“It is important not to be purely obsessed with China as being the only factor that plays a role in World Trade Organization reform,” said Ignacio García-Bercero at a recent event in London.
The European Commission’s former man in charge of handling EU-US trade relations is tabling some new ideas on how to save the multilateral trading system.
In a forthcoming report with the Bertelsmann Foundation put together during a studious sabbatical at Oxford University, Ignacio García-Bercero will soon be tabling new proposals on how to bring the WTO back on track as he prepares to take office again at the directorate for trade in Brussels.
As readers will know, the WTO is in deep crisis. Trade liberalisation negotiations are almost impossible to achieve . Developing new global rules on trade fit for the 21st century by consensus appears undoable in an organisation that includes more than 160 states.
The organisation’s much-vaunted dispute settlement system is over-burdened. Its Appellate Body ceased to function half a year ago amidst a backlash against its perceived encroachments on sovereignty coming from the United States.
The US, initially a strong proponent of rules-based trade and of binding dispute settlement has, under the Donald Trump administration, exempted itself from these rules by resorting to national security exceptions to reintroduce trade barriers. This has further destabilised the rules-based order.
Then came the COVID-19 pandemic which paralysed the few active and constructive areas of work in the institution, such as fisheries subsidies negotiations and plurilateral e-commerce talks. A ministerial meeting, planned for June, was postponed.
Now the organisation needs to find a new director-general following Roberto Azevêdo’s announcement this week that he would leave his position more than one year earlier than planned. Some believe however that leadership change at the helm of the institution will also help shape a much-needed reform process.
Short-term confidence-building: health, fish and environmental goods
Garcia-Bercero argues that the institution needs short-term ‘confidence building measures’ to stay on track. At the same time it should start a programme of reform that runs over several years and delivers structural change by 2025.
The short term track should involve three steps. The first step would be “a decision on trade and health”, which address tariffs, export restrictions, and other aspects of WTO rules which are relevant from the point of view of the pandemic.
That deal would cover pharmaceutical products, medical devices and other medical supplies. “It should be part of a broader trade and health initiative that aims to enhance cooperation and develop guidance to ensure a coordinated response in he event of scarcities of essential medical supplies,” writes García-Bercero.
The two other short-term steps involve focusing on the sustainability dimension of trade: “conclude fisheries negotiations”.
Another way forward would be to revive plurilateral negotiations on the elimination of tariffs on environmentally friendly goods among a subset of countries which ground to a halt in late 2016. Concluding EGA “should not be so difficult”, argues the former transatlantic trade negotiator.
The next WTO ministerial meeting – which will probably take place in June 2021 – should then launch a broader reform process that covers the major areas of contention that have plagued the institution in recent years.
“WTO reform needs to be a much broader exercise. We need to find ways to bring into the picture the views of those countries that are currently marginalised in the global trading system – many of them being in Africa”.
A new approach to plurilateral trade agreements
A first step would be to make the rules and market access negotiation function of the WTO more flexible than it is now.
Today, all 164 WTO members need to agree to launch new negotiations: it is proving difficult to work around the potential veto of one or two single members to launch what is called ‘plurilateral’ negotiations among a subset of WTO members – although it has not proven impossible.
Current initiatives on services in domestic regulation, investment promotion or e-commerce, are being brought forward on a ‘plurilateral’ basis. But the final status within the organisation of any such agreements remains uncertain.
New plurilaterals should be negotiated in a transparent and inclusive manner and allow participation of as many members as possible, argues the author. But no member should be allowed to have a veto and countries may choose not to join, or do so at a later stage.
Non-signatories should be allowed to attend meetings or relevant committees but not be allowed to make claims in the WTO dispute settlement system against a signatory country for breaching said agreement’s terms. Such an approach would address fears of free-riding without derogating the WTO’s sacrosanct non discrimination MFN rule.
‘Plurilaterals’ on subsidies and ‘competitive neutrality’
Key new plurilateral agreements members should seek new rules on industrial subsidies and on ‘competitive neutrality’, argues García-Bercero. These would address the ‘China issues’ and help avoid that its state-capitalist system has negative spill-over effects on more strictly market-based economies.
The agreement on subsidies would build on – but go much further than – the proposals tabled by the United States, the European Union and Japan on industrial subsidies.
An overhaul of subsidies rules would also involve new disciplines for agriculture. New rules, in the author’s view, should include the possibility for WTO members to move faster than is so far allowed to respond to prohibited subsidisation. García-Bercero sees an opportunity to revive the ‘green box’ – subsidies permitted by the WTO – and include provisions that enable environmental protection and investments in research and development.
A separate competitive neutrality deal “would […] ensure a level playing field amongst all companies established in the market and avoid regulatory favouritism vis-à-vis certain domestic firms”, reckons the former transatlantic trade negotiator.
The deal would also address the issue of state-owned enterprises and define the much-vexing issue of what is a “public body”, following an Appellate Body ruling that has much riled the big Western powers.
Dispute settlement system overhaul
The dispute settlement system should be part of the broader package of reforms to launch in 2021.
Among the proposals tabled by García-Bercero that have not been discussed in recent WTO initiatives such as the Walker Process is what he terms the “correction” of the Appellate Body’s jurisprudence on trade remedies.
García-Bercero argues in particular that current interpretations of rules on safeguards at the Appellate Body are much too strict and should be made more flexible to offer greater breathing space to WTO members.
Administrative support for the Appellate Body should be reformed too – and new ideas explored such as making the terms of the director of the secretariat time-limited, and making appellate body membership a full-time activity.
In order to make sure the Appellate Body issue reports in a timely manner, García-Bercero proposes, among others, to give greater resources to the panels at ‘first instance’ to help them put together the facts in a dispute. This would avoid turning appeals into a re-run of whole cases as they have often become.
Anchor SDGs in the WTO
The third reform strand involves strengthening the ‘sustainability’ dimension of the WTO. García-Bercero suggests that the heads of state of the WTO issue a statement that recommits them to the United Nations Sustainable Development Goals.
The proposed statement would cover three main SGD goals: “the integration of developing countries into the trading system, the contribution of trade to environmental sustainability and the relationship between trade liberalisation and the promotion of decent work”.
Measures include: more aid-for-trade measures for developing countries, greater powers to the Director General of the WTO to initiate moves that would strengthen the coherence between trade and the SDGs, and enhanced consultations with business and civil society.
US and EU need to converge – but bring in Africa into the fold
If any of these initiatives were to lead anywhere, the EU and the US need to find ways to converge despite the deep rifts in their own views on the Appellate Body in the WTO, argues the paper. “An essential building block for WTO reform is a high degree of convergence in the reform agenda between the United States and he European Union”.
If China – the other essential piece in the puzzle – does not engage sufficiently, then at least the two would be able to wield leverage jointly vis-à-vis Beijing.
But if squaring the circle in the EU-China-US triangle is a precondition to enable change, it is not sufficient.
“Africa is the region of the world that is less integrated in the world economy and which would most suffer from a collapse of the rules-based trading system.” African countries are crucial to make any move on plurilateral or special-and-differential treatment acceptable to the wider WTO membership.
“They are also likely to insist on the important of agriculture reform and strong commitments to inclusiveness and support for capacity building,” writes García-Bercero.
Special and differential approach to a vexing issue
Africa is key to unlocking one of the most vexing issues in the institution at the moment: the future of ‘special and differential treatment’ for developing countries.
The United States has asked for strict economic criteria to determine which poor countries in the organisation should ‘graduate’ from a self-designated ‘developing country’ status in the WTO that exempts them from large swathes of the institution’s rule-book. The brash US approach has proven divisive and contributed to the blockage of any discussions. Yet this issue is also of great importance to the EU.
García-Bercero proposes what he terms a “pragmatic” way forward. Whereas China should no longer self-identify as a ‘developing country’ for WTO purposes, other emerging markets could be made to drop this status in specific sectors in which they have gained significant competitiveness in recent decades.
Also, instead of seeking an all-encompassing solution, “it may be more realistic to have participants developing a convergent approach on how to tackle special and differential treatment in each individual negotiating area” that will be addressed in the coming years.
