The World Trade Organization should reorient from rule-making to dialogue

Yet again, a WTO ministerial is being criticized for producing little of substance. But the Organization provides an opportunity for powers like the US, China, EU and India to agree pragmatic ways forward.

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4,000 delegates from the WTO’s 166 members met in Abu Dhabi in late February and deliberated for five long days and nights. Tensions flared, with large players – most notably the US and India – flexing their muscles. Ultimately governments failed to agree on much although they did manage, at the last minute, to renew a commitment not to impose tariffs on digital trade for the next two years.

The WTO’s repeated failure to generate new rules has provoked considerable debate about its relevance and a myriad of proposals on how to get its rule-making and dispute settlement system ‘back on track’. 

Commentators look back to a time in the 1990s, when the WTO was founded, global trade rules were generated apace, and major economies ‘played by the rules’. The reality was not that rosy of course. There was contestation, negotiations took time, and arm-twisting behind the scenes was used to land agreements. 

Outcomes were possible because the underlying geopolitics was very different. The US was the pre-eminent global player and it shared a broadly similar vision of what the trading system should look like with other advanced economies – one premised on opening up markets to a liberal economic model, with global rules backed up by an effective enforcement mechanism.

There was always dissent, and advanced economies didn’t always play by the rules. But the underlying distribution of power meant that their views generally carried the day.

A dramatic power shift

Since then, the economic centre of gravity has shifted to emerging economies. Measured in PPP terms, China has overtaken the US, growing increasingly outward-looking in its trade policy and building an extensive network of free trade agreements across Asia and Africa. India is gaining economic importance too.

What one government perceives as justified state activism, others perceive as an illegitimate source of advantage. 

The trade policies of advanced economies have also changed, promoted by economic stagnation and rising inequality at home, and international factors like the rise of China, Russia’s invasion of Ukraine, the pandemic, and climate change. 

This has led to a wave of industrial policies intended to generate jobs and spur a green transition, and measures to de-risk supply chains and try to block China’s access to some frontier technologies.

State activism

While they might not like to admit it, there are now striking similarities across major advanced and emerging economies: activist economic policies are the order of the day. While interventionist policies are needed to address major economic challenges – from jobs to the green transition – they also produce tensions.

What one government perceives as justified state activism, others perceive as an illegitimate source of advantage. The US lost faith in the WTO when it failed to address Chinese trade policies Washington considered unfair – and ruled against some measures the US took to address them. Since then successive US administrations, from Obama onwards, have blocked the appointment of members to the WTO Appellate Body, stymying its judicial arm.

While the US has resorted to increasingly coercive economic policies, China has retaliated. Both are often in violation of the spirit and letter of WTO rules, placing immense strain on the system.

Differences among emerging and developing economies are also ever more apparent. In Abu Dhabi, Brazil and India locked horns over agriculture, while a Chinese-supported initiative on investment was thwarted by opposition from India and South Africa.

In a dramatic moment the Thai Ambassador was recalled, after a run-in with India over its stockpiling of grains. Much to the chagrin of Pacific Islands, and other countries facing rapidly depleting fish stocks, India also torpedoed agreement on fish subsidies. Developing countries like Costa Rica are driving new environmental initiatives which India argues have no place in the WTO.

There are strong arguments for building a new pluralist vision for the WTO, premised on acceptance and respect for different political and economic systems.

Looming elections in the US and India made things even harder, as neither was prepared to make concessions that would unlock a more substantive ministerial package. But the tensions in the system run far deeper. So, what should be done?

A new consensus

All too often the WTO’s performance is assessed by its rule-making – the number of new regulations it creates to open markets and bind governments to an ever deeper liberal economic model.

It’s far from clear that vision is desirable. It is certainly not politically viable. A new consensus for global trade policymaking is needed.

In a multipolar world, there are strong arguments for building a new pluralist vision for the WTO, premised on acceptance and respect for different political and economic systems, and diffusing trade tensions. 

Such a system would be a much thinner version of multilateral trade governance, which focuses on looser forms of cooperation, and only seeks to discipline government behaviour when it imposes substantial harms on others.

In practical terms, this means recognizing that differences are a feature, not a bug. It means new ways of working, reorienting delegates away from negotiating uniform global rules to actively deliberating over tensions and finding pragmatic ways to adjust. 

It means searching for creative ways to galvanize cooperation even when governments aren’t ready to commit to binding rules.

WTO members already do a huge amount of everyday diplomacy in Geneva, quietly diffusing trade tensions. 

WTO committees provide precious space for trade diplomats from all countries to raise ‘specific trade concerns’ about each other’s policies – whether challenging China on its data governance, the EU on its deforestation requirements, India on its solar policies, or the US on local content rules. Far from the media spotlight, pragmatic ways forward are often found.

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Rather than walk away from the WTO, governments need to lean into the opportunity it offers as a forum for deliberating, sharing information, building trust, and de-escalating trade tensions. Embracing this approach, of transparency, dialogue and pragmatic adjustment, could help address emerging tensions, including access to critical raw materials.

WTO members could experiment with new methods for promoting cooperation. They’ve already found work-arounds for dispute settlement and plurilateral initiatives are underway. But a ‘coalitions of the willing’ approach doesn’t engage all members. 

In areas like fisheries and fossil fuel subsidies, introducing an element of voluntarism might generate momentum and tangible outcomes.

There are other options. The UNFCCC abandoned the aim of agreeing a uniform set of rules at the 2015 COP in Paris, in favour of a voluntary pledging system.

This sees all states agree on the overall aims (like limiting global warming to 1.5 degrees), but each government pledges its own contribution towards meeting that goal. The idea is to capitalize on reputational effects and catalyse a race to the top.

It’s not perfect, but it preserves a consensual approach while also preventing single actors exercising a veto and holding the process to ransom. In areas like fisheries and fossil fuel subsidies, introducing an element of voluntarism might generate momentum and tangible outcomes.

Abandoning old ways of working is never easy. But in a multipolar world, and with rising tensions, a spirit of dialogue, pragmatic solution-finding, and a willingness to innovate is essential.