On November 8th, Professor Lu Xiankun, CEO of FMG was invited to participate in the first “International Organizations and Global Governance” forum hosted by Shanghai University of International Business and Economics and delivered a speech on the development of the WTO as follows.
Think About the Unthinkable
A Few Thoughts at 30th Anniversary of the WTO
For Chinese, 30th anniversary is an important juncture. Confucius once said “三十而立”, which means a person should be independent from the parental family by establishing his own family and career, and be mature with a vision of his life and direction of its future.
30 years old, WTO is also facing an important juncture. The vision laid down 30 years ago at the Preamble of the WTO Agreement to use trade to raise living standards, ensure full employment and promote sustainability is still very relevant today. We have all witnessed the achievements to deliver such vision by expanding its membership to 166, covering 98% of global trade, or about 80% with the tariff war among major players, and contributing to 9 out of 17 SDG goals.
However, WTO is also facing some serious deeply-rooted problems, including geopolitical and developmental ones (https://fmg-geneva.org/the-wto-at-the-age-of-30-challenges-of-wto-reform-and-the-role-of-china/). Geopolitical tensions related to systemic difference and national security erode mutual trust and created leadership vacuum, while developmental split leads to divergence on plurilateral initiatives, decision-making, and on how to balance traditional issues such as agriculture and 21st century issues such as sustainability.
Many experts are also worried about the potential impact on the WTO of the US presidential election a few days ago, including on the (re)nomination of next Director-General, US engagement on WTO reform, with an imminent deadline by year end for a fully and well-functioning dispute settlement system, and its contribution to WTO budget (11.4%). Potential unilateral measures by the US, e.g. a new tariff war (60% on China and 10% on the rest of the world), revocation of China Permanent Normal Trade Relations (PNTR) will be more than subversive by disregarding basic WTO rules and international relation principles, hence seriously impacting how WTO operates and how countries trade in the future. One thing worth noting is the substantial changes of the US domestic politics, with Republican Party no longer a party for free trade or WTO.
Then how do we deal with it? Up to now, the achievements since the launch of the WTO reform at MC12 in 2022 are quite slim, e.g. services domestic regulation, fish 1 and some administrative improvement of Reform by Doing. And it’s difficult to foresee any chunky progress at MC14 or beyond. One observation is that the way we discuss WTO reform is quite traditional. This traditional mindset is probably why the achievements are limited.
For example, we always emphasize the need for a kind of leadership under hegemony. But with the Big Three (US, China and the EU) increasingly alienating from each, how could that be possible? As said by many, now the US stops to lead, China won’t lead and the EU can’t lead. So, we might have to explore collective leadership from the middle grounders as friends of the system. A related issue is that for any plurilateral initiatives to be legally sound, we need to first have critical mass of 90% coverage of related trade or investment. If any of the Big Three disengage, it is just obvious that you won’t achieve that 90%. Then what? We end up by doing nothing?
Another example is on consensus decision making, with certain member constantly exercising veto, members are now discussing how to invent a process where members can exercise veto in a responsible manner by providing facts and evidence. One could imagine that, with such a process, certain member provides some facts and evidence for national or systemic interests and claim to be responsible, but still block a consensus decision. We have just witnessed that for the fifth time Investment Facilitation for Development Agreement (IFD) was blocked to be incorporated into Annex 4 of the WTO Agreement. What’s next? We just pray that related Members miraculously change their positions and green-light plurilateral initiatives?
About 2500 years ago, SIMA Qian, the greatest Chinese historian once said: “There is no construction without destruction.” By quoting this, I do not mean to destruct the WTO or the multilateral trading system. The organization is just too important to be taken down. What I suggest is a little bit innovation on our mindset, on how we may jump out of box and break silos to think about and discuss how to reform the operation of the WTO to move ahead while ensuring the integrity of the system.
Actually, we have started some pioneering of such “destruction and then construction”, e.g. on the dispute settlement mechanism after US paralyzed the Appellate Body (AB). EU, China and some other 50 odd WTO members have established the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), as a replacement of the AB. Almost all major users of the WTO dispute settlement mechanism, including the AB, are parties to MPIA except the US and India. And this new Arrangement has successfully dealt with two appeal cases (DS591 and DS583). One interesting aspect of MPIA is that it is said to have entailed little budget issue with the EU providing administrative support and parties to appeal cases paying for related cost of arbitrators.
If we follow the same exploratory approach, can we follow this “just do it” (https://borderlex.net/2023/10/05/interview-wolff-i-am-in-the-just-do-it-school/) to implement the agreed plurilateral negotiated results, such as IFD? Can we start and agree among likely-minded Members on issues required by the 21st century reality below critical mass, with or without the Big Three? Can the Director-General authorize the Secretariat to serve new initiatives that constantly fall into the irresponsible veto trap? If not, can participating Members establish their own committee to supervise their implementation, like many FTAs, and keep the WTO informed through related WTO bodies?
It won’t be easy to find answers to these questions, and many other questions on the way ahead. This “destruction and then construction” concept is simply to suggest that Members should be more innovative and jump out the box for the WTO reform discussion. This won’t be an easy path, but we must start a different mindset sooner than later. The world won’t wait for us.
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