Governance, Risk & Compliance Report: Challenges and Solutions

This report examines governance, risk, and compliance (GRC) issues within the context of the World Trade Organization (WTO) and international trade. It addresses challenges such as governance failures, the rise of regional trade agreements, and the need for representative leadership within the WTO. The report analyzes the risks associated with these challenges, including disputes and the impact on developing nations. It proposes solutions such as improved leadership representation and effective risk management strategies. The report also delves into risk management processes, including risk identification, likelihood assessment, and regional risk ranking, highlighting the importance of adapting to evolving trade dynamics and ensuring compatibility with the multilateral trading system. The analysis incorporates scenarios related to regulatory compliance and organizational culture, emphasizing the importance of communication, cooperation, and stakeholder engagement in achieving organizational objectives.

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Governances, Risk & Compliance
Student’s Name
Professor’s Name
Course Name
Date

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Question 1
Part a
The World Trade Organization (WTO) is a community of global importance and
addressing the challenges of trade liberalization and trade policies of member states. Although
WTO has special role in development of both developed and developing nations, it’s process of
meeting its goals are hampered by governance issues. The lack of success of the WTO is
reversing a virtuous cycle. The failure of the WTO has turned countries' attention to regional
trade agreements (RTAs) and mega-RTAs. The global business community is completely giving
up the WTO as a means of liberalization and rulemaking. No longer is the point at which all
nations ignore the WTO as a result of the WTO's "pretend to extend and end" tactics.
Second, the inability to end the round means the WTO has no ability to rewrite the
rulebook. As a result, WTO panelists and senior members will judge 21st century conflicts with
20th century rules. The last rulebook revision was made in 1994, but its agenda was agreed in
1986. With international trade fundamentally changing, the rules of the WTO have basically
remained the same.
The success of the WTO's dispute resolution function lies in its "legitimacy", and the
basis for legitimacy lies in consensus. The Doha Round, which is virtually frozen, jeopardizes
the long-term soundness of the dispute settlement system, given the political difficulties of
consensus-changing rules outside of the larger packages such as the Doha Round. WTO panelists
and others have responded with "advanced legal interpretation," but it is impossible for a long-
term "judicial judgment without legal legitimacy" to continue.

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Over time, it is expected that panelists will either avoid decisions on new deals or reject
the Panel's decision based on text agreed by Member States in 1994. The latter would undermine
common interest in the code of good conduct, the WTO, and if the former occurred, the great
power would rely on unilateralism, as in the United States in the 1980s (Handley and Limão,
2015).
In any case, by 2020, governance of international commerce will undergo a major
transformation. The recognition that the WTO has played a leading role in international trade
governance will need to be replaced by a multipolar system or the WTO itself will need to
change. Looking at the current situation, the former is likely to be the case, unless the Member
States change their policy direction. If the situation continues, mega-RTAs will create 21st
century trade rules, but mega-RTAs will be negotiated in an environment that reflects a large
power imbalance. This is not really a global solution. This is because the framework excludes
growth countries such as China, India, and Brazil. Each of these countries has its own regional
response or follows the rules created by others. In any case, this situation severely undermines
support for multilateral cooperation.
Part b
One of the proposed solutions is having a representative leadership. WTO should have
leaders from both developed and developing nations. This will ensure proper articulation of
needs of both types of nations and reduce conflict of interest. Currently, there is poor
representation of the WTO team. The current situation with the selection of new judges to the
WTO Appeal Body also caused intense discussion during the meetings. Earlier, the United States
blocked the start of the process of appointing new judges, with three of the seven seats of the
Appeals Body remaining vacant. If the fourth vacancy arises in September this year, this will

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lead to the fact that the Appeals Body will have the minimum number of judges needed to make
decisions on trade disputes (Elsig, 2016). The United States criticized a number of aspects of
how the Appeals Body functions, for example, how some judges whose term has expired
continue to work on cases that they began to consider as judges. This practice is long-standing,
as described in the working procedures of the Appeals Body. Nevertheless, various WTO
members argue that the United States is not sufficiently engaged in discussions to resolve the
problem and did not specify what changes they would like to see in order to unlock the selection
process. China put the issue of the Appeals Body on the agenda of the General Council and
called for the United States to draw attention to some aspects of how the dispute resolution
system depends on the actual selection of new judges. EU Ambassador to the WTO Mark
Vanheikelen was among representatives of WTO members who agreed that the situation with the
Appeals Body is approaching a critical level and needs to be resolved as soon as possible. “We
are ready to talk about the problems regarding the Appeals Body, but first we need clarity in
understanding the problems. And we also need to be clear that this will lead to the unblocking of
appointments, ”he said at the KTP meeting (Hoekman and Mavroidis 2017).
Question 2
The activities referred to in the scenario posses a lot of risk to survival of WTO. When
there is no cooperation, coordination and communication between different parties making up
WTO, the probability of achieving the set objectives is always at its lowest. That is why although
John have ideas, the inability of the organization to give him a chance will finally makes his
ideas disappear.
This is exactly what happened in WTO. In fact, most of the disputes occurs when all
member states are not included in any key decision-making activity. In 1992, based on the

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General Agreement on Tariffs in Commerce, a verdict was passed on United States law, which,
with the aim of preserving the population of marine mammals, introduced a complete ban on the
import of fish caught in nets of a certain design. This legislative act was valid for importing
companies not only of American origin, but also firms from other countries. The purpose of the
law was quite legitimate, as it was aimed at protecting animals. Since such nets were used in
Mexico to catch tuna, this country filed a complaint stating that this law is contrary to the free
trade agreement, as it is a non-tariff restriction prohibited by the GATT agreement (Mavroidis,
2016a). A similar controversial issue arose in 2000. This time, the stumbling block was the
American law banning the import of shrimp that were caught in a way that threatens the
conservation of the sea turtle population. Some Asian states, in which this method of industrial
shrimp extraction was the main method, filed a protest against this law, noting that under the
guise of a legitimate goal to protect turtles, developed states are solving the problem of limiting
low-cost imports. The WTO Commission, and on this dispute, issued a decision ordering the
United States to repeal this legislative act as contrary to WTO rules.
The separate, most voluminous part of commercial disputes under the auspices of the
WTO includes disagreements between the largest subjects of world trade relations - the United
States and the EU. In the spring of 2002, high import tariffs for steel produced in Europe were
introduced in the United States. The purpose of this event was to protect the American steel
industry. This decision led to a conflict situation, as in the EU, raising taxes was described as
discriminatory actions that run counter to WTO rules. The opinion of the EU representatives was
supported by the members of the Commission, and the States had to abolish the high duty rates
for steels from the European Union. Similar charges were brought against the European Union,
whose states provided subsidies to agricultural companies. The amount of subsidies reached 90

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billion US dollars per year. Representatives of non-EU states have put forward a requirement to
reduce farm subsidies. As a result of these processes, the EU agreed to reduce subsidies,
although without specifying specific volumes and terms (Moran 2014).
Experts in the field of economics from the United States identified another problem with
the functioning of the WTO, the essence of which lies in the high standards of the organization,
causing some states to be reluctant to enter the community. In practice, the states that are
considering WTO membership are faced with the choice: accept the proposed standards in the
field of education, environmental protection, working conditions, foreign trade regimes or leave
their own directions of social and economic development unchanged, abandoning the advantages
of free trade relations. At the same time, the WTO is taking important steps to change some of
the principles of the organization and its reform in accordance with new requirements. This is
evidenced by the statement of the WTO Director General on the reorganization of the
Secretariat, which will make it possible to more effectively solve the tasks of accelerating
progress in developing and poor countries. A new structure (development department) is being
formed under the Secretariat, which will be engaged in research in the field of economics.
Like the case of John, in any organization, there could be parties with conflicting interest.
Existence of such parties may render coordination and cooperation futile. It is upon the
management to bring different stakeholders together and hear each of their views, opinions and
contributions.
Evidently, John is being forced to remain silent and this is not appropriate way of
governance. John should just find way of expressing his views and participating actively in the
organization’s decision. This is the only way in which his ideas can be heard and implemented.
He should mobilize the like-minded people and work as a team towards expressing their ideas.

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This is the viable solution because there is no better way of breaking the bureaucratic culture that
is entrenched on the organization
Question 3
Risk management entails a series of steps from risk identification through to risk
mitigation and development of contingency plan. At stage one of risk management process for
regulatory compliance, all the possible risks should be identified. The risk management team
should put into consideration the fact that over the next few years, the main problem that policy
makers in the field of international trade will have to solve will be the search for ways for mega-
regional and plurilateral agreements to complement, rather than destroy, the multilateral trading
system. The increase in the number of agreements concluded by WTO members aimed at
deepening the integration of their economies has seriously changed the dynamics of global trade
negotiations. The Tenth Ministerial Conference of the WTO in Nairobi, held in December 2015,
brought only limited results (Draper et al 2015). Although the US and the European Union have
called for the completion of the Doha Round negotiations (they no longer support the mandate of
the negotiations), developing countries and countries with fast-growing economies have
expressed a desire to continue negotiations on this agenda.
The second step is to understand the likelihood of risks identified. Ideally, the likelihood
of the negative impact of increasing regionalization of trade relations and even wider
liberalization of the market outside the WTO on developing countries is especially high. Until
WTO members agree on the future Doha round, and negotiators are still struggling to navigate
the negotiations after the meeting in Nairobi, governments should focus on discussing ways to
minimize the risks of these agreements for third countries. This is crucial to mitigate fears of
marginalization and to prevent the creation of competing trade blocks by excluded countries

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(Lee-Makiyama, 2011). In addition, it is necessary to ensure the compatibility of mega-regional
agreements with the multilateral trading system. To cope with this challenge, the international
community must discuss new strategies and patterns of trade. The author of this article hopes to
contribute to a more fruitful discussion about upcoming trade negotiations by identifying
opportunities to increase the openness of mega-regional agreements and reduce the risks faced
by developing countries (Mattoo and Subramanian 2009).
The third step is to rank the risks regionally. Care should be take not to treat all risks as
similar. The conclusion of mega-regional agreements implies that in the future the regime of
international trade will be less equitable. The impact depends on the degree of diversification of
their product and export markets, as well as on the ability of these countries to compete with
regional trade partnerships through their own initiatives. Poor developing countries not
participating in mega-regional agreements are likely to suffer losses in trade and
competitiveness, not least due to erosion of preferences. If mega-regional agreements redirect
trade flows, it will also be more difficult for these countries to gain access to capital and
technology (Johnson and Noguera 2017). Mega-regional agreements signed outside the WTO
can further reduce the influence of developing countries in trade negotiations. In the past, these
members of the organization joined forces in the WTO to achieve liberalized market access
consistent with their national levels of development. However, small-group negotiations limit the
creation of coalitions of this kind, which allows more developed economies to push competing
trading partners to their advantage. The result of this is similar to what developing countries
experienced before their rise, when they could not defend their interests in relations with leading
economies in the framework of the multilateral trade forum. Developing countries that do not
want to lag behind their export competitors are experiencing increased pressure towards

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liberalization in an increasing number of areas regulated by mega-regional agreements. TPP is
forcing developing countries to solve problems that have not yet been found to be a significant
settlement at the multilateral level. Among them are obligations related to the additional
protection of rights to intellectual property, state-owned enterprises and electronic commerce.
Some developing countries that are affected by Vietnam’s improved access to the US market,
such as Pakistan or Bangladesh, might join the TPP to protect their exports, but they are not
ready to accept many of the provisions of the agreement and are unable to influence its
formation. For fast-growing trading powers such as Brazil, India and China, the risks are lower
(Laborde and Martin 2015). Due to their economic and political influence, these countries can
compete for regional trade partnerships. China is already lobbying for the signing of a mega-
regional agreement in the Pacific - the Regional Comprehensive Economic Partnership. In this
situation, it is important that TTIP and TTP are not seen as an attempt to balance the growing
influence of countries with fast-growing economies (Hofmann, Osnago and Ruta 2017).
Increased competition for political and economic spheres of influence, which leads to the
emergence of an even more complex system of trade rules and norms, will not only harm
developing countries, but will also increase costs for exporters from the EU and the USA.
The last step is to come up with contingency measures for addressing the risks based on
their likelihood and severity. Actions aimed at creating open and harmless mega-regional
agreements can be divided into three categories. The first category includes changes that can be
introduced unilaterally by negotiators to ensure openness of agreements. The second includes
provisions permitting partial or full accession of third countries to these agreements. To the third
- steps taken at the multilateral level, which would confirm the central role of the WTO.
Question 4

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Part a
First, the anticipated regulatory visit is designed to find out the emerging gaps on the laws,
regulations governing WTO and factors hindering compliance of the different rules and
agreements. The regulator is expected to explore if the existing team in the organization are
aware of the underlying and basic factors hindering the achievement of current WTO plans. The
regulator will interview WTO panelist and WTO management representative and all staff
holding key docket in WTO (Henn and Gnutzmann-Mkrtchyan 2015). The pre-visit tasks and
responsibilities is to find out the views, challenges and experience of WTO panelists and staff on
current emerging issues that could hamper success of WTO governance. In addition, the
regulator will evaluate the preparedness, knowledge and skills of existing staff on matters related
to WTO governance, risks and mitigation options.
Part b
After reviewing different activities carried out by WTO, I can admit that the staff training
is not effective. One of the risks facing WTO is incompetent staff. If we were to evaluate the
performance of the WTO, it would be very unbalanced. Little has been done with regard to
familiarize staff on governance strategies and needs. The same goes for rule making. Only
dispute resolution functions are showing high performance. Eighteen years have passed since the
1997 ITA, Telecom and Financial Services Agreement was signed. Although the trade
facilitation agreement is progressing, it is far from the size of the Uruguay Round, Tokyo Round
and Kennedy Round. There is no "victory" for a long time. World leaders have been
disappointed by the expectations of the WTO. Negotiators and ambassadors have rarely seen the
WTO promote liberalization (Karttunen, 2016).

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The WTO continues to settle disputes, but is like standing on one leg. And there are signs
of problems on their feet. All these issues are attributable to incompetent staff. The nature of
trade has changed radically, with the internationalization of production networks. It is also an era
when state-owned enterprises appear in front of the stage. Older issues such as currency
manipulation are also gaining importance. WTO panelists must make decisions based on rules
that do not respond directly to any of these new issues (Claeys and Sapir 2018). If they are not
trained to move with season, then the worse is likely to happen.
In the future, the imbalance between the judicial and legislative functions will be very
dangerous and could lead to system outages. The success of the WTO's dispute resolution
function lies in its legitimacy, and the basis for legitimacy lies in consensus. The Doha Round,
effectively frozen, compromises the long-term soundness of the dispute resolution system in
situations where consensus-based rule changes are politically difficult outside of a large package
such as the Doha Round.
WTO panelists and others have responded with more advanced legal interpretations. This
is like responding to today's most complex international conflicts in Magna Carta. The burden on
the WTO panel and panelists will increase further, and it will eventually make it difficult for
states to follow the panel's decisions. It is impossible for a "judicial decision without legal
legitimacy" to continue for a long time. It's like running a computer that hasn't been updated
since 1994 (Hoekman and Mavroidis 2015).
As a result of the WTO's focus only on the backlogs of the Uruguay Round in the 20th
century, WTO member states are creating new disciplines in other frameworks. Developing
countries wishing to participate in the GVC have realized these “guarantees” on a voluntary or
bilateral basis. Advanced technology countries have implemented deep RTAs and investment

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agreements that include the necessary discipline. Developing countries have voluntarily reduced
tariffs (parts tariffs in particular) and responded to the division of production.
Part c
Nevertheless, training can be the viable solution. WTO panelists ought to be trained on
how to identify issues, conflict and resolve them. They should be trained on risk management
strategies so that they can identify risk earlier and put in place appropriate measures to address
any foreseen risk. To sum up, it is crucial to stress that the crisis facing the WTO does not allow
us to be optimistic about the future of the WTO. The continued proliferation of regional rules,
and the imbalance between the WTO's legislative and judicial functions, severely erodes the
WTO and a system whereby most countries ignore WTO rules because others ignore it. Outages
may occur.
Another opportunity is that the visit could form the basis for introduction of staff training.
WTO staff should be trained on the things that will result in the promotion of multiplexing. First,
it discusses, studies, and considers what new transboundary production discipline can bring to
the global trade system. In order to understand the reality of GVC from a business perspective, it
is essential that the business community participate in this framework. And to understand what to
do, we must avoid the trap of using the 20th century paradigm in considering 21st century
regionalism. The staff training on multiplicity will help to improve the understanding of the
issues and at the same time to eliminate errors.
There are two challenges. First, training may not address WTO hierarchical and biased
representation. The problem is that while the world of commerce is changing, the WTO has not
changed. The north-south production division of labor requires a new rule at the border level and