EVENT HIGHLIGHTS | Reform of the World Trade Organization: challenge or deadlock?

At the end of January, PubAffairs Bruxelles organised an evening discussion on the prospect of reforming the World Trade Organization. The speakers were Mr Justin Brown PSM, Australian Ambassador to the EU, Ms Maria Åsenius, Head of Cabinet, Commissioner Malmström, Mr Stéphane Lambert, Counsellor and Head of the Trade, Economic, Science and Technology Section, Mission of Canada to the EU, Professor David Luff, College of Europe, and Mr Roderick Abbott, Senior Adviser, European Centre for International Political Economy (ECIPE).

Mr Jaya Ratnam, Ambassador of Singapore to the EU, delivered an introductory speech.

The debate was moderated by James Kanter, Editor, EU Scream, the podcast on Europe and its political extremes, and former EU Correspondent for The New York Times.

After introducing the speakers and the topic of the debate, Mr Kanter gave the floor to Ambassador Jaya Ratnam, who commenced his introductory speech by underlying that global trade is an increasingly troubling area with continuous tensions, especially between the US and China. He said that the way in which emerging tensions are to be handled would be crucial for both the stability of the global stage and the world economy, notably the core engine of peace and prosperity for the four past decades. Ambassador Ratnam continued by stating that reforming the World trade Organisation (WTO) is fundamental for global trade as it is a rule-based trading system that covers 98% of global commerce. He subsequently emphasised the fact that, for small economies such as Singapore, trade is an essential element and, therefore, the country supports the efforts displayed by the EU and other countries such as Australia, Japan and Canada to reform the WTO. Indeed, the Ambassador reminded the audience that Singapore is a likeminded partner with regard to the defence and the promotion of an international system based on commonly-agreed rules, cooperation and multilateralism. In this respect, the speaker welcomed and praised the EU-Japan Agreement. Moreover, the Ambassador identified two pressing concerns that international trade and global governance are facing: namely, the rising pressure against free trade and the question of multilateralism. Indeed, the tensions are, according to the speaker, putting in danger the narrative that upholds that trade benefits all nations. The Ambassador added that the combined impact of disruptive technologies, domestic policies’ strains and their ramifications in the international arena have also fostered a counter narrative of trade as a zero-sum game. In addition, the terms of the multilateral state trade system need to be addressed rapidly according to evolving realities. For these reasons, Ambassador Ratnam emphasised that the reform of the WTO presents an opportunity to address these concerns and set the policy for international trade in the coming decades. However, the speaker acknowledged that the World Trade Organisation is not without imperfections. Subsequently, the Ambassador stressed that the WTO had to remain relevant and to play an inclusive role, with special regard to the update of its rulebook on the digital economy. Otherwise the WTO would risk undermining its role as a facilitator and arbitrator of the international trade system. The speaker continued by highlighting that, on the one hand, the Joint Statement Initiative (JSI) on e-commerce had made great progress since its inception and it represents an opportunity for governments to collaborate, while creating baseline rules for the digital economy. However, the Ambassador shared the concerns on the current stalemate on the selection of the WTO Appellate Body Members. He then recalled that the EU and Australia have tabled proposals with a view to addressing procedural and substantive concerns. Lastly, Ambassador Ratnam acknowledged that possible WTO reform will not immediately gain a clear direction and that it would be essential to consider several ways to solve the merging tensions, not only for the benefit of trade itself, but also to improve the stability of an increasing multipolar world.

The moderator opened the debate by asking Ms Åsenius whether she believed that the EU and US share common goals within the WTO and how the EU was planning to face the current challenges of international trade.

Ms Maria Åsenius started by explaining that the United States’ position is often challenging as, on the one hand, the US are willing to cooperate with the EU and Japan with regard to modernising trade rules, while, on the other hand, they are not constructively engaging in the WTO’s Appellate Body reform. Ms Åsenius then emphasised that it is of great importance to both modernise the WTO rulebook by filling its gaps and creating rules which are fit for the 21st century, and, at the same time, ensure proper enforcement by the Appellate Body. Ms Åsenius also highlighted that the EU believes in multilateralism and noted that, although the EU has signed various far-reaching bilateral agreements, the European Union will insist in upholding the crucial importance of multilateralism and a substantial reform of WTO’s rules and functioning within international fora. The speaker continued by highlighting that the EU is currently involved in discussions being held with China and in a trilateral working group with the US and Japan, while confirming that the trilateral meetings predominantly discussed which set of new rules international trade needed, for instance, industrial subsidies, state-owned enterprises, as well as forced technology transfers. Additionally, Ms Åsenius stated that it was self evident that China’s involvement in trade talks is essential to foster multilateralism. The speaker also noted that, unsurprisingly, Beijing favours discussing the Appellate Body reform over the question of industrial subsidies. However, she continued, this implies only that achieving an acceptable level of international cooperation in trade is challenging, but not impossible.

The moderator turned to the second speaker, and asked Ambassador Justin Brown to comment on Australia’s initiative in Davos on digital trade rules which was conducted out of the formal WTO procedures.

Ambassador Justin Brown confirmed that the meeting in Davos in January succeeded in bringing together 76 WTO Members, representing over 90 percent of global trade, to issue a joint statement confirming their intention to commence WTO negotiations on trade-related aspects of e-commerce in order to achieve a relevant outcome. The speaker highlighted that the evolution toward common agreed rules was encouraging for the WTO’s role in international trade. Ambassador Brown consequently stressed that, regardless of whether multilateral or plurilateral progress occurs, there is room for improvement in international economic cooperation within the current global context. He took the example of digital trade, notably a domain which both cuts across the interest between developing and developed economies and many WTO Members have already experimented as an important area of cooperation. Ambassador Brown also added that, to date, the vast majority of new trade agreements have been reached bilaterally and, to a lesser extent, plurilaterally, while the international community has not yet been able to agree a standard of rules on digital trade. With regard to China’s position, the speaker clarified that the country is a signatory to the joint statement in Davos along with the US, as Australia believes in “open plurilateralism”. Ambassador Brown concluded by stating that that when multilateralism is not viable, a plurilateral approach can give the opportunity to move forward.

Moving to Mr Stéphane Lambert the moderator asked what lessons are to be learned from Canada’s experience of the renegotiation of the NAFTA Agreement (USMCA/CUSMA).

Mr Stéphane Lambert advised that the CUSMA (Canada – United States – Mexico Agreement) is a new agreement modernising NAFTA (North American Free Trade Agreement). He noted that Canada, the US and Mexico had not yet ratified CUSMA so NAFTA remains in force. During negotiations, Canada maintained a constructive approach and engaged on a continuous basis with a focus on preserving middle class jobs and fostering economic growth, objectives no doubt shared with the US and Mexico. CUSMA has many similarities with NAFTA but also reflects current realities and is a valuable contribution to preserving and improving the rules-based international order. In these respects, Mr Lambert highlighted CUSMA’s provisions relating to labour and environment as well as its dispute settlement mechanisms.

Turning to Professor David Luff, the moderator asked, from a legal perspective, how the WTO can hold China more accountable for the practices that other WTO members often raise concerns about.

Professor David Luff started by explaining that the primary issue is not which tools are appropriate to hold China accountable, but the question of the balance of rights and obligations which were negotiated during China’s accession to the WTO. He continued by saying that the US is playing a “power game”, as the current administration is willing to achieve a renegotiation of the balance agreed during the previous negotiations. The speaker also pointed out that both the process itself and the expectations stemming from it fall outside of the means of the rule of law. Indeed, Professor Luff said, it is neither within the function of the WTO to redefine the agreements among members nor to establish which new balance of rights and obligation should be reached. Although there are some elements of WTO law, as well some ministerial conferences, such as the Doha Round, which defines the general direction of the relations between developing and developed countries, Professor Luff explained that the redefinition of rights and obligations could only be achieved through diplomatic action. The speaker also stressed the fact that there are different ways of conceiving diplomatic actions, however, he underlined further that the very issue with China is that, beyond the US, several others WTO Members are not satisfied any more with the balance that was negotiated at the time in which the country joined the organisation. Regarding currently applicable laws, Mr Luff clarified that there is a series of rules, although sometimes imperfect, which can be applied to, for example, market subsidies cases, as well as an element of equity which can be used while enforcing WTO law. Indeed, the speaker continued, the WTO has its own body of law and institutions, including the judicial function, in the context of which there are a number of enforcement tools. Professor Luff subsequently specified that the EU had successfully litigated against China in several cases, and it was likely that this will happen again in the near future. Moreover, he added that trade remedy measures have already been taken against Beijing and that the agenda with the bulk of the changes that need to be introduced is already on the table. Regarding the technical aspects of the WTO reform, the speaker stated that, although there are a number of loopholes in the regulatory mechanism which are sometimes misused through “regulatory opportunism”, from a legal engineering perspective, fixing them would be fairly possible. The same could not be said for the process of negotiating a new balance of rights and obligations among members, as it would be both complicated and time consuming.

The moderator then referred to Mr Roderick Abbott and asked whether there is a need to address the broad US concerns about to the WTO.

Mr Roderick Abbott started by stressing the fact that the WTO is a multilateral organisation, hence the concerns of all members need to be addressed, rather than the views of any one member. The US critical view of the developments in international trade and opposition to trends in dispute settlement should not be the only perspective to be taken into account. He continued by remarking that it is widely considered that the WTO has its imperfections and that there is room for improvement in terms of both efficiency and effectiveness. Nevertheless, in his view, fixing these broad concerns would be not be an easy task as the WTO consists of more than 160 members ranging from the most advanced to the least developed countries, and traditionally progress has to be achieved by a process of consensus and agreement. On another note, Mr Abbott expressed the opinion that the US refusal to nominate new members of the Appellate Body is already a sign that the risk of a stalemate in the functioning of the WTO is high.  While the Appellate Body is not yet dysfunctional, he explained, it is possible that this will happen in the course of 2019. Furthermore, he considered that, although some US concerns relating to the Appellate Body and the WTO Dispute Settlement System can be understood, they are not widely shared among other members. In his view, many WTO members have accepted the fact that the functioning of the WTO has been a work in progress since the very beginning, and that both the Appellate Body and the Dispute Settlement System had to adopt their own working practices and methods in the light of experience. There is therefore some reluctance to engage in major renegotiation of the functioning and legal competence of these two WTO bodies. Mr Abbott concluded by remarking that the divergence in attitudes towards the WTO is nevertheless a matter that goes far beyond the technicalities of how it functions and performs, and that the United States is putting pressure on the international organisation as part of a wider geopolitical game of power politics.

The discussion turned to a deeper analysis of the most challenging issues emerging from the tensions within the WTO and how the current state of play may evolve in the near future.

Ms Åsenius stated that there was a degree of naivety when China entered the WTO since the possibility that a large economy could have dismissed the principles and some of the practices of a market economy was not considered. The speaker clarified that, at the beginning of its WTO membership, China was a relatively small actor in the global economy. However, she said, China’s extensive growth over time has caused a high degree of tensions in the global trading system. Within this context, Ms Åsenius considered that, if, on the one hand, it is true that the US expresses its concerns regarding China the most, on the other hand, the EU also shares some of the same concerns, such as the lack of a level playing field. For this reason, the EU has launched over the last few years a number of dumping, as well as some subsidies cases against China. In addition, Ms Åsenius explained that one of the questions emerging from the anti-subsidies litigations with Beijing was that, in these cases, it was difficult to collect evidence as the Chinese economy often operates in an opaque manner. For these reasons, as well, the EU has proposed to improve transparency of the notification system, which is one of the fundamental points of the EU’s WTO reform proposal, along with the question of filling the gaps in the rulebook regarding subsides. Ms Åsenius also remarked that China tends to respect the outcome of a dispute settlement, nevertheless, she added that it remains impossible to initiate a case when the judiciary branch is not put in the position to operate or if the necessary rules are missing. Regarding the crisis of the Appellate Body, she recalled that there are currently only three arbitrators remaining and, if a conflict of interest due to the arbitrator’s nationality were to occur, any given case cannot proceed. The speaker concluded her intervention by emphasising that she was left with the impression that the business community was not fully aware of the state of play of the WTO and the urgent need to tackle these challenges.

With regard to the statement of Ms Åsenius on the naivety of the international community regarding the negotiations with China, Ambassador Brown said that after the Uruguay Round, there was the belief that the international community was entering a new stage, that multilateralism would have fully worked and that the same dynamics would have applied for China. He subsequently agreed with Mr Abbott that in a multilateral system a whole range of diverse interests needed to be addressed in order to tackle the questions emerging from the WTO reform. For these reasons, the speaker stated that the Australian Government does not always share US criticisms, however, he also stated that difficulties persist in reaching consensus amongst WTO members also due to the presence of others’ legitimate, as well as vested, interests. Ambassador Brown continued by stressing that Australia already has intense trading relations with China after the conclusion of a bilateral FTA and remarked that these relations have not been friction-free. He clarified that tensions have emerged on the topic of investment, with special regard to the ownership and control of critical infrastructure and of certain technology sectors in Australia. For these reasons, Ambassador Brown explained that Australia, like Europe, had to create a new regulatory environment by defining areas of national interest due to the inadequacy of multilateral structures and rules. As a result, the speaker said that Australia also shares the view that it is necessary to reform the WTO rules and to find ways to create a level playing field or, at least, a system that is going to be responsive to the current needs. Nevertheless, he also expressed his concern that, at the moment, there is no obvious way of building such a consensus, as the issues around the Appellate Body reminds us. He also affirmed that fine-tuning the rules to improve transparency, although possible, would not be easy. Given this context, the Ambassador expressed the opinion that the prospect of the WTO breaking up into a series of parallel systems or organisations would have serious consequences both for global stability and economic prosperity. On the question of whether a plurilateral approach could be a way out to the crisis, Ambassador Brown stated that the EU, Singapore, Japan and other countries are pursuing valuable efforts to improve the state of play. However, he also underlined that, beyond the tensions between the US and China, there is a large group of countries which would disagree on reforming the WTO system simply because they are comfortable with the way the system currently works. Indeed, the Ambassador explained that the inertia of the WTO which we are experiencing is also due to the fact that reforming the WTO tends to polarise the membership in ways that it is often difficult to imagine a way forward. For these reasons, he considered that those countries, which believe in the improvements of the existing system, need to be creative and find integrated solutions. Ambassador Brown concluded by stating that the current crisis may become deeper and that, at a certain point, if China comes forward with its demands of reform, this process will put further strain on both the WTO membership and the WTO itself.

Mr Lambert started by agreeing with the other speakers on concerns related to the Appellate Body and added that Canada also had some objections to the US diplomatic tactics utilised so far with regard to the Appellate Body. However, he noted that the constitution of the Appellate Body is not the only critical aspect affecting the WTO’s Dispute Settlement System, nor should the crisis be seen solely through a lens of US-China tensions. The dispute settlement system more broadly is overdue for reform. For example, some WTO Members contend that the Appellate Body has engaged in a type of judicial overreach by interpreting WTO Agreements in a manner that adds to or limits the obligations they contain. As well, other aspects of the WTO that were intended to assist in avoiding disputes need re-invigorating, such as the WTO committee system in which monitoring and discussion of Members’ policies and laws occurs. Canada has engaged in this respect by bringing forward proposals and co-sponsoring proposals with other WTO Members.  Mr Lambert highlighted the Ottawa Group initiative, which aims to find ways to achieve meaningful, realistic and pragmatic reforms to the WTO in the short, medium and long term in its three main areas of function: dispute settlement, negotiation, and deliberation (committees). Mr Lambert went on to note that the Ottawa Group is an informal alliance of WTO Members that are deeply committed to safeguard the multilateral rulebook, are motivated by sense of urgency, and are endeavouring to identify ideas and formulate concrete proposals that can attract the support of the whole WTO membership.

Professor Luff took the floor to clarify that the WTO reform is more a question of global governance in trade within a multilateral framework, than mere legal engineering, and that the WTO would be able to function properly if the legislative, executive and the judicial functions operated in harmony with each other. The speaker went on by elaborating on how the questions related to the executive functions are the easiest to address since they depend on the capacity to maintain the balance of right and obligations already in place. The speaker underlined that improvements, such as on the questions of flexibility and differentiated treatment between developing and developed countries, are achievable. Professor Luff emphasised that the real question that has gone unanswered relates to the legislative function of the WTO, as the issues currently at stake regard this very function of the trade polity. For this reason, Professor Luff continued, if, on the one hand, the criticism against the US diplomatic tactics is legitimate, on the other hand, the US administration’s use of gamesmanship in order to bring China and other emerging economies back to the negotiating table is also legitimate, when multilateral and/or plurilateral initiatives are unable to be effective.

Mr Abbott firstly agreed with the previous remarks on the tensions among WTO members, on the need for improvements as well as on the modernising of the WTO’s core functions. This needs to be done, but he also emphasised that the current diplomatic stalemate narrows down to the question of the Appellate Body and how it could continue to function. If the US were to continue to pursue the same tactics, as it has for the past 12 months, it is likely that the Administration would “hit a brick wall”, in the sense that other WTO members collectively could not be persuaded to agree on any reforms in the near future. Mr Abbott reiterated his opinion that a reform of the WTO would not be easy to achieve given the broad composition of the membership and the wide differences in views among them about WTO objectives. He added that the crucial question is the kind of reform that should be undertaken. In his opinion, the real stumbling block of any possible reforms is not the fine-tuning of rules and procedures, but seeking changes in the behaviour of its members. He clarified the point; modifying the behaviour of members is going to be troublesome not only because there are a wide range of changes to be made, but mainly because changes – such as the question of notifications of actions, the question of subsidies and so on – are touching upon the core of the sovereignty of nation states.  Some members are notably reluctant to the idea of being constrained by international rules, and more so in the current global context. The speaker concluded that this last feature of the international landscape is valid for several of WTO members, but particularly for the current United States administration which, on the one hand, is not satisfied by the current situation and seeks substantial changes, and on the other hand, is not ready to look for shared and common solutions.  While critical of proposals from others, it appears to be unable to accept criticisms of its demands, eventually fostering the dangerous opinion that multilateral institutions are not fit for purpose any more.

The exchange between the speakers drew to a close during the discussion on the possible remedies to the current stalemate.

Ms Åsenius reiterated that the EU is confident in the fact that being creative and putting forward proposals are the main way out of the current stalemate. She considered that this stance was already put into practice in order to amend some aspects of the dispute settlement system, while also addressing some of the complaints that the US have brought about. In this respect, she also mentioned a proposal whereby arbitrators would be allowed to continue their work on the initiated cases, even if their mandate has expired. Ms Åsenius concluded by stating that the international community has a duty to counter the fragmentation of multilateral institutions.

Ambassador Brown agreed with Mr Abbott that a membership-driven organisation implies a responsible behaviour from its members and he added that the WTO has evolved since the time in which a relatively small group of countries were driving the organisation. He added that, while at its very beginning, the WTO members could be more pragmatic, nowadays, as a large organisation representing a series of competitive interests, the WTO needs to be steered towards a common direction. Ambassador Brown concluded his intervention by urging the end of practices which are consistently diverging from the core principles of the WTO, as they will not only damage the long-term interests of the organisation itself, but also those of its members.

Mr Lambert agreed with the need to foster diplomatic actions, which implies the need for both creativity and patience. For this reason, several informal groups have come together to exercise responsible and collective leadership. The speaker indicated that it would be difficult to predict the outcomes of the current state of play and its potential evolution and underlined the importance of WTO Members remaining committed and mobilised. Mr Lambert also highlighted that improving the committee work of the WTO is not as complicated as it may appear and can largely be implemented without a need to amend the WTO Agreements. Moreover, he stated that such work would benefit all Members and help build confidence and momentum to tackle more complex and contentious issues.

Professor Luff stressed that, regardless if one likes it or not, it is part of the international relations’ gamesmanship of nation states to use the set of tools available in order to shift the balance in their respective favour. He however expressed the hope that the majority of the members are aware that the WTO was created in order to serve the interest of all, that the organisation deserves to be maintained and that, beyond the current stalemate, what counts in international trade and development are the actual results. For this reason, Professor Luff concluded, the question of the Appellate Body should be considered as a minor issue, while suggesting that it would be healthier to focus on the creation of a new momentum to reinvigorate the international trade dynamics.

Mr Abbott reminded the audience that there are three major actors in the world trade, namely the EU, the US and China and, from the perspective of a EU observer, as the US and China are conflicting, Europe could act as an intermediary. Nevertheless, the speaker added that the US strategy towards the WTO is not always clear, as it results often difficult to understand if the current US administration is merely willing to rebalance its trade deficit, if it is using the WTO as a window dressing to tackle other bilateral issues or if it is simply deploying tactics to seek a fairer treatment within the WTO. Given this context, the speaker expressed the belief that the possible role of the EU as a mediator is not realistic yet, as well as a reform of the WTO in the foreseeable future.

The rest of the debate and the Q&A session covered the following issues: alternative reforms of the Appellate Body, Brexit and the link with WTO rules, the consequence of a possible collapse of the WTO, the benefits of the multilateral system, the EU industrial goods agreement with the USA as safety net, the EU proposals and amendments to the WTO, the role of China in the current international trade context, possible changes of US tactics regarding trade, the emergence of new regional organisations, the role of the EU in the WTO game of power, the antidumping regulation, the WTO enforcement capacity and its dispute settlement system reform.

Want to know more about the issues discussed in this debate? Then, take a look at the selected sources provided below!

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