O

n the twentieth anniversary of the World Trade Organization (WTO) in 2015, the outlook was sanguine as negotiators, trade practitioners and academics around the world reflected on the success of the Uruguay Round and the WTO’s achievements and contemplated its future at celebratory international conferences. Discussion tentatively turned to a possible future reform agenda but with little sense of urgency. Reform was seen more as potential embellishment rather than necessity.

With the adoption of the United Nations Sustainable Development Goals in 2015 and the Paris Agreement on climate change that same year, the world seemed to bask in a warm and inspiring glow of global solidarity. It seemed that the international community was recognizing that assuring our future prosperity depended not only on liberalizing trade but also on achieving environmental sustainability, social and economic equality, political stability and access to justice. But this cooperative spirit proved short-lived and long-simmering dissatisfactions with trade resurfaced, followed by convulsive reversals and a surprising return to protectionism.

In 2016, the United Kingdom voted to leave the European Union, and Donald Trump won the presidency of the United States on a campaign of “America first” in an election in which neither Republican nor Democratic party leaders supported free trade. Despite the evident and widely distributed gains from global trade,1 populism was fuelling political upheaval and bringing to the fore growing discontent about impacts of trade that had been festering for many years: the hollowing out and decay of once great industrial cities and the individual loss of well-paid and steady factory work. The US administration channelled the popular discontent into nationalist foreign policy, distrust of the rules-based international order, disregard of international ties and commitments, and resort to security exceptions, tariffs and trade wars. The global trading system has been battered by this approach, with growth slowing in 2019 to three percent, according to the International Monetary Fund. And while nations cooperated to resolve the 2008 financial crisis, that urge to work together to solve global issues has been subdued.2

Today, the WTO is experiencing a crisis of legitimacy — its Appellate Body (AB) effectively shut down by the United States blocking consensus on new appointments — and hegemonic trade wars seem to have replaced the steady pace of diplomacy and reasoned argumentation. The WTO finds itself struggling to respond effectively to the challenges of rapid economic, political, social, technological and environmental change, seemingly lacking the infrastructural resilience needed to weather today’s geopolitical storms.

Today, the WTO is experiencing a crisis of legitimacy.

The global trading system, which only a few years ago was being lauded as the model of effective multilateralism, now seems locked in an out-of-date governance paradigm, in need of a new program of work with which to start to break impasses and address the urgent and encompassing challenges of the twenty-first century. Part of the WTO’s challenge is figuring out just how to start such a reform initiative when there are such strongly opposing factions to be drawn into consensus.

This essay series grows from earlier work done by CIGI on the WTO: a consultation on the Canadian government’s Ottawa Group initiative on WTO reform3 and two essay series on reshaping trade through women’s economic empowerment4 and mainstreaming gender in trade agreements.5 Launched as the AB was about to become non-functioning in December 2019, this series casts its net more broadly than the dispute settlement issues while acknowledging that the WTO’s challenges are all deeply interconnected. The essays explore the potential for more comprehensive WTO reform to imagine a new program of work and a way to embark upon that work, and thereby to help invigorate discussions for the next Ministerial Council meeting.

The growing trade tension has sparked important conversations at the WTO and in nations’ capitals about potential WTO reform. Both the European Union6 and Canada with the Ottawa Group7 (comprised of Australia, Brazil, Canada, Chile, the European Union, Japan, Kenya, South Korea, Mexico, New Zealand, Norway, Singapore and Switzerland, and notably not including China, India and the United States) have put forward ideas for WTO reform, as have others. Canada’s discussion paper focused on improving the monitoring of existing rules, safeguarding and strengthening the dispute settlement function, and modernizing trade rules for the twenty-first century.

This series looks at the issue of reform and modernization from a variety of angles. While some contributors focus on how to keep the lights on in dark times, others offer ideas on how to restart productive negotiations, how to reform and restore the rules-based dispute settlement system (DSS), how to make trade more inclusive, whether to narrow the WTO’s focus to trade basics to leave more flexibility to nations for their own development, and how to update and reshape the WTO to deal with today’s interconnected global challenges.

Dispute Settlement

On the DSS, Bernard Hoekman and Petros Mavroidis observe that even with there no longer being a multilateral forum to hear new appeals due to the United States blocking new appointments to the AB, WTO members continue to express confidence in the DSS because dispute panels continue to be established. The authors note, however, that the United States is not alone in having concerns about the adjudicative function of the WTO, and while it may be the WTO’s “crown jewel,” the failure of the membership collectively to address its imperfections in a timely manner through the Dispute Settlement Understanding (DSU) review has allowed that “jewel to crack.”

Thomas Cottier observes that since its inception in 1995, the WTO DSS has established itself as a prime instrument of international law conflict management. Unfortunately, it worked so well that members overused it, instead of resolving issues through international negotiations. He considers how to recalibrate the WTO DSS by focusing on the relationship between first instance panels and the AB, proposing a more deferential standard of review while allowing the AB to lead on fundamental issues.

Giorgio Sacerdoti provides an international law perspective on the important innovation of the 1995 DSU in providing for compulsory, exclusive, law-based and binding dispute settlement and appellate review. Noting that recourse to the DSS quickly became systematic and massive, with appeals occurring in two-thirds of panel decisions, he suggests institutional reform is needed, but urges restraint so as not to damage the fundamental benefits of the adjudicative system.

Valerie Hughes examines managerial and alternative approaches to cope with the absence of a functioning AB. Use of DSU article 25 as an interim appeal arbitration procedure for future disputes, as long as the AB has insufficient members to hear appeals, was agreed between the European Union and Canada in the summer of 2019, then between Norway and the European Union in the fall of that year. Fourteen additional members agreed8 to such arrangements in January 2020. She notes the AB’s closure has made DSU modernization so urgent that it might finally push the membership to the needed consensus for change. Another approach may be resort to dispute settlement mechanisms under free trade agreements (FTAs), some of which may allow for more nuanced reconciliation of trade and sustainable development obligations.

Inclusive Trade

There are growing concerns that while international trade benefits multinational corporations, it tends to leave many behind, as it is much less accessible for micro, small and medium enterprises and businesses led by women and Indigenous peoples. The December 2017 Buenos Aires Joint Declaration on Trade and Women’s Economic Empowerment launched a process of reflection, research and action by WTO members to find ways to measure the gender impact of trade, understand and remove barriers that prevent women from participating in trade, and implement positive measures that foster women’s inclusion in trade and economic empowerment.

Penelope Naas and Laura Lane focus on women’s rights to entrepreneurship, rights to ownership (assets) and freedom of movement (mobility), and make recommendations for how the WTO could integrate gender issues into many of its functions. This year marks more than two years of engagement and activity in furtherance of the Buenos Aires Declaration and one year since the Canada-Chile FTA with its gender chapter came into force. Considerable progress has been made, but much more needs to be done at the national and international level to facilitate women’s successful participation in trade.

Judy Whiteduck and Risa Schwartz discuss the importance of finding ways to include Indigenous peoples in international trade through specific Indigenous chapters in trade agreements, carve outs for procurement from Indigenous-led businesses and explicit protections for traditional knowledge, and including Indigenous perspectives on issues of sustainable development to inform trade and investment policy. The authors propose that like-minded states such as Canada, Chile and New Zealand launch a joint declaration for trade and Indigenous peoples to reaffirm the United Nations Declaration on the Rights of Indigenous Peoples and the 2030 Agenda for Sustainable Development goal of eradicating poverty, including through inclusive and sustainable trade.

Trade’s Intersections

In this increasingly interconnected world, one of the key questions is how WTO modernization should deal with the intersection of trade and other issues, such as labour, the environment, climate change and intellectual property (IP).

Jim Stanford expresses skepticism that side agreements and appendices on labour standards in trade deals amount to anything more than token efforts to put a human face on trade deals that almost inevitably result in job displacement for some workers. He suggests that the WTO needs to have genuine solutions to the legitimate fears of workers that their livelihoods will be undermined by trade liberalization. He argues that current crises such as social divisions, mass migration and environmental catastrophe cannot be addressed by keeping government on the sidelines of the economy, and proposes well-managed, mutual and balanced trade as part of a broader commitment to inclusive, sustainable economic and social development.

On climate change, the existential issue of our time, Aaron Cosbey and Andrei Marcu consider whether emissions trading schemes, carbon markets and internationally transferred mitigation outcomes under article 6 of the Paris Agreement are more likely to succeed within or outside of WTO disciplines. The authors note that, currently, the services involved in trading emissions allowances may be covered under WTO law on trade in services, but the actual trade in emissions allowances is not. They ask whether the benefits of WTO protections such as non- discrimination are worth the risks of having rules impede the functioning of measures designed to advance climate objectives.

Chin Leng Lim and Spyros Maniatis consider those “complicated creatures” — intellectual property rights (IPRs) — as exclusionary and anti-competitive, covering assets that are ethereal and dynamic, and impacting on health, human rights and the environment. The authors note IPRs’ unusual fit in the WTO system and ask whether the WTO should reinvent itself as a forum to influence businesses to address their impact on human rights and the environment. They wonder how artificial intelligence (AI) will influence the way we perceive IP and apply IPRs.

Digital Trade

Dan Ciuriak argues that the digital transformation and the data-driven economy will call into question numerous aspects of the WTO rules-based system. He suggests that “the current trade and technology war between the United States and China” means there is little chance of success for a new full-fledged digital round of multilateral negotiations. While technical regulation in many areas, such as privacy, IP and competition policy, will be developed in parallel processes, these will need to interface with trade, and this will necessitate a complete review and update of WTO rules and governance innovation to find “solution space.”

Mira Burri discusses some of the challenges in classifying digital services, where the flows of data are not necessarily linked to one particular service or good but involve multiple back-and-forth data flows, and how rules for the data economy can be multilateralized. With cross-border data flows now generating more economic value than traditional flows of traded goods, many complex questions arise related to control of data, protection of privacy, national security, jurisdiction and sovereignty. She suggests WTO law is not fit for purpose for governing digital trade because of the classification issues and members’ tailored commitments, so countries are developing regulatory solutions through preferential trade agreements. She argues that the WTO could play an important role in optimizing the regulatory conditions for the data-driven economy by bringing greater coherence to these developments.

Development and Trade

Henry Gao writes that when China joined the WTO in 2001, it was anticipated that accession would help transform China from communism to capitalism, with more freedom to the people in both economic and political spheres. China made substantial commitments and was rewarded with exponential economic and trade growth, but its economic system presents challenges for the world trading system. He urges a China-neutral approach to WTO modernization while nonetheless addressing China-specific issues such as firm structure and public ownership and control.

Balakrishnan Rajagopal connects the ongoing crisis of the AB to the overall existential problems of the WTO as a whole, arguing that the WTO’s problems are partly the result of its own success. He suggests that to survive, it will need to reject some of that legacy. The success of the Uruguay Round has led to backlash from within the South from those who have become losers in the move toward trade liberalization and market integration, and a second level of backlash against the rise of the South from the labouring and commercial classes in the developed world, who have lost out due to outsourcing of jobs. He suggests these issues may need to be addressed by reverting to a less ambitious rules-based system.

Negotiating Strategies

With respect to negotiating considerations and strategies, Debra Steger explores how to update the architecture of rules-based trade cooperation and the WTO’s institutional mechanisms. She suggests that the “key tenets of WTO culture” (member-driven, negotiations within rounds, single undertaking of multilateral negotiations and consensus decision making) lead to dysfunctions that must be fixed for the WTO to modernize.

Chios Carmody describes important characteristics of the Agreement Establishing the World Trade Organization that promote interdependence and international trade: the flexibilities it offers to member countries in shaping their trade relations, legality and compliance in WTO law being relative phenomena, and the alternating contractual and constitutive aspects of the agreement. Suggesting that the success of WTO dispute settlement should be assessed against persistent non-compliance in other areas, he argues the WTO’s enduring strength is as a forum of compromise, where consensus results may sometimes be suboptimal but continue to promote interdependence.

Amrita Narlikar points out that new technologies, different economic models and environmental challenges all present opportunities for divergent approaches to trade and are making it difficult to find consensus solutions at the WTO. She suggests that trade negotiators will need to determine whether it is best to cordon off certain areas from the WTO, in order to still have a trading system that is universal in membership, even if limited in scope, or work on a plurilateral basis with countries that share similar values and achieve deep, but exclusionary, integration among those like-minded allies. These are hard choices and, clearly, it will not be business as usual for the WTO in the future.

Conclusion

Rohinton P. Medhora concludes the essay series with a discussion of reasons for both optimism and pessimism in the face of rapid change and geopolitical competition. Noting the proliferation of issues that intersect with trade in complex ways, he wonders whether the WTO may have already served its central purpose of laying a strong foundation for global trade. He suggests other fora may exist (for example, the Group of Twenty) or may develop that are better suited to launch exploratory discussions about how to break deadlocks and develop a new program of work for the WTO.

The WTO finds itself at a critical point where its legitimacy and authority are eroding and there is an urgent need for restoration. This essay series makes clear there is no shortage of enthusiasm, expertise and excellent ideas to reinvigorate negotiations over trade and revise and modernize the rules-based architecture of the global trading system.

1 World Bank, “World Bank, IMF, and WTO Stand Together for Global Trade” (19 October 2016).

2 Andrea Shalal & Heather Timmons, “Fallout from Trump’s trade wars felt by economies around the world”, Reuters (19 October 2019).

3 “CIGI Expert Consultation on WTO Reform” CIGI, Special Report, 12 September 2019.

4 “Reshaping Trade through Women’s Economic Empowerment” CIGI, Special Report, 15 June 2018.

5 “Mainstreaming Gender in Trade Agreements” CIGI, Essay Series, 8 October 2019.

6 European Commission, “WTO modernisation: Introduction to future EU proposals” (September 2018).

7 Global Affairs Canada, “Ottawa Group and WTO reform” (23 May 2019).

8 EC, Commission, “Statement by Ministers, Davos, Switzerland, 24 January 2020”, online: <https://trade.ec.europa.eu/doclib/docs/2020/january/tradoc_158596.pdf>.

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.
  • Oonagh E. Fitzgerald was director of international law at CIGI from April 2014 to February 2020.
    In this role, she established and oversaw CIGI’s international law research agenda, which included policy-relevant research on issues of international economic law, environmental law, IP law and innovation, and Indigenous law.

Introduction

Modernizing the World Trade Organization