WTO Reform: The will and way to find middle ground

By Lin Shaowen

Reform of the global trading system is dominating media headlines as leaders of the world's major economies gather in Argentina for this year's G-20 summit. But while the momentum for reform seems ripe, WTO members are sharply split on virtually every key issue. The public debate has led to an exchange of emotional rhetoric, as well as threats of withdrawal or eviction from the World Trade Organization.

The situation is somewhat muddied. There are no clear-cut sides being formed on issues such as trade disputes or rule changes, not even among those considered to be "like-minded" allies. The divide seems to get even deeper as one jumps into the various 'rabbit holes' of specific topics.

Ministers pose for a group photo at the World Trade Organization reform talks in Ottawa, Ontario, on October 25, 2018. [Photo: VCG]

The European Union and Canada have joined China in the demand for trade remedies connected to the Trump administration's imposition of various trade tariffs. However, Canada and the EU have also publicly allied themselves with the US posture which is demanding Chinese policy changes, alleging intellectual property theft, forced technology transfers and unfair market access.

The waters tend to clear when it comes to differentiated treatment for WTO members which hope to protect vulnerable industries. Here we begin to see a "north vs. south" alignment, a legacy of the deadlocked Doha negotiations which have so far failed to reach any of their ultimate goals of boosting development.

The Trump administration has refused to allow any new judicial appointments to the WTO's appellate body. There are currently four vacancies on the seven-member panel. And with another retirement widely expected this coming year, the court will not be able to function, as it requires at least 3 members to hear a case. With that in mind, the economic brinksmanship, which Trump is known for, appears to be playing out in Washington's favor. Despite 71 different WTO members joining Mexico in protest against the US refusal to accept new members to the WTO Appellate board, reports suggest the EU may be preparing to bow to Washington's hostage-negotiation tactics by introducing "special terms" to accommodate the White House. Acquiescing to this will only send out a message that the US can be held to a separate set of standards.

Bowing to US demands seems even more foolhardy - and ultimately pointless - when one considers the fact that the Trump administration has openly threatened to withdraw itself from the WTO. Trump has been a long-standing critic of the world body, blaming it for - what he sees as - failing to uphold fair trade standards. But at the same time, the US President has also used the WTO as a cudgel to try to brow-beat China in the current trade dispute, threatening to use US political and economic power to evict China from the World Trade Organization.

Despite all this, many observers are still expressing "cautious optimism" about the impending G20 summit in Argentina, suggesting the sessions in Buenos Aires could create a breakthrough with Trump, keeping the US onboard and ensuring the ultimate survival of the WTO.

From a purely economic perspective, there is some reason for optimism. Members of the G20, the world's 20 largest economies, account for 86% of the world's GDP, which is generated on the back of four-fifths of the world's overall trade. And while high-profile gatherings such as the G20 often end with few tangible results, world leaders did break precedent in their first summit in 2008. Leaders of the world's economic engines were able to put aside their individual issues and come up with an action plan to avert what was shaping up to be the world's worst economic crisis since the Great Depression some 70 years earlier. And while US lawmakers have ultimately failed to correct the systemic issues which led to the near-collapse of the global economic system, the world economy has been able to persevere, with global GDP now surpassing pre-2009 levels. And beyond a collective desire for economic stability among the G20 leaders, observers are also maintaining a certain level of optimism around the planned meeting between Chinese President Xi Jinping and US President Donald Trump on the sidelines of Buenos Aires. At the very least, market watchers will be looking for a statement of general principles to prevent the potential collapse of the current world trade system.

However, this optimism should be somewhat tempered, as global leaders have been throwing out strong language in statements emanating from Geneva (WTO headquarters), Singapore (during ASEAN summits) and Port Moresby (APEC meetings), as well as from various national capitals. Both the G7 summit in May and the APEC summit in November failed to issue collective joint statements due to sharp differences and uncompromising positions on trade and trade rules.

Most WTO members have yet to present their detailed proposals and priority lists for WTO reforms. And among those that have, the positions are often conflicting and contentious, or else vague. Most economies, including the European Union and Japan, have stated an opposition toward protectionism and tariff increases. They both say they favor multilateralism, suggesting they hope to make the WTO more relevant by updating its rules and using the system to address today's trade disputes. However, they have also offered little in how to talk the Trump administration 'off the ledge,' or even how to convince Washington to get out of the way and allow for appointments to the WTO Appellate panel. But there are areas where the industrialized world is seemingly coming together, including the broader concept of making G7 nations a "tariff free and subsidy free" grouping. This concept is creating unease among developing members of the WTO. Many are afraid that once the world's seven leading industrialized nations do become a free trade zone, vulnerable industries and domestic markets in developing nations could come under the gun if the G7 demands "reciprocal" policies in trade and market access.

In putting forward concepts to maintain a multilateral approach to world trade, China has outlined three fundamental principles and five proposals on WTO reform "to strengthen its authority and effectiveness".

A statement released by Vice-Commerce Minister Wang Shouwen says these principles and plans for the WTO will help "uphold the organization's core values of non-discrimination and opening up, protect development interests of developing members and address their difficulties in integrating into economic globalization, and follow the mechanism of decision-making by consensus."

By saying that "rules should be jointly made by the international community, rather than a minority of members, and cliques or factions should not be formed," the leading Chinese commerce official is taking a less-than-subtle swipe at G7 attempts to set a precedent that could force others to follow. Chinese envoy to the WTO, Ambassador Zhang Xiangchen, has also warned against any attempt to "put China in a tailor-made straitjacket of trade rules to constrain China's development" in the name of reform.

So now we watch and wait. With all eyes on Buenos Aires, there is reason to hope that world leaders will come out of their G20 sessions with a vision for the future. Failing any concrete action, even the pessimistic should hope to glean a signal of where the leaders of the world's 20 leading economies hope to take global trade.

US President Donald Trump also has an excellent opportunity to shore up global market stability in his meeting with Chinese President Xi Jinping in Argentina. Market watchers are going to be looking for any sign that the simmering trade dispute between the two largest economies in the world could be coming to an end. Beyond that, world markets are ultimately hoping the US President will signal a realization that unilateralism is a dead-end. While Trump can - and should - be lauded somewhat for his drive to generate more jobs in the United States, his failure to see the broader benefits that international trade creates remains a disappointment.

China made a decision nearly 40 years ago to reject isolation, opting instead to be an economy which has become a critical component of the global society, while generating the growth to pull around 700 million people - close to double the population of the United States - above the poverty line. China does not want this "economic miracle" to end. China is also willing to lead, listen and learn when it comes to global trade. "For the issues where (WTO) members have divergent views such as subsidies or transfers of technology, we can have different forms of dialogue while respecting each other's positions," said WTO Ambassador Zhang Xiangchen.

Reforms need to follow a step-by-step approach if the WTO is going to be able to answer new challenges. To make it work, the global trade watchdog needs to have stronger teeth, which the US can provide by simply giving the WTO appeals panel the ability to do its job. There is also a need to update the rules to better address today's economic structure and business models, which are quickly becoming more geared toward areas such as e-commerce.

There are seldom if ever 'one size fits all' solutions. The best option for WTO reform must surely be a package in which everyone can find something they like, but also elements they may find challenging but can accept. That needs some compromise by all, along with a willingness, through negotiations on an equal footing as co-stakeholders, to charter the WTO boat through choppy waters.

So, look to the G20 for a shot in the arm? I share that cautious optimism.

The writer is a senior political analyst for China Radio International. He has given interviews on international relations to the BBC, NPR, ABC of Australia and Russia's RT television.