Formulating New Approaches to Strenghten Multilateral Trading System

The webinar tried to answer questions such as: 

Will the WTO be able to negotiate new rules and tackle pressing issues amidst the changing global balance of power? Can negotiations be revived amidst disagreements on fundamental issues such as flexibilities for developing countries and the basic negotiating architecture and disciplines? Can the WTO’s monitoring and deliberative function be revived and strengthened? Is the WTO capable of addressing pressing issues of sustainable development and the global commons? Can confidence and trust be revived in the multilateral trading system and if so, how? Issues such as the role of the state and the industrial policy (state capitalism and the nation first policy), interplay of the WTO with the global commons, interplay between the multilateral and plurilateral approaches, the dispute settlement system and its paralysis, the concept of Special and Differential Treatment (S&DT) and self-defining issues and digitisation (data privacy and Data localisation) were also discussed.

Key Takeaways:

• The WTO was developed as a remedy and learning from the lessons of the second World War. The multilateral trading system was designed to foster peace and economic prosperity in the global markets by trading partners. However today it suffers from an existential crisis with many of its functions becoming ineffective. There is a need to encourage cooperation and to bring the WTO out of its current existential crisis for the benefit of the entire international community.
• There is a lack of consensus at every stage of the WTO, resulting in inefficiencies. Therefore, there is a need to begin exploring new forms of negotiations within the WTO framework. While plurilateral agreements seem to be the probable solution, these must be kept “open” and “inclusive” and must allow the non-participating member nations to benefit from the agreements. To ensure the multilateral paradigm, such agreements should be integrated inside of the WTO framework while keeping in mind necessary incentives to prevent free-riding.
• Some probable reform areas can be addressing weaknesses in the agreement on subsidies and countervailing measures, dispute settlement crisis which is linked with the WTOs negotiation function, upcoming areas like digital trade and e-commerce which will only grow in importance in the future and the S&DT issue in regard to the non-existing definition coupled with the self-defining developing country status.
• As of today, the WTOs ability to deliver on its key functions and the expectations that come with its fundamental principles have been questioned. Many factors and developments over the past decade plus have led to this crisis which  raise questions about the relevance and effectiveness of the WTO. Some instances are:

1. the growing importance of beyond the border measures and domestic regulations in trade flows
2. the emergence of global businesses which have made countries increasingly interdependent through value chains and trade-investment linkages
3. emerging issues such as e-commerce and digital trade,alongside the lack of progress on long standing issues from the Doha Development Round, and differences among developed and developing countries and formation of new geopolitical alliances and plurilateral groupings
4. the huge nail in the coffin, if not the last one, has been the paralysis of the WTO’s dispute settlement system, “the jewel in the crown of the multilateral trading system” and where there is no immediate solution in sight.

• Covid-19 has further compounded these challenges by disrupting global trade and the geo-economic equilibrium. We are witnessing a rise in protectionism, increased reliance on subsidies to revive economies in the aftermath of Covid and growing calls for localisation and self-reliance to mitigate the effects of global shocks.
• With all these challenges coming on the back of a failed Doha Round and repeatedly missed deadlines, the future of the WTO is under threat.  It is increasingly being recognised that the existing and emerging issues in international trade in the 21st century require rules and regulations and a governance framework which reflect these changing realities.
• Assumptions regarding the role of the state and industrial policy are central to the functioning of the WTO. These have been challenged mainly on two fronts. Firstly, the state capitalism model which is majorly observed in the case of China and the surfacing of the nation first policy as seen in the case of US, China, India, among others. Furthermore, the competitive spillovers of the huge amounts of fiscal expansion in the advanced economies and other such policies pose serious questions about the so-called non-discriminatory principles and the subsidy rules. It should also be noted that these issues cannot be solved by the WTO’s dispute settlement function. These, in fact, need to be solved politically since they question the very fundamental principles of the WTO.
• We need to have defined multilateral rules for issues like climate change and public health which by their very definition are global threats. The relevance and success of the WTO will greatly depend on how well it addresses such issues. There is a need to build a multilateral system that intertwines all negotiation means and provides equitable outcomes for all members. We need to consider and develop a way to integrate the plurilateral arrangements into the larger multilateral purpose of the WTO.
• The dispute settlement pillar used to be the best performing arm of the WTO till the Appellate Body appointments were blocked by the United States. The US is yet to clear its stance on whether it supports the restoration of an appellate process. This is important as it will be difficult to imagine the WTO to remain relevant like it was, without the two-tier dispute settlement mechanism.
• It is highly likely that the conventional goods trade shall soon be overtaken by Digital trade. Therefore, issues like data privacy, localisation requirements etc. need to be addressed to effectively tackle these issues. Further, these discussions need to be conducted on a multilateral basis to avoid multiplicity and fragmentation.
• While it is possible to have a multilateral system, given the various kinds of differences among countries that currently prevail, it will not be very easy to arrive at such an arrangement. There are no neat categories of the developing or developed nations. Further, each nation engages in the multilateral system looking after its national interests and to come to a solution which causes the minimum discomfort.
• To deal with the newer issues like technology, global commons, digital initiatives etc., it is important to look at the framework of various models already in place to come up with a solution that can actually work because eventually, there is a need for consensus in order for any agreement to be adopted.
• The WTO is capable of coming to a solution if countries willfully reposition themselves which is not what seems likely in the current scenario and hence we need to come up with a process that promotes discussions among these parties considering all kinds of available options.
• The issue of industrial subsidies is linked to the issue of the State Trading Enterprises (SOEs). It is important to look at this issue beyond China, as it is not just a Chinese issue; it encompasses even the developed economies.
• There is a need to address the problem of measurement of subsidies. An international organisation is required which is well respected and high on credibility, like the World Bank. G-20 as a group should come up with a solution which should be anchored in the unilateral frameworks for measurement.
• Furthermore, we need to broaden the scope and not just limit it to industrial subsidies. There is the issue of agricultural subsidies, subsidies going to the services sector like the telecommunication sector, among others.
• Agreement on Subsidies and Countervailing measures already provides a defined architecture but there is a need for refinement and tightening. Additionally, “good subsidies” are the subsidies that generate positive cross border spillovers for instance, R&D and environmental subsidies among others. “Bad subsidies” on the other hand hamper competition and the aim behind these are geo-economic goals and not to address the global commons.
• Another important issue is the breakout of the Joint Initiatives (JIs). It is difficult to figure out the reasons behind the breakout of the four major JIs: Domestic regulation and services, investment facilitation, digital trade and e-commerce, MSMEs. Past four years have been dominated by JIs. They are an important part of the negotiation function and are based on new and upcoming issues and hence, should be given considerable credit in WTO reforms’ discussion.
• “Domestic regulations and services” is one area that began on a multilateral level. The Working Party on Domestic Regulations also released a concrete working draft by 2011. In 2017, the negotiations began again at the multilateral forum following a slump between 2012-2017. Domestic regulation became a part of another JI which includes 64 members. Additionally, there were casualties and weak principles discussed in regard to Mode 3 and Mode 4 wherein it was highlighted that Mode 4 has been an area with very shallow commitments. The discipline on Domestic Regulations was to regress the imbalance which is an opportunity that has been lost so far. There is a disproportionate focus on Mode 1 and Mode 3.
• Many of the green box subsidies are in fact, trade distorting. Therefore, the subsidies cannot be implicitly characterised in a particular head and be assumed to be “good”.
• WTO cannot be reformed unless there is a real political investment. There were five key actors mentioned for any WTO reform to be successful - the US, China, the EU, India and South Africa, keeping in mind the influence these nations hold over the system and by extension, how their views will imply a balanced reform agenda.
• It is evident that a single undertaking approach is not the way forward. Different issues will require different negotiation ways to be tackled with. Therefore, there is a need to look at the possible ways to integrate these plurilateral outcomes into the WTO. Additionally, an acceptable way must be thought of to tackle the dispute settlement issue.
• It was further emphasised that when it comes to S&DT, it becomes pertinent that only those nations that need it should claim it. China is the largest trading nation and we cannot have a system in which a country with that level of economic dominance claims the S&DT status; it simply sets an unfair precedent. Furthermore, high income countries which are members of the OECD should not be claiming the S&DT.
• It is pertinent that we revisit the purpose behind S&DT. We need to identify areas in which nations need some time before they can actually compete. This should be kept in mind when we think of S&DT in terms of the upcoming issues of e-commerce, investment facilitation etc. Further, S&DT was discussed in relation to market access and tariff negotiations. Subsidies were highlighted as an area that will pose a challenge when it comes to S&DT.
• There is no need for special architecture or provisions to deal with the problems the WTO faces today. There are committees which are already dealing with these issues and addressing these challenges. However, what is needed is political will. Countries need to come together and look at these issues at global level rather than being country specific. This way, the likelihood of consensus among nations will be much stronger.
• On the issue of Special and Differential Treatment, there is a need to look at the purpose of special and differential treatment and to assess the qualification criteria, looking at it sector-wise. For example, there may be countries that do qualify for the special and differential treatment, but in certain sectors they are much more specialised than the others and therefore do not need it.
• Not all issues can be looked at through the lens of multilateralism. While there are certain issues that need to be looked at multilaterally, others require multilateral cum plurilateral approaches. At the same time, there are issues which require bilateral approach.
• For the WTO to remain relevant and significant, it has to look at issues not just from a national perspective but also from global perspective. That requires major countries to come together and think of a global common good and reach a consensus instead of focusing only on their specific national interest.