The WTO Between MC12 and MC13: Deepened Private Sector Engagement and Plurilateral Initiatives
February 2023
larger than the effect of all Regional Trade Agreements globally
and its merchandise exports have increased annually
Since WTO founding in 1995, Germany’s merchandise imports have increased annually 55.9 %
Challenges Facing the WTO
Together with its predecessor, the General Agreement on Tariffs on Trade, the World Trade Organization (WTO) has contributed to the opening of markets and to the creation of fair rules to regulate trade between members. Despite the growth of regional and bilateral free trade agreements in the past few decades, WTO most-favored-nation (MFN) tariffs still regulate a larger share of extraEU trade. Membership in the organization has contributed extremely positive to the growth of German merchandise and services trade, and its rulemaking framework remains incomparable for many areas of global trade, including but limited to anti-dumping, technical barriers to trade, intellectual property and trade facilitation. However, the bedrock of the multilateral rules-based trading order finds itself recently significantly challenged.
Elżbieta Kawecka-Wyrzykowska, “Importance and Motives of Preferential Trade Agreements in the EU's External Trade” in Economics and Business Review, 6(20), 3-22, <10.18559/ebr.2020.3.1>
National Board of Trade Sweden, The trade effects of EU regional trade agreements – evidence and strategic choices, 2019, P. 3, <The trade effects of EU regional trade agreements – evidence and strategic choices (kommerskollegium.se)>.
WTO Statistics, <WTO | International trade and tariff data>.
According to Amrita Narlikar (2020), the WTO has failed to adapt to new geo-economic risks. Increasingly, frustrated by the long timelines and lack of multilateral consensus, members are turning to unilateral solutions to policy problems such as circumvention, overcapacity, distortion from foreign subsidies, and serious trade disputes, just to name a few – competitive distortion issues for which stronger and more precise rules are vitally needed. The blockade of the second instance of the dispute settlement system has led to a paralysis in which the multilateral trading system cannot enforce violations of its own rules
The consensus principle, while ensuring full unanimity and balance between member states’ interests, no matter their size or export power, has made it possible for members to increasingly politicize negotiations and block one outcome for the sake of their own national interest to another. Moreover, the lack of clear criteria regulating special and differential treatment allows even states with increasing shares of global exports to claim numerous exceptions and take advantage of a system intended for LDCs (least-developed countries) with serious capacity gaps.
The current literature and discourse around the Organization denotes a trend moving towards more plurilateral approaches that seek to regulate global trade while avoiding these pitfalls. Although the multilateral system remains the ideal, these approaches are well-founded and understandable. Kolev/Matthes (2021)1 propose a Plurilateral Trade Partnership of Like-Minded Countries that would come into play if pressure on China to reform its trade-distortive practices served futile. This partnership would include next to the European Union and United States Japan, the United Kingdom, Canada, Australia, Chile, and Mexico. The Partnership would further expand on WTO rules to include the areas that have been prioritized by the EU and its allies for many years on which would be difficult to reach consensus with China and India, for example, such as industrial subsidies and state-owned enterprises. According to this logic, the Partnership would serve as a template for WTO reform if cooperation with China deepened and proved more successful or more likely, would develop into a permanent alternative structure to the WTO. Amrita Narlikar (2020)2 complements and supplements this proposal in introducing an alternative system with more limited scope than the WTO currently has, with a focus on competitive distortion issues including subsidies and state-owned enterprises, as well as data protection. Her proposal involves a value system for membership including democracy, liberalism and free markets.
German industry wholeheartedly endorses the multilateral rules-based system as the bedrock of international trade. We would hope that this would be evident in the policy recommendations we have made and continue to support the WTO at its core. The priority remains the preservation and further development of multilateral rules to govern the global trading system. However, if there is a turning point in which multilateral consensus or decisions by consensus are no longer possible, BDI welcomes the idea of deeper cooperation with G7 partners, other EU Member States, and other likeminded allies such as Chile and Australia. This remains relevant in the current multilateral system. Furthermore, it is important to keep in mind any alternative arrangements that would eventually pursue objectives on which it has been impossible or unforeseeable to reach consensus – for example, those aforementioned that would contribute to a global level playing field. For example, the BDI position has been that a plurilateral reform of the SCM Agreement would be preferable to none at all, and as such
1 Galina Kolev and Jürgen Matthes, It’s all about China, stupid! - Handelspolitische Perspektiven nach dem Machtwechsel in den USA, 2021, <https://www.iwkoeln.de/fileadmin/user_upload/Studien/policy_papers/PDF/2021/IW-PolicyPaper_2021-Bidens-Handelspolitik.pdf>
if a multilateral reform is not foreseeable in the next few years, we would support a plurilateral arrangement to this end.
Particularly in light of difficulties to continue the momentum of multilateral negotiations against the backdrop of the aforementioned challenges and the war resulting from Russian aggression in Ukraine, German industry supports wholeheartedly to focus more and conclude more quickly the Joint Statement Initiatives (JSI) on e-commerce, investment facilitation for development and MSMEs. BDI embraces more flexible approaches such as these to bring the WTO into the 21st century in terms of modern rulemaking.
BDI Recommendations for Action: Individual Plurilateral Initiatives
A clear framework is needed within the WTO besides Article X:9 to integrate plurilateral agreements and to encourage and facilitate maximum membership within them. It is important also to encourage developing and emerging economies, as well as China and India, for example, to join the Government Procurement Agreement (GPA). Generating attractiveness and increasing membership in the plurilateral agreements is key for effectiveness and legitimacy.
E-Commerce
BDI backs the current aim to conclude the JSI on e-commerce by the end of 2023 This initiative contributes positively to resilience and would allow enterprises and consumers to stay connected to markets, as well as simplifying MSME access to digital trade. Businesses need stability and predictability when navigating a complicated new area of commerce, and the JSI when completed would offer them this while protecting personal data.
The moratorium on customs duties on electronic transmissions should be made permanent, as new trade barriers and burdensome tariffs have negative effects on the further growth of digital trade. According to OECD analysis3 , the potential government revenue of imposing such tariffs would be negligible in terms of total government revenue, and the tariffs themselves methodologically very complicated. Moreover, freely conducted electronic transmissions result in lower transport costs and increased consumer welfare.
Initiatives on Sustainability
BDI supports the EU’s participation in the three environmental initiatives at the WTO, namely on fossil fuel subsidy reform, plastics pollution, and the structured discussions on trade and environmental sustainability (TESSD) It is key for the industrial nations in particular to commit to Paris Agreement objectives and the fastest possible phase-out of inefficient fossil fuel subsidies in line with Article 36 of the Glasgow Climate Pact. The priority in WTO initiatives on sustainability should focus first and foremost on market opening and the necessary preconditions to be set
German industry encourages the TESSD to prioritize the level playing field, technical assistance and capacity-building, strengthening regulatory cooperation, and sharing of best practices International definitions and existing technology standards should be
implemented and encouraged by the EU within the initiative, as well as the coordination of sustainability standards, labelling and conformity assessment procedures On the topic of circular economy, enforcement of European directives is key, as are waste and recycling technologies. On the whole, openness to technology should be encouraged. In the plastic pollution initiative, talks should focus on uniform approaches and less on bans.
If the Environmental Goods Agreement negotiations were to be reinvigorated, German industry is cautious of the conceptual difficulties in the past in the definition of environmental goods. Here, a rational methodology will be needed that is easily practically implementable BDI does acknowledge the importance, however, in the current climate of encouraging trade in environmentally-friendly goods and services, and urges to find a solution that keeps new bureaucratic hurdles in customs duties to a minimum.
As the prospects of the EGA remain uncertain, development of and trade in environmental solutions should be strengthened by harmonizing standards and definitions, encouraging regulatory reforms for the use of renewable and circular materials, removing regulatory barriers for key technologies and products for the transformation of industry and maintaining and strengthening intellectual property rights for environmental technologies
Next to the multilateral Trade Facilitation Agreement, a concluded JSI on investment facilitation has its role as well to play in facilitating trade and sustainable development.
Lessons Learned: JSI on Domestic Regulation of Services
WTO members should follow the successful example of the JSI on services domestic regulation, concluded in December 2021 by 67 member-states, including the European Union, China, and the U.S. Although less ambitious in scope than the JSI on e-commerce, the Initiative did cover an area of global trade increasing in importance and scale. It included provisions increasing transparency of measures on services trade, as well as on technical standards. The JSI also delineated the first WTO negotiated text with a provision ensuring non-discrimination on the basis of gender.
BDI Recommendations on the Road to MC13: Think Pragmatically and Increase Targeted Business Engagement
BDI reiterates the key principles from its 2021 paper Urgent Need for WTO Reform, most of which remain relevant in the leadup to the 13th Ministerial Conference. Moreover, it welcomes the intensive discussions on WTO reform currently going on in Geneva, as well as the initial engagement shown by the U.S. on dispute settlement.
German industry supports the aim from MC12 of a fully-functional dispute settlement system by 2024 (at the latest – earlier would of course be ideal) and urges the European Union to take the lead in current technical talks with the U.S. and other key allies. Substantive engagement must be the priority to expeditiously agree and execute reforms that address identified concerns with the Appellate Body. The absence of a second instance in the dispute settlement mechanism could have the potential incentivize protectionism and the increase of unjust trade barriers that cause retaliatory actions, as these cannot be properly addressed by complainants. This
endangers economic growth and resilience, as well as exacerbating already tense geopolitical challenges in the current climate in which trade disputes have become increasingly politicized.
BDI reiterates also the recommendations from the 2020 paper Reform of the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement) German industry urges the European Union to work in the leadup to MC13 together with the U.S. and Japan to submit an expanded proposal on reforming the SCM Agreement, ideally with more countries by its side. If the United States is unwilling to engage productively on the issue and move the Trilateral Initiative forward, German industry supports the EU’s doing so with other valuable partners, also from other regions. The regulatory gap to effectively address market distortive practices, particularly in the area of industrial subsidies, must be addressed quickly and sufficiently. As multilateral reform of the agreement remains unlikely, in light of market distortions particularly coming from China, German industry would support a plurilateral agreement as a viable interim step.
BDI wholeheartedly endorses the proposal from the Confederation of Swedish Enterprise on increased business engagement at the WTO. Enterprises and sectoral associations can best inform the WTO on the rules it creates. In order for the Organization to move forward and to adequately address the challenges of modern trade, business engagement must be deepened and made more targeted and regular. The current annual fora (Public Forum and Trade Dialogues) are particularly useful for networking purposes but are structured too broadly and public-facing.
German industry proposes creating a business advisory council made up first of representatives of both associations and companies from a manageable number of countries (e.g. starting with 5-7) delineating geographic diversity, both industrialized and emerging economies, and a range of global export shares. The council could meet twice a year, particularly in preparatory phases of either plurilateral or multilateral negotiations, but also ahead of (depending on the year) the Ministerial Conference and meetings of, e.g. the General Council, Goods Council or committees on subsidies and countervailing measures, anti-dumping, state trading enterprises or rules of origin.
BDI would propose the first issues on the table to be a binding dispute settlement solution that fits all interests, a swift conclusion of the e-commerce negotiations, and addressing subsidization (agricultural and industrial). Ideally, the council meetings would be first among the private sector representatives and then consulting with the permanent representations of their countries as a group. All insights offered in this process would be publicly available to ensure transparency and to avoid that the council is perceived in any way as bypassing governmental interests. The objective of the council is to better inform the policy process at the WTO based on the concrete difficulties businesses have, and to bring the two levels (national interests and private sector interests) closer together.
In order to avoid pitfalls and redundancy, honest and open exchange would be the goal of this council, with meetings constructed as interactively as possible without formulated opening statements. National political interests should be respected to all extents possible, as well as developing country constraints. Capacity-building must be built into the structure to make the technical discussions and instruments as accessible to LDCs as possible. The council could be complemented by an online platform for businesses from all WTO countries to submit input and comments to the WTO on the same issues that the council is discussing. Ideally, such a platform would be a part of an expanded Secretariat mandate that includes more resources and more
capacity for stakeholder engagement. In the future, the structure can consider expansion including representatives from civil society, as well as from more countries.
Regarding the discussion of the extension of the TRIPS waiver, German industry remains highly concerned that the implied erosion of IP rights will damage the development of new, innovative health solutions and their global distribution without contributing anything to the improvement of the health situation in the pandemic.
Imprint
Bundesverband der Deutschen Industrie e.V. (BDI)
Breite Straße 29, 10178 Berlin
www.bdi.eu
T: +49 30 2028-0
Editors
Katherine Tepper
Senior Manager, External Economic Policy
T: +49 30 2028-1499
k.tepper@bdi.eu
Matthias Krämer
Head of Department, External Economic Policy
T: +49 30 2028-1562
m.kraemer@bdi.eu
BDI Document Number: D1746
