Trade Policy Is Back

© Springer International Publishing Switzerland 2015
Christoph Herrmann, Bruno Simma and Rudolf Streinz (eds.)Trade Policy between Law, Diplomacy and ScholarshipEuropean Yearbook of International Economic Law10.1007/978-3-319-15690-3_6

Multilateral Trade Policy Is Back

Knut Brünjes  and Milena Weidenfeller 

BMWi, VA, Berlin, 10115, Germany

SPD Parliamentary Group, Berlin, 12161, Germany



Knut Brünjes (Corresponding author)


Milena Weidenfeller


The then 159 members of the World Trade Organization (WTO) agreed to the so-called “Bali Package” after intense negotiations at the Ninth Ministerial Conference in Bali, Indonesia. One of the key points was the new Agreement on Trade Facilitation. It eliminates many of the bureaucratic hurdles and difficulties surrounding the trade in goods, and creates standardised framework conditions for customs procedures. This is good news for all enterprises involved in international trade and should be implemented, as foreseen in Bali, in due course.

An Historic Step

The hard-earned agreement in Bali is an historic step. For the first time since the founding of the WTO on 1 January 1995, which was based on the former General Agreement on Tariffs and Trade (GATT) 1947, an understanding on a new multilateral agreement was reached in Bali in December 2013. This agreement on the facilitation of trade is enormously important for commercial practice. The political signal that the WTO has sent to the world with this agreement is no less important.

The length and progress, intensity and results of the negations in the run-up to and during the conference show how difficult it has become to reach agreements in the multilateral system of the WTO, which now has 160 members. The agreements are difficult to achieve and implementing the results will take place to some extent using transitional periods to make the transition easier for weaker developing countries. In the worst case scenario, the agreements reached in Bali could also be taken hostage for completely unrelated policy reasons.

The main goals for the ongoing Doha world trade round—the integration of developing countries into the world market, the comprehensive opening of markets for industrial and agricultural goods as well as for services at the multilateral level, and the evolution of the rules based system of world trade—has received a strong impulse from the current agreement. The Ministerial Conference in Bali confirmed the Doha Development Agenda (DDA) and praised the decisions made at the conference as important milestones on the path to completion of the Doha Round. It instructed the Trade Negotiations Committee (TNC) to prepare a clearly defined work schedule for the remaining DDA topics within the next 12 months.

A Look Back: From GATT to WTO

After World War II, several international organisations and institutions were formed to shape global economy and finances. The World Bank and the International Monetary Fund were founded at the Bretton Woods Conference in 1944.

In the area of trade, the GATT was established in 1947 to determine the trade principles for the planned International Trade Organization (ITO). Because the US Congress failed to ratify the ITO charter, the GATT’s already negotiated tariff concessions were provisionally established and tariff reductions based on these principles were negotiated in some successive trade rounds.

The so-called “single undertaking” emerged as an important principle of trade rounds. One round only comes to an end once an agreement has been reached in all areas (“nothing is agreed until everything is agreed”). Only in this way is it possible to achieve a horizontal balancing of interests in all areas of negotiation at trade rounds. In total, there were eight GATT trade rounds; the Doha Round is the first WTO trade round.

Founding of the WTO

The World Trade Organisation, headquartered in Geneva, was founded after the conclusion of the last successful trade round, the so-called “Uruguay Round”, in 1995. As part of the Uruguay Round, the text of the original GATT treaty was expanded using numerous supplementary agreements on agriculture, technical barriers to trade, sanitary and phytosanitary measures, rules of origin, etc. The scope of the WTO extends far beyond the trade in goods, because it also includes trade in services1 and the protection of intellectual property rights2 and as the crown jewel of WTO, the dispute settlement system.3

Trade in services under GATS differs from trade in goods under GATT, because each WTO Member is free to decide which obligations it wants to assume and which not.

TRIPS however is not a means for opening the market, but regulates the cross-border exchange of intellectual property rights (IPR) and sets international minimum standards for the protection of IPR. WTO members are at liberty to provide more extensive protection, if they so choose. Like the other WTO commitments, TRIPS provisions are binding on all WTO Members.

All WTO Members approved the agreements according to the above-mentioned principle of “single undertaking.” The level of commitment and various transition periods were tailored according to the level of development of each WTO Member.

Principles of the WTO

WTO Members set the rules of world trade by consensus. Their goal is worldwide trade without customs duties, and free from other barriers, based on two fundamental principles of non-discrimination, which are reflected in all WTO agreements.

The first is the “most favoured nation” principle (MFN). If a WTO Member allows another Member a commercial benefit, it must concede this benefit to all other WTO Members. Important exceptions are bilateral and regional free trade agreements.

The second is the so-called “national treatment” principle, which means that imported goods are treated exactly the same as those produced in the Member’s own country.

Development of the WTO

In recent years, some structures have fundamentally changed. This includes the growing number of Members who exhibit a strong heterogeneity. After China, Russia was the last large country to have been admitted. In addition to these, even the poorest developing countries, most recently Yemen, are benefiting from membership. As a consequence, there is a stronger involvement by developing countries in the WTO’s decision-making processes. For this reason, the WTO can be seen as an almost universal organisation, which incorporates more than 90 % of world trade.

The WTO Dispute Settlement Mechanism

The WTO is equipped with the Dispute Settlement Body (DSB), an efficient enforcement mechanism able to impose sanctions with which all WTO Members have to comply. In contrast, the former GATT dispute settlement mechanism could rarely resolve trade disputes, because all decisions had to be unanimous.

In the WTO, the newly created DSB framework has corrected this vulnerability. It provides for an initial consultation period between disputant Members. Afterwards, the panel phase starts automatically after 60 days if the conflict could not be resolved bilaterally. Furthermore, the panel’s decisions will now be automatically adopted, except when they are unanimously rejected (principle of negative consensus).

In addition to this, Art. 17 DSU created the Appellate Body to provide an appeals process for the DSB.

Currently, the DSB is overloaded and the length of the proceedings, due to their great complexity, is seen as a problem. The system is not suited to resolve essentially political controversies (e.g. the Airbus/Boeing subsidy dispute), nor to partial agreement on items, which have to be resolved within the framework of general trade round negotiations (e.g. cotton subsidies).

WTO: In Need of Reform?

After the failure of the WTO Ministerial Conferences in Seattle and Cancun, demands for institutional reforms became louder. The WTO has been accused of having a “democracy deficit” since its inception. The fact is the WTO rules increasingly affect sensitive areas, which interfere deeply with the states’ sovereignty. These include functions such as consumer and environmental protection and the protection of human and animal health.

In the WTO, Members negotiate with each other. The WTO is only the platform and solicitor. Contracts are drawn up before the WTO Secretariat and then ratified by the legislatures in each country. Like in other international fora, parliaments are not directly involved in the negotiations. To mitigate this deficiency, the proposal has been made to set up an advisory board for national parliaments at the WTO, a sort of consultation committee. Parliamentarians from the Inter-Parliamentary Union (IPU) and the European Parliament are dealing with this question. They formed the “Parliamentary Conference on the WTO” in 2001. It meets once a year with the aim of complementing multilateral negotiations with a parliamentary dimension.

There is often criticism of the consensus principle that underlies the decisions made by the WTO. It makes an agreement between the 160 Members very difficult. Every Member has a vote so it could theoretically use its veto and block decisions that are against the will of the majority of the Members. At the Ministerial Conference in Cancun in 2003, it became clear how hard it could be to reach an agreement by consensus. Various proposals were discussed, but they were discarded in the end.

After the conclusion of the Doha Round and in the context of a WTO reform, it will be necessary to find new formats of negotiation beyond the traditional world trade rounds. In this context, there will also be a discussion on a further differentiation of developing countries, which represent more than two thirds of WTO membership. In particular, the classification and role of the large emerging economies in world trade must be reconsidered. Given the strong increase of South–South trade, the previous North–South conflicts are of less interest today to many developing countries.

Challenges for the WTO: Increasing Regionalisation

The increasing number of preferential trade agreements (better known as Free Trade Agreements, FTAs) will be assessed differently.

The expert report by former GATT and WTO Director-General Peter Sutherland4 once described them as the biggest threat to the WTO. They are politically controversial because they allow some WTO Members to receive benefits that other Members do not. Thus, the principle of most favoured nation, one of the biggest advantages of the WTO, is being undermined by such agreements, even if done so by legal means. Meanwhile, the most-favoured-nation status is more and more the exception than the rule.

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