The World Trade Organization will hold a ministerial conference in Buenos Aires from 10-13 December. One of the key topics on the agenda will be the nature of WTO negotiations and whether the WTO should make greater use of so called ‘plurilateral agreements’ which involve some, but not all WTO members. Robert Basedow writes that the WTO could learn from the EU’s use of ‘differentiated integration’ as a mechanism for allowing likeminded member states to deepen and broaden integration.

Credit: © WTO/Jay Louvion

Next week, the trade ministers of the 164 member states of the World Trade Organization (WTO) will convene in Buenos Aires to discuss the future of the multilateral trade regime. The overarching topic of the Ministerial Conference will be how to govern and to modernise the multilateral trade regime in the light of the recent failure of the Doha Round. The Doha Round was a multilateral negotiation between all WTO members to define rules for newly emerging trade policy challenges – such as digital trade or global value chains – and to exchange liberalisation commitments. It started in 2001 and collapsed after some 15 years in 2016.

For many trade policy-makers, the main lesson from the collapse of the Doha Round is that multilateral trade negotiations and governance have become ineffective and inefficient. The multilateral trade regime started out as a small club of some 30 developed economies in the 1940s. Agreeing by consensus on ambitious trade rules and liberalisation commitments was manageable. Nowadays, the WTO has grown into a truly global organisation with a highly diverse membership ranging from developed and emerging economies to least developed countries. Agreeing by consensus on meaningful rules and commitments is indeed a herculean task.

Trade policy-makers increasingly focus on so-called ‘plurilateral agreements’ as a promising governance tool to modernise and to adjust the multilateral trade regime to the evolving realities of global trade. They have come to see the WTO as a ‘club of clubs’. Unlike in multilateral trade rounds, only a subset of likeminded WTO members negotiates and agrees in plurilateral agreements on rules and commitments. Hesitant members can stay on the side-lines and are not bound by plurilateral agreements, but may join later. Plurilateral agreements are typically of narrow sectorial focus, form part of WTO law and are subject to the WTO’s dispute settlement procedures. The WTO has some – though only limited – experience with plurilateral agreements.

Plurilateralism: An opportunity and a challenge for world trade

The rise of plurilaterism constitutes an opportunity but also a challenge for the WTO, the multilateral trade regime and individual countries. Plurilateral agreements may indeed help to modernise trade rules, to reach new liberalisation commitments and thereby reinvigorate the WTO and increase its ‘output’ legitimacy. At the same time, plurilateral agreements risk side-lining developing countries. Developed economies may seek to sidestep opposition from developing countries through these agreements, which may also legally and politically fragment the WTO, creating a two-tier membership and weakening the WTO’s ‘input’ legitimacy.

In short, we need to carefully reflect on how to govern plurilateralism to ensure a fair, development-friendly and transparent trade environment and WTO. The WTO’s experience with plurilateral agreements remains limited, but the EU’s experience with ‘differentiated integration’ may offer helpful insights. In the 1980s, the EU ran into a similar decision-making paralysis as the WTO. Fritz Scharpf famously argued that the EU was caught in a ‘joint decision trap’. EU decision-making de facto proceeded through consensus, which was increasingly cumbersome due to the growing number and heterogeneity of member states, and had thus systematically failed to produce pareto-improving policy outcomes.

Scharpf added that a reform of the EU’s decision-making rules was impossible due to the member states’ self-interest in protecting their sovereignty, and he and others advocated a turn toward ‘differentiated integration’ to overcome the joint decision trap. The principle was that the EU should allow likeminded member states to deepen and broaden integration, while hesitant member states should be allowed to stay on the side-lines.

Since the 1990s, the EU has seen a surge in ‘differentiated integration’. Benjamin Leruth and Christopher Lord have suggested that about half of the EU’s policies are subject to differentiation nowadays. In other words, integration commitments do not apply to all but only subsets of member states. The creation of the euro, the European Monetary Union and the Schengen Area are the most famous examples of differentiation in the EU. Differentiated integration takes many forms ranging from Treaty opt-outs for hesitant member states, to enhanced cooperation, intergovernmental treaties beyond the EU’s legal framework and informal cooperation arrangements.

What is the impact of differentiated integration on the EU and ‘outsiders’

So how has the rise in differentiated integration affected the EU and the ‘outsiders’ or hesitant Member States? Despite growing scholarly interest in differentiated integration – not least since Emmanuel Macron’s plea for a multispeed Europe at the Sorbonne in September – our understanding of its effects on the EU and individual member states remains remarkably limited.

Rebecca Adler-Nissen finds that the inclusive, transparent and trustful policy-making procedures in the Council of Ministers has allowed Member States with opt-outs such as the United Kingdom and Denmark to remain involved and to shape debates. She adds that flexible opt-ins help to maintain the interest of ‘outsiders’ and thereby keep fragmentation and exclusion limited. Frank Schimmelfennig and Thomas Winzen have also investigated how differentiated integration with regard to new member states has evolved over time. The EU’s new member states, which entered the Union in 2004 and 2007, were subject to a number of differentiated arrangements, which sought to accommodate their state capacity and to limit shocks to the single market regime. They find that push and pull factors in the form of technical assistance, policy dialogues and post-accession conditionality allowed the new member states to gradually ‘normalise’ and to limit differentiation.

A concern with differentiation in the EU – and the WTO – is the legal and political fragmentation of the overall regime. Differentiation or plurilateralism may serve as a building block for integration and an exit strategy from decision-making inertia, but it may also undermine and weaken the overall regime. Research on differentiation in the EU does not suggest that legal fragmentation is a serious concern. The central role of European Institutions and in particular of the Court of Justice seems to ensure legal coherence.

Alkuin Kölliker argues that differentiation may politically boost integration and strengthen the EU if it provides significant network or club goods to participating member states, such as economic stability or security. ‘Outsiders’ may be drawn to join such arrangements to gain access to these goods. Differentiation, which provides common pool resources, may however trigger political centrifugal forces. Non-participating Member States may benefit from other member states cooperating and free ride. Tax cooperation among a subset of member states, for instance, increases the benefits for non-cooperating member states as capital will relocate to avoid high taxes. Differentiation may thereby politically undermine integration.

What can the WTO learn from the EU experience?

What can the WTO learn from the EU’s experience and its principles for dealing with differentiation? First, the EU approaches differentiation as a last resort solution, requires a minimum membership for such initiatives and endorsement by qualified majority to ensure that no harm is done to outsiders and to prevent over-fragmentation. Second, the EU experience highlights the importance of keeping differentiated policies transparent, open and inclusive for outsiders. It nonetheless suggests that initiatives should provide exclusive advantages to participating countries to trigger centripetal forces and fuel rather than undermine integration.

Finally, the EU requires differentiation initiatives to be firmly embedded in the EU’s legal and institutional framework to avoid fragmentation and maintain a common focal point for policy-making. While this is certainly desirable, it requires finding a policy compromise between insiders and outsiders on how to finance the use of the institutional infrastructure. These policy recommendations and insights seem valid for the WTO’s approach to plurilateralism. Only a well-crafted governance approach can ensure that plurilateralism reinvigorates rather than undermines the foundations of the WTO regime.

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Note: This article gives the views of the author, not the position of EUROPP – European Politics and Policy or the London School of Economics.

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About the author

Robert Basedow – LSE
Robert Basedow is Assistant Professor in International Political Economy at the LSE’s European Institute.

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