SINGAPORE — When a “made in Singapore” computer hard disk rolls off the factory line, its material and components really come from elsewhere.

Electronic chips could have been shipped from Japan or China, the drive heads might be fabricated in Britain, and the hard-drive platters — wafer-like discs which store digital information — could be imported from the United States.

With its supply chains stretched across markets, Singapore made around half of the world’s hard-disk drives at one point in its history.

What holds up this multilateral system is a set of norms and rules that govern world trade.

The World Trade Organization’s (WTO) rules of origin that are used to define where a product was made is how Singapore — a land with no natural resources — can have products manufactured here.

Yet, the global body which safeguards multilateralism is now facing an existential threat fuelled by geopolitics, and is quivering from a tide of protectionism that is sweeping across the world, experts in international trade and political economy told TODAY.

The WTO is now ill-equipped to handle trade disputes between nations, especially the ongoing jostle between the US and China for economic supremacy. It is certainly not poised to take on multilateral trade issues with the rise of the digital economy, the economic emergence of women, or climate change. 

As Singapore Prime Minister Lee Hsien Loong said in May: “The WTO is one of the major institutions in the post-war global order, but now it is almost paralysed and urgently needs reform.”

On Wednesday (Sept 19), Singapore reaffirmed its commitment to the reform of the WTO and the multilateral, rules-based trading order that it embodies, the Ministry of Trade and Industry (MTI) said in a statement.

“In a rapidly changing global economy, the WTO must regularly update its rules to ensure it remains relevant.”

WHAT WENT WRONG WITH THE WTO?

Reform of the top trading body, however, is no easy task, considering that the drive to do so began more than a decade ago and continued to falter despite the urgency of the last financial crisis in 2008, experts said.

Formed in 1995 and replacing its post-war predecessor General Agreement on Tariffs and Trade, the WTO now has 164 member countries, including China, which entered in 2001. Its size means that it can take too long to decide on any meaningful change.

In a commentary for the S Rajaratnam School of International Studies in June, WTO’s spokesperson Keith Rockwell wrote: “Achieving a consensus among 164 WTO members is no mean feat. It requires patience, compromise and the understanding that everyone benefits from robust international rules.”

In 2009, the Doha round of trade talks — officially launched in 2001 in Doha, Qatar — to substantially lower trade barriers, contribute to development in poor nations and tackle difficult trade issues, fizzled out after many years of debate, as trade ministers bicker over details of the ambitious agenda.

Mr Rockwell wrote that in particular, a “rancorous trade ministers meeting” in 2008 had derailed the Doha talks and halted meaningful trade negotiations for five years, and the WTO pivoted to damage control.

IS THE WTO STILL RELEVANT?

For a decade or so, many have already panned the WTO as obsolete and unprepared for economic disruption.

Mr Alexander Capri, visiting senior fellow at the National University of Singapore Business School, noted that the WTO’s rules were created at a time when the digital economy did not exist, and there were no provisions to allow for the flow of data that would enable this economy.

“Instead, we see all kinds of barriers erected by countries to block the free flow of data… At this time, the WTO is just not equipped to deal with all these new challenges.”

Yet, the WTO has brought millions out of poverty since its inception in 1995, and underpinned a significant period of global growth, MTI noted.

Professor Locknie Hsu from the Singapore Management University said that the WTO has made significant contributions to global trade regulation, trade negotiations and dispute settlement, even as a “relatively young organisation”.

The law professor noted that more than 70 members, including the US, are now negotiating a joint statement on e-commerce to establish rules for the digital economy.

Singapore is also supporting the e-commerce agreement and  working with like-minded countries to update the WTO’s rulebook.

US-CHINA DISPUTE

The trickier challenge, though, is to address the tensions between the US and China, which will require patient lobbying and a belief in the WTO as the standard bearer of the rules-based trade order, experts said.

Mr Capri, who specialises in trade and global value chains, told TODAY that this is the central issue, which arose from China’s accession to the WTO in 2001.

The organisation admits members on the basis that they are committed to multilateralism, which would require an open market economy. This includes China, which had to comply with WTO’s terms and shift its state-run economy into a liberalised one.

However, the US and the European Union have disputed this.

“Even though China was granted access to WTO, the world looked the other way and allowed it to get all the benefits as a WTO member. It gained access to the WTO apparatus, which many would claim that it happily gamed,” Mr Capri said. 

“Despite enjoying all the benefits, it still had many trade barriers, significant market sectors were still closed to other nations, and the state still essentially runs the economy.”

The WTO's key function is under threat, with the US charging that the WTO’s appellate body — which hears and judges on disputes among its members — has been pushing the boundaries in “interpreting judicial review”, Mr Capri said.

“In particular, the Americans claim that the Chinese have gamed the system, clogged up the dispute mechanism to, sort of, delay any kind of reckoning in some of the charges levied against them.”

As a result, the US blocked the appointment of new jurists in the appellate body. Where there were normally seven judges previously, only three sit on the panel today and two are due to retire this December.

This will effectively render the appellate body defunct and the WTO toothless.

American president Donald Trump has threatened to pull out the US from the WTO if it did not “shape up”.

Should this happen, the organisation will become “totally irrelevant”, Mr Capri said, adding that a possible scenario would be one where the world agrees on a reformed WTO with a new set of rules, which all members have to abide by, including China. 

Associate Professor Henry Gao, law lecturer at SMU who is also an advisory board member of the WTO Chairs Programme, which supports and promotes trade-related academic activities, said: “There is some truth in the US claim, especially with regard to China, (that) it should take more responsibilities with its growing power. But this doesn't mean that the WTO is no longer relevant.

“It is exactly at tumultuous times like this that we are reminded of the importance of global institutions like the WTO — (without which), the world would be in a much worse shape.”

SPECIAL AND DIFFERENTIAL TREATMENT

On another issue, Mr Trump had in July lashed out at wealthier countries for getting special treatment due to their developing country status, which include Singapore.

The US also wants the WTO to reform its approach to the developing country status “so that advanced economies can no longer avail themselves of unwarranted benefits despite abundant evidence of economic strength”, a Washington memo had revealed.

Immediately, MTI responded that Singapore did not take advantage of the flexibilities provided by special provisions at the WTO when negotiating agreements in the past.

In its latest statement, the ministry said that Singapore is a small economy with no natural resources and a high reliance on global trade, and is hence a developing country WTO member. 

Trade and Industry Minister Chan Chun Sing said on Wednesday that Singapore commits not to seek special and differential treatment (SDT) in ongoing and future negotiations at the WTO.

SDT is a privilege granted to WTO’s developing country members, allowing them certain flexibilities if members choose to use them, such as longer transition periods in implementing WTO obligations.

Prof Hsu from SMU said that Singapore’s stance is “consistent with what it has professed in the past”. 

For example, it chose to implement the WTO Trade Facilitation Agreement in 2017 once it came into force, instead of seeking any SDT period.

Should Singapore still keep its developing country status? Experts said that there is little need to dispose of this label.

Assoc Prof Gao from SMU said that retaining the status or not could be a political decision.

“It does not make sense for Singapore to claim itself to be a developed country when the other (developing) countries (in the South-east Asian region) might feel uncomfortable (as a result),” he said. 

Mr Capri said that MTI’s argument of Singapore’s trade exposure is a rational reason to hold on to the status, even if it “would not fly well with Washington”. 

“You could see that it would be advantageous to have that designation in a worst-case scenario, such as when the world goes into a deep recession and where trade completely breaks down, which is certainly possible.

“But clearly, if it is something that will upset the apple cart with the US, then that could be something to consider doing.”