Reconstructing the World Trade Organization: A supply-chain chapter

Recent trends in trade negotiations indicate the increasing importance of supply chain trade and related policy issues, much of which is outside the scope of the World Trade Organization (WTO).  The proposed paper sets out to identify the institutional reforms and pathways necessary to bring rules, negotiations and dispute settlements regarding supply chain trade into the WTO.  A model of economic institutions by Searle (1995) will serve as the framework for analysis, emphasizing the role of collective intentionality, constitutive rules, deontic powers and institutional output.  The role of parallel institutions in existing supply chain agreements is also important, including preferential trade arrangements (PTAs), bilateral investment treaties (BITs) and investor-state dispute settlement (ISDS) agreements and tribunals.  Currently, supply chain networks operate largely on a regional basis, with large country “hubs” that act as technology and production coordination centers.  These trading arrangements have left the majority of the world’s countries, including most of Africa and large portions of the Middle East and Southeast Asia, outside supply chain networks.  In addition, the large hub countries have established supply-chain trading blocs that threaten to fragment the global trading system.

The WTO, which had served to unify trade policy rules and negotiations on the most-favored nation (MFN) principle, finds itself unable to take up this issue, due to the limitations of its institutional structures inherited from the GATT.  The WTO’s emphasis on negotiating border measures on product-by-product categories and policy areas has made it incapable of negotiating cross-cutting clusters of behind-the-border policies and regulations.  In addition, services and foreign direct investment agreements that go beyond WTO coverage are typically bundled into supply chain agreements.  Finally, investor protection and ISDS provisions, in which private companies have standing in disputes, go beyond what WTO agreements currently allow.

The proposed paper will establish a conceptual framework for a new version of the WTO that can accommodate supply chain trade rules, negotiations and dispute settlement.  Various pathways, such as multilateralized and accession-based PTAs, as well as WTO annex 4 (pleurilateral) agreements, will be considered.  The methodology will draw on the institutional economics literature, as well as insights of trade policy economists such as Baldwin (2014).  Some descriptive data may also be used.

Works Cited

Searle, John (1995). The Construction of Social Reality.  New York: Free Press.

Baldwin, Richard (2014).  WTO 2.0: Global governance of supply-chain trade. Review of International Organizations, vol. 5 (2).