The Global South in the WTO

Time to move from the defensive to the offensive

The Global South should take advantage of the severe crisis of the organization to regain the policy space it needs to successfully adapt to a deglobalizing world economy.

(Walden Bello)

The World Trade Organization will be holding its 12th Ministerial Meeting in Geneva from June 12th to 15th. Yet, little if anything is expected from the meeting except the usual exchanges of conflicting views between representatives of the ‘Global North’ and those of the ‘Global South.’ There might be something like a ‘Ministerial Declaration’ that tries to paper over differences with some conciliatory language, but anything resembling a consensus on any key issue is unlikely. Consensus is the prime decision-making method in the WTO, and it’s been a long, long time since there was consensus achieved on anything related to global trade rules.

The WTO is in a comatose state. A key reason for this has been the angry reaction of the governments of the Global North to the ability of governments of the Global South, aided by their civil society allies, to fend off demands for more concessions from the US and other developed countries that had originally intended the organization to be the prime instrument of prying open the economies of the South and integrating them more fully into a global economy dominated by northern transnational corporations.

The WTO was a key agency of corporate-driven globalization. Globalization has, however, been shown to be a fragile order fraught with many deep-seated structural weaknesses, such as collapsing global supply chains, that have been exposed by the perfect storm of Covid 19, the war in Ukraine, inexorably rising oil prices, global warming, and other contingencies. As deglobalization gathers momentum, developing countries must move from a purely defensive to an offensive strategy at the WTO. Taking advantage of the crisis of the organization, especially its moribund dispute settlement system, to take back the concessions it made to the global North during the Uruguay Round. Regaining the policy space abolished by these concessions will be essential to developing countries if they are to adjust effectively to the emerging new global order.

The path to paralysis

To some, the WTO’s descent into paralysis can be traced back to the Third Ministerial Meeting in Seattle back in 1999. There, the United States and the European Union’s aggressive push for new trade negotiations to follow the Uruguay Round that established the WTO provoked resistance from developing country governments and civil society organizations. It led to the collapse of the ministerial amidst widespread street protests and a police riot.

The rich countries struck back during the Fourth Ministerial in Doha in 2001, using 9/11 as an excuse to pressure the developing countries to agree to the launch of a new trade round, deviously labeling it the “Doha Development Round” to calm the latter’s apprehensions that their development concerns would be sidelined in the negotiations.

Then, during the Fifth Ministerial in Cancun in 2003, with the heft provided by India, Brazil, and China (a WTO member since 2001), developing countries were able to prevent the U.S. and EU’s attempt to dismantle critical government protections for small farmers. They also foiled attempts to tighten the already restrictive Trade Related Intellectual Property Rights Agreement (TRIPS) and prevented an attempt to bring investment, government procurement, and competition policy under the WTO’s ambit.

As developing country resistance consolidated under the leadership of India, Brazil, and China, the United States moved away from a strategy of multilateral trade liberalization via the WTO. After the Cancun ministerial collapse in 2003, the Bush administration’s point man on trade, U.S. Trade Representative Robert Zoellick, warned: “As WTO members ponder the future, the U.S. will not wait: we will move towards free trade with can-do countries.”

Over the next few years, the United States and the European Union put their efforts into trying to forge bilateral trade agreements or limited multilateral agreements, like the failed Trans-Pacific Partnership (TPP) favored by the Obama administration. Still, hope that the WTO would regain its usefulness as the main engine for trade liberalization flared anew when a trade facilitation deal was hammered out in Bali in December 2013. But the deal fell apart a few months later when India withdrew its approval after it failed to secure a firm commitment from developed countries to a permanent solution to its subsidized food stockpiling policy.

The US on the Warpath of Unilateralism

The US move towards unilateralism accelerated in 2016 when the supposedly multilateralist administration of Barack Obama ousted a Korean Appellate Body member because it did not agree with the latter’s judgments in four trade disputes involving the United States.

Donald Trump continued Obama’s emasculation of the Appellate Court, with Washington vetoing new appointees so that by December 2019 it had stopped functioning altogether, with just one judge left. With a non-functional Appellate Court, the WTO was robbed of its teeth to enforce compliance with the 60 agreements and other key decisions that were sealed during the Uruguay Round that established the WTO, probably the most important of which were commitments to bring down industrial tariffs, the Agreement on Agriculture, and the Trade Related Intellectual Property Rights Agreement (TRIPS).

Trump was not worried about having a dysfunctional dispute settlement mechanism since he believed that the only way the US could get its way was via unilateral means such as trade wars. Here he threatened both traditional US allies as well as rivals, but he deployed it especially against China. Although China fulfilled the commitments it promised upon joining the WTO on time, Trump and Washington’s nationalist lobby saw China as an economic power that could not be disciplined by WTO rules since these did not address what they saw as the source of “inequality” between China and its trading partners: the state capitalist system allowed Beijing to subsidize Chinese enterprises. Indeed, Trump and his key economic adviser, Peter Navarro, saw the WTO as legitimizing China’s trade practices. From their perspective, the most consequential WTO decision in the decade and a half preceding Trump’s reign was China’s admission in 2001, from which China had gained everything and the US nothing except deindustrialization.

Unable to overcome Washington’s obstructionism within the WTO while brazenly violating its raison d’être of multilateral settling of disputes by engaging in unilateral trade warfare, WTO Director-General Roberto Azevêdo of Brazil resigned in 2020, a year before his term was supposed to end. Nigerian diplomat Ngozi Okonjo-Iweala was favored by most members as a replacement, but the Trump administration delayed the process while holding out for another candidate who was deemed more sympathetic to U.S. interests.

With the transition to the Biden administration in 2021, members of the trade body looked for more cooperation from Washington. The Biden team’s first move seemed encouraging: it ceased blocking Okonjo-Iweala, who is now the first woman to head the WTO. But even as it floated fresh rhetoric about supporting the WTO, the US trade team, now led by United States Trade Representative Katherine Tai, has not ended the Trump administration’s blocking of appointments to the WTO appellate court.

More broadly, the Biden administration has not departed from Trump’s unilateralism since it has not walked back from his predecessor’s defining China as a threat to the US owing to its state capitalist system. In a recent WTO review of China’s trade policy, Washington said the organization has failed to counter China’s unfair practices 20 years after it joined the trade body. With China being seen as one of the leaders of the developing country bloc in the WTO, the Biden administration is likely to have its posture at the WTO follow its strategy of isolating China on all fronts. In the words of a US trade official cited by Politico, “China has used the imprimatur of WTO membership to become the WTO’s largest trader, while doubling down on its state-led, non-market approach to trade, to the detriment of workers and businesses in the United States and other countries.”

The TRIPS waiver debate

The spillover of the US efforts to contain China into the WTO is but one of the many issues preventing the resurrection of the WTO from its comatose state. Likely to be the central topic at the 12th Ministerial is the so-called TRIPS waiver. It’s been the major source of North-South conflict within the WTO ever since India and South Africa first proposed it in October 2020 in response to the then raging Covid 19 pandemic. The TRIPS waiver would involve the temporary suspension of a set of intellectual-property provisions that prevent developing nations’ access to the technology needed to make their own versions of Western-made Covid-19 vaccines, diagnostics, and therapeutics. Some 100 W.T.O. member governments now support the move and some 60 of them are official sponsors.

Big Pharma has strenuously resisted the TRIPS waiver with the European Union, Germany, the United Kingdom, Norway, and other developed countries taking up the cudgels for it in the WTO. The EU’s position has been that there are “flexibilities” in TRIPS that make a waiver unnecessary. Owing to strong pressure from US civil society and progressives in the Democratic Party, the Biden administration decided to support the waiver in May 2021. Since then, however, it has been relatively passive and cautious. This has disappointed developing country governments that felt that had Washington decided to really take up their cause, it would have been able to successfully pressure the EU and other naysayers to join the waiver bandwagon and thus produce the consensus needed for the waiver to become official.

There are, in fact, skeptics that suspect that Washington simply fell behind the waiver but deliberately refrained from promoting it, leaving other developed countries to continue to oppose it and thus prevent consensus. In this view, the new administration was playing an opportunistic game of scoring brownie points with developing countries while letting other rich countries take the flak for holding on to a position that Washington secretly favors.

As the 12th Ministerial approaches, the Director-General has circulated a negotiating text that seeks to be the basis of a compromise. This text is very far from the comprehensive waiver that was initially tabled by India and South Africa. According to Médecins Sans Frontières, “key limitations of the leaked text include that it covers only vaccines, is geographically limited, and covers only patents and does not address other intellectual property barriers, such as trade secrets, which may cover critical information needed to facilitate manufacturing.”

There has been practically no convergence between the developing countries and the rich countries in the last two and a half months. The United Kingdom, for instance, notes the Third World Network, has been constantly pushing to narrow the application of an already very restricted waiver proposed in the negotiating text on exports from a developing country with manufacturing capacity to other developing countries to apply only to vaccines, denying the application of the export waiver to ingredients and other inputs and processes required to produce the vaccines. This would make the entire decision unworkable.

For many frustrated developing country governments and their allies, the long agony of the WTO over the TRIPS waiver has simply underlined the body’s inability to respond to the needs of the global South. Nobel laureate Joseph Stiglitz of Columbia University cut to the chase. “The drug companies did not want a quick response,” he said. “The slower the response, the higher their profits. More people died, but that’s not their concern. Their concern was profits over people’s lives.”

Aside from the TRIPS waiver, topics that have been flagged by the Director-General for discussion at the ministerial include the current food crisis, fisheries subsidies, agricultural reform, and WTO reform. These “thematic” meetings that have been taking place in Green Rooms where participation is restricted are not likely to produce breakthroughs, though the final Ministerial Declaration will try to give the impression that there is movement on these issues. However, unlikely does not mean impossible. (Unlikely does not mean impossible: to show that the WTO is not dead, a compromise might be reached around the question of fisheries subsidies, the latest text of which disadvantages small fishers and small fishing nations while being lax with countries now accounting for the bulk of subsidies, according to civil society organizations following the issue.)

All in all, however, the possibility is greater than, triggered by the TRIPS waiver debate, the negotiations may break out in acrimony, sealing the fate of the organization. Another event that could bring about this outcome is if the US decides to use the ministerial to justify the trade and other punitive economic measures that Washington and its allies are taking against Russia over Ukraine. An initiative that is sure to be resisted by most member governments from the Global South.

From defensive to offensive

With their relative unity since the early 2000s, the developing countries have been successful in fending off the demands for more trade and trade-related concessions by the Global North during the long Doha Round, to be added to those they had made in the preceding Uruguay Round that established the WTO. But the question is, should they be contented with simply maintaining a defensive strategy? Should they not, in fact, take a more offensive strategy, taking advantage of the current state of disarray of the WTO?

In becoming members of the WTO in 1995, most developing countries made far-reaching concessions that reduced their policy space significantly, making development well-nigh impossible for many. The elimination of quotas on agricultural imports and their replacement with “minimum access volumes,” as demanded by the Agreement on Agriculture, spelled disaster for many local producers of many commodities. To protect themselves from the massive tide of imports from the developed countries, especially in agriculture, governments in the global South have had to rely on the very restrictive flexibilities of existing mechanisms like WTO-consistent anti-dumping measures or sanitary and phytosanitary standards in their efforts to gain more control over trade policy.

It is time for developing country governments to launch an offensive to retake that critical policy space they yielded in joining the WTO. This is the best time to launch this, with the WTO’s dispute settlement mechanism all but dead and with a unilateralist Washington showing little interest, if not hostile to reviving it owing to fear of its being filled by judges unsympathetic to US interests. (Indeed, Washington has refused to join a stop-gap mechanism set up by 25 countries to adjudicate trade disputes among themselves, the “Multi-Party Interim Arbitration Arrangement.”)

For instance, governments can bring back quotas on agricultural imports that were banned by the Agreement on Agriculture. They can move either individually or collectively. Rather than a frontal assault, they may move quietly, restoring quotas sequentially. When it comes to manufacturing, governments can bring back banned trade policies like “local content” measures to build up their industries. Indeed, they may eventually decide to make the TRIPS waiver no longer a matter of negotiation but, to use diplomatese, a “fact on the ground.”

Making their economies less vulnerable to the vagaries of global free trade has indeed become a matter of survival, as many critical global supply chains in both agriculture and industry are ceasing to function. Owing to what some have called the perfect storm in global trade due to the conjoining of the impact of Covid 19, the war in Ukraine, inexorably rising oil prices, global warming, and other global contingencies. Even in developed countries and among global corporations, there are strong movements to re-shore industrial production by embedding supply chains at the regional or local level. The fragility and inefficiencies of globalization are leading to its reversal, and this is likely to gather momentum.

The World Trade Organization was the crown jewel of a globalized world. That world is giving way to an era of deglobalization, and the countries of the Global South must ensure they are leaders and not followers in this process. Taking back the policy space they yielded during the Uruguay Round is essential to their survival in this brave new world, and now is the time to do this.