The flaws of the WTO

WTO

A working group seals the deal on Russia's membership negotiations on Nov. 10, 2011, at the World Trade Organization.

Article Highlights

  • WTO fails to bring about substantive liberalization in countries that eventually become members

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  • In-fighting among member states and its resulting gridlock are at an all-time high

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  • For the WTO to seize the mantle of global trade promotion, it must actually commit itself to promoting free trade

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As the World Trade Organization meets in Geneva this week to discuss ways to boost multilateral trade, the headline item is the accession of Russia to the WTO’s disciplines. While the addition of Russia to the ranks of the WTO is a step forward, the finalization of the Russian bid for membership underscores yet again the fundamental flaws in the globalized, multilateral approach to free trade currently institutionalized in the WTO.

To be sure, Russia represents a positive addition to the WTO, adding legitimacy to the organization intended to serve as the trade-promoting counterpart to such global bodies as the International Monetary Fund and the World Bank. Adding Russia to its ranks means that non-membership in the WTO is largely reserved for historically gross abusers of human rights like Liberia, war-torn economies like Iraq, and tiny nations like Tuvalu.

But to tout Russia as a success is to shove the flaws of the system under the rug. In particular, in-fighting among member states and its resulting gridlock – exactly the things the WTO is supposed to reduce – are at an all-time high. Instead of fast-tracking trade negotiations to provide speedier market access, the WTO is now a bastion of bureaucratic headaches.

Over the 18 years since Russia submitted its application, other corrupt, trade-abusing countries such as Moldova, Nigeria, and Myanmar have been admitted with few headaches. Kyrgyzstan, for example, took six years to gain membership, and it did so with broad support from major Western economies such as France. Applicants to the WTO are required to review trade provisions of current law, current agreements with trading partners, and petitions filed by WTO member states outlining potential conflicts that might arise from accession. For most countries, fewer than 10 petitions are filed, and the process can be concluded speedily.

Russia, meanwhile, was subjected to the review of more than 1,000 international agreements and more than 100 separate domestic laws on its way to negotiating membership individually with more than 60 WTO members. In the process, it was forced to liberalize its trade regime by a far greater degree than membership actually requires, provoking internal opposition to membership that stalled the process even further while creating only minimal real benefits in terms of trade expansion. For example, while accession to the WTO requires duties of 7.5 percent on aircraft purchases, the Russians dropped the duty from 20 percent to 0 percent in an effort to appease Belarusian and Kazakh negotiators.

While there will be some economic gains from the lowering of trade barriers, the reality is that Russian markets have already realized most of the gains that are to be had because Russia has done exceptionally little to increase market access and lower substantive barriers to trade. High corruption levels combined with vague guidelines on raw commodities and agriculture leave Russian producers with few guarantees about the future of their businesses, and the marginal advantages to chemical and metal exporters that come as a result of falling duties will be consumed by the stiffer competition from local trading partners. Key features of the Russian economy – such as the banking sector and auto manufacturing – remain untouched by membership.

Moreover, the international community is not closer substantially to embracing Russian free trade despite nearly two decades of negotiations. The United States, for example, has concluded bilateral market access agreements and resolved tariff disputes with Russia, but has not yet normalized trade relations. In order for this to be accomplished, the US would be forced to waive a 37-year-old provision known as the Jackson-Vanik amendment that prohibits the normalization of trade relations with any country that restricts emigration based on religious belief. With Congress gridlocked over a number of economic issues, such a move does not appear to be likely in the immediate future.

The WTO has failed to bring new members into the fray in a speedy fashion, and in recent years, it has failed to bring about substantive liberalization in those countries that eventually become members. As the pool of players continues to expand, the disagreements over the WTO’s core programs – such as the decade-old Doha Development Round of negotiations or the Aid-for-Trade opportunities in Africa – continue to balloon, leaving crucial issues, such as a growing illicit weapons market and food and water security in trade, unresolved.

For the WTO to seize the mantle of global trade promotion, it must actually commit itself to promoting free trade. Part of such a commitment must be a focus on fast-tracking all candidates into membership by requiring standardized rules for trade that apply to all nations irrespective of political considerations.  Nations like Russia ought to be brought into the fold by meeting a set of requirements on bound tariffs, accountability in reporting, and property protections – not by placating decades-old political grudges.

The current cosmopolitan framework in which the political differences of all members intrude in all decision-making obfuscates the fact that trade is flourishing, though nearly 75 percent of global trade gains in the past decade have come through bilateral trade negotiations. If the WTO hopes to become a relevant promoter of growth in a time of economic turmoil, it must seek serious solutions to its languishing questions, many of which will by necessity be answered in bilateral talks because of the politically charged dimensions of trade reform that cannot be solved with dozens of competing interests at the table.


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Daniel
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