EU and its WTO partners work on international trade reform

Tuesday 27 November 2018

To tackle the recent “identity crisis” of the World Trade Organization (WTO), the European Union (EU) is embarking upon the discussions with other WTO members, while taking bold initiatives on how to modernise the multilateral trading system - most recently the adoption by the European Parliament's Committee on International Trade of the draft resolution ‘WTO: the way forward’[1].

The WTO’s rules cover not just goods, but also trade in services and trade-related aspects of intellectual property rights. Since its creation, the WTO has solved about three hundred disputes; however today the system faces serious problems of credibility and efficiency in a world context very different from that of the 1990s.

The first threat is the raise of protectionism, most notably in the U.S. The Trump administration has criticised the WTO, accusing its Dispute Settlement Mechanism to disadvantage American interests and to not take measures against China’s “aggressive” policy, which includes stealing intellectual property from foreign partners and unfairly notifying the WTO of industrial subsidies to lower state companies’ costs. China is also accused of allegedly ‘dumping’ cheap goods in the U.S to take market share. This has led to a trade ‘war’ between the two countries with the fixation of high tariffs on agricultural and manufactured goods imposed by the U.S. As a result, President Trump has decided to boycott the WTO - by favouring bilateral negotiations - and to block the appointments of new judges to the dispute resolution mechanism, the Appellate body (AB).

The WTO is also going through a second major crisis, witnessed by the stalemate of the multilateral trade negotiations launched in 2001 (the Doha Round). The failure of the WTO as a negotiating forum is partly due to the WTO’s single undertaking principle[2], which requires that member countries need to reach a consensus on every item of the negotiation. That being said, decision-making by consensus among such a diverse and fractious membership precludes any successful collective outcome. For example, disparities appear between developed and developing countries as more than 2/3 of member countries, including large dynamic economies, can still claim special commercial treatment, which that is no longer justified in relation to their current development situation. As a result, many members, including the EU, have signed their own trade agreements outside the multilateral framework of the WTO.

The EU has always been a key supporter of the modernisation of the multilateral trading system. The proof is in the recent proposals put forward by the European Commission in a concept paper[3] published in September 2018 in response to the conclusions of the June European Council.

Concretely, the cornerstones of the European Commission’s approach consist of:

  • new rules to rebalance the international trade system, through the improvement of transparency and the notification of subsidies, the fight against state-owned enterprises and more effective measures for the most distortive types of trade subsidies;
  • new rules to address barriers to the exchange of services and investments, especially with regards to China’s interventionist industrial policy measures and the resulting misappropriation of foreign technology;
  • a new approach to flexibility in the context of development objectives in order to overcome the odd situation where some WTO members - ranked as ‘developing countries’ - represent the world's top trading actors, and to prioritise those countries that have real needs for development assistance;
  • strengthening the procedural aspects of the WTO regulatory activities through the so-called flexible multilateralism, meaning that agreements among certain members could be reached even without a full multilateral consensus;
  • amendment of the provisions governing the Dispute Settlement Mechanism to address U.S. concerns as for the transparency, impartiality and independence of the AB in order to overcome its deadlock.

Presenting the Commission's concept paper, Commissioner for Trade Cecilia Malmström said:

“(…) The world has changed, the WTO has not. It's high time to act to make the system able to address challenges of the today's global economy and work for everyone again. And the EU must take a lead role in that.”

The EU’s firm belief that the multilateral trading system is indispensable in ensuring free and fair trade has trigged the start of a joint effort to modernise the WTO. Moreover, the increasing protectionism could either worsen the crisis or be an opportunity to finally make effective and urgent reforms of the rules that have been stalled and evasive for too long. In this spirit, the EU together with other WTO partners will presented a proposal to overcome the current deadlock in the AB at the WTO General Council on 12 December 2018[4].



[1] http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+COMPARL+INTA-OJ-20181119-1+02+DOC+XML+V0//EN&language=EN

[2] Principle of Single undertaking: Virtually every item of the negotiation is part of a whole and indivisible package and cannot be agreed separately. “Nothing is agreed until everything is agreed”.

[3] European Commission’s concept paper : http://europa.eu/rapid/press-release_IP-18-5786_en.htm

[4] http://trade.ec.europa.eu/doclib/press/index.cfm?id=1945

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