Red lights are flashing for WTO

The World Trade Organisation (WTO), which lays down the rules for the world’s multilateral trading system, is in a state of crisis.

The future of its appellate court, a central pillar of the organisation’s dispute settlement mechanism, is in jeopardy because of objections raised by the US, and questions have been raised about the categorisation of rapidly growing countries such as China, India, Indonesia and SA as “developing” countries.

Developing countries are able to claim special and differential treatment under WTO rules, but some developed countries hold the view that all countries except for least-developed should have the same trade obligations.

The issue is related to the trade war between the US and China, with the US objecting to the use of trade-distorting industrial subsidies by Chinese state-owned enterprises.

What is being sought is to narrow, if not to entirely eliminate, special and differential treatment for many of its existing beneficiaries.

Former trade & industry minister Rob Davies — who was replaced by Ebrahim Patel in President Cyril Ramaphosa’s cabinet and who was involved in WTO matters during his 10-year stint in the portfolio — has said that the WTO is facing an “existential crisis” because of US opposition to the appellate body and the strong push, especially by developing countries, for it to be reformed.

The issue was raised at a recent meeting in India of trade ministers from developing countries who want the WTO to be more focused on their developmental needs. A key concern for developing countries is the agricultural subsidies granted by developed countries that make their products uncompetitive and often lead to dumping.

“For many of us in the developing world we believe that there has been an insufficient delivery on development,” Davies said. “The promises of the Doha round were never realised on agricultural trade and the importance of inserting development as a key consideration of every subject to entrench special and differential treatment for developing countries has not materialised. This would give developing countries the policy space to move up the value chain and to industrialise.

“The protagonists on the other side of the debate would narrow the space for development which would have very serious consequences for our constituencies,” Davies said. “We are not about to surrender our right to special and differential treatment.”

In terms of WTO rules a country can self-declare its status as a developing country but the US wants a definition to be laid down that would exclude members of the G20 and the Organisation for Economic Co-operation and Development (OECD) as well as countries with high incomes or those with more than 0.5% of global trade.

Least-developed countries — there are 47 of them, 36 of which are WTO members — are classified by the UN on the basis of data such as life expectancy, literacy rates and per capita incomes.

Guilty of overreach

Because of its objections to the decisions and processes of the WTO’s appellate body, the US has refused to agree to the nomination of members. This has reduced the number of panel members from the maximum of seven to the minimum of three and by the end of 2019 there will only be one. This will mean that the body will be unable to function and that there will be no enforcement mechanism of WTO rules.

The US has often lost cases before the appeal court and believes the court is guilty of overreach, which has resulted in increased burdens and obligations on the US. It believes its sovereignty has been impinged and that the body takes too long to release its findings.

WTO spokesperson Keith Rockwell added a new dimension to the crisis facing the organisation during a recent training programme on the WTO in Geneva for journalists from developing countries.

“The WTO is under pressure. The problem is that the WTO has frankly in many areas been slow to deliver. We have delivered some very important agreements on trade facilitation in 2013; a very important agreement on information technology in Nairobi in 2015; a package of measures to help the poorest countries which was critically important, also in Nairobi; and then an agreement to ban direct export subsidies and other forms of export competition — the most trade distorting type of subsidies — for farmers largely in industrial countries.

“These are important achievements. But on many other things, including the rest of the Doha development agenda, the differences of governments have been so profound that we have not been able to move as we would have liked to. And this frustration has led people to find different ways forward.”

Multilaterally key issues facing the WTO he said are the resolution of the thorny question of fishery subsidies, agriculture, trade distorting domestic support and the definition of a developing country. Rockwell says in other areas the WTO is having difficulty due to a lack of political will to deal with issues such as cutting tariffs on industrial products, and reforming anti-dumping rules.

Lack of compliance

The unresolved issue of agricultural subsidies has been on the WTO’s agenda for about 20 years.

Another issue is the lack of compliance with notifications on trade measures taken by governments to the WTO. The track record of notifications is poor.

“I think multilateralism across the board is under real strain. I don’t think you can deny this. The primacy of the system has been challenged because we have not been able to meet the needs of this organisation,” Rockwell said.

EU deputy permanent representative to the WTO Paolo Garzotti said that there has been a shift in thinking globally about the benefits of free trade.

“When the WTO was created in 1995 everyone considered trade to be a normal tool in order to lead to development. There was a broad consensus that creating further liberalisation and creating additional global rules regulating trade was generally good and everybody would benefit from that.

“This tenet is now challenged by several quarters and individually by some governments in the WTO. The idea that moving regularly towards further liberalisation and further global regulation of trade relations is good is under question.”

This is confirmed by figures provided by Rockwell. From October 2017 to October 2018 trade-restrictive measures imposed by some of the WTO’s 164 members (including the US tariff hikes on steel and aluminium but excluding the measures imposed in 2019 in the trade war between the US and China) amounted to 137 and covered $588m in imports. This marks a significant increase over the previous period.

“This indicates that the incidence of protectionism is not limited to US and China. To a certain extent, because of the might of US and China, the actions that they take reverberate across the global economy and forces others to respond in a variety of ways.

“Some countries have employed safeguards for example with steel and aluminium for fear that if some markets are shut that product will be diverted to their market,” Rockwell said.

ensorl@businesslive.co.za