The Road Before the World Trade Organization: Three Possible Pathways

By Rachel Thrasher

From September 27-30, 2022, the World Trade Organization (WTO) will host its annual Public Forum, where WTO members, representatives from civil society, government, academia, business and media will gather to discuss the latest developments in world trade and to propose ways of enhancing the multilateral trading system.

At the top of the agenda will be evaluating the outcome of WTO’s  12^th Ministerial Conference (MC12) held in June 2022 after a four year gap. The Public Forum comes at a critical time when geopolitical forces are threatening to pull the global economy apart into blocs, amid disruptions in supply chains, food security and energy shocks and the on-going global pandemic.

This is certainly not the first time the WTO has faced a global crisis, but the current difficulties confronting the institution, both from within and without, are beginning to re-shape its scope and structure for the future. A major factor influencing the outcome is the attitude that WTO members have toward its existing rule-based structure and how they plan to move forward. In a new policy brief, members of the Working Group on Trade Treaties and Access to Medicines show how the history of the WTO has set the stage for where the institution is today, and discuss how the pandemic-induced “stress-test” may have changed the outlook of WTO members.

Historical context

The WTO is an institution that has been contested from its inception. As an outcome of the Uruguay Round of negotiations, which sought to update the General Agreement on Tariffs and Trade (GATT 1947), the WTO agreements were written in the spirit of the neoliberal consensus prevalent during the late 1980s and early 1990s. Almost immediately after it came into force in 1995, low- and middle-income countries (LMICs) raised concerns about the impact on their own development interests. By 1999, the division between the interests of developing and developed country members was already apparent.

In 2001, WTO members kicked off the Doha “Development” Round, and China officially joined the institution. The Doha Round was supposed to be structured around the needs of developing country members to gain access to new markets for their goods. However, the reluctance of developed countries to decrease agricultural subsidies and their interest in expanding the negotiating agenda of the institution resulted in a lack of consensus among member states that has not yet been resolved. Moreover, China’s accession to the WTO led to a rapid expansion of Chinese manufacturing for export, causing an initial “China Shock” around the world for countries with competing industries.

Simmering discontent

Over the past 20 years, scant progress has been made. Developed country members have sought to reform the standing Appellate Body mechanism, which was initially supposed to improve the enforceability of the WTO agreements, and have weakened provisions on special and differential treatment (SDT) for developing country members, as well as shifting negotiations to plurilateral forums. Concomitantly, developing countries are seeking to expand their policy space, including through SDT, to improve their scope for economic development.

Discontent with the institution comes to light even more strikingly in recent research from the Boston University Global Development Policy Center identifying the active policymaking during the height of the COVID-19 pandemic. When the pandemic hit, governments scrambled to protect public health and stabilize economies. As a result, COVID-19 policies found that countries at all income levels were willing to bypass the WTO-based restrictions placed on policymaking in order to confront the health crisis and corresponding economic shock. Countries like the US, Germany and France, as well as India, South Africa and China, were quick to ramp up subsidies, trade barriers, investment measures or public procurement policies to help their populations.

Though it is far from surprising that governments would take quick action for people within their borders, it highlights inconsistencies in approaches to policymaking. While trade, subsidies and investment measures were common, relaxation of intellectual property measures were not. Few countries were willing to risk the ire of pharmaceutical companies (and their home states) to issue a compulsory license for a COVID-19 treatment or vaccine. Even when the US did ultimately issue them, the licenses were hidden in private contracts with pharmaceutical companies.

MC12: Finding a way forward amid lackluster results 

Intellectual property rules have become one of the most pressing issues for WTO members in the past two years. At MC12, many members were concerned primarily about negotiating a waiver of certain provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights for COVID-19 products (TRIPS waiver). India and South Africa originally proposed such a waiver in October 2020, arguing it could increase production and affordability of essential health products in LMICs, but the proposal languished, opposed by key countries at the WTO while vaccine inequality – of particular concern for LMICs – skyrocketed. When WTO members did reach a compromise, it was a highly restricted waiver, rather than the expansive measure  many countries and advocates believed was needed.

The TRIPS waiver stalemate, and COVID-19 more broadly, have shown a spotlight on the cracks in the WTO’s foundation, calling into question the future of an institution struggling to meet the demands of a world facing the overlapping crises of pandemic, climate change and global economic disruption.

Given the complexity of the current conjuncture in international relations and domestic policy preoccupations, the policy brief highlights three possible pathways for the WTO.

Figure 1: Three Possible Pathways for the WTO

First, the institution could continue to muddle through – offering patchwork solutions like the TRIPS waiver “compromise” and other minor decisions made at MC12, without undertaking strategic change for the long-term. While this seems to be the current path, it may not be enough for the long-term sustainability of the WTO.

Second, increasing polarization between the US and China could undermine the current equilibrium and further destabilize the institution. Trade negotiations taking place outside of the WTO suggest that some countries may have more of an appetite for aligning trade commitments only with those countries that also hold similar political and economic viewpoints.

Finally, the policy brief reflects on what it would look like for the WTO to undergo a more profound transformation, one that allows countries with differing economic systems and priorities to trade with each other while allowing space for their domestic policy priorities. Such an approach would accommodate more ambitious development strategies by LMICS, allow developed countries to pursue industrial policies that create jobs, as well as recognizing the “common but differentiated responsibilities” of its membership in protecting the global commons.

As the domestic policies of high-income governments shift and a multi-polar world emerges, it is possible to envision a transformed global trading system that continues to support a largely open world economy while still affording countries policy space to promote the social, economic and environmental welfare of their public. Finding a new pathway that prioritizes this balance is an enormous challenge, but it is important if greater economic stability and peace is to be achieved.

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