WTO Reform: Repercussions for small island states

As the WTO ponders reform, Caribbean states re-examine their role in the global trading body. More than 20 years since it was first created to facilitate global multilateral trade, the World Trade Organization (WTO) is in crisis. Calls for reform have been loud and widespread, with President Trump’s protectionist administration the biggest proponent of change. In summer 2018, the bombastic US President threatened to withdraw the United States from the trade body “if they don’t shape up” and pressure has been mounting ever since with the major members slinging insults and accusations back and forth. The recent round of US tariffs, which violate WTO rules, angered China and the European Union while the US blasted Beijing’s shuttered economy and “unfair competitive practices”.

Political will for WTO reform has never been stronger. Core criticisms focus on lack of compliance and the failure of negotiation processes. As the WTO’s membership has grown (to 164 members), so has its complexity. Trade negotiations frequently grind to a halt, rule-making has become more inefficient and burdensome and the inability of members to adhere to, or amend, the existing regulations often results in complete paralysis.

As the developed world tussles over trade, Caribbean governments are watching the fracas with increasing concern — wondering what reform will look like, and how it will affect the region’s long-term trade prospects.

Caribbean membership

Every independent nation in the Caribbean is a WTO member (with the exception of The Bahamas, which is currently preparing for accession), giving these small island states participation in a group that governs 97 per cent of global trade.Saint Lucia has been a member since the outset, joining in 1995, but its association has not always been controversy-free. The decline of Saint Lucia’s banana industry alongside claims of preferential treatment disadvantaging smaller states and a lack of meaningful participation have led some commentators to view membership as a double-edged sword.

Yet most agree — the system may be imperfect but trade liberalisation is vital for Caribbean industry. Developed countries may have the luxury of rejecting multilateralism, but Caribbean economies are fragile and extremely dependent on international trading partners. The region’s small and open economies are vulnerable to natural disasters and global shocks, both of which have intensified in recent years.The certainty and stability of a rules-based system benefits Caribbean manufacturers by providing access to external markets, and giving island nations a mechanism through which they can lodge disputes against their more powerful trading partners. But if the many problems surrounding the WTO are to be solved, the Caribbean must be part of the solution.

A seat at the table

So far, the debate around WTO reform has largely been driven by more advanced economies, leading many to fear that Caribbean states will be shut out of any future discussions due to their limited bargaining power. Following a 2018 meeting at the WTO headquarters in Geneva, Saint Lucia’s representative H.E Guy Mayers said: “Any new rules must take account of our needs as small vulnerable economies and reflect the interest of our people,” and advocated for the creation of a category within the WTO dedicated to the needs of small and vulnerable island states. While there is an informal Small Vulnerable Economy group within the WTO, these countries have been pushing for more recognition for many years and, with reform now within reach, efforts in this area have gained new vigour. Powerful players are joining calls to re-examine the definition of ‘developing nation’ status. Under current WTO rules, members can declare themselves to be developing nations, thereby gaining certain rights and privileges. At present, China, India and Brazil are all considered developing nations — putting them on the same footing as a small island nation such as Saint Lucia.

Another area of concern is the dispute processes. While the WTO allows for Caribbean countries to push back against larger trading partners, getting those partners to comply with punitive measures can be a challenge, rendering the WTO provisions effectively toothless. By way of example, the longstanding dispute between Antigua and the United States over internet gaming began in 2003 and is still yet to be resolved. Antigua alleged that the US was violating international treaties with its ban on online gambling, and the WTO agreed, ruling in its favour in 2004. The US proceeded to ignore the ruling, and refuse to pay compensation as required by WTO rules. 

Despite being riddled with problems, there is merit in the claim that the WTO is too big to fail. As reform creeps into public discussion, now is the moment for the region to present a united front and ensure that deep-rooted issues are resolved. CARICOM’s Council for Trade and Economic Development appears keenly aware of this opportunity to get ahead of change, and recently called for “inclusive, transparent discussions” so that the region isn’t robbed of its voice and has a chance to shape any future iterations of a modified WTO.