A Quarter Century Later: Why the WTO remains important in today’s global trading system

This year, the world is celebrating the 25th anniversary of the signing of the Marrakesh
Agreement. The Marrakesh Agreement established the World Trade Organization (WTO0 and is probably
the most important multilateral agreement since the Bretton Woods Agreement in 1944 as it reformed
the multilateral trading system that has been in place since the end of World War II. The WTO has been
credited, among others, for providing clearer rules and procedures on global trade than its predecessor,
the General Agreement on Tariffs and Trade (GATT) and also expanded the subject of international trade
to not only include trade in goods but also trade in services and intellectual property rights. However,
there has been concern that the WTO’s role and position as the primary body governing international
trade maybe in danger.

The WTO hasn’t launched a new major trade agenda since the collapse of the Doha Round
negotiations in 2008 due to a disagreement on issues such as agricultural subsidies and a special safeguard
mechanism against imports for developing countries. The world though, has moved on and many WTO
members are now turning to negotiating regional or bilateral Preferential Trade Agreements (PTAs) in
their trade agendas. PTAs are arguably easier to negotiate as it doesn’t require a consensus from 160 plus
members like the WTO. The most recent and large PTAs include many economies in the Asia-Pacific, such
as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional
Comprehensive Economic Partnership (RCEP). The scope of these agreements have gone beyond what
was agreed in the WTO as they include new issues such as e-commerce and the incorporation of an
Investor to State Dispute Settlement (ISDS) system inspired by Bilateral Investment Treaties (BIT).

Another issue that may threatened the WTO’s relevance is the current U.S. trade policy under
President Trump, who has shown no fear of bypassing WTO rules in the pursuit of his trade policy. The
U.S. has slapped certain countries such as China with a higher tariff for certain goods compared to other
countries, which is in violation of the Most Favoured Nation (MFN) principle that prohibits a trading
partner from being treated no less favourable than the rest. Last year, President Trump also threatened
to pull the U.S. out of the WTO if the WTO “don’t shape up”. The withdrawal of the U.S., one of the nations
who pushed for the creation of the WTO, would definitely be a severe blow to the WTO’s existence.

However, despite these threats, the world today still very much needs the WTO. The WTO has
become an indispensable part of the global trading system. To date, virtually every country in the world
now is a member of the WTO. Only 13 out of 193 United Nations’ member states that contribute a
miniscule 0.05 percent of world trade have not yet applied for WTO membership. Joining the WTO also
has proven to give benefits to countries that have just recently opened up their economies. The
economies of China (joined the WTO in 2001) and Vietnam (2007), for example, have benefited greatly
from WTO accession by experiencing significant increases in FDI inflows as well as growth of exports post
WTO accession.

President Trump’s intention to pull the U.S. out of the WTO and deal a severe blow to the rules
based order of international trade would be one monstrous task. Under Section 125 of the Uruguay Round
Agreements Act, a U.S. withdrawal from the WTO would require approval from Congress and is reviewed
once every five years, with the next congressional review due in 2020. However, this issue has not been
discussed in Congress since 2005. Even If Congress does agree to discuss this issue in 2020, it would likely
face challenges given that withdrawal from the WTO not only revokes America’s power to rewrite the
global trade rules but also would lead to higher tariffs for exported goods from the U.S. and threaten the
overseas expansion of U.S. services providers. Given its disastrous effects, the Armageddon like situation
of a U.S. withdrawal is unlikely to happen.

Another reason why the WTO remains relevant is its Dispute Settlement System (DSS) which is
still frequently used to solve international trade disputes today. WTO members have shown tremendous
confidence in the DSS as it has handled more than 500 cases since it was established coming from at least
100 members. While the frequent initiators and defenders do come from developed countries such as the
U.S. and the European Union, developing countries have also acted both as complainants and
respondents, such in the case of Pakistan and South Africa in 2015. It is no wonder that former WTO
Director General Pascal Lamy once dubbed the DSS as the WTO’s “jewel in the crown”.

The WTO has surely not been immune to scepticism and threats in the past two decades.
However, the irreplaceable role of the WTO means that removing or dislocating the organization from its
role in charge of governing international trade for more than 99 percent of the world’s economy would
only create havoc for the global economy.