WTO Appellate Body (AB) has ceased to function, having been reduced to only one member from its full strength of seven, due to US intransigence. The United States has pulled out of trade agreements such as the Trans-Pacific Partnership (TPP), is fighting an ongoing tariff war against China and other major trading partners, and has declared, through a 2019 presidential memorandum,1 that it intends to object to the way developing-country status has been accorded in the WTO. Other signs of crisis include the moribund Doha Development Round. The negotiation and decision-making process at the WTO has broken down, and the last ministerial meeting in Buenos Aires concluded without a consensus on an outcome document. Many countries are resorting to bilateral, regional and mega-regional trade agreements to pursue trade integration and thus bypass the WTO. The overall picture is one of gloom and doom about the continuation of a rules-based international order, symbolized by the WTO, governing international economic relations.

Yet the evidence is also undeniable that the South has boomed in merchandise trade facilitated by the WTO since its establishment. Even if we put aside the question of whether this boom in trade in the South has actually led to reductions in global poverty and inequality — a question on which there are divergent views — the rise of the South in merchandise trade cannot be denied. The latest available figures (from 2018) from the United Nations Conference on Trade and Development show, for example, that global exports of trade in goods between the North and the South were distributed in almost equal shares.2 Developing and transition economies were net exporters, whereas developed economies were net importers. The United Nations Development Programme notes that, as a share of world merchandise trade, South-South trade more than tripled between 1980 and 2011, while North-North trade declined.3 While these trade trends slowed or declined in 2019, partly due to the trade wars unleashed by northern countries, the evidence is obvious that, for at least three decades, coinciding with the establishment of the WTO, the South grew exponentially in trade. It must be noted how, in both merchandise trade and trade in services, the larger Asian and Latin American countries have disproportionately garnered their shares, while the smaller countries, including most African countries, have done relatively less well, thus raising the question of whether the entire South benefited from the boom in trade.

The protests against the WTO in Seattle witnessed a novel coalition of marginalized voices from the South and the North.

Despite or because of these apparent successes, the relationship between trade, the WTO and development has been extremely contentious, certainly since the launch of the Doha Round. There was simmering discontent among the countries of the South because of at least three factors: first, over the issues from the Singapore round, including on government procurement, which were sought to be included through the back door; second, the structural inequalities in WTO decision making, which marginalized small developing states; and third, the extraordinary normative demands imposed by the “iron straight jacket” of the WTO agreements, such as the Agreement on Trade-Related Aspects of Intellectual Property Rights, which did not allow for enough “policy space” or normative wiggle room to adjust to the new order demanded by the WTO. Fuel was added to this fire by the Seattle protests, which introduced an entirely new revolutionary dimension in international relations, by revealing the power of social movements to challenge and contest global normative regimes. The protests against the WTO in Seattle witnessed a novel coalition of marginalized voices from the South and the North — farmers, workers, environmentalists and others — who wanted to wrest back control from the WTO and what it symbolized: a global order of elites. The result of the Seattle protests, combined with the discontent of the southern states, led to the Doha Round being stillborn. From this start, it never recovered. The WTO’s legitimacy had been shattered, and while many rounds of talks were held — in Cancun, for example — each round witnessed a reassembling of the same forces: discontent from the southern states, along with protests from those marginalized outside of the WTO meeting venues.

A new round of discontent and opposition to the Doha Round and, by extension, to the broader question of how development objectives and the WTO will coexist, comes from the United States, which is pursuing multiple strategies. These include tariff wars with China and others in order to rebalance trade; renegotiating or renouncing treaties, such as the North American Free Trade Agreement and the TPP; grinding the WTO AB to a halt; and questioning the status of many countries that claim developing-country status. As the United States explains in its 2019 presidential memorandum,4 seven out of the 10 wealthiest economies in the world (measured in terms of purchasing-power parity), such as Qatar and Singapore, or the countries that belong to the Group of Twenty or the Organisation for Economic Co-operation and Development (OECD), such as South Korea, claim developing-country status. The United States takes central aim in this memo at China, which it has never accepted as a developing country, given China’s economic size, dominance in trade and so forth. The memorandum threatens to take action against any country that claims this status unfairly, including by opposing its status in the WTO as it applies to trade with the United States and even membership in the OECD.

What the above account illustrates is the following: the rise of the South in trade has led to backlash at two levels. First, the backlash has come from within the South itself, from those who have been losers in the move toward trade liberalization and market integration (the fisher folk, farmers, small and medium producers, and so forth). They have seen their incomes plummet and their livelihoods destroyed at a rapid clip and have found themselves unable to cope with the pace of change. These countries have reacted by organizing and protesting against the WTO and other global rules such as the failed Multilateral Agreement on Investment. A second level of backlash against the rise of the South has come from within wealthy countries in the West, from the labouring and commercial classes, who have lost out due to outsourcing, changes in supply chains, and competition due to imports from countries with more competitive “factors of production,” especially labour. The key country here has been China, although competition has come from many other countries, including Mexico, South Korea and others. But the backlash against the competitive pressures of goods and services from the South, as well as restructuring and deindustrializing countries in the North, has come from the labouring and commercial classes, which has, in turn, fuelled the rise of populism in politics and opposition to rules-based trade and free trade, illustrated most clearly in the attitudes and actions of the Trump administration. 

How do we resolve these multiple sources of discontent? Is there a future for an international economic order that is rules-based and anchored in the WTO? Will development and trade objectives ever be reconciled at the WTO? Is it possible to reform the WTO to overcome these enormous barriers?

“To be, or not to be,” in the immortal words of Shakespeare’s Hamlet, is an apt expression in thinking about this dilemma.

I would suggest that we face a dilemma: the sheer breadth and width of the rules-based system of trade, epitomized by the WTO, produces failure and backlash at domestic as well as international levels. The current WTO crisis is a fallout of that dilemma. “To be, or not to be,”5 in the immortal words of Shakespeare’s Hamlet, is an apt expression in thinking about this dilemma. Countries must choose whether to insist on maintaining an extremely ambitious, risky and lopsided, rules-based system such as the WTO’s and risk backlash at two levels, or to revert to a less ambitious rules-based system that may not maximize the economic gains from international economic relations in the conventional sense but may reduce backlash, provided further changes are made to redistribute gains from trade more fairly. The key issue is this: increasing trade relations, as with all economic changes, produces winners and losers, and neither the rules governing trade nor other rules of international law have, thus far, been successful in figuring out how to fairly distribute the gains and protect the losers.

At a minimum, the WTO and its members need to consider a number of changes if they want a rules-based system to survive. First, while dispute resolution is very important and a way must be found out of the current imbroglio, as a coalition of countries has proposed to do, the WTO must transition to being more of a negotiating forum, closer to the General Agreement on Tariffs and Trade structure. The excessive costs and burdens associated with the dispute resolution forum and the sense that without it, the WTO is close to collapse, must be avoided. While dispute resolution must be optional, the WTO must focus more on trade facilitation and negotiation.

Second, all countries that claim developing-country status must be subjected to a sunset clause, as all wealthy countries with a developed-country status must be subjected to a sunset clause for all of their subsidies to agriculture, industry or services. Both of these sunset clauses must be conjoined: progress on one should depend on the other. 

Third, all countries must be mandated to report trade impact assessments that measure gender, human rights and environmental/climate change impacts of trade as well as mitigation plans annually, to develop a better database for measuring the distributive consequences of trade measures.

Fourth, incentives must be developed, linked with the United Nations and global financial system, and linked to the United Nations Sustainable Development Goals, to help countries that require assistance in dealing with the negative consequences revealed by trade impact assessments.

Fifth, countries that have had a negative trade balance as well as a negative balance of payments during the last three years, must be allowed a “transitional period” during which they can opt out of specific WTO treaty commitments, except the core commitments of most-favoured-nation status and so forth. This may provide some policy space and flexibility to all countries, whether they are self-classed as developing or developed. Thus, whether the country is Greece or Ghana, there must be some flexibility.

Sixth, and finally, least-developed countries, or countries that are in the bottom half of poverty measurements such as the multi-dimensional poverty index, must be allowed sunset clauses that are much longer and that are specifically linked to trade facilitation assistance. 

While none of the above changes are adequate by themselves to bring about a harmonious coexistence of development and trade at the WTO or make the Doha Round successful, it is also obvious that the international community went too far during the Uruguay Round in imagining the WTO and did not anticipate properly either the intended or unintended consequences of “success.” Indeed, the WTO case is one of “failure through success,” as I have suggested here: the WTO’s problems are partly the result of its own success, and to survive, it must reject part of its own legacy.

1 White House, Presidential Memorandum, “Memorandum on Reforming Developing-Country Status in the World Trade Organization” (26 July 2019).

2 United Nations Conference on Trade and Development, “Statistics”, online: <https://unctad.org/en/Pages/statistics.aspx>.

3 United Nations Development Programme, “The rise of the South”, online: <http://hdr.undp.org/en/content/rise-south>.

4 White House, supra note 1.

5William Shakespeare, Hamlet, 3.1.55.

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.
  • Balakrishnan Rajagopal is professor of law and development and head of the International Development Group in the Department of Urban Studies and Planning at the Massachusetts Institute of Technology (MIT). He is also the founding director of the Program on Human Rights and Justice and the founder of the Displacement Research and Action Network at MIT.

Development and Trade

To Be, or Not to Be? The WTO, Trade and Development in 2020