Back to the drawing board: WTO reform requires a reassessment of its fundamentals

Economic Times, July 20, 2022

By Pradeep S Mehta and Sneha Singh

Using the momentum garnered at MC12, the WTO must urgently deliver on institutional reforms. By going back to the drawing board, Members must reassess fundamental principles such as inter alia decision making through consensus and embrace greater flexibility and pragmatism to resolve deadlocks.

Even in the best of times, international commitments often clash with domestic pressures. However, the current age of polycrises and geopolitical uncertainty has made the accommodation of different interests harder. Against this backdrop, even as the outcomes of the 12th Ministerial Conference (MC12) of the World Trade Organisation (WTO) brought relief to some and cheer to others, it must not be forgotten that the linchpin of the WTO agenda – reforming the institution, remains unbacked by any clear work programme.

The implications of this vacuum are rather grave. Without an all-hands-on-deck effort to reform the institution, WTO may not see a complete restoration of its negotiating, monitoring, and dispute settlement functions. Without the WTO performing optimally to the satisfaction of a large number of members, we risk even greater uncertainty and instability in international commerce.

At CUTS International, we have consistently campaigned for preserving the strength and sanctity of the rules-based trading order with the WTO at its centre. In recent times, CUTS started a campaign titled “What Would Happen to a World without the WTO?”. Our latest initiative, “Future of the WTO or WTO of the Future?”, takes the conversation forward, with distinguished panellists weighing on various issues related to WTO reform. Even as experts differ on the course of action that must be taken, three conclusions seem to be consistently voiced.

First, even as WTO’s relevance for future trade liberalisation is overshadowed by a growing network of Free Trade Agreements (FTAs), its role as the key monitor and arbiter of global trade rules remains crucial. Second, WTO must deliver on development outcomes for the benefit of the large number of developing country members. Thirdly, WTO reform is indispensable, urgently required and particularly difficult due to the onerous requirement of consensus in decision-making.

In other words, let’s focus on the third point without reducing the significance of the first two, whether and how the WTO members reassess the institutionally fundamental requirement of consensus in decision making will significantly influence the future of the organisation as well as the global rules-based order. This is causing much pain as the dispute settlement system, the jewel in the crown, has ceased due to US’s recalcitrance.

Chasing Consensus

Per the Marrakesh Agreement Establishing the WTO, members shall continue the practice of decision-making by consensus that was followed under General Agreement on Tariffs and Trade (GATT 1947). In this regard, a decision is made by consensus if no Member present at the meeting, formally objects to the proposed decision.

Consensus confers several advantages. Most importantly, it increases the legitimacy and therefore the implementability of decisions. It also confers considerable power– a veto in the hands of all members. Unsurprisingly, the odds of forging consensus with a large membership, complex rules and easily exercisable veto are quite low.

On the other hand, the costs associated with the lack of consensus are quite high, and progressively inching higher. To mention but a few – the value of trade locked in WTO disputes because of a defunct dispute settlement mechanism; the opportunity cost associated with the suspension of the Doha Development Agenda; the welfare cost of pursuing sub-optimal bilateral or regional arrangements in matters such as subsidies, where spill overs can be optimally managed through multilateral norms alone. The prospect of resolving many of such issues demands a reassessment of the consensus rule.

A call to reinterpret or dilute the requirement of consensus in the WTO is by no means new. However, a deep-seated crisis in an organisation so vital requires its members to go back to the drawing board and reassess its fundamentals. Several questions come to mind. Can the requirement for consensus be diluted or realigned without destroying the institutional integrity of the organisation?

Would it not be prudent of members to consider supplementing the institutional default for consensus with a pragmatic scheme of voting? Thomas Cottier and Satoko Takenoshita (World Trade Institute, Berne) propose the adoption of weighted voting in situations where a decision cannot be arrived at by consensus. They suggest that weightage be given to a mosaic of variables such as population, GDP, contribution to the WTO and market openness for select decisions.

At the very least, such a scheme should ensure that “no Member alone, individually be in a position to block the adoption of a position” – a situation that has precipitated the Appellate Body crisis. In this regard, where the outcomes have a bearing on the very sanctity of the WTO’s three pillars of negotiations, dispute settlement and monitoring, members may even explore the dissociation of such decisions from the purview of the “consensus rule”.

Plurilaterals within a multilateral organisation

For many, however, the problem is not with requirement of consensus but rather, with the abuse of the rule. It is worthy to note that the GATT years saw eight rounds of negotiations between 1947 and 1994, and this frequent updation of the rule book was possible despite the requirement of consensus. Of course, several factors were at play. First, a limited set of likeminded, developed countries agreed upon the basic economic premise of using comparative advantage and fair competition to (primarily) enhance global economic welfare.

Thus, the original Quad consisting of Canada, Japan, the EU and US unilaterally made concessions and drove the agenda for trade liberalisation at the behest of politically vocal export industries. Second, even as developing countries benefited from the extension of these commitments on a most-favoured nation (MFN) basis, there was no compulsion on them to make similar concessions. This balance between a fixed common purpose and a movable set of principles created enough momentum for the establishment and initial success of the WTO. Following that, the Cancun Ministerial Conference in 2003 saw the emergence of a new quad with India and Brazil joining the ranks with US and Europe which gave a new dimension to how the WTO negotiations will evolve.

Currently, WTO members are trying to adopt similar flexibility by undertaking plurilateral negotiations – an approach where less than the full membership is involved. Numerous such initiatives have been started to cover issues of sustainability, e-commerce, investment facilitation and even dispute settlement (the Multi-Party Interim Appeal Arbitration Arrangement (MPIA).

While some members see these Joint Initiatives as a means to unclog the system, others see them as an illegal deviation from the multilateral underpinnings of the WTO. However, as succinctly put by Hamid Mamdouh (Former Director of the Trade in Services and Investment Division of the WTO), a distinction should be drawn between the process and the outcome. Consensus is not a prerequisite for initiating the process to formulate new rules. It is only the outcome that can be accepted or opposed by the member. This distinction must be maintained to ensure that a WTO member may not block progress desired by others, even as it cannot be bound by new obligations against its will.

This, of course, still leaves us with the fate of the outcomes. Should the membership decide, they can smoothen the way for the multilateralisation of plurilateral agreements by making both the process and its outcome more inclusive, and thereby legitimate in the eyes of all. A set of principles or a code of conduct could be designed to that extent. The code could require that plurilateral agreements be supported by members with significant trading interest in the matter, and that they remain open to all members wishing to join at a later stage. A dilution of the requirement of consensus could be considered for plurilateral arrangements which comply with the code of conduct and perhaps also offer their benefits on an MFN basis (to all members). This will go a long way in transforming the negotiation process while retaining the WTO as the hub of the global trading system.

Finally, another display of flexibility at the WTO is worth scrutinising. The WTO Trade Facilitation Agreement allows developing countries and LDCs to determine their commitments and implementation schedule. Such an approach could serve as the basis for future agreements. In fact, in so far as plurilaterals could also incorporate such flexibility, the legitimate complaint about such agreements being inconsistent with varying levels of economic development could also be addressed.

At the end of the day, as succinctly stated by the WTO Deputy-Director General Anabel González, there is a need for some “common sense, actionable and forward-looking principles” to guide WTO reform. It remains to be seen if members will agree on the contours of the same, and how far such principles involve a reassessment of the institution’s fundamentals. Between now and the next ministerial conference in 2024, the WTO has its difficult task cut out.

* On the issue of creating a better buy in from the developing world please look out for our next article.

The authors work for CUTS International, a global public policy research and advocacy group.

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