Shifting weights and balances within the WTO in a changing global trading landscape

11 November 2015

Fundamental changes have occurred since Doha was launched including major evolution of the world market, substantial transformation of the multilateral trading system and a significant shift of trading power between traditional advanced countries and emerging economies. One important question now arises, how to redistribute roles and redefine rights and obligations among WTO members?

In the past 14 years since the launch of the Doha Round Agenda (DDA), the WTO has witnessed significant changes on many aspects. In the eyes of its constituency, the WTO is simply not responding to those changes, and at least some of those constituents have experienced a fundamental evolution of mindset on the purpose of the DDA and whether the objectives set then were still worth attaining.

A multi-polar world

Since 2001, the shift of economic growth and trade expansion towards a rebalance between traditional advanced economies and major developing countries has been phenomenal. The global crisis in 2008 has exacerbated that shift, with developed countries tossed into a long period of recession while major developing countries have kept growing their economies and expanding their participation in global trade. The share of developing countries in global trade rose from 33 percent to 48 percent between 2000 and 2014. The rise of emerging economies, as represented mainly by the BRICS, is regarded as the most influential occurrence of the 21st century. Based on Purchasing Power Parity (PPP), they already accounted for over 50 percent of the global Gross Domestic Product (GDP) in 2005.

Within the WTO, the negotiating configuration has also undergone unprecedented changes. The QUAD, composed of the US, EU, Canada and Japan, no longer enjoys domination, while groups of developing countries, including the Least Developed Countries (LDCs), begin to play a central role with a far more affirmative voice. This surely is a positive development, rendering the WTO a more inclusive structure. However, this also means that it is more difficult to achieve consensus among 161 members with highly diversified priorities, objectives and institutional capacities. While advanced economies continue to be asked to make substantial contributions, there is also an increasing voice for emerging economies, which, for now, are entitled to Special and Differential Treatment (S&DT), to make more contributions than other poorer developing countries.

A changing global trading system

In the meantime, the world market has enormously evolved, to an extent that many things we now deem normal were unheard of in 2001. South-South trade accounts for up to 30 percent of world trade, up from approximately 10 percent twenty years ago. Technologies nurture the appearance of new business models on a daily basis, such as IT vis-à-vis e-commerce. Global value chains (GVC) have revolutionised the manufacturing process and global trade pattern, shifting trade in products to trade in components and related services. Regional trading arrangements (RTAs), particularly the mega-regional ones such as the TPP, TTIP, RCEP and FTAAP, undermine the WTO as the dominant path for trade and investment liberalisation, resulting in serious fragmentation of global trade governance. International trade negotiations are increasingly affected by domestic and bilateral politics, particularly among major players when elections take place and bilateral relations fluctuate. Behind-the-borders measures and domestic regulations have proved to be far more restrictive on trade than the traditional barriers of tariff and duties, necessitating a switch of mindset on how to streamline global rules.

Since 1995, the WTO has expanded its membership with 33 new members, most of which acceded after the launch of DDA. It has also witnessed a considerable increase of disputes brought to it for settlement. However, in terms of negotiation mechanism, the global trading system has not evolved in a responsive manner towards the aforementioned evolution of global market, mainly due to the protracted DDA. With 161 members with different development levels and priorities, the traditional model of “Round” to achieve consensus under the Single Undertaking simply doesn’t work. New negotiation approaches that are more flexible and more efficient must be introduced. Some plurilateral initiatives have already been tried, such as  Trade in Services Agreement (TiSA), the Environmental Goods Agreement (EGA) and the Information Technology Agreement (ITA), but with totally different configurations, nature of potential results and coverage of benefitting countries. For the moment, it is hard to tell if these are useful pilot instruments for a new path of WTO negotiations or as a distraction from or fragmentation of the multilateral trading system.

Meanwhile, the “21st century issues” such as investment, e-commerce, labor standards, environment, energy and competition continue to escape the rule-making/negotiation pillar within the inclusive WTO system, but are haphazardly dealt with on the plurilateral or bilateral level.

Emerging countries and LDCs

Trade between emerging countries and the LDCs has enormously expanded. China has become the first destination for LDCs exports, surpassing the US in 2008, absorbing today around 25 percent of the total exports of LDCs. Trade between LDCs and India and Brazil has also witnessed a similar trend, albeit on a different scale. Emerging economies, together with some developed countries, have announced Duty-Free Quota-Free (DFQF) market access to LDCs’ exports and provide various assistance programs to LDCs, mainly through bilateral channels.

However, concerns have been raised about certain deficiencies characterising trade relations between emerging economies and the LDCs. For example, like developed countries, most emerging economies import from LDCs mainly natural resources such as oil and ore, while their exports of cheap manufactured products compete directly with local producers of similar products. Also, their bilateral assistance to LDCs is less conditional than the one provided by developed countries, thereby considered making only limited contribution to the improvement of good governance of LDCs.

Meanwhile, beyond pure bilateral relations, the linkages between emerging economies and LDCs are also getting more subtle. In early years after the launch of the DDA, all emerging countries  which then were all regarded as developing countries  and LDCs supported each other in negotiations for S&DT, with LDCs entitled for little or no commitments. The G-110 group, which includes not only G20 and G33 led by emerging economies, but also LDCs and Cotton-4, was a vivid exemplification. However, in later years, doubts seemed to have arisen among some LDCs and other poorer developing countries whether emerging economies should continue to enjoy S&D.

Obviously, the redistribution of rights and obligations among WTO members has become a fundamental issue that obstructs meaningful progress on DDA and undermines the negotiation arm of the system.

Towards a redefinition of rights and obligations of WTO Members

Obviously, the redistribution of rights and obligations among WTO members has become a fundamental issue that obstructs meaningful progress on DDA and undermines the negotiation arm of the system. As WTO Director-General Roberto Azevêdo expressed in October 2015, the underlying issues of the DDA such as the one discussed here cannot be solved in Nairobi. Starting from Nairobi, WTO members should immediately sit down together to initiate a serious dialogue on how to redistribute rights and obligations among WTO Members. Such a dialogue should focus on the following parameters:

Firstly, this is not a technical issue so there is no magic formula, redefinition or regrouping that could be applied to achieve the redistribution of rights and obligations among WTO Members. On one hand, it is impossible for parliamentarians of developed countries to accept that emerging economies continue to be sheltered under S&D. On the other hand, however, it would be politically suicidal for emerging economies to accept that their obligations are the same as developed countries. Therefore, we have to fully recognise the high political sensitivity on both sides and explore potential resolutions with pragmatism.

[...] given their developmental challenges, emerging economies would not, at least not in the foreseeable future, agree to be put into a different group and undertake obligations that they believe go beyond their developmental stage.

Secondly, neither standstill nor re-categorisation will work. Without a successful political dialogue among WTO members, particularly between developed countries and emerging economies, the multilateral trading system will continue to be thwarted from furthering trade and investment liberalization. However, given their developmental challenges, emerging economies would not, at least not in the foreseeable future, agree to be put into a different group and undertake obligations that they believe go beyond their developmental stage.

Thirdly, one has to achieve this in particular negotiations by looking into the specifics of the subject and redefining the rights of obligations therein. Emerging economies must contribute more than other poorer developing countries but other members should refrain from crossing their red lines. Developed countries of course must contribute substantially so as to provide the necessary balance. For market access negotiations, the notion of “principle supplier”, countries that account for a substantial percentage of trade in a given sector, used in GATT, could serve as a potential parameter to define members’ contributions. Successful examples are already there such as the ITA to be concluded soon, in which China already accounts for over 30 precent of global exports. The Trade Facilitation Agreement settled at the end of 2013 also provides an interesting solution, where rights and obligations of developing countries are not defined under S&D but on their capability and technical assistance to be received.

Fourthly, LDCs should participate proactively in this political dialogue to ensure their claim of any results. Despite that, for the moment, this discussion centers around the shift of balances between developed countries and emerging economies. The potential redistribution of the rights and obligations as a result of this dialogue will weigh on the interests of LDCs; so they must be fully engaged to ensure that their interests will be protected or enhanced.

Conclusion

In conclusion, the upcoming WTO ministerial conference in Nairobi will be a decisive moment to start an open and inclusive reflection upon this fundamental issue among all WTO members: developed, emerging and LDCs. Emerging economies should be bold to initiate such a dialogue and exemplify their leadership role in development. WTO members must achieve some political understanding as soon as possible so as to revive the negotiation arm of the WTO. Otherwise, the most vulnerable LDCs, excluded from most RTAs, will suffer the most and the developmental objective of the organisation will be seriously undermined.

Author: Xiankun Lu - Professor, China Institute for WTO Studies, UIBE; Visiting Professor and Senior Counsel, NBS; Council Member, China Society for WTO Studies;  Senior Research Fellow, SC-GTEG.

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