Rethinking, Repackaging, and Rescuing World Trade Law in the Post-Pandemic Era

Amrita Bahri, Weihuan Zhou, Daria Boklan, Amrita Bahri, Weihuan Zhou, Daria Boklan

• Publisher: Hart Publishing
• Year: 2021
• ISBN:
  9781509951703
• Edition: 1
• Topic: Derecho
• Subtopic: Derecho mercantil internacional

This book explores the ways to 'rethink', 'repackage' and 'rescue' world trade law in the post-COVID-19 era. Using the COVID-19 pandemic as an important context, the book makes original and critical contributions to the growing debate over a range of emerging challenges and systemic issues that might change the landscape of world trade law in the years to come. The book asks: do these unprecedented times and challenges call for reengineering the world trading system and a further retreat from trade liberalisation? The authors offer a rigorous and insightful analysis of whether and how the existing trade institutions and/or rules, including their latest developments, may provide room to deal with pandemic-induced trade-related issues, sustainable development goals, future crises and other existential threats to the multilateral trading system. The book reinforces the importance of international cooperation and the pressing need to reinvigorate the world trading system. The pandemic has provided a unique opportunity for governments to rebuild the political will needed for such cooperation. One should never let a serious crisis go to waste.

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Rethinking, Repackaging and Rescuing World Trade Law in the Post-Pandemic Era

WEIHUAN ZHOU, AMRITA BAHRI AND DARIA BOKLAN

I.Introduction

The world trading system, established under the auspices of the World Trade Organization (WTO), is facing an unprecedented crisis. The COVID-19 pandemic is not the only cause, nor the most fundamental one, although it has significantly intensified this crisis. Anti-globalism and protectionism had been on the rise before the outbreak of the pandemic, leading to an expansion of trade barriers and on many occasions beggar-thy-neighbour policies adversely affecting global trade and international relations.¹ The most telling example has been the dramatic change in trade policies of the United States (US) under the Trump administration. This change has led to not only escalating trade tensions between the US and China² and rising tariffs in the guise of national security against other countries including US allies triggering retaliatory actions,³ but also a shift away from multilateral cooperation more generally. As far as trade data is concerned, trade restrictive measures in G20 economies had doubled between mid-October 2017 and mid-January 2020 (compared with the previous review period).⁴ In 2019, world merchandise trade went through a slight decline of 0.1 per cent in volume terms (3 per cent in value) after rising by 2.9 per cent in 2018. In the same year, the pace of the increase in world commercial services trade also slowed down significantly from 9 per cent in 2018 to 2 per cent.⁵

The impact of the pandemic on the world economy has evidently been catastrophic with 220 countries or territories affected, over 62 million confirmed cases and 1.4 million confirmed deaths as of 1 December 2020.⁶ The highly restrictive containment measures that countries have unilaterally adopted to combat the spread of the disease, and the wide array of fiscal, monetary and trade policies adopted to maintain domestic economic resilience and stimulate recovery,⁷ have caused sudden, extensive and enduring disruptions to international trade. The WTO estimates that the volume of world merchandise trade will shrink by 9.2 per cent in 2020,⁸ leading to a collapse of global trade even worse than the 2008–09 global financial crisis.⁹ The World Bank forecasts a 5.2 per cent contraction in global GDP this year, which, if materialised, would be the deepest recession since the Second World War.¹⁰ Considerable uncertainties remain around the prospects of world trade and the global economy in the years ahead.

The history of world trade has amply demonstrated that unilateralism and protectionism are mutually destructive, and instead that international cooperation is the way to resolve disagreements on trade-related issues and eventually to build long-term peace and prosperity.¹¹ To deal with the pandemic-induced unilateral (and at times protectionist) measures, many have rightly called upon governments to take collective action.¹² However, as the only global institution that promotes international cooperation on trade liberalisation and regulation, the WTO is now fighting for its relevance.

At this critical juncture, trade negotiators, policymakers, scholars and other stakeholders are intensively debating the role of the WTO in international cooperation on trade policymaking and dispute resolution as well as alternative options. This book contributes to this debate by offering one of the first collections of articles that explore and develop the discussion over a range of fundamental and systemic challenges faced by international trade and the multilateral trading system using the COVID-19 pandemic as an important context.

II.The WTO and the Pandemic: Fundamental Challenges for International Trade Regulation

Many of the fundamental challenges that the WTO currently faces have been long-standing or emerging issues since before the pandemic. These include, for example, the tensions between trade and non-trade interests, non-market economies (NMEs) and state-led market distortions, the widespread use of industrial policies and subsidies, the abuse of security exceptions, the ineffectiveness of the WTO’s transparency and notification mechanisms, the need for inclusive and sustainable growth, and the proliferation of free trade agreements (FTAs). These issues have called into question the efficacy and adequacy of the current WTO rules in addressing existing and emerging issues, the reforms that might be needed, the appropriateness of the institutional framework and decision-making process of the WTO (such as the rule of consensus) in supporting such multilateral negotiations of reforms, and how regional trade negotiations and agreements may serve as a stepping stone rather than a stumbling block to more inclusive negotiations at the multilateral level.

At the same time, the WTO’s dispute settlement mechanism (DSM), which has long served to protect the enforceability, certainty and predictability of world trade rules and a rules-based approach to dispute resolution, is gradually losing its legitimacy and effectiveness due to the loss of a functional Appellate Body caused by the US continuous blockage of the appointment of new Appellate Body members.¹³ Despite the agreement to a ‘multi-party interim appeal arbitration arrangement’ (MPIA) among some WTO Members as a temporary replacement for the Appellate Body, the absence of the Appellate Body has created an irreplaceable loophole in the DSM and has already led to the abuse of the right of appeal as some major Members (particularly the US and the European Union (EU)) increasingly resort to the practice of ‘appealing into the void’ to avoid binding decisions and implementation of unfavourable rulings.¹⁴

All the aforesaid challenges predate the pandemic and will persist after it. A solution to the pandemic-induced measures or issues would not provide an adequate response to these challenges. Nevertheless, the pandemic has amplified the impact of some of these issues, bringing them to the fore in the current policy and academic debate. Set out below are some of the most prominent:

•The wide-ranging trade restrictions, especially on the export of personal protective equipment, medicines and other essential supplies, have led to massive disruptions in global supply chains and a shortage of essential goods. These measures range from outright export bans, other forms of quantitative restrictions, additional inspections and quality checks, to new procedures on licensing or registration, to discourage exports. These trade-restrictive and distortive practices have led to a growing debate about how the WTO rules may be applied to facilitate trade while leaving the flexibility for governments to fulfil domestic economic and regulatory needs especially in times of crisis.

•The widespread use of industrial policies and subsidies for economic recovery has generated increasing concerns about their impact on trade and their compatibility with existing trade norms. These subsidies have taken a variety of forms including a direct transfer of funds (for example, wage support and other recovery funds), tax exemptions and deductions, preferential loans or loan waivers, etc. While these subsidies are applied to address the economic consequences of the pandemic, they may well have a longer-term effect on trade. Therefore, there is a pressing need for governments to discuss how to address them in a collaborative manner and in ways that strike a balance between disciplining trade-distortive subsidies and preserving policy space for their legitimate use.¹⁵

•More broadly, the pandemic has intensified the ever mounting concerns about the sustainability of economic growth and international trade. More so than ever before, governments are reiterating the fundamental importance of ensuring that trade rules and multilateral cooperation leave the regulatory space needed by governments in the pursuit of economic growth and sustainable development. The discriminatory and trade-restrictive measures adopted during the pandemic, affecting both imports and exports, have intensified the long-standing and fundamental challenge as to how WTO rules and exceptions may be interpreted and applied in a way that balances trade and non-trade interests. Despite this challenge, the current crisis presents a golden opportunity to rethink the nexus between trade and sustainable development and to explore how trade policies may contribute to ‘building back better’ in the post-COVID-19 world.

Many other issues are less related to the pandemic but no less significant. Below are some major examples:

•Issues relating to NMEs, the role of governments in the market including the use of state-owned enterprises as a policy instrument, and related protective, distortive and anti-competitive behaviour, practices and implications, will continue to impose immense pressure on the WTO to provide a multilateral solution. While some WTO rules have provided tools to address these issues, there is a shared belief among major Western economies that these rules need to be updated and further developed. In contrast, countries with a different economic and growth model, particularly China, have consistently opposed the concept of NMEs and any country-specific discriminatory rules and practices. This divide remains a fundamental challenge for the multilateral trading system.

•The US–China trade tensions are likely to continue under the Biden administration precisely around the NME issues mentioned above and other related issues such as industrial policies and subsidies. These issues are not addressed in the US–China Phase One Trade Deal¹⁶ (Phase One Deal) reached in January 2020 to ease the two-year-long bilateral trade war¹⁷ and will remain at the centre of the escalating US–China competition and future trade policymaking.

•At the same time, the Phase One Deal has created many issues of WTO inconsistency and a dispute resolution framework that favours a confrontational approach to the settlement of disputes.¹⁸ These issues have the potential to significantly undermine the central role of the WTO in international trade regulation and dispute resolution.

•While the MPIA is intended to provide a temporary solution to the Appellate Body impasse, it remains to be seen whether it may actually fill the gap and maintain the effectiveness and legitimacy of the DSM. As an arrangement among only a small portion of WTO Members, it not only leaves considerable uncertainties as to what the other Members may do in disputes, but also provides no guarantee that a MPIA party Member would not abuse the right of appeal (as the EU, a founding member of the MPIA, has just done).¹⁹ Moreover, the growing use of the MPIA would trigger questions about precedent (ie, whether the existing case laws should be applied in a consistent manner), the value of decisions of MPIA arbitrators in WTO jurisprudence, etc. Therefore, the MPIA appears to have created more problems than it has solved.

•Deficiencies in the WTO’s institutional framework and decision-making process have long been criticised. For instance, the ‘consensus’ rule, whereby decision-making under the WTO requires an agreement by all Members, has weakened the capacity of the organisation to further trade liberalisation and update its rulebook in response to cutting-edge issues. Lately, the Appellate Body paralysis and the stalemate in the appointment of a new Director-General of the WTO have further exemplified the ineffectiveness of this rule.²⁰ Another example relates to weaknesses in the WTO’s transparency mechanism, particularly whether the mechanism may induce proper notifications and provide a desirable level of transparency, awareness and predictability of trade policy developments.

•The difficulties and failures associated with WTO negotiations have incentivised like-minded countries to resort to negotiations at sub-multilateral levels leading to the rapid expansion of bilateral, plurilateral and mega-regional trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) c...