WTO at cross roads

The WTO organized a WTO Public Forum on the topic "Is Multilateralism in Crisis?" recently. Pascal Lamy, the Director General of the WTO had this to say about the WTO in the present bleak scenario of the Doha impasse:

"The WTO, in many ways, is one of the most successful examples of rules-based multilateralism at work. Its capacity to administer and enforce the global trade rules, including in the present crisis, is widely recognized as a major success in international co-operation. But our members’ difficulties to agree to update our rule book also demonstrates that the WTO is not immune to the geo-economic and geo-political transformations of our time. The WTO is both an organization and an institution. And I dare say that it is in a better shape as a member-driving institution than as a member-driven organization."

Will the multilateral system overcome the pressures of economic crisis, preferential trade agreements and rising protectionism? Will it be able to weather the storm? Will the WTO survive the impasse of the Doha round of negotiations as well as steer the way for enhanced multilateralism? Are we going to see more protectionist trends both in the developed and developing worlds?

Andy Xie writing in the WSJ paints a gloomy picture for the future of the WTO. The author essentially posits that when the going is good everyone supports increased trade. however, in times of economic crisis, countries tend to become protectionist owing to domestic pressures and labour compulsions.

"The golden era of the WTO system is coming to an end. Indeed, trade disputes could multiply sufficiently to overwhelm the WTO system. 

Economists tend to blame the trade protection policies of the Western economies for causing or worsening depressions. The reality is probably more complicated. The labor market has limited capacity to cope with globalization. The political backlash against globalization is inevitable when the later moves too fast. 

Trade has grown twice as fast as GDP in the past two decades. This relationship is unlikely to continue. The best scenario is for the two to grow at the same pace. The global economy will probably be stuck around 2% to 2.5%. So would trade."

Is the future gloomy for globalization and the multilateral trading system? Will the compulsions of domestic politics, job loss, unemployment and local industry pressures override the need for opening up trade? Will the inequities of the global system outweigh the benefits that it offers? Are these just alarmist conjectures? Will the reality of global supply chains, dependence on international trade and the need to export prevail? Will countries become more dependent on the global economy or inward looking? What are the implications of these trends for the international legal system? How will it cope with it? Will it become redundant or reflect the realities of the time?

21st Century trade and WTO

The failure of the Doha negotiations has raised many issues about the future of the WTO. Will the WTO continue to remain as an effective multilateral institution playing a relevant role in 21st century trade? I have blogged here about the view that the future of the WTO is bright inspite of the current negotiation impasse. While many believe that the WTO continues to perform many functions like trade monitoring and dispute resolution which remain unaffected by the failure of the negotiations, others acknowledge that there is a dent in the the institution's credibility due to the impasse. To what extent has the failure of the Doha round affected multilateralism?

The WTO website has a public forum inviting comments on this issue titled "Is Multilateralism in Crisis?". Richard Baldwin has a well written piece titled "21st century trade and global trade governance: The WTO’s future" wherein he brings to the fore the emerging trends of 21st century trade comprising of international supply chains. Arguing that the failureof the negotiations does not reflect anti-liberalisation sentiment,  WTO's unpopularity or it's irrelevance, he attributes the failure of the WTO to address issues of 21st century trade that is the main issue.

 He characterises 21st Century trade thus:

"This essay argues that the WTO’s woes stem rather from the emergence of a new type of trade — call it 21st century trade. This new trade is intimately tied to the unbundling of production (global value chains). It has reshaped the geography of global production. And — since joining a supply chain is the fast route to industrialisation — unbundling is also at the heart of emerging market growth, which has in turned reshaped the geography of global demand.

21st century trade requires disciplines that go far beyond those in the WTO’s rulebook. To date, virtually all of the necessary governance has emerged spontaneously in regional trade agreements or via unilateral ‘pro-business’ policy reforms by developing nations. The real threat, therefore, is not failure of the WTO, but rather the erosion of its centricity in the world trade system."

He paints two scenarios for the WTO - one which addresses only 20th century trade and ignores the reality of 21st century trade and the other where the WTO plays a crucial part in shaping and engaging with new trade realities.21st Century trade is characterised by the demands for new rules and disciplines governing the nexus of trade, investment, services, intellectual property, and business mobility which are being formulated outside the WTO in Regional Trade Agreements.

"This line of reasoning suggests the WTO’s future will take one of two forms.

1) The WTO remains relevant for 20th century trade and the basic rules of the road, but irrelevant for 21st century trade; all ‘next generation’ issues are addressed elsewhere.

In the optimistic version of this scenario, which seems to be where the current trajectory is leading us, the WTO remains one of several pillars of world trade governance. This sort of outcome is familiar from the EU’s three-pillar structure, where the first pillar (basically the disciplines agreed in treaties up the 1992 Maastricht Treaty) was supplemented by two new pillars to cover new areas of cooperation.¹ In the pessimistic version of this first scenario, the lack of progress undermines political support and the WTO disciplines start to be widely flouted; the bicycle, so to speak, falls over when forward motion halts.

The second scenario involves a reinvigoration of the WTO’s centricity.

2) The WTO engages in 21st century trade issues both by crafting new multilateral disciplines — or at least general guidelines — on matters such as investment assurances and by multilateralising some of the new disciplines that have arisen in regional trade agreements. 

There are many variants of this future outlook. The engagement could take the form of plurilaterals — following the lead of agreements like the Information Technology Agreement, the Government Procurement Agreement and the like (where only a subset of WTO members sign up to the disciplines). It could also take the form of an expansion of the Doha Round agenda to include some of the new issues that are now routinely considered in regional trade agreements."

Which way will the WTO go? Will it remain an institution of the 21st century addressing trade needs of the 20th century or will it play a more pivotal role in guiding and shaping 21st century trade rules? The pressures on the dispute settlement system with the first approach would be telling. When the rule making does not reflect the new realities of trade, it is left to judicial bodies to interpret and re-interpret existing rules to reflect reality. Will this not lead to new tensions? To what extent can the judicial function reflect realities? What essentially is a political question of negotiation, concession and rule making will fall on the rule based dispute resolution system. The coming years will see the WTO either addressing this dichotomy or facing the dilemma of this dichotomy.