On June 8th 2024, Prof. Xiankun Lu, CEO of Friends of Multilateralism Group, former Counsellor of the Permanent Mission of China to the WTO made this speech at the Seminar on “Reform of the multilateral trading system and global trade governance” and the 30th Anniversary of the Journal of Shanghai University of International Business and Economics (SUIBE) of China.
Full transcript of his speech is as below:
The WTO at the Age of 30: Challenges of WTO Reform and the Role of China
Speech by Professor Xiankun LU
Seminar on “Reform of the multilateral trading system and global trade governance”
&
30th Anniversary of the Journal of Shanghai University of International Business and Economics
Shanghai, China, June 8, 2024
This speech is in Chinese, and the English translation is for reference only.
Dear Vice President Professor Xu Yonglin, dear Director Professor Gao Yunsheng,
Many thanks for your invitation to attend the 30th anniversary of the Journal of SUIBE, as well as the Seminar on “Reform of the multilateral trading system and global economic and trade governance”. After 30 years, the Journal of SUIBE has become a benchmark journal on WTO and international trade in the Chinese academia. I wish the Journal greater success on the way forward.
Coincidentally this year also marks the 30th anniversary of the Marrakesh Agreement establishing the WTO. This is one of the major outcomes of the Uruguay Round 30 years ago, by upgrading the multilateral trading system from a provisionally-applied international agreement to a formal international organization, hence the ensuing longest period in history of steady growth in global economy and the well-improved livelihoods of the people of WTO members through international trade and investment. Since 1995, the volume and value of global trade have maintained an average annual growth rate of 4 percent and 6 percent respectively. Such achievements could not have been possible without the market opening and legal certainty brought about by multiple rounds of multilateral negotiations, notably the Uruguay Round. The WTO has also become an international organization that economies are keen to join. Since 1995, 43 new members have joined the organization, including China in 2001 and Timor-Leste and Comoros (both LDCs) earlier this year. The importance of the WTO, as a crucial element in international governance, is self-evident. Just as Director-General Okonjo-Iweala said during her election campaign: “If we didn’t have the WTO, we would have to invent it.”
At the age of 30, the WTO in deed has accomplished a lot, but the challenges are paramount. Nowadays, global challenges for environmental protection, pandemic response and peace keeping, among many others, are increasingly prominent, and geopolitical tensions among major players are escalating. Against this background, the main functions of the WTO, i.e. deliberation, negotiation and litigation are also seriously impaired.
On deliberation, in general WTO councils and committees have failed to play an effective role in enhancing transparency and supervising members’ trade policies and practices. One example is the “race to the bottom” of major members on subsidies.
On negotiation, very limited results have been achieved in areas of trade facilitation, information technology products, and domestic regulation on services. Progress on traditional issues such as agriculture and development has been dragging legs while rule-making on new issues such as climate change, epidemic response, investment facilitation and digital economy obstructed. Members also vastly differ on consensus principle and formats of negotiation.
On litigation, due to one-handed US blockage, the Appellate Body (AB) as a key element of the WTO two-tiered dispute settlement system, is completely paralyzed since 2019. Some members including the US abused the procedural loophole to “appeal into void” to the non-existent AB and render the panel’s ruling useless. The Multi-Party Interim Appeal Arbitration Arrangement (MPIA) demonstrated the determination of fifty-odd members who participated in the arrangement to preserve the dispute settlement mechanism. However, disputes related to the US have become a lawless ground and its abuse of “national security” with trade and investment measures has become a major concern for many trading partners.
In addition, the geopolitical tensions, mainly between US and China, has been caught in a worsening vicious circle with head-to-head systemic confrontation. WTO major players are fiercely wrestling over issues such as industrial policies, “non-market economy” and “national security”, as a result of which, related policies and measures and triggered retaliation have seriously disrupted international trade and investment. Politics is now gradually replacing markets as a main element for corporate consideration of their global layout. Meanwhile, the intense debate on “S&D” continue to intensify among WTO members. On the one hand, developing members believe that they have limited benefits from the multilateral trading system and the development deficit has not been effectively corrected. Therefore, they request to maintain certain policy space and to make existing development clauses “more precise, effective and operational”. On the other hand, developed members believe that China and other emerging economies have gained unprecedented growth and pragmatic ways should be found for them to shoulder the same obligations as developed members so as to re-balance rights and obligations among major WTO players.
Against this backdrop, the 12th WTO Ministerial Conference (MC12) in 2022 has successfully launched the WTO reform process, providing members the long-awaited authorization to formally discuss the challenges and potential solutions to meaningfully reform the organization. MC12 and MC13 have achieved encouraging achievements on some fronts of negotiations including “Fish 1” (the phase I of fishery subsidies negotiations), domestic regulation on services, and development (e.g., SPS provisions and LDCs graduation). The “reform by doing” outcome by the Council some WTO bodies such as Trade in Goods Council have added value to the strengthening of the deliberation function. Progresses have also been made on the informal consultations on the reform of dispute settlement mechanism, which is now transformed into a multilateral formal process with a reconfirmed, albeit challenging, timetable to achieve “a fully and well-functioning dispute settlement mechanism accessible to all members” by the end of 2024.
Despite above-mentioned achievements, on the whole, the WTO reform is still beset by numerous difficulties and the prospects are not optimistic. MC13 has achieved much less results in contrast with the “unprecedented” outcomes of MC12. In particular, MC13 failed to reach an agreement on “Fish 2”, no text agreed on agriculture altogether for three ministerials, environment was left out, the Investment Facilitation for Development (IFD) Agreement could not be incorporated into the multilateral system, and the prospect of a successful DSU reform by the end of this year is not promising. At the two WTO General Council meetings after MC13, members have had intense discussions and to focus on five key issues before MC14 in two-year time: fishery subsidies (ratification of “Fish 1” and conclusion of “Fish 2”), agriculture, DSU reform, incorporation of IFD in the multilateral system, and development and LDCs. The way forward will be bumpy, including for negotiations of those priority issues. If some deeply-rooted problems are not resolved, any achievement is fragile and may be regarded by some as “birthday suit”. As the work of a gardener, trimming and cutting a few branches of a tree while its trunk or the root is diseased, though pretty, does not really help in the long run.
From my personal point of view, there are currently two deeply-rooted problems for WTO:
The first one is developmental aspect, with two dimensions:
One dimension is, as India and ACP have voiced in their recent proposals, concerns of developing countries on the lack of progress to correct the development deficit in the past 30 years of WTO establishment, and on the limited gains of developing members from the multilateral system. One particular example is the continuous marginalization of some 45 LDCs, who account for 12% of the world population but less than 2% of world GDP and around 1% of world trade. Quite some developing countries still complain that developed members continue to maintain high barriers to products of interests to developing countries, e.g. tariff peaks in textiles and apparels, footwear, and non-tariff restrictions on agricultural products.
The other dimension is vast divergence among members on how to re-balance rights and obligations, particularly for major developing members such as China through pragmatic adjustment of S&D.
This problem of development is reflected in a series of actions in the WTO, including India’s refusal on plurilateral negotiations, India and ACP objection to qualify the consensus principle, and recent proposals by China and India on how to deal with development in WTO reform discussions.
The second one is geopolitical aspect:
As said, systemic contradictions among major players are worsening and have exerted enormous pressure to other countries to choose sides. This situation has constantly rendered the WTO leaderless. Co-existence or convergence of different economic systems in the multilateral trading system has become THE BIGGEST challenge in WTO reform.
This problem is reflected by difference on industrial policy, over capacity, “non-market economy”, DSU reform, etc.
On both above-mentioned problems, to a certain extent China is at the center of attention. Therefore, what kind of role China is to play is crucial for future work of WTO reform.
If we metaphorize these two problems to the two horns of the bull, China has given a good try to grasp one of the horns in its recent proposal at the General Council (Reflections on approaches to development issues, WT/GC/W/935) which focuses on both aspects of the developmental aspect. China Xinhua News highly spoke about this proposal as a concrete example to implement China’s Global Development Initiative, announced in 2021, within the multilateral trading system. China has proposed some interesting ideas on how to deal with development issues, including “New Perspectives…to keep abreast with time” and to try “exploring long-standing issues from new angles”.
It is particularly noteworthy that China, in this proposal, has shown more flexibility on S&D by confirming the “opt-out” option of S&D, saying that “in upholding the principles of special and differential treatment for developing Members including LDCs, flexible and pragmatic approaches could also be explored, including choosing not to avail oneself of such treatment in specific negotiations on a voluntary basis in a practical manner”. This is the first time that China has formally confirmed “opt-out” as a principal option after it has voluntarily done so on TRIPS Waiver for vaccines at MC12. Though still below some other members’ expectation that China should fully give up S&D, this is a significant progress from its position in previous WTO reform proposals to “encourage developing Members to take up commitments commensurate with their level of development and economic capability”. We now have good reasons to expect China to take more responsibilities as a major developing power in future negotiations. For example, China should choose “opt-out” on S&D for “Fish 2” and E-commerce plurilateral negotiations as well as potential market access negotiations such as on manufacturing goods.
On developmental aspect, the biggest difficulty is how to convince India and other developing members to agree to explore long-standing development issues “from new angles” and to adopt “the win-win strategy” instead of “the lose-lose approach and the all-or-nothing strategy” and to exercise consensus responsibly and constructively in new formats of negotiations such as plurilateral ones. China could learn from its experiences of successfully facilitating the IFD plurilateral negotiation with targeted technical assistance and capacity building to Southern countries with a role model based on its own development success. This is one of the reasons why IFD remains second to none among numerous ongoing plurilateral initiatives with about 90 developing members and over 20 LDCs among the 128 participating members who joined the IFD.
Relatively speaking, the other horn of geopolitics is trickier to try a good grasp, mainly because China and the US, the relationship of whom is at the core of geopolitical tension, are seemingly walking away from each other instead of towards each other. Whether Trump or Biden, many experts around expect that the geopolitical tension will be worsening and hit the WTO more badly. For China and potential easing of this tension, externally it much depends on the US and whether it can accept coexistence of different systems in the WTO. Meanwhile, internally for China there is also much room for improvement and how it can further more in-depth reform and control the spilling-over effects of its economic system. Recent turbulent incidents in China on private and foreign invested companies indicated that one key factor for China’s next step of reform is how to provide long-term stability expected by many private and foreign investors. On this I have talked a lot in the past, so I won’t go into much detail here.
Within the WTO, China should help promote effective and institutionalized conversations at the WTO MCs as well as inter-sessional mini-ministerial meetings and other formats of informal consultations among ministers. These efforts can help increase mutual trust among members and reduce the impact of geopolitics on the multilateral trading system. In this regard, attempts have been made at MC13 to conduct Ministerial Conversations on trade and sustainable development and trade and inclusiveness. However, many have pointed to the need to better the organization and efficiency of such conversations. Members have decided to hold a retreat on WTO MCs in early July, and our Friends of Multilateralism Group (FMG) are also organize brainstorming sessions on this topic.
Last but not least, at the 2023 Group Study Session of the Political Bureau of the CPC Central Committee, Chinese leader has stressed that “WTO is an important pillar of multilateralism and a crucial stage for global economic governance. China needs to have a deep understanding of the importance and urgency of participating in the WTO reform. With a stronger historical responsibility and creative spirit, China needs to fully participate in WTO reform and the adjustment of international economic and trade rules, and further China’s domestic in-depth reform and high-quality development with high-level opening up”.
Chinese leader has also indicated that “China will improve and refine its proposal for full and in-depth participation in WTO reform and resolutely safeguard the legitimate rights and interests of developing countries including China itself”. Previously, China put forward two documents on WTO reform respectively in 2018 and 2019. Given the new situation, it is right time for China to consider potential solutions to the above-mentioned two problems and update its proposal on WTO reform on the 30th anniversary of the WTO.
That concludes my speech. Thank you very much for your attention.
By Professor Xiankun LU, CEO of Friends of Multilateralism Group (FMG) Geneva
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