DEPUTY DIRECTORS-GENERAL

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The Good News About the World Trading System

Remarks of Alan Wm. Wolff Deputy Director General World Trade Organization (WTO) At Meridien House Washington DC

July 18, 2018

PART I.  THE ARC OF HISTORY

When I speak to students who are interested in international trade, I tell them that increasing economic integration across borders is inevitable.  That this is foretold by the arc of history.  That there may be deviations, divergences, but the long-term direction of change is immutably fixed and it is positive.  With the creation of the GATT and the WTO, the long journey began to bring about an open international trading system .  It will continue to evolve, with periodic stresses and detours on the road is set toward freer trade making improvements but never attaining a single global market.  This has been the work of the last two or three generations, it is the task set out for us, and it will be the work of those coming after us.  Deviations from this road may last for a year, a few years, or even longer, but logic will compel humanity to follow this course.

While not minimizing in any way the current turmoil in world trade, involving steel, aluminum, U.S. trade with China, and the threat of restrictions on automotive trade, it is worth taking as step back and taking a longer view.  Those who created the trading system, were not just visionaries, they were pragmatic, they were realists.  They saw a need for both sound political purpose and valid economic reasons to promote greater openness for trade across national borders.  This was true of Deng Xiaoping, it was true of Roosevelt and Churchill, and it was true of Schumann and Monet.  They saw the need for international economic integration.  To them open markets were required to promote peace, domestic and international, to surmount the episodes of chaos and mayhem that marred the 20th century.  They overcame major obstacles and the heritage which we was left in our care is not to be squandered..

In our time, technology is a principle driver and shaper of economic activity.  Today, one can communicate at no cost from almost anywhere on this planet to almost anywhere else.  This means that, if not prevented by government regulation or logistics, any person with a useful commercial idea, with a desirable product or a service that can be delivered over the internet, has the technical capability to gain access to customers everywhere.  National boundaries are no longer the natural barriers as oceans and mountain ranges once were.  With the information revolution and further innovations, global trade is being transformed and economies are being reshaped. 

The differences of the present world from the past are myriad and so far-reaching that we are not fully conscious of them.  It is not surprising that it is now necessary to reexamine the rules under which trade is conducted and to judge whether they are still fit for purpose.  In this process, there is no WTO member whose basic interests should not be taken into account, as long as they are consistent with the purposes of the WTO.  

The progress toward open borders is inexorable because It flows from an economic and political imperative.  In a more fully interconnected world, why should you as a citizen not take offense and resist government efforts to constrain your choice of to whom you sell to and from whom you buy.  Everything will be more global.  Financing is likely to be more cloud sourced in the future, and so will access to producers and customers.  We can see the beginnings continued experiments in the Baidu, Amazon, Netflix, Apple, and others of providing goods and services on a global basis.  What is harder to see, but it is there, are the major advances made in micro, small and medium enterprise which benefit from a global market,  These pioneers of any size, no matter how small, buy and sell irrespective of national borders, when they are allowed to do so.  

The mid-nineteenth century industrial revolution could not be turned back.  The historic force of economic efficiency proved irresistible.  Fundamental irresistibility is equally a hallmark of the information technology revolution, and will also characterize successive waves of revolutionary innovation that will occur again and again.  The international trading system will over the longer term become more and more open because it has to be.  This is mandated not just due to technological change, but meeting other challenges, such as ameliorating the negative effects of changes in weather patterns, scarcities of water, of energy, of productive land.  These are some of the factors that will demand adaptation of the rules of international commerce, with the most sensible solutions being in the direction of more openness not less.

The inevitability of trade liberalization does not excuse us, the current generation, from making intensive efforts to maintain and improve the current trading system.  For in the near term, what we have will be of our own making.  If we wish to preserve and enhance the economic prosperity of our time, to make trade freer and fairer now, to make it more inclusive,

every effort must be expended to that end.  It is easy enough to throw away past gains, to fail to right errors, and to continue to underinvest in the multilateral trading system that has been passed down to us.

There is a lesson to be learned from current events,   A liberal trading system may be an economic imperative, but it must be politically sustainable as well.  This calls for actual and broadly perceived fairness, based on reality.   Freer international trade needs to rest on popular support.   There is much more popular support than one might think.  That is what polling data tells us, at least in the United States.  The majority support open trade through international trade agreements, and this support is even more pronounced among the young. 

It turns out that the heritage we received, the international trading rules are not sufficient without the effort to maintain and improve them.

It is given to us to make a difference,  That is our purpose,  That is why we are here.  With effort we will succeed. 

Part II.  THE WORK OF THE WTO

You would not know it from newspaper headlines, but nearly all world trade, which for merchandise exceeds $11 trillion, continues to flow every bit as freely as it did since the WTO was founded 23 years ago.  This is due to the WTO rules holding for most trade.  In fact, the rules have been improved in the last few years with the coverage of the information technology agreement being expanded, the Trade Facilitation Agreement coming into effect, and Members agreeing to ban agricultural export subsidies.  The effect of those agreements is to move trade even more freely.  Further trade restrictions are threatened, and they may be a multiple of those in place.  This is not insubstantial.  At some point, confidence may be sapped, investment plans put on hold or scrapped, and the effects can be far greater than they are now.

For the present, however, the fact is that the work of the WTO continues to proceed.  Members continue to be active participants in the standing committees of the WTO.  They notify proposed standards, receive comments and are able to take them into account in formulating final standards.  They review sanitary and phytosanitary measures to give greater assurance that necessary standards are also as non-trade restrictive as possible.  They make negotiating proposals on a wide variety of subjects in order to improve the rules further.  They are increasingly more open in stating their concerns and interests (although there is room for even more openness).

Ways forward are being actively sought to improve the conditions of agricultural trade, with respect to domestic subsidies, market access, export restrictions and food security.  A two-day workshop was recently held for members with presentations from experts from around the world to provide current facts to inform potential negotiations.

The negotiation with the most recent recommitment, which occurred at the Buenos Aires Ministerial Meeting last December, is the attempt to achieve disciplines on fishery subsidies, to avoid depletion of the oceans fish stocks.   The members have set a deadline of reaching agreement in less than two years from now, at the next WTO Ministerial Meeting.

The negotiation with the most recent recommitment, which occurred at the Buenos Aires Ministerial Meeting last December, is the attempt to achieve disciplines on fishery subsidies, to avoid depletion of the oceans fish stocks.  

The members work together to provide technical assistance so that exporters in developing countries can more readily sell in world markets by helping them meet food and plant safety standards, fostering development and assuring human health at the same time.   They also gather to help the poorest cotton producing countries improve their yields of cotton and provide them information to help connect these producers with end markets.  I am fortunate enough to chair on behalf of the WTO Director General a consultative forum for cotton in which donors and recipients participate to increase the assistance and its effectiveness.

Twenty- two countries seek entry into the WTO.  In many cases these are conflict-affected countries.  Like many of the original members of the GATT, they have experienced war very recently.  The vision of Winston Churchill and Franklin Roosevelt was that a key result of the Second World War would be that all countries would be able to trade.   The GATT was founded in order to aid in recovery from that war.  Europe moved toward a customs union and then a single market to foster peace and growth.  That is what many of the currently acceding countries seek – Bosnia-Herzegovina, Serbia, Sudan, South Sudan, Timor L’este, Somalia and Iraq, to name a few.  The last two countries to join the WTO were Afghanistan and Liberia, the latter of these having suffered through not only war but disease with the devastating effects of Ebola. 

The administrative portfolios of the divisions that report to me, information technology support and translation, interpretation and publications, strive to make information more available to members and to the public. 

This is not to minimize the seriousness of actual and potential effects of trade restrictions, those imposed and those threatened.  It is simply to note that the vast majority of world trade continues, and substantial efforts at the WTO to improve the conditions for trade also continue. 

I have been in the trade field long enough to see a crisis put to good use.  In 1971, the international monetary system was breaking down.  The U.S. dollar, the world’s reserve currency, was backed by gold at $35/ounce.  Other countries were cashing in their dollars, of which there were a lot, due in large part to trade imbalances, for gold.   The U.S. was running out of gold.  It needed to devalue the dollar, and that was opposed by other countries, who feared that their exports would become less competitive. 

On August 15, 1971, President Nixon imposed a 10 percent import surcharge, called for enactment of a rebate of corporate income taxes tied to exports, and put on price controls. The import surcharge was technically a violation of the then existing trade rules.  The tax measure was later found to be inconsistent with U.S. international obligations.  And the price controls would have driven close to all importers out of business, because for at least for a few days there was no provision made for passing the increased cost of the imports on to customers. On top of these measures, the U.S. demanded that Europe, Canada and Japan negotiate the removal of nontariff barriers without any additional trade benefits from the U.S.

The import surcharge was upheld by the Supreme Court as a national security measure.  But the crisis in fact led to a better place for the world economy.  With the Smithsonian agreement on December 18, 1971, the link of the dollar to gold was abolished, the dollar was devalued, and the surcharge was lifted.  The international monetary system was within a short period reformed to allow exchange rates to float.  The tax measure was condemned in the GATT and withdrawn, and the Tokyo Round of Multilateral Trade Negotiations was launched, leading to the first major international agreements to reduce nontariff trade barriers.

There are no guarantees that current stresses in the trading system will end well.  But the 1971 example indicates that a crisis, well-managed, can lead to a better place for the world economy. 

I have had the privilege in the last few weeks to meet with students from around the world.  What I tell them is that it is the obligation of each generation, including theirs, to leave the world in better condition than they received it.  I am optimistic that they will do so, and I believe that we can and most likely will do so.  That will not happen on its own.

We have to invest more in the effort to maintain and improve the international trading system.  It is the job of each of us to make a difference.

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