In a year of dark uncertainty and menacing global economic realities, one glimmer of hope has arisen where it’s least expected: At a time of growing protectionism and economic nationalism, the World Trade Organization (WTO), often described as moribund, is showing important signs of life.
At its minister-level meeting in June, the WTO, with 164 member states accounting for 98 percent of global trade, advanced an impressive and much needed set of issues, from pandemic response for less developed countries and digital commerce, to fishing subsidies and, critically, reform.
If we are serious about a rules-based order, the WTO matters. Except for the U.S., with its bipartisan trade-phobia, most of the world – not least U.S. partners in Europe and Asia — is deepening economic integration with burgeoning bilateral and regional trade accords — 577 of them are in force.
For all the protectionist measures adopted around the world, global trade has recovered from COVID-19 and grew to $28.5 trillion annually in 2021. The danger is in the absence of up-to-date global rules and standards, economic fragmentation in a time of great power competition, separate norms among major players and the the distortion of markets in the U.S., EU and China.
Against that backdrop, the new steps taken at the June meeting take on added importance. For instance, the boost to fighting COVID-19 as new variants spread came after a long, complex political battle in which, finally, intellectual property rights on COVID vaccines were waved for developing nations. While critics argue that manufacturing capacity more than patents is the problem for developing nations, it may give a boost to developing nations with strong pharmaceutical manufacturing capabilities, such as India and South Africa.
Fears that a tax moratorium on tariffs for digital business transactions would expire were eased, as the WTO meeting renewed the moratorium. While global e-commerce standards and rules are still lacking, and the free flow of commercial data hampered by digital nationalism and claims of “internet sovereignty,” the move retained a level playing field on taxes for start-ups and e-businesses globally. But talks on global standards for e-commerce, hampered by digital nationalism, have yet to near the finish line.
Of no less consequence was an agreement to reduce fishing subsidies that has underpinned over-fishing that has led to dwindling fish stocks. According to the UN Food and Agricultural Agency, biologically sustainable fish stocks shrank from 90 percent in 1974 to below 66 percent by 2017.
The fishing subsidies talks dragged on for some 20 years and are viewed as a test of WTO credibility. The deal bans WTO members from granting subsidies to any operator fishing in illegal, unreported or unregulated waters or fishing an over-fished stock. What, if any, penalties would be assessed is unclear, and deeper cuts in subsidies are needed..
But on the big issues that will determine how much of a rules-based order is likely, things got vague. The good news is that WTO ministers signed on to a consensus statement that the rickety institution requires sweeping reforms. Even if the political will exists to shape a viable agreement, it will be a tortuous process to modernize it.
Most important was agreement to fix the now paralyzed crown jewel of a rules-based economy: the WTO dispute settlement mechanism. This body, in effect, the global umpire, is key to resolving trade disputes. Both the U.S. and China have used it to mediate trade disputes — and have mostly abided by the outcomes. But it has been paralyzed since the Trump administration blocked the appointment of new judges.
Why? The WTO’s ability to enforce trade rules rests on the seven-judge Appellate Body that hears and adjudicates appeals on trade disputes. U.S. administrations since Obama have mostly accurate complaints about the Appellate Body vastly over-reaching its authority. Thus, the Trump administration blocked the appointment of new judges, as has the Biden administration. As judges terms have expired, there are no longer enough judges to convene a three-judge panel. So the referee of the rules-based economic order is missing.
The good news is that the Biden administration – months before the June meeting – had quietly begun still on-going talks to fix the broken Appellate body. This led to a pledge at the WTO’s June meeting to have a “full and well-functioning body” by 2024.
Few are holding their breath for any of these ambitious goals to update and modernize the WTO. The new trends of deglobalization, ascendent regional blocs and rearranged supply chains sparked by COVID-19 and economic decoupling between the U.S. and China amount to serious headwinds facing reform.
But failure to do so would be a lose-lose for member states and a slow drift back to the 1930s. Recent developments add up to a hopeful sign that major trading nations are not sleepwalking toward a dark future, but rather are focused on how to avoid it.
Robert A. Manning is a senior fellow of the Scowcroft Center for Strategy and Security and its New American Engagement Initiative at the Atlantic Council.. Follow him on Twitter @Rmanning4.