There has been an elephant in the room ever since the discussion of Brexit and trade began. Gradually, bits of the animal have become visible, but what we have seen has not always been accurate. It’s time to complete the picture, and to understand why it isn’t in the best of health.
Is it a wall? Is it a spear? Is it a snake? Is it a tree? Is it a fan? Is it a rope?
The elephant is the 164-member World Trade Organization (WTO), whose trade ministers have just ended their biennial conference in Buenos Aires, December 10–13, with little achieved substantially.
WTO agreements already apply to the United Kingdom’s relationship with the European Union as an EU member.
As the Brexit talks enter their second phase, they will determine what can and cannot be done with the future UK-EU relationship on trade — sometimes explicitly, sometimes quietly behind the scenes. WTO rules will also affect any trade relationship Britain seeks to define with the rest of the world, whether globally, regionally or with individual countries.
How well WTO rules and the terms of Britain’s WTO membership work depends on the nature of the elephant and its health, which cannot be taken for granted.
People’s understanding of the WTO is a bit like the ancient parable of the blind men and the elephant. Each feels a different part of the animal and, according to this version, they observe separately a wall (the body), spear (tusk), snake (trunk), tree (leg), fan (ear), and rope (tail), and they argue “loud and long” about what it is:
Though each was partly in the right,
And all were in the wrong!
The same applies to the WTO. Even people who have spent their lives working on it stress different aspects.
Some lawyers’ eyes magnify WTO dispute settlement and its jurisprudence, the “jewel in the crown”. For some practitioners, what matters are the achievements of WTO committees, whose work is partly designed to avoid legal disputes. Many journalists judge the WTO by the success or failure of negotiations. And so on.
So what is this elephant?
The WTO’s own explanation is here. We’ll do it differently, focusing on the elephant’s four legs — bearing in mind that the whole elephant is the WTO’s multilateral trading system. The elephant stands or moves on those legs. All four are important. Right now they are not too steady.
Leg 1: trade negotiations — where WTO ‘rules’ come from
Negotiations are the starting point of everything that happens in the WTO. All “WTO rules” are actually negotiated agreements. Everything the WTO does is based on them.
They include key principles such as non-discrimination and transparency, and aim for a trading system that is stable and predictable.
They have been negotiated and re-negotiated since the end of the Second World War, starting with the 1947 General Agreement on Tariffs and Trade (GATT, which deals with trade in goods), through the addition of services and intellectual property in 1995 (when the WTO was created) and to streamlining border procedures (“trade facilitation”) in 2013.
Negotiations can be by individual subject, or as a package or “round” covering many subjects. Rounds allow trade-offs across subjects, which can help to break deadlock — for example, a country reluctant to reform agriculture might find it easier to do so if other countries open up their financial services markets in return. But because rounds cover many subjects they are also more complex. Single-subject negotiations are simpler but with less scope for trade-offs.
In 2001 WTO members agreed to launch the Doha Round. They hoped to reach agreement in four years, and they failed. Despite immense progress in 2006–2008, the talks fell short of agreement. Since then, they have stagnated. In the meantime a handful of single-subject deals have been struck. Some came from the Doha Round, including the one in 2013 on trade facilitation.
Agreement in the WTO is by “consensus”, which means no one objects. In 2015 some countries such as the US wanted to declare the Doha Round to be over. Others, mainly developing countries, disagreed. Without consensus, the Doha Round could not be declared dead. But it could not continue in that form either. Elsewhere, I’ve called it a zombie.
The WTO’s political leaders, ever since Mike Moore was its director-general in 1999, have measured their own success or failure by the fate of negotiations. By that measure, Moore was successful in launching the Doha Round but all his successors have failed to conclude the talks, until recently when single-issue deals have been agreed. But there’s more to this elephant than this.
Leg 2: Implementing and monitoring — vital, routine WTO work
Someone described the WTO’s negotiations and other headline-hitting work as the “poetry” in its “plumbing”. The plumbing is unglamorous and rarely seen but cannot be ignored.
Signing negotiated agreements is not an end: it’s a beginning.
Most of the routine work in the WTO is about monitoring how well countries keep the promises they made in those agreements and implementing what was agreed.
It involves a huge amount of information-sharing and scrutiny by WTO members — in over 20 “regular” committees, each comprising the full membership. This leg is wobbling because members struggle to keep up-to-date with the information they have to supply once or twice a year, or when they introduce new regulations and policies. This makes monitoring difficult.
Even when countries keep their promises, the way they do it can hamper trade. When these problems are raised in the committees, solutions can be found just by talking, avoiding expensive legal disputes. Some of the most productive work is on product standards and regulations, such as how to ensure food or industrial products are safe.
If there is no news from these committees, then the system is working well. Generally, peer pressure encourages countries to keep the promises they made in the agreements. That in itself should be news but it’s rarely reported.
All of this means most of the $20 trillion global trade in goods and services flows smoothly and almost unnoticed. Some experts even argue that the WTO’s success or failure should be measured primarily by the “plumbing”, not the poetry.
Leg 3: Dispute settlement — adjudicating WTO law
Back to the poetry, though. Formal WTO disputes attract much more attention. They help enforce agreements. They also deal with huge amounts of money (such as aircraft subsidies) and other concerns (such as when tuna fishing endangers dolphins).
WTO disputes are always between governments, so “Boeing” versus “Airbus” is actually the US versus the EU.
And they are always about broken promises (violations of WTO agreements, commitments or expected rights). If a government simply dislikes another’s trade policy in general, the solution is to try to negotiate new rules.
Normally, that is also the recourse when a country is dissatisfied with a dispute ruling.
This year, something different has happened. The US is unhappy with rulings against a particular method it used to calculate something called a “dumping margin”. It’s all very technical but powerful commercial interests are involved and the upshot is that the US is blocking the appointment of WTO appeals judges to replace those whose terms expire. By December 11, they had dwindled from seven to just four.
Unless something changes, WTO disputes could eventually come to a halt. The elephant would be toothless.
Leg 4: development — the WTO’s particular role
The WTO is not a development agency, but members want it to have a role. It does this in several ways.
Trade itself is supposed to help developing countries. The rules in the trade agreements also include a considerable amount of leeway for them.
The WTO hosts “aid-for-trade” meetings between development agencies and other donors, and developing countries, so that aid matches real needs as much as possible.
And the WTO Secretariat also trains officials from developing countries so they can operate better in the system.
Acknowledging this used to be routine. Not anymore. The US blocked a draft declaration for the December 10–13, 2017 WTO Ministerial Conference in Buenos Aires. It objected to the commitments to the WTO’s multilateral trading system and development, both standard in previous declarations.
What does this mean for the UK and WTO?
Some have claimed that the threat to the dispute settlement system means the elephant could be on its deathbed. Others have said the same about the failure to conclude a major negotiation. And then there are those who remind us that the routine work is in reasonably good health, even if the information that members notify to the WTO needs to be better and to arrive faster.
As far as Brexit is concerned, a weakened WTO would allow Britain more leeway in how it chooses its trade policies. But it if the UK feels that others’ trade policies are unwelcome, a weakened WTO would also give it less leverage to deal with the problem.
As for the idea that by leaving the EU, Britain can inject new life into the elephant (which some seriously believe), at the very least the UK will need to learn how to ride it first.
Photo: WTO building © WTO.
Illustrations: drawings and paintings of the blind men and the elephant from Charles Maurice Stebbins & Mary H Coolidge, Golden Treasury Reader (US); and from Holton-Curry readers (US) — all public domain