Bloomberg: WTO's death now looks inevitable

Few global institutions have been so useful—and so comprehensively ignored.

For a moment, last week's biennial 13th World Trade Organization conference looked like it might be the last. Negotiations dragged on into the weekend with no results, and a complete collapse seemed likely. At the last minute, a semblance of a deal was struck. Almost entirely devoid of substance, it simply shelved what now appears to be the likely fate of the WTO.

Reviving this institution is necessary and achievable, but it will not happen until the world's most powerful governments, most notably the United States, decide to try.

Lately they have decided to do the opposite. Countries deliberately accelerated the collapse of the WTO by openly preferring domestic industrial policies and managed trade to market cooperation. In due time they will understand how serious a mistake this is. By then, the damage caused by the fragmentation of the global economy may be enormous and will not be easily reversed.

There have long been legitimate complaints about WTO systems and procedures. The organization exists to establish and enforce rules governing international trade. But as the nature of trade evolves, the rules need to be adjusted – governments that break these rules must be held accountable, otherwise the good faith pursuit of mutual interests will crumble. In both respects, the WTO has long been ineffective.

The question is why.

In the decades after 1945, strong U.S. leadership combined with global consensus on the benefits of cooperation greatly expanded trade, guided first by the General Agreement on Tariffs and Trade and then by its successor, the WTO. The results were almost miraculous: living standards rose throughout the world, especially in developing countries. Reforms initiated by the system typically resulted in additional economic growth of 1.0–1.5 percentage points per year, adding up to a 10–20% increase in income over the course of a decade.

However, a new consensus soon began to question these achievements, viewing trade in pre-modern mercantilist terms as an essentially zero-sum enterprise. WTO rules did not take into account new economic challenges and new forms of trade. Neglect, brinksmanship, internal politics and the requirement that new agreements have unanimous support all combine to paralyze the institution, which in turn confirms the complaints of critics.

One element of last week's fiasco illustrated the problem perfectly. Since 1998, WTO members have agreed not to impose tariffs on digital trade. Meeting after meeting they extended this moratorium. Last week, India, Indonesia and South Africa opposed further extensions, partly because they want the revenue the tariffs would generate but also to gain leverage on other contentious issues. At the last minute, the digital free trade zone was extended for another two years, but apparently with the assumption that it would then expire. The good news, according to WTO director-general Ngozi Okonjo-Iweala, is that businesses will have “time to adjust.”

This seems to be a cause for celebration these days: we will have time to adjust to the turnaround in global trade.

Negotiations on farm subsidies and overfishing have come to nothing. One of the WTO's most pressing challenges – restoring the dispute settlement process that the US undermined by refusing to appoint judges to its appellate body – remains unresolved. U.S. Trade Representative Katherine Tai demonstrated her commitment to these and other issues by leaving the meeting early. President Joe Biden seems pleased with the casualness. His likely opponent in the November election will be even cuter, advocating sweeping tariffs that would categorically violate the WTO's core principles and formalize the death of the organization.

This is such a shame! Free trade remains the most fruitful type of economic cooperation, stimulating economic growth, increasing incomes and, most importantly, making countries partners rather than adversaries. Allowing the WTO to rot is a major mistake.

Related