In May of last year, in a speech at the OECD, President Emmanuel Macron
raised the need to address the profound reforms in the WTO (for his speech
go to https://www.elysee.fr/).
The speech of the French President helped move forward in a process with
multiple unfoldings and proposals which will probably intensify in the
coming months. (On this topic, see the August
2018 edition of this newsletter on http://www.felixpena.com.ar/).
Governments, business institutions, think-tanks and a variety of non-governmental
organizations participate in this process.
As part of this process, last November, on the eve of the G20 Summit,
a group of 33 experts from eleven Latin American countries with diverse
backgrounds of experience and analysis linked to the multilateral trading
system, published a document with their favorable opinion on multilateralism
and the modernization of the WTO. This document also included some specific
references on the topics to be addressed (for the full text and the list
of participating experts go to http://www.iei.uchile.cl/).
In the mentioned document, the experts begin by noting that the multilateral
trading system is in deep crisis because it is unable to deal with some
of the economic and commercial challenges of the 21st century, such as
the intensity of technological change; the irruption of China and emerging
Asia as relevant players in world trade; the industrial organization around
value chains; the plethora of preferential trade agreements promoted by
the US, China and the EU, and the link of trade with the environment,
climate change and the world of work.
What is at stake, the document continues, are the founding principles
of the WTO that all member countries pledged to respect. Key among these
are the principles of non-discrimination, reciprocity, transparency and
safety valves in well-defined situations. In a central paragraph of the
document, they point out that the issue is to defend trade governed by
rules, or otherwise enter a system where political power will prevail
in trade and investments. It adds: "in this last scenario, the developing
countries would be the most affected".
The document also points to specific issues and initiatives to consider
in the debate to modernize the WTO.
Some of the mentioned issues are:
- monitoring and transparency of trade measures;
- disciplines on subsidies with limits to the most distorting ones;
- international cooperation and control of unfair competitive practices
of state and private companies;
- conclusion of negotiations on agriculture, substantially increasing
access to markets, reducing all distorting domestic support towards
its progressive elimination;
- strengthening the mechanism for reviewing national trade policies;
- updating of special and differential treatment in order to adapt it
to the current economic and commercial realities;
- improvement of procedures, facilitating flexible multilateralism of
variable geometry, even through plurilateral agreements whose benefits
can extend to all WTO members;
- trade links with inclusive and sustainable development, and
- monitoring and analysis by the WTO Secretariat to level the playing
field and reduce information asymmetries, improving the quality of notifications
by reinforcing its collaboration with the OECD, the World Bank, UNCTAD
and the IMF, among others.
Finally, the experts state that Latin America should not remain outside
the necessary debate on the reforms of the WTO. Specifically, they affirm
that the roles of the Mercosur and the Pacific Alliance are irreplaceable
and that, until the moment the document was finalized, they had not been
manifested (the document was finished on November 28, 2018).
In January of this year, a meeting of international experts took place
in Punta del Este, with the participation of some of the signatories of
the previously mentioned document. In this meeting they decided to create
a study group and a proposal in order to generate a space for debate on
the relevant issues that should be considered for the necessary reform
of the WTO system, including its dispute settlement mechanism. (In this
regard, see the article entitled "Experts
from the region articulate proposals in view of the crisis of the WTO
", by Luis Custodio, in the Economy and Market Section of newspaper
El País of Montevideo, of January 21, 2019, on https://www.elpais.com.uy/.
At the time of writing this newsletter, the constitutive document of this
Group of Punta del Este, including its proposals on the priority issues
to be addressed, had not yet been published).
The fact is that, after the G20 Summit in Buenos Aires, there seems to
be a consensus among WTO members on the need to adapt their rules to the
new realities of international trade. (See the December
2018 edition of this newsletter on http://www.felixpena.com.ar/).
In the case of Latin American countries, the agenda of reforms to be
considered can also draw from those that were already considered relevant
when the General Agreement on Tariffs and Trade (GATT) was negotiated
in 1947. At that time, international relations were substantially different
from what they are now. Few countries participated in the negotiations
and the US had a decisive role due to its relative power and its major
influence. Its interest was to achieve a global trading system guided
by rules and focused on few principles, of which non-discrimination was
a fundamental one.
A main rule that was meant to guarantee this principle was Article XXIV
of the GATT, which in practice permitted exceptions through two modalities:
the customs union and the free trade area. That article is a good example
of the "constructive ambiguities" that characterized the original
GATT rules. In fact, its interpretation is still somewhat complex today.
This is evinced by the interpretation that usually predominates with respect
to what a customs union or a free trade area "should be". The
experience of the protracted bi-regional negotiations between Mercosur
and the EU is illustrative of the difficulties that arise when there is
a rigid interpretation of the scope of this article.
Nowadays, the WTO, successor to the GATT and which incorporated its main
rules, including Article XXIV, has 164 members. The relative power of
each country individually is different from what it was at its inception,
and none of them would be able to impose the rules of international trade
interpreted only in terms of their own national interests. This does not
mean that they will not attempt to do so, but it would be difficult for
them to sustain this over time.
On the other hand, the dynamics of global trade in a world with more
protagonists and increasing connectivity between national and regional
economic spaces, makes the existence of ground rules whose compliance
does not depend on the will of each country more necessary than ever.
However, the predominance of consensus as the main criterion to change
existing rules or to approve new rules makes it very difficult to successfully
develop any attempt to adapt the WTO system to the new realities. The
experience of the Doha Round proves this point.
A valuable contribution of the recent G20 Summit in Buenos Aires was,
precisely, confirming that the multilateral trading system is not fulfilling
its goals, and that it is possible to improve it. Therefore, the need
to make the necessary reforms to improve its functioning has been acknowledged
(the immediate precedent were the conclusions of the G20 meeting of Ministers
of Commerce, held in Mar del Plata in September 2018).
Today, an additional factor impacts the practical importance of the reforms
aimed at modernizing the WTO: it is very likely that, in the coming months,
there will be a paralysis of its dispute resolution system because, in
practice, the process of appointing the arbitrators to replace those who
complete their periods is blocked. A dispute settlement mechanism thus
paralyzed could significantly affect the effectiveness of the multilateral
rules of world trade. The system would then be exposed to the discretionary
criteria of the member countries, especially those with a greater relative
To undertake the WTO reforms, a significant problem results from the
fact that not all the countries of the system share similar criteria to
define which should be the priorities to be addressed. This is not a minor
issue when it comes to building the necessary consensus.
In recent occasions, different statements have been made about the issues
that would require a more urgent approach. One is in the Joint US-EU Declaration
of July 25, where the willingness to work together is expressed "in
order to reform the WTO and combat unfair trade practices, including the
theft of intellectual property, the forced transfer of technology, subsidies
to industry, distortions created by state-owned companies and overcapacity."
Additionally, on September 18 a "concept paper" of the European
Commission on the modernization of the WTO was published (http://trade.ec.europa.eu/)
and on November 26, proposals by the EU and a group of other WTO member
countries on the functioning of the appellate body in the dispute settlement
system were advanced (http://trade.ec.europa.eu/).
Another example is the Joint Statement of the meeting organized by the
Government of Canada, with the participation at Ministerial level and
Heads of Delegation of a group of like-minded WTO member countries (https://www.canada.ca/).
This meeting took place in Ottawa and included Australia, Brazil, Canada,
Chile, the EU, Japan, Kenya, Korea, Mexico, New Zealand, Norway, Singapore
and Switzerland. They advanced ideas on the functioning of the dispute
resolution system and indicated their willingness to work on solutions
to the observed problems, which, at the same time, would help preserve
their essential characteristics. They also agreed to strengthen the negotiating
function of the WTO, for which flexible and open approaches are required
for multilateral solutions. They also acknowledged the need to face the
distortions in markets caused by subsidies and other instruments. Additionally,
they mentioned it is necessary to explore how the dimension of development,
including special and differential treatment, can best be achieved in
the rule creation efforts. Emphasis was placed on effective transparency
in the functioning of the relevant agreements. Finally, it was pointed
out that the current situation of the WTO is no longer sustainable. They
stated that they would continue to fight protectionism, and that they
have the political commitment to act urgently on the issues of transparency,
dispute settlement and the development of 21st Century trade rules for
In the previous paragraphs, we have made reference to some of the issues
mentioned as relevant in the different approaches on possible agendas
to reform and update the WTO, including those suggested by the group of
Latin American experts who met last November.
One issue that may also need to be incorporated into the WTO's modernization
agenda is that which refers to exceptions to the principle of non-discrimination
that may result from the application of Article XXIV of the GATT. As indicated
before, at different moments of the processes of Latin American integration,
rigid interpretations usually originating in the USA and the EU influenced
the possibility of moving forward with formulas adjusted to regional realities.
It happened, for example, when the Treaty of Montevideo of 1960 was negotiated
resulting in the creation of LAFTA. The original idea of partial advancements
of sectoral scope had to adjust to what was understood to be a free trade
area of broad coverage and reduced terms. The compliance with this requirement
explains, to a large extent, the failure of the first effort of economic
integration of regional scope. This has also happened in the development
of negotiations for a bi-regional agreement between Mercosur and the EU.
The rigid concept of regional free trade area, one of the requirements
established by the European Commission, explains the fact that, after
twenty years of negotiations, the agreement has not been possible.
Note: We have previously addressed the topic of the reform of the WTO,
its necessity and its scope, in the editions of this newsletter of the
month of July
2018 and September