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Prospects and Policy Implications of the WTO Multilateral System in Strategic Competition between the US and China Multilateral negotiations, Trade policy

Author Yoocheul Song, Insoo Kang, and Hosaeng Rhee Language Korean Date 2021.12.29

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   As of December 2021, a significant number of countries are pursuing membership in the WTO. This means that there are still expectations for the role of the WTO as a multilateral trading system. However, several issues must be addressed for the WTO to remain effective in the future, especially under the new world trade order, including those caused by COVID-19. Therefore, WTO member states will have to strike a balance between negotiating on 21st century issues and tackling long-standing trade-related unresolved issues such as agriculture and development. In addition to these practical problems, the WTO must also address institutional problems.
   In addition, alleviating tensions in the world trade system following China's incorporation into the world economic system is a task that the WTO must solve. For example, it will have to come up with a way to address US and EU claims that existing WTO rules are inadequate to address China's problems with intellectual property rights, state-owned enterprises and industrial subsidies. As countries like the United States increasingly rely on bilateral and regional trade agreements to better address this issue, an alternative is to address them through open plurilateral agreements.
   Given its share in world trade and the global economy, China could potentially play a significant role in WTO reform. China has been involved in WTO reform discussions. China's proposals for reform in the WTO indicate that it will resolve the deadlock in the Appellate Body and prioritize negotiations on subsidies for fisheries and e-commerce. However, with respect to state-owned enterprises, it has limitations in repeating vague promises of fair competition and emphasizing the need to respect the diversity of development models among member countries.
   China is also showing efforts to cooperate with other countries on WTO reform, claiming to be the defender of the world trade system on behalf of the United States. However, in light of China's growth and economic model in the global economy, a key question is whether WTO rules can be updated and implemented in a way that accommodates two fundamentally different economic systems. The solution does not lie in changing the nature of China's economic system. Rather, it should be about creating enforceable rules that allow the two systems to interact and reaffirming the key role of the WTO within the world trade system.
   Since 1998, WTO member states, agreeing that e-commerce will play an increasingly important role in the global economy, have established a working program to review all trade-related issues related to global e-commerce. The rules governing online transactions will become more important than ever, especially as COVID-19 accelerates the transition to e-commerce. However, unlike trade in goods and services, few international rules apply to e-commerce between countries. Therefore, a realistic approach could be to focus on reviewing the status of e-commerce initiatives and agreeing on a roadmap for the negotiation process and future work, in the short term, while focusing efforts toward developing specific texts for negotiations and reaching partial agreement on the rules of e-commerce in the medium to long term.
   Although trade and investment are closely linked, the WTO was launched with an incomplete treatment of investment issues. Multilateral attempts to negotiate rules on investment protection and liberalization in the WTO failed, and in 2004 investment was removed from the WTO negotiation agenda. However, many countries deal with investment provisions through bilateral investment agreements or chapters of bilateral and regional free trade agreements. A new attempt to include investment in the WTO began in the form of “structured discussions with the aim of developing a multilateral framework on investment facilitation” among more than 70 WTO member states. These discussions are projected to have a greater chance of success than past efforts by focusing on facilitating investment and excluding issues that have been difficult to reach consensus, such as market access, investment protection, and resolution of investor-state disputes.
   Discussions are also underway to improve the WTO Agricultural Agreement, which came into force in 1995. Policy makers continue to work to make agricultural trade fairer and more competitive, aiming to reform subsidies and high trade barriers that distort agricultural trade. In 2015, WTO member states committed to abolish agricultural export subsidies and agreed to find solutions to the problem of public stockpiling for food security, an issue that needs renewed attention under COVID-19. It was also agreed to develop special safeguards for developing countries and agreements on cotton trade. WTO member states continue to negotiate on these issues. The next WTO Ministerial Meeting should be a milestone for progress in this area. Improving notification obligations on agriculture is also an important task. Especially in the agricultural sector, special treatment for development issues and developing countries has been one of the most important areas of WTO work since the Doha Development Agenda was launched in 2001. However, in order to advance the discussion, the problem of developing country status will need to be addressed. Korea announced that it would no longer maintain its developing country status in 2019. Of course, negotiations within the WTO are not currently underway, but it is time to analyze and respond in advance to problems that may arise when Korea does not maintain its developing country status in the agricultural sector.
   Trade and the WTO can play an important role in achieving the UN Sustainable Development Goals and the Paris Agreement goals. WTO members have been discussing various trade sustainability issues, and areas that are likely to reach agreement and that can make a significant contribution to the green recovery of the COVID-19 crisis include: first, the WTO member countries concluded an agreement to limit subsidies for fisheries; second, the WTO played a role in reforming fossil fuel subsidies; and third, the WTO member states made efforts to reach an EGA negotiation.
   It has long been recognized that there are many links between trade policy and non-trade issues such as environmental and labor standards. However, there are many differences of opinion as to whether non-trade issues should be linked to WTO negotiations and subject to WTO rules and regulations. Past efforts to link non-trade issues to trade have been pursued to encourage compliance and enforcement. Traditionally, dispute resolution mechanisms have been used as a way to link non-trade issues that are difficult to enforce with the global trade system, but as the WTO Appellate Body crisis continues, these resolution methods lose their effectiveness. Also, there are limits to what the WTO can and should do with respect to non-trade issues. In particular, the WTO's role in achieving the SDG goals requires careful adjustment. If links are too weak, the WTO risks becoming irrelevant in its efforts to address key global challenges. However, if the linkage becomes too excessive, the possibility of overburdening the already troubled WTO increases. The best bet may be to focus on increasing policy coherence and interaction between stakeholders rather than focusing on creating new rules.
   Since the WTO is a member-driven body, reforms must be decided by member governments. Therefore, domestic support for policy makers is necessary in order to proceed with the discussion and process on WTO reform. 
   WTO reform is an important issue. However, WTO modernization will not be provided in a single package, and discussion of various issues and participation of stakeholders is essential. WTO reform will require a significant amount of effort and time. The new secretary-general is also frequently emphasizing the need for WTO reform, and as a new administration is launched in the United States, a change of position can be expected. If the WTO can function properly in the process of coping with COVID-19, the COVID-19 crisis may provide new impetus to the WTO. While we cannot expect too much, if the US makes an explicit proposal for a solution to reform the WTO Appellate Body, or at least explains acceptable changes to the Appellate Body, the chances of success are high.
   Under these circumstances, what kind of policy response Korea should take is a very important issue, because Korea has enjoyed the benefits of the multilateral trading system. In particular, it can be said that Korea is at a crossroads where it has to make a policy choice between the United States and China. According to the Biden administration's strategy to strengthen alliances, the US will demand a choice from Korea, and it will inevitably be very difficult for Korea, which is highly dependent on the Chinese economy, to make a decision.

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