DEPUTY DIRECTORS-GENERAL

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First the good news

The WTO Ministerial in December in Buenos Aires was very successful.  An exceptionally important turning point was, I believe, achieved. 

For the first time there is a broad path forward to improve the world trading system.  Countries that want to address new challenges can now do so, and they recorded their intention to do just that. 

They issued an important set of declarations:

  • 71 countries, accounting for 3/4 of global GDP agreed to meet and seek common ground with respect to rules to cover government measures relating to electronic commerce.
  • 58 countries accounting for 3/4 of world exports agreed to meet and seek common ground with respect to domestic regulation services.
  • 70 countries accounting for 3/4 of world trade agreed to meet and seek common grounds with respect to investment facilitation.
  • 85 countries accounting for 3/4 of world trade agreed to meet and seek common ground with respect to the needs of micro and medium and small enterprises (MSMES).  

This means that the WTO can and very likely will be updated to address current and future needs of international trade.  These declarations are like a breath of fresh air for the WTO.  

This is not to say that new agreements will be immediately concluded.  What starts as a discussion will continue as a negotiation if the participants so desire.

What is important is that there is movement in a good direction for the world trading system.  This has the potential of being a stunning breakthrough.

The new initiatives build upon the valuable daily operations of the WTO.  A number of the areas of the WTO that I am most familiar with, as they are the responsibility of divisions that report to me, provide very substantial value to international trade.  The TBT (Technical Barriers to Trade) agreement and SPS (Sanitary and Phytosanitary Standards) provisions work well. Members notify draft standards, take comments, take them into account, and do this because they get reciprocal treatment.  Developing countries are assisted to live up to global standards to enable them to export their products.  This assistance comes through the Standards and Trade Development Facility (STDF), a shared responsibility of the FAO, the OIE, the WHO and the World Bank. 

Assistance with respect to cotton production, distribution and sale comes through the Consultative Forum for Cotton Development Assistance, which I chair on behalf of the WTO Director General. 

The WTO accession process which I am close to, does work very well, with the participation of interested current WTO Members. A proof of the value of the WTO is that countries — including for example Somalia, Sudan, S. Sudan, and Timor-Leste — want to join in order to integrate their economies into the world trading system, enact domestic reforms, improve the standard of living, and for many to have a chance at achieving peace. 

 

Now for the news that is not good. 

It is sub-optimal to engage in a trade war during initial attempts at cooperation on potential new agreements.  It is not impossible to cooperate under these conditions, but it would take iron-willed compartmentalization, however much countries’ interests otherwise align. 

WTO, the organization and the associated agreements, are the foundation for the conduct of most of world trade, including bilateral so-called “free trade agreements”.  The existence of the WTO and its predecessor, the General Agreement on Tariffs and Trade (the GATT), has been a key factor in delivering the 20 times growth in world trade since the multilateral trading system was created seven decades ago.

Despite or because of this record of success, the multilateral trading system got to be taken for granted. 

 

Under-investing in the WTO

While almost all (but not all) countries sing the praises of multilateralism, they in fact found other priorities.   China has been putting its primary focus in  foreign economic policy on its One Belt One Road initiative; the EU has been adding to its unequaled collection of bilateral trade agreements (96 either in place or under negotiation): Japan has been working on a deal with the EU and bundling together the remains of the Trans Pacific Partnership; many developing countries are not at all clear that being open to trade is actually good as an engine for development; and the U.S. President, the only head of state to frequently mention the WTO, has done so only to voice criticisms of it.  When there has been a looming trade problem, if some aspects are not solved through trade litigation at the WTO, as with steel, it has been discussed primarily in the OECD. 

This state of affairs can be summed up as the result of a massive underinvestment by its members in maintaining the world trading system and keeping it current.  And underinvestment applies equally to the private sector and civil society.

Under-investment was much in evidence at Buenos Aires.  The only President of a WTO member to call another to urge positive results, was, to my knowledge, President Macri of Argentina, the host of the Ministerial Meeting.  I know of no CEO of a major company that pressed its government for accomplishments at Buenos Aires. 

Underinvestment leads to cynicism.  I visited with a senior European official a few weeks ago who greeted me with a challenge: why did I think that the WTO was still relevant?  The provocative contention: Either the WTO’s public outreach was poor or substantively the organization and its rules were not relevant to current trade concerns of its Members.  The official suggested that perhaps we needed to adopt as a motto: “Make the WTO Great Again!”.  But the relevance of the WTO is directly related to the investment from governments, businesses and civil society to make it relevant. 

There needs to be a change, and some of it was certainly foreshadowed at Buenos Aires.  Last year, I feared and stated publicly that the United States had abdicated its leadership in the WTO.  The world watched to find out what the United States would do.  What was clear through the Buenos Aires ministerial was that the U.S. did want to participate in the WTO and that it had a program for change.  It wished to see reform of the rules and processes in several respects. These points found some resonance among the other WTO Members.  It also stated that it looked forward to participating in the work of the WTO to reach new agreements in new areas of interest.

America’s announcement that it would participate in some of the new negotiations in the WTO was a marvelous step forward — given the alternatives.  But will it be enough?  Will the United States again pick up the burden of providing leadership for the system as a whole?  There is no indication at present that it will do so.  If indeed the United States has stepped back, which seemed likely for almost all of 2017, would other WTO Members or group of Members step forward sufficiently to fill the gap that it left?  The Members that I have talked to, and they have been many, both developed and developing, have not detected the necessary change in the behavior of other Members.

During the past 70 years the United States was a prime mover of progress in multilateral trading system.  My evolving view is that it is likely that the United States will likely continue to play a decisive role no matter what it does.  This is in part by default, by others not stepping forward and setting goals for the WTO and driving to achieve them. 

Unless others change their priorities and decide to invest in a much larger way in the WTO, it is likely that the U.S. will continue to set the pattern, whether it is charging up a hill to create a new trade agreement within the WTO (as it did for ITA expansion, FTA adoption, and the agriculture export subsidy prohibition — accomplishments of a mere two years ago at Nairobi), or charging over a cliff, through its own trade measures that others condemn.  It will by its conduct set the direction of global trade policy, which will determine if progress can be made.  And if the United States stands still, I am concerned that others will, more likely than not, march in place, not making any forward movement in the WTO at all.  

I would be happy to be proved wrong, to see the burden of WTO leadership more widely shared.  At present there is little evidence that this will be the case.  The WTO cannot fulfill its future promise with a deficit in Member leadership.

 

Improving the world trading system

It is up to Members to decide what they want to address beyond the areas covered in the declarations at Buenos Aires.  Five areas that I personally believe should be considered are:

First:  The enforcement of existing agreements.  Transparency should be guaranteed — when notifications of policies and measures are required, they should actually be current and complete.  A frank appraisal of compliance with the WTO trading system in law and in spirit should be the subject of open conversation and result in improved adherence to the system.

Second: Subsidies and other measures that distort or are likely to distort trade should be subject to disciplines before they cause harm to the economies of others.

Third: Deviations from the trading system, in the form of side deals, preferential trade arrangements, should be carefully reviewed and regulated strictly as exceptions to the norm.

Fourth: Confidence on the part of all must be restored in the WTO as an efficient and fair forum for the settlement of trade disputes. 

Fifth: National interest when setting national trade policies should have a component public good component, call it the 80/20 rule where 80% is for narrow national commercial interests, and 20% derived from a broader national interest that is devoted to maintaining an open and fair international trading system. 

 

Conclusion

It is very clear that the world trading system fostered by the WTO is now going to be tested as never before.  It can no longer be taken for granted. 

When crises hit, as one did with President Trump’s announcement of steel and aluminum measures last week (as well as his statement welcoming a trade war), there is a rush to see whether the U.S. — in imposing any measures — is acting consistently with the WTO rules, and whether its trading partners can, under the rules, retaliate immediately. The international trade rule book has not yet been thrown out.  It is being taken off the shelf, dusted off, and consulted. The WTO is designed through its rules to build a firebreak against the spreading of protection and retaliation, and we had best hope that it works.  It certainly can. 

The risks are very high if any of the major participants begin to act outside of the WTO system — whether putting into effect measures, retaliating against them, or in subsequent rounds of counter-retaliation.  For over 80 years countries have not engaged in competitive tariff protection.  Repeating the experience of the early 1930s would have catastrophically high costs for workers, farmers and businesses. In an all-out trade war, no country wins. 

This said, there is not only the very real risk on the downside, there is also a very substantial upside, if the necessary effort is made and good will is present.

The upside can be measured, thanks to a secret UK Cabinet memorandum (that leaked) about the costs of Brexit.  It is instructive for gauging how the current world trading system compares with nearly pure free and fair trade.  The memo indicates the gap between a “gold standard” of openness to trade among countries — the EU single market — and lesser forms of trade openness. UK officials calculated the difference for the UK as part of the single market and what how it would fare fifteen years after Brexit if the UK had a Norway style arrangement with the EU.  Under the arrangement, Norway agrees to adopt some 90%+ of relevant EU laws and regulations applicable to goods.  This enables Norway to have free access to the EU.  The loss to UK of having a similar agreement with the EU is estimated to be a 2% loss of UK GDP by the year 2035, fifteen years after Brexit.  If the UK has a lesser set of arrangements, comprehensive FTAs, it loses 5% of GDP.  If the UK lives with the WTO arrangement only, the loss to its GDP by 2035 is 8%. 

Applied to the world at large, the shortfall by the year 2035 of not having a single market, is $6.5 trillion in that year alone, and cumulatively from 2018 through 2035 a price tag of $89 trillion.  For purposes of comparison, the GDP today of all of Africa is USD $3.3 trillion. 

This is not to say that a single market for the world is achievable or desirable.  It is to point out that there is room for improvement in the current rules which can add enormously to world economic growth, with a consequent increase in the standards of living in all countries. 

The bottom line for the WTO and its Members:  There is much to be accomplished, and there is a clear path toward solid achievement.  Near-term there are challenges for managing issues, in steel and aluminum, in frictions between major trading partners, and in making the dispute settlement system fully functional again.  But it is necessary to plan as well for the longer term.   

What each WTO member accomplishes in the WTO is in no small measure due to the efforts of the private sector and other stakeholders.  The Chamber’s members are therefore all indispensable parties.

In Geneva and at home, all have to up their game.  

The likelihood of a good positive result on subjects of vital interest to your companies, your shareholders and works, depends heavily on whether you and your CEOs are dedicated to making progress with respect to the environment for trade.  The fact that there is a Uruguay Round agreement for each of Services and Intellectual Property is very much because company CEOs worked for that result, actively and unceasingly. 

I strongly recommend to each of you the motto that we should all try to live up to — “make a difference”. 

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