C

urrent events in the World Trade Organization (WTO) make the organization and its treaty, the Agreement Establishing the World Trade Organization (WTO Agreement),1 look hobbled and close to collapse. Three points need to be kept in mind regarding WTO reform and modernization.

First, the WTO Agreement offers a number of flexibilities for WTO member countries to exercise in shaping their trade relations. At a time of doubt about the value of interdependence, more vigorous assertion of rights under WTO law is to be expected. Second, legality and compliance in WTO law are relative phenomena. The WTO Agreement mandates compliance with the treaty, but not “compliance at any cost.” Third, alternate contractual and constitutive visions of the WTO Agreement are discernible. After the constitutionalism of the treaty’s founding phase, we may be moving toward a more “contractualist” era as the treaty matures. All of these points suggest the WTO Agreement may wax and wane — and possibly wax again. Patience and a long-term perspective on the treaty’s future are required.

It is worthwhile examining each of these points in greater depth in order to assess how they might contribute to WTO reform and modernization.

The WTO Agreement was founded in 1995 on a belief in the value of interdependence and international trade. Twenty-five years on, much of this original motivation is forgotten — or may simply be taken for granted. The conception of the value of interdependence has changed. A number of central disciplines of the WTO Agreement — notably those on non-discriminatory application of tariffs — are being flouted. Defences to action under the national security provisions are suddenly popular. There is increased use of trade-restrictive measures such as anti-dumping, countervailing and safeguards. In a few instances, there has also been a return to “managed trade.” Finally, an impasse has arisen over the role of the WTO Appellate Body (AB), which, as of late 2019, has suspended operation because the United States refused to appoint new members due to perceptions of judicial activism.

All of this presents a complex and contested picture of the “balance” of rights and obligations under the treaty. A new equilibrium — a “great rebalancing” — appears to be occurring, and along with it, there is a new-found sense of the value of WTO rights. Some actions could be taken to counter this trend, such as more intensive and regular review of trade protection measures by WTO committees, deeper plurilateral arrangements, and public and private leaders’ statements supportive of a rules-based trading system. However, to some degree, the existing state of affairs may have to be accepted for what it is: an emblem of loss of faith in the value of interdependence.

A second — and related — point to keep in mind regarding efforts at WTO reform and modernization concerns compliance with WTO rules. The much-vaunted WTO dispute settlement system’s record of adjudicating complaints about breaches of those rules must be measured against countries’ ambivalence toward compliance.

However, to some degree, the existing state of affairs may have to be accepted for what it is: an emblem of loss of faith in the value of interdependence.

There are many indications that legality and compliance are relative concepts in the WTO Agreement. The WTO Dispute Settlement Understanding2 leaves open the possibility of temporary non‐compliance. In addition, a number of settlements of disputes in the system have been plainly non‐compliant. For instance, a number of aspects of the settlement reached between Canada and the United States to end the softwood lumber dispute of 2001–2006 (“Lumber IV”) plainly contravene the WTO Agreement. Moreover, the passive nature of the dispute settlement system, in which only the issues complained about are dealt with, means that the question of compliance in the treaty is addressed unevenly and on an ad hoc basis. All of these factors suggest that while compliance remains important, it is tacitly understood that compliance in WTO law does not mean compliance “at any cost.” At best, compliance is supplementary to the law’s chief function of promoting interdependence.

This realization can help to temper the oft-repeated view of WTO dispute settlement as phenomenally successful. It is successful, but the dispute settlement system’s record must be assessed against persistent non-compliance in many areas. This is evident, for instance, with respect to regional trade arrangements and subsidization — areas that the existing system has not dealt with satisfactorily and that have become flashpoints in recent trade discussions.

This set of observations is also a useful corrective to the view that WTO dispute settlement — the WTO’s crown jewel — is now irretrievably tarnished by suspension of the AB’s work. The WTO Agreement is a rules-based system, but only as long as member countries want the system to be governed by rules. In an age of rebalancing and vigorous assertion of rights, some governments appear to remain conflicted about the value of legality.

A third and final point in efforts at WTO reform and modernization is the reality of conflict and coherence. Beneath the images of both contract and constitution in the WTO Agreement are contradictory (yet complementary) visions of unilateralism and multilateralism. In light of this, the recent reports inferring that the WTO system is in imminent danger of collapse seem to be taking a glass-half-empty approach.

What is apparent now is the way things have always been, if perhaps a little more evidently. To consider the WTO Agreement to be a neat, harmonious arrangement at all times is wishful thinking. Instead, it is the treaty’s ability to tolerate stress — if not outright contradiction — that is most remarkable. This was, in fact, the record of the General Agreement on Tariffs and Trade, which, during its existence from 1948 to 1994, experienced intervals of latency and activity, stagnation and renewal.

To consider the WTO Agreement to be a neat, harmonious arrangement at all times is wishful thinking.

What does all of this portend for WTO reform? First, the idea of balance in the WTO Agreement suggests that countries do not take their WTO commitments completely seriously. In many areas of coverage, there is an aspirational quality to the WTO Agreement that is only partly fulfilled. If countries do not regard WTO arrangements as an expression of perfection, then why should negotiators? In thinking about paths for WTO reform, the best that may be attainable is some consistency, not total consistency. Countries will continue to assert rights occasionally and in a manner that is at odds with their WTO commitments. This is a given.

A second thought to keep in mind is that law plays a supplementary role in the WTO. Despite the desire to live by rules, legality is not pre-eminent in the treaty environment. The WTO remains very much a “member-driven” organization. The open-endedness of the WTO dispute settlement system is an indicator of this fact. Its bare requirement of “compliance” reveals how much goes on in the shadow of the law that is not, strictly speaking, fully compliant. Countries can be expected to adhere to certain WTO rules, but not others.

Third, the treaty is not purely constitutive and absolute nor purely contractual and independent. It achieves something of a middle ground between these two extremes in being interdependent. The most important consequence of interdependence is that member countries calibrate their behaviour to the extent that other countries are prepared to do the same. In all of this, there is an astute appraisal of reciprocal behaviour. For instance, it is hard to avoid the impression that WTO member countries have recently taken record numbers of safeguard actions because the United States — long the undisputed leader in WTO arrangements — has liberally done so, too.

Above all, it is important to keep in mind that, despite the current mood and sense of crisis, no one is suggesting that the WTO Agreement be dismantled. It provides a valuable forum where consensus can be hammered out, even if the results are not always economically or politically optimal.

This set of realizations can help to systematize understanding in a challenging environment.

1 Agreement Establishing the World Trade Organization (1994), 1867 UNTS 154, 33 ILM 1144.

2 WTO, “Understanding on rules and procedures governing the settlement of disputes”, online: <www.wto.org/english/tratop_e/dispu_e/dsu_e.htm>.

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.
  • Chios Carmody is associate professor and Canadian national director of the Canada-United States Law Institute in the Faculty of Law at Western University. He is also a CIGI senior fellow. Chios teaches international law, international trade law and contracts. His recent work involves developing a theory of WTO law as a general theory of law. He has also recently completed a guide to emissions trading under the Western Climate Initiative.