13 January 2022

L. Alan Winters is Professor of Economics and Founding Director of UK Trade Policy Observatory and Bernard Hoekman is Professor of Global Economics, European University Institute and Fellow of the UK Trade Policy Observatory

It is widely accepted that international economic relations depend upon a smoothly functioning multilateral trading system. That trading system, institutionally underpinned by the World Trade Organization (WTO), can both stimulate economic activity and help to promote international cooperation in spheres such as climate change and migration. However, the WTO is becoming less relevant to a world in which services account for a growing share of trade, interest in environmental regulation (notably on CO₂ emissions) is growing, and digital technology is reshaping our lives.

These issues impinge directly on international trade and thus fall within the broad remit of international rulemaking in the WTO. However, decision making in the WTO typically requires consensus from all the Members, which is difficult to achieve when Members have different ideas about what the appropriate rules for dealing with such challenges are. Thus, not only has it become difficult for countries to agree on how to move forward, but these differences are creating new tensions in the global trading system.

One solution that would help to overcome the impasse is to facilitate those within the WTO who want to change particular rules to proceed among themselves by signing so-called ‘plurilateral’ agreements. The WTO foresees two types of plurilateral agreements, depending on whether what is agreed applies on a discriminatory or non-discriminatory basis.

Discriminatory plurilateral agreements include free trade agreements (FTAs) that liberalize substantially all trade among signatories, but maintain trade restrictions on non-members,[1] and issue or sector-specific agreements where disciplines and benefits apply only to signatories. The former may be contested through dispute settlement procedures by non-members but do not need to be approved by the WTO membership. The latter need approval by consensus to be incorporated into the WTO. This requirement explains why there is presently only one such agreement in the WTO –the Agreement on Government Procurement, a policy area that was excluded from the coverage of the WTO – while there are hundreds of FTAs among subsets of WTO members.  

The difficulty – if not impossibility – of obtaining consensus to include new discriminatory plurilateral agreements explains why the only currently feasible plurilateral agreements in the WTO bind only signatories but extend their benefits on a non-discriminatory basis to all WTO members.  Such ‘critical mass’ initiatives, which have long featured in the General Agreement on Tariffs and Trade (GATT) and WTO, may pertain to the elimination or reduction of trade barriers or to regulatory policies and their administration.[2] Their common feature is that benefits extend to all countries, not just participants.

There has been a resurgence in interest and willingness among WTO members to pursue plurilateral initiatives as opposed to efforts that encompass the totality of the WTO membership.  Ungphakorn (2022) [3] counts 17 current plurilateral initiatives under the umbrella of the WTO, arguably a conservative figure as it does not include some sectoral ‘zero-for-zero’ agreements that have been negotiated.[4] Of these 17 initiatives, nine were launched after 2017.[5]

The shift to plurilateral engagement is a positive development for the trading system as it revitalises discussion in the WTO on issues of shared concern to many countries and stakeholders in an open, rule-based multilateral trade regime. What is needed now is leadership to make plurilateral approaches less threatening to those WTO members that do not wish to participate in any given initiative, object to plurilateral cooperation on principle, and/or object to the WTO Secretariat devoting resources to supporting plurilateral cooperation.

In our view, open plurilateral agreements (OPAs)[6] that are fairly narrowly focussed and commit a subset of WTO Members (and only them) to take on new obligations offer a potential lifeline to the WTO as long as signatories ensure that:

• they do not curtail other Members’ existing rights but add to them,
• accept they may be challenged if they do not honour the agreement; and
• membership is genuinely open, including, where appropriate, through commitments to provide technical assistance to help developing countries to bolster their capacity to meet the obligations of the agreements.

Defining a code of conduct that committed signatories to these requirements should be a priority matter for WTO reform, as should an agreement on the procedures that should apply to incorporation of non-discriminatory OPAs into the WTO.[7]  Additionally, reform discussions should consider:

1. creating a mechanism, involving transparency, information exchange and dialogue to resolve tensions within each OPA before they became full-blown WTO disputes,

2. supporting early analysis to optimise the design of OPAs in ways which were seen to be even-handed, and

3. establishing a means for the WTO to monitor the performance and effects of OPAs.

A commitment by all G7 members that any plurilateral in which they engaged would respect an agreed set of governance principles (an enforceable code of conduct) together with actively promoting items (1) – (3) would go a long way towards persuading non-signatories that they had sufficient protections. This would give WTO Members as a group the confidence to welcome proposals from subsets of them to advance on certain rules and thus start the process of updating the WTO for the twenty-first century.

 

Footnotes

[1] It is always open to subsets of members to sign Free Trade Agreements, subject to some conditions one of which is that the FTA has a fairly broad reach. Moreover, FTAs do not support the multilateral trading system but instead create closed clubs of countries that treat each other preferentially.

[2] Hoekman, B., Winters, L.A., and Ayele, Y. (2021) Delivering Plurilateral Trade Agreements within the World Trade Organization, report for the UK Department of International Trade. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1041625/dit-research-delivering-plurilateral-trade-agreements-within-world-trade-organization-wto.pdf

[3] Ungphakorn, P. (2022), Explainer: The 17 WTO plurilaterals and ‘joint-statement initiatives, Trade β Blog. At: https://tradebetablog.wordpress.com/2022/01/03/17-wto-plurilaterals-joint-statement/

[4] An example is the sectoral agreement from 1994 between Canada, the European Union, Japan, Norway, Switzerland, the United States, and Macao (China) abolishing tariffs on pharmaceuticals. These WTO members agreed to periodically update the list of items eligible for duty elimination, with the most recent update becoming effective on 1^st January 2011, which added 735 new items to the duty-free list. https://ustr.gov/issue-areas/industry-manufacturing/industry-initiatives/pharmaceuticals

[5] The first of these to result in an agreement was on the Domestic Regulation of Services. This was a long-standing negotiation where a multilateral agreement proved impossible, motivating a shift to a plurilateral negotiation in 2017. The agreement will be applied on an MFN basis.

[6] Hoekman, B. and Sabel, C. (2021) Plurilateral Cooperation as an Alternative to Trade Agreements: Innovating One Domain at a Time, Global Policy, 12(S3): 49-60 (open access).

[7] Hoekman and Sabel, op. cit. discuss the possible contents of such a code of conduct. Mamdouh, H. (2021) ‘Legal Options for Integrating a New Investment Facilitation Agreement into the WTO Structure’ (Geneva: International Trade Centre) discusses the need for revising the WTO to facilitate incorporation on non-discriminatory OPAs.

 

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