WTO breakthroughs fail to mask serious structural problems

When India and the United States last week ended a bitter dispute that had paralysed the World Trade Organization (WTO), it drew cheers from business groups: Multilateralism is back!

Together with another deal struck a few days earlier with China to unlock negotiations about updating the rules on trade in information technology products, the deal in India seemed to put things back on track for the WTO.

But is that really the lesson the corporate world should take from the events of the past week?

There is another side to the story and it is not as optimistic. What this breakthrough really illustrated is how even the simplest things have become insanely hard to do in the WTO and how this has led to diminishing ambitions and expectations. And that is something the world’s most important economies have begun to recognise.

The first point to make is that both of the deals announced with great fanfare in Asia last week were the result of crises that ought never to have happened.

The Trade Facilitation Agreement (TFA) to remove red tape at borders, struck in Bali last December, was hailed as the first concrete deal in WTO history. It had also been conceived years before that as a trust-building exercise meant to help revive the much bigger Doha Round of negotiations.

When the newly elected government in India this year decided to block the implementation of the TFA — an agreement its predecessor approved — it caused a lot of that trust built up in Bali to evaporate. And it plunged the WTO into what its Brazilian director-general, Mr Roberto Azevedo, has called the most serious crisis in its 20-year history.

The deal to end the Indian impasse was strikingly simple. All Washington and New Delhi have really done is clarify the ambiguous wording of a one-paragraph clause. It now unequivocally allows India to continue with its vast programme providing subsidised food to the poor without fear of sanctions in the WTO.

Yet, it took months of negotiations and an existential threat to the WTO for the two countries to agree on what was little more than an attempt to salvage a bigger rescue mission. It also required the intervention of US President Barack Obama and his Indian counterpart, Prime Minister Narendra Modi.

ROBUST, EFFECTIVE WTO NEEDED

The breakthrough on IT trade rules tells a similar story. They have not been updated since 1996 and do not include such newfangled inventions as video game consoles and global positioning system devices. But China, which is now the world’s largest exporter of IT products, last year stymied efforts to bring the rules into the 21st century by insisting on the exclusion of a long list of products.

The deal reached by Washington and Beijing slashes that list and clears the way forward for a new deal on IT trade. It was an important step forward, but a rescue job all the same.

The second point is that the small steps forward of that week have only served to highlight the WTO’s serious and persistent structural problems.

After India’s hardline stance created an impasse in the WTO, its members began discussing how one could get around the founding principle of making decisions by consensus. Their idea was to put a greater emphasis on sectoral agreements and on allowing coalitions of willing members to pursue “plurilateral” attempts at liberalisation.

At the very least, the members needed to have a hard think about how they operated, Mr Azevedo pleaded in recent weeks.

The debate is an important one to have, preferably soon.

The Group of Twenty leaders seemed to half-recognise that at the weekend. The world needs a robust and effective WTO, they said in a joint communique, although they put off discussions on “how to make the system work better” until next year.

Multilateralism showed some signs of life last week. But it surely needs to find a healthier way to live.

The Financial Times

ABOUT THE AUTHOR:

Shawn Donnan is The Financial Times’ world trade editor.