01 Introduction
With trade tensions increasingly politicized, a key appeals process suspended and COVID-19 creating huge economic challenges, a modernized and fully functioning WTO is more essential than ever.
The need to reform the World Trade Organization (WTO), which is at the centre of the multilateral rules-based trading system, is long-standing. The COVID-19 pandemic has now rendered modernization an even more urgent task.
The global economic downturn and the collapse in world trade as a result of COVID-19, as well as continued geo-economic tensions between the world’s largest economies, mean that the stakes for reforming the WTO have never been higher. Keeping trade flowing is important – not only in the fight against the pandemic, but also to support the economic recovery and to set the foundations for a more resilient, inclusive and sustainable world in the future.
The WTO currently has 164 members, and 98 per cent of international trade occurs between WTO members. The WTO was created to serve three main functions: (1) to provide a forum for negotiations to liberalize trade and establish new rules; (2) to oversee and administer multilateral trade rules; and (3) to resolve trade disputes between members. Even before COVID-19, all three functions of the WTO were under pressure.
So how fit for purpose is the multilateral trading system in terms of both addressing pre-existing challenges and responding to those that the pandemic has presented? Do the US and Europe (i.e. the European Union, its key member states and the UK) still view the system that they helped to create as being in their interest?
The current rules and architecture of that system were in large part shaped by the transatlantic partners in the period after the Second World War. The US and key European countries were among the 23 original signatories to the General Agreement on Tariffs and Trade (GATT), which entered into force in 1948. Transatlantic leadership and a grand bargain between the US and European countries were also central factors in the establishment of the WTO, which was created in 1995 as the formal organization that succeeded and encompassed the GATT. The US spearheaded the establishment of a compulsory and binding dispute settlement system. Part of this arrangement also met a key objective of the EU: getting the US to abandon trade unilateralism.
This paper makes the case for transatlantic cooperation as a necessary, though insufficient, condition for WTO reform.
Twenty-five years later, the US has become a vocal critic of the WTO’s dispute settlement system, while the EU (as a champion of free trade, even though it is not entirely devoid of protectionist tendencies itself) is once again hoping the US will renounce trade unilateralism and protectionism.
This paper starts with an analysis of how well the WTO has responded to the trade impacts of COVID-19, and of the likely implications of the pandemic for reform of the global trade system. Many of the challenges facing the WTO pre-date COVID-19. Thus, the paper also explores the long-standing structural drivers behind the WTO’s current crisis and differentiates those from more temporary issues. Three particular dimensions of the reform endeavour are explored: the primary US concerns with the WTO; existing reform efforts; and how the EU can best respond to US criticism in the context of the WTO’s three functions.
The paper makes the case for transatlantic cooperation as a necessary, though insufficient, condition for WTO reform. It argues that it remains in the interests of both the US and Europe to maintain and upgrade the global trading system in order to better address the trade challenges posed by COVID-19, as well as to confront many other issues – including the transition to the digital economy, climate change, and the pressures associated with China’s system of state capitalism.