DEPUTY DIRECTOR-GENERAL ALAN WM. WOLFF
Reforming the World Trading System: It is time for a Substantive Audit
We owe much to ancient Greece, Athens in particular, for its art, its architecture, its philosophy and not least its experimentation in forms of governance at home and arrangements abroad. Athens depended on trade, particularly for grain from the countries around the Black Sea. Assuring food security required having a strong fleet and maintaining the walled road to Piraeus — walls to preserve access to imported supplies.
Solon, living approximately 630 BC to 560 BC, is primarily remembered for his legal reforms, for his successful attempts to extend the democratic franchise, and for providing better means to settle disputes. He prohibited the export of fruit and grain and used government measures to assure domestic production which gave rise to booming exports of black-figured pottery.
The experiment with democracy was, as seen from this distance, a somewhat haphazard affair, with alternating times of rule by the people and by “tyrants” (then not yet a pejorative term).
The best-known statesman of Ancient Athens was Pericles. During the time that he was a dominant force, Athens is said to have lived in a Golden Age, particularly for the arts and literature. He was a populist which allowed him to carry Athens into a disastrous series of wars. He imposed a trade embargo on another city-state, Megara, forbidding its merchants from participating in the market in Athens or in foreign lands.
Pericles died in 429 BC in a pandemic that is believed to have been imported from abroad through Piraeus. The plague struck in 430, and returned two more times, in 429 and 427/426 BC. The exact nature of the pathogen causing the plague was of course unknown at the time and remains unknown today. Those who tended the sick were most vulnerable to catching the disease. Those who survived gained immunity from the disease.
In the ancient world, leaders of the then great powers came to Delphi seeking guidance from the Pythia (pɪθiə) , the oracle. For over one thousand years, the priestesses of Apollo pronounced what the future would hold. Ancient Greek civilization, and all of us who share in that inheritance of culture and learning, are indebted to the oracle, who 2700 years ago, on the second try, gave a more favorable fortune that led to the victory at Salamis, saving all of Greece from domination by a foreign power with a far different culture and no love of democracy.
For us today, the future shape of the world trading system, challenged and in need of reform, is still opaque. While we mortals could beseech the gods, they would only tell us to figure out our problems for ourselves. The burden is ours. And we had best get the answers at least partially right, for success would spell greater global economic growth, reduced unemployment and the lifting of additional millions out of poverty, while the alternative is at best stagnation and at worst decline into disorder and confusion.
I believe that the WTO can and will achieve fundamental reform, and that the system will not only survive but will be improved. What is less certain is the timeframe.
In his campaign for the Senate in 1858, a time of crisis in the United States, Abraham Lincoln said — If we could first know where we are, and whither we are tending, we could then better judge what to do, and how to do it.(1)
This advice is particularly valid today for those of us who care about the multilateral system. The G20 group of leaders has called for reform of the World Trade Organization, and the call has been echoed repeatedly by heads of governments as well as of international organizations. What is needed at this point is clear appreciation of the value of what we have and of what we should want to achieve in the way of reform. It will then be the task of the WTO Members to agree on a path forward.
The WTO is a singular institution. It is a gathering of 164 sovereign nations and customs unions and territories, drawn together by a shared desire to reduce the adverse impact of national borders on international trade. This is accomplished by the WTO Members agreeing to binding rules.
There is often in public commentary a misapprehension of what the WTO is. The WTO itself, if one is referring to those working for the WTO, does not possess executive functions.(2) The Director General and the Secretariat, as opposed to the WTO's Members, take no initiatives and enforce no obligations. The Secretariat’s function is exclusively to provide support for the Members.
The WTO is best seen as a gathering of its Members, bound by a body of rules and procedures to which they have all agreed. In this regard, it is very much like the original democracy of Athens. Members are the only source of proposals. Members have the sole authority to adopt or modify rules. Members have the sole ability through diplomacy and committee procedures, and, where necessary, the bringing of cases, to enforce the rules. Thus, when the leaders of the G20 call for WTO reform, they are in fact addressing that call primarily to themselves and potentially also to leaders representing other WTO Members.
The question presented is what should the WTO Members consider doing now to reform their institution?
To address this challenge, it is necessary first to understand fully the values those who created the multilateral trading system in 1947 wished to impart to it and what the original Members of the WTO added when the WTO came into being 25 years ago on the first of January 1995. To make this task more understandable, it is best to reduce to its essence what the WTO is intended to deliver both as an institution and as a set of international accords.
What is the multilateral trading system designed to deliver?
For any polity to function, there must be shared values. To find what these are, or at least were, we should first look at the founding document of the WTO, the Marrakech Declaration of Trade Ministers(3) to see what was intended.(4) (6) If we were to distill the Members' stated objectives into the underlying principles on which the WTO is based, we would find that —
- The WTO’s Members sought to create global economic growth for all Members,
- Through being open to foreign trade and investment and
- Through cooperating via applying multilateral agreements.
- An example: Under the WTO rules, product standards are not to cause unnecessary barriers to trade. They are also to be nondiscriminatory. A tariff can slow trade; a standard can prevent it. For this reason, Members voluntarily circulate for comment product standards in draft, and after a standard is adopted, any Member can raise a specific trade concern for discussion.
Values that are imbedded in the basic rules that the founders adopted, in the General Agreement on Tariffs and Trade, the GATT emphasize —
- Providing equality of opportunity through the requirement of nondiscrimination
- Providing certainty for commerce, an essential for trade to flourish, which is the result of the contractual binding of tariffs, and the requirements to grant national treatment and to the requirement to provide transparency
- Providing balance —
- Through negotiated rights and obligations
- Through assurance of mutual benefits, that are reciprocal in a broad sense, and
- Through tempering trade liberalization with the availability of remedies against injurious or WTO-inconsistent trade.
Of necessity, the WTO is about convergence, not coexistence.(6) All Members are to move toward complete equality — benefiting fully from the rights and fully meeting the obligations of WTO membership.(7) It is assumed that membership in the WTO will ultimately be universal.
The need for a substantive audit
Having these fine values holds great promise but is what was intended by them actually being delivered? A current assessment would be a reasonable path to take forward.
- The principle of nondiscrimination is the foundation of multilateralism and inseparable from it. All pledge themselves to multilateralism but is their conduct consistent with that precept?
- Mutual benefit is the glue that holds the global trading system together. Do all WTO members all have the same level of obligations when compared with their capability? Do all receive benefits commensurate with their level of contribution? Do those who acceded to the organization earlier have the same level and type of commitments as those who came in later?
- Is the level of contribution able to evolve or are benefits and obligations frozen, becoming imbalanced based on some distant time and not on current circumstances?
- The essential purpose of the organization is the maintenance of rules. Is the way forward clear enough of obstacles to update the rule-book?
- Is the governance of the institution, adequate to making needed reforms?
- Is the Secretariat, the WTO’s staff, allowed to contribute all that it can or should?
- Is there in fact convergence or at least movement in that direction?
- What are the fault-lines within the WTO Membership, so that structures can be built to withstand seismic events?
- Is there sufficient common ground to make decisions by consensus, or if there is not, is that another reason why decisions must necessarily be made by consensus (because it provides each WTO Member a veto)? What does the answer to this question portend for future agreements?
- Is there balance between trade liberalization and measures designed to soften the distributional effects of maintaining and expanding openness of markets to international trade?
An audit of the gaps in that which exists in practice as compared with that which is promised by ideals should indicate areas of priority attention in any serious WTO reform efforts.
Peering into the future
A member of a visiting delegation of officials who were seeking entry into the WTO for their island government gave me a paper on predicting the future. Assessing the future is something major corporations do as a matter of course. Some governments also do so, and we at the WTO must better organize this feature of good governance. A policy planning function is essential for any organization with the responsibilities that the WTO has been given.
Since the WTO is in the middle of a mid-life crisis according to all press reports, let me reiterate that I strongly believe that the multilateral trading system and the WTO will endure. It will survive even if the two largest trading countries apply additional tariffs on each other's goods, it will survive even if preferential trade agreements continue to proliferate, it will survive even if in response to the pandemic Members impose export restrictions and otherwise seek to amass to the exclusion of others supplies of needed medicines, medical goods and equipment.
Let me tell you why the future for world trade is bright.
- FIRST, the nation-states of the world have not come this far over the past 75 years since the multilateral trading system was put into place in order to turn back now. Temporary setbacks are going to occur from time to time, but full-scale retreat is not going to be our future.
- SECOND, there is no satisfactory alternative to multilateralism. Discrimination is not going to be the new world order for trade. That era was brought to an end by the Second World War.
- THIRD, national economies are now deeply interconnected. At a price, some may lessen their economic ties, but going it alone, autarky, is not an option. The laws of economics for the conduct of business may be shaped by government edicts, but on-shoring will not overcome the need for efficiency, for a return on investment.
- FOURTH, the fact that the form of binding dispute settlement formally included in the WTO agreements has ended does not mean that there will not still be effective WTO dispute settlement. Pragmatic approaches will largely preserve the WTO's ability to help Members resolve their disputes and I am convinced that a new, improved dispute settlement system will ultimately be achieved. This is the case because the self-interest of all the trading countries requires it.
- FIFTH, the ambit of the world's trading rules is going to be expanded to address the issues of the increasingly digital global economy as well as actively working for the earth's environment.
- E-commerce rules are now being drafted by a broad swath of WTO Members accounting for over three-quarters of the world economy.
- Members are coming to grips with fisheries subsidies that deplete the ocean's resources and are planning to address the dumping of plastic waste into streams, rivers and oceans, as well as to work toward dramatically reducing waste by creating a circular economy.
- SIXTH, much of the preparatory work is already done to enable Members to address and discipline major trade- distorting measures affecting agriculture. Global agriculture is going to have to be more agile to deal with serious disruptions due to natural disasters and climatic events.
- SEVENTH, the benefits of international trade are going to be spread more evenly. Small and medium enterprises will find trade less burdensome. Women will be more empowered to benefit from international trade.
- EIGHTH, assistance to developing countries, to build their capacity to enjoy the rights and meet the obligations of the global trading system, is going to be more effective, as evidenced, for example, by a major effort that will be undertaken by all to make the African Continental Free Trade Agreement a success.
- NINTH, trade facilitation promoted by the most recent multilateral agreement added to the formidable assets of the WTO, is working to reduce the burden imposed on moving goods across borders. The costs of trade, the process of getting goods from the factory gate to consumers on the other side of a border, averages over 240 per cent. This is true even as super-container ships and supertankers and E commerce have revolutionized transportation, distribution and delivery to industrial and individual consumers.
And not least,
- TENTH, the strongest endorsement of the universal validity of the WTO and the multilateral trading system come from the 23 countries seeking to join it, and the 36 who have acceded to the WTO since its founding twenty-five years ago. One cannot visit with the trade ministers and negotiators from these countries without renewed confidence in the durability and value of the WTO.
I was in Addis Ababa, Ethiopia, a few months ago, just a few days before international travel became close to impossible. The Ethiopian government has embarked on a bold program of domestic reforms and its Prime Minister just won the Nobel Peace Prize last year after settling a war with Eritrea. Ethiopia has re-energized its process of accession to the WTO after an 8-year break. It has been through hard times, and its people have suffered much. But now there is a feeling of hope and optimism, a desire to integrate into the world economy. This spirit offers lessons for the rest of us who have already benefitted from the growth of the global economy enhanced by trade.
The desire to use trade to raise the standard of living of their peoples, and give their peoples a better chance for peace, is a belief expressed often by leaders and trade negotiators of East Timor, Somalia, Sudan, South Sudan, Iraq and others, who seek entry for their countries into the WTO, as well as those who have acceded just a few years ago, including Afghanistan and Liberia.
All the peoples of the world receive inspiration from the rise of Athens, for its gifts to the world of democracy, the arts, architecture and philosophy. It is my hope that the activities that form a part of the Delphi forum provide guidance and inspiration for the world of international trade.
The story of humankind has been one of increasing cooperation, originally in small groups but eventually in city-states, in nations, in regions (as is the case with the European Union), and for international commerce globally, now through the WTO. Cooperation across borders has been a very long time coming. Sometimes it has been forced — through conquest, which was the case with Alexander the Great and the Caesars of Ancient Rome. This is not how the multilateral trading system came into being. It was the reverse. It stemmed from a bold shared objective: to avoid a repeat of the calamities of two world wars and a great economic depression, in what had been the bloodiest half century in world history.
The benefits of commerce have long enabled civilizations to grow. From very early times, archeologists tell us, roads crisscrossed the Peloponnese and Attica to carry trade.(8) Trade built modern Greece as well as the current world. International accords were needed to facilitate this trade and progressed until we now have the multilateral trading system and the WTO. There is strong and growing interest among WTO Members in moving forward to craft improved multilateral trading arrangements through WTO reform. There can be no permanent retreat from what has been created.
Times of crisis have often led to times of creativity and international cooperation. The current pandemic with its months of confinement and harm to the global economy should have caused us to reflect upon the value of what we have and focus our attention on preserving that which we have inherited and making it better. The times of testing are not over, actually they never are. There are and will be second waves of COVID-19. All hopes are on the discovery of vaccines and medications to deal with this pandemic. International cooperation will be needed for providing the greatest possible supplies and for their distribution.
There will be future pandemics. They will never be confined to a single city or country. International exchanges also bring risks. It is up to us to manage them, but also to continue to make progress. There is no reason why this cannot be accomplished.
- House Divided Speech, Springfield, Illinois, June 16, 1858. back to text
- The WTO shall have legal personality, and shall be accorded by each of its Members such legal capacity as may be necessary for the exercise of its functions. Art. VIII.1, Marrakech Agreement. back to text
- the Marrakech Declaration 15 April 1994. back to text
The founding nations sought:
- To strengthen the world economy and lead to more trade, investment, employment and income growth throughout the world.
- Reflecting the widespread desire to operate in a fairer and more open multilateral trading system for the benefit and welfare of their peoples, to foster global economic cooperation
- Through trade liberalization and strengthened rules achieved in the Uruguay Round, to work towards a progressively more open world trading environment
- To strive for greater global coherence of policies in the fields of trade, money and finance
- To move toward a more balanced and integrated global trade partnership, complementing national measures of economic reform and autonomous trade liberalization implemented in many developing countries and formerly centrally planned economies.
- To provide differential and more favorable treatment for developing economies, including special attention to the particular situation of least-developed countries.
- To have a stronger and clearer legal framework for the conduct of international trade, including a more effective and reliable dispute settlement mechanism.
- The WTO's ‘acquis’ is the body of common rights and obligations that are binding on all WTO Members. back to text
- It is true that the WTO does not explicitly dictate the organization of any Member’s economy, but capacity limitations are not considered a permanent condition. back to text
- The WTO is a development institution in that through Accession requirements and technical assistance which are accompanied by domestic reforms, the ultimate result of WTO Membership will be to induce sufficient capacity in developing countries to enable them to function on a level that is fully on a par with all other Members. A corollary of the equality of membership is that commerce will be undertaken by private businesses and to a declining extent by state-owned enterprises provided that their behavior in the marketplace does not deviate at all from that of private competitors back to text
- Autopsy in Athens: Recent Archaeological Research on Athens and Attica By Margaret M. Miles, Oxbow Books, 2015. back to text