The WTO Ministerial Conference
Not-so-great expectations.
In this week’s Not in Dispatches, we preview the next biennial World Trade Organisation Ministerial Conference (MC13), taking place in Abu Dhabi, United Arab Emirates, from 26-29 February.
Groundhog Day
Every two years, trade ministers from the WTO’s member economies convene to advance or conclude ongoing negotiations and to initiate new talks. And each time, there is a predictable rhythm.
Hopes are raised that “this time will be different” and that ministers will come with ambition, pragmatism and flexibility - rising above venal national interest to make decisions not only for the global good but that of the WTO itself. Diplomats in Geneva work around the clock in preparation, trying to agree on as many technical matters as possible to leave the fewest “political” issues that only their (mostly) elected ministers can sign off. And then reality sets in: the diplomats cannot clear all the debris, the politicians refuse to budge, and the reality of realpolitik hits home. Last-minute comprises are made but the results are underwhelming.
Better to temper expectations early.
There are fundamental structural reasons why the world’s trade ministers find it hard to reach new agreements at the WTO. The organisation’s membership has grown from 76 to 164 members since its founding in 1995. With the so-called “consensus rule” whereby every country must agree for a new trade treaty to become law, in essence, every country has a veto. And with so many different countries with their own economic philosophies, industry interests and hobby-horse issues, there are almost always at least a few countries ready to hold negotiations hostage to get what they want.
No matter how energetic its Director-General, how competent its Secretariat, or how urgent and important its agenda, the WTO’s decision-making process and expanded membership mean that negotiations are often slow and its outcomes are the lowest-common-denominator.
Geopolitical Strategy is the advisory firm behind Geopolitical Dispatch. Our partners are former diplomats with vast experience in international affairs, risk management, and public affairs. We help businesses and investors to understand geopolitical developments and their impacts with clarity and concision.
Little Shop of Horrors
These structural constraints are exacerbated by geopolitics.
Chief among these is the US-China rivalry. China’s WTO accession is widely viewed as having contributed significantly to its economic rise through integration with global markets. The US, which along with other nations allowed China’s accession, has grown increasingly frustrated that China has grown in economic power without fundamentally changing its economic model, which includes significant state-direction, subsidies and trade restrictions. Many of America’s attempts to curb China’s rise have been through trade policies often inconsistent with the spirit if not the letter of WTO laws. And many of its frustrations with the WTO are rooted in a sense that its rules have hampered America while facilitating China’s rise.
An increasingly bitter “Global North v Global South” dynamic also infects the WTO. Many international policy debates, but especially those relating to trade, often end up with countries in two clear camps. On the one hand, advanced industrialised economies tend to argue for more open markets, greater intellectual property protections, and more ambitious environmental action; while developing countries tend to push for the opposite. Clear, sometimes formal, negotiating blocs emerge and more often than not the diametrically opposed views are hard to reconcile.
More fundamentally, however, each nation simply has its own interests - and a cursory look at a country’s economy is a good short-hand measure for understanding how they will advocate at the WTO.
Australia, an island economy middle power dominated by resources and agriculture whose prosperity has always depended on exports, adopts generally free-market positions and values highly a multilateral body to regulate trade and arbitrate disputes. India, a still-largely agricultural economy with over a billion mouths to feed, cares less about free trade but will do almost anything to protect its farmers. South Africa uses the WTO as a platform to demonstrate its leadership of African nations and the ‘Global South’ more generally as well as to push back against liberal economic policies inimical to its own philosophies.
And smaller, less powerful nations place great store on the WTO because it is a more efficient way of accessing foreign markets than signing many agreements with countries that may have little interest in bilateral trade deals and its dispute settlement system allows it to enforce rules against more powerful countries.
Stand by Me
Such divergent interests will play out across the main areas of negotiation in Abu Dhabi.
A major area of debate is around e-commerce. There are essentially two camps with one group (led by Western nations) favouring more open trade settings and another group (generally developing countries, led by India, South Africa and Indonesia) believing governments should have greater powers to control, regulate and tax the digital economy. These divisions play out in discussions on how to manage cross-border data flows, storage of data in local servers, and whether to extend the 1998 moratorium on imposing “customs duties” on “electronic transactions”. In essence, poorer countries with more statist economic models want to be able to collect taxes on the digital economy while richer countries home to tech giants oppose foreign governments creating costs for their companies, limiting their market access, and reducing their competitiveness.
Agriculture discussions will revolve around the same entrenched and divergent positions that WTO members have been taking for years. Developed countries, led by the United States and the European Union, tend to advocate for the reduction of trade barriers and subsidies that distort the market, aiming to level the playing field for their technologically advanced agribusinesses. On the other side, developing nations, with India and several African countries at the forefront, insist on the right to protect their nascent farming sectors through subsidies and market protections such as export restrictions on food, which they consider are vital buffers against the volatility of global markets and the threat of food insecurity.
Emailed each weekday at 5am Eastern (9am GMT), Geopolitical Dispatch goes beyond the news to outline the implications. With the brevity of a media digest, but the depth of an intelligence assessment, Geopolitical Dispatch gives you the strategic framing and situational awareness to stay ahead in a changing world.
Enemy of the State
Negotiations over WTO reform are difficult. While almost all countries agree on the need for institutional reform, there is no consensus on the direction and extent of the necessary changes to the WTO’s dispute resolution mechanism, decision-making process and treatment of developing countries.
On dispute resolution, the United States has been the most vocal advocate for reforming the WTO’s Appellate Body, criticising it for judicial overreach and inefficiency. The European Union and many other countries support reform but emphasise the need to preserve the Appellate Body’s independence and effectiveness. Developing countries, including India and South Africa, fear that such reforms might weaken the dispute resolution mechanism, reducing their ability to challenge unfair trade practices by more powerful nations.
Debates on whether and how to reform the decision-making process also tend to divide along economic lines.
Australia, the European Union, Japan and Canada are among those pushing for a move towards plurilateral agreements, allowing coalitions of the willing to advance on specific issues without requiring full consensus. On the other hand, many developing nations stress the importance of the consensus model to protect their interests, fearing the plurilateral agreements could marginalise their voices.
One of the issues for discussion at MC13 will be whether, and how, to incorporate plurilateral agreements into the body of WTO rules. For example, the Investment Facilitation for Development Agreement, which now has 117 members participating as signatories, comprises over two-thirds of the WTO’s members. The question is how to incorporate these within the WTO framework, given some non-participating countries such as India argue that, without a multilateral mandate, they undermine the consensus nature of the WTO.
Nations also have wildly different views on the so-called “Special and Differential Treatment” (SDT) principle, which allows developing countries more flexibility, support and time to comply with WTO rules. On the one hand, many developing countries not only wish to preserve the current SDT provisions but even strengthen them, with the “G90 group” coalition of developing nations putting forward a series of proposals. On the other hand, the United States and some developed countries argue for a more nuanced application of SDT, suggesting that emerging economies like China and India, should not be able to “self-designate” as a developing country and thus the same benefits as much smaller and poorer nations.
Back to the Future
In Abu Dhabi, trade ministers may make some progress in bridging these gaps but are unlikely to reach any major agreements. The e-commerce moratorium will likely be extended but governments will not finish the plurilateral discussions. Agriculture discussions will stall, especially with upcoming elections in India, the European Union and the United States. And without much to trade on the substantive agenda, governments are very unlikely over three days to reach an agreement on the foundational questions of WTO reform.
But one area where there could be progress is on fisheries subsidies. At MC12, governments agreed on rules targeting the situations in which subsidies are the most dangerous for sustainability: illegal fishing; overfished stocks; and unregulated high-seas fisheries. MC13 presents a crucial opportunity for WTO members to complete this agreement with broader rules addressing subsidies more comprehensively. These rules are critical to better tackle the underlying role of government subsidies as a driver of overfishing. Nonetheless, there are entrenched interests when it comes to fishing subsidies, including from the largest fishing economies in the world such as China, the US, South Korea and Europe.
One issue on which there is likely to be a consensus among members is the accession of Comoros and Timor Leste to WTO membership. The most recent accessions to the WTO were Afghanistan and Liberia in 2016. At this point, there are a further 22 countries still waiting to accede.
It’s a small ray of light that countries are still hoping to join the WTO, despite the organisation’s beleaguered status.
We hope you are enjoying Geopolitical Dispatch, as well as these weekly essays. Please feel free to share with a friend or colleague, or leave a comment below.