WTO Reform: Challenges and Solutions

By Chong Quan

Discussions on WTO reform are heating up, with wrestling among different parties. Since last year, WTO members including the European Union and Canada have formulated preliminary documents on WTO reform. The United States has changed course and put forward its proposals and plans on some topics. China has also, on several occasions, stated its principled position and proposition on WTO reform. The reform of the WTO will be a much-anticipated topic at the G20 summit to be held in Osaka, Japan in June. At a time when world political and economic landscape is undergoing tremendous changes, unilateralism and protectionism runs rampant, the multilateral trading system is being marginalized, and anti-globalization sentiments are running high, it is imperative to reform the WTO-centered multilateral trading system, which has obviously become a hot topic in global economic governance. As a major player in global trade and an active participant in global economic governance, the Chinese government attaches great importance to WTO reform and has expressed its intention to take an active part in the reform. 

Background on WTO reform

As an authoritative organization in the multilateral trading system and its legal basis, the World Trade Organization has made enormous contribution to economic globalization and the healthy development of world economy and trade. WTO rules are the essence of the mechanism that regulates world economic development, providing legal and organizational safeguards for economic globalization. Hence no other global and regional economic and trade organizations can replace them. 

Since the WTO’s establishment in 1995, there have been continued discussions on how to make the WTO mechanism more equitable and efficient. The inherent problems in the WTO mechanism have become more pronounced especially given the standstill in Doha Round negotiations launched in 2001, subjecting the mechanism to more doubts and suspicions. The coordination-based approach makes the WTO decision-making mechanism inefficient, sending the multilateral negotiation function to a standstill. Since 1995, WTO members have only reached consensus on a few issues, including trade facilitation and elimination of agricultural subsidies. Apart from long-standing unresolved issues, WTO members have yet to make new rules on new topics in spite of the expansion of world trade and emerging new models of trade. To uphold its authority and better leverage its role in promoting world economy and trade, the WTO has an internal drive to pursue reform. 

Currently, the renewed debate on WTO reform is largely due to the pressure from the United States. The Trump administration, soon after taking office, openly expressed its dissatisfaction toward the WTO, questioning the effectiveness of the WTO Appellate Body and blaming it for the unfair rulings against the US. Particularly, the US boycott of the Appellate Body’s new appointments risked halting the WTO dispute settlement mechanism. If this problem is not resolved before the end of this year, there will be only one member remaining in the Appellate Body, making the mechanism only an “existence in name”. If the dispute settlement mechanism, “the jewel in the crown” for the WTO, falls apart, it will have an immeasurable impact on and deal a tremendous blow to international economic and trade governance and the authority of the WTO. The United States also lays accusations on China and other emerging economies for gaining unfair advantages by using the special and differential treatment granted by the WTO to its developing members, and pushed China and other members to “graduate” from the developing membership.  In the face of the unilateral actions taken by the United States, some developed WTO members, out of the fear that the US might exit from the trade bloc, are compelled to accommodate the US and tend to accept the US proposal to reform the WTO. Major members including the EU, Canada and Japan, on one hand, cannot fully accept US positions and actions, and, on the other hand, have qualms about the possibility that the US might abandon the WTO. They also have the intention to use the US to hold back China’s development. Whatever intentions the members may harbor, reforming the WTO, as agreed by many members, is an imperative task that must be completed as widely expected. 

Challenges and Prospects of WTO Reform

WTO reform is high on the agenda. There have been quite a number of proposals and suggestions on reforming the WTO, including the report on revitalizing the WTO by the Bertelsmann Stiftung of Germany, the European Commission’s concept paper on modernizing the WTO, the paper Strengthening and Modernizing the WTO jointly issued by 13 countries including Canada, the EU and Japan (the US and China excluded), as well as the position paper on WTO reform released by China. In addition, some proposals have been submitted to the WTO, for example, the joint proposal by the US, Europe and Japan on strengthening transparency and notification obligation, the proposal tabled by China and the EU together with other members on starting the selection of members of the Appellate Body at an early date, and the draft made by the US recently on strengthening the procedures of WTO negotiation functions. 

These proposals, suggestions, and drafts speak volumes about major members’ determination to pursue WTO reform. That said, WTO members have shared interests as well as notable differences on the reform, which means that WTO reform will be a complicated process and that it is difficult to reach agreement within a short period of time. The reform will be a process of long-term wrestling between the members. 

First, the most urgent issue is the selection of members of the Appellate Body. As things stand now, the US is still bent on canceling the function of the existing Appellate Body. Most WTO members, be it a developed or developing country, want to retain the dispute settlement mechanism with binding force. China and the EU have submitted a joint proposal in this regard. Yet the prospects of a solution remain unclear. All in all, it is never easy to put the US under institutional checks through reform. WTO members may have to get prepared for the scenario of no appellate body in the short run.

Second, the above mentioned WTO reform proposals are mostly made by developed countries. Important emerging economies like India and South Africa have yet to articulate a clear position on the reform. Brazil made an official announcement that it gives up its developing country status in the WTO, adding both uncertainty and difficulty to the reform going forward. The WTO currently has 164 members, among which, OCED members excluded, 85% are developing members. It is beyond doubt that in the absence of developing countries, WTO reform will get nowhere. Though there have been lively discussions on WTO reform, it remains in the stage of communication and exploration,and yet to move into formal negotiations. 

Third, even though developed countries have shared interests on expanding and deepening WTO rules, they are still divided on specific issues, such as digital trade, investment facilitation and other new topics. WTO members haven’t arrived at a coordinated position on new topics and a settlement of long-standing, unresolved issues left from the Doha Round. Without a settlement of long-standing issues, the WTO is unlikely to reach an agreement on new topics. 

Fourth, the United States has already circulated a paper and submitted a proposal on the special and differential treatment enjoyed by developing countries, setting standards for the graduation of 34 developing members. The Doha Round negotiation was launched to address development-related issues of concern to developing countries. The new round of reform should not focus on eliminating the differential treatment enjoyed by developing countries, but take into active consideration their concerns and interests. It goes without saying that the US proposal runs in the opposite direction of WTO reform. This will be a sticking point that rivets people’s attention in the debate on WTO reform.  

Finally, the particular focus on so-called market distorting state-owned enterprises, industrial policies, intellectual property and technology transfer in the above mentioned WTO reform proposals is undoubtedly targeted against China. Some of the pursuits are clearly discriminatory and partial, which China won’t accept in their entirety. In particular, the formulation of some new rules and their debates will be a highly complicated technical issue and, without any doubt, a difficult process of wrestling.

China’s Position on Participating in WTO Reform

The contribution of the rules-based multilateral trade system to the stable development of world economy and trade is recognized by all. As a beneficiary of and contributor to the WTO-centered multilateral trade system, China will continue to support and safeguard the system, uphold fundamental WTO principles, oppose unilateralism, and never allow a member to put its domestic law above multilateral rules. As such, China should take an active part in the discussions on WTO reform, show appropriate flexibility as required by realities, bring into play China’s wisdom and influence, and demonstrate China’s attitude as a responsible member. 

On November 23rd, 2018, the Ministry of Commerce released China’s Position Paper on WTO Reform, which expounds China’s basic principles and proposals on WTO reform. The three principles are as follows. WTO reform shall preserve the core values of the multilateral trading system; WTO reform shall safeguard the development interests of developing members;and WTO reform shall follow the practice of decision-making by consensus. The five proposals include upholding the primacy of the multilateral trading system; addressing the existential crisis/problems faced by the WTO on a priority basis; addressing the imbalance of trade rules and respond to the latest developments of our time; safeguarding the special and differential treatment for developing members; respecting members’ development models. 

Suggestions on China’s Participation in WTO Reform

First, WTO reform should be approached from the perspective of deepening China’s economic reform and opening China wider to the world. President Xi Jinping and other Chinese leaders reiterated on many occasions China’s commitment to supporting globalization and safeguarding WTO multilateral trade system, and consistently stated China’s resolve to deepen reform and opening-up and the policy measures China plans to take. WTO reform bears on the stability of China’s external environment and the process of opening up at a higher level. The past 40 years of reform and opening-up testify that China can only develop through reform and opening-up. We must deepen reform and opening-up in light of China’s development and reform timetable. Discussions on WTO reform should be aligned with China’s reform and opening-up agenda. It is important for us to identify areas where we can pursue reform on our own initiative and take into active consideration topics that are consistent with international rules and norms and China’s long-term interests, even though such topics are brought up by the US, EU and other advanced economies. While promoting WTO reform, we need to closely study TPP, CPTPP and USMCA and work through rules that accord with China’s conditions and development goals, which can be piloted in China on a certain scale to encourage further reform and opening-up in the country. 

WTO reform faces extremely complicated situation and challenges. The topics of the reform involve many areas and numerous competent departments in China. As such, it is imperative to strengthen the coordination mechanism in China to create synergy for participating in WTO reform. 
Second, there is both internal drive and external pressure for WTO reform. The most urgent task is to defuse external pressure. For example, it is imperative to appoint members of the Appellate Body. On this issue, China and most WTO members have shared interests. As China and the EU have submitted a joint proposal, they should bring other WTO members on board to build up influence and momentum. Japan, the host of the G20 Osaka Summit in June 2019, intends to achieve some result on WTO reform. In this regard, China needs to strengthen communication and cooperation with Japan. 

As a developing country, China has a lot of shared interests with other developing economies and should therefore unite with them to realize development-related topics. China needs to enhance communication with developing members to understand their concerns and areas of interest in WTO reform. 

Third, WTO reform must accommodate both traditional and new issues. The US and other developed countries are most concerned about new issues such as discipline, competitive neutrality and digital trade. Though these issues need to be addressed as the world economy and trade develops, it is not realistic to start negotiations on new topics when long-standing issues remain unresolved. Nor will it be acceptable to most developing members. Only when both of them are taken into consideration will smooth progress be made on the discussion of new issues.

As WTO reform is still under discussion, it is unlikely to move to the stage of negotiation on specific rules in the immediate term. China should put areas of interest and propositions formed over the years before WTO members for discussion. These include issues like some members putting their domestic laws above international laws, not faithfully enforcing WTO rulings, abusing trade remedies, arbitrarily imposing high tariffs on other members or restricting the legitimate investment by other members’ businesses on the ground of national security, limiting high-tech exports or introducing other government intervention measures, giving massive subsidies that distort trade in agricultural products, and ignoring developing countries’ legitimate demand for sustainable development. We must give top priority to resolving long-standing issues that impede the normal function of the WTO.

Fourth, we need to increase public awareness of WTO rules. WTO reform is a long-term, complicated, and gradual process. In China, we must continue to increase public awareness and education about WTO rules so as to create favorable conditions for opening-up at a higher level. 

Chong Quan is President of the China Society for World TradeOrganization Studies.