Troubling Complacency among the World’s Trade Ministers

December 19, 2017 2:45 PM

Trade ministers of member countries of the World Trade Organization (WTO) met in Buenos Aires in early December at a time when the cause of liberalizing trade rules is under unprecedented attack. Their complacency in the face of challenges to the system—posed not only by the United States but also in China, Europe, India, and elsewhere—was troubling. The ministers made no commitments to reform outdated WTO rules or liberalize existing barriers to trade in goods and services. They could not even agree on a joint declaration on how they spent their sunny days in Argentina.

Protectionism is unabated and advancing throughout the world. WTO negotiations are adrift and have been for years—no surprise then that after 23 years of benign neglect, the WTO rulebook is now badly outdated. Megaregional trade arrangements had been a practical surrogate for multilateralism, driving trade and investment reforms and developing new trading rules in areas such as e-commerce, competition policy, labor, and environment, but many of those initiatives are now in jeopardy as well. And perhaps most serious, the WTO’s dispute settlement system, long valued as the crown jewel of the trading system, faces new charges of bias and old concerns about its impact on national sovereignty by the United States, the architect and demandeur of binding WTO dispute settlement procedures a quarter century ago.

No one at the meeting in Buenos Aires talked about refraining from imposing new protectionist measures (standstill), much less reducing existing restrictions (rollback). Such commitments were part and parcel of past G-20 and WTO declarations (at least until the advent of the Trump administration), even if implementation of the anti-protection pledge has been half-hearted.

Three examples illustrate the problems besetting trade ministers.

First, efforts to craft a ministerial declaration fell victim to US-India differences on what to do with the long dormant Doha Round of multilateral trade negotiations. US Trade Representative Robert Lighthizer insisted on dropping the Doha Round and pursuing smaller sector-specific pacts among “like-minded” countries; India and other developing countries insisted on maintaining Doha Round priorities on farm and other reforms with large exemptions for their own practices. The US proposal to work within the WTO to advance sectoral negotiations is welcome, but prospects for success are limited unless the plurilaterals can engage the major trading nations (as discussed below).

Second, India also demanded exemptions from subsidy disciplines so that it could subsidize public food stocks without fear of WTO litigation. Ministers have been trying to resolve this dispute since the Bali WTO Ministerial in 2013 and had committed to reach agreement by the Buenos Aires meeting. The failure to do so has been a major roadblock to WTO progress on other farm trade reforms.

Third, the United States, European Union, and Japan implicitly called for new WTO efforts to force China to desist from subsidies and other discriminatory practices that favor state-owned enterprises producing steel and other products. This action presages more friction between the world’s largest trading nations and supplements contentious ongoing litigation in the WTO on China’s market economy status.

To be fair, there were some positive announcements in Buenos Aires. Ministers decided to continue talking about fisheries subsidies. They extended the moratorium on customs duties applied to e-commerce for another two years, while the United States and other countries talked about formulating plurilateral rules on e-commerce (already contained in regional pacts like the Trans-Pacific Partnership, which US officials have foolishly disowned) and other sectors. All of this is old, watered-down plunk in new bottles.

None of the initiatives “advanced” in Buenos Aires are likely to flourish because they will face major challenges in attracting a critical mass of countries needed to make the new sector-specific rules work. Recent experience with WTO sectoral negotiations on a Trade in Services Agreement (TiSA) demonstrates the difficulty in constructing such reformist pathways without the support of the major trading nations. Even a basic, tariff-free initiative like the Environmental Goods Agreement could not achieve a balanced, liberalizing result.

Note that in almost all cases, the sectoral talks envisaged by US and other officials require major trading nations to participate and reform their own policies for the benefit of others. That will be hard to do when US officials bluntly state that they will offer nothing in new trade negotiations—that’s how they intend to “rebalance” past trade pacts that they regard as biased against US interests.

Near-term WTO prospects are thus limited. The Big 4 traders—United States, European Union, China, and Japan—account for about half of the world’s merchandise exports and 55 percent of services exports, and all four need to work together to get anything done in the WTO. None of them is providing leadership in the WTO. Developing countries in turn have maintained untenable negotiating positions. Few seem committed to pursuing substantive solutions: WTO Director General Roberto Azevedo admitted as much in more diplomatic language.

Of course, WTO talks could move forward, if the Big 4 all recognize their roles as “responsible stakeholders” in the world trading system. That’s a big “if” given the friction with China noted above.

The Big 4 need a well-functioning multilateral system both to continually update the WTO rulebook and to mediate and resolve disputes among themselves (note that trade among the Big 4 represents almost 40 percent of their total merchandise trade). They have tried and failed to comprehensively renovate the WTO rights and obligations; they can’t work together, or get buy-in from developing countries, on a revised Doha or new trade round. But they could, and should, pursue more focused plurilateral negotiations on areas that boost productivity, fight corruption, and enhance trade and investment opportunities for all WTO members.

To that end, the Big 4 traders should agree to participate in new plurilaterals that cover issues of concern to one or several of them and to developing countries. Proposed issues include investment, “green box” subsidies (e.g., promoting renewable energy and carbon abatement technologies), e-commerce, transparency in government procurement, services liberalization, and reforms to dispute settlement procedures. Each plurilateral should provide incentives to promote participation by the least-developed countries and additional support to accelerate implementation by developing countries of the Trade Facilitation Agreement.

In the current environment, this proactive WTO agenda is highly ambitious. It recognizes that the Doha Round work plan has failed but that a post-Doha agenda in the WTO, involving plurilateral negotiations, could be designed to benefit developed and developing countries. At best, it can begin a process of WTO renovation; at the very least, it may forestall new erosion in multilateral disciplines.