As the World Trade Organization faces a crisis that renders it impotent and potentially on the verge of dissolving, Manitoba farmers are facing more trade uncertainty than ever.
“We’re really in unchartered territory here,” University of Manitoba agricultural economist Ryan Cardwell said in an interview Dec. 12, while attending a trade meeting in Washington, D.C.
WTO officials at the meeting don’t know what’s going to happen to the 164-member trade bloc either, he said.
On Dec. 10 the WTO’s Appellate Body was forced to stop adjudicating appeals of decisions handed down by WTO’s dispute settlement panels, because it no longer had the minimum three judges required to operate.
For two years the United States has blocked the appointment of new judges claiming the Appellate Body has been overstepping its mandate. However, others say the U.S. just wants a free hand in punishing China for allegedly illegally subsidizing and dumping production into the U.S.
Some also claim the U.S. doesn’t want the WTO stopping it from bullying other countries on trade.
Although previous U.S. presidents, including George W. Bush and Barack Obama, pushed for WTO reforms, some observers say President Donald Trump wants its demise.
“The main point for Canada is we’re losing a court where we could be heard and where we could get justice, University of Laval agricultural economist Bruno Larue said in an interview from Rennes, France Dec. 10. “It’s not that we’re always right, but it has worked well for us in the past.”
Why it matters: Canadian farmers depend on trade and the rules that support it. A weakened WTO means less trade predictability, which could slow Canadian exports. The WTO’s demise would only make it worse.
With a large land base and small population, 90 per cent of Canadian farmers rely on exports, says the Canadian Agri-Food Trade Alliance (CAFTA).
“The sooner they can resolve this the better,” Canadian Federation of Agriculture vice-president Keith Currie said in an interview Dec. 12.
“We’re opening new markets every day and we want that flow of trade to be as smooth as possible. There’s always going to be disputes… so having that dispute mechanism is critical.”
Those embedded in the international trade system aren’t yet ready to throw in the towel.
WTO director general Roberto Azevedo has vowed to fight, saying a well-functioning, impartial and binding dispute settlement system is a core pillar of the WTO system.
“We cannot abandon what must be our priority, namely finding a permanent solution for the Appellate Body,” he said in a statement.
Canada is committed to saving the WTO too.
“Canada will continue to work with all WTO members to resolve the Appellate Body impasse, to strengthen the dispute settlement system and to engage with other WTO members on interim appeal arbitration arrangements,” Mary Ng, minister of small business, export promotion and international trade, said Dec. 10 in a statement. “We must modernize the WTO through meaningful reforms so it can continue to foster global trade and prosperity for generations to come.”
Some jurisdictions have already agreed to work-arounds. For example, Canada and the European Union have agreed to an interim bilateral agreement that substitutes the Appellate Body with a panel made up of former Appellate Body members.
“The dispute settlement system would continue to function as it did before the impasse, with the exception that any appeals normally heard by the Appellate Body would be heard by this “Article 25 panel” of former Appellate Body members. All time frames and procedures of the existing system remain the same,” Global Affairs Canada spokesperson Sylvain Leclerc wrote in an email Dec. 11.
In the meantime the WTO can still hear trade disputes, says Carlo Dade, director of the Canada West Foundation’s Trade & Investment Centre.
“Countries can simply agree to accept the (ruling of) the dispute panel and not to use the appeal process,” he said in an interview Dec. 11.
“It will also put more of an emphasis on bilateral negotiations to try and resolve these things. It’s not really as much the end of the world as it’s being portrayed.”
However, Dade warns a weaker WTO has potential negative implications for the future. The U.S. and Japan, and the U.S. and China, broke WTO rules by agreeing to partial trade pacts. Some believe it will lead to bigger agreements, but Dade is skeptical. It’s a bad sign. As a result there’s potential for internal political pressure to negotiate trade sector by sector.
“Then the world really does go to hell in a handbasket,” Dade said. “To my mind that is a greater threat because it’s a threat to the basic rules and the complexity of trade and that is going to have enormous cost.”
Should the WTO collapse and be reinvented Dade doubts Canada’s supply management system would survive.
“I see no way in hell the Americans giving us a pass and the Aussies, Kiwis and Europeans would be jumping on board too,” he said.
But as Mike Gifford, Canada’s former chief agricultural negotiator often said, all countries have trade sensitivities.
Despite the uncertainty, Canada has some protection through existing bilateral and multilateral trade.
“We’re lucky,” Dade said. “We have three NAFTA-like agreements here — one with the Americans and Mexico, one with the Europeans and one with the Japanese and others around the Pacific Rim. We’re not completely exposed here.”
Most trade disputes are commodity specific, and while they can have a big impact on farmers, they don’t have an immediate major impact on Canada’s macro economy, Cardwell said. However, there’s potential for a harmful cumulative effect.
“If the rules get eroded, and adherence to those rules get eroded, (economic) growth potentially in the long term could slow,” he said.
Cardwell isn’t optimistic about a quick WTO fix.
“It doesn’t look great, to be honest,” he said.
If Trump is re-elected that’s four more years for the U.S. to find new bilateral agreements making it less likely it will return to the multilateral WTO table.
It’s easy to be pessimistic, but there’s already a lot of free trade in the world.
“A lot of things Canada exports face low, or no tariffs, in a lot of consumer countries,” Cardwell said. “But some of the important things that come out of multilateral agreements are things like harmonization of inspection standards.”
But the longer the WTO remains crippled, the more countries will seek regional and preferential trade agreements, Cardwell said. That results in a more costly patchwork, often excluding developing countries, which stand to gain the most, he added.
“I am pretty certain export growth will continue, it’s just possible that over the many years it may grow more slowly than it otherwise might have,” Cardwell said. “Certainly I wouldn’t encourage anyone to worry. We don’t know what’s going to happen. Even if nothing good comes and it’s not resolved or reformed, it’s a very slow process.”