INTERVIEW: The future of global trade
New Europe (NE): Which challenges do you see, at the global level, when it comes to maintaining the WTO and multipolar free trade.
Karl Brauner (KB): I think the main challenge is, and it continues to be, undertaking the necessary reforms to equip the WTO with the tools to deal with the world of trade in the 21st-century and to ensure that the organization remains relevant. We are still working with a rule book that was designed for managing trade as it existed in the late 20th-century. Now that might not seem so long ago, but so much has happened since we concluded our last global trade deal in 1994 and since the WTO came into being in 1995.
Telecommunications underwent a revolution, and the Internet has changed our lives in ways that could not have been imagined at the time. We’re seeing that even more today as the COVID-19 pandemic has forced businesses around the world to adapt to the new virtual environment.
The good news is that some of our members are taking the initiative to address these matters. More than 80 members are currently engaged in negotiations on establishing new rules to ensure that e-commerce can grow and thrive while at the same time ensuring sufficient protection for consumers and businesses.
These talks, which involve countries that account for most of the world’s e-commerce trade, are touching on issues such as digital trade facilitation, electronic payments, access to data, consumer protection and privacy. We will see how these negotiations turn out, but the proponents are hopeful that they can produce a substantive outcome in the not too distant future. We’re also seeing progress in other areas where groups of members have come together to address issues of relevance in regards to today’s trading world.
More than 90 WTO members are close to reaching a deal on new initiatives aimed at helping micro, small and medium-size enterprises take better advantage of the opportunities that trade provides, and more than 60 members are looking to conclude a deal on new disciplines to ensure that domestic regulations relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services. In addition, more than 100 members are involved in negotiations aimed at making national investment rules more transparent, predictable and efficient. There is, however, more than that.
The WTO, itself, needs to change. Some members want to look at overcoming the problems we have faced in initiating, negotiating and concluding trade agreements amongst the membership as a whole. Take agriculture, for example. We have been talking for 20 years about how to open markets while limiting farm subsidies and we are still far from a solution.
Others want to look at how we can strengthen the work of the WTO’s regular bodies and committees as well as strengthen disciplines under existing agreements – members like the EU, the US and Japan, for instance, want to discuss tightening our rules on state subsidies. Flexibilities in the rules for developing countries are an issue – some, like the US, are pushing to restrict which countries can benefit from these rules, while others in the developing world believe the existing flexibilities are too restrictive.
Pretty much everyone accepts that the WTO needs to change – the Group of 20 leading economies, for example, has been calling for WTO reform in their recent summit statements. But members haven not really engaged in any meaningful way so far. We do have members like the Ottawa Group (Australia, Brazil, Chile, European Union, Japan, Kenya, Korea, Mexico, New Zealand, Norway, Singapore and Switzerland) putting forward initial ideas for reform and we are expecting a new initiative from the EU on this matter soon. Hopefully our Ministerial Conference next year will provide some incentive to get down to work on this matter.
NE: How do you evaluate the current situation regarding gridlock over the Appellate Body?
KB: The situation is not good. The Appellate Body is comatose and there’s no sign we will be able to pull the patient back anytime soon. The United States has been the leading critic of the Appellate Body and has blocked the appointment of new “judges” which has rendered it inoperative. This means that, pending a solution, rulings by WTO dispute panels can be appealed “into the void” and dispute cases will remain open.
Members have very different ideas about what that solution involves. The United States has put forward quite a detailed critique of what it views as Appellate Body overreach and erroneous interpretations of existing WTO rules stretching back many years. I think it is fair to say that while there are some members that agree with various aspects of the US critique, most deplore the US approach of shutting the Appellate Body down.
These members, while recognizing the need for reform, want to maintain a binding, two-tiered dispute system with a functioning Appellate Body. The top US trade official, however, has expressed a different view, arguing in favor of a single-stage process without the automatic right of appeal. This is obviously a big change from how we have handled disputes in the past. There is no indication of what kind of a new dispute system, if any, may eventually emerge, but whatever emerges, it has to secure the confidence and backing of all our members, the United States included. We are already seeing the impact in terms of the number of appeals piling up and disputes remaining unresolved. Dispute settlement is a key pillar of the organization, and it is not a stretch to say that many members might feel less motivated to negotiate new or updated trade rules if they have no guarantee these rules can be enforced.
NE: Which role can the EU play to support global free trade?
KB: A very important role, for sure. The EU has always been an influential player in the WTO and continues to be. The EU is active in the ongoing negotiations aimed at reaching an international agreement on addressing harmful fisheries subsidies and is taking part in the talks on e-commerce, small enterprises, investment facilitation and domestic regulation of services.
Under Commission President Ursula von der Leyen, it has expressed its continued support for the organization and its mission. I was glad to see in her State of the Union address in September that the EU intends to take the lead on WTO reform as well as EU Ambassador to the US Stavros Lambrinidis’ recent statement citing WTO reform as one of the bloc’s priorities for trans-Atlantic relations. We also saw the EU take an active role in trying to overcome the impasse regarding the Appellate Body and ensure effective dispute settlement.
The EU was one of the leading proponents in the effort by New Zealand’s WTO ambassador David Walker to broker a compromise on reforming the Appellate Body, which drew wide support but did not get the consensus backing needed. When that effort ended, the EU brought together a group of WTO members to offer an alternative way to preserve the WTO’s two-tier dispute system by setting up an Appellate Body-style alternative through the arbitration provisions of our dispute settlement rules.
That alternative has now been accepted by some two dozen WTO members as a temporary solution pending a permanent resolution restoring the Appellate Body. It is an imperfect solution in that those members who do not want to take part are not bound to do so, but it does offer some degree of stability and predictability in dispute resolution for those who do.
NE: What were your/the WTO’s greatest accomplishments and greatest disappointments during your seven-plus years at the organization?
KB: On a more general level, I have to say that I am glad to have been part of the WTO when we secured some important agreements back at our Ministerial Conferences in 2013 and 2015. The Trade Facilitation Agreement (TFA), which has now been ratified by 153 of our 164 members, was a significant achievement. Full implementation of the TFA has the potential to reduce trade costs by an average of 14% and increase global exports by between $750 billion and $ 1 trillion, depending on the speed and extent of implementation.
The good news is that the members who stand to gain the most from this agreement – developing and least developed countries – are moving ahead on implementation, in some cases (like India) faster than originally planned. We heard at a committee meeting earlier this week that 15 developing countries have already achieved full implementation and that a number of members have adopted new trade facilitation measures in response to the COVID-19 pandemic, which has underlined more than anything the importance of moving goods quickly and efficiently across borders which the TFA is designed to assist with.
I am also glad to have been part of the WTO when we secured the package of initiatives at Nairobi in favour of least developed countries, including a firm timetable for the elimination of export subsidies for agriculture, one of the most trade-distorting forms of farm support, as well as decisions on preferential treatment for LDCs in the area of services, preferential rules of origin for goods, and others. In addition, we managed to secure an extension to our agreement granting duty-free treatment to certain high-tech goods, with more than 200 goods worth over $1.3 trillion per year added to the list. This was a big achievement, worth more than global trade in automotive products — or trade in textiles, clothing, iron and steel combined.
In terms of disappointments, I wish we could have achieved a deal on eliminating subsidies for illegal, unreported and unregulated fishing and reducing harmful subsidies that contribute to overfishing and overcapacity of fishing fleets. United Nations members have instructed us to tackle this problem, which is urgently needed to help address the crisis of depleted fish stocks worldwide.
The hope was to make some significant progress at a Ministerial Conference we had planned in Kazakhstan in late June, but that was cancelled due to the pandemic, which took a bit of wind out of our sails. There is reasonable hope that we can get something done by the end of this year or at our Ministerial Conference next year, but every day that passes without a deal makes the situation a little bit more dire.