Policy Update 061

Le Lac Magique: The WTO one year after Bali and beyond

FUKUYAMA Mitsuhiro
Consulting Fellow, RIETI

The year 2015 marks the 20th anniversary of the World Trade Organization (WTO). I would like to take this opportunity to reflect on the developments during my stay in Geneva over the past year, and offer some thoughts about the future.

Difficulties facing the WTO's negotiation function

A new year for trade experts in Geneva starts off in earnest with the informal WTO ministerial gathering in Davos, Switzerland, the town known as the setting for Thomas Mann's novel, Der Zauberberg (The Magic Mountain). A year ago, at the start of the new year of 2014, the mood in the organization's home city of Geneva was running high, boosted by the WTO's Ninth Ministerial Conference's adoption in December 2013 of the Bali Package which is composed of ministerial decisions including those on trade facilitation, agriculture, and development. The WTO's first-ever successful delivery on its negotiations including the Trade Facilitation Agreement, though only in limited areas, marked a significant step forward, coming at a time when the prolonged stalemate of the Doha Round since its inception in 2001 had long been casting doubt upon the WTO's effectiveness as a negotiation forum.

In his January 6, 2014 speech in Lisbon, reflecting the optimistic mood prevailing at that time, WTO Director-General Roberto Azevêdo said, "Many didn't believe we could deliver in Bali, and with good reason. But we did—and we can do more. Bali is just the start" (Note 1). Also, at the informal WTO ministerial gathering held later in the month in Davos, Swiss Federal Councillor Johann N. Schneider-Ammann, who chaired the meeting, echoed this sentiment in his concluding remarks, saying, "In Bali, WTO Members have shown that it is possible to conclude multilateral trade agreements. This is an important achievement and we shall maintain the momentum" (Note 2).

The conference in Bali also saw a determination to draft a clearly defined work program, within the next 12 months, on the remaining Doha Development Agenda issues. As a result, it was expected in 2014 that efforts would be made for the implementation of the Bali Package and drafting the post-Bali work program. Once again, however, progress proved to be difficult. While the Bali Package called for the adoption of the Protocol of Trade Facilitation Agreement by the end of July 2014, opposition from several members placed the implementation process of the package in jeopardy. As a result of subsequent discussions including those on a bilateral level, the WTO General Council on November 27, 2014 did manage to adopt the Protocol, and at the same time passed a decision setting a new deadline of July 2015 for concluding the work program. The half year of difficult struggles brought renewed attention to the problem of the WTO negotiations where decision making is based on consensus and objections from even a single country can block forward progress. Speaking at the General Council on December 10, 2014, Director-General Azevêdo expressed his confidence that 2015 would prove to be a "big year" for the organization but urged members to be "reasonable and pragmatic" in their negotiations. The tone of his speech, which was noticeably less upbeat than in January 2014, seemed to tell a lot about how things have developed over the past year (Note 3).

Multilateral trading system and regional trade agreements

While the WTO's negotiations face difficulties, negotiations for numerous regional trade agreements (RTAs) are underway and expected to enter crucial stages in 2015. These include the Trans-Pacific Partnership (TPP), the Japan-EU Economic Partnership Agreement, and the Regional Comprehensive Economic Partnership (RCEP)—all with Japanese participation—and the Transatlantic Trade and Investment Partnership (TTIP), involving the United States and the European Union. Against this backdrop, discussions are taking place in Geneva, both inside and outside the WTO, as to how to understand and define the relationship between the multilateral trading system (MTS) and RTAs.

One thought-provoking outcome of those discussions is a 2014 report published by the World Economic Forum (best known for its annual meeting in Davos), entitled "Mega-regional Trade Agreements: Game-Changers or Costly Distractions for the World Trading System?" In contrast to a view that sees these two approaches as diametrically opposed, the report envisages the role of mega-RTAs as potentially complementary to the MTS. As necessary conditions for this to be the case, the report cites the following: (1) mega-RTAs, such as the TPP and the TTIP, should be open to new members and meant to achieve more integrated and contestable markets; (2) rules implemented by mega-RTAs should be transparent and verifiable through notification of such RTAs to the WTO; and (3) the participating countries could strengthen the role and maintain the centrality of the WTO in the global trading system. On the other hand, with respect to point (3), the report also warns that the WTO may lose its relevance for those members if it fails to accommodate the needs they are seeking to fulfill through mega-RTAs. The consensus-based WTO negotiations limit the level of ambition of any agreement, and, as a result, many areas subject to RTA negotiations—such as investment, competition, and harmonization and mutual recognition of standards—have been left out from the WTO rules (Note 4).

Discussions on this issue are underway also within the WTO. For example, as a part of the latest WTO Public Forum, the European Commission on October 1, 2014 hosted a session entitled "Regional Trade Agreements: Competitors or forerunners of multilateralism?" to raise the very question in the title (Note 5). Just about a week earlier—on September 25, 2014—the WTO also held an RTA seminar to discuss a series of working papers presented by WTO staff. While introducing all of these papers is beyond the scope of this article, it is worth noting what Director-General Azevêdo stated in his concluding comments in the seminar. He stressed that RTAs "are important for the multilateral trading system—but they cannot substitute it." He underlined the importance of WTO disciplines, pointing out that there are many issues—such as subsidies and trade remedies—which "can only be tackled in an efficient manner in the multilateral context through the WTO." At the same time, however, the director-general acknowledged that the papers presented to the seminar provided a "very mixed picture," noting that many RTAs contain WTO-plus provisions in the area of, for instance, market access. After suggesting this, he emphasized the need to "gain a better understanding of the impact that RTAs have—how they work together amongst themselves, how they complement the multilateral system, or not—and what that means for us all" through timely notifications of RTAs to the WTO (Note 6).

Challenges to the WTO's dispute settlement system

One of the papers presented at the aforementioned seminar, entitled "Mapping of Dispute Settlement Mechanisms in Regional Trade Agreements—Innovative or Variations on a Theme?" (by Claude Chase, Alan Yanovich, Jo-Ann Crawford, and Pamela Ugaz), showed that, even as more and more RTAs now include their own dispute settlement provisions, most countries continue to rely instead on the WTO for dispute settlement (Note 7). The dispute settlement system is often cited as an example of the WTO's success, and at times it has been commended for compensating for the stagnating negotiation function, through the accumulation of legal solutions. Regarding a case brought by Japan, for instance, the WTO Appellate Body ruled in favor of Japan in August 2014, finding China's export control of rare earths, tungsten, and molybdenum to be inconsistent with WTO rules (DS433).

However, a note of warning sounded by Director-General Azevêdo in his address to the WTO Dispute Settlement Body on September 26, 2014 should not go unnoticed. While "there is no question that the WTO's dispute settlement system has been a success," he said that this welcoming development has put the system in an "emergency situation." More specifically, he made the following points: the very success of the WTO dispute settlement system has driven the number of cases to grow beyond its capacity; a significant number of experienced lawyers have been lost to the private sector that offers more favorable working conditions, making it difficult for the WTO to maintain institutional knowledge; and, as a result, it has been unable to fully meet WTO members' needs of dispute settlement. Although there is growing awareness of these issues, it was unusual for a WTO director-general to address such an issue so directly. He offered some ideas to improve the situation, including those that are already underway such as recruiting new lawyers. However, fundamental issues, such as simplifying the process involved and increasing the number of Appellate Body members, are subject to the WTO members' endorsement, as Director-General Azevêdo put it, "This is for you to consider." Thus, while it is necessary to tackle these challenges, it would be difficult for us to imagine that we can solve them overnight. (Note 8)


Der Zauberberg tells the story of the young Hans Castorp, who, after traveling to Davos to visit his cousin in the town's sanitarium, finds opportunities to meet and learn from a wide variety of individuals gathered from different regions of the world. The WTO, which started in 1995 with 128 members and also is in Switzerland and alongside Lac Léman, approved the forthcoming accession of its 161st member, the Seychelles, in December 2014. Geneva is home to discussions on global economy and trade issues among not only the delegates of the 160 members but also research institutes and NGOs located nearby.

It is an undeniable reality that reaching consensus among the large number of members in the WTO negotiations is difficult. Partly because of this, it is often said that the WTO's negotiation function has been lost; some even go so far as to consider the WTO useless in its entirety. However, this view seems too one-sided. The WTO dispute settlement system, though facing various challenges, continues to serve a function that is indispensable to members. The WTO's monitoring mechanism of trade policy, including peer review among members, has played significant roles in preventing the global economy from descending back into protectionism in the aftermath of the global financial crisis in 2008 (Note 9). Additionally, as we have seen, active discussions are going on here in Geneva as to how to define the relationships between the MTS embodied in the WTO and RTAs.

In his year-opening message entitled "The WTO at 20" Director-General Azevêdo noted that numerous challenges must be addressed by December 2015, when the Tenth Ministerial Conference will be held in Nairobi, Kenya—the very first held in Africa. In addition to concluding the post-Bali work program by the end of July 2015, he pointed to the need to make progress in plurilateral negotiations on trade in environmental goods and information technology products (Note 10).

Turning our attention to Japan, we can foresee that the maturing domestic economy will make trade and investment relations with the rest of the world even more important as we move ahead—such that we must never forget the crucial importance of the WTO as the provider of institutional infrastructure for global trade upon which our future prosperity hinges. Japan shall be called upon to play a vital and active role in contributing to resolve the various challenges facing the WTO as it moves beyond its 20th anniversary.

The original text in Japanese was posted on January 20, 2015.

March 20, 2015

Note: The views expressed here are solely those of the author, and do not necessarily represent those of the organization to which the author belongs nor those of the Research Institute of Economy, Trade and Industry. This column is based on information current as of January 5, 2015.

March 20, 2015

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