hat the World Trade Organization (WTO) is beset with challenges has been evident for some time. The Doha Development Agenda (DDA) — the first round of trade negotiations, following eight successful trade rounds under the General Agreement on Tariffs and Trade (GATT) — was launched with high hopes in 2001 and a promise of completion by 2005. The DDA was the round that was supposed to finally address the development concerns voiced by the Global South and bring some wins to developed countries. But almost 20 years of persistent delay and recurrent deadlock have led the round to its unmarked grave.
More recently, US President Donald Trump’s supposedly “good, and easy to win” trade wars1 — exactly the kind of unilateral behaviour that the system of multilateral trade rules had been designed to curb — have further eroded the WTO’s credibility. The damage is worsened by the fact that these unilateral actions stem from the world’s largest economy, which had served as the guardian of the system. The transparency function of the WTO is also not in the rudest of health: members are often remiss in fulfilling notification requirements, and the monitoring function of the Trade Policy Review Mechanism is also handicapped in a variety of ways (for example, on the reporting of subsidies). The organization further finds its Dispute Settlement Mechanism (DSM) paralyzed. The DSM — once regarded as the pride and joy of the WTO — has ceased to function since December 2019, most immediately because the United States has refused to back down on its decision to block the appointment or reappointment of members of the Appellate Body.
With its three core functions — negotiation, transparency and dispute settlement — facing an unprecedented set of serious problems, the WTO is clearly in crisis. And while it is easy to blame the Trump administration for the current miseries of the organization, the problems of the WTO run deeper and predate Trump’s arrival on the scene.
Were the organization to cease to function, the costs would be high for the system as a whole. After all, the WTO has provided reliable and enforceable rules for international trade, which in turn has served as an engine for growth and development and helped lift millions out of poverty. Saving the system matters, especially if one is concerned for the well-being of not only the global poor, but also the poor in rich countries.2 However, given the high levels of dissatisfaction with the current multilateral trading system, merely resuscitating the WTO is not enough: it is in urgent need of reform and updating.
Were the organization to cease to function, the costs would be high for the system as a whole.
Some attempts at reform are under way — for instance, via the creation of a parallel DSM that countries can choose to sign on to — but these efforts are piecemeal and would at best paper over the cracks. A more ambitious and holistic “grand bargain” may be necessary, and one that turns out to be more sustainable than the one that had ensured the completion of the Uruguay Round.3 Below are three essential steps toward developing such a holistic approach to reform. Each step serves as a solution to a corresponding problem that affects the working of the WTO. Together, they could help constitute a sustainable grand bargain.
Negotiate a new deal that accommodates and encourages social welfare programs within countries. Although international trade — and the system of rules that underpins it — has helped generate growth, it is also true that inequality has risen within many countries. For those who find themselves economically worse off (in absolute or relative terms), trade is an easy scapegoat, even if the causes of their adversities lie elsewhere (for example, the absence of social welfare programs or retraining programs, or the loss of employment due to technological developments in the workplace). While a WTO that could intervene within the domestic economies of states is probably neither politically feasible nor advisable, one can conceive of a reformed WTO that could allow for, encourage and possibly even advise member states to pay greater attention to the distributive consequences of trade within their societies.
In taking on this task, the WTO could work with other organizations and fora such as the United Nations and the Group of Twenty (G20). The G20’s foray into the idea of “legitimate trade defence instruments,” along with the declaration in Hamburg in 2017 that emphasized the importance of having a fair and sustainable globalization that works for all, was a potentially important step in this direction.4 It serves as valuable context that at least some members of the WTO could pick up on to embed some social values into an updated trade deal.
Build a convincing narrative in favour of trade multilateralism. An important reason why we see such a strong backlash against trade multilateralism today lies in the fact that some politicians (from both the Left and the Right, and also the Greens) have successfully harnessed (and sometimes fanned) the disappointment and anger of those who believe that the gains from trade have passed them by, to build a persuasive anti-trade narrative. President Trump’s “America first” narrative is an example of this, and one that appeals to a large proportion of the American electorate because it claims to take their pain seriously. In contrast, many narratives about the benefits of having a rules-based multilateral trading system have been solid but largely technocratic in content. Such a technocratic focus renders these narratives vulnerable to the charge that they stem mainly from the so-called “global elite” and are disconnected from the people affected. As such, these narratives — even when grounded in data and fact — risk exacerbating prior anti-trade/anti-multilateralism sentiments and stand little chance against populist ones.5
Coming up with a perfect new deal that effectively addresses concerns of inequality and distribution (highlighted under the first step above) is unlikely to suffice on its own. Having a clear narrative that explains the value of the system for individuals will be indispensable for the sustainability of any such deal.
It is difficult to imagine business as usual at the WTO; between universal membership or expansive coverage, something will have to give.
Devise a tighter set of rules that limits the “weaponization” of interdependence.6 An underlying assumption of the postwar economic system was that prosperity and peace were inextricably interlinked, and that economic interdependence would contribute to increasing peace. Both the GATT and the WTO were founded on this assumption. But the world that we live in today presents us with a new set of challenges relating to a phenomenon that Henry Farrell and Abraham Newman call “weaponized interdependence.”7 The fact that production is integrated through global supply chains means that certain advantaged states can use their positions in crucial hubs of networks to “extract informational advantages vis-à-vis adversaries,” and they can also “cut adversaries off from network flows.” Farrell and Newman investigate the ability of the United States to control financial transactions and internet flows as cases of weaponized interdependence. But other actors are also recognizing their own potential to exercise control in other sectors, such as China’s road map (the “Made in China 2025” plan) on integrated circuits and semiconductors.8 The coronavirus pandemic has revealed the extent to which countries can exploit global value chains to their own advantage, even when dealing with life-and-death matters. Neither the GATT nor the WTO was designed to deal with such a world.
If the WTO is to function meaningfully in a context where interdependence can be weaponized, it needs to develop a tighter set of rules on issues such as subsidies, state-owned enterprises, data protection and so forth. Additionally, certain issue-areas could be cordoned off from trade liberalization, for instance, when there are direct and clear security repercussions (such as in the case of digital technology).
Limiting the reach of trade liberalization in key emerging areas may be somewhat antithetical to the norms of the WTO. It may result in some decoupling, cause disruption to existing global supply chains and reduce the size of the aggregate economic pie. But this economic pain may come with some security gain.9 And by cordoning off certain areas from the WTO, it may be possible to still have a system that is universal in membership, albeit limited in scope. The alternative would be to limit membership to countries that share the same first-order values — pluralism, free markets, liberalism, democracy — and work on the basis of plurilaterals that facilitate deep integration among like-minded allies. But, as things stand in terms of geoeconomics, it is difficult to imagine business as usual at the WTO; between universal membership or expansive coverage, something will have to give.