The Clock Is Once Again Ticking at a Paralyzed World Trade Organization. Will It Spring Back to Life?

Setting a short deadline to increase pressure is as old a technique as negotiations themselves. But this time, several trade diplomats in Geneva told me, if a solution can't be found by February 24 to the deadlock that has been hobbling the World Trade Organization (WTO), the fear is that it could prove fatal to the body—at least as a credible and efficient arbiter of global trade.

The US is less alarmist, saying it will, in fact, be “hard” to reach a deal so soon, and that more time is needed. No wonder, observers note, as it is Washington’s position that is causing the organization’s paralysis in the first place—and which has, so far, largely prevented the other 163 WTO member states from working out a solution to restore its arbitration powers, thus depriving it of one of its most important functions. Despite professing its commitment to the organization, the Biden administration has fully endorsed Trump’s policy, albeit with better manners, its position being that unfettered globalization, free and open trade as we have known it, no longer serve the interests of the American people, and that the current trade architecture is not fit to answer today’s challenges. 

“The Biden Administration is still committed to the WTO and the shared values upon which it is based: fair competition, openness, transparency, and the rule of law,” Jake Sullivan, President Biden's National Security Advisor, said in April, in a major policy speech at the Brookings Institution. “But serious challenges, most notably nonmarket economic practices and policies, threaten those core values. So that’s why we’re working with so many other WTO members to reform the multilateral trading system so that it benefits workers, accommodates legitimate national security interests, and confronts pressing issues that aren’t fully embedded in the current WTO framework, like sustainable development and the clean-energy transition.” 

Remarks by National Security Advisor Jake Sullivan on Renewing American Economic Leadership at the Brookings Institution | The White House
AS DELIVERED I want to start by thanking all of you for indulging a National Security Advisor to discuss economics. As most of you know, Secretary Yellen gave an important speech just down the street last week on our economic policy with respect to China. Today I’d like to zoom out to our broader i…

As it happens, the February 24 deadline coincides with the WTO’s next ministerial conference (MC13). Given the time left, it’s safe to predict that trade diplomats in Geneva and elsewhere will have, once more, a grueling holiday season—such is the lot, it appears, of those tending an IO in ICU. In fact, negotiations started back in 2022, in the hope of reaching an agreement by September of this year, to be finalized and announced during the MC13.

The pace of negotiations became more frantic in the middle of this year after the US dropped a paper on the organization’s member states. “It was a sort of take-it-or-leave-it gesture,” a European diplomatic source told The G|O. “They essentially told us, ‘we’ve done our part, now you do yours.’ But the problem was that its provisions regarding the Appellate Body were totally unacceptable for the majority of the member states.” While Washington claimed that “the US had shared a number of ideas on dispute settlement in the informal discussions, with an open mind to different ways of achieving the interests that other members and we have identified,” the US also insisted that it was “not advancing specific negotiating proposals at this stage”—for many, an admission that Washington was not really engaging with the member states.

In a rare but long-established show of bi-partisan consensus, both Republican and Democrat administrations have expressed their opposition, often bordering on abhorrence, to the Appellate Body, the WTO’s highest trade dispute settlement court, whose rulings are binding. It is widely considered by the White House and Congress to have chiefly benefitted China following its joining the WTO in 2001, helping the country to become the economic superpower it is today. The consensus in the US is that China has abused its status at the WTO as an emerging economy, and that in its rulings, the Appellate Body has been guilty of “overreach.” In 2016, even before the era of Donald Trump, the Obama administration had started to veto some nominations, and now Joe Biden has also decided to block the nomination of new judges to fill the Body’s vacant seats. As a sorry indicator of the current state of affairs, about 30 trade disputes now lie unresolved.

The latest proposal to fix the WTO is contained in a highly confidential document, first revealed by Reuters. Sources spoken to by The G|O were taking absolutely no risks by sharing its content except in very general terms, for fear that in such a complex negotiation, involving so many actors, any public disclosure may jeopardize the whole exercise. According to trade diplomats here, the document is far-reaching but still suffers from a major flaw: it doesn’t address head-on the highly divisive question of the Appellate Body that is effectively pitting Washington against the rest of the world. 

Various negotiating tactics have been used, so far without success. For instance, some member states had hoped that by agreeing to a number of reforms, they would be able to convince Washington to unblock the nomination of judges with a commitment to fully reforming the body once back on track. But Washington’s firm position has left little room for maneuver, a situation that has engendered some serious frustrations, particularly among the emerging economies. “There was an attempt to hijack the whole system, forcing it to be reformed,” one participant in the negotiations told me, without naming the US. “If we deliver on a new agreement, on a new mechanism, we could also hope to find a solution for the nomination of the judges.”

Over the last few months, the US has floated several ideas on how to reform the Appellate Body in the context of its rivalry with China. One proposal, for instance, is that disputes would only be submitted to the Appellate Body if both parties agreed to move ahead. Another would give member states unilateral power to decide if something fell outside the WTO’s jurisdiction on grounds of national security. For many observers, however, both proposals would lead to a serious weakening of the body.

The difficult task of facilitating the negotiations on an informal basis falls to Ambassador Marco Molina, Guatemala’s Deputy Permanent Representative to the WTO. It is also Molina who, speaking on behalf of 130 members, recently proposed that the ban on nominating new judges be lifted—for the 68th time. In a closed briefing, on October 26, he told members that he was “continuing to reach out to delegations and meet with experts [on a daily basis], either individually, in small groups or in regional groups, in order to seek their opinions, promote convergence, and ensure that the consolidated draft text, as it continues to evolve, is representative of the views of all WTO Members.”

The hope is that, eventually, a consensus will emerge through these informal discussions where participants feel freer to express their positions than in the more rigid framework of official negotiations. But time is getting short. “For many reasons, I am convinced this is the last chance to restore the system. If we don’t reach a proposal by the ministerial conference, there won’t be another window of opportunity like the one we have today,” Marco Molina told my colleague Emma Farge at Reuters. On one thing, however, WTO observers and diplomats are in agreement: it is vital to find a solution before next year’s US presidential election. The prospect of Donald Trump winning and potentially gutting the WTO altogether is on everybody’s mind. 

The business community, meanwhile, is also becoming increasingly impatient. In a report published earlier this month, the International Chamber of Commerce expressed its concern that “while active discussions are underway and various WTO members have submitted proposals, there is yet to emerge a coherent and structured framework that maps all the issues to be addressed in a reform agenda and articulates a holistic vision for reform.” The WTO is imperative for business, the ICC insists: “Since its establishment […] it has been the backbone of the multilateral trading system. Through enforceable rules, the system provides the stability, transparency, and predictability in trade relations needed for informed long-term trade and investment decisions.”

How to fix the WTO: A holistic framework for reform - ICC - International Chamber of Commerce
ICC has proposed a framework that sets out a holistic vision for reform of the World Trade Organization (WTO) from the perspective of the global business community. Such a framework is necessary to ensure a comprehensive approach to reform across the three vital functions of the organisation.