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February 23, 2021 9:58AM

Eleventh Hour for WTO Reform

By James Bacchus

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The next ministerial conference of the World Trade Organization, scheduled for June in Nur-Sultan, Kazakhstan, may be the last chance for the WTO to reclaim its central role in the multilateral trading system. With all too few successes in the 21st century about which to boast, WTO members must prove anew there that they can negotiate new rules and put them into effect. To improve their prospects for success in Kazakhstan, they must agree now on the issues most likely to have chances to generate consensus by June and pursue negotiations on those issues immediately.

In the countdown to Kazakhstan, five issues seem most ripe for negotiating success. Those issues, as I argue in a new paper titled "Reviving the WTO: Five Priorities for Liberalization"released today by the Cato Institute, are free trade in medical goods, free trade in environmental goods, new disciplines on fisheries subsidies, investment facilitation, and digital trade. These should be considered the five first pieces of WTO reform.

First, the COVID-19 pandemic has made clear the interdependence of countries for medicines and medical supplies, revealing the wisdom of a free trade agreement in medical goods. Even before the pandemic struck, the average bound tariff on medical products for all WTO members was 26 percent, with some tariffs as high as 65 percent. The intense pressures of the pandemic resulted in the imposition of new trade restrictions; at least 75 national governments imposed restricted on exports of medicines and medical supplies.

A new WTO agreement should aim to eliminate all tariffs on imports and all export restrictions on drugs and other medical goods. In addition, WTO members should agree to promote transparency in all national measures taken to fight the virus; end price-inflating “buy local” requirements for medical goods; eliminate unnecessary regulatory and administrative barriers that hinder medical trade; and adopt international standards to help ensure the safety and quality of imported medical goods.

Second, after nearly two decades of negotiations, WTO members must finally reach an agreement to end tariffs on environmental goods. This would free up trade in a sector that accounts for about $1 trillion in global trade annually and encourage the proliferation of climate-friendly and other new technologies worldwide.

The main hold-up here has been the inability of the negotiating countries to agree on a list of “environmental goods.” Some interest groups have proffered proposed lists that contained virtually everything, including (literally) the kitchen sink. China, the European Union, and the United States have squabbled over whether bicycles are environmental goods.

There is time between now and June to resolve these disputes and agree on a final list. There is need also to make certain that this final list will be a “living” list to which new environmental goods can be added as they are invented in the years to come.

The third among priorities for the Kazakhstan Ministerial Conference is an agreement to curb subsidies of the world’s fisheries, which could go a long way to stem the crisis of overfishing. Fisheries subsidies total $35.4 billion worldwide. Mostly, these subsidies go to large fishing companies and not to small and artisanal fishers. They enable large fleets to range farther into the global commons of the high seas and shrink the threatened fish stocks there. A WTO agreement that reduced and eventually eliminated these subsidies could do much to preserve the global fishing industry while also making fishing more sustainable. The Pew Charitable Trusts have calculated that the total capacity of the world’s fishing fleets—in part driven by these huge fisheries subsidies—is 250 percent of the level that would bring in the maximum sustainable fish catch worldwide.

WTO members have been negotiating for nearly twenty years on this issue, while subsidies have continued to worsen the problem of dangerously declining global fish stocks.

Fourth on the list of priorities for Kazakhstan is an agreement on investment facilitation. Because of the pandemic, global foreign direct investment is projected to plunge 40 percent this year. To recover from the pandemic, more FDI will be required. As a counterpart to the existing WTO agreement that facilitates trade, an investment facilitation agreement could improve national procedures where they impede FDI.

As WTO members have already established, an investment agreement could “improve the transparency and predictability of investment measures; streamline and speed up administrative procedures and requirements; and enhance international cooperation, information sharing, the exchange of best practices, and relations with relevant stakeholders, including dispute prevention.”

Finally, WTO members should aim to reach an agreement on digital trade. The most significant new dimension of international trade in the twenty-first century is that so much of it is now digital. Yet there are no WTO rules written specifically for digital trade. WTO members have been trying to write such rules since 1998, but—apart from a temporary moratorium on the application of customs duties on electronic transactions, which has been renewed annually—they have little to show for it.

The complexity and controversial nature of issues such as data privacy and data localization are such that it will not be possible to resolve them by June. But it is possible to agree by then on a legal framework for digital trade and on rules on some basic elements of digital trade (such as, for example, acceptance of electronic signatures). That would be something on which to build in further negotiations.

As hard as it will be to achieve consensus on these five WTO reforms, these are the five reforms that seem the ripest for resolution by June in Kazakhstan. Success in reaching an agreement there on all five would do much to end the existential crisis of the WTO. Failure to reach agreement on any of them would prolong and worsen that crisis, with unforeseeable but undoubtedly unfortunate consequences for all WTO members.

There is still time, though not much, to avoid that unwelcome fate.

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