In the current era of frayed international trade relations, many governments seek to avoid making new commitments. Worse, many seek fewer constraints under the system’s existing rules. The euphemism that developing countries use to describe this freedom to restrict trade is having “policy space,” and too often they seek more. What is new is that developed countries have joined them, not for the sake of benefitting developing countries but to foster a trend they now see as being in their own interests. While the term “policy space” sounds harmless, this is not the case. Policy space for one country often implies costs for others and for the country seeking it as well. Its primary risk to the trading system is the very real potential for backsliding. The first imperative for the World Trade Organization (WTO) at its upcoming 13th ministerial conference in Abu Dhabi in February 2024 is to hold the line.
The following are key areas where having effective international discipline is currently up for decision:
- Preventing the expiration of the moratorium on customs duties on “electronic transmissions,” namely, ecommerce. All WTO members have pledged that this newest form of trade would be free from tariffs. A number of developing countries claim that the moratorium deprives them of customs revenues and wish to end it. The Organization for Economic Cooperation and Development (OECD) estimates that the costs of doing so would be significant.
- Adopting new rules for ecommerce to prevent the fragmentation of the international trading system. The outcome is in fresh doubt as the United States announced recently that it no longer supports rules regulating interference with cross-border data flows or forced server localization, nor for the protection of source code, three of the most meaningful areas for creating new international disciplines.
- Restoring binding dispute settlement, where judgments are final, originally a distinguishing feature of the WTO. Currently, too many members file faux appeals that prevent the enforceability of judgments.
- Completing fisheries subsidies negotiations. In the absence of a complete agreement, the loss of income of coastal and island states and depletion of the world’s food stocks will continue.
- Deciding whether existing intellectual property protections will be diluted for therapeutics and diagnostics, as they were for vaccines, as the only agreed method WTO members can produce to combat pandemics.
- Launching major new negotiations addressing agricultural trade, most importantly to deal with food insecurity, and to limit further trade distorting subsidies and to provide greater market access.
- Allowing those willing to move ahead to craft new WTO agreements without being subject to a veto by nonparticipants by adopting the Investment Facilitation for Development Agreement as a formal part of the WTO. Doing so could pave the way to adoption at the WTO by willing members of an agreed approach to trade in carbon-intensive goods, an updating of the duty-free coverage of the Information Technology Agreement, and providing duty free treatment for environmental goods and services.
The costs of retreating from greater global economic integration, or even of just standing still, are rarely sufficiently clear to policymakers or to the public. Where there are no rules, there is uncertainty, a condition which reduces trade and investment and global economic growth. There is robust empirical evidence that trade policy uncertainty dampens trade. The ministers at MC13 should provide a broad mandate to the WTO Secretariat to provide them with its best estimate of the costs of inaction where action is required, and a clear assessment of the impact of any decision that they take that dilutes existing disciplines.
Beyond direct economic costs through reduced efficiency, there will often be other negative impacts such as not securing other important policy goals, such as assuring food security, providing sufficient benefits for workers or small businesses, achieving sustainability, mitigating and adapting to climate change, or safeguarding public health during future pandemics.
Seeking policy space is the antithesis of working towards greater international cooperation. Measuring its costs should become a central element of WTO analyses.
This publication does not include a replication package.