Could trade tensions impel a WTO redesign?

December 2018  |  FEATURE  |  GLOBAL TRADE

Financier Worldwide Magazine

December 2018 Issue

Since the trade dispute involving the US and China (which also encompasses numerous other countries) began in the spring of 2018, there has been numerous solutions mooted, such as a bilateral, enforceable, rules-based trade pact that creates open and fair reciprocal trade.

What has not been suggested as a potential solution though is a redesign of the World Trade Organization (WTO) – that is, until a meeting of the G20 economies in Argentina in September 2018, the first such gathering since trade tensions commenced, saw fit to propose this as the answer.

With the current global trade situation in mind, trade and investment ministers – many of whose countries are involved in the tit-for-tat tariffs being placed on billions of dollars of imports – agreed that there is an “urgent need” to improve the WTO. In a joint statement the ministers also pledged to “step up the dialogue” on international trade disputes. What the ministers’ statement did not provide was any details as to what an improved WTO would look like.

“The G20 ministers were able to commit to working together to keep markets open, reinvigorate the international trading system and to step up a political dialogue on current international trade developments, while recognising the need to improve the WTO to face current and future challenges,” observed Leandro Serino, policy and research coordinator at T20 Argentina.

Adding to the uncertainty surrounding the WTO, a fortnight prior to the G20 meeting, president Trump announced his intention to withdraw from the organisation if the countries involved in the escalation of trade tariffs did not, as he put it, “shape up”.

This, then, is the backdrop to the declaration of intent by the G20 to make organisational improvements to the WTO, ease trade tensions by increasing the transparency and understanding of countries’ trade policies and practices, and, by extension, boost the global economy.

Trump’s take on the WTO

Turning to president Trump’s threat to withdraw from the WTO, the general consensus is that his rhetoric is unpersuasive, lacking credibility.

“Given that the United States Trade Representative Robert Lighthizer has already elaborated on a number of WTO reform measures proposed by the US in his ‘2018 Trade Policy Agenda’, it is unlikely that the threat to withdraw from the WTO will become a reality,” suggests Rolf J. Langhammer, professor of economics at the Kiel Institute. “It seems that the US proposals concentrate on a reform of the dispute settlement mechanism in which the president, misleadingly, in my view, sees the US as a victim, losing all cases.”

The US has also stated it would like to see sharper WTO measures against China’s (alleged) unfair trading and forced technology transfer from foreign to domestic companies. “Should the US succeed in finding a congenial partner among WTO members regarding these issues, president Trump would still continue to define multilateralism in trade policy as a servant to US interests, but would not leave the WTO,” adds Mr Langhammer.

WTO redesign

As a large, complex and elaborate system for enforcing trade rules, redesigning the WTO certainly represents a major challenge. “The G20 should start a dialogue under the auspices of the G20’s Trade and Investment Working Group,” says Mr Serino. The focus, he believes, should be to facilitate the transition to a new trade regime, one befitting a multipolar world. It should also preserve the essence of the multilateral system, such as the principle of non-discrimination, and adapt rules and institutions to the new realities of global trade – characterised by growing digitalisation and internationalisation, and the consolidation of global value chains.

“The system also needs to respond to global needs such as food security by strengthening trade in agricultural goods and developing healthy and sustainable global food systems,” advises Mr Serino. “We need to find a way to reconcile the flexibility and predictability that the multilateral trading system requires.”

Immediate challenges

According to Mr Langhammer, there are two immediate challenges facing the G20: the risks of disruptive innovation due to the digital revolution for social cohesion, job protection and skill formation, and the beginning of large waves of migration, much of which is dominated by forced or ‘push’ migration.

“Trade policy aspects should be dealt with bilaterally between partners at conflict,” believes Mr Langhammer. “It is possible that the WTO will indirectly benefit from a constructive outcome of G20 discussions based on milestones and clear priorities. But it is unlikely that the G20 will return to its previous position of continuously underlining the importance of the WTO as an institution ready to address economic challenges.”

While there is still an appetite for the WTO to continue as an institution fostering trade as an instrument of development, questions remain as to its relevance in today’s environment, as well as its future as an egalitarian, inclusive organisation.

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Fraser Tennant