This brief outlines three activities that WTO members could undertake to facilitate digital trade: 

• Design an agreement on data for trade that sets clear guidelines for data exchange across borders 
• Establish a governance structure for digital trade that keeps rules updated 
• Create a community of practice that consolidates existing digital trade efforts 

Each of these activities must acknowledge the realities of the digital divide for trade facilitation, the features of which are detailed in the final section. 

Before considering the next steps in facilitating digital trade, it is important to establish the complexities in defining digital trade and the characteristics that differentiate it from traditional trade. 

Gaps in the Definition of Digital Trade 

It is essential that any approach to the global rule regime address the gaps in the definitions of digital trade terminology before diving into new activities. There are several imperfect definitions of digital trade in use today. One that has been referenced in WTO documents is that “all international trade that is digitally ordered and/or digitally delivered.” In practice, a broader definition is often employed: the intentional application of digital technologies at any stage of the trade process. 

From a technology perspective, both definitions are incomplete. They are rooted in the concept of physical trade, which assumes features about trade transactions that do not always hold true for today’s internet-based technologies. Four ways that digital transactions differ from other types of trade are described in detail below. 

Time

Digital trade operates on a different timescale from physical trade. Some internet-based technologies can execute atomic transactions where the contract is simultaneously executed and completed. The definitions of digital trade in use assume a sequential process of ordering and then delivering, which often does not align with the instantaneous nature of digital transactions. This discrepancy poses challenges for creating rules, such as the timing of taxation. A precedent for adjusting infrastructure to respond to increased settlement speeds can be found in the 2023 United States Securities and Exchange Commission (SEC) rule that shortened settlement cycles of most securities from two business days to one. The one-day settlement also allows some trades to be settled instantly. This change offers insights into how institutions and rules can be adapted to digital timelines.

Geography

Digital trade does not adhere to traditional notions of territoriality. There are some internet-based technologies that enable profit-making enterprises to exist digitally without a physical location. The lack of territoriality presents many problems. Can a group that exists only online bring a case to the WTO? What if, for example, an online group represents the citizens of a country that no longer exists? How would customs apply to a non-territory? These questions call for a deeper consideration of the concept of sovereignty that underpins trade rules. Many regulators have taken an approach to the digital economy that focuses on the on- and off-boarding points between the digital and traditional economies. This offers a potential model for the WTO that could consider regulating transactions via intermediaries. 

Essential characteristics

Internet-based technologies complicate the definition of an essential characteristic, which is an attribute that defines a product. Unlike tangible goods, digital products can carry intrinsic information about their processing. This can eliminate the need for third-party verification. This capability underscores a broader transition the WTO membership is managing at the moment: adapting to a global trading system increasingly dominated by digital trade while still accommodating advances in the trade of tangible goods. Since traders tend to forego the sometimes complicated origin and valuation calculations needed to access preferential tariffs, the potential for digital products to increase preferential tariff uptake is clear. The challenge will be to create rules that take advantage of digital products’ ability to validate compliance with authenticity and origin rules directly rather than requiring them to follow rules intended for tangible goods. 

Possession

The concept of possession in digital trade presents unique challenges. Traditional trade rules link possession to the physical act of controlling a product. This assumption does not hold when a product is digital, which complicates contracts. Significant progress has been made in jurisdictions like the United Kingdom, where rules about what it means to possess an intangible product, such as a token or a digital asset, have been redefined. Further consideration based on this progress is recommended. 

These four unique characteristics of digital trade underline the urgent need for new rules that address digital trade’s specific complexities and clearly define its terms. 

Creating a WTO Agreement on Data for Trade

The creation of a new WTO agreement on data—both that which is traded and that which facilitates trade—could be central to supporting digital trade. Expanding and solidifying rules in this area would enable members to simplify regulatory fragmentation and address the elevated security that dataflows require. It would also help members assess emerging trends well into the future. 

Any new data agreement should align with the extensive work that has already been done by WTO committees as well as regionally by member states. The primary objective of this agreement should be to harmonize the tangle of local, bilateral, regional, and sectoral rules that have proliferated in the absence of multilateral guidance. Establishing master data frameworks would not only integrate existing rules but set a baseline for the rules that are needed for digital trade to flourish. This would reduce trade costs and complexity.

The proposed agreement should address the two distinct functions of trade in data. The first is the process of trading data itself. The second is the movement of trade-related support data accompanying goods and services. It should draw from existing WTO work and regional trade agreements (RTAs), which have included digitally relevant trade rules since 1958. Following are suggestions for how to address these two elements. 

Trade of data

When data are traded across borders, ownership becomes complicated, especially as frontier technologies are more widely adopted. Any agreement on data should provide guidelines for defining ownership of data as a product. This will require an updated classification and measurement system. Close cooperation with other WTO partners will be essential. Looking at how past digital assets integrated, or failed to integrate, into capital markets can help identify the particular issues that need to be addressed. Such issues might include calculating the added value and determining the origin. 

Trade-related data

Trade-related data support trade but are not traded, which is similar to how goods with an intellectual property component function. When addressing trade-related data, the goal should be to establish a regulatory floor that ensures fairness, transparency, and reduced friction in dataflows. Any framework for digital trade rules should consider the three states in which data exists. 

1. Data in use: Data in use are actively processed by applications and include automated requests to buy products or real-time GPS tracking to ensure cargo ships do not make unscheduled stops. Regulatory concerns related to data in use focus on protecting it against unauthorized parties and safeguarding sensitive information. Artificial Intelligence (AI) could introduce challenges if it is used to process data that facilitate trade. Questions of jurisdiction over data in use across borders would benefit from clear regulatory guidelines. 
2. Data in transit: Data in transit actively move from one location to another. Examples of trade data in transit can be found in logistics coordination, such as when shipping details are sent to a fulfillment center in another country after an order is confirmed. Other examples include order placement and payment processing. Regulatory efforts should prioritize encryption and communication protocols. 
3. Data at rest: Data at rest are inactive and stored and could include details of executed trades, historical data, or client information, for example. Given the potential sensitivity of some trade-related data such as contracts, customer data, and payment details, rules should focus on protecting this stored data from breaches. 

To conclude, a WTO agreement on digital trade should strictly adhere to the specific trade implications of data. Many of these issues are already under review by various WTO negotiating groups. This work should inform future agreements’ issue coverage. 

Updating Governance for the Digital Economy 

Because digital trade is fundamentally different from traditional trade, a reassessment of existing governance is warranted to determine what is obsolete and what is lacking. A new digital trade agenda should feature updated governance structures that reflect this reassessment. 

A review of the General Agreement on Trade in Services (GATS), Trade Related Intellectual Property Rights (TRIPS), the Information Technology Agreement (ITA), and the Trade Facilitation Agreement (TFA) reveals several areas in need of improvement. These fall into three categories that should be the focus of legal reform:

1. Rules requiring paper: Several WTO agreements assume the use of paper. Even the term “publication” in these agreements does not explicitly include online publication. The TFA refers to “information or documents” without considering digital forms of this data. The TFA also focuses on streamlining paper processes instead of increasing automation. This should be remedied.
2. Insufficient digital trade coverage: Agreements like the ITA, which lists specific products, underrepresent digital products and services. TRIPS is another agreement that needs to be updated to cover the range of digital products being traded across borders, for example, non-fungible tokens (NFTs). Rules should also reflect that data need to be protected during processing. 
3. Non-acknowledgment of digital trade: Some agreements do not acknowledge digital trade at all. For instance, GATS covers certain data issues but fails to address newer developments like cloud computing and the free flow of data across borders. Another source of inadequate coverage relates to non-tariff barriers (NTBs), which strongly impact digital trade. Any rules regarding NTBs must include a consideration of digital trade. 

In addition to considering legal gaps, a new governance structure could extend the WTO’s influence over RTAs. The WTO already has an RTA governance mechanism through the notifications and review processes in GATT Article XXIV and GATS Article V. This RTA governance mechanism could be extended to establish a model law for RTAs or Digital Economy Partnership Agreements (DEPAs). Such a model law would serve as a standard to ensure consistent and equitable treatment of digital trade issues. 

Every member country is a part of at least one RTA, and RTA agreements have an important impact on the work of the WTO and international trade flows. However, no global governance structure currently guides countries in RTA negotiations. Members’ varying capacities for these negotiations can create unbalanced results. An RTA model law for digital economy agreements could draw on existing agreements like the DEPA as well as models emerging from current negotiations. The WTO is uniquely positioned to develop a model law that utilizes its notified agreements. 

Organizing a Digital Trade Community of Practice

The WTO should establish a thematic group on digital trade. While this may not be central to the immediate progress needed, such a group would mobilize resources and knowledge within the institution, facilitating the adoption of a digital trade vision. The primary objective of this thematic group would be to create a community that advances a multifaceted digital agenda and maintains coherence over time. This approach aligns with how other international institutions tackle cross-cutting issues like climate change and community-driven development. 

By establishing a thematic group, the WTO would highlight its commitment to transparent, inclusive trade and to economic development. Additionally, a thematic group could serve as a unifying hub for the various digital trade clauses dispersed among the existing WTO agreements. It could keep track of the agreements that are directly relevant to digital trade such as the ITA and the Joint Services Initiative (JSI) ecommerce work. A thematic group could pool intellectual resources in the attempt to create the necessary and neutral digital governance framework. 

The thematic group could consider the Bank for International Settlements (BIS) Innovation Hub as a model and include a center for relevant research and experimentation around digital economy issues. It could also function as a center for digital trade advocates, which could unlock additional private sector interest and funding. 

In short, establishing a digital trade theme within the WTO would advance a coherent digital trade agenda and create the environment of certainty needed to facilitate research, to experiment, and to attract private sector participation. 

Digital Divide Considerations 

With the correct set of tools, digital technologies can be used by anyone, anywhere, at any time. Digital trade thus has enormous potential to allow for technological leapfrogging, particularly for states where geography is a binding constraint to development. At the same time, the assistance needed to promote digital infrastructure requires a slightly different approach to trade facilitation and security.

It is important to note that developing economies have exhibited a different leadership dynamic in the digital space than in goods trade. Developing countries are operating at the frontier in several critical digital spaces. Central Bank Digital Currencies (CBDCs) are a prime example. Countries and regions with live circulating CBDCs are all developing economies, such as the Bahamas, China, the Eastern Caribbean Customs Union, Jamaica, and Nigeria. Notably, no advanced economy has yet achieved this. Additionally, countries such as El Salvador and (briefly) the Central African Republic have allowed bitcoin as legal tender. 

Leadership in regional digital trade rulemaking is another area where developing economies have surged ahead. For example, the African Continental Free Trade Agreement (AfCFTA) has a protocol on digital trade. Such rules function as a roadmap for future digitization. The Association of Southeast Asian Nations has the Digital Masterplan 2025, which functions in the same way. 

Given that many emerging economies are already engaged in digital trade, trade facilitation assistance could focus on two key areas: improving financial infrastructure and protecting critical digital infrastructure once it has been built.

Digital trade infrastructure is typically developed through partnerships between the private and public sectors. However, without sufficiently deep capital markets, few developing economies have a vibrant venture-capital environment. Assistance aimed at promoting a domestic financial environment that encourages innovation and supports entrepreneurs will directly enhance the creation and quality of digital infrastructure. 

Equally important is the protection of critical digital infrastructure once it is in place. While support for capacity and infrastructure development has already begun through traditional donor channels, more targeted funding is needed. This funding could be directed toward cross-border simulations of cyberattacks to identify readiness gaps, participation in digital trade sandbox environments to test domestic response mechanisms, and hackathons to assess and improve trade platform resilience.

Conclusion 

Trade is in a period of flux. It is becoming more digital but also more volatile. To date, the need for structure has been met with regional and national rules. This presents the WTO membership with an unprecedented opportunity to consolidate the considerable work that has already been done by the membership into a multilateral rules structure. 

The one caveat is that digital trade, conducted through internet-based technologies, significantly differs from traditional forms of trade. As a result, conventional approaches to regulating trade are often inadequate for addressing digital trade. If the WTO is to remain the leading institution on this topic, it must explore new governance structures that are suited to the instant and non-territorial features of the digital space. By embracing the 1998 work program as a guiding principle, WTO members can create the environment for robust global digital regulation. 

Alisa DiCaprio is chief economist at the blockchain technology firm R3, where she covers trade, payments, central bank digital currencies, and digital assets. Her previous positions with the Asian Development Bank and the United Nations focused on expanding digital trade opportunities in emerging markets.

To read the policy brief as it was published on the Mercatus Center webpage, click here.

To read the full policy brief, click here.

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The conclusion earlier this month of the Agreement on Climate Change, Trade and Sustainability (ACCTS) by New Zealand, Costa Rica, Switzerland and Iceland comes at a time when the world is experiencing record-high temperatures, spreading wildfires, and destructive floods and droughts. Despite these developments, WTO members have been unable to rally consensus to develop new trading rules to help halt these trends, highlighted by their recent failure to bring the second part of the fisheries subsidies agreement over the finish line.

The ACCTS reflects an emerging model for trade agreements — one that is limited in participants and sectors but can be concluded more quickly and without sacrificing ambition.

Instead of sitting around in endless discussions on what is the best way to incorporate climate change and sustainability concerns into trade agreements, these four small, trade-dependent countries moved into action and hammered out meaningful commitments. The agreement is an important step in elaborating on what is possible in this contested space. The parties hope that others will join over time, or even adopt similar rules in their own bilateral agreements, providing momentum for a broader multilateral agreement.

ACCTS has four key components. First, the four parties will eliminate tariffs on over 300 “environmental goods” upon entry into force. Although the list of goods has not yet been released, the members claim it is the most comprehensive and ambitious list of agreed-upon goods to date, including solar panels, wind turbines, electric vehicles, recycled paper and wood products offering a more environmentally sound alternative to carbon-intensive construction materials. It also includes criteria for qualifying as an environmental good so there can be ongoing updates. The tariff cuts will apply to all WTO members (not just the other parties), so as to be consistent with WTO rules.

Second, the parties went beyond goods commitments to also open up their service sectors. They agreed to new levels of market access in more than 100 sectors that make a “substantial contribution to addressing pressing environmental purposes.” However, which sectors these are, and the level of market access agreed upon, is yet to be made public.

Third, the agreement provides a new framework to prohibit and discipline harmful subsidies for fossil fuels, with limited exceptions.

Finally, the parties agreed on guidelines for voluntary eco-labeling programs, which should help provide consumers with more accurate information and avoid such labels in and of themselves becoming a barrier to trade. The inclusion of binding dispute settlement in the agreement also underscores the importance the countries attach to these commitments.

The ACCTS partners hope to sign the pact later this year, with the aim that it will enter into force in 2025. Once the text is released, other countries will then have the opportunity to study the obligations and determine their interest in joining. Norway participated in all 15 rounds of negotiation but said it needs more time to consider the final text to see whether it should sign up. Fiji had also been involved in the negotiations but dropped out of the talks early on, most likely due to capacity issues.

Regrettably, the U.S. is unlikely to sign — particularly given its aversion to further cutting tariffs, and especially given those tariff cuts would be expected to also apply to nonparties, including China. Curbing fossil fuel subsidies also has been a bridge too far for Washington, although a Democratic president in the White House next year may be more ambitious. There is little doubt that a Trump administration would firmly oppose such provisions.

Like others, China is expected to closely study the text once it is released. Even though Beijing may have concerns with some elements of the agreement, it may apply for membership, as it has recently done with the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and the Digital Economy Partnership Agreement (DEPA). By expressing interest, Beijing has little to lose. It can show it is committed to addressing climate change through WTO-consistent trade agreements while seeing whether the other parties would consider the necessary flexibilities for it to join.

While the two largest economies may be absent, ACCTS follows a model that New Zealand and other small and medium-size countries are increasingly relying on: a “let’s start small” approach toward trade agreements in which they focus on specific areas of interest, invite a small number of like-minded countries to join and over time expand the circle of participants and grow the commitments.

This approach, which has been successfully employed for CPTPP, DEPA and the Global Trade and Gender Arrangement, has become increasingly attractive, as deals in the WTO are hard to come by given its large and diversified membership.

ACCTS includes rules and market access commitments that may not be to Washington’s liking, but by not being at the table the U.S. continues to forfeit its role in shaping new trade and investment rules.

More of these mini trade deals among small groupings of trading partners are expected to be concluded in the months and years ahead. If this model drives the development of new norms in trade policy (as the parties hope), Washington should reconsider its stance of sitting on the sidelines and claim its seat at the negotiating table.

Wendy Cutler is vice president of the Asia Society Policy Institute and former acting deputy U.S. Trade Representative. Jane Mellsop is director of trade, investment and economic security at the Asia Society Policy Institute.

To read the full opinion as it was published on Nikkei Asia, click here.

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The World Trade Organization’s (WTO) dispute settlement mechanism has not been fully functioning since December 2019. A viable alternative has emerged, but it will need more countries to sign on to help prevent cycles of tariffs and retaliation. 

The United States started blocking the appointment of new judges to the WTO Appellate Body in 2017. Once the Appellate Body fell below three members in December 2019 it could no longer hear new appeals. The United States has cited concerns regarding judicial activism and sovereignty as reasons for the block. With no functioning appeals process, decisions can be appealed without resolution, making it difficult for WTO members to resolve disputes. 

A temporary solution has emerged: arbitration and a speedy appeals process 

Simple arbitration has always been an option. Article 25 of the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes allows WTO members to use arbitration if the parties agree to a set of rules. But the case record shows that most countries have preferred the full dispute and appeal process. In fact, before the Appellate Body collapsed, the arbitration option was only used once and that was for an EU copyright case against the US involving Irish country music. 

In April 2020, once it became clear the Appellate Body was no longer functional, the European Union led an effort to set up an alternative system called the Multi-Party Interim Appeal-Arbitration Arrangement (MPIA). The agreement offers members access to an independent arbitration and appeal process for dispute settlement once the panel report is complete. So far 53 members have signed up, including Australia, Brazil, Canada, China, Japan, Mexico, and New Zealand, among others. The United States is noticeably absent. 

To use the MPIA process, the parties must agree to utilize that appellate arbitration process before they know the panel’s ruling. This is necessary otherwise the losing party can appeal into the void leaving the other party with no resolution. In other words, the parties either agree to accept the panel’s ruling and not appeal or they agree to an arbitration and appeals process within the MPIA framework. 

The MPIA arbitration process operates under a strict 90-day deadline, which is shorter than the traditional appeals process. It is possible, however, that MPIA cases could drag on during the implementation or negotiated solution phase. There have been 13 cases so far. Of these, two have been completed, three have been resolved without appeal, and eight are ongoing. 

James Bacchus and Simon Lester found that the WTO appeals process in cases between 2015 and 2019 took 117 to 170 days. The entire dispute process however includes extensive panel meetings and reviews and cases can drag on for several years. The European Commission’s regime for importing bananas was challenged by the United States and several other countries— the case began in 1996 and was not settled until 2012. Another well-known dispute involved government subsidies for large civil aircraft (namely, Boeing and Airbus). The US initiated a case against the EU in 2004, and that same year the EU initiated a case against the US. Both cases were resolved 17 years later with a 2021 agreement.

Recent cases 

The first case to use Article 25 arbitration since the Appellate Body collapse was the EU case against Turkey regarding its discriminatory practices in pharmaceuticals. Initial consultations were requested in 2019, but the panel was not composed until 2020 and by that time the Appellate Body has stopped fully functioning. At issue was Turkey’s “localization requirement” that forced foreign pharmaceutical companies to produce their products in Turkey to qualify for reimbursement under Turkish social security schemes. The EU argued that these measures discriminated against foreign pharmaceutical products and were incompatible with Turkey’s WTO commitments. The WTO panel ruled in favor of the EU. Turkey wanted to appeal but since it was not a member of MPIA, both parties agreed to send the case to non-WTO arbitrators and abide by their findings. (MPIA members agreed to a pool of 10 standing arbitrators and for each case three are randomly selected). This was the first time a WTO dispute appeal had been resolved in this way. The arbitrators supported some of Turkey’s arguments but agreed with the main WTO panel’s key finding that the localization requirement breached global trading rules. They advised Turkey to adjust its measures accordingly and a status report by Turkey indicates they are doing so. 

The first MPIA case was the EU case against Colombia and its antidumping duties on frozen fries. The initial ruling was in favor of the EU and Colombia appealed. Within 90 days, the MPIA panel found in favor of the EU and determined that Colombia’s duties violated WTO rules and unfairly restricted access to the Colombian market. 

Options facing WTO members that have a complaint 

Even without a fully functioning appellate body, WTO members still have options to resolve disputes. One option is simple arbitration under Article 25 and remains available to all WTO members. A second option is arbitration and appeals under MPIA for parties that have signed onto that agreement. Even if all the parties in a dispute have not signed on, it is still possible to use MPIA as long as everyone agrees to a clearly defined set of issues to be resolved and a set of rules and procedures for arbitration. A third option is to go through with consultations and a panel report and hope a resolution can be achieved. 

Requests for WTO DSU consultations have dropped off substantially since 2019 (figure 1). A few countries have filed even in the absence of a fully functioning appeals process. There have been some cases that have been resolved (e.g., Australia’s cases against China over duties on wine and barley) and others appealed into the void (e.g., India appealed a ruling against its tariffs on mobile phones; the United States appealed a ruling against its section 301 tariffs on imports from China). 

Absent a shared interest in resolution, there is little recourse for complainants even with a panel report in their favor. The complainant could choose to impose retaliatory tariffs but that can lead to a tit-for-tat tariff war with no resolution. For instance, China imposed retaliatory tariffs against the United States in response to the 301 tariffs. 

A large country may be willing to risk this, but smaller countries tend to be more exposed with less leverage regarding retaliation. Large countries can also be vulnerable though, especially exporters that are heavily reliant on WTO rules. US agricultural exporters are exposed because their market access abroad is heavily reliant on WTO rules like the Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary Measures (SPS) agreements. 

Still working it out 

Countries need ways to resolve grievances. Otherwise, there is little use of having trade rules. That is why the dispute settlement mechanism has long been considered the crown jewel of the multilateral trading system. When it stopped fully functioning in 2020, some characterized the moment as an “existential crisis.” 

The EU-led effort on an interim appeal-arbitration process appears to be working well so far, at least as a temporary fix while WTO members discuss broader reform options. But the United States has not signed on, which leaves many in the lurch. 

Experts have suggested other alternatives. For instance, the WTO could pursue a stronger monitoring role or use the “specific trade concerns process” in the WTO TBT and SPS committees to head off disputes before they are filed. Also, regional trade agreements such as USMCA and CPTPP have their own dispute resolution mechanisms. 

U.S. objectives for reform were circulated in July 2023 and include a streamlined dispute settlement process and ending judicial overreach. In September 2023, U.S. Trade Representative Katherine Tai said it is not the Biden Administration’s goal to restore the Appellate Body although recently Deputy USTR Maria Pagan indicated the U.S. is open to a focused appeals process, presumably to avoid judicial overreach. Technical talks for how to reform the dispute settlement process are underway and expected to finish by the end of the year.

Opinions expressed are solely those of the author and not the Yeutter Institute or the University of Nebraska-Lincoln.

Christine McDaniel is a Senior Research Fellow at the Mercatus Center and a Non-Resident Fellow at the Clayton Yeutter Institute of International Trade and Finance at the University of Nebraska-Lincoln

McDaniel_ Arbitration saving WTO for now

To read the full blog post as it was published on the Yeutter Institute webpage, click here.

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My answer is a cautious “Yes”. Below I discuss several key factors that could determine whether the WTO survives and how they might influence the future role of the WTO.

Will the friends of the WTO continue to see residual value in it?

We have to be realistic. The WTO’s ability to constrain US trade policy has weakened considerably and is likely to weaken more under a second Trump administration. The best-case scenario that can be expected from a second Trump administration is benign neglect and even that is not the only plausible scenario.

The question is how much residual value other key members (e.g. Canada, the European Union, Japan, Korea, Switzerland, China, Australia, New Zealand, Brazil) will see in a WTO that, in practice, does not regulate their trade relationships with the United States. The WTO’s weakened ability to regulate trade relations with the United States is a huge loss, that is for sure. Yet, the scope of other trade covered by the WTO should be sufficiently large to provide an incentive to these countries to keep the faith in the WTO. While some of these countries have a vast network of free trade agreements (FTAs) that would give them some security should the WTO fail, the network is neither broad nor wide enough to entirely replace the WTO. Also, the need to comply with WTO rules can help stave off internal protectionist pressure as well as pressure from allies to take protectionist actions against certain countries. How much political capital they invest in supporting and driving the WTO will be one of the most decisive factors in determining whether the WTO survives a second Trump administration. To their credit, many of these countries already have taken a bigger role in the WTO since US leadership started to wane. But the next four years could require them to become even more proactive if the WTO is going to continue being relevant.

Would the Trump administration allow the WTO to continue operating?

Three scenarios seem plausible. A first scenario is one of neglect in which a second Trump administration effectively would ignore the WTO’s rules but would not actively seek to obstruct the WTO’s operations. The WTO’s role regulating trade relations with the United States would continue to weaken. However, it would still play an important role regulating trade relations between the other 163 members. WTO members may even continue their efforts to modernise WTO rules through plurilaterals and other initiatives. Some of these members still may hold hope that the United States can be brought “back into the fold”, while others may resign themselves to “ride out” the administration. This scenario partly describes the situation during the first Trump administration if one ignores the blocking of the appointment of adjudicators to the WTO Appellate Body. In this scenario, the WTO is more likely to survive, albeit with the risk of further weakening, unless the other 163 members succeed in their efforts to modernise the rules without the participation of the United States.

A second scenario is one in which a Trump 2.0 administration decides to actively disrupt the operation of the WTO. Concerns about this scenario may already be reflected in the proposal recently submitted regarding African countries to bring forward a decision to reappoint the Director-General. A threat to the WTO’s budget is another concern. Survival of the WTO in this scenario is not assured.

While some may consider that paralyzing the WTO would be in the US interest, such a move would be short-sighted. WTO rules protect US exports of goods, services and intellectual property rights. The US network of trade agreements does not have the geographic breadth of the WTO and has remained largely static for several years. Relying on unilateral action alone to fight foreign trade barriers is inefficient. Thus, there may still be sufficient incentives for a second Trump administration to play the role of an absent parent but without entirely blocking the operation of the WTO.

The third scenario is one where a second Trump administration pursues a “WTO minus China” strategy. This could take the form of tariffs clubs within the WTO that exclude China. The clubs could be sectoral, along the lines of the proposed Global Arrangement on Sustainable Steel and aluminium, or broader in scope. These clubs would undermine the Most-Favoured Nation (MFN) principle, a key tenet of the WTO. However, some would argue that such clubs are no different than FTAs, which are allowed.

Any attempt to exclude China would raise tensions in the WTO. A strong response from China can be expected. Moreover, candidate Trump has spoken about raising tariffs on all imports across the board, not just those originating from China. A second Trump administration might raise tariffs and then seek concessions from trade partners (other than China) in exchange from bringing them down again. This would be seen as an attempt to renegotiate its WTO obligations and would certainly create frictions with other trading partners. Meanwhile, many of these trading partners also are likely to resist effort to exclude China. It is hard to see how these tensions would be resolved. What is clear is that this scenario would put the WTO under severe strain.

Will China agree to address some of the concerns raised by its trade partners?

The United States has justified some of its trade actions by arguing that they are necessary to confront with a Chinese regime that doesn’t “play fair”. US concerns about Chinese overcapacity and the role of state-owned enterprises are shared by many WTO members.

China should have a strong interest in preserving the WTO given its role providing stability to trade relations with many of its trading partners and in preventing further fragmentation. But other WTO members expect China to do more to address the concerns of other WTO members. WTO members want China to make more information available about its subsidies, at all levels of government. It could also show more willingness to address overcapacity and make commitments on state-owned enterprises. If it does not, the frustration with the WTO framework will grow among partners other than the United States. These partners also will see unilateral action as the only effective way to address concerns with Chinese policies, further increasing internal tensions at the WTO.

Can WTO members overcome India’s obstructionism?

India has been obstructing WTO initiatives for many years, including attempts to move forward among smaller groups of WTO members (so-called “plurilateral” initiatives). Its position is unlikely to change in a second Trump administration. Members’ frustration with Indian obstructionism has been growing. Some members are taking a firmer stand against it and pushing for changes to WTO decision making. Members will need to continue to challenge India and to seek ways to make decision making more flexible. The problem is that a second Trump administration may not want decision making to be more flexible and may prefer a hamstrung WTO. What role India would take in such a scenario, and other members’ reactions to it, would prove critical for the organisation’s survival.

Will WTO members find a balance between trade and national security?

National security concerns will continue to weigh heavily on future trade policy. Invocation of national security as a justification for trade measures is likely to continue and may even grow under a second Trump administration. Indeed, it was the first Trump administration that used national security to justify trade measures on steel and aluminum.

The United States has put forward a consistent position on national security at the WTO, under which there can be no independent review of a country’s invocation of the security exceptions. This position is unlikely to change in a second Trump administration. If anything, the position is likely to harden.

My sense is that most other WTO members are uncomfortable with giving countries absolute discretion on the invocation of the security exceptions. Invocation of security as a justification for trade measures will continue to generate tension in the system. Although a written accommodation may be unrealistic (including because the United States would likely block it), a tacit, political accommodation on the issue could be an option.

***

Given the above, the survival of the WTO is by no means guaranteed. Much will depend on the political capital that other WTO members are willing to invest in preserving it, China’s willingness to address concerns raised by many WTO members, as well as the approach ultimately taken by a second Trump administration. Overcoming Indian obstructionism would help modernise the WTO, which, in turn, will make survival more likely. However, the inability to move forward is more of a medium-term than an immediate threat. Finally, there will always be some tension between trade and national security. A more robust political process (as opposed to litigation) would allow the WTO to contribute to managing those tensions.

What role would the WTO play then if it survives? The WTO will continue to be caught between the geopolitical rivalry between the United States and China. It is increasingly difficult to conceive of a scenario in which the WTO regulates both trade with the United States, on the one hand, and trade with China, on the other hand. It looks likely that a Trump 2.0 administration will either feel unconstrained by the WTO and ignore it, or it would seek to drive a wedge between China and other WTO members. Neither scenario will appeal to other WTO members who would much rather be able to rely on WTO rules in their trade relations with the United States and who also see value in the WTO for their engagement with China. WTO members will need to be strategic. It is in most members’ interest to preserve the WTO.

To read the full article as it was published on JD Supra, click here.

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Keith M. Rockwell is a Senior Research Fellow at the Hinrich Foundation. Prior to his retirement in June 2022, Keith served as a Director at the World Trade Organization (WTO) and spokesperson for the organization for more than 25 years. He also is Global Fellow at the Wilson Center.

To read the full article published by the Hinrich Foundation, click here.

The post E-Commerce Deal at the WTO Is Suddenly Back in Play appeared first on WITA.

The 2030 Agenda for Sustainable Development recognizes international trade as an engine for inclusive economic growth and poverty reduction, and an important means to achieve the Sustainable Development Goals (SDGs).

“Removing barriers to trade in green goods and services could add further momentum to the clean energy transformation unfolding right before us. Adam Wolff, Deputy Director-General of the World Trade Organization (WTO)”

International trade has a critical role to play in environmental protection and the effort to mitigate climate change. According to Adam Wolff, trade policies are powerful tools to increase resource efficiency, scale-up investment in clean and resilient infrastructure, and accelerate climate-friendly innovation. They also unlock the USD 26 trillion in market opportunities that would result from bold climate action by 2030.

The WTO indicates that renewable energy, solar photovoltaic and wind power have become the cheapest sources of electricity in many markets. In addition, new renewable power capacity has outpaced new fossil fuel power capacity for the past seven years. In 2019 alone, renewables accounted for nearly three quarters of new power capacity globally. Furthermore, employment in this sector, which reached 11 million jobs worldwide in 2018, is expected to quadruple by 2050, while jobs in energy efficiency and related areas could grow by another 40 million.

According to the International Trade Centre (ITC), global concern about environmental issues is also driving a growing market for sustainably sourced natural resource based products. Conscious consumers are demanding more evidence of production supporting “fair” and “ethical” practices in the value chain and, globally, this market is worth around USD 50 billion. The certified natural resource based product market is driving reductions in poverty as production is often labour intensive and premium prices reach smallholder producers who make up the bulk of the rural poor. The trade is also generating environmental benefits like carbon sequestration in soils and timber, forest preservation, decreased pesticide use and net biodiversity gains.

In wildlife, the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), aims to ensure that international trade in specimens of wild animals and plants does not threaten their survival. There are several appendixes listing different species and their trade regulations.

The Role of Geneva

World Trade Organization (WTO)

Through its goals, rules, institutions and forward-looking agenda, the World Trade Organization (WTO) provides an important means of advancing international environmental goals. The Trade and Environment Committee (CTE) of the WTO is the standing forum dedicated to dialogue between governments on the impact of trade policies on the environment, and of environment policies on trade. Under the Doha Development Agenda, the regular committee is also looking at the effects of environmental measures on market access, the intellectual property agreement and biodiversity, and labeling for environmental purposes. In this context, a series of Ministerial Statements on environmental issues – specifically on trade and environmental sustainability, plastic pollution and fossil fuel subsidies – were launched in December 2021.

In June 2022, the 12th WTO Ministerial Conference (MC12) marked a important milestone, as governments recognized the important role of multilateral trade to address environmental challenges. Members also adopted an unprecedented agreement on fisheries subsidies after more than twenty years of negotiations.

For the Agreement to enter into force, two-thirds of WTO members must formally accept the amendment Protocol to insert the Agreement on Fisheries Subsidies into Annex 1A of the WTO Agreement, by depositing an “instrument of acceptance” with the WTO. As of December 2023, twenty-nine WTO members formally submitted their acceptance of the agreement: Albania, Australia, Belize, Botswana, Cabo Verde, Canada, Chile, China, Côte d’Ivoire, Cuba, European Union, Fiji Gabon, Hong Kong (China), Iceland, Japan, Korea (Republic of), Macao (China), New Zealand, Nigeria, Peru, Saint Lucia, Seychelles, Singapore, Switzerland, The Gambia, Ukraine, United Arabs Emirates, United Kingdom and the United States.

Information for members on how to accept the Protocol of Ammendment can be found on the WTO website.

Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES)

The Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) is is an international agreement between governments. Its aim is to ensure that international trade in specimens of wild animals and plants does not threaten their survival. Because the trade in wild animals and plants crosses borders between countries, the effort to regulate it requires international cooperation to safeguard certain species from over-exploitation. CITES accords varying degrees of protection to more than 37,000 species of animals and plants, whether they are traded as live specimens, fur coats or dried herbs. In addition, CITES has been among the conservation agreements with the largest membership, with 183 Parties.

International Trade Centre (ITC)

Established in 1964, the International Trade Centre (ITC) is the joint agency of the WTO and the UN and is the only development agency that is fully dedicated to supporting the internationalization of small and medium-sized enterprises (SMEs). The Trade and Environment Programme (TEP) of ITC strengthens the capacity of SMEs in developing countries to compete in environmental markets and to overcome barriers that might result from environment-related standards. The programme also addresses challenges relating to climate resilience and biodiversity loss. ITC provides analysis and support in different global value chains including agri-food, natural products, fibres and leathers.

ITC’s Trade for Sustainable Development (T4SD) is a partnership-based programme which helps businesses, regardless of their position in the value chain, chart their path to more sustainable trade by better understanding the sustainability initiatives landscape and to connect with business partners. T4SD’s new platform, Sustainability Map, also integrates the already well-established tools such as Standards Map and SustainabilityXchange to the new interconnected modules.

ITC also works to boost Fairtrade and environmental exports of developing countries, including exports of cultural, ethnic and organic products. ITC supports biodiversity, enables exporters to adapt to climate change and targets increased use of green technologies.

United Nations Conference on Trade and Development (UNCTAD)
The United Nations Conference on Trade and Development (UNCTAD) is a permanent intergovernmental body established by the United Nations General Assembly in 1964. UNCTAD’s work on harnessing international trade in promoting sustained growth and inclusive development includes as a key aspect, support to developing countries in taking advantages of emerging opportunities for trade associated with the protection, promotion and preservation of the environment and sustainable development objectives generally, while minimizing potential adverse impacts. This work is carried out by the Trade, Environment, Climate Change and Sustainable Development Branch of the Division on International Trade and Commodities.

Since its launch by UNCTAD in 1996, the BioTrade Initiative has been promoting sustainable BioTrade in support of the objectives of the Convention on Biological Diversity. UNCTAD is currently implementing the Global BioTrade Programme: Linking trade, biodiversity and sustainable development with the support of the Swiss State Secretariat for Economic Affairs SECO. The objective of this four-year programme is to provide key stakeholders with the ability to size and capitalize on trade opportunities from linking biodiversity and sustainable development, thereby advancing the implementation of the SDGs, as well as the Aichi Targets and the Post Aichi framework.

United Nations Economic Commission for Europe (UNECE)

The United Nations Economic Commission for Europe’s (UNECE) major aim is to promote pan-European economic integration, including on aspects related to trade and sustainable development. UNECE initiatives at this nexus include support to the garment and footwear sector to improve traceability and sustainability, harnessing trade and economic cooperation for circular economy, and implementation of the sustainable trade and circular economy principles in SPECA countries.

United Nations Environment Programme (UNEP)

The Resources and Markets Branch of the United Nations Environment Programme (UNEP) works to accelerate the transition to resource-efficient and sustainable economies. It engages with governments in their transition to inclusive green economies, fosters partnerships with business and industry for cleaner production and green investments, influences consumer information and choice for sustainable lifestyles, and strengthens and communicates the knowledge and scientific base for resource efficiency and sustainable consumption and production.

The Economic and Trade Policy Unit conducts research and provides capacity building support and advisory services to enable the transition to inclusive and green economies. The unit analyzes the roles of fiscal, trade, and industrial policies in enabling an economic transformation.

One of the work streams of the unit is the Environment and Trade Hub, serving as the overarching delivery mechanism for UNEP’s work on trade. Through research, capacity building and policy advisory services, the Hub provides tailored support to countries seeking to leverage trade and investment as vehicles for achieving the SDGs and their Paris Agreement commitments.

Forum on Trade, Environment & the SDGs (TESS)

The Forum on Trade, Environment & the SDGs (TESS) is a partnership of the Graduate Institute and UNEP, which core mission is to promote multilateral dialogue and action on trade policies that address urgent global environmental crises and advance progress on the UN Sustainable Development Goals (SDGs). It aims to catalyse policy action across the trade, environment and sustainable development communities through a versatile, needs-driven and outcome-focused toolbox of activities. Mandated to “connect, inform, analyse and empower”, the work of TESS will combine public-facing events and policy briefs; expert and stakeholder roundtables; and off-the-record consultations key to supporting international policymaking processes.

International Institute for Sustainable Development (IISD)

The International Institute for Sustainable Development (IISD) is an independent think tank based in Canada and Geneva working to create a world where people and the planet thrive. Its experts offer practical guidance to help authorities choose the right system of electricity generation, reduce consumption of fossil-based transport fuels, and implement international climate change commitments. The IISD Global Subsidies Initiative (GSI) is widely recognized as a world-class leader in the quantification, evaluation, and reform of subsidies.

Geneva Trade Platform

The Geneva Trade Platform is a not-for-profit organization based at the Graduate Institute’s Centre for Trade and Economic Integration. The platform is a hub, designed to bring people, ideas, and resources together to address global challenges through better informed, better supported and more inclusive trade policy.

Negotiations

WTO

At the Doha Ministerial Conference in 2001, negotiations on fisheries subsidies at the WTO were launched with a mandate to clarify and improve existing WTO rules. The adoption of the SDGs in 2015 and of a negotiating mandate in 2017 gave renewed urgency to the discussions, and left the WTO with the task of securing an agreement by 2020 on disciplines to eliminate subsidies for illegal, unreported and unregulated fishing and to prohibit subsidies that contribute to overcapacity and overfishing, with special and differential treatment for developing and least developed countries. After more than twenty years of negotiations, WTO members reached an landmark agreement at MC12 in Geneva in June 2022. Member States are now discussing to initiate a second round of negotiations to further discipline harmful fisheries subsidies.

CITES

Animal and Plants Committee

The Convention on International Trade in Endangered Species of Wild Fauna and Flora Plants Committee convened in Geneva for its 26th meeting (CITES AC26), from 5 to 9 June 2023. Items on the agenda included a strategic approach on CITES and Forests, preparation for the implementation of upcoming projects, and advancing the Review of Significant Trade (RST). It is to be noted that the listings of plant species in CITES Appendices have been steadily increasing in recent years and, in particular, those of tree species including those considered commercially important. Today, the number of plant species whose international trade is regulated by CITES is more than 34,000, of which 800 are tree species.

CITES Animals Committee convened in Geneva for its 32nd meeting (CITES AC32) from 19 to 23 June 2023. Issues on the agenda included review under both the Review of Significant Trade Resolution (for the review of wild species which may be subject to unsustainable levels of international trade and recommendations) and the Captive Breeding Resolution (for the review of trade in animal specimens reported as produced in captivity). Members and observers are reviewing emerging operational matters of the committees, alignment between the CITES Strategic Vision 2021-2030 and the Kunming-Montreal Global Biodiversity Framework, sustainability criteria, known as non-detriment findings (NDFs), and the scientific aspects of the IPBES report on the Assessment of the Sustainable Use of Wild Species.

Standing Committee

The 77th meeting of the Standing Committee will take place from 6 – 10 November 2023 in Geneva.

Agreement on Climate Change, Trade and Sustainability (ACCTS)
Costa Rica, Fiji, Iceland, New Zealand and Norway have agreed to start negotiations on an ambitious, binding agreement on climate change, trade and sustainability. The countries recognize that climate change is a major problem, and are seeking to use trade rules in support of climate action. They will consider trade policy measures such as eliminating tariffs on environmental goods, establishing new commitments for environmental services, reductions in fossil-fuel subsidies, and certification/eco-labelling schemes.

Harmful Subsidies

According to the IISD, governments around the world spend at least a trillion dollars a year on subsidies to exploit the world’s natural resources.

Fisheries

Through the adoption of the Sustainable Development Goals (SDGs), governments around the world have agreed that conserving and sustainably using the oceans, seas and marine resources is essential for sustainable development. In particular, target 14.6 acknowledges the detrimental effect of harmful subsidies and the need to eliminate them to achieve a sustainable blue economy. According to the Food and Agriculture Organization (FAO), 33% of the world’s fish resources are overfished and 60% are being fished to their biologically sustainable limit. According to UNCTAD, fishing subsidies are estimated to be as high as $35 billion worldwide, of which $20 billion directly contributes to overfishing. Fisheries subsidies are the main driver of the overcapacity of industrial fishing fleets and thereby overfishing – removing these harmful subsidies has become a bare-faced necessity.

“By 2020, prohibit certain forms of fisheries subsidies which contribute to overcapacity and overfishing, eliminate subsidies that contribute to illegal, unreported and unregulated (IUU) fishing and refrain from introducing new such subsidies. Sustainable Development Goal 14.6”

The WTO was identified as the implementing agency to fulfill this target, recognizing that appropriate and effective special and differential treatment for developing and least developing countries should be an integral part of the WTO fisheries subsidies negotiations. After more than twenty years of negotiations, WTO members reached an agreement at MC12 in Geneva in June 2022. Under this new treaty, subsidies for vessels and operators engaged in illegal, unreported, or unregulated (IUU) fishing are prohibited. The agreement further bans support for fishing in overfished stocks and for fishing in unregulated high seas. Provisions on special and differential treatment are provided to allow flexibility for developing countries.

Fossil Fuel

IISD notes that the evidence is crystal clear that fossil fuel subsidies are environmentally harmful and undermine efforts to tackle climate change. Despite this, support for fossil fuels costs governments USD 300–600 billion every year—depending on fuel prices on the world markets—an amount that could otherwise be spent on global priorities such as health, education, social protection, and a just transition to a clean energy future. As countries struggle to support their economies in the aftermath of the COVID-19 crisis, it’s more important than ever to align climate ambitions with economic priorities. Governments have the opportunity to look closely at fossil fuel subsidy reform and fuel taxation as effective tools for a green recovery as they work to maintain climate commitments while generating revenue to support pressing social needs.

On 15 December 2021, the Friends of Fossil Fuel Subsidy Reform launched a ministerial statement, calling for the rationalization and phase-out of inefficient fossil fuel subsidies that encourage wasteful consumption, while taking into account the specific needs and conditions of developing countries.

Plastic Pollution

International trade flows are central to the production, consumption and disposal of plastic products. Across the life cycle of plastics, international trade is a vehicle for the spread of plastics across borders, whether as virgin plastic, embedded in products or as waste. According the UNCTAD, trade in plastics accounts for $1 trillion USD each year, which corresponds to about 5% of the total value of merchandise trade. Consequently, trade policy can play an important role in tackling the plastic pollution crisis. he challenges associated with plastic trade go are immense, with plastics being traded globally as fossil feedstock, primary material, manufactured products, and waste. The World Trade Organization has started to discuss the role of trade policy to address plastic pollution through an informal dialogue (IDP) launched in November 2020.

Plastic waste trade also posed specific challenges, especially for importing developing economies where infrastructure to manage waste in an environmentally sound manner may be lacking. In 2019, Parties to the Basel Convention adopted the Plastic Amendments, which regulate transboundary flows of plastic waste since its entry into force in 2021. The Basel Convention also promotes environmentally sound management of plastic waste through the Plastic Waste Partnership.

Coalition of Trade Ministers on Climate

A new Coalition of Trade Ministers on Climate, which aims to put climate action at the heart of trade and trade policies, was launched on 19 January 2023, in the margins of the WEF Annual Meeting 2023. The four co-leaders – trade ministers from Ecuador, the European Union, Kenya, and New Zealand – held the Coalition’s first inter-governmental meeting in Davos, along with ministers from many other countries, which was followed by a roundtable of stakeholders from international organisations, academia, business, and NGOs.

With more than 50 ministers who have joined the coalition, World Trade Organization (WTO) Director-General Ngozi Okonjo-Iweala and UN Conference on Trade and Development (UNCTAD) Secretary-General Rebeca Grynspan have also offered their support.

The Coalition seeks to provide high-level leadership and guidance to boost inclusive international cooperation on the nexus of climate, trade, and sustainable development. Emphasizing the urgent need for climate change mitigation and adaptation, the Coalition aims to drive cooperation among trade ministers in the global response to climate change, including by engaging nationally and internationally with fellow ministers working on climate, environment, finance, and development, among others.

To read the full blog post as it appears on Geneva Environment Network, click here.

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MC13 To Start the Year, Moratorium Once Again Up for Renewal

The 13th World Trade Organization Ministerial is quickly approaching, taking place February 26-29 in Abu Dhabi. The outcomes and issues discussed are likely to set the stage for the rest of the year.

With respect to digital issues, announcements are expected on the Joint Statement Initiative on E-Commerce. At the end of last year, co-conveners announced consensus text on the following areas: online consumer protection; electronic signatures and authentication; unsolicited commercial electronic messages (spam); open government data; electronic contracts; transparency; paperless trading; cybersecurity; open internet access; electronic transaction frameworks; electronic invoicing; and “single windows.” The intent is to conclude these negotiations by early 2024. With the U.S. withdrawal of support for key rules, however, the final framework will be significantly less impactful than hoped for. Absent any valid alternatives to text on data flows, localization, and source code protection, it is unclear whether parties to the exercise will succeed in delivery of a comprehensive and strong final agreement in the next year. To the extent that alternatives emerge that represent a significant weakening of proposed rules, the JSI could verge on being affirmatively unhelpful–legitimizing trade partners’ discretion to impose unjustified or discriminatory restrictions of digital service suppliers.

Another key issue will be the renewal of the moratorium on imposing customs duties for electronic commerce, which has been renewed at every Ministerial since 2000. The prohibition on customs duties has been critical to the development of global digital trade, benefiting a wide range of MSMEs around the world. However, countries like India, South Africa, and Indonesia continued to oppose its renewal. Failure to renew this year will have significant implications for the millions of firms dependent on trading in software, games, video and other digitized products, while doing little to solve concerns on revenue. International institutions have looked at the risk of ending the moratorium, and identifying preferable alternatives to customs duties on electronic transmissions:

• OECD: “Failure to renew the Moratorium would result in greater policy uncertainty and less trade, and tariffs on electronic transmissions would reduce domestic competitiveness. Adverse effects would be most pronounced for low-income countries and smaller firms. Overall, evidence demonstrates that there is a strong case for the Moratorium to be renewed.”
• WTO: “Tariffs on electronic transmissions might also impact competitiveness and participation of firms in trade, especially MSMEs and women owned traders.”
  World Bank: “Considering the incidence of tariffs, consumer welfare, implications for export competitiveness, and the option to capture revenues through economically neutral value added taxes, the benefits of the moratorium may well outweigh the costs incurred. Moreover, the application of reciprocal tariffs could make the application of tariffs on electronic transmissions fiscally counterproductive.”
• IMF: “The World Trade Organization (WTO) moratorium on customs duties on electronic transmission can help to effectively channel developing countries’ tax reform efforts in a more efficient direction.”

A sign of success at MC13 will be the renewal of the moratorium, and commitments to continue work on achieving a high-standing agreement within the framework of the JSI.

U.S. Retreat on Digital Trade Casts Unwelcome Shadow

Three years into the Biden Administration’s new strategy of “Worker-Centered Trade,” stakeholders are still left puzzled on what that means for U.S. trade engagement. While the U.S. hosted many conventions and summits with trade partners in 2023, issuing relatively vague progress updates, concrete deliverables were unfortunately lacking.

The Indo-Pacific Economic Framework (IPEF) has yet to deliver on its initial promise at its launch (with the exception perhaps of the Commerce Department-led IPEF Supply Chain Agreement). Little was announced at the San Francisco Summit last November, where final outcomes were long expected. The IPEF Trade Pillar seems to have hit a standstill. Last minute demands from Congressional leaders not to announce anything on trade appear to have been successful, leaving future engagement highly uncertain.

While the USTR tabled text on the digital chapter in early 2023, the U.S. position is now unknown (which necessitated the move at the WTO) in comparison to the digital trade chapter in the U.S. Mexico Canada Agreement. More worrisome is that the change in position was reportedly at the behest of political leadership of the DOJ/FTC absent Congressional consultation based on unclear justifications linking domestic antitrust enforcement with international trade rules U.S. trading partners would be subject to.

And the U.S. new (or nonexistent) digital trade policy introduces uncertainty on upcoming workstreams. With USMCA’s inclusion of a “sunset” provision, negotiations are forthcoming. Will the U.S. seek a reversal in its prior support for the strong rules in the digital trade chapter? Such a move would prove quite controversial, with USTR only having negotiated the text mere years ago, based on strong bipartisan support from Congress.

Likely Trade Irritants in 2024

Outside the trade negotiation context, market access barriers continue to foster conflict for digitally-enabled services.

Digital services taxes (DSTs) are likely to once again take the spotlight. Despite the OECD agreement reached in 2021, and positive announcements of significant progress on the international framework to improve fairness in global taxation, some countries are once again pursuing unilateral DSTs. Canada announced it still intends to move forward with a DST this year, despite the warning of the U.S. government and Canada’s signature to the OECD agreement.

Other trade irritants include discriminatory on cloud computing restrictions that disadvantage foreign cloud providers in certain markets. Korea continues its practice of effectively shutting out U.S. firms from the domestic procurement market. The European Union is finalizing its consideration of the EU-wide certification scheme drawing from France’s SecNum Cloud approach. As drafted, the EUCS would disadvantage U.S. cloud services from participating in the EU market. Engagement in the U.S.-EU Trade & Technology Council is an important venue to address any discriminatory measures that undermine transatlantic cooperation in the ICT sector. The TTC is expected to meet following delays at the end of this month.

Countries’ approaches to regulating digital platforms will also pose trade conflicts to the extent the application of these rules are narrowly targeted to U.S. firms, excluding domestic competitors absent clear justifications. Engagement with foreign regulators will be critical to ensure that any ex-ante regulations provide fair and adequate guidance to covered entities that limit unintended consequences. A focus on the EU, where a panoply of requirements will begin to take effect this year, will be important–both for how access to the EU market is affected, and for defining a model other countries may seek to emulate.

Work to Continue on Trusted Methods for Data Flows

However, it is not all doom and gloom. International support for actualizing “Data Free Flow with Trust” (DFFT) is encouraging. DFFT was an initiative of Japan under its G20 Presidency, and subsequent G20 workstreams continue to support its development. The concept of (DFFT) aims to promote the free flow of data while ensuring trust in privacy, security, and intellectual property rights.Over the past year, there has been increasted discussions and support to operationalize DFFT, complementing and working with institutional partners like the OECD. Relatedly, Japan and the EU amended their bilateral FTA to include meaningful provisions aimed at promoting data flows and preventing data localization.

With positive initiatives like these gaining support, one can hope that the end of 2024 closes out on a more hopeful note for digital trade, and the economic benefits it brings to consumers across the globe, than the last.

To read the full article as it appears on the Disruptive Competition Project, click here.

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• For 2023, we are downgrading our forecast for world merchandise trade volume growth to 0.8 per cent, less than half the 1.7 per cent growth we forecast last April.
• However, the outlook for next year has not been downgraded and remains relatively strong. We predict 3.3 per cent trade growth in 2024, slightly higher than our estimate of 3.2 per cent in April.

So what has led to this revised forecast?

The global situation over the past year

The downgrade is not entirely surprising as we had already considered the risks to be mostly on the downside in our April forecast.

Several factors have contributed to this revision. The global economy has been grappling with rising inflation and high interest rates since the fourth quarter of 2022, particularly in the European Union and the United States.

While falling energy prices and the end of Chinese COVID-19 pandemic restrictions raised hopes of a quick rebound, strained property markets have prevented a stronger recovery from taking root in China. Added to these factors, the ongoing Ukraine conflict also continues to weigh on the global economy.

The trade slowdown in the first half of 2023 appears to have involved a large number of economies and a wide array of goods, specifically certain categories of manufactured goods such as iron and steel, office and telecom equipment, textiles and clothing, although sales of passenger vehicles have surged in 2023.

The stronger growth predicted for 2024 is likely to be driven by increased trade in goods closely linked to the business cycle, such as machinery and consumer durables, which tend to recover when economic growth stabilizes.

Figures for world GDP growth at market exchange rates, anticipated to be 2.6 per cent in 2023, show little change since the April forecast. However, shifts in the regional composition of growth could influence trade.

Specifically, GDP growth rates for North America in 2023 and 2024 have been revised upwards, from 1.5 per cent and 1.0 per cent, respectively, in April, to 2.2 per cent and 1.4 per cent in the current report. Meanwhile, estimates for Asia for 2023 and 2024 have been revised downwards, from 4.2 per cent and 4.3 per cent, respectively, in April, to 4.1 per cent and 4.0 per cent. European GDP growth in 2023 should come in at 1.0 per cent, up slightly from 0.9 per cent in the April forecast, while growth in 2024 should be 1.4 per cent, down from 1.8 per cent previously. Finally, output in the Commonwealth of Independent States (CIS) region is expected be stronger than previously forecast, both this year and next year.

In terms of imports, demand appears to be weakening in manufacturing economies, with import volumes in 2023 expected to contract by between 0.4 per cent and 1.2 per cent in North America, South America, Europe and Asia. Meanwhile, imports appear set to rise sharply in regions that export fuels disproportionately, thanks to the increased revenues flowing from higher prices.

Effects of trade fragmentation on the global economy

Many people may be wondering how much of the current trade slowdown is due to trade fragmentation, possibly as a result of rising geopolitical tensions, and how much is due to tighter financial conditions as countries around the world raised interest rates to fight inflation. The report suggests that, while we do see initial signs of fragmentation, we do not see evidence of broad-based de-globalization.

For example, the share of intermediate goods in world trade, which provides an indication of the health and extent of global supply chains — a key indication of the extent of trade fragmentation — fell to 48.5 per cent in the first half of 2023, having averaged 51.0 per cent over the previous three years. While this suggests that supply chains may be contracting, it may also simply reflect higher commodity prices as these have a greater influence on the cost of intermediate goods than on final goods costs.

A possible indication of an increase in near-shoring is the recent decline in the share of Asian trading partners in US trade in parts and accessories, which is an important component of intermediate goods. However, while this share fell from 43 per cent in the first half of 2022 to 38 per cent in the first half of 2023, it remains close to the pre-pandemic (2019) share of 39 per cent.

Similarly, the share of politically like-minded trading partners (as measured by United Nations voting patterns) in US total trade recently rose to 77 per cent in the first half of 2023, from 74 per cent in the first half of 2022. Again, while this could signal increased friend-shoring, in fact the 2023 share is very close to the 2019 share of 77 per cent.

These findings are in line with the results we presented in the 2023 World Trade Report on 12 September 2023. While they do not yet suggest broad-based de-globalization, nevertheless, we will continue to monitor these trends carefully going forward.

To read the full edition of the WTO’s “Global Trade Outlook and Statistics” which is referenced above, click here. 

To read the full blog by Ralph Ossa, click here.

The post What are the Prospects for Global Trade Growth in 2023 and 2024? appeared first on WITA.

These policies create uncertainty, increase investment risk premiums and distort trade. World Trade Organization (WTO) members can justify unilateral action to achieve non-economic objectives by invoking general or essential WTO security exceptions. But widespread recourse to these provisions constitutes a major threat to the rules-based trade order. For the rules to function there must be general acceptance of norms of good behaviour. Those norms are violated when public morals or economic security become a cover for unilateral discriminatory trade policies.

What possible paths forward are there on multilateral trade cooperation?

The erosion of trust among the large economic powers, reflected in their increased willingness to ‘weaponise’ trade policy, is a major constraint to launching negotiations on new rules of the trade game. Instead, strategic autonomy, economic security and other non-economic objectives motivate calls for collaboration among countries with similar values and political-economic systems.

For the WTO to remain relevant in the 21st century, members have to recognise that international trade increasingly is linked to systems competition, cooperation and contestation over non-economic objectives — for which trade is seen as instrumental to policy success. The use of dispute settlement procedures, especially in cases where essential security interests are invoked, is likely to be both counterproductive and ineffective.

Efforts to safeguard an open global trade regime should instead centre on processes through which WTO members engage in policy dialogue. Institutionally supported frameworks must enable peer-based deliberation to assess the effectiveness and efficiency of the unilateral pursuit of non-economic objectives and their associated spillovers, which may be positive or negative. Such dialogue is necessary to inform the multilateral cooperation needed to address the major threats and collective action problems confronting the global community.

Systemic differences and geopolitical rivalry need not preclude cooperation to lessen or manage policy spillovers. The administration of US President Biden has made it clear that the United States is not interested in negotiating traditional preferential trade areas that centre on the reciprocal reduction of tariffs and non-tariff barriers on substantial volumes of trade. Instead, the United States is pursuing issue-specific cooperation and frameworks to coordinate policies, such as agreeing on regulatory practices on digital trade and the governance of supply chains.

One US initiative is the Indo-Pacific Economic Framework for Prosperity, which promotes trade liberalisation, open digital trade and free cross-border data flows with Asia. Such arrangements have implications for the trading system insofar as they act as frameworks for cooperation among subsets of WTO members. These subsets jointly condition trade and investment on shared values, including through production requirements relating to labour, human rights and environmental sustainability.

If associated regulatory cooperation arrangements are open to any economy interested in participating, with benefits extended conditionally after implementing agreed regulatory standards or principles, they can support a process of gradual multilateralisation. If, instead, regulatory cooperation is designed to be made up of exclusive arrangements, it could fragment the global trade system. Domain-specific open plurilateral agreements offer a better prospect for multilateralisation than preferential trade agreements.

Cooperation must be rooted in an understanding of the objectives of the participants and the way their interests are related to the domestic and international commitments of the countries involved. WTO reforms are not needed for discussions among members on non-economic objectives, but there must be political willingness to go beyond the ‘bread-and-butter’ of the WTO — it must negotiate on trade policy without considering the rationale for using specific trade instruments.

WTO members that condition access to their market on satisfying specific production requirements to achieve a non-economic objective have an interest in other states doing so as well. In many cases, WTO members may share a non-economic objective, providing scope for dialogue and discussion about possible joint action. Cooperation can take the form of concerted action by like-minded economies, but it is better to put in place a framework that encourages the formation of WTO-sanctioned clubs. This would ensure greater scrutiny, transparency, and analysis of the effects of trade–non-economic objective issue linkages that are pursued by groups of countries. This would benefit the jurisdictions pursuing joint action by helping them to monitor implementation and understand if interventions are effective and efficient. It will benefit those that do not join a club by providing an institutional mechanism that generates information on the benefits of club participation, the extent and incidence of the external effects of a club, and a channel through which to engage with club members.

There is much to be gained from cooperating on non-economic objectives of broadly common interest. Alliances have long been a form of international cooperation and are likely to appear more in the future to support deeper integration among like-minded economies. WTO reform discussions should include a focus on developing a multilateral framework to guide the formation of groups of like-minded economies motivated by non-economic objectives.

Facilitating scrutiny of such initiatives by WTO members would help club participants design and implement policies that are efficient. Accommodating clubs would also benefit non-participants by reducing the potential adverse effects on the trading system by establishing principles that clubs should abide by, including being open to any member willing to participate.

Anchoring clubs in the WTO would provide them with a multilateral institutional basis, foster transparency and support informed peer review of the use of trade policy instruments justified by non-economic objectives.

Bernard Hoekman is Professor and Director of Global Economics at the Robert Schuman Centre for Advanced Studies in the European University Institute, and a research fellow at the Centre for Economic Policy Research.

Petros C Mavroidis is Professor of Law at Columbia Law School.

Douglas Nelson is Professor in the Department of Economics at Tulane University and External Fellow at the University of Nottingham.

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WTO Director-General Ngozi Okonjo-Iweala has identified the key areas that will require close attention if MC13 is to succeed and fulfil the promises of the 12th WTO Ministerial Conference (MC12) — food security, fisheries subsidy disciplines, the development dimension of trade, dispute settlement reform, intellectual property rights and e-commerce.

Each of these topics warrants attention — and each raises difficult issues.

Key issues include addressing purchasing power difficulties of the poorest communities, gaining additional acceptance of the WTO Agreement on Fisheries Subsidies and helping countries that lose support as they graduate from Least Developed Country status. Other issues include addressing the US conviction that the WTO Appellate Body jurisprudence is openly hostile to trade defence instruments, resolving the paradox of patents and meeting the twin goals of data security and data access in the promotion of digital trade.

But there is an overriding challenge facing MC13. The liberal trading order is under siege as world trade becomes increasingly weaponised through targeted government interference, with imports, exports and state-funded subsidies all utilised in the pusuit of other goals. The evidence is clear — the stockpile of G20 trade restrictions has grown more than tenfold since 2009.

There are four interlinked motivations for using trade as a weapon when pursuing other objectives

First, trade can be curtailed to sanction aggression — notably in the case of Russia’s aggression against Ukraine which has caused major collateral damage to international grain supplies. Second, to arm the global value chain to increase self-reliance, particularly in semiconductor production. Third, to execute trade remedies in self-defence, as with the Trump and Biden administrations’ penalty tariffs on imports of steel and aluminium. Fourth, to ‘serve’ science in the interests of the environment and public health, whether through restrictions on trade in key solar energy components or the US$122 billion export restrictions on COVID-19 treatment products.

Crucially, the weaponisation of trade for other purposes has been made possible by a pervasive questioning of the gains from international trade and investment — not only by traditional sceptics on the left but also, now, by the populist right.

For MC13 to build on the promise of MC12 and lay solid foundations for durable progress, it is imperative that in addition to addressing the key challenges identified by WTO Director-General Okonjo-Iweala, alternatives to trade weaponisation are sought and that the discontents of trade are seriously addressed.

In the lead up to MC13 and beyond, this means pursuing the need for diplomatic carrots to accompany the sanctions stick. It is also essential to build resilience in supply chains through sound domestic policy instead of increased self-reliance, such as in the form of re-shoring and friend-shoring. Critical for the continuation of the liberal trading order are multilateral WTO remedies to rulebreaking instead of power-based penalties in the name of national sovereignty, and direct action on environment and public health goals instead of the blunderbuss of trade restrictions.

But to restrain the damaging subordination of trade policy to other ends, governments must also address the discontents of trade. Governments should do more to help the losers of trade opening, adjust to technological change and make the case for open markets — not least by showing how trade weaponisation brings harm to both the user and the target. For example, US steel consumers now pay an estimated extra US$650,000 per year for every job saved by Trump-era penalty tariffs kept by the Biden administration.

No item on the MC13 agenda is more important than dispute settlement reform. Without full restoration of the WTO dispute mechanism, it will be extremely difficult to restrain the use of the trade weapon — whether by unilaterally breaching bound tariffs or by unjustifiably invoking General Agreement on Tariffs and Trade Article 21 to restrict trade in the name of ‘essential security interests’. With just a modicum of flexibility, particularly from the United States and China, dispute settlement reform should be a feasible deliverable at MC13.

While responsibility for strengthening the trading system rests with the leaders of the G20, it is ultimately in the capitals of the major traders — in Washington, Beijing, Brussels and Tokyo — that the fate of MC13 will be determined.

The danger of restrictions on trade is real. Growth in the volume of world merchandise trade is expected to fall from 2.7 per cent in 2022 to 1.7 per cent in 2023. And the stakes are high. Failure to strengthen the trading system and the liberal order that underpins it will put three decades of growth and development made possible by globalisation at risk, and the ability to successfully deal with the next pandemic and the climate transition.

Ken Heydon is a former Australian trade official and senior member of the OECD Secretariat, and Visiting Fellow at the London School of Economics and Political Science.

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