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High Time to Bring the WTO into the Silicon Age

15 Jul 2018
By John W. H. Denton AO FAIIA
Source: Wikimedia Commons

Despite its economic benefits, multilateralism is now in jeopardy, especially in trade. Spectacular measures being taken or announced outside of the World Trade Organization require the global community to be vigilant.

As the world moves dangerously close to a full-blown trade war, the global governance system is facing one of its most important tests since World War II. Despite the many economic benefits that it has brought to humanity over the last 70 years, multilateralism is now in jeopardy. This is especially true in trade, with spectacular measures being taken or announced outside of the World Trade Organization (WTO).

This new reality requires the global community to be vigilant and to defend the integrity of the multilateral trading system, without which no collective economic progress can take place. It also requires the global community to recognise the shortcomings of the system and the need for reform — not reform for reform’s sake, but reform that is guided by a clear contemporary purpose: to unlock the power of economic growth in order to deliver lasting peace and prosperity for all.

The world looks very different today than when the General Agreement on Tariffs and Trade was set up in 1948, a couple of years after the establishment of the Bretton Woods Institutions. As governments and business well know, when it comes to rethinking a service, it is important to listen to the users thereof: the millions of businesses that use the global trading system every day to exchange their goods and services, thereby creating value for local economies and sharing prosperity.

With business being more interconnected than ever, a rules-based system ‘mark II’ is called for. This system requires governments, which are its owners, to convey consistent messages across multilateral organisations. Take climate change, one of the most important challenges of our generation. Though most governments have signed the Paris Climate Agreement, there is still reluctance to address the interconnection between climate commitments and the potential consequences on trade. Discussions on climate waivers or border adjustments are urgent, as business needs predictability, particularly if it is to play a role in implementing the United Nations Sustainable Development Goals.

The WTO has provided stability and predictability for over 70 years, in part through the Dispute Settlement Body. But in the area of instant trading, the Appellate Body must not regularly fail to issue its reports within 90 days of an appeal’s initiation. Adoption of rulings after that deadline by consensus of the Dispute Settlement Body would help to expedite this process.

An estimated USD$ 25 trillion (AUD$ 34 trillion) in annual trade is taking place online, but this remains an area that has yet to be governed by international rules. Essential aspects of online trade, such as the free flow of data across borders, data localisation requirements and cybersecurity, are simply not covered. A continued failure to do so will prevent the unlocking of the digital economy’s vast potential to connect millions of micro-, small- and medium-sized enterprises into the global economy.

The current multilateral environment is also ill-prepared to deal with global value chains and businesses’ legitimate concerns over the protection of intellectual property rights. The current trading system was developed at a time when the principal value of trade lay in the value of physical goods, but a great part of that value has today shifted to intangibles. This value needs to be properly assessed to be taken into account when designing a new investment facilitation agreement.

There is significant political momentum behind the goal of improving trade facilitation: 83 per cent of WTO member states have now ratified the WTO’s Trade Facilitation Agreement (TFA). Implementing the agreement is now the real challenge ahead. The implementation rate for developing country members is 59 per cent while the least-developed country members lag behind at only 22 per cent. These countries need to be given the necessary technical support to streamline border processes. Not only can practical implementation of the TFA demonstrate the benefits of international trade, but it is also vital for upholding the credibility of the WTO itself as a driving force for sustainable development.

Reform of the WTO is necessary to preserve the stable rules-based trading system that has over the past decades provided increased prosperity and enabled unprecedented technological advancements. Further engagement on how to improve the WTO — not disengagement from the Organization — is what is urgently needed now. The Asia-Pacific region has a unique opportunity to fill the current void in leadership and to drive global reform through the Regional Comprehensive Economic Partnership agreement, APEC and the other regional trade initiatives.

As part of this reform process, a ‘second track’ discussion forum hosted by peak body groups like the International Chamber of Commerce will be needed to convey what users of the system actually need. But one clear message is emanating from the private sector at the current time: global business needs a pro-active WTO that delivers real-world solutions in a timely manner.

John W H Denton AO FAIIA is Secretary-General of the International Chamber of Commerce (ICC). He was formerly CEO of Corrs Chambers Westgarth. He was recognised as a Fellow of the Australian Institute of International Affairs in 2017.

This article was first published in East Asia Forum on 12 July 2018 and is reprinted with permission.