TWN Info Service on WTO and Trade Issues (Jul26/15)
22 July 2026
Third World Network

WTO: US, EU, China clash over core rules in "foundational issues" proposals
Published in SUNS #10486 dated 21 July 2026 

Geneva, 20 Jul (D. Ravi Kanth) -- A review of three proposals - the US' "further perspectives on WTO reform," the European Union's "further reflections on foundational issues following the fourteenth session of the ministerial conference," and China's "position paper on WTO reform under the current circumstances"  - suggests strong commonalities between the US and the EU.

In contrast, China's proposal emphasizes the continuation of the rules-based multilateral trading system, with some exceptions.

China has demanded special and differential treatment (S&DT) based on the current self-designated framework and the continuation of most-favoured-nation (MFN) trade and certain multilateral rules.

The proposals from the US, the EU, and China concerning "foundational issues" in WTO reform demand several changes to the core rules of the Marrakesh Agreement, with some exceptions, according to officials familiar with the development.

US PROPOSAL

Submitted on 23 March, three days before the WTO's 14th ministerial conference (MC14) in Yaounde, Cameroon, the US proposal (WT/GC/W/998) addresses six areas: notification compliance, SDT eligibility, plurilateral agreements, rethinking the MFN principle, the WTO Secretariat's role, and "essential security".

On transparency, the proposal provocatively asks: "If they can't do this, how can they purport to fix bigger problems like overcapacity and development?"

The US highlights a severe transparency crisis, noting that over two-thirds of Members failed to submit 2025 biennial subsidies notifications, and about half missed their 2023 or 2021 notifications.

Citing a UK report, the US said that submissions are often "incomplete and of very poor quality."

Agreeing with the EU that "the design of the current transparency regime contains too few incentives to notify," the US argues that the current reliance on normative obligations and "naming-and-shaming" has failed for decades.

The US underscores that "notified measures should enjoy better treatment than non-notified measures," advocating for "concrete and actionable" - yet proportionate - disadvantages for non-compliance, allowing rectification first but granting harmed Members immediate recourse.

Opposing the self-designated S&DT framework premised on the 1979 Enabling Clause - which states, "Notwithstanding the provisions of Article I of the General Agreement, contracting parties may accord differential and more favourable treatment to developing countries, without according such treatment to other contracting parties" - the US insists that "self-declaration has severely damaged the negotiating arm of the WTO by making differentiation among Members near impossible."

The US argues that this self-declaration is "unacceptable" when "significant players in the trading system" benefit, noting that over 75% of Members now claim SDT, undermining credibility in the absence of an analytic classification system.

Since 2019, the US has proposed objective criteria in excluding OECD members/applicants, G20 members, World Bank "high income" countries, and Members accounting for more than 0.5% of global merchandise trade from SDT.

The US seeks a hybrid approach using cross-cutting objective criteria plus Agreement-specific criteria for major lower-middle-income producers.

It also calls for ending the mandate of the Committee on Trade and Development in Special Session and the Monitoring Mechanism, calling the latter "a solution in search of a problem."

On finding a pathway for plurilateral agreements, the US has threatened that "If there is no path for Members to enter into plurilateral agreements at the WTO, we must acknowledge that the WTO is not a viable forum for negotiating."

This stance appears aimed at sidestepping paragraph 9 of Article X of the Marrakesh Agreement, which states: "The Ministerial Conference, upon the request of the Members parties to a trade agreement, may decide exclusively by consensus to add that agreement to Annex 4. The Ministerial Conference, upon the request of the Members parties to a Plurilateral Trade Agreement, may decide to delete that Agreement from Annex 4."

Arguing that plurilaterals are essential due to the atrophied negotiating function, Washington asserts that open plurilaterals (like the Information Technology Agreement) create "a serious free-rider problem" by extending MFN benefits to non-parties, whereas closed plurilaterals (Agreement on Government Procurement, Agreement on Trade in Civil Aircraft) incentivize reciprocal obligations.

Washington proposes "interim plurilaterals" - temporary agreements among subsets of Members without immediate Annex 4 incorporation, featuring a 5-year implementation period before Membership deliberation.

A "critical mass" test could trigger automatic incorporation if participants meet negotiated trade share thresholds.

Washington underscores the need to rethink unconditional MFN, claiming: "Perhaps the worst kept secret in Geneva is that MFN as a core principle of the global trading system is largely honored in the breach."

Arguing that unconditional MFN "was designed for an era of deepening convergence" that no longer exists, the US traces MFN's evolution from conditional US practice (1778-1923) through GATT exceptions to widespread avoidance today.

It asserts that the principle "fails to promote reciprocity and balance" and has become "a straightjacket that cements the status quo and enables free riding."

Washington called for frank conversations on making MFN conditional based on market openness, fair competition, and transparency - exploring amendments or interpretations strictly among interested Members, not through top-down facilitation.

On the WTO Secretariat's role, while seemingly directing criticism at WTO Director-General Ms Ngozi Okonjo- Iweala, elected in 2021 with US support, Washington states: "The Secretariat is not an independent body with a mandate to drive policies, set agendas, or communicate on Members' behalf."

The US criticized the Secretariat for over a decade of moving "away from its Member-driven moorings" through a lack of transparency, lack of neutrality via substantive policy assessments and advocacy, and unauthorized communications and databases.

On "essential security", the US cautions that "litigating matters of essential security at the WTO undermines the foundations of the WTO by dragging the Organization into debating and litigating inherently political matters."

Maintaining that security judgments belong to governments, not adjudicators, the US seeks an authoritative interpretation under Article IX clarifying that each Member unilaterally determines whether an action protects essential security interests, with WTO adjudicators merely noting but not reviewing invocations.

According to one official who preferred anonymity, this is "a seemingly dangerous change that would justify any action by Washington that cannot be challenged at the WTO."

Ominously, the US states that it welcomes candid discussion and intends to be "constructive and cooperative" for a "new and more Member-driven phase of the reform effort."

EU PROPOSAL

In its proposal (WT/GC/Reform/W/6), the EU is calling for fundamental WTO reform, arguing that the system established in 1995 is no longer fit for purpose.

At MC14, according to the EU, trade ministers formally recognized the need to address these "foundational issues," making it a primary focus for upcoming General Council negotiations.

The EU contends that three major shifts have broken the original balance of the WTO: massive state interventions causing industrial overcapacity; new vulnerabilities like economic coercion and supply chain "weaponization"; and a dramatic shift in global trade shares that remains unreflected in members' outdated obligations.

"Commitments and other rules that are not adapted to today's realities create a political legitimacy problem. If the rules and commitments are no longer seen as fair and effective, the political buy-in decreases, leading to further erosion of the entire multilateral trading system."

To restore fairness, the EU emphasizes that this debate cannot happen in isolation. It must directly intersect with ongoing reform tracks regarding the level playing field, governance, and development.

The EU specifically highlights that "the increasingly impactful and far-reaching State interventions leading to overcapacities and systemic imbalances, with negative spillovers on other Members" remain a critical challenge requiring stronger disciplines and swift trade remedies.

A key focus of the EU's proposal is re-evaluating the Most-Favoured-Nation (MFN) principle. While MFN remains a cornerstone of predictable trade, the EU notes that it is already highly qualified by existing exceptions.

It suggests that the system must adapt to allow members flexibility to address economic security and critical dependencies.

To operationalize this modernization, the EU proposes two preliminary pathways:

1. Reviewing existing MFN exceptions: Ensuring they provide sufficient room to integrate economic security and supply chain resilience considerations.

2. Sectoral plurilateral agreements: Creating pacts that combine liberalization with strict disciplines, where benefits are reserved only for participating members.

This could restore balance in strategic sectors negatively impacted by systemic distortions.

Ultimately, the EU asserts that the largest players in global trade must shoulder greater responsibility.

"It is especially the biggest players with a significant share in global trade ... that must assume their responsibility to contribute to a fairer global trading system, strengthening the political legitimacy of rules-based trade."

CHINA'S PROPOSAL

China positions itself as a "staunch supporter and active contributor to the multilateral trading system," submitting its February 2026 paper (WT/GC/W/989) to outline its vision for reform amid global trade turbulence.

The submission addresses governance, development, fairness, and dispute settlement while defending the core WTO principles against what it characterizes as unilateralist challenges.

Unlike the US and the EU, China has championed the continuation of economic globalization.

Contrasting with Washington and Brussels, China asserts that "The rules-based multilateral trading system remains critical to WTO members, especially the small and the vulnerable."

China affirms that an "open, inclusive, transparent and non-discriminatory multilateral trading system serves the interests of all."

Citing the WTO's track record, it said world trade in goods and services expanded more than five-fold from 1995 to 2024, membership grew to 166 covering 98% of global trade, and developing economies' share of global goods and services exports reached 47% and 33% respectively in 2024.

Even amid "heightened trade tensions and unprecedented uncertainties," the system has prevented a return to 1930s-style protectionism, with 72% of world goods trade still operating on MFN terms.

Diagnosing the challenges, China acknowledges globalization's "flip side" - persisting North-South gaps, rising domestic inequality, job displacement from automation, and supply chain strains.

However, it rejects unilateralism. According to China, "Blaming the so-called foreign unfair competition shifts attention away from domestic reform that is necessary to unleash competitiveness."

Without naming the US, China warned that "blatant violation of the MFN principle and abuse of security exceptions are eroding the foundation of the rules-based multilateral trading system," signaling "the return of power-based trade relations where the small and the vulnerable would be marginalized."

The WTO's chronic inability to update rules and the Appellate Body paralysis have shifted rule-making outside the organization, reducing its relevance, China argues.

On the guiding principles for reform, China said that "the fundamental question for WTO reform is what kind of globalization members want."

Reform, it argues, must reinforce global trade governance for "economic globalization that is universally beneficial and inclusive."

It insists that the MFN principle shall remain the bedrock of the WTO and that development dimension shall be put at the centre of WTO reform. Reform should address long-standing issues while exploring future-oriented rules to enhance the system's "authority, efficacy and relevance."

On governance and decision-making, China supports a progressive, structured, member-driven work plan for MC14, starting with priority issues on decision-making, development, and fairness. It advocates for "reform by action" beyond procedural work plans.

China maintains that reform should "restore trust and enable agile decision-making at different speeds among the diverse membership while respecting the consensus principle."

This includes enabling flexible plurilateral initiatives "with balanced and inclusive guardrails." China seeks a middle way "between the poles of moving all together and not moving at all."

Perhaps, China's subtle insistence on the above two issues comes somewhat close to the stand adopted by the US and the EU, said people familiar with the development.

On development and fairness, in sharp contrast to the US and EU proposals on S&DT, China says that "SDT provisions should be implemented in a more precise and effective manner to better facilitate the full integration of developing members into the multilateral trading system."

China identifies SDT, policy space, capacity building, and Aid for Trade as essential tools for developing members.

It calls for embracing digital and green transitions and harnessing artificial intelligence as "opportunities of our time," requiring new international rules.

On fairness, it said that discussions should address government measures distorting trade, notably potential updates to the Agreement on Subsidies and Countervailing Measures and industrial policy dialogues - with due regard for development policy flexibility. Such discussions "must respect members' distinct economic systems and development stages."

On dispute settlement, China calls for reform to "restore a fully and well-functioning WTO dispute settlement system accessible to all members, providing an anchor for stability and predictability as well as rules-based means to resolve disputes."

In conclusion, China committed to "engaging in constructive cooperation with all members on WTO reform issues in the run-up to, at and beyond MC14," positioning itself as a defender of multilateralism against unilateral disruption while advocating for development-centered, consensus-based reform.

At the General Council meeting last week, China's trade envoy Ambassador Li Yongjie said on foundational issues: "this track is the least discussed, compared with other three tracks, and therefore should proceed with prudence."

China warned that "the objective of such discussions should be to preserve the foundational principles of the WTO, instead of tweaking it to legitimize inconsistencies." +