WTO Reform Deadlock May Prompt Some Countries to Seek Other Options on Free Trade

WTO Reform Stalemate Could Lead Countries to Seek New Free Trade Pathways

By Olivia Le Poidevin

WTO Reform Talks and Potential Shifts in Global Trade Alliances

GENEVA, March 20 (Reuters) - Failure to chart a viable reform path for the World Trade Organization at a meeting next week will nudge members to pursue other options to set rules and advance free trade, diplomats and officials told Reuters.

The four-day gathering of WTO trade ministers in the Cameroon capital Yaounde comes at a critical moment for the 1995 successor body to the General Agreement on Tariffs on Trade (GATT) launched after World War Two to govern world trade.

The talks will also take place in the shadow of the U.S.-Israeli war on Iran, which has disrupted global energy supplies and threatens to seriously damage the world economy.

U.S. President Donald Trump's tariff weaponization has intensified global trade tensions, challenging the WTO's relevance amid stalled multilateral deals and a six-year paralysis of its dispute settlement mechanism.

Most WTO members want reform but are divided on how to agree a roadmap, according to diplomats and internal documents seen by Reuters, and this could push trade-reliant economies to seek other solutions.

Plan A and Plan B: Reform Within and Beyond the WTO

"Our 'Plan A' is to get reform within the WTO system, but there are many hurdles," Swedish Trade Minister Benjamin Dousa said, adding that failure of the Yaounde talks would encourage the European Union "to pursue a parallel track".

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The 27-nation bloc could seek to deepen cooperation with members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and other like-minded economies, Dousa told Reuters.

The CPTPP groups 12 countries, including Australia, Japan, Canada, Mexico, Malaysia and Britain.   

This would "supplement" the WTO, allowing participants to agree on certain trade rules among themselves while pushing for reform of the multilateral trade system, two EU diplomats said.

"As a Plan B we have to open up for plurilateral agreements," Dousa added, using the term for deals where willing members sign binding commitments.

Plurilateral Agreements and Frustrations

While some plurilaterals have been incorporated at the WTO, some members are frustrated that an initiative to encourage investment in developing countries, due to be discussed in Yaounde, has been blocked repeatedly despite majority support.  

If that initiative remains blocked, and there's no agreement on a reform pathway, "we will consider our options", one Western diplomat said.

The EU-CPTPP could pursue agreements on digital trade and critical raw materials while also deepening Free Trade Agreements, said Svitlana Taran of the European Policy Centre.

A Canadian source saw "a lot of momentum" in EU-CPTPP collaboration, with talks planned in Yaounde on rules of origin and investment. 

WTO Director General Ngozi Okonjo-Iweala told Reuters the body supports diversification of trading relationships.

"If they want to get together as a group and try to do something, we see it as complementary," she said.

Dousa and a European diplomat said the EU-CPTPP alliance, which already accounts for over 35% of global trade, could be a "core group" open to expansion to others. 

In the medium term, members could shape a "multi-speed" WTO, preserving core rules while adding flexibility through varying commitments and plurilaterals for willing groups to advance in targeted areas, Dousa said. 

One European trade diplomat foresees a "tiered trade system" of varying degrees of commitments, including 'most favoured nation' (MFN), among willing members emerging outside the WTO within five years - to be later incorporated at the WTO.

MFN, a core WTO principle, requires countries to apply the same tariffs to all trading partners.

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Internal Divisions and the U.S. Position

Internal restricted reform documents seen by Reuters show deep divisions among members: the U.S. supports reforms but resists a substantive, detailed workplan, while the EU, Britain and China back one.

"I expect it to be quite a difficult ministerial," said Okonjo-Iweala, adding she was encouraged by members' convergence on the needs for reforms.  

Washington's priority is for members to permanently extend a moratorium not to impose customs duties on electronic transmissions such as digital downloads, which expires this month. This would give the U.S. confidence to "remain fully engaged" in the WTO, said U.S. Ambassador Joseph Barloon.

India is likely to maintain its opposition to the moratorium, an official said.

"If U.S. Trade Representative Jamieson Greer leaves Yaounde without a moratorium, the U.S. proclamations on the death of the WTO will be even louder," one diplomat said. 

The International Chamber of Commerce said businesses fear failure could lead to new taxes on cross‑border data flows.

The MFN Principle and Global Trade

Ministers will discuss the MFN principle, which currently governs 72% of global trade, after Washington said last  December MFN was unsuitable for this era. The EU has also signalled it wishes to rethink MFN, mainly due to its concerns about China, a senior diplomat said.

Beijing believes MFN must remain the bedrock of the global trade system, a Chinese diplomat said.

"We need a rules-based, not power-based, system." 

(Reporting by Olivia Le Poidevin in Geneva; additional reporting by Philip Blenkinsop in Brussels, Promit Mukherjee in Ottawa, Manoj Kumar in New Delhi, and Andreas Rinke in BerlinEditing by Gareth Jones)