Do Sanctions Define the Rules of Trade? Valdai Experts Discuss the Future of WTO
Moscow, Valdai Discussion Club Conference Hall

On May 23, 2016 the Valdai Discussion Club and HSE-Skolkovo Institute for Law and Development held a seminar titled "International Trade in the 21st Century: Non-Discriminatory Rules or Sanctions and Fragmentation?"

Aleksey Ivanov, director of the HSE-Skolkovo Institute for Law and Development, opened the discussion by presenting a Russian perspective, from which the power and importance of economic blocs is eclipsing the role of the WTO, and in which sanctions against third countries are used as a unifying force.

“Those friendly blocs that existed after WWII are getting closer and closer by building trust among bloc members, at the same time, drifting from the global system of governance for trade and economic cooperation,” Ivanov said.

Ivanov presented issues regarding the WTO in terms of Russia, where the country’s elite had to push WTO accession through despite many popular objections, to participate in the global system. He noted, that the question of who makes the rules has created issues, which after the Crimean reunification, pushed Russia back towards the self-sufficiency enjoyed in the Soviet era.

Robert Lawrence, professor at Harvard University’s Kennedy School of Government at and an author on WTO topics, countered, saying that sanctions present a middle way for expressing emotion internationally, to send a signal that short of going to war, a country is willing to hurt both itself and the offending country.

Lawrence also shared his perspective on the WTO and its future. He presented a picture starkly different from that of the Russian perspective, noting that the WTO has had many, issues, particularly after the Doha round, when developed and developing countries failed to agree on terms. He noted that this is in part driven by the emergence of global value chains, in which products are made across the entire world, rather than any single country, and that the corporations involved do not fit the traditional WTO framework, which largely covers products made in one country and sold to another.

Valdai Club Research Director Fyodor Lukyanov countered Lawrence’s view of sanctions as a middle way, saying that they may often cause an asymmetrical response. Lawrence agreed that it is important to be very careful in expressing diplomatic displeasure with trade.

“In principle, if all you want to do is express your displeasure, you need to be very careful, because there is a danger that something like this can build up and engaging in tit-for-tat particularly if the way you have expressed your displeasure hits very powerfully at others’ essential interests, we know this is how wars eventually start,” Lawrence said.

Mark Wu, associate professor at Harvard Law School presented the legal perspective on the WTO, which he said is nimble in its use of instruments. He also outlined several cases, in which WTO member countries do not trade with each other, such as India and Pakistan. For such cases, the WTO allows certain guidelines for retaliation, which countries very rarely act upon.

Wu also mentioned the concept of issue linkage, in which WTO conditions are attached to certain diplomatic concessions made by one of the countries. He noted such linkages, while they do exist, are nearly impossible to prove, but that there are several “carrots” and “sticks” that countries can utilize within the WTO framework to provide preferential treatment or punitive measures for issues unconnected to trade.

Petros Mavroidis, professor at the Columbia Law School, explained the principles of WTO rule enforcement, which he summarized as cumbersome and incomplete. He noted that two thirds of the disputes are settled in the negotiation stage, and that in only five cases, less than one percent of the total disputes, duties were imposed, with only one still in place.

During the discussion portion, Lawrence spoke on the future of the WTO, which he said needs to learn from the climate change negotiators, who left the issue of developed and developing countries behind, and instead moved toward differentiated responsibility. He also noted that for the United States, it makes no sense to sign a Doha-like agreement that does not open markets in the BRICS countries.