DEPUTY DIRECTOR-GENERAL ALAN WM. WOLFF
I have come to deliver some good news. There is a multilateral trading system -- it exists and it is functional. It provides the basis under which nearly all of world trade takes place – under agreed rules. It underpins all regional and bilateral arrangements. It is essential to the well-being of the world economy. And its importance to the UK has recently been made glaringly self-evident.
The UK does not have to negotiate entry into the WTO – the World Trade Organization -- it is an original member (by virtue of its membership in the predecessor organization, the General Agreement on Tariffs and Trade created in 1947. So the UK is an individual member of the WTO under any form of Brexit.
Until recently, the WTO and the multilateral trading system that it encompasses was taken for granted. Few in the public paid any attention to it. World leaders paid lip service to it when they got together and had to issue a joint communique. But that was about the extent of it. It got as much attention as the 36th ranked English football club. It had some loyal fans, but that was about the extent of it.
For a country without other trade agreements the world trading system is essential. Without it, that country would, it is true that it would have no trade obligations. It would also have no rights.
The idea of a multilateral trading system started with a strong commitment to create a better world after two world wars and the Great Depression. We remember the Normandy Landing 75 years ago. The BBC just gave us a fresh reminder. We do not remember as clearly that Churchill and Roosevelt met in 1941 and conceived of a new world economic order that would follow that war, one of economic recovery and equal access to markets. In short, it would be a world order that would underwrite the chance to maintain a peace – a peace that had eluded them after the First World War.
Within two years of WWII's end, the charter for a fledgling international trade organization was signed by a few dozen countries. Its grandchild, the WTO, now has 164 Members, and 22 other countries are seeking to join. The membership is well on its way to being universal.
The UK is going is a major beneficiary of the system and will remain so whatever form Brexit takes, or even if it stayed in the EU. The WTO is a safety net.
While the content of the set of WTO agreements and procedures is very extensive, it boils down to a few central elements:
- It provides that members' products will not be discriminated against, and to a lesser degree, it provides the same for international trade in services.
- It sets the maximum tariffs that can be applied to imports, and generally prohibits the use of import quotas.
- It provides that there will be no discriminatory taxes placed on members' goods once they enter another country.
- It provides that product standards will not be used as disguised protection.
- It provides a means of settling disputes by panels made up of neutrals.
The WTO is about creating predictability for businesses and fairness for all.
While it aspires to do so, it does not provide for seamless trade across international borders. If it did, Brexit would not have raised issues about the Irish Border. It is not the same as a single market, with all the pluses and minuses assigned to that form of economic relationship. And it is not without current challenges.
We have learned in the last year or so that the WTO does not prevent trade wars. No agreement of any kind prevents any two countries who want to go to war, from doing so. But it does provide means of settling differences. If the major trading countries decide that a solution to current trade hostilities is to include the establishment of improved trading rules, the WTO is the place to house them. That could yet happen.
Among the challenges that have faced the WTO is that of rule-making, perhaps the most important function of the WTO. The WTO operates by consensus. You would be right to suspect that 164 Members do not always see the same path forward. That makes rule-making difficult, but like-minded countries are moving ahead with open plurilateral agreements through joint Initiatives. The furthest advanced of these initiatives is the one dealing with rules for E Commerce which is moving into the drafting stage. In a world in which electronic commerce is an integral part of the current world economy and promises to grow exponentially in importance, the rules need updating to keep closer pace with advances in technology.
Separate Joint Initiatives of like-minded WTO Members are also underway to facilitate inward foreign direct investment, the domestic regulation of services, and greater participation of small businesses and women in international trade. Each of these initiatives are important and progress is being made in varying degrees on each of these subjects.
A second challenge is to maintain a functioning dispute settlement system. The U.S. is blocking of appointments to the WTO Appellate Body (AB) on the ground that in its view the AB has exceeded its mandate. Current appointments sufficient to take on new cases threatens to end of the existing WTO dispute settlement system on December 11 of this year. Vigorous efforts are underway to find a way to bridge the gap in differences. And besides finding a grand solution, Member countries will very likely find pragmatic ways to settle their disputes within the WTO until an overarching solution is put into place.
A third challenge is institutional. The role given the WTO's professional staff needs to be sufficient to make the organization far more effective, for monitoring, for analysis, and bringing attention to the Members when obligations are not being lived up to.
Lastly, under the heading of institutional reform, the Members have to find a way to organize themselves to provide guidance to all aspects of the WTO’s extensive work.
There is another issue on the near horizon. There has been a moratorium that has been in place for the last two decades not to place customs duties on electronic transmissions. The moratorium may not be renewed at the end of this year. While arguments can and are being made that the means of delivery of say a video or a book crossing a border in physical or electronic form should not make a difference with respect to the imposition of import tariffs, taking the end of the moratorium if that is what occurs as meaning freedom to place tariffs on the content of all cross border transactions via electronic means would be chaotic and potentially very dangerous. What could be affected? Architectural designs, consulting services, software, inventory data -- any of a vast array of business uses of cross-border data could have high costs imposed.
Like the rule of law in the UK and in other countries, compliance with global trading rules is largely voluntary, even if backed up by a dispute settlement system. It is based on trust, that rules matter, that crossing a street when the pedestrian signal says “cross”, that it is really safe to do so. The same is true of trade commitments. In this era, trust among WTO Members can be easily eroded if the rules are ignored. The safety net for trade is a human construction. It is not necessarily immutable. Holes can appear if care is not taken to keep it current, and mended.
The G20 leaders meeting six months ago endorsed the value of WTO and called for its reform. Three days ago, the G20 Trade Ministers pledged to work constructively with other WTO Members to undertake necessary WTO reform, with, and I quote,
“a sense of urgency.” It would be surprising if the G20 leaders meeting in Osaka at the end of this week did not renew their call for action on WTO reform.
The multilateral trading system was a brilliant idea and performed wonders. It underwrote dramatic economic growth and helped maintain the peace for three-quarters of a century. The best testimony to the WTO's current value are the number of additional countries that seek to join.
There are severe challenges now, but none are insurmountable. There is a rise of populism and, disaffection with matters as they now stand. Technological change will likely cause further disruptions in the workforce that need to be addressed by domestic measures.
But the world will be a poorer place and discontent will only rise if the world trading system is not maintained and improved. The WTO's Members have the capability to accomplish this.
The future is not written yet. It is what we make of it.