A disclaimer at the outset. There is no single view shared by all WTO Members of the subject we are discussing today. I do not speak for the WTO Membership or any member. Second and equally important, the provocative title of this series of panels, attributing to one member an attack on the international trade regime, is not one that I would choose. The current situation is more nuanced. Third, if I were to fault WTO members, it would not be only one, and I see no value in condemning any. That is a matter for dispute settlement.
Now as to the subject of our panel:
The future of the WTO and the world trading system is bright. That this is true, I freely acknowledge, is a faith-based assessment. That faith is based on many decades of laboring in the vineyard of trade policy, of experiencing with joy and dismay some of the high and low points of the system, and of having seen the WTO from the inside for the last 13 months. It is also based on certain hard facts.
First fact: WTO members have interests. A primary interest shared and acknowledged by all Members is that the multilateral trading system be maintained and, for most, there is a desire to see it improved. None would say that this system, or any other, national or international, is perfect.
Predicting the future is always a chancy endeavor. Douglas Irwin, in his excellent treatise on U.S. trade policy, written in March 2017, a few months into the current American Administration, gave an assessment based on over 200 years of American history. He concluded that U.S. trade policy: 1) was characterized by stability due to domestic counterpoised interests and power centers; 2) that U.S. trade measures are used solely to serve the objective of either domestic protection or to gain reciprocity; and 3) that continuity is assured by being imbedded international institutional arrangements. Eighteen months later calculations based on these loadstars(1) require revisiting. None can be fully relied upon.
As for forecasting, the temptation is to engage in simple extrapolation. The alterative methodology is more scientific, developed by Pierre Wack, an executive of Shell Oil Company who predicted with accuracy the two oil embargoes of the 1970s. He employed a decision tree approach. It operated without complexity: Is A more likely than B? If it is, is A1 more likely than A2, and so forth? This methodology can be applied to our topic this morning.
As an initial matter, the starting point should be to assess the state of the health of the WTO at present. Senator John McCain was fond of using a line that he attributed to Mao Tse-tung, which was as follows: "It is always the darkest before it becomes pitch black". While the system is more likely to be subject to greater stress before there is improvement, the jocular line attributed to McCain and Mao is not, I believe, applicable to the WTO. I prefer the motto of the Canton of Geneva, which got it from Calvin, Post tenebras lux, "after darkness light". This is from the Old Testament, from the Book of Job, and some days some here at the WTO may feel a bit of affinity with Job.
But that is not my attitude. It is not the middle of the night at the WTO, far from it. We are not navigating from the bottom of a well, mired in a slough(2) of despair or despondency, seeing just a few stars overhead. The extensive machinery of the WTO, committees, reports, negotiating sessions, dispute settlement – all continue as they had before, with full participation of all Members to the extent that each wishes. The line at the door of acceding countries seeking to enter the WTO has grown longer and the enthusiasm of these countries for the organization is undimmed. By far most of world trade is still governed by the WTO rules, and there is no indication that this will change. Inertia, in a positive sense — like the force that causes the earth to rotate on its axis and to revolve annually around the sun — persists. It is a very strong force.
That is not to say that everything is well. There are some very substantial discontinuities, disturbances in the prior equilibrium:
- First: The rise of a new major economy always results in friction. Following the Second World War, this occurred with the rise of Japan and it occurs now with the continued rise of China. The phenomenon is exacerbated by differences among trading countries how they organize their economies, the size of the Chinese economy and the rapidity of China's rise. An open question is where the equilibrium point is to be found between China and its trading partners.
- Second: The change in Administration in the United States has caused something between a series of ripples and a tsunami, depending on the issue and trading relationship involved. No one would argue with the fact that this Administration’s policies and measures toward international trade differ from those of the preceding dozen or so administrations. Other countries have not yet adjusted fully to this change, but this is beginning to occur.
- Third: Income inequality and wage stagnation, the movement of peoples across borders, job displacement due to automation and the consequent rise of populism, all contribute to stress on the existing international economic arrangements. Almost without exception, national policy responses have been wholly inadequate, and sometimes misguided.
The reaction at the WTO has been slow in coming. But now a growing number of WTO Members have begun an inquiry into what changes might be made in existing international structures and rules. This can be a very positive development. Conflicts led to the creation of the GATT, to the current system of floating system of exchange rates and to the creation of the WTO itself(3). Conflicts now can give rise to improvements in the system.
The current situation is highly fluid. As opposed to the preparations for the prior great rounds of major multilateral trade negotiations, the Kennedy, Tokyo and Uruguay Rounds, there has not been the development of texts of new codes of conduct over an extended period of years. Participation in the process is more unstructured and diverse. The outcome is not fully or, perhaps, even partially predictable, but the spirit is one of inquiry and an increasing openness among those participating to consider how best to improve the trading system.
Substantive candidates for change include improving compliance with international rules in part through providing incentives to provide notification of trade measures, including subsidies, thus increasing transparency; making the trading system of greater value and more accessible to small and medium enterprises; dealing with the rapidly evolving world of electronic commerce; and yes, making sure that dispute settlement has legitimacy for all and works better. An examination of the accessibility to trade related to gender is also underway. This is a partial list. A careful balance must be struck between Members' domestic needs and enhanced international exchanges of goods and services. This has always been the case and it always will be. Striking that balance is far from impossible.
Throughout this process, there must be an increasing recognition on the part of all participants that they bear an individual and a collective responsibility for the system. The system is in the hands of its Members. There needs to be flexibility, agility and goodwill to succeed. This is essential to maintain the best elements of the system and to make improvements in it.
Whatever happens, the WTO will endure. As one prominent critic of the current system, a trade minister, is reported as having said "if the WTO did not exist, it would have to be created".
It is my belief that the system will continue to evolve. It will be improved, because it can be, it should be, and inevitably, ineluctably, it must be. It is in the interests of all participants, without exception, that it be made better.
A few years ago, on behalf of the Board of Science, Technology and Economic Policy of the U.S. National Academies, I met with the Director of the U.S. National Aeronautics and Space Agency (NASA). He said that a central challenge for NASA was the need for invention of a computer that was based on biological components rather than electronics, because for travel in deep space lasting decades, an onboard computer would have to re-invent itself, as it could no longer be re-programmed from Earth. Similarly, institutional arrangements need periodic updating. Governments and their representatives, ministers and delegates, need to take a pragmatic approach. An overly legalistic approach will be counterproductive. The system must adapt — to respond to international and domestic imperatives as these change over time. A good dose of pragmatism, of creative (but realistic) proposals, are needed. A sense of urgency is also in order. Drift will not accomplish what is required.