Urgent Need for WTO Reform

POSITION | EXTERNAL ECONOMIC POLICY

Urgent Need for WTO Reform Strengthening the World Trade Organization (WTO) and Reinvigorating and Rebalancing the Multilateral Trading System

August 2019 CURRENT CRISIS OF THE WTO 23. Oktober 2017

The World Trade Organization (WTO) is the guardian of global trade. It allows its members to agree upon and enforce transparent and reliable trade rules worldwide.

However, the system is under threat by rising protectionism, disagreement regarding the way forward and discontent about its effectiveness. The WTO needs urgent reforms; otherwise, its relevance is put at risk.

Leadership by the G20 and G7 is essential for building the multilateral trading system of the future.

99

…of the 100 biggest Chinese publicly-listed companies are mostly stateowned.

55%

…of the WTO Members did not hand in any notifications in 2017

Source: WTO Trade Policy Review China < https://www.wto.org/english/tratop_e/tpr_e/s375_e.pdf>; WTO Document G/SCM/W/546/Rev.9, page 4.

Plurilateral Initiatives to Adapt WTO Rules to the 21st Century (started in Dec. 2017) E-Commerce: Further negotiations on submitted text proposals on various aspects of e-commerce based on WTO rules, without prejudice to existing agreements and mandates.

Domestic Regulations on Services: Negotiations on the reduction of non-tariff barriers in international trade in services (more transparency, no unnecessary bureaucracy) to finally deliver a multilateral outcome.

Investment Facilitation: Identification and development of elements of a framework to facilitate foreign direct investments (not covered by this initiative: market access, investment protection, Investor-State Dispute Settlement).

Micro-, Small- and Medium-Sized Enterprises: Continuation of the work of the informal working group on MSMEs with the aim to establish a formal work program for MSMEs at the next Ministerial Conference (June 2020).

Heimische Regeln im Dienstleistungssektor: Weiterführen der Verhandlungen auf Basis von aktuellen Vorschlägen, um am Ende ein multilaterales Ergebnis zu erzielen.

BDI Recommendations: Rebalancing the Multilateral Trading System

Investitionserleichterungen: Entwicklung eines Rahmens für die Förderung ausländischer Direktinvestitionen (nicht Address Trade-Distortive Practices abgedeckt: Investitionsschutz, The workingMarktzugang, group on Trade and CompetitionInvestor-Staat-Streitschlichtung).

Policy should be revitalized and effective rules should be introduced against forced technology transfer, localization requirements, cyber-enabled theft, and joint-venture requirements. Members Mikro, work Kleine und Mittlere Unternehmen: einer informellen Arbeitsgruppe dem Ziel, enterprises. für die nächste Mishould towards competitive neutrality inGründung the commercial area between private and mit state-owned nisterkonferenz ein formales multilaterales Arbeitsprogramm für MKMUs zu erstellen.

Enhance Transparency and Compliance with Notification Rules The enforcement of notification requirements and the role of the WTO secretariat in addressing shortcomings

by WTO Reform Urgent Need for members should be strengthened, e.g. by introducing more effective support programmes, processes and incentives, including reporting on non-compliance and sanctions (naming and shaming, withdrawal of members rights, additional budget contributions).

Fight Unfair Competition Caused by Subsidies and State-Owned Enterprises (SOEs) Comprehensive rules against trade-distortive subsidies in the areas of industry and services are overdue. SOEs, public body and state-controlled enterprises should be clearly defined. New rules that capture market-distorting support for/provided by SOEs and that create transparency over the level of state control and ownership are necessary. A plurilateral agreement should be pursued to phase out government-driven competitive distortions in international trade.

Introduce a New Approach to Flexibilities in WTO Agreements Members should undertake commitments according to their economic weight, capacities and competitiveness. The status or level of commitment of members should be regularly updated according to objective criteria. Flexibilities for non-LDCs should be strictly needs-driven. The core provisions of an agreement should finally be applied by all signing members.

Increasing Protectionism Protectionist measures such as import bans, additional quantitative limits or closed borders discriminate against foreign companies and impede economic growth and job creation. Recent trade-monitoring reports display a consistently rising number of protectionist measures (see chart).

Total Number of Trade-Restrictive Measures Diagrammtitel imposed by G20 members, up to mid-May 2019 787

806

2018

2019

714 654 598 508 441 355

From mid-October 2018 to mid-May 2019, the trade-restrictive measures imposed by G20 member states were estimated to affect a trade volume of 336 billion USD. This is the second highest volume since the first calculation of the impact in 2012. In the period from mid-May to mid-October 2018, a trade volume of a whopping 481 billion USD was hit.

278 163 69 2009

2010

2011

2012

2013

2014

2015

2016

2017

Source: WTO, Trade Monitoring Reports, <https://www.wto.org/english/news_e/archive_e/trdev_arc_e.htm>; BDI Analysis.

Dispute Settlement under Stress The dispute settlement system assures that disputes can be solved in a peaceful, structured and, by and large, not politicized manner. It is key to enforce the WTO rules and members’ obligations. The rising number of trade conflicts has led to a steep increase in dispute settlement cases.

2018 marked the year with the highest number of new complaints at the WTO since 1998. In the first half of 2019, twelve new cases were filed (see chart).

WTO: Total Number of Complaints 2002- mid-July 2019 37

39

27

26 20

19 12

20

19 13

17

17 17

14

14 13

12

8

The United States are blocking the nomination of new Appellate Body members. This could paralyse the important second instance of the dispute settlement system by December 2019. This would harm the credibility of the whole WTO system.

Source: WTO, Chronological list of disputes cases, <https://www.wto.org/english/tratop_e/dispu_e/dispu_status_e.htm>; BDI Analysis.

Reforming the Dispute Settlement System ▪

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Unblock the appellate body (AB) by introducing immediate, procedural changes to address U.S. concerns (transitional rules for outgoing AB members, length of proceedings/90-day deadline, focus of findings, issue of precedent) As long as there is no solution on the AB, members should develop and implement a plan B, e.g. arbitration based on article 25 of the Dispute Settlement Understanding.

In a second step, more substantial reforms of the dispute settlement system should be negotiated and introduced, e.g. to address the alleged overreach by the AB, to introduce more efficient procedures and to increase the resources of the dispute settlement system.

All reform efforts must preserve the judicial independence, the arbitration, and the binding nature of the rulings.

The BDI supports the proposals for modernization made by the EU in September 2018 and the subsequent initiatives on transparency and reform of the dispute settlement system.