The Wto at a Crossroads
| Publication year | 2019 |
| Author | Fangfei Dong* |
Fangfei Dong*
Brian Peck**
Since World War II, the multilateral trading system established through the 1947 General Agreement on Trade and Tariffs (GATT) and then later through the World Trade Organization (WTO) has contributed to international stability, economic development, and peace. The goal in establishing the WTO was to boost global prosperity by reducing tariffs and other barriers to trade, and by providing an enforceable rule-based multilateral trading system. However, the changing patterns of trade, technology, and innovation all challenge the current WTO system in various respects including the consensus-based negotiation process for new WTO agreements, trade dispute settlement, and the current rules governing international trade. At the 2018 G20 Summit in Buenos Aires, countries expressed their concerns that reviving global economic growth is becoming more difficult due to the rise of trade protectionism.
This article explores the challenges that face the multilateral trading system, reform proposals, and the future of the WTO. Owing to the dynamism and even controversy of the subject, it should be noted that proposals and actions to reform and modernize WTO rules and the institution itself are fluid and ongoing. This article provides a summary of the underlying issues and challenges that the WTO multilateral trading system faces, and introduces the initial proposals and efforts to reform and modernize the WTO. It is very likely that there will be additional proposals and developments over the coming months leading up to the next WTO Ministerial Meeting in 2020.
The year 2018 was a rough year for the multilateral trading system. The United States unilaterally imposed global tariffs on steel, aluminum, solar panels, and washing machines, as well as tariffs on $250 billion worth of Chinese imports, which sparked retaliatory tariffs against U.S. exports from other WTO members and a trade war between the United States and China. In addition, the United States has blocked the appointments of WTO Appellate Body1 judges, adding further strain to the already overburdened WTO dispute settlement system. Whether the unilateral use of these trade measures by the United States is legitimate and/or legal is still questionable under the current global trade rules. In addition to the United States, other countries are also engaging in trade-distorting actions that threaten the multilateral trading system, such as China's subsidies and other support of its state-owned enterprises.
The current protectionist trend and trade wars noted above are only one aspect of the current challenges the WTO faces. There are also long-standing unreconciled differences in terms of priorities between developing countries and developed countries as demonstrated by the failure of the Doha Round.2
WTO members have become alarmed over the increasing symptoms of ineffectiveness and inefficiency of the world trading system together with the growing trend of protectionist measures and events such as the trade war between the United States and China. The current scenario has led to an increasing number of WTO members wondering whether the WTO and the multilateral trading system can still be an effective tool for resolving trade disputes and providing the certainty of the rule of law and a level playing field for its members. Members now realize that addressing how to sustain the WTO's authority in the global trading system and to strengthen its mission to provide assurance and stability to global trade has become an urgent task.
In short, the WTO is at a critical crossroads and needs to undertake serious and difficult reforms to maintain its relevance, and to be more effective in addressing long-standing concerns such as non-tariff barriers (NTBs) and new issues such as digital trade and state-run industrial policies. This article will start with an overview of the challenges to the global trading system from three major perspectives: concerns about the current state of the dispute settlement process, developing country issues, and the need to modernize current trade rules. This overview will be followed by a review of WTO reform proposals from the European Union (EU) and Canada with a final section that will look at how to ensure the future of the WTO.
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The WTO dispute settlement system, under the auspices of the Dispute Settlement Body (DSB), is known as the "crown jewel" of the WTO because of its enforceability of WTO obligations upon Member States through its binding dispute resolution system. As Ujal Singh Bhatia, the Chairman of the Appellate Body, stated in his 2016 Appellate Body Annual Report address:
The foundation of the dispute system is the shared commitment of all stakeholders to the belief that a rules-based multilateral trading system is a global public good that can be sustained only by a predictable, fair and prompt resolution of disputes.3
Others have noted that, "serving as a crucial component to the WTO's operation, the DSB attempts to promote stability within the international trading system. When a member abrogates its WTO obligation, the DSB provides a dispute settlement process for aggrieved parties to seek remedy."4 Since its establishment in 1995, the DSB has, for the most part, maintained the integrity, stability, and effectiveness of the multilateral trading system by resolving trade disputes under the rule of law and, in doing so, either expanding market access or ensuring equal treatment.
However, the WTO disputes settlement system is now facing the biggest crisis since its establishment, challenging its credibility and effectiveness and causing some WTO member states to lose confidence in the current system. This existential crisis for the DSB is due to the following major factors: (1) an overloading of the system with an increasing number of cases that are more complex in nature, and (2) concerns over the DSB rules governing the dispute panels and Appellate Body. In short, "the number of active disputes increased significantly compared with 2016, extending the trend of recent years."5, 6
The significant increase in both the number and complexity of trade disputes brought before the DSB has made it very difficult for the DSB to resolve trade disputes in line with the WTO Dispute Settlement Understanding Agreement (DSU) rules and deadline requirements (12 months from the establishment of a dispute panel). The 2018 WTO Annual Report noted that Appellate Body Chair Ujal Singh Bhatia alerted WTO members in June 2017 "that the Appellate Body faces challenges as it deals with increasing demand for its services and increasingly complex disputes."7 Over the last few years, newer and more complex issues brought before the DSB include: environmental protection, renewable energy subsidies, patent protection, non-market economies, and the conflict between multilateral trade rules and regional trade agreements (RTAs).
These problems have been exacerbated by the Trump administration's blocking of the appointment and reappointment of Appellate Body judges since 2017.8 As of March 2019, there are only three Appellate Body judges and that is the minimum number required to establish an Appellate Body panel to review cases. Delays in concluding dispute settlement cases, which have already become a norm and have harmed the value of the WTO dispute settlement system, will only worsen with the lack of Appellate Body judges. There are normally seven judges on the Appellate Body, but if no new judges are appointed by December 2019, the Appellate Body will have only two judges and therefore will not be able, under DSU rules, to review dispute panel decisions.9
The Trump administration has been blocking the appointment of Appellate Body judges because it believes that the WTO dispute settlement process, and in particular the Appellate Body, must be reformed to address U.S. concerns. The President's Trade Agenda released in March 2018 outlined the major concerns of the United States regarding the WTO dispute settlement process. According to this report, "the most significant area of concern has been panels and the Appellate Body adding to or diminishing rights and obligations under the WTO Agreement."10 Specifically, the United States—at the December 2018 meeting of the DSB, stated that the problems of the dispute settlement system include the following issues:
[T]he Appellate Body's decision to ignore the mandatory 90-day deadline for deciding appeals set out in WTO rules; continued service deciding appeals by persons who are not Appellate Body members; issuing advisory opinions on issues not necessary to resolve a dispute; Appellate Body review of facts and review of a Member's domestic law de novo without basis in the DSU; the Appellate Body has asserted [that] its reports effectively serve as precedent and that panels are to follow prior Appellate Body reports absent 'cogent reasons.'11
The delays in the dispute settlement process highlight another challenge to both the DSB and the WTO itself—the difficulties that developing countries face in being able to effectively utilize the WTO dispute settlement process. "When delays in WTO dispute resolution become the norm, they cast doubt on the value of the WTO's rules-oriented system itself. An erosion of trust in this system can lead to the re-emergence of power orientation in international trade policy."12 Moreover:
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Failure to resolve this crisis thus runs the risk of returning the world trading system to a power-based free-for-all, allowing big players to act unilaterally and use retaliation to get their way. In such an environment, less powerful players would lose interest in negotiating new rules on trade.13
This is particularly true for developing countries. "Besides a more active participation of developing countries, there is an emerging consensus among...
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