Ngozi Okonjo-Iweala

Special Report – WTO needs “drastic reform”

“Give the WTO a chance,” Director-General Ngozi Okonjo-Iweala asks Biden and Xi

MB October 2021 Special Report | China at the WTO

“It is an objective fact that the WTO is in need of reform and even more: so, the entire architecture of the present international legal order as established in 1945 under the aegis of the United Nations Charter,” Rostam J. Neuwirth tells Macau Business.

According to Professor Neuwirth, Faculty of Law, University of Macau, “The transition from the 1947 GATT to the WTO constituted a remarkable step. At the same time, the WTO was established in a time before the Internet and a radical information and technology revolution, as well as many other new technologies.” In just one example of the need to adapt, “many of its rules regarding e-commerce, but also other concerns that are falsely connoted as ‘non-trade concerns’ (as in reality most global concerns combine trade with non-trade aspects), require new ideas and a drastic reform.”

Henry Gao, Associate Professor of Law, Lee Kong Chian Fellow, Singapore Management University, adds, “25 years after its establishment, the WTO is at a critical juncture: its first and only negotiating round is effectively dead, two of its largest Members are engaged in a no-holds-barred trade war, and its crown jewel – the Appellate Body (AB) – is in paralysis.

“The silver lining emerging amidst the gathering clouds, however, is a growing consensus among the WTO Membership for the exigency of WTO reform.”

Mr Gao, one of Asia’s leading experts on the WTO, goes on: “Another consensus that has emerged is the importance of China to WTO reform, not only because it is a key member, as the largest trader in the world, but also because, as some Members believe, there is an inherent tension between the WTO – an organization built upon market economy principles – and China, the biggest nonmarket economy in the world.”

As Gao explains, signs of this tension appeared in May 2019, when China submitted a formal proposal on WTO reform further elaborating the main issues of concern to China, as well as the specific actions that need to be taken.

“While many of the suggestions directly respond to the China-related reform proposals mentioned earlier, China also tried to turn the table by launching its own offensives. For example, China suggested that the first priority should be solving the existential issues facing the WTO, such as the impasse over the Appellate Body Member appointment process, the abuse of the national security exception and the resort to unilateral measures. Of course, given the mounting pressure, most of the Chinese proposals directly address the aforementioned points,” Mr Gao details.

An opposing view is held by Xinquan Tu, Dean and Professor of the China Institute for WTO Studies, University of International Business and Economics, Beijing: “It is not China but the US intending to change or reform the WTO.”

Professor Tu tells Macau Business, “The priority of China is to preserve the main principles and functions of the WTO. But China is supporting necessary reform to sustain the WTO’s relevance and effectiveness.”

“It is not China but the US intending to change or reform the WTO. The priority of China is to preserve the main principles and functions of the WTO. But China is supporting necessary reform to sustain the WTO’s relevance and effectiveness” – Xinquan Tu

This perspective is shared by Chao Wang, Associate Director of the Center for Constitutional Law and Basic Law Studies, University of Macau, who believes “the AB is paralysed now, because of the hostility of the United States towards the WTO. From my point of view, the greatest obstacle to the reform of the WTO is the reluctance of the United States.”

Mr Wang continues, “China’s economy is a great beneficiary of the WTO’s current multilateral trade system. China is open to any proposal to reform the WTO, but the proposed reform should not be of unilateral interest to the United States, otherwise it will not be supported by the majority of the WTO members.”

One of the reasons China wants to participate in WTO reform is the fact that, as Professor Neuwirth explains to Macau Business, “China joined the WTO at a time when the ‘rules of the game’ were established. Thus China, like Russia and others joining after 1995, had little chance to influence those rules of the game (i.e. regulation of international trade), especially since the Doha-round negotiations launched in 2001 did not yield many tangible results.”

Therefore, according to Mr Neuwirth, “due to its weight in international trade, China is certainly increasingly called upon to take a more proactive role in the formulation and adoption of future trade rules.”

The next step is the 12th Ministerial Conference (MC12), originally scheduled for December 2019 in the Kazakh capital, Nur-Sultan, and now slated for December 2021 in Geneva.

Joe Biden and Xi Jinping will each have a decisive word.

So it’s no coincidence that Ngozi Okonjo-Iweala, the first female and first African director-general of the WTO, appealed to them both directly not long ago: “Give the WTO a chance.”

Major players vs middle powers

What if WTO reform is ultimately not led by the two main economies “blocked” by political and economic problems?

Dmitry Grozoubinski, Executive Director of Geneva Trade Platform, believes that “in the absence of leadership from major players, or movement on central WTO mandate issues, it has fallen to middle powers to try to energise momentum in other areas.

“Middle powers often take an outsized role, because they are firstly more invested in a predictable and rules-based system and secondly more agile,” Grozoubinski tells Macau Business. But “if a large country like China or the US, or a bloc like the European Union, has a trade issue, it can often resolve that issue bilaterally or diplomatically because access to its market is so lucrative and it has so much power and influence. For a middle power, this may not be an option, and so it benefits more from predictable, rules-based trade where disputes are settled through international law rather than head-to-head negotiation.”