Lesson 6a Global Trade Governance.pptx

# The World Trade Organization (WTO) and its foundational principles This document outlines the structure, principles, and evolution of the World Trade Organization (WTO) and its foundational role in global trade governance. ## 1\. The world trade organization (wto) ### 1.1 Establishment and evolution The WTO was established in 1995 as a successor to the General Agreement on Tariffs and Trade (GATT), which was first signed in 1947. The GATT saw several rounds of trade negotiations aimed at liberalizing trade, primarily by reducing import tariffs on goods. The **Uruguay Round**, which ran from 1986 to 1994 and concluded in Marrakesh, significantly deepened and broadened trade liberalization. This round introduced agreements such as the **General Agreement on Trade in Services (GATS)** and provisions on **Trade-related Intellectual Property Rights (TRIPs)**. The establishment of the WTO marked the creation of a formal organization with a robust dispute settlement system. A significant development was China's accession to the WTO in 2001, increasing its global trade participation to 98% with 166 members and 22 candidate countries. ### 1.2 Key foundational principles The WTO operates on several core principles that govern its member states' trade relations: * **Most-Favored Nation (MFN) clause:** This principle mandates that any trade advantage, privilege, or immunity granted by one WTO member to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for all other WTO members. This promotes non-discrimination among trading partners. * **Tip:** The MFN principle ensures that all WTO members are treated equally in terms of trade benefits, preventing preferential treatment for specific countries. * **Exception:** Bilateral and regional trade agreements (e.g., European Union, NAFTA) are permitted, provided they cover substantially all trade between the participating countries and do not erect higher barriers to trade than those existing prior to the agreement. * **National Treatment:** This principle states that imported and locally-produced goods should be treated equally once the foreign goods have entered the market. This means that imported products, once cleared through customs and other border formalities, should not be subject to internal taxes, regulations, and requirements that are less favorable than those applied to domestic products. * **Special and Differential Treatment (SDT):** The WTO includes provisions that allow for positive discrimination in favor of developing countries. These measures aim to provide developing nations with more favorable terms and flexibility in implementing WTO agreements, helping them to integrate into the global trading system. ### 1.3 Dispute settlement system The WTO's dispute settlement system is a crucial mechanism for resolving trade disputes between member states. * The **Dispute Settlement Body (DSB)**, which is the General Council acting in its dispute settlement capacity, oversees the process. * When a dispute arises, a **panel of experts** is appointed to evaluate the case. * The panel's report, or decision, is automatically adopted by the DSB unless there is a consensus to reject it or a party appeals the decision. * Appeals are heard by the **Appellate Body**, which consists of three judges per case, who make a final decision. * If a member state is found to be in violation of WTO rules, the DSB can permit other member states to take punitive trade measures against the offending party. > **Tip:** The dispute settlement system is a cornerstone of the WTO, providing a predictable and rules-based framework for international trade by ensuring that agreements are adhered to and grievances are addressed. ### 1.4 Bilateral and regional trade agreements Despite the MFN principle, the GATT and subsequently the WTO have always allowed for the formation of bilateral and regional trade agreements. These agreements typically go beyond WTO rules, often involving lower tariffs and non-tariff barriers, and may include provisions on investment, government procurement, intellectual property, labor, and environmental standards. These are sometimes referred to as 'WTO Plus' agreements. Examples include the European Union, Mercosur, ECOWAS, SACU, EAC, NAFTA, and US-CAFTA-DR. ## 2\. The doha development agenda and subsequent developments ### 2.1 The Doha Development Agenda (DDA) Following the Marrakesh Agreement, the **Doha Development Agenda (DDA)** was launched in November 2001. This was intended to be a comprehensive round of WTO negotiations, with a specific emphasis on the needs of developing countries. The DDA aimed to further liberalize trade, particularly in areas like agriculture, industrial goods, and services. ### 2.2 Challenges and gridlock The DDA faced significant challenges, leading to a standstill and eventual shelving of the Round. * **Seattle Ministerial (1999):** A WTO ministerial conference in Seattle ended in gridlock, with disagreements preventing the launch of a new negotiating round. This was partly due to the diminished power of the G7 (Quad) to impose deals on emerging powers from the Global South and the rise of anti-globalization movements. * **Emergence of the G20 Trade:** Developing and emerging countries, such as China, India, and Brazil, became more assertive. The **G20 Trade group** emerged as a significant negotiating bloc, advocating for the opening of protected agricultural markets in developed countries while seeking to maintain protection for their own industrial sectors. This contrasted with Western priorities, which included new topics like investment, government procurement, services, labor standards, and digitalization. * **Bali (2013) and Nairobi (2015):** While an agreement on trade facilitation was reached in Bali in 2013, the DDA was effectively over by the Nairobi Ministerial in December 2015 due to persistent gridlocks. ### 2.3 Factors slowing trade liberalization Several factors have contributed to the difficulties in achieving deeper trade liberalization: * **Societal Backlash:** Increased import competition, industrial relocation, and growing socio-economic uncertainty have led to societal resistance to further trade liberalization. * **Behind-the-border issues:** As "at-the-border" barriers are reduced, focus shifts to "behind-the-border" domestic rules on subsidies, labor, environment, and health. National societies often wish to maintain their standards, leading to resistance to deeper liberalization. This can create a "race to the bottom" in norms and standards globally. * **Geopolitical shifts:** The shift towards a multipolar world and increased heterogeneity of interests among countries have complicated multilateral decision-making. ### 2.4 Recent Outcomes * **Geneva Ministerial (June 2022):** Outcomes included a waiver for COVID-19 vaccines, initiated by India and South Africa, and a ban on subsidies for illegal and overfishing. ## 3\. Regional and plurilateral alternatives The challenges in multilateral negotiations have led to increased interest in regional and plurilateral agreements. ### 3.1 Plurilateral talks These involve smaller groups of countries focusing on sectoral agreements. While intended to eventually open to all WTO members, they have seen limited success so far. Examples include: * **Trade in Services Agreement (TiSA):** An initiative involving the EU, US, and 23 other countries, which has stalled. * **Environmental Goods Agreement (EGA):** An agreement within the WTO involving the EU, US, and China, which has been suspended. * **E-commerce negotiations:** Ongoing within the WTO with 86 participating countries. ### 3.2 Regional agreements These are comprehensive trade agreements between a specific group of countries. * **Trans-Atlantic Trade and Investment Partnership (TTIP):** An EU-US trade and investment deal proposed during the Obama administration, which faced significant opposition and was shelved in 2017. * **Trans-Pacific Partnership (TPP):** A US-led initiative focused on Asia-Pacific countries, which the US withdrew from. The remaining 11 partners continued with the **Comprehensive and Progressive Trans-Pacific Partnership (CPTPP)**, which entered into force in 2018. China has applied to join the CPTPP, but its accession faces challenges due to differing economic and regulatory approaches. * **Regional Comprehensive Economic Partnership (RCEP):** An agreement involving 15 Asia-Pacific countries, including China, Japan, and South Korea. It is considered a less comprehensive agreement than CPTPP, focusing mainly on industrial tariffs, with weaker provisions on services, agriculture, and intellectual property. ## 4\. The new world trade order and its challenges ### 4.1 Shifting power dynamics and emerging economies The traditional "North-South divide" in trade negotiations is becoming less accurate. Major emerging economies like China, India, and Brazil are pursuing their own interests, often liberalizing sectors where they are strong and remaining protectionist in areas where they face competition. This behavior has been described as being similar to how major rich countries operate. * **Example:** Disputes over agricultural subsidies, such as the Brazil-US cotton subsidy dispute, have shown that these agreements often serve the interests of the negotiating parties rather than benefiting weaker producers in developing countries. China has become a major agricultural subsidizer, and India's exemption for public food stockholding can disadvantage exporting countries without such stocks. ### 4.2 Crisis of the WTO Appellate Body A significant crisis within the WTO is the paralysis of its dispute settlement system due to the blocking of appointments to the Appellate Body. * The US has refused to consider replacements for Appellate Body members, leading to a situation where there are no members left to adjudicate cases. * The US cited reasons such as judges overstepping their mandate and excessively long decision times as justification for its actions, aligning with an "America First" agenda. * The EU, Canada, and other countries have established an **"Multi-party interim appeal arbitration arrangement" (MPIA)** as a temporary stopgap measure. > **Tip:** The crisis of the Appellate Body fundamentally undermines the WTO's rule-of-law framework, as it eliminates the final instance for resolving trade disputes. ### 4.3 US-China trade war and tariffs The US-China trade war, initiated under the Trump administration and continued by the Biden administration, has significantly impacted global trade. * **US complaints:** Include Chinese state subsidies, intellectual property theft, forced technology transfer, agricultural trade barriers, currency manipulation, and China's former "developing country" status. * **Underlying causes:** Include concerns about rising Chinese economic, political, and military power, and domestic political backlash against globalization and job losses in the US. * **Tariff implementation:** The US has imposed high tariffs on Chinese imports, citing national security reasons. These actions have been criticized for violating WTO rules, as seen in China's complaint against the US's Inflation Reduction Act and CHIPS Act, which involve massive public subsidies. ### 4.4 Trump's global tariff war Beyond the US-China conflict, the Trump administration introduced tariffs against numerous other countries for economic and geopolitical reasons, including trade protectionism and attempts to influence foreign policy. ## 5\. Conclusions: Meeting the limits of trade liberalization The current landscape suggests that global trade governance is facing significant challenges. * **Societal and geopolitical limits:** There are growing questions about the sustainability of unfettered trade liberalization given societal concerns and geopolitical shifts. * **Embedded vs. Dis-embedded Liberalism:** The current system may be moving away from "embedded liberalism" (where trade is integrated within social and political considerations) towards "dis-embedded neoliberalism" (where trade rules operate more independently). * **Key issues:** Increasing global competition, social uncertainty, potential "race to the bottom" in standards, and the intrusiveness of neoliberal trade norms are major concerns. * **Crisis points:** The collapse of the Doha Development Agenda, the crisis of the WTO Appellate Body, and the US-China trade war highlight the fragility of the multilateral trading system. * **Future outlook:** While the global trading regime has not collapsed, there is a consensus that the WTO needs reform. However, addressing the fundamental issues of power dynamics, diverse national interests, and geopolitical tensions remains a significant challenge for effectively reforming the organization and adapting it to a multipolar world. * * * # Challenges and alternatives to multilateral trade liberalization This section examines the significant hurdles faced by multilateral trade liberalization efforts, the emergence of alternative agreement structures, and the growing importance of domestic regulatory issues in trade policy. ### 2.1 The decline of multilateral trade liberalization The traditional model of multilateral trade liberalization, primarily driven by successive rounds of tariff reductions under the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO), has encountered substantial challenges. #### 2.1.1 The Doha Development Agenda gridlock The Doha Development Agenda (DDA), launched in 2001 with the stated aim of prioritizing the needs of developing countries, ultimately failed to achieve its comprehensive negotiating objectives. * **Early momentum and expectations:** Following the Marrakesh Agreement that established the WTO in 1995, the DDA was envisioned as the next major step in global trade liberalization. * **Emergence of new power blocs:** The growing economic and political influence of developing and emerging economies, notably the G20 Trade group (distinct from the G20 focused on finance), challenged the dominance of traditional economic powers like the US and EU. * **Divergent interests:** A key point of contention was the differing priorities between developing countries and developed nations. * **Developing country priorities:** Focused on opening protected agricultural markets in developed nations and maintaining their own protectionist measures for industrial sectors. * **Developed country priorities:** Pushed for new agenda items such as liberalization of services, government procurement, investment regimes, e-commerce, and the inclusion of labor and environmental standards. Developing countries often opposed the latter, fearing a competitive disadvantage. * **Key sticking points:** Gridlocks frequently occurred over domestic agricultural subsidies, market access for industrial goods, and the inclusion of new, non-traditional trade topics. * **Limited successes and eventual standstill:** While a trade facilitation agreement (streamlining customs procedures) was reached in Bali in 2013, the broader DDA agenda stalled. By December 2015, the Doha Round was effectively shelved, marking a significant setback for multilateralism. #### 2.1.2 Underlying factors slowing trade liberalization Beyond specific negotiation failures, several broader phenomena contribute to the slowing pace of trade liberalization: * **Societal backlash:** Increased international trade exposes national economies to import competition, industrial relocation, and growing socio-economic uncertainty, leading to societal resistance. * **The rise of 'behind-the-border' issues:** As 'at-the-border' barriers (like tariffs) are lowered, 'behind-the-border' issues – domestic regulations concerning subsidies, labor standards, environmental protection, and health – become more prominent. Nations seek to maintain their domestic standards, which can lead to resistance against deeper liberalization that might challenge these standards. * **Downward pressure on norms:** Lower production costs in some economies (due to lower labor, environmental, or tax norms) can exert downward pressure on standards globally, making citizens and workers hesitant about further trade liberalization. * **Product standard harmonization:** Countries may seek to maintain their product standards (e.g., EU emissions standards for cars) to ensure imported goods meet those requirements, influencing production standards elsewhere. * **Domestic political economy structures:** Issues like subsidized state-owned enterprises in countries like China are criticized by Western nations, leading to demands for reform and adding complexity to trade negotiations. #### 2.1.3 The crisis of the WTO Appellate Body The dispute settlement system of the WTO, a cornerstone of its authority, has been severely undermined by the crisis of its Appellate Body. * **Role of the Appellate Body:** After a panel of experts rules on a trade dispute, an appeal can be made to the Appellate Body, which comprises seven members appointed by consensus. * **US obstruction and paralysis:** The United States has consistently blocked the appointment of new members to the Appellate Body. Since November 2020, with no members remaining, the WTO's dispute settlement system has been effectively paralyzed, unable to adjudicate appeals. * **US justifications and ongoing concerns:** The US has cited concerns that Appellate Body judges overstepped their mandate and that decisions took too long. These actions align with an "America First" agenda, advocating for member states to have veto power over dispute settlement outcomes. * **Continuity of US stance:** The US administration's approach to WTO reform, including potential concessions on subsidies and the use of tariffs for national security reasons, suggests a continued emphasis on national sovereignty and less reliance on binding multilateral dispute resolution. * **Alternative arrangements:** In response to the paralysis, some WTO members, including the EU, Canada, and China, have established an "Multi-Party Interim Appeal Arbitration Arrangement" (MPIA) as a provisional alternative appellate body. #### 2.1.4 The US-China trade war and its implications The trade conflict between the United States and China, initiated by the Trump administration and continued by the Biden administration, has had profound implications for the global trading system. * **US grievances:** The US has raised numerous complaints against China, including: * Chinese state subsidies. * Theft of intellectual property. * Forced technology transfer from US investors. * Agricultural trade barriers. * The valuation of the Chinese currency (Yuan). * China's status as a "developing country" under WTO Special and Differential Treatment (SDT) provisions, a status China eventually relinquished in 2025 as an act of goodwill. * **Underlying drivers:** A significant driver is the perceived impact of import competition from China (and other countries) on employment and economic uncertainty in the US, fueling a backlash against globalization and contributing to political phenomena like "Trumpism." The US is also concerned about China's growing economic, political, and military power. * **Tariff measures:** The US has imposed high tariffs on Chinese imports, citing national security reasons, a practice continued by the Biden administration. China has also complained about massive public subsidies in US legislation like the Inflation Reduction Act and the CHIPS Act, which are seen as violating WTO rules. * **Global tariff escalation:** The Trump administration also introduced tariffs against dozens of other countries, citing economic protectionism and pursuing geopolitical agendas, such as pressuring India over its oil purchases from Russia or interfering in domestic affairs like a legal case against a former Brazilian president. ### 2.2 Regional and plurilateral alternatives to multilateralism The stagnation of multilateral trade liberalization has led to the rise of regional and plurilateral trade agreements as alternative pathways. #### 2.2.1 Regional trade agreements (RTAs) Despite the WTO's Most-Favoured Nation (MFN) principle, both GATT and WTO have historically allowed for bilateral and regional trade agreements that cover "substantially all trade" and go beyond WTO commitments, often referred to as "WTO Plus." * **Characteristics:** These agreements typically involve lower tariffs and non-tariff barriers and often include provisions on investment, government procurement, intellectual property, labor, and environmental norms. * **Examples:** Numerous RTAs exist globally, including the European Union, Mercosur, ECOWAS, SACU, EAC, and various US-centered agreements like NAFTA (North America) and US-CAFTA-DR (US and Central America). #### 2.2.2 Plurilateral trade agreements Plurilateral talks involve smaller groups of countries negotiating sectoral agreements, aiming to eventually allow all WTO members to join based on the MFN principle. However, these have generally seen limited momentum. * **Examples outside WTO:** * **Trade in Services Agreement (TiSA):** Initiated by the EU and 23 other countries (including the US, but not China), it has made little progress since 2013. * **Examples within WTO:** * **Environmental Goods Agreement (EGA):** Involving the EU, US, China, and 17 other countries, it has been suspended since 2014. * **E-commerce negotiations:** An ongoing initiative involving 86 countries, including the EU, US, and China, since 2019. #### 2.2.3 Major regional initiatives and their fate Several large-scale regional initiatives aimed to deepen integration, often outside the traditional WTO framework. * **Trans-Atlantic Trade and Investment Partnership (TTIP):** * **Objective:** An EU-US trade and investment deal championed by the Obama administration, focusing on non-tariff barriers and including debates on Investor-State Dispute Settlement (ISDS). * **Opposition:** Faced significant opposition on both sides of the Atlantic, with concerns about increased competition, product standards, health, privacy, and the potential for ISDS to undermine national sovereignty. * **Outcome:** Shelved in 2017 due to opposition and the "America First" agenda of President Trump. * **Comprehensive and Progressive Trans-Pacific Partnership (CPTPP):** * **Objective:** Obama's "pivot to Asia," designed to deepen economic ties in the Asia-Pacific region and counter China's influence. It was an "Anyone but China club" initiative. * **Opposition and US withdrawal:** Faced substantial opposition within the US, leading to President Trump withdrawing the country from the agreement. * **Continuation:** The remaining 11 TPP partners proceeded to sign and ratify the agreement, known as the CPTPP, which entered into force in 2018. * **Future accessions:** Countries like the UK have joined, and China and Taiwan have applied to join. However, China's accession is uncertain due to CPTPP's requirements for domestic reforms that may not align with China's current direction, and geopolitical frictions. * **Regional Comprehensive Economic Partnership (RCEP):** * **Scope:** Involves 15 countries from Asia and the Pacific, including ASEAN members, China, Japan, South Korea, Australia, and New Zealand. * **Content:** Considered a "low-quality trade agreement" with a primary focus on industrial tariffs, while being weaker on services, agriculture, and intellectual property. It absorbs existing bilateral deals, aiming for greater coherence. * **India's withdrawal:** India withdrew from RCEP talks in late 2019, wary of competition from Chinese industry. * **Entry into force:** Signed in November 2020 and entered into force in 2022. It represents a significant portion of global population and GDP. ### 2.3 The new world trade order and evolving dynamics The landscape of global trade governance is shifting, moving beyond the traditional "North-South" divide and presenting new complexities. #### 2.3.1 Shifting interests of major economies Emerging economies like China, India, and Brazil are not always acting as unified advocates for the Global South. Instead, they increasingly pursue their own national interests, sometimes adopting protectionist stances in sectors where they fear competition while advocating for liberalization in areas where they are strong. * **Agricultural subsidies:** The traditional divide regarding agricultural subsidies is blurred. For instance, China has become a major agricultural subsidizer, while Brazil's dispute and agreement with the US on cotton subsidies benefited them but not necessarily developing cotton producers in West Africa. India's stance on public stockholding for food security also presents challenges for poorer countries. * **Behavior of major economies:** These economies increasingly "behave like major rich countries" in their trade policy pursuits. #### 2.3.2 Geopolitical influences and protectionism Geopolitical considerations and nationalistic agendas are increasingly influencing trade policy. * **US-China conflict:** The US-China trade war is driven by both economic grievances and concerns about China's geopolitical influence. * **"America First" and tariffs:** The "America First" policy has led to widespread tariff impositions, not only against China but also against other countries for economic and geopolitical reasons, including sanctions against countries for their political actions or alliances. * **Export restrictions:** Concerns over critical minerals and national security have led to export restrictions and trade diversion, further fragmenting the global trading system. * **Economic sanctions:** The use of economic sanctions as a foreign policy tool is becoming more prevalent, impacting international trade flows. ### 2.4 Conclusions: Meeting the limits of trade liberalization The challenges confronting multilateral trade liberalization suggest that the global trading system is encountering significant societal and geopolitical limits. * **Limits to "dis-embedded neoliberalism":** The era of unfettered neoliberal trade policies, detached from social and national considerations ("dis-embedded neoliberalism"), appears to be giving way to a more "embedded liberalism" where trade is more integrated with social protection, labor standards, environmental regulations, and tax fairness. * **Intrusiveness of trade norms:** The expansion of trade agreements into sensitive areas like food, health, and privacy standards has fueled resistance. * **Power dynamics:** The shift towards a multipolar world, with power equalization among nations, has contributed to the collapse of large-scale multilateral rounds like Doha. The G7's reduced capacity to impose deals on the Global South and the heterogeneity of national interests further complicate decision-making. * **Polycrisis:** The crisis of the multilateral trading regime is viewed as part of a broader global "polycrisis," encompassing economic, social, and geopolitical instability. * **Future of the WTO:** While the global trading regime has not collapsed, and many middle and smaller powers strive to maintain it, its future hinges on reform. However, fundamental disagreements on how to address issues like subsidies, national security tariffs, and the dispute settlement mechanism make consensus on reform challenging. The proliferation of bilateral deals and trade diversion indicates a potential geographical restructuring of trade patterns. * * * # The crisis of the WTO dispute settlement system and US-China trade dynamics This section details the breakdown of the WTO's Appellate Body, the contributing factors, and the ensuing US-China trade war, including the imposition of tariffs and their wider ramifications. ### 3.1 The breakdown of the WTO's dispute settlement system The World Trade Organization (WTO) dispute settlement system, established in 1995 as part of the Marrakesh Agreement, was a groundbreaking mechanism designed to ensure compliance with WTO rules. It involved a two-tiered process: an initial panel of experts to adjudicate disputes and, crucially, an Appellate Body to hear appeals. The Appellate Body typically comprised seven members, appointed by consensus among WTO members. #### 3.1.1 The US-led opposition to the Appellate Body The crisis in the dispute settlement system, particularly concerning the Appellate Body, has been significantly driven by the United States. The US has voiced strong objections, arguing that Appellate Body "judges" have overstepped their mandate and that the process takes too long. This stance has been a consistent element of US trade policy, continuing under both the Trump and Biden administrations. * **US objections:** * Judges exceeding their mandate. * Excessive delays in dispute resolution. * A desire for member states to have veto power over dispute settlement decisions. #### 3.1.2 The paralysis of the Appellate Body A key factor in the system's collapse has been the US refusal to consider replacements for outgoing Appellate Body members. This obstructionist tactic has led to a complete paralysis of the body. As of November 30, 2020, there were zero members serving on the Appellate Body, effectively shutting down the WTO's dispute settlement system. #### 3.1.3 Alternative mechanisms and reform proposals In response to the paralysis, several WTO members, including the EU, Canada, and China, have established an alternative mechanism known as the "Multi-party interim appeal arbitration arrangement" (MPIA). This serves as a stopgap to maintain a form of appellate review for participating members. Reform proposals for the WTO and its dispute settlement system are ongoing, but fundamental issues remain unresolved. Some suggestions include: * Limiting access to the legally binding Appellate Body, potentially requiring agreement from both parties to proceed, which could undermine the entire system. * Allowing greater freedom for member states to use subsidies, exemplified by the US Inflation Reduction Act, while simultaneously criticizing China's non-market subsidy system. * Granting more latitude to impose tariffs for "national security reasons," a justification already used by the US for measures against Chinese imports. > **Tip:** The crisis of the Appellate Body highlights a fundamental tension between the desire for a rules-based multilateral system and the pursuit of national interests by major powers. Understanding the US perspective, even if controversial, is crucial for grasping the roots of the crisis. ### 3.2 US-China trade dynamics and the trade war The trade relationship between the United States and China has become a central feature of the global economic landscape, marked by increasing friction and a full-blown trade war. #### 3.2.1 US grievances against China The United States has articulated several key complaints regarding China's trade practices, which have fueled the trade war: * **State subsidies:** Allegations that China provides substantial state subsidies to its industries, distorting competition. * **Intellectual property theft:** Accusations of widespread theft of intellectual property from US companies and individuals. * **Forced technology transfer:** Claims that China forces US investors to transfer technology as a condition of market access. * **Agricultural trade barriers:** Barriers that hinder US agricultural exports to China. * **Currency valuation:** Concerns about the manipulation of the Chinese yuan renminbi's value. * **China's WTO status:** The US has questioned China's continued classification as a "developing country" within the WTO, particularly regarding Special and Differential Treatment (SDT) provisions. In a notable move in September 2025, China relinquished its developing country status as a gesture of goodwill. #### 3.2.2 The rationale behind the US-China trade war The trade war is driven by a complex interplay of economic and geopolitical factors: * **Domestic economic concerns:** The US perceives import competition from China (and other countries) as a significant contributor to unemployment and economic uncertainty for its workers, leading to a popular backlash against globalization and influencing policies like "America First." * **Geopolitical competition:** The US is increasingly concerned about China's growing economic, political, and military power, viewing trade measures as a means to curb its rise. * **Retaliation and escalation:** The US initiated the trade war by introducing high tariffs against Chinese imports. These tariffs have been maintained and, in some instances, escalated by the subsequent Biden administration, often citing national security reasons. * **Subsidies and industrial policy:** Recent US policies, such as the Inflation Reduction Act and the CHIPS Act, involve significant public subsidies. While criticized by China as violating WTO rules, these measures reflect a broader trend of governments actively supporting domestic industries, mirroring concerns about Chinese industrial policy. * **Trump's broader tariff agenda:** The trade war with China is part of a wider global tariff strategy by former President Trump, which also targeted dozens of other countries. These tariffs were sometimes used for economic protectionism, but also for geopolitical leverage (e.g., pressuring India to reduce its reliance on Russian oil) and to interfere in domestic affairs of other nations (e.g., pressuring Brazil). #### 3.2.3 Tariffs and their implications The imposition of tariffs by the US against China, and subsequent retaliatory tariffs by China, has had significant repercussions: * **Escalation:** The trade conflict has seen periods of escalation, with further tariffs being introduced. * **Trade diversion and restructuring:** Tariffs and trade tensions have led to a geographical restructuring of global trade, with companies seeking to diversify supply chains away from China to mitigate risks. * **Impact on global governance:** The trade war has exacerbated the crisis in the multilateral trading system, with countries increasingly resorting to unilateral actions and bilateral deals. > **Example:** The US imposition of tariffs on billions of dollars worth of Chinese goods, citing unfair trade practices, triggered retaliatory tariffs from China on US agricultural products and other exports. This tit-for-tat escalation has negatively impacted businesses and consumers in both countries and contributed to global economic uncertainty. ### 3.3 Broader implications for global trade governance The crisis of the WTO dispute settlement system and the US-China trade war are not isolated events but are symptomatic of deeper challenges facing global trade liberalization. * **Societal and geopolitical limits:** There is a growing recognition of the societal and geopolitical limits to unchecked trade liberalization. The "dis-embedded neoliberalism" of free trade agreements has led to backlash due to concerns about competition, social uncertainty, and a "race to the bottom" regarding social protection, labor standards, environmental regulations, and tax fairness. * **"Behind-the-border" issues:** As "at-the-border" barriers are lowered, disputes increasingly focus on "behind-the-border" domestic rules and standards (e.g., subsidies, labor laws, environmental norms), which are often more contentious and difficult to harmonize multilaterally. * **Power dynamics:** The shift towards a multipolar world and the increased assertiveness of emerging economies like China, India, and Brazil have altered power dynamics within global trade governance. These countries increasingly pursue their own interests, sometimes behaving like major developed economies in their use of subsidies and protectionism. * **"Low quality" trade agreements:** The failure of broad multilateral rounds like the Doha Development Agenda has led to a proliferation of regional and plurilateral agreements. Some of these, like the Regional Comprehensive Economic Partnership (RCEP), are criticized as being "low quality" due to their limited scope on services, intellectual property, and other crucial areas, focusing primarily on industrial tariffs. * **The "polycrisis":** The crisis of the WTO dispute settlement system and the US-China trade war are viewed as components of a broader global "polycrisis," characterized by interconnected challenges across economic, political, and social spheres. * **Future of multilateralism:** Despite the deep-seated issues, there is a consensus among many middle and smaller powers that the WTO should be reformed. However, reaching agreement on how to address the fundamental challenges, particularly concerning the divergent interests and actions of major global powers, remains a significant hurdle. * * * # The evolving global trade order and its limitations The global trade order is undergoing a significant transformation, marked by challenges to multilateralism, the rise of emerging economies, and fundamental questions about the future of trade liberalization in a multipolar world. ### 4.1 The World Trade Organization (WTO) and its historical context The modern global trading system evolved from the 1947 General Agreement on Tariffs and Trade (GATT), which was followed by successive rounds of negotiations, primarily focused on reducing import tariffs on goods. The 1986-1994 Uruguay Round culminated in the Marrakesh Agreement, which broadened and deepened trade liberalization, encompassing services (GATS) and intellectual property rights (TRIPs). This period reflected the zenith of neoliberal economic thought following the Cold War. In 1995, the World Trade Organization (WTO) was established to monitor and promote trade liberalization. It currently has 166 members, accounting for 98% of world trade, with 22 candidate countries. #### 4.1.1 Core WTO principles The WTO operates on several foundational principles: * **Most-Favoured Nation (MFN) clause:** This principle mandates that any trade advantage granted to one WTO member must be extended to all other members. Exceptions exist for regional and bilateral preferential trade agreements that cover substantially all economic activity. * **National Treatment:** Imported and domestically produced goods must be treated equally once the imported goods have entered the market. * **Special and Differential Treatment (SDT):** Provisions designed to offer preferential treatment to developing countries, aiming to support their integration into the global trading system. #### 4.1.2 The WTO dispute settlement system The WTO features a robust dispute settlement system, managed by the Dispute Settlement Body (DSB). In cases of disputes between member states, a panel of experts is appointed to review the case. The panel's report, or decision, is automatically adopted by the DSB unless there is a consensus to reject it or a party appeals the decision. Appeals are heard by the Appellate Body, where three judges make the final determination. This system is designed to enforce WTO rules and provide recourse for members whose rights have been violated. #### 4.1.3 Bilateral and regional trade agreements Despite the MFN principle, the GATT and WTO have consistently allowed for bilateral and regional trade agreements. These agreements are permitted if they encompass the entire economy and go beyond WTO commitments, often referred to as "WTO Plus" agreements. They typically involve lower tariffs and non-tariff barriers and may extend to areas such as investment, government procurement, intellectual property, labor, and environmental norms. Examples include the European Union, Mercosur, and various US-centered agreements like NAFTA and US-CAFTA-DR. ### 4.2 The Doha Development Agenda and its challenges The Doha Development Agenda (DDA), launched in 2001, was intended to be a comprehensive round of WTO negotiations that would prioritize the needs of developing countries. However, the DDA faced significant obstacles and ultimately failed to achieve its ambitious goals. #### 4.2.1 The emergence of new negotiating dynamics The 1999 WTO Ministerial in Seattle highlighted a shift in power dynamics, with emerging economies from the Global South challenging the dominance of established powers like the G7. This period also saw the rise of anti-globalization movements and protests, questioning the tenets of neoliberal globalization. #### 4.2.2 The G20 Trade and differing priorities By 2003, the G20 Trade group emerged as an influential bloc representing developing and emerging economies. Their priorities often clashed with those of Western countries. The G20 sought to open protected agricultural markets in the US, EU, and Japan, while also maintaining their own protectionist measures for industrial sectors. Conversely, Western nations pushed for new agenda items like investment, government procurement, services, and digital trade, sectors where their companies were more competitive. Developing countries often opposed WTO rules on labor rights, fearing a competitive disadvantage. #### 4.2.3 Limited successes and eventual standstill The 2013 Bali Ministerial achieved a limited agreement on trade facilitation, focusing on streamlining customs procedures. However, by December 2015, it became evident that the DDA had reached a standstill and was effectively shelved, marking a significant setback for multilateral trade liberalization. ### 4.3 Factors slowing down trade liberalization Several factors have contributed to the slowdown in trade liberalization: * **Societal backlash:** Increased exposure to import competition, industrial relocation, and growing socio-economic uncertainty have led to a societal backlash against globalization in many national societies. * **Behind-the-border issues:** As "at-the-border" barriers decrease, "behind-the-border" issues — domestic regulations related to subsidies, labor, environment, and health — become more prominent. National societies often seek to maintain their standards, leading to increased domestic resistance to deeper trade liberalization. This is compounded by competition from economies with lower labor, environmental, and corporate tax norms, potentially creating a "race to the bottom." * **Geopolitical shifts and protectionism:** The rise of a multipolar world, marked by increased economic and political assertiveness of emerging economies, has challenged the established order. The "America First" agenda, characterized by protectionist measures and unilateral tariff actions, has further disrupted the global trading system. ### 4.4 Regional and plurilateral alternatives In response to the stalled multilateral process, countries have pursued regional and plurilateral agreements: #### 4.4.1 Plurilateral talks These involve smaller groups of countries negotiating sectoral agreements. While some initiatives, like the Trade in Services Agreement (TiSA) and the Environmental Goods Agreement (EGA), have stalled, e-commerce negotiations within the WTO are ongoing with 86 participating countries. #### 4.4.2 Regional agreements * **Trans-Atlantic Trade and Investment Partnership (TTIP):** This proposed EU-US trade and investment deal, focused on non-tariff barriers, was shelved in 2017 due to opposition and political shifts. * **Trans-Pacific Partnership (TPP):** Initiated as part of the US "pivot to Asia" to counter China's influence, the TPP excluded China. Despite significant opposition in the US, leading to President Trump's withdrawal, 11 of its original partners proceeded to form the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). China has since applied to join the CPTPP, though accession faces significant hurdles related to its domestic reforms and geopolitical considerations. * **Regional Comprehensive Economic Partnership (RCEP):** This agreement, involving 15 countries in Asia and the Pacific, including China, Japan, and South Korea, is considered a "low quality trade agreement" due to its focus on industrial tariffs and weaker provisions on services, agriculture, and intellectual property. India withdrew from the RCEP talks. ### 4.5 The crisis of the WTO Appellate Body The crisis of the WTO's Appellate Body, a key institution for dispute settlement, has paralyzed the system. The US has consistently blocked the appointment of new members, leading to a complete absence of adjudicators since November 2020. This has effectively halted the WTO's dispute settlement mechanism. > **Tip:** The crisis at the Appellate Body is a critical symptom of the broader challenges facing the WTO, highlighting the erosion of consensus and the rise of unilateral actions. #### 4.5.1 US objections and alternative arrangements The US has criticized the Appellate Body for allegedly overstepping its mandate and causing delays. While the US has advocated for member states to have veto powers over dispute settlement, other members, including the EU, Canada, and China, have established the Multi-party Interim Appeal Arbitration Arrangement (MPIA) as a stopgap measure. ### 4.6 The US-China trade war and its implications The US-China trade war, initiated under the "America First" agenda, has significantly impacted the global trade order. The US has raised concerns about Chinese state subsidies, intellectual property theft, forced technology transfer, agricultural trade barriers, and China's former "developing country" status. #### 4.6.1 Tariffs and protectionism The US has imposed substantial tariffs on Chinese imports, a policy continued by the Biden administration, which has also enacted significant subsidies through legislation like the Inflation Reduction Act and CHIPS Act, potentially violating WTO rules. Trump's broader tariff war has also targeted other countries for economic and geopolitical reasons. #### 4.6.2 Underlying causes and consequences The trade war reflects underlying US concerns about China's growing economic, political, and military power, as well as domestic political backlash against globalization and its perceived negative impacts on American workers. This has contributed to a "legitimacy crisis" of global trade governance. ### 4.7 Conclusions: Meeting the limits of trade liberalization The current global trade order faces fundamental limitations, challenging the sustainability of "dis-embedded neoliberalism" in favor of a more "embedded liberalism." #### 4.7.1 Shifting power dynamics and interests The rise of big emerging economies like China, India, and Brazil means they are no longer simply advocates for the Global South but pursue their own interests. This has led to a complex picture where the "North-South divide" is no longer accurate, with these nations behaving more like major economic powers, sometimes adopting protectionist stances in sectors where they fear competition and advocating for liberalization in areas where they are strong. #### 4.7.2 The multipolar world and heterogeneity of interests In a multipolar world, power equalization and the heterogeneity of interests among countries make multilateral decision-making increasingly complex. The G7 (Quad) can no longer impose its will on the Global South, and disruptions from great power politics further complicate trade negotiations. #### 4.7.3 The global polycrisis and the future of trade The crisis of the multilateral trading regime is part of a broader "global polycrisis." The collapse of the Doha Development Agenda, the crisis of the WTO Appellate Body, and the US-China trade war, coupled with export restrictions on critical minerals and economic sanctions, point to a re-structuring of global trade. While the WTO has not collapsed and many countries strive to maintain it, significant reforms are needed to address the fundamental issues, including the intrusiveness of neoliberal trade norms, the power of investor-state dispute settlement, and the geopolitical realities of a multipolar world. The question remains how to reconcile the pursuit of trade liberalization with societal concerns, national standards, and geopolitical realities. * * * ## Common mistakes to avoid * Review all topics thoroughly before exams * Pay attention to formulas and key definitions * Practice with examples provided in each section * Don't memorize without understanding the underlying concepts

| Term | Definition | |------|------------| | World Trade Organization (WTO) | An international organization that regulates international trade, aiming to ensure that trade flows as smoothly, predictably, and freely as possible. It was established in 1995. | | General Agreement on Tariffs and Trade (GATT) | The GATT was a legal agreement signed by many countries after World War II with the aim of promoting international trade by reducing or eliminating trade barriers such as tariffs and quotas. It was the predecessor to the WTO. | | Uruguay Round | A multilateral trade negotiation that lasted from 1986 to 1994, resulting in the creation of the World Trade Organization and the inclusion of new areas such as services and intellectual property in global trade rules. | | General Agreement on Trade in Services (GATS) | An international treaty that governs trade in services, ensuring that countries open their markets to foreign service suppliers and treat foreign service suppliers no less favorably than domestic ones. | | Trade-Related Intellectual Property Rights (TRIPs) | An international agreement administered by the WTO that sets down minimum standards for the regulation of intellectual property (IP) by national governments within the borders of all WTO Members. | | Most-Favoured Nation (MFN) clause | A principle in international trade that states that a country must treat all of its trading partners equally. If a country grants a special favor to one nation, it must grant the same favor to all other WTO members. | | National Treatment | A principle requiring that imported goods and services, once in the domestic market, must be treated no less favorably than domestically produced goods and services. | | Special and Differential Treatment (SDT) | Provisions in WTO agreements that allow developing countries more flexibility and longer timeframes to implement agreements, recognizing their specific development needs. | | Dispute Settlement Body (DSB) | The WTO body responsible for resolving trade disputes between member countries. It can establish panels of experts to review cases and make recommendations. | | Appellate Body | A seven-member body within the WTO's dispute settlement system that hears appeals from panel decisions. Its operation has been significantly disrupted due to a lack of appointments. | | Bilateral trade agreements | Agreements between two countries to reduce or eliminate trade barriers between them, often covering a wide range of economic issues beyond just tariffs. | | Regional trade agreements | Agreements between multiple countries in a geographical region to reduce or eliminate trade barriers among themselves, such as the European Union or NAFTA. | | Doha Development Agenda (DDA) | A round of trade negotiations launched by the WTO in 2001, with a stated aim of promoting development and benefiting developing countries, but which ultimately stalled. | | Trade facilitation | Measures designed to simplify, modernize, and harmonize customs procedures and other trade-related processes to reduce the time and cost of trading goods. | | Behind-the-border issues | Domestic policies and regulations within a country that can affect international trade, such as environmental standards, labor laws, and subsidies, which are increasingly contentious in trade negotiations. | | Plurilateral talks | Trade negotiations involving a subset of WTO members, typically focused on specific sectors or issues, aiming to build momentum for broader liberalization. | | Investor-State Dispute Settlement (ISDS) | A mechanism within some international trade and investment agreements that allows private investors to bring claims against host states in international tribunals, bypassing domestic courts. | | Trans-Pacific Partnership (TPP) | A proposed large regional free trade agreement in the Asia-Pacific region, initiated by the US but later withdrawn from by the Trump administration. | | Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) | An updated version of the TPP, excluding the US, which entered into force in 2018 among 11 Asia-Pacific countries. | | Regional Comprehensive Economic Partnership (RCEP) | A free trade agreement among the 10 member states of ASEAN and five of its free trade agreement partners, including China, Japan, South Korea, Australia, and New Zealand. | | Agricultural subsidies | Government payments or support to farmers that can distort international trade by making domestic products artificially cheaper. | | Public stockholding | Government accumulation and holding of agricultural products, often for food security purposes, which can lead to trade distortions if managed without regard to international trade rules. | | "America First" agenda | A foreign policy and trade doctrine, notably pursued by the Trump administration, prioritizing domestic interests and often characterized by protectionism and unilateral actions. | | Tariffs | Taxes imposed on imported goods, used as a tool to protect domestic industries, generate revenue, or as a political weapon in trade disputes. | | Global polycrisis | A term describing the complex and interconnected nature of multiple global crises occurring simultaneously, such as climate change, economic instability, and geopolitical tensions. |