DEPUTY DIRECTOR-GENERAL ALAN WM. WOLFF

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It is 100 years later, and the Paris Peace Conference of 1919 remains consequential.  The decisions and actions taken then, as well as for those not taken, have shaped the world as we know it today.  What happened in Versailles carries lessons for the challenges we are facing today, which includes making multilateralism not only relevant but upgraded and strengthened for the 21st Century.  This is felt with a sense of urgency by those of us working in Geneva where the World Trade Organization is located.  To testify on the link of trade to peace, the WTO is pleased to serve as an Institutional Partner with the Paris Peace Forum.  I particularly welcome the Forum's focus this year on trade (thanks to Pascal Lamy), as the narratives of “Trade for Peace” are now making a comeback in Geneva, while the news headlines are filled with stories of trade war and heightened tensions.  

It would risk repeating the mistakes of the past to forget how much peace and prosperity, the foundation of human well-being, rely upon the strong economic interconnectedness between nations.  The peacemakers of 1919 are often blamed for creating conditions that set some European nations on the road towards nationalist ambitions, ultimately leading to the Second World War.(1)  When the victors of the Great War met, they had before them a blueprint for restoring prosperity and world peace in the form of the US President Woodrow Wilson’s Fourteen Points, which included as Point III:        

“III. The removal, so far as possible, of all economic barriers and the establishment of an equality of trade conditions among all the nations consenting to the peace and associating themselves for its maintenance.”

Wilson’s points were not translated into action, but making the proposals did plant ideas in the mind of a young economist, John Maynard Keynes who was advising the British during the Conference.  In his book 'The Economic Consequences of the Peace', published in 1919, he warned that the Versailles Treaty created a Carthaginian peace designed to crush the defeated Central Powers, especially Germany.  Wilson’s approach also impressed Wilson's Assistant Secretary of the Navy Franklin Roosevelt.  Years later, in 1941, Roosevelt as President met Prime Minister Winston Churchill at Argentia Bay and they agreed to six post-war aims, one of which stated that the United States and the United Kingdom

will endeavor, with due respect for their existing obligations, to further the enjoyment by all states, great or small, victor or vanquished, of access, on equal terms, to the trade and to the raw materials of the world which are needed for their economic prosperity;

In 1944, Keynes went on to lead the British delegation to the Bretton Woods Conference where the lessons from Paris laid the foundation for the international economic order from which we still benefit, including, not least, the multilateral trading system. 

The General Agreement on Tariffs and Trade (GATT) was founded in 1947 to assure a better chance of peace in Europe after the Second World War.  The strong linkage between trade and peace was recognized in the first words of the 1948 Havana Charter for the International Trade Organization, which affirm:

“the determination of the United Nations to create conditions of stability and well-being which are necessary for peaceful and friendly relations among nations… .”

Trade for Peace through WTO Accessions

The GATT was transformed into the WTO in 1995 — a peaceful time following the end of the Cold War.  Peace led participants in the system to forget or take for granted its raison d'être, as its membership grew from 23 in 1947 to 164 today.  However, the vision that where there is trade there is more likely to be a better chance for peace, is very much alive today among those countries which most recently acceded to the WTO (Liberia and Afghanistan, in 2015) and those who are actively seeking membership in the WTO.  There are currently 22 countries engaged in the accession process.  Thirteen of them are fragile and conflict-affected countries, including from the Horn of Africa (Ethiopia, Somalia, South Sudan, Sudan) and Middle East (Algeria, Iraq, Lebanon, Libya, Syria).  The accession process is eloquent testimony in favour of the health and value of the WTO.

In the Horn of Africa, a number of countries are working to utilize trade to support peace through WTO accession.  This part of the world has long suffered from recurrent wars, domestic conflicts, natural disasters and associated poverty, which prevented trade and investment opportunities from fully bearing fruit.  But their narratives are now decisively changing, especially, for example, following the peace agreement signed between Ethiopia and Eritrea in July last year.  Now, the refrain of “where there is trade; there is peace” resonates across the region.

Powerful testimony for this is found in the 2019 Nobel Peace prize which has been accorded to the Prime Minister of Ethiopia Abiy Ahmed.  He is pushing forward with domestic economic reforms, including through WTO accession, and spearheading initiatives for regional economic integration, to pave the way for peace and prosperity not only in Ethiopia but also in the Horn — one of the most historically troubled and strategically located regions in the world.  This Trade for Peace narrative has also been picked up in Ethiopia's immediate neighbour, Sudan.  The transitional government led by Prime Minister Abdalla Hamdok, in place since August, has also made economic integration a priority to help end war and conflict that defined his country and the region for decades.  These leaders understand that liberalization of trade among the countries of the Horn can help shift available resources from war and conflict to building business relationships based on trust.

The Future of Trade Rules: WTO Reform

Let me now turn to the Future of Trade Rules, which is the main focus for this session.  

Tracing the origins of the multilateral trading system compresses its history so that it appears to be a linear progression but the story is far more complex.  As noted, the narrative begans with a Wilsonian premise, a principle that equal trade would be a foundation for world peace.  It was a principle accepted by all and implemented by none.  The effort that preceded the creation of the multilateral trading system proceeded with the planning for creation of an International Trade Organization.  The ITO, however, never came into being.  Instead an international trade contract among a few dozen countries at first, called the General Agreement on Tariffs and Trade (the GATT), attended to by an informal secretariat, was founded and housed in three villas on the grounds of the United Nations in Geneva.  Its existence was somewhat precarious.

 It took another generation to create the World Trade Organization.   According to those present at the creation, the WTO was not the result of many years of planning and negotiation.  It came into focus only toward the end of the last great round of trade negotiations, the Uruguay Round (1986-93).   The primary motivations appear to have been two-fold: first, to make trade obligations enforceable (and thus the creation of a panel process that could not be blocked and an Appellate Body as a corrective should panels stray into making egregious errors in making their determinations) ; and second, a way to house agreements on services and intellectual property, for which the GATT, a goods and tariffs-oriented construct, did not really seem to be suitable. 

Another 25 years have now passed, and there is a new generation not only of world leaders and trade negotiators, but a changed world of trade. 

In this current setting, some of the foundational rules laid down in 1947 often appear to be honored as exceptions rather than rules.   Non-discrimination, trade measures applicable in principle to all under the most-favored-nation and national treatment obligations, increasingly seem to be subordinate to bilateral and regional arrangements.  Contractually bound tariff levels are often ignored or irrelevant given that they differ greatly from rates actually applied.  Domestic subsidies have become far more trade-distorting than the subsidies that are subject to the strict disciplines.(2)  Regulation of trade in the name of national security has become less rare. The GATT provision on exchange rate practices, which can easily swamp tariff commitments, was and is a dead letter.

That said, an heroic effort is underway to create rules for the digital economy, disciplines on fisheries subsidies, active consideration of extension of the moratorium on customs duties on electronic transmissions and the TRIPs nonviolation waiver, as well as other initiatives.  There are serious efforts dedicated to restoring the WTO dispute settlement system's legitimacy and effectiveness.  But in many other respects, the existing multilateral trading system is free from examination.  Current challenges largely obscure the need for a closer look at the system as it exists today and how it might be improved.  

There are no solutions near at hand to a broad range of WTO organizational issues that could be put into effect at the next ministerial conference at Nur Sultan.  Broader questions need investigation and reflection.  It is not unreasonable to set 2025 as a goal for moving to a WTO 2.0 for adoption at MC-15.

A number of questions suggest themselves in the context of a program set in a peace forum, in which we meet today:

  • Is the time ripe for a new charter for the multilateral trading system that --
    • Begins with a recommitment to shared ideals and goals,
    • Is founded on participation based on a net positive contribution from all members, without exception, for the common good,
    • That recognizes the right to equal trade for all nations (envisioned by Churchill and Roosevelt at Argentia Bay in 1941),
    • That explicitly once again links the cause of peace and the cause of open markets inextricably as they were in the first clause of the 1947 Havana Charter for the International Trade Organization.
    • That cites the commitment of all to the objective that market forces are to determine competitive outcomes;
    • That includes a recommitment to implementing the first three articles of the General Agreement on Tariffs and Trade —
      • Non-discrimination with respect to imports from other Member countries,
      • Contractual commitments to low tariffs and to their progressive lowering, and
      • That national treatment be accorded to imports,
    • That states that the objective of the WTO is that membership should be universal,
    • That obligations be fully enforceable as envisaged in the founding of the WTO
    • That trade that affects the environment (such as dealing with plastics in the oceans) must be addressed with environmental goals in mind
    • That all must join and fully implement the government procurement agreement in part as a means to combat the scourge of corruption.
    • That sustainable development be promoted through all activities, and be made far more effective, directly through training, and indirectly through close coordination with other international organizations.
    • That all Members accept an equal level of obligations except in the case of verifiable limitations of capacity. 
    • That  conflict-affected countries, of which there are many in the queue who hope to join the WTO, can obtain on an accelerated basis some of the benefits of the system through adoption of a general protocol of provisional accession for conflict-affected countries and fragile economies, delivered on a best efforts basis by existing members, who would pledge to apply, to the extent that they can, the provisions of the WTO agreements to these countries (rather than the present situation where treatment is ad hoc and inconsistent).
    • That in the interests of transparency —
      • Each instruction that affects trade materially, issued by a Member government to another of its government agencies, be sent at the same time to the WTO secretariat for sharing with all Members and published
      • That the WTO secretariat collect and make available all information that it can to facilitate trade (on a subscription basis, with access to those countries which contribute fully to the pool of data)
      • That state ownership, control or influence, of an entity engaging in international commerce, not for those reasons be any less transparent than fully private entities.
    • That there be a new structure of governance such that
      • The dispute settlement system is effectively made responsible to the WTO members, while individual judgments remain independent.
      • The Members adopt a workable and effective system of governance (management) of their functions, having before them the examples of the organization of the World Bank and the International Monetary Fund, recognizing that at its current size, a committee of the whole consisting of all WTO Members, cannot carry out the responsibilities assigned to it by the new charter.
      • That in addition to existing prerogatives of the Members, that the Members charge the secretariat with
        • initiating subjects for negotiation,
        • monitoring and working to assure compliance with existing obligations,
        • providing relevant analyses,
        • preparing recommendations to make trade policy reviews more likely to have a positive impact on subject Members policies and measures, particularly with respect to large economies, and
        • making recommending actions to assure the fostering of objectives of the new WTO Charter.
      • That bilateral and regional trade agreements be examined to determine if they are more trade creating than distorting,(3)
        • that trade distortions through preferences and other discriminatory features be kept to a minimum, if allowed at all, and
        • that the objective of sub-multilateral agreements should be
        • deeper economic integration based on geographic proximity, and
        • pointing a path forward for making progress on specific issues as templates for improvements in the multilateral trading system.

Conclusion

Only Members can make proposals for consideration.  The above list, derived from informal views of Members conveyed in various conversations, is provided only to stimulate discussion in the setting of this conference, in response to the topic of our panel discussion on the future of trade rules.  

Before closing, it is worth focussing for a moment -- not on the goals for the future shape of the rules of the multilateral trading system but on the immediate needs of that system as it is administered by the World Trade Organization.  The near-term imperatives fall into two main categories: the WTO Members having the ability to reach new enforceable trade agreements (including needed disciplines on fisheries subsidies and electronic commerce) and repairing the WTO’s dispute settlement system which will lose its appellate function with respect to any new matters in less than a month from today.  Major efforts are underway to make progress on both fronts.  If it proves impossible to reach new agreements, or if the enforcement of the WTO’s existing agreements can no longer be relied upon, the relevance to the WTO to international trade will fade, with potentially high costs to all. 

There is a proven correlation between peace and open trade.  Trade does not guarantee peace, but it is an essential foundation for the economic stability that makes peace more possible.  Peaceful relations in turn make the expansion of trade achievable. 

What happens if there is no possibility to appeal a dispute settlement panel report?  There is a spectrum of theoretical possibilities, ranging from Armageddon, the outbreak of trade hostilities large and small, and various shades of dystopia to an outbreak of pragmatism.  Armageddon could occur if every party prevailing before a panel becomes frustrated when the losing party rather than complying with a panel result files an appeal when none is available in an attempt to block adoption of the panel report.  Were this to occur and the winning party decides to retaliate, this action could be followed by counter-retaliation by the losing party.  

However, Armageddon (complete chaos) or even serious dystopia are not the most likely outcomes of the period soon to be upon us when there is no Appellate Body available to review new panel decisions.  Instead, there is likely to be a period of resort to various pragmatic approaches.  There are already examples of patches to the existing system:  Two Members have already agreed that if there is no functioning Appellate Body in their pending case, the panel decision will be deemed by them to be a final resolution of their dispute.  Some others have entered into agreements that seek to replicate the existing appellate system for any future disputes between them for as long as the impasse over appointments continues. 

Ad hoc arrangements are not a good substitute for a functioning appellate system, which can provide both greater consistency of interpretation of agreements and correct any egregious errors made by any panel (however rare this might be).  A single dispute settlement system, as envisaged when the WTO was founded in 1995, with the creation of the two-tier, panel and appellate level dispute settlement system that is binding on the parties, is vitally important to preserve harmonious relations among trading countries. 

A central distinguishing feature of the WTO is that its agreements are enforceable.  Everything must be done to assure that this remains the case.  While any system of law depends in the first instance on voluntary compliance, an effective means to resolve disputes when they occur is an essential back-up mechanism to preserve the peace.  While Armageddon may not be threatened, a deterioration in the rule of law, or in the case of international trade agreements, the enforceability of trade agreement obligations, would inevitably lead to a decline in the growth of international trade upon which the economic well-being of the world depends. 

Before shaping the future, it is necessary to address present challenges.  Not doing so poses unacceptable risks. 

Notes

  1. Margaret Macmillan & Richard Holbrooke, ‘Paris 1919: Six Months That Changed the World’ . Back to text
  2. Article XV of GATS contains a mandate for Members to enter into negotiations of subsidies on services. 1.   Members recognize that, in certain circumstances, subsidies may have distortive 
    effects on trade in services.  Members shall enter into negotiations with a view to developing the necessary multilateral disciplines to avoid such trade-distortive effects.
    Back to text
  3. Version 2.0 of the current Transparency Mechanism for Regional Trade Agreements (RTAs) (which is being implemented on a provisional basis) refers only “consideration” as compared with conducting an “examination”. Back to text

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