The World Trade Organisation (WTO) has been grappling with an existential crisis over the last decade and deadlocks on various issues are tampering its regular functioning. Its process of rulemaking also warrants a rethink to adjust to the existing global trade scenario. Various countries have submitted proposals for reform but these are gripped by a lack of consensus and geopolitical dissonance between major powers. Without consensus, it will be difficult to enable any reform process in an institution like the WTO. Groupings like the G20 or the BRICS have been discussing the need for WTO reform over the last few years and are best suited to take a leadership role to enable consensus on issues, deadlocked for decades, and facilitate the reform process.
Over the last decade or two, there have been calls for the reform of the WTO from trade experts, policy makers and practitioners from around the world. They feel that the WTO has exceedingly become ineffective in negotiating concrete outcomes most suited to all negotiating members. Most negotiations have often ended in a deadlock and countries have used past deadlocks as a geoeconomic tool to push their agenda items further on other issues of concern. Scholars believe that the rules of the WTO have not adequately adapted to changing global trade dynamics and its rulemaking procedures need to be revisited.
Member countries as well as trade scholars have raised issues on various challenges that exist in the WTO’s functioning and have called for their early resolution. While the WTO’s mandate is to oversee and regulate the global multilateral trading system, increasing trade protectionism and inward-looking policies of some major powers impede the realisation of its original mandate.
With the advent of digitalisation, there is a transformation in the global trading system and the WTO needs to adapt to these changing times, with issues like digital trade, investment facilitation, regulatory linkages etc, coming to the fore. Also, global trade has also evolved due to the COVID-19 pandemic, putting immense pressure on global supply chains and due to the amplified effect of inward-looking trade policies.
The issues faced by the WTO are varied. Developed countries have raised concerns on the special and differential treatment given to developing countries, initially introduced with the purpose of integrating developing countries into the global trading system. Market distorting moves by certain countries like China are also a cause of worry.
The appointment of its new Director General, Ngozi Okonjo-Iweala, the first woman and the first African to serve as Director General, is being seen as a move in the right direction.
The reform proposals that are under discussion, focus on three elements in the WTO’s functioning: a) reform of rulemaking; b) bringing transparency and enabling monitoring; and c) effective dispute settlement.
The WTO has been historically applauded for its ability to resolve trade disputes and its success is credited to its Appellate Body, especially convened to bring transparency and accountability to the global trading system. However, for the last few years, there was a strain on the capacity of the Appellate Body due to disagreements on the appointment of new members to fill existing vacancies. It is currently unable to review appeals given its ongoing vacancies causing grave backlogs. The term of the last sitting Appellate Body member expired on 30 November 2020.
In the light of increasing operational pressure and lack of effectiveness of the WTO in bringing consensus, countries have preferred to negotiate bilateral, plurilateral and regional trade agreements instead. Such trade agreements are opportunities for select countries to create new rules and to address the changing nature of the global trading system. But they are often discriminatory in nature, giving preferential treatment to signatory countries, creating alliances and blocs with their own rules and monitoring systems. Reciprocity rules and clauses like Most Favoured Nation (MFN) also add to existing complexities.
Despite its limitations, such agreements can ensure progress in the areas of trade policy where multilateral agreements fail to reach a consensus. Such agreements, are the need of the hour in new areas like digital trade, e-commerce, etc and can be expanded to include new members at a later stage.
The Group of G20 (G20), that is called the economic steering committee for the world and whose members account for 75% of global trade is best suited and must take the lead in providing a workable approach to streamline and reform the WTO’s functioning. The grouping must also focus on reducing the detrimental effects of the COVID-19 pandemic on global trade. These groupings must first initiate dialogues among member countries to identify and provide reform solutions. Since the G20 includes developed and developing countries, that are often at loggerheads at the WTO, such groupings are apt to champion this effort and bring trust and transparency to the negotiations process.
Likewise, the BRICS countries (Brazil, Russia, India, China, South Africa) can also contribute as regional players. They can represent the interests of other countries of their neighbourhood, that do not have a voice in multilateral negotiations. India and China have led various proposals at the WTO since its inception and are well suited to lead this effort on behalf of the BRICS.
The G20 and BRICS’ trade ministers convene every year to deliberate on the issues faced by the global trading system. Reform of the WTO has been on their agenda for years. In 2020, the G20 Trade Ministers met virtually on 22 September 2020, under the G20 Saudi Presidency. Their official communiquereads – ‘Amid the COVID-19 pandemic, we will continue our cooperation and coordination to: (i) support recovery of international trade and investment; (ii) support the necessary reform of the World Trade Organization (WTO) to which the Riyadh Initiative on the Future of the WTO provides political support; (iii) encourage greater international competitiveness of Micro, Small and Medium-Sized Enterprises (MSMEs); (iv) foster economic diversification; and (v) strengthen international investment.’
The Ministers will meet again on October 4, 2021 under the Italian Presidency of the G20 and the world will be on the lookout to see how the grouping has taken on the issue of WTO reform this year.
Likewise, the 11th BRICS Trade Ministers Meeting was held virtually under India’s Chairmanship on 3rd September, 2021. Piyush Goyal, Minister of Commerce and Industry, Consumer Affairs, Food & Public Distribution and Textiles, Government of India, chaired the meeting. He urged the BRICS countries to work together to strengthen the multilateral system, with the WTO at its core, and called for the need for a balanced and inclusive outcome at the WTO Ministerial Conference (MC12), keeping in mind the needs of developing countries and LDCs.
G20 countries must mandate the trade ministers as well as the Trade and Investment Working Group (TIWG), set up exclusively for this purpose, to create a workable framework to facilitate an open and transparent dialogue to identify issues and provide solutions and to create a roadmap for implementing workable actions. Likewise, the BRICS has the Contact Group on Economic and Trade Issues (CGETI), set up for the same purpose.
While these working groups and contact groups already exist, a clear mandate that will ensure a speedy reform process is the need of the hour.
Also, as the world still grapples with the COVID-19 pandemic, a well-functioning global trading system with a reformed WTO is required, to ensure the efficient supply of critical medicines, medical appliances and to facilitate a coordinated response to the pandemic.
The G20 and BRICS have their hands full, and a responsibility to support the multilateral trading system. As India closes out its BRICS presidency of 2021 and gears up for its G20 presidency of 2023, the issue of WTO reform will feature again and again in discussions within the government, among business leaders as well as think tanks and research organisations working on issues of global trade, with the hope of generating concrete outcomes.
Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research.