Content uploaded by Zhijie Ding
Author content
All content in this area was uploaded by Zhijie Ding on Feb 22, 2022
Content may be subject to copyright.
Berkeley APEC Study Center Newsletter Winter 2022 22
BASCNEWS
Graphics Credit: Reuters
ince 2008, member states of the World Trade Or-
ganization (WTO) have failed to make meaning-
ful progress toward concluding the Doha Devel-
opment Round (DDR).1 In the meantime, with the U.S.
blocking the appointment of new Appellate Body (AB)
members, the AB has ceased to function as of Decem-
ber 2019.2 The WTO is suering from a dual crisis—a
deadlocked legislative body and a dysfunctional judicial
body. Although the challenges facing the WTO have re-
ceived considerable attention, individual analyses tend
to be narrow in scope and scrutinize either the dead-
locked DDR or the dysfunctional AB, but not both. This
article develops an integrated and systematic approach
for understanding the challenges facing the WTO.
The survival of cooperation at the international level de-
pends on three factors—the states that participate in the
international regime, the regime itself, and the interna-
tional system in which the regime operates. Leveraging
these three layers of analysis—states, regime, and sys-
tem—I argue that the WTO’s dual crisis can be attribut-
ed to institutional features that disincentivize coopera-
tive eorts by member states, the WTO’s ineectiveness
as a facilitator of cooperation, and its inability to correct
systemic imbalances. In the following sections, I discuss
each layer in turn and illustrate how specic institution-
al features drive the WTO’s dual crisis. Subsequently, I
leverage my ndings and propose a three-part institu-
tional reform package.
State Incentives
The eective functioning of the WTO predicates on
member states’ willingness to engage in constructive di-
alogue. However, the WTO’s institutional design creates
and sustains systematic biases against less wealthy and
REVITALIZING THE GLOBAL TRADING SYSTEM:
MEMBER STATES, THE WTO, AND THE WORLD ECONOMY
By Zhijie Ding, BASC Research Assistant
S
Berkeley APEC Study Center Newsletter Winter 2022 23
BASCNEWS
less powerful member states. This decreases develop-
ing countries’ expected benets from WTO agreements,
disincentivizes them from engaging in and concluding
multilateral trade negotiations, and leads to negotiation
deadlocks. Concretely, developing countries are exclud-
ed from “Green Room” meetings, where powerful play-
ers nd a common position before pressuring selected
developing countries to break ranks with their peers.3
Moreover, the agenda-setting power of the Chair of the
General Council is unspecied in WTO agreements
and lacks checks and balances, leaving room for pow-
er-based improvisation.4 Similarly, no institutionalized
rules govern the selection of negotiation “facilitators”
who exercised considerable inuence over negotiations.5
The Green Room and the lack of rules governing negoti-
ations allow developed countries to exert disproportion-
ate inuence, to the detriment of developing countries.
For a case in point, during the Ministerial Conference in
Cancún, facilitators were reported to have replaced mul-
tilateral meetings with bilateral consultations, which
prevented developing countries from operating in co-
alitions and reduced their bargaining power vis-à-vis
the more powerful players.6 This rendered developing
countries unable to meaningfully inuence negotiated
outcomes, thus reducing their expected gains and lead-
ing to the breakdown of negotiations.
Developing countries face similar disadvantages in the
WTO’s judicial bodies. While developing countries
make up more than two-thirds of the WTO member-
ship, over 60% of all complaints were led by developed
countries.7 For one thing, high costs and complex legal
procedures often inhibited developing countries from
taking full advantage of the dispute settlement system.8
For another, since the enforcement of WTO rulings in-
volves countermeasures by the winning complainant,
and developing countries are less able to impose cost-
ly sanctions, they have less incentive to use the WTO’s
dispute settlement system.9 Arguably, the procedural
reforms introduced by the Dispute Settlement Under-
standing (DSU), such as stricter timelines and the au-
tomatic adoption of panel reports, would benet less
powerful countries;10 however, the increased complex-
ity of legal procedures may oset these benets for
developing countries without enough administrative
and bureaucratic capacity to utilize the more complex
legal procedures.11 As a result, benets associated with
the DSU have accrued disproportionately to developed
countries.12 Facing a dispute settlement system where
powerful players prevail, developing countries expect
lower gains from WTO agreements and are disincentiv-
ized from engaging meaningfully in multilateral trade
negotiations. This dynamic leads to the persistence of
the DDR deadlock.
Developing countries are not alone in facing an adverse
incentive structure; the U.S. complaint about the AB
is a case in point. The Obama and Trump administra-
tions blocked the reappointment of Jennifer Hillman,
Seung Wha Chung, Shri Baboo Chekitan Servasing in
2011, 2016, and 2018, respectively,13 claiming that the AB
had overstepped the institutional role assigned to it in
the Uruguay Round and had committed judicial activ-
ism through expansive interpretations of WTO provi-
sions.14 To be sure, “judge-made law” is inevitable given
the ambiguities in WTO provisions, and such ambigu-
ities themselves can be diplomatic necessities. Howev-
er, judicial activism becomes problematic in the WTO
for two reasons. First, there are no eective institution-
al checks on the WTO’s dispute settlement bodies. Al-
though member states can amend and interpret WTO
rules, should they decide the judicial bodies have gone
too far, such processes are extremely cumbersome.15
For example, interpretations are adopted only with the
support of three-quarters of the WTO membership.16
To date, no attempt at reinterpreting WTO provisions
has been successful. Second, WTO panels tend to base
their decisions on the past panel and AB reports, despite
stare decisis not being a source of international law listed
under the Statute of the International Court of Justice.17
This further expands the legal eect of judicial activism
and heightens concerns regarding sovereignty. Demo-
cratic accountability and sovereignty concerns associat-
ed with judicial activism disincentivize member states
from concluding legally binding agreements through
the WTO and restoring the AB, thereby reinforcing the
DDR deadlock and the AB crisis.
Regime Eectiveness
Apart from member states’ willingness to engage in co-
operation, sustaining cooperation requires an interna-
tional regime that functions as an eective facilitator.
In this respect, the WTO suers from two primary set-
backs. First, it is not an eective provider of information.
International regimes facilitate cooperation through,
Berkeley APEC Study Center Newsletter Winter 2022 24
BASCNEWS
inter alia, reducing information costs and alleviating
information asymmetries.18 As a member-driven orga-
nization, the WTO assigns a minor role to its informa-
tion-provision body—the Secretariat. While the WTO
has 625 regular sta,19 the International Monetary Fund
(IMF) has roughly 2,700,20 and the World Bank has
15,907.21 The relatively small size of the WTO Secretariat
undermines its capacity to provide information and as-
sistance during multilateral negotiations, which is nec-
essary for productive discussion, as many delegations
nd the number of meetings unmanageable.22 In addi-
tion, it prevents the WTO Secretariat from providing
sucient analytical support, which facilitates informed
policy deliberation.23 Due to the dearth of information
regarding negotiations and policies, member states of-
ten struggle to identify mutually acceptable arrange-
ments and conclude multilateral negotiations. Second,
the WTO lacks a strong meta-regime, dened as the
principles and norms underpinning the regime,24 as
major players disagree on the principles and norms ac-
cording to which trade liberalization ought to take place.
This misalignment of values hampers the WTO’s abili-
ty to generate solutions attractive to all member states
and resolve distributive tensions.25 Concretely, devel-
oping member states assign greater importance to the
norm of economic development than their developed
counterparts.26 This ideological division is evident in the
DDR agenda: While developing countries advocated
prioritizing “development issues”—implementation of
Uruguay Round agreements and special and dierenti-
ated treatment—they were accorded low priority by the
agenda setters, who heavily reected the interest of de-
veloped countries.27 This undermined the WTO’s ability
to resolve development-related issues, which are at the
heart of the DDR deadlock.28
Systemic Factors
Even assuming state incentives and regime eectiveness
are fully rectied, the success of the WTO depends on
characteristics of the international economic system,
which dictate the nature of the issues the WTO is con-
fronted with. From this systemic perspective, the failures
of the WTO can be attributed to its inability to address
the structural imbalances in the international econom-
ic system. One of the key justications behind former
President Donald Trump’s move away from complying
with WTO rules toward a trade war with China was the
U.S. trade decit vis-à-vis China, which stood at $419 bil-
lion in 2018.29 However, xing the current account decit
is no simple task, as it is partially driven by the capital
account surplus,30 and the eects of trade policy are like-
ly overshadowed by the fundamental determinants of
saving and investment.31 Behaviors of international ac-
tors matter, too. For example, the buildup of foreign-ex-
change reserves by East Asian countries since the 1990s
fueled a global saving glut, and the attractiveness of
the U.S. as an investment destination, as well as the re-
serve-currency status of the U.S. dollar, meant capital
owed disproportionately into dollar-denominated as-
sets.32 This capital inow then shaped household saving
and investment behavior, leading to a current account
decit in the U.S.33 As the trade decit is partially root-
ed in patterns of saving and investment, not trade pol-
icy, it is unsurprising that diplomatic exchanges in the
WTO, which mostly focus on trade policy, have strug-
gled to prevent the trade war. In a nutshell, systemic fac-
tors altered the nature of the issues confronted by the
WTO. With an institutional design from an earlier era,
the WTO is no longer an eective forum for addressing
contemporary challenges in the world economy. This
encourages member states to substitute toward alterna-
tive solutions, such as a tit-for-tat tari war.
Policy Implications
The preceding analysis suggests that institutional re-
forms to the WTO ought to incentivize cooperation by
its member states, improve its capacity to facilitate co-
operation, and empower it to address systemic drivers
of trade conicts. This can be achieved through a three-
part reform package, covering the WTO’s Secretariat
and its legislative and judicial processes.
First, the WTO should expand the budget and the man-
date of its Secretariat.34 In particular, the Secretariat
ought to play a greater role in conducting trade policy
analysis, assisting national delegations during multi-
lateral negotiations, and facilitating informed policy
deliberations. In the meantime, the Secretariat should
actively engage governments, non-governmental orga-
nizations, and multinational corporations in regular
discussions on the overarching principles and norms
of the global trading system. This would strengthen the
WTO’s meta-regime. In addition, the Secretariat has a
role to play in leveling the playing eld. For example,
Berkeley APEC Study Center Newsletter Winter 2022 25
BASCNEWS
“The WTO’s dual crisis—legislative and judicial—can be attributed
to how it shapes state incentives, its ineectiveness as a facilitator
of cooperation, and its inability to address systemic drivers of trade
conicts. These challenges can be addressed by reforming the WTO’s
Secretariat, as well as its legislative and judicial processes.”
it could extend extra analytical and logistical support
to delegations from developing countries, whose lack
of expertise often compounded the institutional aws
that disadvantage developing countries during multi-
lateral negotiations.35 Similarly, it could provide legal
advice and technical support for developing countries,
should they decide to le disputes. Finally, the Secre-
tariat should extend its research eorts toward systemic
factors, such as patterns of saving and investment, po-
tentially via partnerships with the IMF, whose research
focuses more heavily on the international monetary sys-
tem.
Second, the WTO should ensure the clarity and equi-
ty of rules governing multilateral negotiations. For one
thing, clarity is urgently needed in the agenda-setting
procedure and the selection of negotiation facilitators,
since a lack of institutionalized rules leaves room for
power politics. For example, the agendas of multilateral
negotiations could be set by a permanent body consist-
ing of an equal number of representatives from devel-
oped and developing countries. Similarly, negotiation
facilitators should be elected from a permanent board
of trade experts, whose appointment requires approval
by both developed and developing countries. For anoth-
er, more equity is needed in the structure of multilater-
al negotiations. Power imbalances of the Green Room
can be mitigated by, for example, mandating that initial
drafts of multilateral agreements be written by a group
in which developed and developing countries enjoy
equal representation.
Third, the WTO should reform the operation and over-
sight of its judicial bodies, with the goal of leveling the
playing eld and addressing accountability and sover-
eignty concerns. For instance, the WTO could extend
nancial assistance to least developed countries, for
which ling a dispute can be prohibitively costly. In fact,
one-time nancial assistance may be sucient, as prior
experience in ghting disputes has been shown to in-
crease the likelihood for a developing country to initiate
disputes.36 In addition, the WTO needs a mechanism to
periodically evaluate, or even overturn, panel and AB
rulings.37 These reforms would bolster member states’
condence in the WTO and incentivize cooperation by
both developed and developing countries.
Conclusion
To sum up, this article argues that the WTO’s dual cri-
sis—legislative and judicial—can be attributed to how
it shapes state incentives, its ineectiveness as a facili-
tator of cooperation, and its inability to address system-
ic drivers of trade conicts. These challenges can be
addressed by reforming the WTO’s Secretariat, as well
as its legislative and judicial processes. Notice that the
bulk of the policies recommended here are motivated
by the state-incentive and regime-eectiveness layers of
analysis and aimed at reducing tensions between devel-
oped and developing countries, whereas considerably
less attention is paid to addressing the systemic factors
underpinning the U.S.-China trade conict. Since more
powerful players, such as the U.S. and China, have great-
er incentives to deviate from WTO rules, resolving their
tensions is arguably more dicult. Therefore, this arti-
cle simply recommends that the WTO Secretariat ded-
icate more research eorts to systemic factors, a move
that would create the condition for the eventual reso-
lution of the U.S.-China trade conict. Given political
constraints, the WTO likely has the most feasible path
forward by pursuing a multi-phased reform strategy—
adopting an initial emphasis on North-South tensions
and laying the foundation for the later resolution of
West-East tensions.
Berkeley APEC Study Center Newsletter Winter 2022 39
BASCNEWS
cy: The Future of the World Trade Organization. Chicago Journal
of International Law 2 (2):403-15.
[17] Ragosta, John, Navin Joneja, and Mikhail Zeldovich. 2003.
WTO Dispute Settlement: the System is Flawed and Must Be
Fixed. The International Lawyer 37 (3):697-752.
[18] Keohane, Robert O. 1984. After Hegemony: Cooperation and
Discord in the World Political Economy. Princeton, NJ: Princeton
University Press.
[19] World Trade Organization (WTO). 2020. Overview of the
WTO Secretariat. Geneva: WTO.
[20] International Monetary Fund (IMF). 2019. The IMF at a
Glance. Washington D.C.: IMF.
[21] World Bank. 2015. Where Is Our Sta From? Washington
D.C.: World Bank.
[22] Narlikar, Amrita. 2001. WTO Decision-Making and Devel-
oping Countries. Available at <https://www.iatp.org/sites/default/
les/WTO_Decision-Making_and_Developing_Countries.htm>.
Accessed 21 December 2021.
[23] Hoekman, Bernard. 2020. Trade Wars and the World Trade
Organization: Causes, Consequences, and Change. Asian Eco-
nomic Policy Review 15 (1):98-114.
[24] Aggarwal, Vinod K., and Cédric Dupont. 2020. Cooperation
and Conict in the Global Political Economy. In Global Political
Economy, edited by John Ravenhill, 52-75. Oxford: Oxford Univer-
sity Press.
[25] Ibid.
[26] Finlayson, Jock A., and Mark W. Zacher. 1981. The GATT and
the Regulation of Trade Barriers: Regime Dynamics and Func-
tions. International Organization 35 (4):561-602.
[27] Khor, Martin. 2006. Impasse at the WTO: A Development
Perspective. Economic and Political Weekly 41 (45): 4659-66.
[28] Ibid.
[29] Scott, Robert E. 2019. Record U.S. trade decit in 2018 reects
failure of Trump’s trade policies. Washington D.C.: Economic Policy
Institute.
[30] Zhang, Yuhan. 2018. The US-China Trade War: A Political
and Economic Analysis. Indian Journal of Asian Aairs 31 (1/2):53-
74.
[31] Lawrence, Robert Z. 2018. Five Reasons Why the Focus on Trade
Decits Is Misleading. Washington D.C.: Peterson Institute for In-
ternational Economics.
Zhijie Ding, pp. 22-25
[1] Hoekman, Bernard. 2020. Trade Wars and the World Trade
Organization: Causes, Consequences, and Change. Asian Eco-
nomic Policy Review 15 (1):98-114.
[2] Hillman, Jennifer. 2020. A Reset of the World Trade Organiza-
tion’s Appellate Body. New York, NY: Council on Foreign Relations.
[3] Stiglitz, Joseph E. 2006. Making Globalization Work. New York,
NY: W. W. Norton & Company.
[4] Narlikar, Amrita, and Rorden Wilkinson. 2004. Collapse
at the WTO: A Cancun Post-Mortem. Third World Quarterly 25
(3):447-60.
[5] Ibid.
[6] Ibid.
[7] Bernhardt, Thomas. 2014. North-South Imbalances in the In-
ternational Trade Regime: Why the WTO Does Not Benet De-
veloping Countries as Much as it Could. Consilience 12 (1):123-41.
[8] Iida, Keisuke. 2004. Is WTO Dispute Settlement Eective?
Global Governance 10 (2):207-25.
[9] Stiglitz, Joseph E., and Andrew Charlton. 2005. Fair Trade for
All: How Trade Can Promote Development. Oxford: Oxford Univer-
sity Press.
[10] Lacarte-Muró, Julio, and Petina Gappah. 2000. Developing
countries and the WTO legal and dispute settlement system:
a view from the bench. Journal of International Economic Law 3
(3):395-401.
[11] Kim, Moonhawk. 2008. Costly Procedures: Divergent Eects
of Legalization in the GATT/WTO Dispute Settlement Proce-
dures. International Studies Quarterly 52 (3):657-86.
[12] Ibid.
[13] Rathore, Aditya, and Ashutosh Bajpai. 2020. The WTO Ap-
pellate Body Crisis: How We Got Here and What Lies Ahead?
Available at <https://www.jurist.org/commentary/2020/04/ra-
thore-bajpai-wto-appellate-body-crisis/>. Accessed 21 December
2021.
[14] Schott, Jerey J., and Euijin Jung. 2019. The WTO’s Existential
Crisis: How to Salvage Its Ability to Settle Trade Disputes. Washing-
ton D.C.: Peterson Institute for International Economics.
[15] Ragosta, John, Navin Joneja, and Mikhail Zeldovich. 2003.
WTO Dispute Settlement: the System is Flawed and Must Be
Fixed. The International Lawyer 37 (3):697-752.
[16] Bareld, Claude E. 2001. Free Trade, Sovereignty, Democra-
[32] Bernanke, Ben S. 2005. The Global Saving Glut and the U.S.
Current Account Decit. Available at <https://www.federalre-
serve.gov/boarddocs/speeches/2005/200503102/>. Accessed 21
December 2021.
[33] Ibid.
[34] Hoekman, Bernard. 2020. Trade Wars and the World Trade
Organization: Causes, Consequences, and Change. Asian Eco-
nomic Policy Review 15 (1):98-114.
[35] Narlikar, Amrita, and Rorden Wilkinson. 2004. Collapse
at the WTO: A Cancun Post-Mortem. Third World Quarterly 25
(3):447-60.
[36] Davis, Christina L., and Sarah Blodgett Bermeo. 2009. Who
Files? Developing Country Participation in GATT/WTO Adjudi-
cation. The Journal of Politics 71 (3):1033-49.
[37] Hoekman, Bernard. 2020. Trade Wars and the World Trade
Organization: Causes, Consequences, and Change. Asian Eco-
nomic Policy Review 15 (1):98-114.
Gavin Zhao, pp. 26-30
[1] Ravenhill, John. 2017. The political economy of the Trans-Pa-
cic Partnership: a ‘21st Century’ trade agreement? New Political
Economy 22 (5): 573–594.
[2] Corr, Christopher F, Francisco de Rosenzweig, William Mo-
ran, Samuel David Scoles, and Matt Solomon. 2019. The CPTPP
Enters into Force: What Does it Mean for Global Trade? White
and Case.
[3] Petri, Peter A., Michael G. Plummer, Shujiro Urata, and Fan
Zhai. 2017. Going It Alone in the Asia-Pacic: Regional Trade
Agreements without the United States. Peterson Institute for In-
ternational Economics. Available at <https://www.ssrn.com/ab-
stract=3047895>. Accessed 23 December 2021.
[4] Edgington, Tom. 2021. Brexit: What trade deals has the UK
done so far? BBC News, sec. UK. Available at <https://www.bbc.
com/news/uk-47213842>. Accessed 2 December 2021.
[5] Douglas, Jason. 2021. Is Brexit Hurting the U.K. Economy?
Trade Data Flash a Warning. Wall Street Journal, sec. World. Avail-
able at <www.wsj.com/articles/is-brexit-hurting-the-u-k-econo-
my-trade-export-import-european-union-england-11634651205>.
Accessed 6 December 2021.
[6] Department for International Trade. 2021. UK Accession to
CPTPP: The UK’s Strategic Approach.
[7] Ziady, Hanna. 2021. Britain’s Pacic trade ambitions won’t
compensate for Brexit. CNN. Available at <https://www.cnn.
com/2021/06/22/business/cptpp-uk-trans-pacific-trade/index.
html>. Accessed 6 December 2021.
Berkeley APEC Study Center Newsletter Winter 2022 40
BASCNEWS
[8] Schott, Jerey J. 2021. China’s CPTPP bid puts Biden on the
spot. Peterson Institute for International Economics. Available at
<www.piie.com/blogs/trade-and-investment-policy-watch/chi-
nas-cptpp-bid-puts-biden-spot>. Accessed 7 December 2021.
[9] Leussink, Daniel, and Kantaro Komiya. 2021. First meeting
for UK’s CPTPP inclusion to be held in a month, Japan minister
says. Reuters, sec. United Kingdom. Available at <https://www.re-
uters.com/world/uk/rst-meeting-uks-cptpp-inclusion-be-held-
month-japan-minister-says-2021-09-01/>. Accessed 7 December
2021.
[10] Cross, Michael. 2021. Pacic trade deal facing formidable le-
gal obstacles. Law Gazette. Available at <https://www.lawgazette.
co.uk/news-focus/news-focus-pacic-trade-deal-facing-formida-
ble-legal-obstacles/5110630.article>. Accessed 20 December 2021.
[11] Hoang, Lien. 2021. U.K. ‘on track’ to join CPTPP by 2022, trade
ocial says. Nikkei Asia. Available at <https://asia.nikkei.com/
Editor-s-Picks/Interview/U.K.-on-track-to-join-CPTPP-by-2022-
trade-ocial-says>. Accessed 20 December 2021.
[12] Department for International Trade and Hon Liam Fox MP.
2018. Japan will ‘spare no eort to support the UK’ in joining the
CPTPP. United Kingdom Government. Available at <https://www.
gov.uk/government/news/japan-will-spare-no-eort-to-support-
the-uk-in-joining-the-cptpp>. Accessed 20 December 2021.
[13] 1994. Regional Trade Agreements: Goods Rules (GATT Arti-
cle XXIV). World Trade Organization. Available at <https://www.
wto.org/english/tratop_e/region_e/regatt_e.htm>. Accessed 20
December 2021.
[14] Lake II, Charles D. 2020. Memo to the CPTPP countries on
how to take the agreement to the next level. Peterson Institute
for International Economics. Available at <https://www.piie.com/
blogs/trade-and-investment-policy-watch/memo-cptpp-coun-
tries-how-take-agreement-next-level>. Accessed 30 November
2021.
[15] 2020. Full text of Chinese President Xi Jinping’s remarks at
the 27th APEC Economic Leaders’ Meeting. Xinhua. Available
at <www.xinhuanet.com/english/2020-11/20/c_139531308.htm>.
Accessed 20 December 2021.
[16] Chen, Abby. 2021. China’s Data Security Law in Eect Sept.
1, 2021: Prepare for Compliance. China Brieng News. Available at
<https://www.china-brieng.com/news/a-close-reading-of-chi-
nas-data-security-law-in-eect-sept-1-2021/>. Accessed 20 De-
cember 2021.
[17] 2018. CPTPP Article XIV. Available at <https://www.mfat.govt.
nz/vn/trade/free-trade-agreements/free-trade-agreements-in-
force/comprehensive-and-progressive-agreement-for-trans-pa-
cic-partnership-cptpp/comprehensive-and-progressive-agree-
ment-for-trans-pacic-partnership-text-and-resources/>.
