The WTO is crucial in bringing countries together but it needs reform

In an increasingly fragmented world, the organisation must adapt and address the problems

Shipping containers at Abu Dhabi's Khalifa Port. Reuters
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The World Trade Organisation and its framework of multilateral agreements have long served as the backbone for the rules-based international trading system. However, in recent years, there has been a surge in the number of bilateral and regional agreements, or RTAs, marking a significant shift in the global landscape.

As these agreements take centre stage, questions arise about the WTO’s role and relevance in a world increasingly marked by geopolitical blocs. As member states gather in Abu Dhabi for their 13th Ministerial Conference next week, these questions gain even greater significance.

At present, there are 364 RTAs in force, a sharp increase compared to the 71 in force at the start of the century. Their proliferation can be attributed to several trends. First, many countries seek to address issues that are not covered by the WTO. Regional trade agreements are not only increasing in number, but also in scope. Many include provisions related to gender, the environment, labour issues, as well as offering deeper integration or a specific sectoral focus.

Second, the complexity of negotiating at the WTO makes reaching a regional or bilateral agreement faster and easier. The organisation operates on a consensus basis, requiring agreement by all 164 – soon to be 166 – members. Successful negotiations for new multilateral agreements are rare and where they are successful, it is a slow and often painful process.

The recent Agreement on Fisheries Subsidies was a historic step towards eliminating harmful subsidies. However, it was only the second agreement reached at the WTO since its inception and took more than 20 years to be concluded. As the world finds itself facing challenges such as climate change and supply chain resilience, countries are often unwilling or unable to wait this long. Negotiating with a smaller group of countries often proves to be more manageable, allowing them to tailor their agreements to their specific needs and priorities.

Another critical contributor to the rise of RTAs has been the shift in national and global politics. The politics that drove multilateralism after the Second World War have been replaced by an increasing focus on economic nationalism, security and protectionism. Rather than looking to the WTO, countries are looking inwards and seeking alliances with their neighbours and closest allies.

While the rise of RTAs reflects a new reality, it also fuels the fragmentation of the global order into geopolitical blocs. This complex web of overlapping agreements can create confusion and inefficiencies, leading to unnecessary barriers to trade and hindering the ability to address common challenges globally.

Moreover, as big economic powers focus on achieving benefits within these blocs, there is a risk that they exacerbate the north-south divide and exclude or marginalise the interests of developing countries, preventing their full participation in the global economy. Indeed, in a recent study, WTO economists estimate that fragmentation of the global economy into two rival blocs would reduce real incomes by 5.4 per cent on average throughout the world. Additionally, geopolitical tensions arising between blocs increase the likelihood of trade conflicts that disrupt trade flows, stability and resilience to economic shocks.

The contributions that the system still offers, even while in crisis, are undervalued

In this context, the WTO stands at a critical juncture, requiring adaptation if it wants to survive.

The organisation must hone in on the functions it has performed the best while accepting the new reality in which it operates. In a world increasingly fragmenting, the WTO still brings together countries representing 98 per cent of global trade, putting the smallest economies such as those of small island states across the table from the biggest, including the US, EU and China.

While serving as a forum for negotiations, the organisation’s strength has been in providing a framework for transparency and dialogue. For example, the WTO Trade Policy Review Mechanism provides a tool through which the entire trade policy of each member is reviewed and subjected to scrutiny by other members. Through its committees, ranging from market access to technical barriers to trade, members have a forum to raise their concerns in a non-adversarial way.

Despite a relatively small staff, the organisation’s secretariat provides a wealth of technical expertise and knowledge. This support plays a vital role in trade facilitation and building the capacity of developing countries to participate effectively in negotiations.

Moreover, there are a number of key trade areas where only a multilateral or WTO approach is likely to be effective or efficient. A prime example is digital trade, where the standards will need to be set at a global level, as regional standards could lead to a lack of interoperability between competing systems.

Similarly, adopting two or more sets of regulations for all services or intellectual property rights – one for RTA partners and a different set of regulations for all others – would be extraordinarily cumbersome. Likewise, the efficiencies brought about by the Trade Facilitation Agreement’s “one-stop” for customs clearance would be severely undermined if bifurcated between goods to or from RTA partners versus non-RTA partners.

Next to the functions it performs well, the WTO must also address those functions that it has either never performed, or no longer performs, well. This includes its negotiating function as well as its dispute settlement system.

When it comes to negotiating, it is time to adopt a modern alternative to consensus – a responsible consensus – one where members stop using their votes as a bargaining tool and exercise their veto power only when they have a substantive basis to object. Further, plurilateral approaches must be seen as a tool for building such a responsible consensus. One example is the Investment Facilitation for Development Agreement, a plurilateral initiative involving more than 120 WTO members. This popular agreement could be adopted into the WTO legal framework if those who do not want to join simply allow it to move forward without them.

As the organisation evolves, it is often forgotten that liberalising trade is not a goal in itself but rather the means to an end. The preamble to the WTO holds that trade should be conducted “with a view to raising living standards”, “in accordance with the objective of sustainable development” and in a manner consistent with the needs and concerns of countries at different levels of economic development. These objectives should stand at the core of the organisation as it navigates reform.

The WTO still plays a crucial role in the international trading system. While the need for reform is evident, the contributions that the system still offers, even while in crisis, are undervalued. By leveraging these strengths and reaffirming its core objectives as it navigates these turbulent waters, the organisation can continue to serve a purposeful role within the global trading system, fostering inclusive growth and sustainable development for all its members.

Published: February 23, 2024, 4:00 AM