DEPUTY DIRECTOR-GENERAL ALAN WM. WOLFF

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I thank the Ministry of Finance of France, as chair of the G7, for convening this meeting today and for inviting the WTO to participate.

The creation of a multilateral trading system is a remarkable achievement, a landmark of cooperation among trading nations unprecedented in world history. It is an essential component of the liberal international economic order. At Bretton Woods, 75 years ago, it was not much more than a gleam in the eyes of the participants. The multilateral trading system became a reality only somewhat later.

The system was based on the premise that open markets contribute substantially to the maintenance of an enduring peace. This vision was articulated by Woodrow Wilson at Versailles in 1919. Although his plan was formally adopted at the Peace Conference, it was never implemented.

Following the Economic Depression and the onset of another world war, equal access to markets was listed as a key objective of Franklin Roosevelt and Winston Churchill in their Atlantic Charter. It was central to their plan for shaping the peace that would follow that war. Their concept was recognized in the 1948 Havana Charter for the International Trade Organization, linking trade to the cause of peace. The very first words of this Charter for world trade 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,… .

The vision, that where there is trade there is more likely to be a better chance for peace, is very much alive today. It is eloquently testified to by representatives of the countries which have most recently joined the WTO, Afghanistan and Liberia, and those who seek entry. They see a strong tie between improving the economic conditions of their peoples and peace. Of the countries now in the process of joining the WTO, 13 out of 22 are considered fragile or conflict-affected. Included in this list are Bosnia-Herzegovina, Somalia, Sudan, South Sudan, Iraq, Ethiopia and East Timor. Eleven days ago, the Ambassador of Sudan told a meeting at the WTO that with the restoration of civil order just the day before, Sudan was ready to resume its effort to accede to the WTO.

These fragile, conflict-affected countries regard WTO accession as a tool to build and transform their economies, to create a credible trade and policy framework through WTO-consistent reforms for post-conflict recovery and development, state-building and the promotion of peace. Their aspirations are a potent and current reminder of the conditions that led to the founding of the multilateral trading system.

The trading system did not spring forth whole as did its elder sisters from an idyllic sylvan birthplace like Bretton Woods. The organization envisioned for trade at Bretton Woods that emerged from Havana did not become reality as the United States was unable to ratify it.(1) Despite this unpromising beginning, pragmatic officials from 23 countries salvaged a code of important rules for international trade, although they failed to create a formal instrument for their administration. This was the multi-party contract known as the General Agreement on Tariffs and Trade (the GATT).

The multilateral trading system as we know it today did not come into being until a half century later. Is was the cumulative result of an extended and laborious process, involving eight successive rounds of negotiations over a period of seven decades, with ever expanding participation, each wearing away trade barriers at the border, and finally within national boundaries.(2) (3) Agreement for the establishment of the institutional framework, the World Trade Organization (WTO), was reached only toward the conclusion of the Uruguay Round negotiations (1986-93).

The current relevance of the 164-Member WTO to the world economy is demonstrated by the fact that today by far most of global trade takes place in accordance with the WTO's rules:

  • It provides that Members' products and services will not be discriminated against.
  • It sets the maximum tariffs that can be applied to imported goods.
  • It generally prohibits the use of import quotas, and it provides for significant market access for international trade in services. 
  • It prohibits the imposition of discriminatory taxes on Members' goods once they enter another country.
  • It requires that product standards be transparent and not be used as disguised protection. 

The multilateral rules are the foundation on which all bilateral and regional agreements are concluded.  This is demonstrated most recently by the launch nine days ago in Niamey, Niger, of the African Continental Free Trade Agreement (AfCFTA), a landmark agreement among the 55 countries of Africa, which could not have occurred in its current form without being underpinned by the multilateral trading system.

And importantly, the WTO continues to provide a means for settling disputes by panels made up of independent persons with experience in trade.

There is much more:  A myriad of other activities are ongoing at the WTO.  Members exchange drafts of proposed standards for comment by other Members; they support the building of the capacity of developing countries to meet international food safety standards; and they focus increasingly on enabling women and small businesses to benefit to gain more from participating in international trade. 

In no small part, as a result of this multilateral framework for international trade, both world trade and global GDP have tripled from the level they stood at twenty-four years ago when the WTO was founded, and since the system went into effect the volume of trade has expanded by about 40 times. 

This said, at present the system faces a number of serious challenges: 

  • Popular discontent stemming from income inequality, dislocations due to technological change and globalization, sap the domestic political support necessary for further trade liberalization;
  • There are major differences among Members regarding expansion of the coverage of rules of the system, the shape of dispute settlement, and how best to support economic development; and
  • While the system performed exceptionally well during the 2008 Financial Crisis and in the following years as a dam against protectionism, that same year the last attempt at concluding a major round of negotiations on multiple subjects, the Doha Development Agenda, failed, and could neither be revived, nor a substitute agreed upon.  

Against this background, the difficulties being encountered moved to a state of crisis.  The proximate causes were:

  • The existence of an apparent trade war between the two largest trading countries.
  • The increasing frequency with which international agreements were being cast aside.
  • The possible demise in December of this year of the WTO Appellate Body as it is currently constituted.
  • The imposition of increased tariffs in the name of rights accorded under the national security and safeguard provisions of the WTO, with the potential for measures spreading to additional product sectors.
  • The risk that the 21-year old moratorium on the imposition of customs duties on electronic transmissions will not be renewed.
  • The negotiation by WTO Members of bilateral and regional trading arrangements in seeming preference to making progress on multilateral agreements.
  • The widespread misunderstanding of what the WTO is and does. 

The relevance of the WTO is being questioned as never before.  After being taken for granted, not being that much in the public eye for more than a decade, it is now a focus of widespread attention and concern. 

The Response

A time of crisis can present opportunities: 

  • Reform of the WTO has been called for in the two most recent G20 communiqués. 
  • While no international agreement can ever be a guaranty against war between two of its parties, in the settlement of differences, in reaching a modus vivendi, if the two parties agree to rules that could be of general application, they can propose them for adoption by the WTO's Members generally. This could be of major benefit to the international trading system, and it is a result that should not be excluded.
  • As crisis calls forth renewed attention to the importance of the multilateral trading system, the effects of the last decade of substantial underinvestment in its health can be overcome.  More attention is needed by those who engage in commerce, those affected by it and the WTO members.  This is beginning to take place now.
  • The uncertainty over the future of the Appellate Body has caused a thoughtful review by Members of various aspects of the WTO's dispute settlement system.  Re-commitment to an appellate process would be a logical outcome of any reform effort.  The most suitable response may not be immediate, but it has become more likely.  In the meantime, in the main, Members will likely find ways of settling their disputes through the WTO.
  • Additional tariffs while decidedly unwelcome by the other WTO members can be part of a path to an improved trading system.  The imposition by the United States of a 10% import surcharge in 1971 drove the process of reform of the international monetary system, from the de-linking of the dollar to gold to the adoption of a floating exchange rate system not very long thereafter.  In the 1980s, U.S. unilateralism in the view of the then GATT Director General was necessary to the creation of the WTO.  While there are no guarantees that broad WTO reforms for the better will be adopted, they would not be seriously contemplated but for the current set of sense of crisis.
  •  The threat of the loss of the moratorium on the imposition of customs duties on electronic transmissions is serious, but it should concentrate the minds of the Members engaged in the E-Commerce Joint Initiative to drive their process forward to a successful conclusion. 
  • The proliferation of bilateral and regional trading arrangements can drain energy from multilateral efforts and detract from rather than reinforce a global approach.  But deeper regional economic integration in North America, Europe and now potentially Africa, for example, can be contribute to global economic well-being.  In addition, bilateral and regional agreements can lead to improvements in the multilateral trading system by indicating a path forward.  The discussions and nascent negotiations in the WTO regarding E-commerce, have caused an intensive review of relevant provisions already contained in bilateral and regional agreements.  These are being mined for solutions to the same problems that face negotiators within the context of the WTO.

Importantly, there is the challenge to make more broadly understood to those affected by trade that the multilateral trading system is working for their interests, not against.  The primary purpose of the WTO's present rules and those being contemplated forward is to supply fairness –

  • fairness through prohibiting discrimination based on the country of origin or goods and services;
  • fairness in terms of inclusiveness;
    • fairness in seeking to make it easier for small businesses to participate in the benefits of international trade;
  • fairness in terms of broadening the participation of women in trade; and
  • fairness through building capacity in the least-developed and other developing countries to benefit from trade.  

In the course of human events, there are times of change, liminal moments, moving from something that was to something that will be.  We mark the memories of these periods of change, as many countries did here in France with the recent 75th anniversary of the Normandy landings and today with the 75th Anniversary of the Bretton Woods Agreements.
 
For the multilateral trading system, we can look to three periods of change: The first in the 1940s was a period of vision resulting in the creation of the system.  The second in the 1990s was the creation of the WTO as the institution to administer an updated unitary set of agreements.  The third is the current period of potential reform that began at the WTO's 11th Ministerial Meeting at Buenos Aires in December 2017.  At that meeting:

  • The United States, the historical guarantor of the multilateral trading system, underlined the essential importance of the WTO and called for reforms with respect to WTO litigation and negotiation, delineation of developing country status, and the need for countries to live up to their obligations to provide transparency.  Each of these elements while not uniformly acclaimed has caused consideration and debate.  
  • Member countries accounting for three-quarters or more of world GDP initiated discussions open to all on E-Commerce, the facilitation of investment, the domestic regulation of services, and improvements in the system to provide benefits of trade to small and medium sized enterprises and for women. 
  • And three Members -- the European Union, the United States and Japan -- declared that they would work together on proposed new disciplines where they felt that the rules were inadequate, including with respect to transparency, industrial subsidies, the creation of excess capacity, the commercial activities of state-owned enterprises, and forced technology transfer.

Since the Buenos Aires Ministerial, many reform proposals have been tabled by various WTO Members.

While there are certainly differences among Members with respect to where these efforts should take the organization, a sense of crisis has caused a rededication to making the WTO work better.  The opportunity for change through reform has been created which must not be squandered.  To succeed, the process of reform calls for leadership and vision of the kind that existed at the founding of the multilateral trading system; it calls for enforcement of current obligations; it calls for restoring the ability to make new rules to meet current needs; and it calls for the restoration of legitimacy in the eyes of all of an improved dispute settlement process.  The result should be a more effective organization in all aspects, to deliver benefits for all Members, and the creation of an updated and strengthened multilateral trading system.

A common purpose must be rediscovered.  Leaders must step forward.  Open trade under agreed global rules is an essential part of a revitalized international economic order that can continue to deliver the benefits that its founders envisioned. 

Predicting the future

For predicting the future, one relies on probabilities and natural laws.  For assessing probabilities, one uses decision-tree analysis – at each fork of the road choosing the path more likely to be taken.  In the long run, the decisions taken will be weighted in favor of economic growth over stagnation, cooperation over confrontation.  As for natural laws, I believe in Riccardian physics.  Trade takes place because it is dictated by needs and consumer preferences, ultimately requiring the road taken to be the one that leads to greater economic wellbeing. 

My belief is that the multilateral trading system, buffeted as it is by the current turbulence, will ultimately prove to be the path forward.  Resort to 500 bilateral agreements as exist today, even if they become more than a 1000, is not a sensible way to organize the world economy.

Going it alone (des stratégies de faire le cavalier seul) or in pairs, which is nearly the same thing, ultimately leads to a poorer world.  Bilateralism worked for Noah’s ark only because the passengers were able to get out and take their place in a wider world. 

In the future, I believe that there will be a renewal of a consensus for greater openness that is inclusive and global.  Leaders with the necessary foresight will emerge from Africa (including its most populous countries), from China, from the European Union (under the influence of the most forward leaning members), from India, from the United Kingdom (whose presence is missing and is missed), from the United States, and those who are like-minded from other countries regardless of size or location.

Realism and idealism will converge out of economic and geopolitical necessity.  The era of “me before you,” from which all suffer, is going to recede.

It will not be immediate. More likely than not, difficult times are ahead. The near future will very likely consist of a combination of severe stresses and muddling through.

But the lessons of Bretton Woods will not be lost -- never to be rediscovered and applied.  They will survive and shape the future.    


Footnotes

  1. The Bretton Woods Conference recommended that participating governments reach agreement to reduce obstacles to international trade. The recommendation was later embodied in the proposed International Trade Organization (ITO). The ITO charter was agreed on at the U.N. Conference on Trade and Employment (held in Havana, Cuba, in March 1948), but the charter was not agreed to by the U.S. Congress. As a result, the ITO never came into existence. The less broad General Agreement on Tariffs and Trade (GATT) was adopted in its place. In 1995, as a result of the Uruguay Round of GATT negotiations, the World Trade Organization (WTO) was created. The GATT principles and agreements were adopted by the WTO, which was charged with administering and extending them. Back to text
  2. To get to the point of creation of the WTO, there were eight rounds of multilateral trade negotiations.  The first six reduced tariffs, but in the seventh round, the Tokyo Round, nontariff barriers were also addressed, and in the eighth round, the Uruguay Round, agreements on agriculture, intellectual property and services were added, along with an originally unplanned off-spring, the WTO itself Back to text
  3. The Trade Facilitation Agreement (TFA) entered into force on 22 February 2017. Back to text

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