RESEARCH AND ANALYSIS

21st century trade and global trade governance: The WTO’s future

Richard Baldwin, Graduate Institute, Geneva

 
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The WTO seems trapped in a deep malaise. Unable to conclude the Doha Round due to 20th century conflicts over tariffs and agricultural barriers, the WTO seems unable to move forward on anything. Stalwart WTO members are looking elsewhere for the new disciplines needed to underpin 21st century trade.

This failure is paradoxical. The malaise:

• Does not reflect anti-liberalisation sentiments;

Quite the contrary; the new century has seen massive liberalisation of trade, investment, and services by WTO members — including nations like India, Brazil, and China that disparaged liberalisation for decades. WTO members are advancing the WTO’s liberalisation goals unilaterally, bilaterally or regionally — indeed almost everywhere except inside the WTO (see Figure 1).

• Does not reflect WTO unpopularity.

The organisation still attracts new members — even powerful nations like Russia — despite the high political price of membership.

• Does not reflect WTO irrelevance.

WTO dispute settlement procedures are increasingly popular, with an ever wider range of members using them.

In short, when it comes to 20th century trade and trade issues, the WTO is in excellent health.

• The basic WTO rules are almost universal respected.
• The decisions of the WTO’s court are almost universally accepted. 
• The global crisis created protectionist pressures, but most of the new protection conformed to the letter of the WTO law (Evenett 2011).

This essay argues that the WTO’s woes stem rather from the emergence of a new type of trade — call it 21st century trade. This new trade is intimately tied to the unbundling of production (global value chains). It has reshaped the geography of global production. And — since joining a supply chain is the fast route to industrialisation — unbundling is also at the heart of emerging market growth, which has in turned reshaped the geography of global demand.

21st century trade requires disciplines that go far beyond those in the WTO’s rulebook. To date, virtually all of the necessary governance has emerged spontaneously in regional trade agreements or via unilateral ‘pro-business’ policy reforms by developing nations. The real threat, therefore, is not failure of the WTO, but rather the erosion of its centricity in the world trade system.

This line of reasoning suggests the WTO’s future will take one of two forms.

1) The WTO remains relevant for 20th century trade and the basic rules of the road, but irrelevant for 21st century trade; all ‘next generation’ issues are addressed elsewhere.

In the optimistic version of this scenario, which seems to be where the current trajectory is leading us, the WTO remains one of several pillars of world trade governance. This sort of outcome is familiar from the EU’s three-pillar structure, where the first pillar (basically the disciplines agreed in treaties up the 1992 Maastricht Treaty) was supplemented by two new pillars to cover new areas of cooperation.¹ In the pessimistic version of this first scenario, the lack of progress undermines political support and the WTO disciplines start to be widely flouted; the bicycle, so to speak, falls over when forward motion halts.

The second scenario involves a reinvigoration of the WTO’s centricity.

2) The WTO engages in 21st century trade issues both by crafting new multilateral disciplines — or at least general guidelines — on matters such as investment assurances and by multilateralising some of the new disciplines that have arisen in regional trade agreements. 

There are many variants of this future outlook. The engagement could take the form of plurilaterals — following the lead of agreements like the Information Technology Agreement, the Government Procurement Agreement and the like (where only a subset of WTO members sign up to the disciplines). It could also take the form of an expansion of the Doha Round agenda to include some of the new issues that are now routinely considered in regional trade agreements.

Of course, 20th century trade is still with us, and is important in some goods (e.g. primary goods) and for some nations (international supply chains are still rare in Latin American and Africa), but the most dynamic aspect of trade today is the development of international value chains.

Concluding remarks

Where the WTO’s future seems cloudy is on the 21st century trade front. The demands for new rules and disciplines governing the nexus of trade, investment, services, intellectual property, and business mobility are being formulated outside the WTO. Developing nations are rushing to unilaterally lower their tariffs (especially on intermediate goods) and unilaterally reduce behind-the-border barriers to the trade-investment-services-IP nexus. Most nations are rushing to sign bilateral investment treaties, and ‘deep’ regional trade agreements that provide the 21st century disciplines. All of this has markedly eroded the WTO centrality in the system of global trade goverance.

The implication of this is clear. The WTO’s future will either be to stay on the 20th century side-track on to which it has been shunted, or to engage constructively and creatively in the new range of disciplines necessary to underpin 21st century trade.

Notes