1050x300-PL-Trade Discord Delivers Fresh Dent to WTO Credibility

Trade Discord Delivers Fresh Dent to WTO Credibility

Author(s): Patrick Low

Date: Aug 8, 2014

Theme(s): China, Trade & Investment

Publications: Opinions & Speeches

Vice President of Research Patrick Low writes that reform in the Institution's decision-making processes is needed to avoid abuse of the consensus.

The World Trade Organisation is in the news again. The last time was in December when a deal struck on the Indonesian island of Bali ended more than a decade of deadlock in the Doha Round of multilateral trade talks.

This time, it is because governments have failed to meet the first deadline for action set in Bali.

WTO members were supposed to adopt the protocol of the trade facilitation agreement by July 31, a simple step confirming what had been agreed and setting the stage for ratification and entry into force of the agreement.

The deal is the most substantial element of what was trumpeted as Bali’s chief success. It matters a lot for dozens of countries in terms of increased efficiency and productivity growth resulting from streamlined customs procedures and administrative practices.

The Bali accords kindled new hope that the WTO had finally emerged from a prolonged period of indecision and deadlock. Falling at the first hurdle has dented that optimism and again raised questions about where the institution was headed.

This careless outcome is a cruel blow to WTO credibility.

Failure to meet the July deadline came down to India’s insistence on bringing forward the timetable agreed in Bali for reaching a permanent solution on permissible food security measures.

In essence, it sought to redefine the terms of the accords less than eight months after they had been agreed.

Perhaps the most distressing part of this story for most WTO members is the fact that India did not have a problem with the deal. It was a case of hostage-taking to advance another interest.

Few of those sympathetic to India’s concerns think tampering with an already fragile WTO is the best way to address them.

Giving the WTO a further battering is seen by many as an odd choice for an emerging economy whose future prosperity is intimately bound up with orderly international economic relations. This is especially true in a world where prospective mega preferential trade agreements such as the Trans-Pacific Partnership discriminate geographically.

The crucial longer-term question is what the latest deadlock implies for WTO-driven global trade governance based on non-discrimination.

For a start, paralysis at the WTO makes it difficult to see preferential trade agreements as complementary to the multilateral trading system. Preferentialism begins to look like a substitute, and that augers ill for harmonious international co-operation.

Even if some temporary fix to the impasse is found when the WTO reconvenes next month, something deeper is needed to render impossible such disproportionality between cause and consequence.

Many finger the WTO’s decision-making processes as a promising avenue for reform to stall fragmentation and the ultimate demise of the trade body.

Standard practice in the WTO is to strive for consensus in any matter of substance. This reflects an ethos of inclusivity, where all opinions can be heard and must be taken seriously.

In this sense, the WTO is often considered more democratic than other international institutions, such as the United Nations Security Council, the International Monetary Fund and the World Bank, all of which have weighted voting systems.

The problem is that the consensus requirement is easily turned into a veto that can secure the desired outcome of a minority of just one, as happened last week. There is nothing democratic about that.

The WTO does have voting rules where each member has a single unweighted vote, but many shy away from what they see as the divisiveness of voting.

An increasingly popular view has it that the only way forward is to banish this shyness.

Some insist this could only happen if a weighted voting system were introduced. Others think about procedural reforms that would hinder opposition to decisions if it is weakly supported in numerical terms, poorly justified or entails cross-issue hostage-taking.

Change is needed. But could any of this happen where institutional reform itself would need a consensus? If not, the prospects for a vibrant WTO and stable world trade relations look that much bleaker.


This article originally ranĀ in the South China Morning Post on August 6, 2014.

The views expressed in this article are the author’s own and do not necessarily reflect Fung Global Institute’s editorial policy.