Virtual Meeting

What Is Next for the WTO?

Tuesday, September 22, 2020
DENIS BALIBOUSE/REUTERS
Speakers

Executive Director, Institute for International Trade, University of Adelaide

Senior Fellow for Trade and International Political Economy, Council on Foreign Relations; @J_A_Hillman

Henry L. Stimson Professor of Law, Vice Dean for the Graduate Program and International Legal Studies, Harvard Law School

Presider

Managing Director, Sard Verbinnen & Co and Vice Chairman, SVC Public Affairs; Former Acting United States Trade Representative; CFR Member

Speakers discuss the future of the World Trade Organization (WTO), including what role the WTO can play in a COVID-19 world, who could be the next Director-General, and what changes to expect from the WTO moving forward.

SAPIRO: Good morning, good afternoon, and good evening depending on where you are at this moment, and a warm welcome to today's Council on Foreign Relations meeting. I am Miriam Sapiro, managing director at Sard Verbinnen & Company and vice chairman of SVC public affairs and former acting U.S. trade representative. I will be presiding over our discussion. Our topic—"What's Next for the WTO”—is extremely timely for a number of reasons, and we have a stellar panel to offer their thoughts. I believe many people are in violent agreement that the WTO is badly in need of reform, but figuring out what steps are most critical, and what steps are feasible, remains subject to intense debate. Can the WTO's negotiating pillar be revitalized? Could the secretariat, the executive structure known as the secretariat, be made more efficient and more effective, especially with the new director-general expected to be named soon? And how can the WTO's dispute settlement arm be rescued? And more generally, is a WTO fit to play a more active role in addressing growing tensions between and among its members such as those between the U.S. and China? Our distinguished panel today includes Peter Draper, who is the executive director at the Institute for International Trade at the University of Adelaide. Jennifer Hillman, who is a senior fellow for trade and international political economy at the Council. And Mark Wu, who is a law professor at Harvard and the vice dean of the Graduate Program and International Legal Studies. All three have tremendous expertise on the issues before us. So, let me begin our discussion with the following questions for each panelist, starting with Mark, then Jennifer, and then Peter. What do you see as the greatest challenge facing the WTO today?

WU: Thank you, Ambassador, and thank you to the Council on Foreign Relations for hosting us. I'll start with what I think is the obvious one, which is that the WTO needs to find a way to serve as an interface for this growing strategic rivalry between the U.S. and China, in a world where each has major trading partners who do not want to necessarily take sides in that rivalry, but wish to use the WTO as a forum for which to manage that. Now, the problem facing the WTO, with regards to this rivalry, is twofold. One is a series of design limitations or design flaws—they're backwards looking. The dispute settlement doesn't have retroactive remedies. You can self-designate who's a developing country, and you can deal with the issues concerning notifications without any type of punishment. Right? So, and then there's the forward-facing ones, which are all the digital issues for which there are inadequate rules. So, I think it's a series of what's the role of an institution to deal with that big challenge.

SAPIRO: Great. Jennifer?

HILLMAN: Sure, I mean from my end of it, I think I'm not disagreeing at all with Mark, but from my end, and the really critical thing right now, I think is to help the WTO figure out how to stop the slide into irrelevance. I mean, I think there's a real concern that, you know, countries are starting to feel like the WTO is not, you know, a significant player, is not the place that they need to put their energy, and their time. You know, again, I look at one of—a quote from one of the candidates to become the new director-general of the WTO, Dr. Ngozi. She put it in, I'll quote, "Many people regard the WTO as an ineffective policeman of an outdated rulebook that is unsuited for the challenges of the 21st century global economy." The concern is, if that's how everybody views the WTO, what can we do to stop it? And to me, the problem is the system is really badly out of balance. You have the sort of negotiating arm, the rulemaking part of the WTO, that has struggled to come up with any new agreements other than the trade facilitation agreement, even though there is a huge need to come up with new agreements on everything from curbing fishery subsidies to digital trade, but again, not able to quite get those new rules agreed to among the 164 countries. You secondly, have an executive branch that is filled with, again, a small, I would argue, small but mighty group at the WTO in terms of their expertise and their capabilities, but they cannot do very much because the institution is considered a member driven institution where all ideas and proposals have to bubble up from the members themselves. So, the secretariat, while competent, has no power to really do anything. And last, but definitely not least, you have the judicatory arm, the dispute settlement system, which has now been basically, you know, pushed aside by the United States' decision to block any new appointments to the appellate body. So, the entire notion of a binding rules-based system is now kind of held in abeyance. So, the system is just really out of balance. And so, to me, the most critical thing is to find a way to bring it back into some semblance of balance.

SAPIRO: Thank you. Peter?

DRAPER: Thanks Miriam. I think the fundamental problem really is the geopolitics, the fact that the U.S. and China are in very different courses. But I don't think that's a problem that the WTO can fix. However, it plays out in different ways in the WTO. And I'd like to focus particularly on the issue of special differential treatment, or, if you like, how developing countries can be accommodated and should be accommodated in the system, but also what they need to do in order to be accommodated in the system. So, the principle of special and differential treatment is widely accepted. The challenge with it, I think, that we face now, is partly geopolitical, that China, for instance, claims special differential treatment, and therefore wants to do this. And the Chinese economic model, as we know, is very different to market-based economies. That creates two sets of challenges. And that's just on China. But there's a whole range of other developing countries, I think of India and South Africa, for instance, the Africa Group, and a range of many others that also claim special and differential treatment. And in many cases, this is justified, I think of the LDC [Least Developed Countries] Group, for instance, that's certainly a justifiable claim—everybody accepts that. But in some other cases, it's much more problematic. And what it gives countries a license to do, I think, is to shelter behind special and differential treatment, and not to step up to reform rules, the kinds of things that Jennifer was talking about. One of the reasons the rule book has not been updated, is because many countries don't want to update the rules, because they don't feel equipped to do so. But I wouldn't lay all of this necessarily at the door of the developing countries, either. The real challenge, I think, is how to progress in the system with these different interests in play.

SAPIRO: I think you're absolutely right; the challenge is really how to progress on the range of issues that all three of you identified. So, I'd like to follow up and start with you, Peter. If the most important reform, in your view, is special and differential treatment, or Jennifer, perhaps reform of the appellate body, which issue is so important, and how would you propose building the support needed to get to a better place?

DRAPER: So, there's different ways of thinking about performing special and differential treatment. One is as the USTR has proposed, which is to establish a set of graduation criteria that can be objectively determined using data. I think, ideally, that should be the route to go. In practice, there are all sorts of political problems in the path, but that doesn't mean we shouldn't try. So, I'm up for giving that a go. Certainly, at the Institute, we are thinking about that. But probably it's the role of a big multilateral organization that has serious data crunching capabilities to take that problem on. It will be deeply political. It already is deeply political. But that doesn't mean it shouldn't be attempted. So that's the first part. The second part is really issue by issue, negotiation by negotiation. And I think the WTO is really making steps in this direction. So, it already has a series of plurilaterals underway. Plurilaterals, I think are the future of the WTO. But within each plurilateral, SDT [Special and Differential Treatment] technologies or approaches need to be embedded. And we have an example of this, which is actually taken from a multilateral agreement, that Jennifer mentioned that the trade facilitation agreement, where aid for trade is linked to different levels of commitment. So that principle, if you like a ladder of commitments linked to aid for trade resource flows, offers one potential route for solving the problem on a plurilateral case-by-case basis. But I think if we don't have a set of clearly defined graduation criteria at the end of this process, we are probably not going to solve the problem long term.

SAPIRO: These days it would be a virtual graduation, right? Jennifer and Mark, any thoughts on what you all see as the most important reform to try to tackle and how to bring along the countries that are needed to do so?

HILLMAN: I don't know whether you want Mark to go first or me, but I'll just start on, and I would say two things. One, I my own sense is it may be that you have to start by fixing the dispute settlement system, at least, that's in the realm of the possible, in part because I fear that countries are going to be a lot less willing to make new commitments, including commitments to reform other parts of the WTO, if they don't believe that there's a functioning dispute settlement system that can bind countries to those commitments. And I think, I'm going to piggyback on a little bit of what Mark has said is one of the key problems here is that the two largest trading countries, the United States and China, have effectively taken their trade dispute almost entirely out of the WTO. I mean, you very recently saw a decision come down last week from a panel criticizing the United States' unilateral tariffs on China. And the response from the United States has been effectively, you know, the fact that the WTO rules that the United States’ unilateral tariffs are a violation of the WTO. First of all, it's completely unsurprising because it clearly is, but the response of the United States is, see this is proof positive that the WTO cannot address the problems with China.

So, I do think you're going to need to start by figuring out how do you make the dispute settlement system really function again, and we can talk about ways to do that. But the other part of it is, you're going to have to come to grips with new rules that go to the core of why China is such a problem for the United States and for many of the other countries in the world. And to me, that is going to also lead into the notion that you are going to have to find ways to come to new disciplines on subsidies, because the current disciplines clearly are not working. You know, again, it's too hard to prove that there is the existence of a subsidy, the definition of a subsidy is too narrow, the evidentiary burdens are too high. And at the end of the day, the remedies for subsidies don't work at all. I mean, your remedy is either, you put on a countervailing duty, which just pushes those subsidized imports out into everybody else's market. So, it doesn't help at the underlying problem of why do we have so much overcapacity coming out of China. And if you win on the other [inaudible] is, as Mark noted, rep is only prospective, so it doesn't really do you any good to win a case. When a steel plant has been built on the backs of lots and lots of subsidies and is pushing steel out all into the world, to now have the WTO say to China, you should remove the adverse effects of that subsidy on a prospective basis. Because what it's not saying is China, you have to tear down that steel plant. So again, I think the two kind of go hand in hand that you're going to need some new rules [inaudible] and then you're going to need a way to make sure that those rules are actually enforceable.

SAPIRO: And that takes us back to the point that Mark started on—China. And it'd be wonderful to hear your thoughts on whether the WTO is up to dealing with or could deal with some of these tensions, you know, whether it's IP theft; or forced tech transfer; subsidies, as Jennifer mentioned; state-owned enterprises, which was beyond of course subsidies; and other issues as well that have plagued the U.S.-China relationship for some time now. Do you think that there's a chance the WTO can do something to try to improve and address these issues?

WU: My own personal view is, with the current configuration of governments in place, that's almost impossible. And here's the problem in brief, right? Essentially, the Chinese have looked at the current rules playbook, and while it's not ideal, and they weren't involved in shaping it, and one could even argue certain parts of that rules playbook is balanced against them, they figured out a way to craft industrial policy that they think will work with the current rules playbook. So, you've got one of the two big giants in the room saying, I can live with the rules as they are even if they're less than ideal. And then you've got the other big giant, the United States, which Jennifer's pointed out, that said the rules are inadequate and even when I win in court, right, I can't get on damages that undo the past harm, and even on something as basic as subsidies. If subsidies require notifications, but countries don't notify, there's no punishment for that. So, all of this work I need to do, why do I even want to bother to fix the rules when the procedural elements of it aren't going to be fixed? So, it's sort of backed away from that and then you've got everyone else, right, the Europeans, the Japanese, Australia, and Singapore and so forth, as well as the developing countries wanting to use the WTO as a forum to do all that, but not enough to either entice the Americans or the Chinese to play ball with that. And I think that's the problem that we have right now is trying to figure out, well, what can you offer by each side to come back to the table at the WTO to talk about this issue, rather than just bilaterally in Beijing or Washington to do so. And I think it's a real problem that it has not been able to be cracked.

SAPIRO: And speaking of the need for newer approaches and new changes, there is a race underway to be the next director-general. The field has narrowed a bit, it'll narrow a little bit more soon. I wanted to ask each of you, given the challenges that you have identified, who do you think would be best place to try to address them? Peter, do you want to start?

DRAPER: Sure. Well, probably one of the African candidates, I think they're both formidable candidates, would attract the most consensus in the organization right now. Either one for me would be fine. I think the Korean candidate is also particularly interesting given that Korea has given up special and differential treatment status in the WTO. So, that's an interesting example. But the core question is with any of that, and our focus just on those three, by the way, I'm not going to pick one amongst them. The core question is whether those candidates would have the political clout, and nous to bring the majors around the table, on the kinds of issues that Mark and Jennifer have been highlighting. And that's a real challenge, because at the end of the day, we all know that WTO is a member-driven organization. And if the members don't want to play, it's very difficult for a WTO director-general to orchestrate proceedings. So political will, amongst the membership and alignment, sufficient alignment amongst the membership is the sine qua non, I think, for this to succeed.

SAPIRO: Other thoughts?

HILLMAN: Again, I think I would not venture to say one particular candidate. But I think this is an absolutely critical time at the WTO, where, again, I think when you think about the sort of range of people that have led the WTO in the past, the premium has been placed on those that are really good at listening, because at some level, again, given that it's a member-driven organization, the view is that the director-general's job is most of all to sort of keep the trains running on time and listen to everyone's views to try to figure out something about where there may be a consensus. I think this moment at the WTO calls for something more than that, yes, the new director-general is going to have to have all of that. But I think there's going to have to be a much more strong-willed ability to lead the institution to actually put forward some director-general lead ideas about how to get to a solution on some of these critical issues about the reforms that need to happen in order for the institution to really remain viable. So, you know, again, I'm not going to say who, but I think that ought to be one of the criteria that the members are looking at when they go through this process is who is really got that real leadership ability to really press for the kind of reforms that are going to be necessary to keep the WTO back—to get the WTO really back on track.

WU: I'm going to cop out, like the rest of the fellow panelists in terms of naming a specific person, but in my case, it's because I have an institutional affiliation through one of the advisory boards to WTO programs. So, I think it would be inappropriate for me to pick a particular person. But what I'll say is something that they think both Peter and Jennifer have alluded to—I think the person that you need both needs to be an aspiring manager internally at a point when many folks working inside the building are feeling dispirited and needs to sort of motivate them to be more creative than ever. And I think the other thing that we need is an honest broker who can effectively play shuttle diplomacy. And if we think back to the role that Arthur Dunkel played in terms of when we had a similar situation in the 1980s, and the ability for all sides to see him as a person that they could engage with to get towards compromises through that form of draft. I think it will take some time for any of the five candidates to develop that trust with a government, but that's the level of what will be necessary in order to push a reform agenda forward.

SAPIRO: Well, very diplomatic responses but also very constructive. Speaking of changes on the horizon, many of you have probably heard that the U.S. election is less than fifty days away, and I wanted to ask you, what do you see as the most likely developments if President Trump is reelected? And conversely, how different do you see a Biden administration agenda for the WTO? Mark, do you want to start with that one?

WU: Sure. I think the Trump administration's actually been quite straightforward about its views on the WTO, the need for reform. The question that we'll see in the second term of the Trump administration is to what extent it's willing to apply pressure outside on other WTO countries to push them in the direction of what the U.S. is seeking with WTO reform. So far, in the first term, it's decided this is not worth fighting. This is not the forum where he wants to engage. And I would predict that that will probably be the case, but if there is room for movement, that's where we'll focus on with regards to the second term. I think in a Biden administration, there are some really big questions, starting with the appellate body, which Jennifer has already alluded to, the views on the appellate body and the inadequacies with regards to dispute settlement date back, of course, to the Obama administration. And so, there'll be a question as to where the Biden administration sees an opening to act more constructively at the WTO. And I think many other members will be looking at that appellate body issue as a litmus test for the Biden administration.

SAPIRO: Other thoughts?

HILLMAN: You know, I can weigh in if you'd like. I mean, I think on the non-WTO related issues from the Trump administration, my own sense is what you're likely to see is an essence more of the same. I mean, I think we've heard it very clearly that President Trump is, as he calls himself, the "tariff man." And so, I think his view is, you know, tariffs are a good thing. Tariffs, you know, are effectively attacks on foreigners, even though it is the Americans that are paying those tariffs, and that the tariffs are doing work to both protect U.S.—the particular U.S. industries that he's seeking to protect, and in theory to create some kind of a leverage to try to get various bilateral agreements. But I don't see the Trump administration all of a sudden adopting a more multilateral sort of approach. I think we're going to still be in this notion that the Trump administration believes that the United States is better off with everything being done on a bilateral basis, rather than a multilateral basis. To me, where you'd see the biggest change, if we were talking about a Biden administration is the willingness and the desire for America to lead and to assert a real leadership role, and a belief in a rules-based system. I think you cut out the kind of tone of disdain for multilateral institutions that you're hearing from the Trump administration. And at the same time, I think the really big change that you would also see coming out of a Biden administration is an appreciation for how important it is to build political support at home before you start venturing out into a lot of new trade agreements abroad. In other words, a very real sense that you have to connect the need for real worker training and investment in workers and investment in infrastructure and investment in all of the tools to make Americans and American workers competitive as a part of a trade policy or as a precursor to a trade policy. So, I think you'd see a stronger link between a domestic connection to what does trade policy actually do that is helpful to Americans and America's economic strength and economic growth, that I think you would see a very different approach than what you're seeing in the Trump administration.

SAPIRO: Peter, any advice?

DRAPER: Well, that would be presumptuous for an Australian-based institution to offer advice to the U.S. administration. But what I can observe is that from an Australian point of view, if Biden were to be elected, there'd be definitely be, as Jennifer says, much more of an emphasis on multilateralism bolstering the system, the role of international law, and American leadership of that. And I think that those are certainly qualities that the Australians would support, as well as a concerted effort on building or rebuilding alliances across a range of multilateral institutions and particularly in the WTO. And I think actually, from the standpoint of the U.S.-China contestation, within the WTO and outside, that's something that the Chinese probably fear the most, dare I say, that actually, you know, the Europeans for instance, Australians would be delighted to have stronger, more committed, more engaged American leadership. For a Trump administration, I completely agree with Jennifer, with more of the same. Mr. Trump is "tariff man," that seems to make that very clear. Ambassador Lighthizer in his op-ed the other day, and in previous statements that he's made, effectively said that developing countries and the membership as a whole are on notice and that the U.S. is going to raise its tariffs, because the level of tariff equalization and the WTO he regards is fundamentally unfair. So, if you were to see an across-the-board raising of unilateral [inaudible] of U.S. tariff bindings, I think that could really blow the system up, as if it needs any more blowing up. So, I'm a little bit cautious about what trade policy would mean, the continuance of trade policy would mean under the Trump administration. The final point I would make is that under a Biden administration, what would the content of the trade policy be? So, for instance, the emphasis on climate change? Are we likely to see border carbon adjustments being put forward as the Europeans, for instance, are now arguing? These are also potentially quite challenging issues for the WTO.

SAPIRO: Let me follow up on that before we go to our Q&A session. Do you think that the WTO could and should focus more on climate change and the impact of trade on the environment, and I direct that at Peter, but I'm curious what would Mark and Jennifer think? And I would say, if you ask anyone today, in the western part of the United States—California, Oregon, Washington—that question, I think they would overwhelmingly say yes, we need a lot more done in whatever multilateral institution can help. But I'm curious what your thoughts are?

DRAPER: Well, I think the answer is yes. The question, again, is the content of that agenda. I would add that the issues of special and differential treatment, again, would feature sentry and there's been a central feature of the climate change talks, the notion of common but differentiated responsibilities is, in essence, an issue of special and differential treatment. So, the content is the key. But at the end of the day, I think what we're going to be, what we're going to be facing is a series of unilateral actions. And the real question is how those would play out in the WTO context where there are so many other pressing issues on the table that are probably not going to be resolved. So, for instance, subsidies, which Jennifer mentioned and Mark briefly referenced, in a post-COVID world where everybody is throwing money at their economies and subsidies are rising across the board, what do subsidies all mean in a future WTO is a big question that I would certainly like an answer to. Bring climate change into that agenda around challenging issues, it's not obvious to me that in this geopolitical context, the WTO can cope with the extra stress.

HILLMAN: I'd only add, I mean, I think Peter is totally right, you know, but a couple thoughts. I mean, one, obviously, there is some affirmative things that the WTO could do, if it could get agreements. I mean, just right off the top, there has been, you know, an effort for quite some time to come up with an agreed upon list of environmental goods and to encourage then all countries to reduce or eliminate any tariffs and non-tariff barriers to trade in those environmental goods. You know, unclear whether, you know, whether you could get agreement on that, it's been tried, and so far, not so much luck. Another one that's been out there with, again, a huge push is whether you could convince the world to eliminate subsidies for fossil fuels. The United States is not alone, but many countries around the world, and I would say the United States is leading the charge in providing very substantial subsidies to our fossil fuel producers. Again, could you get an agreement that would eliminate those subsidies? That would be at least some affirmative contributions that the WTO could make. And at the same time, you know, whether you could come up with ways of signaling to countries that if they enact carbon taxes or other, you know, carbon pricing mechanisms and need as part of that to impose border measures, meaning put that carbon tax not only on your domestic producers, but also put it on imports coming in, that there is a way that that can be done very clearly and consistently with WTO obligations. I think, some signaling to countries that the WTO system can accommodate carbon taxes and border adjustments for them would at least be a way of expressing a positive approach to bringing these issues within the WTO system.

WU: I agree with what Jennifer and Peter have noted in terms of what the WTO could do. I think the problem is given the current impasse. The question is—is this what it should do? And I would argue, as long as they can't fix some of the basic problems, right, as long as we don't have an effective mode by which to even agree upon what's a legitimate versus illegitimate subsidy with regards to renewable energy, as long as we cannot have an effective dispute settlement arm to even opine on what would be a legal versus illegal border adjustment, it's almost not effective for it to look at how to then fix these types of rules or these types of issues in a global context. So, in that context, I would prefer the WTO focus on fixing some of its basic structural issues that it is facing. That's not to say it can't play a role with regard to the climate crisis, what it can do, and especially with regards to developing countries, I think what it can do is provide a lot of technical assistance with it in terms of thinking about how you set up a grid that would fit with your services commitment. How can you take advantage of a trade facilitations agreement to better get renewable, whether it's hardware or services inside your country? How do you design certain laws so that they don't conflict with your trade obligations? How do you think about plurilateral agreements that will better allow you to integrate your grade and so forth? I think there's a lot that the WTO can do. But what it should probably focus on in the near term with regards to climate crisis, is a technical assistance, especially to developing countries that really where we see the renewables gap these days.

SAPIRO: So, well very creative ideas. And I think, very constructive, because there is a growing sense that that's an issue that more consideration should be given to. But at the same time, there are so many challenges that we now know about, that also need to be resolved in some way or another. So, let me pause there. And I'd like to now open up our Q&A session and invite members to join our conversation with their questions. Just a reminder to all, this meeting is on the record, and our operator will remind you on how to join the queue, if you'd like to.

STAFF: (Gives queuing instructions). Our first question will be from Hani Findakly.

Q: Thank you very much. This is an excellent panel, and I'm not a trade specialist, but I've learned a lot from all of you here. I have a very naive question about the fact that WTO is [inaudible], as Ms. Hillman mentioned, and principles are a little bit out of date and [inaudible] is taking place more in ideas over the internet and other non-tangible items, rather than goods. Action is really, since it's going to take a long time to negotiate and reform a WTO—may take another decade or so—what would happen simply if WTO did not exist? What else, what order, what system would prevail, and what damage or lack of it will take place if WTO did not exist?

SAPIRO: There's no such thing as a naive question, Hani. And actually, I think that's a very good one—who'd like to start?

WU: I'll take a crack at that. I think you would still have trade agreements between countries. What you lack is the efficiency of having one institution with a set of common rules for all, so it would look a lot more like the investment regime, right, where we don't have a world investment organization, you still have a series of rules in this web of over three thousand treaties to manage investment relations. I think that's what would happen if the WTO doesn't exist, and it's a real argument for why it's an efficiency game for the world or an institution like the WTO to exist, if it could fix some of its design flaws.

DRAPER: Miriam, if I could add, I think the reason we have the WTO is the history of World War II, in essence. So, we created these institutions to constrain the great powers for long going at each other's throats effectively, to constrain a power-based world. If we didn't have the WTO, the big powers would be free to do what they want, pretty much as the U.S. and China are doing right now. And I can tell you from the standpoint over at a middle power like Australia, that's not a pretty sight we're very concerned about. So, you take away that multilateral rules-based order you left [inaudible] this world with the big powers can do what they want. That creates potential for a law of the jungle. It's not going to be a pretty outcome. So, we need the WTO. The U.S. needs the WTO, not least to constrain China and vice versa, I would argue.

HILLMAN: And I would only add just as a last thing that in the absence of the sort of core of the WTO, which is rules against discrimination on the basis of origin, I mean, most favored nation that you have to treat all members of the WTO the same, you cannot choose one that's more of a favorite than another in terms of preferential treatment other than under certain FTA agreements, and that, you know, national treatment, you can't discriminate against imported goods over domestic product. In the absence of those basic core rules, you know, what you have is a lot more chaos. And that is much harder for many in the trading system to deal with. And I think [inaudible] is particularly harder for small and medium sized enterprises, for women-owned businesses, for companies trading out of developed and particularly least developed countries, the sense that you don't know what the rules are, and you have to spend a lot more time and resources than you have figuring them out, is a real deterrent to keeping the trading system sort of up and running. And that is one of the core values that I think the WTO does provide.

SAPIRO: I think of it almost, Hani, as what sometimes called the spaghetti bowl of trade agreements. Spaghetti might be a delicious dinner, but if you have hundreds of different agreements with different parties and different rules, and without any rules at all, fairly high barriers, both tariff and non-tariff, then it's going to be a lot more difficult to do much trade, and it would have potentially a significant impact on workers and businesses—small and large—across each economy.

STAFF: For our next question, will be from Sahra English.

Q: Thank you and thank you to the excellent panel. So, my question is around big, bold new ideas. Obviously, the WTO is in need of reform, and I think we covered that quite well. My question is, is it time for a new system where the U.S. can lead, create, you know, a system with allies that perhaps is non-MFN [most favored nation], but really gets to the crux of what, I think a lot of us in the business community get frustrated with, which is, you know, slow progress on negotiations. So, do you think such a system could live in parallel to the WTO? And do you think it actually strengthens or weakens the WTO system? Thank you.

DRAPER: I think, in essence, we have such a system, it's regional trade agreements. And I would hope that, certainly a Biden administration would rejoin the CPTPP, where those kinds of rules have been forged. Whether a Trump administration, would is an interesting question. I think, he certainly knows that that's possible, whether he would, is another matter entirely. But, I think, that's where the future rules are being forged, isn't regional trade agreement, it's amongst like-minded countries, and the CPTPP is probably the best base for that.

SAPIRO: It's interesting, even the new agreement between the U.S., Canada, and Mexico—USMCA—obviously built not only on NAFTA, but it actually built on the TPP-Plus agreement that the other parties agree to. Jennifer, Mark, any thoughts in response to Sahra's question?

WU: I'll weigh in to say, I agree with Peter, that we're moving in that direction. I think the difficulty in that vision is it would leave many developing countries to essentially be rules-takers. And the difficulty will be that most middle-powers will be, in essence, have one set of rules with regards to advanced economies, particularly the U.S., but they will also engage in the set of different rules with regards to China because they continue to have these plurilateral agreements with China, as well. And so, you'll see more of a bifurcation, particularly on the digital rules. And so, it will lead to—if we go down the system, I think it will have some impacts in terms of actually how the global economy gets shaped, and it will pull these two hubs of the U.S. and China further and further apart.

SAPIRO: Thank you, Mark. Sam, next question.

STAFF: Our next question will go from Cam Kerry.

Q: Hi. So, I wanted to pick up on the discussion about digital chapters. We're having this on Zoom, it's an increasingly digital society. And, we are seeing as in USMCA digital chapters, they're also are potential trade issues coming out of the court of justice decision on data transfers to the U.S., the extent that the EU is applying different rules to U.S. surveillance than it does to its member states, or that it does to trading partners. You have potential discrimination or most favored nation treatments, and you also have potential, at least, soft data localization [inaudible] a digital chapter. How equipped do you see the WTO being to deal with issues like these? What will it take for it to be equipped, if it's not?

SAPIRO: Great question, Cam. Mark, do you want to start on that one?

WU: Sure. Cam, I think you very well know some of the limitations the WTO faces, in the sense that—but let me go into detail for some audience members who may not. But one of those issues is exactly what you touched on, which is the data challenge. And so, the WTO has had a series of ongoing negotiations over e-commerce, but there's a question as to whether or not those data provisions should fall within scope or not. And not surprisingly, some disagreement between the U.S. and advanced economies on one side who think that it should, and China, India, and other developing countries who are reluctant to do so. The other challenge it faces is, those agreements as of now take place through what's known as, even if it's a plurilateral, you're required to extend them on an MFN basis to other countries who are not part of this agreement. And so particularly, many countries look at it and say we would prefer for this to be what's known as an annex four agreement, which would be you only need to extend it to the other countries that are part of the agreement. But in order to get that you need the membership to buy off on that. And so there needs to be something that's given to the other countries to agree to that. And so, I think those are real problems. How quick are they to then deal with it? It will take someone who's very creative, and I think touch on where the ideas that Peter mentioned, right? To say, SNDT, where really you can say, now everyone has to take on the same obligations, but you've got to reach what would be essentially the same level of reciprocal obligations. And that can't be chosen just based on your own choice but based on some objective measures. And whether or not someone has the creativity to do that, I think, will be difficult, but you've got to have at least have all the major digital powers on board to do that. And with the strategic rivalry between the U.S. and China these days, unless that creativity is injected, I can't see the U.S. and China necessarily wanting to negotiate those rules at the WTO and tying their own hand without knowing what the other side is tying it reciprocally.

SAPIRO: Any other thoughts to add?

DRAPER: No, I agree almost completely with Mark. I think anything that touches on security is going to be challenging, in any context, but particularly in the WTO. If it's just about the commercial flows it’s relatively easier to deal with, but I think we want more than that. Certainly, from the WTO, it's going to be very difficult to do.

SAPIRO: I think you're quite right, it's going to be a tough issue to tackle now given the U.S.-China tech war underway. But at the same time, as we've seen in the COVID environment now with accelerated digitalization, it's even more critical that we try to find a way to try to update the rules that we have. And this may very well be an issue that the next director-general will be able to hopefully address

STAFF: We're actually out of questions, so as a reminder, if you have a question, please click on the raise hand icon on your Zoom window—and we just have one now from James Jones.

Q: Very good discussion. Thank you all very much. I tend to agree with Ms. Hillman that until we solve the resolution problems, it's probably not going to really make a whole lot of headway. Are there any countries that we could—really the United States and China as the leads—are there any other countries who can take a lead in forming a [inaudible] WTO in a way that would be least acceptable to start to negotiations with China? I personally that Jesus Seade would be an ideal choice for director-general because he had both experience and confidence of China and the United States, but it didn't work out.

HILLMAN: I don't know whether you can hear me?

SAPIRO: Yes, we hear you, Jennifer. Go ahead.

HILLMAN: Okay. So, I would only say that, I do think there are a lot of countries that would be willing to work the United States and I start with Canada, because the Canadians have led what is referred to as the Ottawa Process, and brought together a very large and diverse group of countries under the leadership of Canada, to try to come up with exactly how do we restore the dispute settlement system, get the negotiating function back on track, and deal with improving the efficiency of the secretariat and the notification process, etcetera. So, I think they are leading the charge, joined by Europe, Canada, Mexico, Australia, and a lot of others. So, I do think you see as the United States kind of exits from the leadership stage, and China is sort of held aside on the other way, that there are countries stepping up to try to say it is important that we reform the WTO, it's essential that we do so as quickly as possible. So, I think one of the things that everyone can do is to lend some support to those countries that are stepping forward.

SAPIRO: Jennifer, can I follow up on that? Is there a good example in the work that the Walker principles have tried to do with respect to the appellate body?

HILLMAN: Yes, and from my perspective, one of the clear ways that you could fix the appellate body and do so relatively quickly, would be to adopt those Walker principles. If the United States needs some tweaking on them, so be it, and we could work that out, but adopt the Walker principles. I think, secondly, it would be important to establish some kind of an oversight process to say, okay, we've got to have a mechanism to hold countries to, I'm sorry, to hold the appellate body to those Walker principles, because clearly the United States is going to say, look, if they're just words on a paper, the Walker principles are no different than the rest of the WTO rules. And since the appellate body broke those, the appellate body won't adhere to the Walker principles either, so you create an oversight process to make sure that the appellate body does in fact stick to those Walker principles. And I think, lastly, you're going to need some changes in the way in which the appellate body secretariat functions, to try to bring in some rotation and some different approaches to how the staff supports the members of the appellate body. And you may need some additional changes around how the appellate body approaches trade remedies. But I think the system is eminently fixable, as soon as the United States indicates that it's actually willing to engage in negotiations for that kind of a fix. And we haven't really seen that yet.

SAPIRO: You want to say just a bit more about Ambassador Walker's principles just for those who may not be up to speed.

HILLMAN: So, you know, at its core, the United States basically had six objections to what did the appellate body get wrong? First, it said, you're taking too long, you're supposed to make your decisions in ninety days, and you're taking longer than that. So again, the Walker principles get back to the make the decision in ninety days. The United States objected to the fact that appellate body members started a case while they were a member of the appellate body and stayed on to finish it, which from the United States' perspective was not permitted under the rules. So again, the Walker principles basically say, don't start working on a case if you only have a limited number of days left in your term. You know, and other principles that are in there are related to things like, what is the role of precedent? Again, the United States objecting that once the appellate body decided one case, it tended to say that all future cases have to go down the same road so that an individual case creates this kind of binding precedent that is very objectionable and not necessarily consistent with rules. So again, the Walker principles coming in and saying no, no precedent is created, one decision does not have to follow another, the decisions are unique to each individual case. But if the reasoning is logical and compelling, of course, parties are free to argue based on that.

And again, fundamentally, there was also a notion that the appellate body had been engaging in too many decisions that were viewed as advisory opinions, again that they were writing too much text that didn't go to the heart of resolving the matter. So again, the Walker principles are saying, don't do that, do not go outside of what you need to do to resolve the particular dispute in your individual case, leave it at that. And sort of the sixth issue was this question of whether or not the appellate body was engaging in interpretations or decisions around the facts of a case, because under the rules, the appellate body is only supposed to decide legal questions. And yet in case after case, under a particular rule, Article 11, the appellate body was delving into the facts and trying to make an assessment of whether the panel had made an objective assessment of the facts. So again, the Walker principles are clearly saying, appellate body stay out of the facts, stay in your lane of deciding cases on the basis of the legal issues, and the legal questions only. So again, it was an attempt to address all of the major issues that were raised by the United States, reaffirming that the appellate body cannot add to the obligations or take away rights that any of the parties have under the WTO rules. So, it was an attempt to address all of those concerns. I mean, that's what the attempt was, and the United States has somewhat dismissed them and effectively just said, they're not good enough, they're just words on a page, they don't go far enough and not much else in terms of what could be done to improve them.

SAPIRO: Good. Any thoughts Mark? Or Peter? Good.

STAFF: Our next question will be from Irving Williamson.

SAPIRO: Hi Irving.

Q: Yes, your panelists already mentioned what has happened in Asia with the TPP. I was wondering, my comment, I wonder, what’s happening in other parts of the world while we're waiting for the U.S. and China and a more forward U.S. view on WTO? Anything in particular the Africans are doing in their African Continental Free Trade Agreement? I don't know if anything's happening in the Indian subcontinent or in South America. So, what should these other countries be doing while waiting for the big boys to sort of get their act together?

SAPIRO: And they're not waiting. Parker? Peter? Do you want to address that?

DRAPER: Sydney is not waiting, the Regional Comprehensive Economic Partnerships, probably is the most important example of that, that involves China very centrally, but it's the ASEAN plus six agreement, in essence. So, it's got China, Japan, Korea, as well as India, New Zealand, and Australia. Although India, of course, has opted at the last minute to stay out. But having, at least in theory, India and China in the same agreement was exciting for many. But that's not going to happen. The African Continental Free Trade Agreement—I've done a lot of work on, I've been advising the African Union on that, that's certainly chugging along. But it'll be a WTO-minus agreement, I would say, that's largely linked to African capacities to include in the very rigorous trade agreements, which were basically very low. There's a lot more going on in the APEC region, as well, but others can comment on that.

WU: I'll add to what Peter has highlighted, which I think highlights a number of very important developments on the rulemaking front. I think the other thing to pay attention to, and the pandemic will certainly have an impact on this, is what other countries are doing domestically to bolster their trade competitiveness. And I think you see a number of different, either industrial policy strategies, or what we have been discussing, you can't put your eggs in the same basket of either U.S. or China. So, ensuring or working with our firms for supply chain diversification, the connectivity, whether it's internet, whether it's [inaudible], whether it's just sea lanes and so forth. I think all of that are important developments that countries are taking at home, to ensure that whatever happens in this great power struggle they remain competitive, no matter how those rules come out. And I think it goes back to something Jennifer said earlier, that dimension of U.S. trade policies, perhaps in more critical dimension, regardless of whichever campaign prevails in November.

HILLMAN: Last thing I'd add, it's not really in the rules area, but I don't think we should overlook is what China is doing with its Belt and Road Initiative. Because obviously, while it started out, and it's still sort of 80 percent in hardcore infrastructure, meaning building parts, roads, railroads, and power plants among all of its BRI partners, which, you know, is a very large and growing number of countries. But you are now seeing China very move, very strongly with its Digital Silk Road, where it is, again, trying to be the one that is doing everything from laying the fiber optic cables to creating the telecommunications infrastructure, and more importantly on the rule side, to build all of that to Chinese standards with interconnectivity among Chinese products throughout the entire telecommunications networks in many of these BRI countries. And you now have seen China revive the idea of a "silk health road," where again, China would use both its technology, its equipment, again, to sort of move into the global health sphere, and to try to say to all of its BRI partners, you know, rely on us, China, to resolve all of the issues connected to the pandemic, as well as overall global health issues. So, you are starting to see some legal norms be developed in and around the ideas, as well as the you know, locking in a lot of countries to Chinese telecommunications equipment and other standards with respect to products and increasingly some legal standards as well.

SAPIRO: Great. And for the last question, we're going to do a lightning round. So, I'll ask each of you to limit your answers to 30 to 60 seconds, so that we can conclude roughly on time. But given the multitude of challenges that we've talked about, whether it's involving the U.S., China, Australia, India, South Africa, Europe, South America as well, we haven't really even begun to touch on a number of those issues. But let me try to look to an issue that's going to be before us sooner rather than later. And well, six, seven months may seem like a long time, the next WTO ministerial is very likely to be in June 2021. And whichever administration takes office in January, we'll have to get very busy planning for it. So, in the view of each of you, what does a robust but realistic agenda look like? Is it digital? Is it fisheries? Is it a dispute settlement? Internal reform? Are there other issues that you would put on the list for must be addressed, even if not resolved, but addressed in some fashion? And let's start with Peter, Jennifer, and then Mark.

DRAPER: So, that's a tough question to answer. I would say, firstly, is there enough of a basis for a ministerial? If there isn't, don't have one? And let's just be bold about that. I'm not convinced there's enough on the table right now. But at the very minimum, ideally, there should be an agreement on fisheries subsidies. If we can't get that right as a multilateral agreement, I think, well, I won't complete the sentence. Some of the joint statement initiatives, particularly on e-commerce, digital trade, if we can get some further resolution on those, I don't we are we going to actually have agreement, but it would be good to get something. I think the ministerial needs to set up some kind of process around reforming industrial subsidies. So, quite what that means in terms of WTO committee structures or something we're busy thinking about it at the moment. And maybe that's also a process that the G20 could incubate to some extent outside of the WTO. Final point quickly, Miriam, it's just really struck me that we haven't really discussed the EU, but it strikes me that the EU is a critical player in all of this particularly the U.S.-EU-China tangle. And so, the U.S.-EU relationship, I think is very important going forward as well.

SAPIRO: So, with a new trade commissioner now.

HILLMAN: So, I'll say just two quick things. One, I think it actually is important to finish the fish subsidies agreement for a number of reasons, A., we need to save the fish, but more importantly for the WTO I think it is to show that we can reach an agreement on anything. I mean, this is pretty critical that the WTO show that it still has the capacity to come together and reach an agreement. So, I actually would put a lot of emphasis on concluding that fishery subsidy agreement. And the second one, I think that needs to be given a lot of thought is exactly what is the WTO doing to make sure that when we get a vaccine for COVID, or treatment drugs, that that we learn the lessons that we learned thirty years ago, when there was a failure with respect to the fair distribution of HIV/AIDS drugs, and that we use what we've learned to put together the kind of cooperative mechanisms, as well as you know the supply chains that would help there be an efficient and effective and fair distribution of that vaccine throughout the world. And if the WTO could do that, that would go a huge, long way to helping it restore, again, its sense of relevance.

SAPIRO: Maybe we'll get to do that sooner rather than later. Mark, last word.

WU: I will join the others in saying the WTO needs at least one success—the candidate that's most likely for that is the fishery subsidies agreement. So, the bare minimum, it would just need to basically show the negotiating arm can still work. I also agree, I think how it deals with the protectionist or the uneven distribution of whatever happens with a vaccine, if one exists by next June, is critical. The last thing which we haven't touched on, but I think is also important is back in 2001, the WTO told developing countries, which is the largest share of their membership, that there will be new rules to deal with the development challenges. And those outside of what was given in terms of trade facilitation agreement, really have not been forthcoming. And I think there is a possibility of laying the groundwork and possibly having some basic agreement on domestic agriculture, which is where the majority of folks who live in these developing countries are employed. I think there's an important sense for developing countries to feel as though something in the negotiating arm of the WTO matters to them, so they can sell that to constituencies back home. So, I think that's another element that we need to focus on, besides what Peter and Jennifer mentioned.

SAPIRO: And ideally, we would be able to tackle at least some progress in each of the three arms. So, in addition to negotiation, dispute settlement, and also structural internal reorganization. So, let's look forward to that day. Let me just thank everyone for joining today's virtual meeting. And a huge thank you to each of our panelists for their very rich insights. And for a terrific discussion. As Peter said to me recently, we have a very rich agenda of unresolvable issues to tackle and I couldn't agree more especially after this discussion. So please note for everyone that the audio and transcript of today's meeting will be available on the Council's website. And thank you again for participating.

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