Last week’s marathon ministerial meeting of the World Trade Organization breathed some life back into the multilateral trading system. He was able to trumpet a package of deals, including a partial waiver of patents on Covid vaccines and reductions in fishing subsidies; these lacked any real substance, although their impact depended on their implementation. Yet the WTO remains, in many respects, on life support. Keeping him alive is important; if it didn’t exist, the world would have to reinvent it, which would be very difficult today. Indeed, with multilateralism under such pressure and growing problems of managing global public goods, it is arguably even more necessary today than when it was created in 1995.
Globalization, of which the WTO has been a driving force and a facilitator, has come to a standstill. The global financial crisis was followed by a populist backlash against open borders. The election of Donald Trump has led to a trade war between the United States and China. The Covid-19 pandemic has closed borders, hampered global trade and prompted companies to reconsider the wisdom of extended supply chains.
This makes the likelihood of new major rounds of trade liberalization in the foreseeable future almost non-existent. Indeed, preferences on how to regulate some of today’s key growth areas, such as digital services, differ so much around the world that it is difficult to find a basis for agreeing on global rules.
Yet open trade remains so important to global prosperity and there are so many issues that countries face that a forum such as the WTO can still play a key role. One example, despite the meagerness of last week’s agreement, is limiting fishing subsidies that destroy global fish stocks. Another is climate policy. The carbon border adjustment mechanism implemented by the EU – imposing tariffs on imports where the producer pays no cost for emissions – can only lead to disputes over what is legitimate and which is protectionist. Without at least one way to resolve disputes, trade wars could result.
Ngozi Okonjo-Iweala, the energetic Director General of the WTO, deserves great credit for keeping the body’s heart beating. Its future health and vitality, however, will depend on national governments – and above all on whether the United States, the engine of its creation, and China, one of its main beneficiaries, see the value in its existence.
Despite claiming to have “re-committed” to the WTO, the Biden administration has done little to reverse the assaults on the trade body of the Trump years. The White House has little appetite for new business initiatives that it knows would be politically onerous; its approach to trading is a form of “America First Lite”. A key test will be whether he is ready to productively engage in the talks agreed last week on having a functioning dispute settlement mechanism in place by 2024 – he returned the existing panel useless in refusing since the Trump era to authorize the appointment of new members.
China, whose membership in 2001 was supposed to be proof of the value of the WTO, has under Xi Jinping expanded its policies that go against the principles of free trade. India, meanwhile, seems more concerned with advocacy and portraying itself as a leader of the developing world than genuine engagement.
This opens up an opportunity for the EU to be a standard bearer for free trade. There are, however, limits to what it can achieve without the support and commitment of other major trading powers. The best that can be hoped for is that in the meantime the WTO can be preserved as a forum for discussion and, hopefully, as an arbiter of disputes. The next generation of political leaders may one day rediscover its importance.