The Trump administration confronted the WTO with a series of unilateral trade actions, including the launch of a trade war with China and invocation of ‘national security’ to justify protectionist measures against allies. A rollback of these unilaterally imposed trade measures — in particular, all Section 232 ‘national security’ measures — and participation in initiatives to facilitate trade in protective equipment and medical products, including COVID-19 vaccines, would provide immediate oxygen to the WTO.
The United States has been critical of the WTO’s dispute settlement mechanism, the fact that many WTO members do not meet notification obligations, and the ability of large emerging economies to self-determine as developing economies which invokes ‘special and differential treatment’ WTO provisions. These critiques are longstanding.
The Trump administration blocked appointments to the Appellate Body, leading to its effective demise at the end of 2019. This prevented the adoption of dispute settlement reports given by WTO panels. The Biden administration should reverse Trump’s approach as part of a broader engagement with other WTO members on reforms to revitalise the organisation.
Consensus decision-making and ‘member-driven’ governance have diminished the WTO’s effectiveness. While appropriate for adopting the results of substantive negotiations, these working practices obstruct discussion of new issues and have been abused by members to impede the day-to-day functioning of WTO bodies. The most notable recent example is blocking consensus on the choice of a new director-general. This also limits the ability of the WTO Secretariat to provide information and analysis on its own initiative to assist WTO members in reaching a common understanding of contested issues for potential cooperation between members.
Many WTO members are shifting toward engagement on a plurilateral basis under the umbrella of the WTO in response to the increasing abuse of consensus. In 2017, members launched negotiations to define good practices and new rules in four areas — e-commerce, investment facilitation, domestic services regulation and supporting the ability of micro, small and medium-sized enterprises to benefit from trade. This is a positive development.
Plurilateral approaches are not a panacea, but they offer a mechanism for large trade powers to cooperate without engaging in negotiations on trade agreements that liberalise substantially all trade. US President-elect Joe Biden has made clear that new trade agreements will not be an immediate priority, reflecting both domestic political dynamics and the need to deal with the pandemic. Plurilateral domain-specific cooperation that focuses on policies underlying current trade tensions offers a means for the United States to still engage meaningfully with other large trade powers without entering into the fraught domestic political economy surrounding the pursuit of trade agreements.
The policy agenda is large. Prominent items include new rules on the use of industrial-cum-tax-subsidy policies, taxation of digital services, data privacy regulation, localisation requirements, and the use of trade policy in efforts to reduce the carbon intensity of economic activity. Although the Biden administration is likely to continue to view the WTO through a ‘China lens’, it is important to recognise that the need for international cooperation and new agreements is much broader.
Constructive engagement by the United States in plurilateral efforts to address substantive matters under WTO auspices will help re-establish the organisation’s salience. There is already much to build on, including ongoing e-commerce and domestic services regulation negotiations, concluding an Environmental Goods Agreement, and restarting talks on a trade in services agreement.
Strengthening the ground for cooperation would benefit from reforms in four areas.
First, leadership on how to improve the institutional design of the dispute settlement system should be a priority for the Biden administration. Crafting an agreement that resolves the crisis and bolsters the dispute settlement function is critical for the continued relevance of the WTO.
Second, the Secretariat should be called to compile information rather than rely primarily on member notifications, including on policies that are not or only partially covered by the WTO. Providing the WTO Secretariat a mandate to use this data to analyse international spill over effects by working with other international organisations will help WTO members identify priorities for new rulemaking.
Third, cooperation requires a common understanding of the issues and options to address the effects of national policies. Action to support deliberation in WTO bodies, informed by stakeholders and pertinent national regulators, is needed to strengthen the foundation for cooperation.
Fourth, a binding code of conduct for signatories of new open plurilateral agreements is needed to establish principles they must abide by to assure their compatibility with the WTO.
Whether the political will exists to pursue such a reform agenda remains an open question. What is clear is that the failure of the Trump administration’s trade strategy to deal with a set of issues that are not US-specific and cannot be addressed through bilateral deals. Plurilateral engagement in the WTO offers an opportunity for renewed US leadership to sustain an open, rules-based world economy.
Bernard Hoekman is Professor and Director of Global Economics at the Robert Schuman Centre for Advanced Studies, the European University Institute, and a research fellow at CEPR.