Brazil and China seek to drive WTO reform

Brazil and China aim to advance the reform of the World Trade Organization (WTO) amid the unilateralism of the Donald Trump administration, with moves expected at the organization’s General Council this Monday and Tuesday.

Brazil argues that the 166 member countries should discuss the implications of the “recent developments in trade policy for the rules-based system” and seek “possible solutions.”

President Luiz Inácio Lula da Silva recently defended the urgency of “refounding the WTO on modern and flexible bases,” but this time Brazil will not yet present a complete proposal to that effect.

Amid the 50% tariff imposed by the U.S. government, Lula stated that “few areas have regressed as much as the multilateral trading system. Unilateral measures render basic principles such as the Most Favored Nation clause meaningless. They disorganize value chains and throw the global economy into a pernicious spiral of high prices and stagnation.”

China — the world’s largest trading nation, considering exports and imports — also requested a debate on how the WTO and its members can “collectively respond to the current period of trade turbulence intensified by acts of unilateralism, such as arbitrary tariff measures.”

Beijing will detail to other countries its announcement that, “as a large and responsible developing country, it will not seek new special and differential treatment in current and future WTO negotiations.” The mechanism grants additional time for tariff reductions and other commitments.

“In the context of unprecedented challenges to the multilateral trading system, China has made this solemn commitment to safeguard and strengthen this system,” argues the Chinese government.

Profound Reform

A profound reform of the WTO is seen by a growing number of countries as an alternative to “harmful and self-destructive unilateralism” and capable of offering answers to new challenges, such as the return of tariffs as an instrument of economic policy.

The debate on WTO reform is not new, but this time the winds seem to be changing. For key negotiators, the WTO will retain its name and building, but will undergo profound changes — the magnitude of future negotiations will not be just “more of the same.”

The expectation among negotiators from various countries, including emerging ones, is to draw up a new normative framework for world trade, and not merely “apply a coat of paint” to the rules to accommodate current realities within the system.

It is not only a matter of signing a series of agreements but of rebuilding the rules. For some experienced negotiators, the best scenario would be a system similar to the one that prevailed between 1947 and 1995.

From GATT to OMC

The regime of the General Agreement on Tariffs and Trade (GATT), forged in the midst of the Cold War, contained blatant protectionist practices but was a provisional agreement that functioned for almost half a century without formal status as an international organization.

Its operation was based on a series of negotiation rounds — such as the Kennedy (1964–1967), Tokyo (1973–1979), and Uruguay (1986–1994) Rounds — which produced partial agreements and sectoral codes with different degrees of adherence. Due to the fragmented contractual architecture, the codes did not bind all members, and the commitments made were often fragile, subject to exception clauses, and lacking an effective enforcement mechanism.

There was no supranational body for the final arbitration of disputes: panels on trade disputes could be blocked, and consensus was required for the adoption of reports.

The creation of the World Trade Organization in 1995 brought a more robust institutional regime. For the first time, a mandatory and integrated legal system was established, with broader coverage that included agreements on services (GATS), intellectual property (TRIPS), and trade-related investment measures (TRIMS).

The “crown jewel” was the creation of a dispute settlement mechanism with a supranational character. With the almost automatic adoption of panel and Appellate Body reports, unless a consensual decision opposed them, the WTO came to have an instance with real authority to arbitrate trade disputes — a milestone in the history of international economic law.

However, the collapse of the WTO Appellate Body, which began in December 2019, was imposed by the United States and represented a crisis of legitimacy and effectiveness for the multilateral system itself. The regime was internally hollowed out, in a mix of decision-making paralysis, lack of institutional reforms, and growing indifference — beginning with the United States.

Now, given the new reality of Trumpian unilateralism, a reform of the WTO could mean a system without complete consensus to close agreements. The possible path will be the formation of coalitions of the “like-minded” — countries that think alike: those that do not wish to join certain agreements will also not benefit from them.

Special and differential treatment will be truly restricted to the poorest countries. The return of arbitration in trade disputes is on the radar of some countries. The possibility of retaliation may persist, as only the major powers are capable of retaliation.

For some negotiators, part of the structure may be preserved, such as the TRIPS agreements (intellectual property), which are of great value for technologically advanced and technology- and innovation-exporting countries.

The same applies to TRIMS (agreement on trade-related investment measures), certain agreements on services, and the ongoing negotiations on e-commerce, aimed at achieving a permanent moratorium on the taxation of electronic transmissions — a measure of great interest to major technology companies and global corporations.

Gradually, countries will detail their proposals at the WTO reform table, with significant interests and differences.

Legal status
GATT: It was a provisional agreement, not a formal international organization. It operated through rounds of negotiations.
WTO: It is a formal international organization with a permanent institutional structure, established by the Marrakesh Agreement in 1994.

Scope of coverage
GATT: Focused mainly on trade in goods.
WTO: Covers goods, services, and intellectual property through agreements such as GATT (1994), GATS (General Agreement on Trade in Services), and TRIPS (Trade-Related Aspects of Intellectual Property Rights).

Dispute resolution
GATT: A weaker dispute resolution system, as a single country could block the adoption of panel decisions.
WTO: Has (or had) a stronger and binding dispute settlement mechanism, with an Appellate Body and automatic adoption of decisions, unless all members oppose.

Decision-making
GATT: Decisions were often informal, with limited transparency.
WTO: More structured decision-making process, although consensus is still preferred. Includes regular ministerial conferences and a General Council.

Trade rounds vs. ongoing negotiations
GATT: Operated through periodic trade rounds (for example, Kennedy, Tokyo, Uruguay).
WTO: Has ongoing negotiations and monitoring, including the Doha Development Agenda and plurilateral agreements.

Coverage of non-tariff barriers
GATT: Focused on tariff reductions, with limited tools to address non-tariff barriers.
WTO: Addresses non-tariff barriers more comprehensively, including subsidies, standards, and technical regulations.

Trade policy review mechanism
GATT: There was no formal mechanism for regular review of members’ trade policies.
WTO: Introduced the Trade Policy Review Mechanism (TPRM) to increase transparency and accountability.

Focus on development
GATT: Limited provisions for developing countries.
WTO: Includes special and differential treatment, with a stronger focus on development.

Source: Valor Econômico

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