The case for the WTO. (No, really.)

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This may be an improbable thought for my regular readers, but people sometimes tell me I’ve got a downer on the World Trade Organization. A WTO grouch, they call me. “Alan, you’re such a grouchy old WTO grouch,” they say. OK. For one newsletter only, ahead of the Abu Dhabi ministerial meeting this week, I’ll give prime position to the positive case for the WTO and relegate the negatives to second place. Yes, this is genuine. No, I haven’t been taken prisoner. No, this isn’t a hostage statement. Yes, I’m feeling fine. Never better. Charted Waters is on Chinese trade with south-east Asia.

The good stuff

So here’s my attempt to get myself excommunicated from the Order of WTO Sceptics, possibly even spark a full-on Inquisition. There are two categories of solid pro-WTO argument I’ll look at.

One: it doesn’t look like much but you’d miss it if it went.

Two: it does a vital thing (decreasingly well, but it still does it).

On the first: WTO types say a lot of its really valuable work is stuff the outside world never really sees — one country identifying a potential problem in another’s trade policy, bringing it up in committee and defusing it through negotiation before it gets to litigation or a big diplomatic row. The foremost proponent of this view is former WTO staffer Peter Ungphakorn. His case is here: he reckons that only 2 per cent of new trade measures are flagged as problematic and only 0.07 per cent end up in formal dispute settlement. He probably has a point. Most disputes would probably anyway have been cleared up without actual exchanges of artillery, but it very likely reduces the friction involved.

Also on the first: the WTO might well affect trade even if it’s not immediately apparent. This recent paper looks at trade policy uncertainty, taking as its example China’s supply chains before and after joining the WTO in 2001 and particularly its companies enhancing their competitiveness by importing more intermediate inputs. China cut tariffs during the 1990s before joining, but there appears to be an extra effect from the actual impact of accession, presumably through reducing the probability of the tariffs being raised in the future. So limited though the rules might seem, they do appear to give companies some confidence in trading.

On the second category, the vital thing I’m thinking of is dispute settlement and especially one particular upcoming issue that might be the most important thing the DS system — maybe even the WTO itself — will ever do.

What’s surprising about dispute settlement isn’t that it’s under pressure but that it’s survived as long as it has. A sage and talented FT world trade editor called Alan was writing back in 2007 about the risk of judicial over-reach eroding support for the system, and quoting some dude called Robert Lighthizer to that effect.

The Curse of Lighthizer eventually descended and the US crippled the Appellate Body. But the workaround version, dreamt up mainly by the EU, now has 53 members and seems to be functioning — issuing rulings on vital issues such as Belgian frites and so on.

Just as well. There’s one overwhelming issue that trade needs to address: the environment, and particularly carbon emissions. As I’ve written before, there’s only one way the world is going to get anywhere near a global carbon price, and it’s not through negotiations at the OECD or the UN COP process or in the IMF or indeed at any other institution that fancies itself as a forum for global environmental governance. (Nor is it going to happen through voluntary corporate or investor-driven ESG-type carbon standards, the PR gunk for which clogs up my email inbox on a daily basis.)

The only game in town is internationalising the EU’s emissions pricing through its carbon border adjustment mechanism (CBAM) by trading partners adopting it in order to get access to the EU market. CBAM is pretty clearly going to be challenged in the WTO dispute settlement mechanism by India or other big middle-income countries. Maybe it will come through unscathed, maybe the EU will have to tweak it. Maybe there’ll be some elements it can’t adjust and will have to compensate elsewhere.

But what emerges will have at least some degree of legitimacy from being thoroughly chewed over in various WTO committees and other conversations and tested through dispute settlement. The best way to do global carbon pricing? Hell no. The only currently feasible one? Yes. Heavily dependent on the WTO to stress-test it? You bet.

What else can we say for the WTO? It’s still alive. No one else is doing much of the trade work it does. Almost every country in the world has joined. (The mighty nations of Comoros and Timor-Leste, combined population just over 2mn, are joining at this week’s ministerial.) No member has left. It does some good research and surveillance of members’ trade policy. It puts on a good public discussion event each year. It’s got a better logo than most international organisations. Its HQ is in a lovely location by Lake Geneva and has a restful Chinese garden in front, fabulous Socialist Realist ceramics and murals in the entrance hall and a nice atrium with a tree in it. I’ve seen worse.

The bad stuff

So, the negatives. The WTO has existed since 1995 and never signed a significant multilateral agreement, while preferential bilateral and regional deals have proliferated; its dispute settlement system is stricken (though not killed) by US disapproval; India (with some assistance from South Africa) is threatening to end a 26-year moratorium on trying to tax digital flows, insisting on retaining large loopholes that weaken a deal on fisheries subsidies and refusing to negotiate or even constructively discuss environmental issues in the WTO; its subsidy rules have notably failed to constrain China’s massive trade-distorting state interventions, and its consensus-based decision-making system, described by a former director-general as “medieval”, makes all progress hostage to obstructionism. Finally, Lake Geneva is nice in summer but the rest of the WTO’s home city (compared with, say, the OECD’s Paris or UNDP’s New York City) is a bit dull.

So there are the pros and cons. And on to Abu Dhabi.

Charted waters

Amid Washington’s trade hostility to China, more Chinese exports now go to south-east Asian countries than to the US. (Of course, quite a lot of them go on to the US after that.)

Trade links

Harvard economist Gordon Hanson and the aforementioned Robert Lighthizer debate the latter’s recent book in the pages of Foreign Affairs.

My FT colleague Soumaya Keynes looks at what might happen with tariffs under a second Trump presidency. (Spoiler: it’s not pretty.)

Further to my column last month on governments being performatively vile to asylum-seekers as a cover for letting in other immigrants, it turns out Fabrice Leggeri, former head of the EU border agency Frontex, will be standing for the far-right National Rally in the European elections. Leggeri was forced to resign from Frontex in 2022 after an investigation by the EU’s anti-fraud agency Olaf found credible evidence of the agency undertaking illegal pushbacks of migrants.

After years of negotiating and China refusing to accept a writedown equivalent to that of other creditor countries, Zambia says it has reached an agreement on sovereign debt restructuring with China and India.

A paper by the European Centre for International Political Economy argues that the “Brussels Effect”, whereby the EU exports its regulations abroad, is leading to market fragmentation and protectionism.

Trade Secrets is edited by Jonathan Moules