DEPUTY DIRECTOR-GENERAL ALAN WM. WOLFF
Across thousands of years of history, trade has linked the peoples of the world.
The first city in the world is said to have been Uruk in ancient Sumer, which occupied the southern part of Mesopotamia. Uruk was located some 300 km SSE from modern Baghdad and was founded some seven millennia ago. In ancient Sumer, around 5000 years ago, cuneiform was impressed on small clay tablets, many of which, among other uses, recorded domestic commercial contracts. Some were intended, it is thought, for long distance communication to facilitate trade. Some scholars see trade as one reason writing on clay tablets was invented. Within a few hundred years, the first indications of law were found recorded on these tablets.(1)
Around 1780 BC, the first collection of written laws regarding trade were incised on a black basalt stele. This was the Code of the Babylonian King Hammurabi.(2)
Cross-border trade problems are not new. Around 1340 BC, Burna-buriash II, the king of Babylon, sent a letter to the Egyptian Pharaoh Akhenaton (Amenhotep IV)(3) to convey a complaint. Having exchanged a substantial amount of lapis lazuli and horses for gold, the Babylonian king politely asked the Pharaoh to personally inspect and seal future shipments of gold sent in return as the last shipment of gold he had received, when melted down, came up seriously short.(4) Fast forward about three millennia and there is now a broader more detailed effort at looking for certainty in trade, in meeting standards, and in trusting others to assess conformity with them.(5)
In the history of trade, there were at least eight major routes, moving spices from East to West, incense from south to north, plus trading routes for trade in cloth, salt, tea, amber beads, gold, jade, and tin to make bronze - and also, regrettably, slaves. The most famous of all routes, of course, was the Silk Road, formally founded in the Han Dynasty around 207 BC. It began in west central China in Xi'an and crossed overland for 6400 kilometers to reach the Mediterranean. It created cities along the way. A month ago, I was in Samarkand, a remarkable place, which was a major trading center in Central Asia (in what is now Uzbekistan). It owes its existence to the Silk Road.
The Phoenicians, Carthaginians, and Greeks successively established trading settlements along the eastern and southern coast of what is now Spain. The first Greek colonies were founded along the northeast coast of Spain in the 9th century BC, leaving the south coast to the Phoenicians.(6)
New technologies drove trading relationships further and faster. Sailing ships enabled regional trade to grow. For Northern Europe this gave rise to the Hanseatic League, dating back to 1267. Chinese exports of pottery starting in the 9th Century to Asia and Africa,(7) moved upscale to Chinese porcelain exported in copious quantities to Europe starting in the 16th Century. It gave rise to the first mass production in the world.(8)
Trade drove exploration, but also in the 16th century, exploitation. The Dutch East India Company reached out into the Pacific. The British East India Company reached into South Asia. Slavers reached into Africa. Spanish treasure ships returned laden with precious metals from the Americas. A low point in the history of trade was marked by the Opium Wars with China(9). Colonization was not confined to the European powers. In the 20th century, Japan annexed Manchuria and sought raw materials through conquest in Southeast Asia. As the colonial era waned, trading arrangements, if entered into formally at all, were generally bilateral and nonreciprocal, as well as discriminating against non-parties.
The Modern Era
At the end of the First World War, the American President Woodrow Wilson envisaged a world characterized by equal trading arrangements from which all could benefit. It took two world wars, however, to sweep away empires and begin the process of unwinding prior discriminatory trading relationships. The conditions existed for the first time in human history to create a global trading system. Devastation, physical and economic, provided a largely blank slate upon which to create a multilateral trading system based on equal rights and equal access to markets.
To support the hard-won peace, twenty-three countries joined together in 1947 to create a rules-based multilateral trading system, contained in the General Agreement on Tariffs and Trade, the GATT, the precursor to the WTO, the World Trade Organization which came into being in 1995.(10) Creation of a multilateral trading system was a remarkable achievement. It was the first time nations were united under one set of trading rules not imposed by an empire.
The WTO is an international, not a supra-national organization made up of 164 members. It is whatever the Members, deciding by consensus, want it to be. It is distinguished from other international organizations by having enforceable rules. These rules promote the flow of trade.
Thirty-six countries have joined since the WTO was founded in 1995, and another 22 countries are actively seeking to join the Organization. Their motivation is to improve the standard of living of their peoples through integration into the world economy. Increasingly, it is to promote stability as a foundation for peace. This was true of the last two countries to join – Liberia and Afghanistan, and it is true of Sudan, South Sudan, Somalia, East Timor, Iraq and others today. Trade is not a luxury for these countries. It is a means to secure their futures.
The first rule of the WTO, the foundation of the trading system, is nondiscrimination (most-favored-nation treatment) in dealings with the goods and services of other countries. This means in principle (although there are exceptions, the most important one being regional free trade agreements) that, for example, the same tariffs will be applied to imports no matter what the source.
Nondiscrimination in internal regulations is expressed in the requirement to give national treatment - treatment no less favorable than that extended to domestic interests.
These foundational rules are accompanied by a number of key requirements, including:
- living up to contractually bound tariff commitments on imports of goods,
- not imposing quantitative limitations on imports,
- not subsidizing exports,
- limiting subsidies that are granted to agricultural production,
- notifying proposed standards and considering comments received from other Members, and
- implementing adverse findings of dispute settlement panels.
Most of world trade is successfully carried on within these rules.
Most of the work of the WTO takes place within its committees where Members discuss compliance with the rules and consider how the rules might be improved.
The WTO Spring
The multilateral trading system (MTS) is approaching its 75th birthday. It has been invented and re-invented now several times. The International Trade Organization (which never came into effect) succeeded by the General Agreement on Tariffs and Trade (GATT, which did come into effect). The seventh round of multilateral trade negotiations gave the trading world the first nontariff trade agreements, including the government procurement code and the standards agreement. Among other advances, these agreements began to open up government procurement markets of signatories and provided that product standards must not burden international trade beyond what is needed to provide public safety and quality. The Uruguay Round, which lasted from 1986 through 1994 gave the world sets of rules packaged in a new organization that would be charged with administering the rules, the World Trade Organization (WTO). This is where we are today.
The WTO is now 23 years old. While there have been three new agreements reached in the last 23 years, no major changes were made to update the institution to enable it to deal with 21st century issues. This began to change in December 2017 at the WTO Ministerial Meeting in Buenos Aires. The U.S. Trade Representative took the floor to call for three major changes in the WTO: limiting the results of litigation so that litigation does not encroach on what is appropriately the subject of negotiation, enforcement of obligations to provide transparency through notifications, and an end to three-quarters of the members claiming special treatment as developing countries. While the statement appeared to be well-received at the time, this by no means marked a buy-in by Members to a reform agenda. At the same meeting, however, large numbers of Members, but not all, enlisted in new Joint Initiatives, five areas which I will outline in a moment.
Three major Members – the European Union, Japan and the United States, meeting in Buenos Aires at the same time as the conference issued a joint declaration calling for new rules to limit industrial subsidies and the build-up of excess industrial capacity, rules to provide disciplines on the conduct of state-owned enterprises, and new rules to curb forced technology transfer.
The call for WTO reform was heard six months later from French President Macron, from Canada (looking at the functioning of WTO committees) which invited the EU and eleven other WTO Members to Ottawa to discuss the operation of the WTO, and eventually resulted in a call from the countries of the G20 for WTO reform. Much of the reform effort was stimulated by the crisis created by the United States in blocking appointments to the WTO's Appellate Body, but it has now grown to include potential improvements with respect to a much wider range of issues.
The G20 mandate is in some respects similar to Ferdinand and Isabella commissioning Columbus to cross the Atlantic Ocean. In the case of the WTO the mandate given to the G20 trade Ministers, their Permanent Representatives and their Deputies to come up with a reformed WTO, perhaps a version 2.0. What they will achieve is not yet known, but there are major efforts underway and the proponents of reform have some clear ideas as to where they want to end up. Intensive work is underway by Members accounting for three-quarters of global economic activity who signed up at Buenos Aires 16 months ago to work together to establish rules on e-commerce. Similar groups are now working on investment facilitation for development (11)
The Ottawa Group of 13 Members is reviewing how to improve the daily operations of the WTO. This could encompass, for example, a requirement that major changes in measures affecting imports, even those affecting a single country or a single commodity, would be notified promptly and not await periodic updates of tariff schedules, or a request for verification by the WTO Secretariat, or a counter-notification by another Member. Good ideas for reform would be welcomed not only from any WTO Member, but I suspect from academia or any other knowledgeable source.
Making the WTO and therefore the multilateral trading system more effective requires a higher level of investment of effort by all of its Members, from the Secretariat, as well as from the business community and from NGOs. Any large organization needs to have three basic elements – structures designed to achieve the executive functions of monitoring, proposing initiatives and assisting in enforcement, it needs a means to continue to adapt its rules to current circumstances and future needs (the legislative function) and it needs the means to settle disputes (a quasi-judicial function). Each of these fundamental requirements deserve a serious review.
This is a time of serious risks, but even more of major opportunities, unparalleled in recent years. Disruption having created an opening, the possibilities for positive results, for far-reaching reforms, must not be lost.
The Pig That Coughed
Christopher Columbus is reported to have said: "For the execution of the voyage to the Indies, I did not make use of intelligence, mathematics or maps." Well he in fact neither did he end up in the Indies. We must make use of intelligence, mathematics and maps.
For rules to be honoured and for new rules to be crafted, information is needed. The WTO now collects an amazing amount of data in the form of notifications from its Members, for example, on environmental regulations and product standards. It seeks to collect information from Members with respect to subsidies and other trade measures. There is, however, much room for improvement. There is a growing consensus that Members must in fact live up to their obligations to provide timely notifications, within their capacity to do so. But beyond notified data, to understand world trade, it is necessary to know much more about how and why trade takes place. My father would often ask a truck driver stopped next to our car at a traffic light what his truck was carrying, where he was coming from and where he was going. An American newspaper which was in our home, the Journal of Commerce, had, on its front page, announcements of ship arrivals and what each ship carried. Governments have agreed in the Trade Facilitation Agreement to post on the web, insofar as they have the technical capacity to do so, contact points - websites where anyone interested in trade can find necessary information to buy and sell goods and services across borders.
We are entering an era of big data and artificial intelligence. It will be increasingly possible to know much more about trade so that we can be sure that barriers to trade are understood, and mutually beneficial solutions can be found to lift those barriers. While, as noted, there is a very large amount of data notified to the WTO and made available to Members and the public on proposed product standards, sanitary and phyto sanitary (plant) standards, and national environmental regulations, what we do not know is the number and kind of regulations that are not being notified. We also do not know when trade is measured in a world now characterized by global value chains (GVCs), the actual origins of the trade by value and volume. This is more than a question of improving our knowledge base for analytical purposes, the role of technology in enabling traceability throughout the GVCs can improve food safety.
The countries of Africa have agreed to establish a Continental Free Trade Agreement (AfCFTA). According to reports, once it comes into effect, the Agreement will cover a market of 1.2 billion people in 55 nations with a combined gross domestic product of $2.5 trillion. The African Union indicates that the agreement will reduce tariffs and boost intra-African trade dramatically after import duties are eliminated. The agreement is focused on diversifying exports away from commodities such as minerals just taken out of the ground and exported without adding further value. It also seeks to enhance the chances for small and medium enterprises to have access to more regional destinations.
The world can do more to help African economic development. As one example, from an area in which I am involved, is that the WTO hosts efforts of donor countries to work with some of the poorest countries in the world, to increase their income from growing and using cotton. In June, at the suggestion of Benin, Burkina Faso, Chad and Mali, interested WTO members will bring together experts from around the world to determine how poor cotton producing countries can increase yields and make profitable use of cotton by-products including seeds (to yield oil and to make the seeds themselves edible), as well as leaves, stems and from what is often waste to make products such as fibre-board for construction. With more information, in short more data and the use perhaps of AI to support analyses, both assistance and trade rules could be tailored to better promote development, country-by-country, sector by sector.
In addition, increasing availability of data will permit transparency with respect to foreign fishing vessels suspected of despoiling the environment by depleting fish stocks while depriving local fishing communities of their livelihoods, undermining food security, and fuelling piracy as alternative employment. Exploitation of these natural resources without fully sharing benefits with local peoples is all too reminiscent of some of the worst aspects of colonialism.
The WTO Members and the WTO Secretariat are actively engaged in helping developing country Members fulfil the promise of the Trade Facilitation Agreement, which requires more than anything else the public availability of data (through national websites) to lower barriers to trade. Achieving this objective is estimated to lower costs of trade by as much as 14%. In addition, trade finance can be revived from its downturn after the 2008 financial crisis by the use of Big Data to re-build the trust of large financial institutions in smaller intermediaries that extend credit for trade.
Technology now enables support for development that could not have existed just a few years ago. For example, there is a nongovernmental organization in London that advises farmers in East Africa through their cell phones when it is time to put lime on their crops. Another example is a company in Kenya that sells crop insurance to local farmers and makes pay-outs based not on claims but on satellite imaging that detects drought conditions.
The world of trade is changing, and the multilateral trade rules, and their administration must change with them. The WTO is currently updating its document management system through outsourcing to a world-class Indian firm. India can be a leader in e-commerce in many areas. China is a leader in artificial intelligence. There was an article about the attempt in China to use facial recognition software and other forms of data collection to identify which pigs on large farms coughed, so that the sick could be segregated by farmers from the well, preventing the spread of swine flu. China is working on digitalization of agriculture to move crops from areas of production to distant customers to both raise the level of income of farmers and improve the lives of consumers. Advances in technology as well as changes in climate, demographic trends and a number of other major factors are going to keep trade patterns and the nature of trade changing. The WTO must adapt to the conditions that exist today and prepare for the future.
We are now a bit like Columbus, without full knowledge of what we will find and what needs to be done, but we are headed for new areas to improve the world trading system, to work to create WTO Version 2.0.
With the development of big data, the cloud and AI, the tools in the future will be vastly better than what we have today. These tools will be in your hands, the next generation. Trade has increased by nearly four times since the WTO was created. Much more progress can be made. You will be able to create a much better and prosperous world through trade, a fairer world, where even small enterprises have access to international markets, where opportunities are available regardless of gender, where income levels are higher, where there is adequate food, and where there is a better chance for peace.
That is the challenge that I will leave you with today.
- I am indebted for my interest in this subject to a conversation with Raymond Westbrook, who was a professor of Ancient Near Eastern Law at Johns Hopkins University. back to text
- It is now in the Louvre. back to text
- Fondly remembered today for being a monotheist among polytheists, and for having as his wife, Nefertiti. back to text
- https://cloudfront.escholarship.org/dist/prd/content/qt5gh13054/qt5gh13054.pdf. back to text
- The WTO’s Agreement on Technical Barriers to Trade (TBT). As far as I know the WTO TBT Committee’s work on conformity assessment does not cite the concerns expressed by Burna-buriash II as a precedent. back to text
- "Spain – History – Pre-Roman Spain – Phoenicians". Britannica Online Encyclopedia. 2008. back to text
- Asian History back to text
- Chinese export porcelain back to text
- I n one of life's ironies, China is reportedly now a major source for an opioid epidemic in the United States. back to text
- The 23 founding members were: Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, United Kingdom and the United States. back to text
- These discussions shall seek to identify and develop the elements of a framework for facilitating foreign direct investments that would: improve the transparency and predictability of investment measures; streamline and speed up administrative procedures and requirements; and enhance international cooperation, information sharing, the exchange of best practices, and relations with relevant stakeholders, including dispute prevention. These discussions shall also seek to clarify the framework's relationship and interaction with existing WTO provisions, with current investment commitments among Members, and with the investment facilitation work of other international organizations. These discussions shall not address market access, investment protection, and Investor-State Dispute Settlement. Ministerial Declaration. back to text