The Platform

Overseas Development Institute

Global trade has changed significantly since the inception of the WTO. It’s time for the WTO to adapt to these changes.

Over the last decade or two, trade experts, policymakers and practitioners have called for reforms of the WTO. They feel that the WTO has exceedingly become ineffective in negotiating concrete outcomes best suited to all negotiating members. Most negotiations have often ended in a deadlock and countries have used past deadlocks as a tool to push their agendas. Scholars believe that the rules of the WTO have not adequately adapted to changing global trade dynamics and its rulemaking procedures need to be revisited.

Member countries as well as trade scholars have raised issues on various challenges that exist in the WTO’s functioning and have called for their early resolution. While the WTO’s mandate is to oversee and regulate the global trading system, increasing trade protectionism and inward-looking policies of some major powers impede the realisation of its original mandate.

With the advent of digitalisation, there is a transformation in the global trading system and the WTO needs to adapt to these changing times, with issues like digital trade, investment facilitation, regulatory linkages, etc, coming to the fore. Also, global trade has also evolved due to the ongoing pandemic, putting immense pressure on global supply chains and due to the amplified effect of inward-looking trade policies.

The issues faced by the WTO are varied. Developed countries have raised concerns on the special and differential treatment given to developing countries, initially introduced with the purpose of integrating developing countries into the global trading system. Market distorting moves by certain countries like China are also a cause of concern.

The appointment of Ngozi Okonjo-Iweala, the new director-general, the first woman, and the first African to serve as director-general, is being seen as a move in the right direction.

The reform proposals that are under discussion, focus on three elements in the WTO’s functioning: reform of rulemaking; bringing transparency and enabling monitoring; and effective dispute settlement.

The WTO has been historically applauded for its ability to resolve trade disputes and this success is credited to its Appellate Body, specially convened to bring transparency and accountability to the global trading system. However, for the last few years, there was a strain on the capacity of the Appellate Body due to disagreements on the appointment of new members to fill existing vacancies. The body is currently unable to review appeals given its ongoing vacancies. The term of the last sitting Appellate Body member expired last year.

In the light of increasing operational pressure and lack of effectiveness of the WTO in bringing consensus, countries have preferred to negotiate bilateral, plurilateral, and regional trade agreements instead. Such trade agreements are opportunities for select countries to create new rules and to address the changing nature of the global trading system. But they are often discriminatory in nature, giving preferential treatment to signatory countries, creating alliances and blocs with their own rules and monitoring systems. Reciprocity rules and clauses like most favoured nation status also add to existing complexities.

Despite its limitations, such agreements can ensure progress in the areas of trade policy where multilateral agreements fail to reach a consensus. Such agreements, are the need of the hour in new areas like digital trade and e-commerce and can be expanded to include new members at a later stage.

The G20 is best suited and must take the lead in providing a workable approach to streamline and reform the WTO. The G20 must also focus on reducing the detrimental effects of the pandemic on global trade. These groupings must first initiate dialogues among member countries to identify and provide reform solutions. Since the G20 includes developed and developing countries, that are often at loggerheads at the WTO, such groupings are apt to champion this effort and bring trust and transparency to the negotiations process.

Likewise, the BRICS countries (Brazil, Russia, India, China, and South Africa) can also contribute as regional players. They can represent the interests of other countries of their neighbourhood, that do not have a voice in multilateral negotiations. India and China have led various proposals at the WTO since its inception and are well suited to lead this effort on behalf of the BRICS.

G20 and BRICS trade ministers convene every year to deliberate on issues facing global trade. Reform of the WTO has been on their agenda for years. In 2020, the G20 trade ministers met virtually. Their official communique reads: “Amid the COVID-19 pandemic, we will continue our cooperation and coordination to: support recovery of international trade and investment; support the necessary reform of the World Trade Organization (WTO) to which the Riyadh Initiative on the Future of the WTO provides political support; encourage greater international competitiveness of Micro-, Small and Medium-Sized Enterprises (MSMEs); foster economic diversification; and strengthen international investment.”

G20 countries must mandate the trade ministers as well as the Trade and Investment Working Group (TIWG), to create a workable framework to facilitate an open and transparent dialogue to identify issues and provide solutions and to create a roadmap for implementing workable actions. Likewise, the BRICS has the Contact Group on Economic and Trade Issues (CGETI) set up for the same purpose.

While these working groups and contact groups already exist, a clear mandate that will ensure a speedy reform process is the need of the hour.

As the world still grapples with the pandemic, a well-functioning global trading system with a reformed WTO is required to ensure the efficient supply of critical medicines, medical supplies and to facilitate a coordinated response to the pandemic.

Purvaja Modak is a Research Fellow at the Centre for Public Policy Research (CPPR). Her research focuses on issues of global economic governance, international trade and finance, economic diplomacy and multilateral financial institutions. Prior to joining CPPR, she was a Researcher for Geoeconomic Studies and the Manager of the Research Office at Gateway House: Indian Council on Global Relations, a Mumbai based foreign policy think tank. She was a fellow at the 2nd G20 Global Leadership Programme 2019, hosted by the Korean Development Institute (KDI) and the Korean Ministry of Strategy and Finance.