WTO Crisis: Unresolved Disputes and Trade Concerns Threaten Global Economy
The World Trade Organisation (WTO) is facing a deepening crisis as growing numbers of disputes remain unresolved and trade concerns continue to escalate. The implications of this crisis are far-reaching and pose significant threats to the global economy.
The crisis began in late 2019 when the United States blocked the appointment of new judges to the WTO’s Appellate Body due to concerns over judicial overreach. As a result, 29 cases have been left in limbo, dealing a heavy blow to the dispute settlement system. Among the countries involved in these unresolved cases are China, Dominican Republic, India, Indonesia, Morocco, Pakistan, South Korea, and the United States.
Former deputy director-general Alan Wolff expressed his frustration, stating, No more fraud, no more pretending you’re appealing. He urged countries to refrain from lodging fresh appeals from 2024, when WTO members have committed to addressing the issue.
The WTO has warned of a polycrisis caused by the pandemic, the war in Ukraine, and inflation, which are undermining faith in globalization. As a consequence, there is a growing disregard for global trading rules among WTO members.
Last month, the WTO raised concerns about a surge in unilateral measures that, if left unchecked, could lead to the fragmentation of the world economy and result in a 5% decrease in global income. While import restrictions have eased since 2018, when former US President Donald Trump imposed tariffs on goods from China and other countries, export curbs have surpassed their decline. In 2020, export curbs reached a staggering 139, compared to an average of 21 per year between 2016 and 2019.
This surge in trade concerns has prompted the WTO to address a wide range of issues. Export restrictions on Indian rice and the subsidies associated with the clean tech movement, such as the US Inflation Reduction Act that favors production in North America, have been targeted. The WTO is also investigating subsidies for electric cars in China and the European Union’s efforts to boost domestic production of critical minerals and green technology.
The WTO’s relevance and credibility are now being called into question. Keith Rockwell, a senior fellow at the Hinrich Foundation, stated that the organization is teetering on the abyss of irrelevance. He remarked that people no longer feel obligated to abide by their WTO commitments, which was not the case a decade ago. For the United States, the driving force behind the creation of the rules-based trading system, the WTO is no longer a priority.
Countries have increasingly taken advantage of exceptions to WTO rules, such as using national security grounds to restrict trade. The United States, for example, has limited metal imports for national security reasons, while some Gulf states have restricted trade with Qatar on similar grounds. Beijing has also implemented export restrictions on critical minerals, while Washington has sought to limit China’s access to US technology, prioritizing national security over global trading rules.
The 164 WTO members generally agree that reform is necessary. However, any changes require a full consensus. Some argue that reform should focus on restoring the Appellate Body, but the United States refuses to accept this proposal. The US believes reform should address the discriminatory activities of state-owned enterprises, particularly those in China that distort competition. Other possible reforms could introduce provisions for climate change, data flows, or artificial intelligence, which were not originally considered when the WTO was established.
Reform will be a key topic at the WTO’s 13th Ministerial Conference (MC13) in February. However, it appears that the Biden administration may not believe further trade liberalization is in the US’s best interests, a stance that may become even more solidified in 2024, a presidential election year.
A Geneva-based WTO delegate highlighted that obstacles from India and indifference from the US would make MC13 as challenging as the previous conference. They also suggested that the WTO’s role could be blunted if the US no longer believes it serves its interests.
The WTO maintains that the world needs a renewed commitment to integration, which it terms re-globalization, to address challenges such as climate change and poverty reduction. The organization emphasizes that 75% of goods trade still relies on WTO tariff terms that members extend to each other. Removing these terms would result in chaos and a shift towards a power-based system rather than a rules-based one, according to WTO Director-General Ngozi Okonjo-Iweala.
As the WTO crisis deepens, urgent action is needed to restore trust and address the growing list of disputes and trade concerns. The stakes are high, as failure to do so could have serious consequences for the global economy.
