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Moving Trade into the 21st Century: Towards a More Inclusive Trade Agenda?

Published on April 21, 2017        Author: 

International organizations sometimes publish general reports – in addition to the usual annual versions – about their work and the future of their remit. Such reports invariably have a theme and are done when these organizations or the work they carry out has come under challenge. In 2005, on the occasion of the WTO’s so-called Sutherland report, Armin von Bogdandy and I found that:

“[a] perception of institutional crisis is pervading international organizations. One evermore fashionable response by the administration of an affected organization is to entrust a group of eminent persons to consider its future. Perhaps not surprisingly the resulting report calls for a politically feasible strengthening of that organization for which it provides good grounds.”

Early April saw the release of a – much less frequent – joint report by the World Bank, the International Monetary Fund, and the World Trade Organization, entitled Making Trade an Engine of Growth for All. The motive for the report is best interpreted as responding to a problem that is fundamental enough to warrant such an unusual step: the increasing calls for and a turn to more inward-looking economic policies. The Trump administration’s protectionist rhetoric and actions (see here, here and here) are the prime example for this development, with Brexit – despite assertions to the contrary: think Global Britain – serving as another.

The circumstances surrounding the release of the report also lead to the conclusion that it is designated to respond to the growing trend of inward-looking economic policies: it took place a) just prior to the 2017 Spring Meetings of the IMF and the World Bank Group, and b) in Berlin which the Financial Times’ Shawn Donnan called the “new capital of global free market liberalism”. The policy differences between the proponents and opponents of multilateralism are now clearly at display: Chancellor Merkel and the leaders of the IMF, the World Bank, the ILO, and the WTO have called for increasing trade policy cooperation and coordination, with the stated goal to not only curb protectionism, but also in order to reduce inequality and combat climate change. US Commerce Secretary Wilbur Ross on the other hand denied that US policies were protectionist (calling warnings of protectionism – ostensibly geared towards the US and other countries – “rubbish”).

The Trump administration policies and Brexit are the most visible manifestations of perceived political solutions to the discontent with the current globalized and interdependent economic system. The report itself recognizes that the public attitude towards trade is not as favorable as they used to be (paras 21-23). While it does not explicitly say so, it is worth noting that the three institutions have recognized that economic inequality is one of the main drivers of this discontent and that their past policies were – or at the very least were seen to be – partially responsible for this discontent.

The report touches on a number of issues, ranging from the long-term trends and benefits of trade, the interplay between trade and (domestic) adjustment (policies), to the need for a stronger rules-based trade regime. It is this last part that this post will focus on by analyzing the sometimes subtle, but important changes in direction that the report advocates as well its shortcomings.

The overall narrative of the report is such that the policies of trade liberalization championed by the three institutions since the end of WW II have resulted in a period of expansion of world trade at an “unprecedented historical pace” (para. 5). The institutions’ policies, indeed their very raison d’être, such as open markets, increased trade integration and competition, efforts to curb protectionist policies, “good governance” and fiscal discipline have come under intense scrutiny. But the report also contains remarkable language – at least for the institutions involved: it recognizes that globalization provides positive effects only where the appropriate domestic policies, including “social protection policies” (page 33), are in place so as to lead to a more equal distribution of gains.

The section entitled “Building Stronger Rules-Based Trade” (page 37 et seq.) reiterates the centrality of a strong WTO as opposed to a more fragmented trading system characterized by preferential/regional trade agreements or bilateral arrangements. By doing so, it picks up ideas put forth by Robert Hudec & John Jackson that the “power-based” GATT has been replaced by a “rules-based” WTO system. It rightly points out that a “core set of rules, a strong enforcement mechanism, and a common forum for cooperating on policy and sharing information” assists in “[reducing] overall levels of trade distortions, including conventional trade measures, subsidies, and other forms of state support” (para. 72). This echoes long-standing WTO principles: reducing tariff and non-tariff barriers (para. 69), promoting competition, “reassuring the public that international trade is evenhanded” and that “rules-based trade integration is critical to share trade benefits more widely” (para. 64). Such statements are a direct response to efforts of the Trump administration to pursue a more protectionist trade and fiscal agenda.

But beyond the orthodox ideas discussed above, the report broaches – although it may not break – new ground. It mentions new forms of services (mainly in conjunction with digitization) without however stating what reforms – beyond a need for rules to be clarified or enhanced – would be needed (para. 70). An area that is marked as a “frontier area” for trade reform is investment. The report explicitly argues for linking trade and investment more closely and for a more coherent policy approach in light of global supply chains (para. 71). The report would have benefited from further clarification of this point: should efforts be made to bring investment genuinely (beyond the TRIMS Agreement) under the purview of the WTO? The report does not provide any details about the extent to which, or how, this could happen. It does not mention a range of PTAs that have incorporated both trade and investment chapters over the last years and whether these developments were the impetus for the renewed effort of integrating trade and investment policies. In addition, there has been considerable debate about the current state of investment law in general, and investor state dispute settlement in particular (see here, here, here and here). It is also worth noting that there is considerable pushback by developing countries at the moment against recent efforts within the WTO to develop rules on investment facilitation.

Finally, the report puts forward pathways for the WTO to retain its relevancy as a negotiating forum. It proposes conducting negotiations on narrower issues similar to the Trade Facilitation Agreement or the Information Technology Agreement (para. 74). Beyond that, it recommends thinking further about a more plurilateral approach to negotiations (aka variable geometry) within the WTO, without however suggesting areas in which this may be fruitful (para. 75).

While there are a number of positive elements in the report, it contains shortcomings and omissions. The first is its economics-centered focus. While impressive, the bibliography contains only a very small number of sources that are from non-economists. Eg, the only identifiable legal academic’s work cited is one that deals with political economy rather than law. This wouldn’t be an issue – and could quite easily be shrugged off as a quibble by a member of an academic community yearning for greater recognition – if the report made suggestions of, or at least hint at, how trade and investment policies could be intertwined (never mind rules implemented); how health, the environment, and equality could be reconciled with trade or investment liberalization (para. 67 of the report is – to use the words of the Appellate Body in EC – Hormones – “not a model of clarity in drafting and communication”); what the extent of regulatory autonomy of governments should be without losing sight of a minimum degree of universality of rules; how consumer or citizen welfare can become more of a direct focus for the WTO rather than producers or exporters; or whether the structural design of the current system of international economic governance could be enhanced/reformed to contribute to achieving these goals. It is rather unfortunate – and a missed opportunity – that the report relegates the important discussion on poverty and developing countries to an annex. The five paragraphs devoted to Annex A reiterate the potential positive role of trade to assist in reducing poverty (paras 82-95, see eg para. 84: “Although causality is hard to establish, this fact pattern suggest (sic) that openness promotes poverty reduction by accelerating growth.” Emphasis in original.) and the need for sound domestic institutional arrangements (para. 86). What is missing is an acknowledgement of the obstacles developing countries are facing when trying to compete with developed country producers in eg the agricultural sector.

Both political science and legal literature are replete with discussions of these issues. Given the interdisciplinary nature of international economic relations it would be more useful in the future to include a broader set of disciplines in the formulation of such important reports. Overall, Making Trade an Engine of Growth for All is a cautious step in the right direction, away from well-trodden orthodoxy. In that sense, it serves the purpose of preserving the importance of the three institutions involved in its drafting. The report recognizes that the trade (and investment) liberalization paradigm can function for a wider swath of the global population only if cushioned by domestic policies (and even that is contested, see here). This is evidenced by statements such as “[t]rade and trade-related policies have a role to play not just in promoting growth and prosperity, but helping to share that prosperity more widely” (para. 81). But it stops short of recognizing that the institutions of global economic governance themselves have opportunities to do more to achieve greater equality.

 

The USA and Re-Appointment at the WTO: A ‘Legitimacy Crisis’?

Published on May 27, 2016        Author: 

In recent weeks, it has been reported (for example, here, here, here and here) that the WTO faces a ‘legitimacy crisis’ in the wake of US opposition to the re-appointment to a second, four-year term of Mr Seung Wha Chang (South Korea) to the Appellate Body. In a joint statement of 12 May, US Permanent Representative to the WTO, Ambassador Michael Punke, and USTR General Counsel Tim Reif declared:

The United States is strongly opposed to appellate body members deviating from their appropriate role by restricting the rights or expanding trade agreement obligations […] The United States will not support any individual with a record of restricting trade agreement rights or expanding trade agreement obligations.

In their view, the Appellate Body member exceeded his powers during his mandate, and breached Art. 3(2) of the Dispute Settlement Understanding, which states that ‘[the] Appellate Body cannot add to or diminish the rights and obligations provided in the [agreements of the WTO].’ In other words, Mr Chang is accused of undue judicial activism.

In response, South Korea has reportedly declared its opposition to the re-appointment of any Appellate Body members. As a result, their number would fall from seven to five by June, since another member, Ms Yuejiao Zhang (China), finishes her second term on 31 May, and the Selection Committee has been unable to propose a candidate that would enjoy the membership’s consensus. All six sitting members of the Appellate Body have publicly supported Professor Chang (see here) praising his ‘independence and integrity’ and voicing their disquiet about the implications of the US position. The USA has chastised this move as another instance of undue judicial interference.

This standoff raises questions of general interest on procedures for the appointment of ‘judges’ Read the rest of this entry…

 
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