Fit for purpose

Getting the World Trade Organization back on its feet is essential to promoting healthy global trade

In recent years, globalization has encountered headwinds, trade protectionism has risen, and the progress in economic globalization has been hindered. As a representative of the current global trade system, the World Trade Organization has seen its operation mechanism seriously disrupted, and the Appellate Body in the organization's dispute settlement mechanism has been suspended due to the "empty seats" phenomenon.

The WTO Appellate Body is the core department of its dispute settlement mechanism. Since 2017, the United States has consistently rejected proposals for the selection of new judges, resulting in a continuous decrease in the number of judges as their terms expire. On Dec 11, 2019, two out of the remaining three judges in the Appellate Body ended their terms. The WTO General Council held a meeting a day in advance, aiming at approving a draft decision to improve the Appellate Body's function. However, despite opposition from 163 countries, the United States blocked the draft for the 29th time with its veto, leading to the suspension of the Appellate Body.

On the issues of WTO reforms and selecting new judges for the Appellate Body, the US, disregarding the 30 accumulated appellate cases, attempts to suppress multilateral mechanisms through "America first" policies and nearshoring and friendshoring strategies. The US' policy and attitude toward the WTO harms other countries without benefiting itself. Pascal Lamy, vice-chairman of the Paris Peace Forum and former WTO director-general, recently stated "the essential is whether the US accepts or not the binding nature of the dispute settlement mechanism".

Last year witnessed persistently sluggish global trade, with the growth rate of the commodity trade reaching only 0.8 percent and the global trade volume significantly decreased. The main reason is that regions such as the US and the European Union have felt the impact of sustained inflation and tightening monetary policies, intensified geopolitical risks, and a significant increase in trade restrictions by major economies, especially non-tariff measures, which has cast a shadow over the prospects for global trade. Furthermore, the decline in demand from developed countries, decrease in East Asian trade, increase in trade restrictions, fluctuations in commodity prices, excessively long supply chains, and escalating debt problems, are all major factors affecting world trade. Several institutions, including the United Nations Conference on Trade and Development, have made "highly uncertain and generally pessimistic "predictions about the outlook for 2024.At present, the world still faces daunting challenges with no signs of the geopolitical tensions easing. The worsening climate and environment, and new issues such as the regulation, storage, availability and security of data brought about by rapid digitization, will be urgent problems affecting future global trade, which require timely regulation and adjustment by the WTO.

As far as the selection of judges is concerned, the WTO has always adopted a policy that only when all members agree can seven appellate judges take up their positions. In theory, every WTO member has veto power. The fact that the US could prevent the selection of appellate judges multiple times is actually exploiting a loophole in the WTO's selection process. Therefore, almost all members agree that it's necessary to reform the Appellate Body through negotiation and consultation to quickly bring world trade and global development back to a stable state that is rules-based, law-based and trustworthy. The reason is that if countries or economies set their own standards and use their veto power recklessly due to dissatisfaction, the existing WTO system will be destroyed, and international trade will return to an era of the law of the jungle. The US is the largest developed country worldwide, while China is the largest developing country. Both sides cannot do without the global market. Although the US has many advantages in the high-tech field, it lacks a huge market for its tech, and its technological progress will slow down. Meanwhile, China boasts huge production and manufacturing capacity, but its economic development will also be affected without a matching consumer market and technological exchange.

The interdependence between developed and developing countries was specifically explained in a series of research reports published by the Independent Commission on International Development Issues led by former German chancellor Willy Brandt in the 1970s and 1980s, which stated that the interests of countries worldwide are interdependent now, and countries from the Global South cannot do without those from the North, and the latter cannot do without the former. Therefore, the US, as the world's largest trading nation, should understand the situation and take WTO reform issues seriously so as to put the international trade system on a benign and healthy track as soon as possible.

The 13th WTO ministerial conference is about to be held, which will focus on the revitalization of the multilateral institution. The US administration should be encouraged to change its stance on WTO reform and the dispute resolution mechanism. The 30th APEC economic leaders' informal meeting was held in San Francisco in November 2023. In the Golden Gate Declaration issued after the meeting, it was reiterated that a commitment to WTO reforms was necessary to improve its functions, including discussions aimed at restoring a comprehensive, well functioning dispute resolution mechanism with the participation of all members. All the APEC economies should timely and effectively implement WTO agreements, reaffirm their commitment to constructive participation in the 13th Ministerial Conference, and ensure the success and positive outcomes of the conference. As today's largest regional economic cooperation forum in the world, APEC has not only consistently been a strong supporter of international multilateral organizations, but also played multiple roles as a "pathfinder "and "daring vanguard" in WTO negotiations. As major members of APEC, both China and the US are obligated to respond to APEC initiatives and shoulder the important task of promoting reform of the WTO and its Appellate Body.

China is a beneficiary, firm supporter, and builder of the WTO. Since joining the organization, it has gradually established a domestic economic management system that is in line with the international economic and trade system, and fully fulfilled its accession commitments, aligning itself with WTO rules. The country has continuously opened its market, lowering the tariff rate from 15.3 percent to 7.4 percent, and more than 120 categories in the service industry have been opened up. These exceed China's promised targets when joining the WTO. For years, China has been promoting trade and investment liberalization and facilitation, maintaining the multilateral trading system, jointly building new technologies, industries, and models, and advancing economic globalization toward a more open, inclusive, balanced, and win-win direction. Over the past 20 years, China's total trade volume in goods has grown by 11 times and it has become the world's largest trading country in goods and a major trading partner of over 140 countries and regions. Its annual contribution to global economic growth is nearly 30 percent. The relationship between China and the WTO has undergone historic changes, as it has gradually transitioned from being a passive accepter of the international economic and trade rules to being an important participant in their formulation. In addition, China actively assists other developing countries, helping improve their trade, enhance their independent development capabilities, and achieve common prosperity within the framework of South-South cooperation.

China will firmly uphold true multilateralism, support necessary WTO reforms and play a role in international economic governance; and it will support the Appellate Body resuming normal operation. The country is willing to actively participate in negotiations on issues such as the digital economy, trade and environment, industrial subsidies, and State-owned enterprises with an open attitude, maintain its position as the main channel for the formulation of international rules in the multilateral trading system, and provide more opportunities and inject strong impetus into the world's economic growth.

The author is an associate research fellow at the Institute of World Economics and Politics at the Chinese Academy of Social Sciences and the National Institute for Global Strategy at the CASS. The author contributed this article to China Watch, a think tank powered by China Daily.

The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn