Why the (developing) world still needs the WTO

From his first term to his second, President Donald Trump has railed against the practices of US trading partners, while singling out the World Trade Organization (WTO) for blame. His administration may very well end US participation in the WTO as part of his trade war. But developing economies would be unwise to follow this lead. A WTO without the US would be less valuable, but its benefits for developing countries would still be substantial.

For all its complexity and recent dysfunction, the WTO remains a valuable cornerstone of the global trading system, especially for developing countries. Criticisms about the slow-moving nature of negotiations and the WTO's failure to reign in certain practices by advanced economies are valid. Notwithstanding, the WTO still provides developing countries with something they often lack: a set of rules where size doesn’t immediately trump sovereignty and smaller, or at least poorer, economies have a voice—and a veto.

The world trading system has in the last few decades helped move hundreds of millions of people in the developing world from the edge of subsistence to greater prosperity. Developing countries have the most to lose if that system collapses and brings the WTO down with it.

Predictable Market Access and Disciplines

The biggest benefit to developing countries is the same benefit the WTO provides all member countries: predictable market access according to established rules and guidelines. As anyone watching the markets since April 2 can tell you, predictable market access is incredibly valuable. The basic questions of “to whom and where can we sell our products” inform every other decision firms make: hiring, investments in physical plants, taking on debt, and research and development expenditures, just to name a few.

Via successive rounds of negotiations dating to the late 1940s, the General Agreement on Tariffs and Trade (GATT) and later the WTO enshrined predictable market access rules based on the principles of non-discrimination—countries for the most part have a single tariff rate for all other member states, known as most favored nation (MFN) status—and national treatment: Once a product enters the market, it will be treated no less favorably than domestic products. This benefit is especially important for developing countries, whose firms often do not have adequate financial resources or access to capital markets and banking systems to hedge against policy uncertainty the way firms in advanced economies do.

Prior to 2019, the WTO also provided a dispute resolution mechanism that allowed developing countries to “win” trade disputes they would have had little chance of winning in the realm of bilateral diplomacy—or at least to secure authorization to retaliate against trade-related harms. That system effectively ceased functioning in 2019 when the United States began blocking new appointments to the Appellate Body that reviews challenges to WTO findings, rendering it without a quorum and moribund.

One-Stop Shopping

The WTO helps all countries—but especially cash-strapped developing countries—by providing a one-stop shop for trade negotiations. Advanced and larger middle-income countries do not think much of sending dozens of government officials and bureaucrats to places like Montevideo, Uruguay or Doha, Qatar to hammer out tariff rates, set product standards, and address shared challenges like overcapacity and subsidies. Developing countries do. Each dollar they spend on sending emissaries abroad is a dollar that can’t be spent on extending electricity into rural areas, providing primary schooling, or alleviating hunger. The round-based negotiation structure reduces the need for most costly and time-consuming bilateral trade talks.

Imagine a world without the WTO from the perspective of a small developing country looking for markets for its products abroad. To secure market access to large economies like the US, European Union, or China, the juice is still worth the squeeze. For other developing countries, especially those far removed geographically, the benefits may not outweigh the costs. By centralizing WTO negotiations, developing economies have a forum in which to address their shared challenges and seek new trading partners and opportunities for their industries—the networking and elbow-rubbing that are often the real stock-in-trade of meetings of this nature.

At the same time, the WTO also provides developing countries with opportunities for leadership and agenda-shaping. Kenya accounts for only about 0.06 percent of global GDP, but it was nevertheless pivotal in shaping the WTO’s Nairobi package, which was adopted in 2015 and which secured commitments favorable to developing countries on issues like rules of origin and preferential treatment in services.

Flexibility

Despite being a global standards-setting body, the WTO acknowledges and accounts for the different challenges and opportunities facing developing countries in the world economy. The principle of special and differential treatment (SDT) allows developing countries, especially the poorest among them, to operate according to a modified WTO playbook: longer lead times for implementing commitments and reforms, somewhat weaker standards for compliance, and a smattering of full exemptions for certain products and issue spaces.

Critics in the United States, which has experienced job losses in its manufacturing sector, have long pointed to China’s accession to the WTO as the obvious fly in the ointment, arguing that it allowed China to compete on a tilted (toward China) playing field, essentially operating as a rising superpower in a poor man’s coat. China’s economic rise post-WTO accession has been remarkable, and it did get somewhat special treatment in the process, but the general principle of SDT was not applied to China. China faced a much more rigorous accession process than its GDP per capita at the time negotiations began (around $1,000 in 2010 constant US dollars) would have otherwise suggested. Given China’s level of development and clout in the global economy, it’s worth questioning whether it should still benefit from rules designed for a less advanced player.

Stopping Power

Because the WTO operates according to consensus, it provides developing countries the opportunity to stop policy changes they view as not in their interest. In the pre-WTO world of might makes right, developing economies got steamrolled, often to the point of gunboat diplomacy, invasion, and colonization. Moreover, the mere implicit threat of these policy options was a deterrent to developing country autonomy and ability to veto agreements they viewed as harmful.

One of the clearest examples of this was the recent scuttling of discussion on limitations on subsidies to the fishing industry, which contribute to overcapacity and overfishing, imperiling the future sustainability of the blue economy the world over. To be clear, I was and am in favor of limiting if not eliminating these subsidies. But I am neither the prime minister of India nor president of Indonesia, the two countries whose intransigence led the WTO’s umbrella Trade Negotiations Committee to withdraw two draft decisions on fisheries subsidies from its agenda for finalization. The committee's objections to the drafts revolved around historical disparities in fisheries subsidy provision—with China and many advanced economies the biggest subsidizers—and what it felt were insufficient safeguards for developing countries whose relative subsidies amounted to pennies on the dollar, in comparison to advanced economies.

The WTO is not the best of all possible trading regimes. Rich countries continue to heavily subsidize their farmers to the detriment of developing-country producers. Intellectual property rules prevent poor countries from providing life-saving medicines at prices within their populace’s reach. These are serious problems in need of further attention. But all the recent attention focused on what the WTO does wrong tends to miss what it has done right: The market access provided by open international trade has helped move hundreds of millions of people out of poverty. Further, the WTO gives developing economies a voice in multilateral negotiations, while acknowledging their often challenging circumstances, and the ability to say no. The perfect should not be the enemy of the good, whether or not the United States intends to continue playing ball.