Tag Archives: WTO reform

If you take away multilateralism, who will hear us?

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Alicia Nicholls

The title of this week’s article is borrowed from the impromptu but impassioned appeal made by Prime Minister of Barbados, the Hon. Mia Amor Mottley, QC, MP, in her maiden address on September 28th during the General Debate of the 73rd Session of the United Nations General Assembly (UNGA). With only one notable exception, support for multilateralism was a common thread linking the speeches given by world leaders during the General Debate.

Perhaps the most compelling case for multilateralism was that made by Foreign Minister of Singapore, Dr. Vivian Balakrishnan. While warning that multilateralism was at a crossroads and was facing a crisis of confidence, Foreign Minister Balakrishnan made an articulate case for the indispensability of multilateralism to the global community, especially to small states.

Indeed, multilateralism affords small states a microphone that they would otherwise lack on the international stage. Despite the successes of the rules-based multilateral system, there are widening cracks in the system. These require immediate remedial action to enhance the system’s structural integrity to withstand the threat of creeping unilateralism, and to more effectively serve the needs of the global community in a changing geopolitical and economic world.

What is multilateralism?

Multilateralism, in the most rudimentary sense, refers to cooperation among three or more nation states to achieve a common goal. In contrast to the current isolationist US government stance, previous US governments were central to the establishment of the present-day multilateral system, which bears their footprint.

The modern day multilateral system was fashioned in the wake of the Second World War (1939-1945) with the aim of promoting global peace and stability. It was based on the liberal theory of international relations which posited, inter alia, that states which cooperate would not resort to war. It was in that immediate post-war era that the United Nations, the progeny of the League of Nations (1920-1946), was formed in 1945. The Bretton Woods institutions (the International Monetary Fund and the World Bank), the watchdogs of the global economic order, were established at a conference held in Brettons Woods, New Hampshire, US in 1944.

Multilateralism recognizes that no one Government alone can handle the growing plethora of challenges confronting the global community, and that by pooling resources, wisdom and ideas through shared institutions, optimum solutions could be found. In the years that followed, a spaghetti bowl of multilateral organisations has flourished in areas as diverse as health, telecommunications, the environment, migration, international transportation, labour, among others.

With respect to trade governance, an attempt was made by a US-led group of countries to establish an International Trade Organisation (ITO) in the mid 1940s but failed after the US Congress repeatedly declined to approve the ITO Charter. As such, an informal organization known as the General Agreement on Tariffs and Trade (GATT) governed world trade from 1945 until January 1995 when the World Trade Organisation (WTO) came into being.

Why Multilateralism Matters to Small States

The majority of today’s developing countries were still colonies when many of these multilateral institutions were birthed. However, upon attaining independence, acceding to these institutions was viewed as a requisite rite of passage. This is particularly true for the world’s small states which have overwhelmingly been supporters of multilateralism.

But why is that? Small states, with their diminutive economies and populations, weak political leverage and inherent vulnerabilities, would be the “bullied kids” in an anarchic global system where “might is right”. The rules-based multilateral system provides a buffer of stability and predictability for small states. Its norms-based system, undergirded by international law, helps to constrain and contain great power aggression. In a general sense, multilateral institutions provide some semblance of accountability for those States which contravene global norms. I say in a general sense as history has proven that this has not always been the case with big countries. In the area of trade, the WTO’s dispute settlement system gives small states the opportunity, at least in theory, to hold hegemons to account.

Multilateral engagement gives small states, which would otherwise be Liliputians in the international system, a voice. Whereas by itself a small states’ voice is a little more than a squeak, by building coalitions small states have managed to achieve a roar on some issues. One of the most notable cases was the success of the Alliance of Small Island States (AOSIS) in the UNFCCC negotiations leading up to the signature of the Paris Climate Agreement during the COP21 in 2015. Though not perfect, that agreement is an important milestone in the fight against anthropogenic global warming.

Small states have also been able to benefit from capacity building and technical assistance from multilateral institutions. An example is the research done by multilateral financial institutions on the issue of de-risking which has led to the loss of correspondent banking relations, with implications for these states’ financial sectors and commercial relations. In the wake of the financial crisis, several Caribbean countries, and most recently Barbados, have had to enter IMF structural adjustment programmes.

Some small states have also played a key role in the establishment of multilateral institutions. Trinidad & Tobago was instrumental in pushing for the establishment of the International Criminal Court (ICC), and small states helped to push for the United Nations Convention on the Law of the Sea (UNCLOS). Moreover, small states have had some success in attaining high positions in international organisations.

Why is Multilateralism Under Threat?

Why is a system which has given the world relative peace and prosperity for some seventy years now facing what Singapore Foreign Minister Balakrishnan called a “crisis of confidence”? Questions about the efficacy and legitimacy of multilateral institutions have long been raised, but rising populism and anti-globalisation sentiment, in the wake of uneven recovery from the financial crisis has led to rising nationalism, xenophobia and unilateralism. Indeed, the recently published UNCTAD Trade and Development Report 2018 noted that trade tensions were a “symptom of a greater problem”, that is, failure to address rising global inequality and imbalances caused by “hyper-globalisation”.

But many of the problems are not the fault of multilateralism but due to inappropriate policy responses by Governments and by disruptive technologies which have replaced labour with machines. As such, as noted by Foreign Minister Balakrishnan in his UNGA speech, it is up to governments to address this through retooling workers and reformulating their education systems to equip the next generation with the tools to exploit these technologies.

Small states in their successive UNGA addresses have often expressed frustration at the slow pace of action on some fronts of concern to them, including financing for climate change. Antigua & Barbuda’s Prime Minister, Gaston Browne, voiced disappointment with his country’s inability to receive compensation from the US after the WTO dispute settlement body ruled in Antigua & Barbuda’s favour in the US Gambling dispute. Moreover, Caribbean leaders have frequently bemoaned the lack of support for discontinuing the use of GDP per capita as a basis against which to measure development status. This criterion has excluded middle and high income Caribbean countries from most concessional loans and official development assistance.

Making Multilateralism Work Better

The question is not whether multilateralism works, but how can it work better. There are legitimate concerns about whether today’s multilateral institutions, many of which were forged during different economic and geopolitical times, remain “fit for purpose” for today’s global realities and challenges. Former UN Secretary General, Kofi Annan recognised this when he asserted in 2002 that “the United Nations exists not as a static memorial to the aspirations of an earlier age but as a work in progress – imperfect as all human endeavours must be capable of adaptation and improvement.”

On the trade front, for example, there have been increased calls for reform of the WTO. Several members, including the US, Canada and the EU, have made proposals for reform. As it stands, the WTO’s negotiation function remains in a state of paralysis, while the US blocking of the appointment of judges to its Appellate Body over the US government’s dissatisfaction with the dispute settlement system risks creating a crisis in that body’s ability to be an arbiter of trade disputes between WTO members. The renewed appetite for WTO reform provides a window of opportunity for small states to redouble their advocacy efforts for their own reform proposals, while making sure they are not excluded from having a seat at the table.

There is the need to address democratic and transparency deficits within multilateral institutions. The configuration and operation of the UN Security Council, for example, stills reflects a geopolitical reality that no longer exists. Decisions made by the Paris-based Organisation for Economic Cooperation and Development (OECD), where developing states do not have a seat at the table, have had devastating consequences for the offshore financial services sectors of Caribbean states.

Institutional reform would require, where feasible, strengthening the secretariats of these organisations to better serve the needs of member states, especially the most vulnerable. In addition to fostering a greater space for civil society to be heard in multilateral organizations, there should also be greater emphasis on building the capacity of small states to effectively participate in meetings and the day-to-day operations of these organisations.

The challenges which face the world call for more multilateralism, not less. Multilateralism is important for achieving Agenda 2030, including the seventeen UN Sustainable Development Goals (SDGs). Multilateral institutions also have a pertinent role to play in developing rules to address emerging global issues. Singapore Foreign Minister Balakrishnan, for example, called for the UN to develop norms and rules for cybersecurity.

In the past week alone, several events have further reiterated why multilateralism is needed now more than ever. One of which is the IPCC Special Report on Global Warming of 1.5ºC which showed that the world was already experiencing the effects of warming of 1.0 degrees Celsius above pre-industrial levels. The devastation caused by Hurricane Michael to the Florida Panhandle in the US this week reiterates the urgency of the need for redoubled climate action. Rising global trade tensions, protectionism and unilateralism have made trade top of mind for global economic leaders. In their communique released following the Annual Meetings of the Boards of the IMF and World Bank, it was specifically noted that the IMF would facilitate multilateral solutions for global challenges.

Carrying on the multilateralism baton

Prime Minister Mottley concluded her UNGA speech by asking “Will we carry and hand over to future generations, the baton left us by those who dreamed of a world of united nations or will we drop it?” For small states, it is important that we do not allow this baton to be dropped.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is an international trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

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EU makes initial proposals for WTO modernization

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Alicia Nicholls

The European Commission has released a concept paper outlining its initial proposals for making the WTO more relevant and adaptive to current global realities and for strengthening its effectiveness.

The paper originates from a mandate given by the European Council to the European Commission. It was published days after G20 trade and investment ministers called for urgent WTO reform and a month after United States’ President Donald Trump renewed his desire to withdraw the US from the WTO. It also comes against the backdrop of an escalation in unilateralism as Washington readies to impose a further $200 billion in tariffs on Chinese goods imports.

In the paper, the Commission reiterates the EU’s “staunch” support of the multilateral trading system, noting that the 164-member WTO was “indispensable in ensuring free and fair trade”. It warns, however, that the WTO is under threat. It notes that the organisation’s current marginalisation by some of its key members stem from its failure to “adapt sufficiently to the rapidly changing global economy”.

The 17-page concept paper offers proposals under three key areas and is in effect three papers in one. These areas are: rulemaking and development, regular work and transparency and dispute settlement.

The Commission recommends that the EU continue to the work on the issues under the existing Doha mandate, but also states there is urgent need to broaden the negotiating agenda, building on several initiatives launched at the Buenos Aires Ministerial held in December 2017. Lamenting the current inadequacy of the WTO’s Agreement on Subsidies and Countervailing Measures (SCM), the Commission calls for improved transparency and subsidy notifications, rules which better capture subsidies granted by state-owned enterprises and stricter rules for the most trade-distortive types of subsidies.

The Commission recommends updating current trade rules on services and investment, and further reduce existing market access barriers and discriminatory treatment of foreign investors. One issue of which the Commission was particularly critical was the need to tighten rules on forced technology transfer – practices by some States which force foreign investors to directly or indirectly share their technological innovations with the State or domestic investors. Indeed, intellectual property rights issues are a major sore point between US and China trade relations.

The Commission also sounds the alarm about the “grave danger” to the WTO’s dispute settlement system posed by the US’ blocking of Appellate Body judge appointments. By end of September, the Appellate Body would have only the minimum (just three judges on its roster) and by December 2019 will have less than the minimum required to hear an appeal as two more retire. As such, the Commission has made some initial proposals for amendments which would take into account many of the US’ concerns with the WTO dispute settlement system which had been outlined in the President’s Trade Policy Agenda for 2018. For example, the Commission has suggested amending the 90-days rule contained in Article 17.5 of the Dispute Settlement Understanding to provide for more transparency and consultation.

The Commission has made clear that the proposals were meant to be a basis for discussion with the EU Parliament, the Council and other WTO members, and did not prejudice the EU’s final positions on the matters.

The concept paper makes for an interesting read and may be viewed here.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is an international trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

Trump ‘trumps’ the WTO

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Javier D. Spencer, Guest Contributor 

Javier

THE WTO

The 1995 organization has done considerably well to date as an arbiter of international trade. The organization was created as a response to the economic situation in the 1930’s that resulted in global tensions. Its predecessor, the General Agreement on Tariffs and Trade (GATT), was ostensibly limited in scope and so, the consensual demand was for an inclusive and comprehensive institution to govern and promote international trade.

Achieving inclusive and comprehensive trade was daunting; nevertheless, the organization has attained the aforementioned buzzwords and continues along this trajectory. For instance, the WTO started with only 123 signatories under the Marrakesh Agreement in 1994 and today has over 160 members, with pending ascensions. Additionally, it is remarkable to note that the WTO agreements are comprehensive. They cover trade in goods, services, agriculture, sanitary and phytosanitary measures, intellectual property, rules of origin, subsidies, dispute settlement, and many more.

The WTO rests on its founding principles of non-discrimination, reciprocity, transparency, safety values, and binding and enforceable commitments such as the tariffs commitments in order to liberalize and promulgate free trade as a global public good. With these at its core, it is fair to say that the organization has lived up to its core function and objective.

Having regard to the organization’s core functions and objectives, governing global trade is no easy feat, especially taking into consideration competing political and economic interests among WTO member . The organization is a rules-based organization and these rules are agreed upon by consensus of member states. In this regard, the organization’s Dispute Settlement system remains a feather in the cap and its prized arm. The Dispute Settlement Body (DSB) has provided stability to the global economy by ensuring that agreed rules are enforced. Since its existence, the DSB has successfully deliberated on many cases that have maintained the integrity of the WTO rules.

Despite its successes, the future of the WTO remains vulnerable. At present, it is on the receiving end of dire threats from one of its founding members – the United States (US). Interestingly, the US led the global effort to establish the machinery to manage global trade. However, the present President of the United States (POTUS) lashes the organization as the worse deal for the US. POTUS’ actions to date are alarming – from delaying the appointment of members to the WTO Appellate body to dusting off Section 301 of the Trade Act to a brewing trade war with China and other countries to the burial of the NAFTA to public statements of leaving the WTO and much more. We should be worried about the future of the WTO.

TRUMP

The WTO is lauded by many countries as a fair and just organization that seeks to level the playing field and as much as possible promulgate all-inclusivity. However, not all world leaders share these sentiments. One example is the President of the United States, Donald Trump. Trump was elected as the 45th President of the United States and has been in office since January 2017. He triumphed over his opponent with his patented and infamous campaign slogan, “Make American Great Again”, a slogan that is purported to usher in better economic times for the United States of America. It was envisioned to focus on military operations and to focus on implementing mechanisms to fillip the job market and ailing industries in the US. The implication of this, of course, is that Trump’s actions would focus on US’ external trade policy. However, at what cost is Trump willing to “Make America Great Again?” Does he mean to make America great again by ruffling the feathers of a peaceful, collaborative, rules-based multilateral trading system?

It is without a doubt that Trump has very little faith in multilateral organizations. To date, the POTUS has adopted many controversial positions in global affairs, with harsh jabs towards the WTO. He has aired that the WTO does not serve the interest of the US and as such, the organization is biased and unfair to the country. He has further iterated that the WTO and the EU are collaborating against the US and as a result, transactions by these organizations are very ‘bad’ for the United States. These sentiments all lead to a threat to withdraw the US from the organization – much like the US withdrawal from the UN Human Rights body. The threats and dire warning aimed at the multilateral organization from the POTUS show isolationism, protectionism, nationalism, and I even dare say reverse globalization.

The stance on global trade, in particular, and actions that are taken show that POTUS’  external trade policy remains a mystery. One thing is for certain, he strives to deliver on his campaign promise of remedying the trade [im] balances that the US has with other countries, in an effort to “Make America Great Again”. The achievement of this infamous slogan has led to a trade war with China, sanctions against Turkey, a failed trilateral negotiation of NAFTA and other trade turbulences – with surely more to follow.

In early July, in a claim to fix the unfairness in trade, the US imposed 25% tariffs on $34 billion worth of Chinese goods. This then extended to steel and aluminium imports from Canada and the European Union. (The move to extend the imposed tariffs to the other countries could be looked at from the lens of ensuring that Chinese firms do not engage in deflective trade strategies by establishing firms in these territories and export under the guise of these territories.) As the US imposed these tariffs on Chinese goods, China returned the favour by imposing tariffs on US goods and as such, a tit-for-tat trade war ensued. For Trump, he deemed that the imposition of tariffs was necessary and served as “national security” interest of the United States. This exemption clause is enshrined in the 1994 GATT Article XXI of the WTO agreement and is certainly one loophole of which the POTUS will take full advantage.

The example of the US-China brewing trade war definitely puts the global rules-based system in peril. It brings into question the authority or jurisdiction of the WTO to advise the US of the legitimacy of “essential” or national security claims. However, on the other hand, supporting Trump will legitimize a major loophole in the global trade rules. At this crossroads, the WTO faces an uphill battle with a world leader’s determination to dismantle decades of the global trade order.

The POTUS’ actions to weaken the organization goes beyond Section 301 of the Trade Act of 1974, which was the US domestic legislation used to spur the trade war. In fact, there is a draft a bill that the POTUS has advanced that would have dire consequences for the WTO and the global trading system. The Fair and Reciprocal Tariff Act (FART Act) is de facto a mechanism for the POTUS to completely disregard the WTO rules. In other words, the Act confers rights on the POTUS to adjust tariffs rates with countries outside of the WTO jurisdiction, without much red tape and authorization of Congress.

 WHAT WILL HAPPEN?

With all that is happening now in the global trade environment, the brewing question is what would happen if the WTO were dismantled by the US. As a global hegemon, the US’ exit of the WTO will certainly cause a domino effect. Other countries will follow and move to impose tariffs to their absolute advantage – making the rules-based organization and its decades of work useless.

POTUS certainly has no faith in the multilateral trading system and is reshaping the US’ external trade policy by striving for bilateral trade agreements with countries. There is nothing inherently wrong with negotiating bilateral agreements with third-party states. In fact, there are provisions made within the WTO rules-based system that enables countries to create regional trade agreements. However, it would seem that POTUS’ aim is to completely ignore the rules and create his own rules. Rules that would only advance the economic interest of the US, which may not maintain the integrity and ethos of free and fair global trade. This form of trade policy is one where we will see that the US will use economic pressure to its whims and fancy.

Many cases have proved the WTO’s worth in regulating global trade so that there is an equal opportunity available to all member states. Developing countries and countries of the Global South should make it a priority to save the WTO. In particular, the Caribbean Small Vulnerable Economies (SVEs) should focus on the future of the WTO against the backdrop of POTUS’ withdrawal threat. The US remains the Caribbean’s largest trading partner for both imports and exports.  So, what would a US withdrawal mean for these Member States? An appropriate question considering US-Antigua Gambling Case. Antigua is yet to be compensated and the possibility of the US complying with the WTO’s ruling is unpromising. With the US’ pronounced economic influence on the region, its withdrawal would further subject the Caribbean SVE’s to the US “beggar-thy-neighbour” trade policy.

It would be unfortunate for all if the actions of one President collapse a just and fair trading system.

Javier Spencer, B.Sc., M.Sc., is an International Business & Trade Professional with a B.Sc. in International Business and a M.Sc. in International Trade Policy. His professional interests include Regional Integration, International Business, Global Diplomacy and International Trade & Development. He may be contacted at javier.spencer at gmail.com.

Urgent WTO reform needed, says G20 Trade and Investment ministers

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Alicia Nicholls

Trade and investment ministers of the world’s twenty leading industrialised economies (G20) have called for urgent reform of the World Trade Organisation (WTO) to ensure its ability to “face current and future challenges”. This is according to the Ministerial Statement released following the G20 Trade and Investment Ministerial Meeting held on September 14, 2018 in Mar del Plata, Argentina.

The 164-member WTO serves not just as the only multilateral forum for the negotiation of global trading rules, but is a forum for the orderly and peaceful resolution of trade disputes amongst WTO member countries. While the Ministerial Statement does not detail what specific reforms the G20 Ministers deem necessary, it implores all G20 member countries and other interested parties to explore ideas to safeguard the continued relevancy of the multilateral trade governance organisation. G20 member countries have also ‘stepped up’ dialogue on current international trade developments.

The statement comes in the wake of increased threats to the multilateral rules-based trading system. The most recent are the current escalating trade tensions between the US and China manifested in the imposition of billions of dollars’ worth of tariffs on goods by both sides. It also comes  amidst new threats by United States’ President, Donald Trump, to withdraw the US from the WTO, which he perceives to be inherently biased towards the US. This is, despite independent research showing that the US, which is the most litigious of the WTO member countries, wins about 91% of the trade disputes in which it was the complainant, and 89% of cases as respondent. Despite this positive track record, the Trump administration continues to block Appellate Body judge selections, which threatens to grind the WTO’s once vaunted dispute settlement body system to a halt.

Concerns about the relevance of the WTO predate the Trump administration, with a major concern being the WTO’s consensus-based decision making model which requires agreement by all member countries for progress to be made. Out of frustration with the slow pace of the Doha negotiations and the refusal to include new emerging issues into negotiations, there was a marked shift in the US focus during the Obama Administration from the now defunct Doha Development Round negotiations towards the negotiation of mega regional trade agreements. However, the Trump administration marks the first time a US administration has openly threatened to withdraw from the WTO, an organisation it was instrumental in pushing for and forming.

One positive aspect to the Trump administration’s anti-WTO stance and actions is that they have given new urgency to the need to reform the WTO to secure its relevance, efficiency and effectiveness for all members, including small vulnerable economies (SVEs). SVEs account for only a tiny fraction of world trade, but generally have high levels of trade openness and a narrow range of exports and export partners. As such, any unfair trade practices by one of their major trading partners which prejudices an SVE’s exports, could have a deleterious impact on its economy and development prospects.

Despite the problems inherent with the consensus-based decision making model, the removal of such a system would likely undermine the WTO’s legitimacy and disenfranchise less powerful member countries, such as SVEs. The WTO is of particular importance to SVEs because it is one international organisation in which they have equal voice, and because, at least in theory, it provides a mechanism for small States to hold hegemons to account when they engage in unfair trade practices. This, however, has not always been the case. For instance, Antigua & Barbuda’s inability to receive compensation from the United States following the rulings in the US-Antigua Gambling case is the most glaring example of how power asymmetries affect small States’ ability to hold powerful States to account, even where rulings have been made in their favour.

There have been numerous calls for reform of the WTO over the years, as well as several studies, including this one by Bertelsmann Stiftung, which have posited recommendations. Encouragingly, current Director General of the WTO has expressed support and willingness for reform of the organisation, noting that some countries have already begun talks. It is hoped that CARICOM countries, as well as other SVEs, will demand a voice in these discussions and offer their ideas for reforming the WTO to ensure it meets their needs. The presence of CARICOM at the G20 Trade and Investment Ministers meeting, represented by Jamaica, is a good start.

Despite the WTO’s shortcomings, the fact that non-Members continue to pursue accession to the WTO show that countries generally still see value in the organisation.

In essence, the G20 Statement shows support in principle, at least from a majority of the world’s largest economies, for the continuation of the rules-based multilateral trading system which the WTO affords and states commitment towards making the reform of the WTO an urgent priority. Now these words must be translated into action.

The full G20 Trade and Investment Ministers’ Ministerial Statement may be read here.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is an international trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.