DEPUTY DIRECTOR-GENERAL ALAN WM. WOLFF

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It is a pleasure to join you for this program on The Riyadh Initiative on the Future of the WTO.

We have a superb group of panelists this afternoon to address central questions for the WTO. 

To begin our discussion, I will offer a few observations.

The first question — calling for identifying the principles of the WTO  that would support the improved functioning of the organization — is one that I have been considering ever since it was put to me by an advisor to the Saudi government earlier this year.

First, a caveat. 

I am a practitioner of trade policy, and have been for many years, in government, in the private sector as an advisor to governments, businesses and civil society organizations, and now at the World Trade Organization. As someone immersed in trade and the trading system, I wanted to extract its essence, what it was about, its defining purposes, values and qualities.  I did not wish to be delayed by a rigorous effort at taxonomy.  Some items on the list that I have gathered can be seen as its principles.  Others may be more properly categorized as objectives.   I expected to locate perhaps two or three major defining values or qualities of the WTO — the ones that quickly come to mind if one has lived with the GATT articles for a long time.  But the more I thought about it, others came to mind, many of them unstated, implicit in the rules and procedures of the WTO.

In a recent talk(1) I identified 16 values or principles of the WTO.  Beyond the most obvious, nondiscrimination and transparency, other principles that I listed were —

  • Reciprocity — broadly defined reciprocity is required for negotiations to succeed; 
  • International cooperation(2) — cooperation is a shared responsibility of membership to enable the organization to function;
  • The rule of law — the enforceability of obligations is a key distinguishing feature of the WTO as compared with most other international endeavors;
  • Well-being — at its core, the organization is about the economic advancement of the inhabitants of its Members.  Well-being is defined to include creating jobs and, as we are finding out, it also includes health;
  • Equality — Equality among Members provides the opportunity for each Member to participate in the work of the organization to the extent of its capabilities;
  • Sovereignty — Sovereignty is preserved — no decision taken within the WTO has an automatic effect on the laws or actions of any Member;
  • Development — Fostering development to allow all Members to benefit equally from the rights and undertake equally the obligations of the WTO;
  • The primacy of market forces — commercial considerations are to determine competitive outcomes;
  • Convergence — the WTO is not simply about coexistence; differences among Members affecting trade which deviate from the principles governing the WTO, its core values, are to be progressively overcome;
  • Sustainability — there is increasingly an attitude of care among Members for stewardship of the planet and its inhabitants;
  • Morality — in its absence, it would be hard to otherwise fully explain the provision addressing pharmaceutical availability in health emergencies.  
  • Universality — Membership is open to all who are willing to negotiate entry; and
  • Stability and peace(3) — the original mission of the multilateral trading system was to enhance economic growth to achieve stability and support peace; today the WTO fosters integration of conflicted-countries into the world economy.

Since assembling that list, I have identified three additional underlying values — a strong preference for openness for global trade which is devoid of distortions, obtaining a balance in the system to provide benefits to all, and finally the presence of sufficient trust without which nothing would be possible.

There follows a brief discussion of what each of these three additional values may entail.

Openness

It should not be necessary to state what may be taken as a self-evident proposition, that the multilateral trading system is about openness.  The entire structure of the WTO and the GATT, the multilateral trading system itself, rests upon the principle that to the extent provided within the bounds of the WTO agreements, markets will be as open to international trade and trade is to be as free from distortions as possible. 

Examples:  Tariffs are to be bound at maximum levels, quantitative restrictions are to be largely forbidden, and product standards are not to be a disguised restriction on international trade.   

The 1994 Marrakech Declaration states that the WTO was being created to reflect

the widespread desire to operate in a fairer and more open multilateral trading system ….

In addition, it states that the Ministers express their determination to resist protectionist pressures of all kinds.  And further that the Ministers are desirous of contributing to these objectives by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations,

A caveat to the principle of openness and lack of distortions of trade is that openness is required of WTO Members only insofar as Members undertake contractual commitments to be open.  An illustration: There was once a representation made to a state legislature from an agency of the U.S. Federal Government that adopting a buy local preference “would be contrary to the spirit of the Government Procurement Agreement”.  While there is an animating spirit inherent in the creation of the WTO toward greater openness, it is as a legal and practical matter achieved only through negotiations and the undertaking of binding commitments, not through invocation of spirits.  Where it has made no commitment, it is up to the Member to act based on its decision as to what is in its own interest.  In the case cited, the judgment would largely be made on whether a buy-local preference made economic sense to that jurisdiction. 

Balance

Balance in the world trading system, as seen through the eyes of any WTO Member, is provided in a variety of ways:  

    • Through the Member’s judgment of the costs and benefits of the rights it enjoys and the obligations it has undertaken;
    • Through its view of how its costs and benefits compare with those of other Members,
    • Through a Member’s view of its freedom of action in relation to the freedom of action for others and specifically through its judgment of whether it has sufficient freedom to act to temper its commitments for trade liberalization (openness) with measures designed to deal with any harms thereby caused.

To date, 164 current Members of the WTO, and 23 countries who seek to join have made the judgment that there is a more than sufficient positive balance for current  Members to remain in and for those on the outside to accede.  But there are some evident strains.  Individual Members are not always convinced that the balance is perfect on one or more of the criteria just cited. 

The impact of obligations will on occasion be seen as more measurable than the benefits received.  The obligations undertaken by other Members are not in some cases seen by some as equivalent to those that they have undertaken(4). The current or future freedom of action of a Member (what some call “policy space”) to temper trade liberalization (openness), is sometimes seen by those seeing greater flexibilities to restrict trade as being inadequate. 

This is an epoch marked by the publication in 2013 of Thomas Pikkety’s book Capital which provided a renewed focus on income inequality.  The book became a best seller.  It coincided with a rise in populism around the world.  Alongside this movement, there is  a minority view in the economics profession that following the path illuminated by David Riccardo and trod by Cordell Hull is not always the best national policy(5).  The current issue of Foreign Affairs contains an important article by the US Trade Representative calling for the United States to have an employment-based trade policy.  The ideas thus expressed and the rise of dissatisfaction obvious in a substantial part of public sentiment pose a test for the post WWII liberal international order. 

Reading the WTO agreements and the way that they have been applied in the light of an employment and real income objective is an increasingly necessary exercise.  The WTO was founded, according to the opening words of the Marrakech Agreement creating the organization, with the objectives of

raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, … .

Rising global GDP to which trade is an important contributor, has meant that on average all are better off.  A rising tide lifts all boats — on average.  The trading system’s contribution to global economic growth and the raising 100s of millions out of poverty is worthy of solid praise.  That said, the claim is being made that more attention should be paid to the relationship of the multilateral trading system to employment, the level and nature of which are a substantial determinant of income inequality.  This is a political question, not just a macroeconomic inquiry.  Getting the answer right can affect the degree of support that the WTO and the multilateral trading system receive. 

It should be acknowledged at the outset that trade policy is not the only nor the best lever to accomplish a reduction in income inequality or economic insecurity.  Income distribution and assurance of employment are very largely, almost entirely, domestic matters.  For example, during the pandemic, in a number of countries, emergency financial aid to businesses was conditioned on business recipients’ maintenance of jobs.  Trade policy can, however, contribute to softening the effects of the ultimately ineluctable movement toward increasing globalization.

Economic forces and continued technological advances mandate the direction of change.  Globalization may pause, it may even retreat, but it will continue.  On 7 September 1424, the Hongxi Emperor terminated the voyages of exploration by the great Chinese Admiral Zheng He, but six centuries later, China is now among the foremost of trading countries.  Economic forces ultimately triumph.  It was not foreign black ships in the tradition of the West’s prying open of Japan that caused Deng Xiaoping to begin the opening of the Chinese economy in 1978.  It was a domestic choice.  In the current era of ease of global communication, travel and movement of goods and services, it can take just a few months to return to trend — steadily increasing globalization.  No substantial reduction in international commerce will prove sustainable.  The laws of economics governing the conduct of every business, whether for a giant multinational corporation or a single entrepreneur, drive toward this outcome.

The domestic laws and practice with which I am familiar provide a number of means for dealing with severe declines in economic activity.  Without the bankruptcy laws in the United States, many fewer small businesses, and some large, would not survive the economic effects of the pandemic.  As investor sentiment seeks to adjust to the daily news, to deal with extreme market volatility involving massive declines, the New York Stock Exchange relies on circuit-breakers, temporary suspensions of trading. 

The circuit-breakers of the WTO can be found largely in the form of trade remedies —  safeguard measures, and tools to offset the effects of subsidies and dumping.  Here there is another balance to be struck.  The health of world trade cannot be sustained with overuse of trade remedies.  In addition, experience shows that sufficiently effective WTO rules and the openness of borders can make it less likely that anti-dumping or anti-subsidy measures will be seen as being necessary.  

Where the WTO disciplines are weakest, such as with respect to domestic subsidies, there will inevitably be trade friction.  The situation can be compounded by shortcomings in WTO consultative processes caused in part by the shortfalls in notifications of these measures.  Differences in market structures and borders that are not completely open also can give rise to harms for which there are no clearly mandated WTO remedies. 

The experience of the last half century is that WTO-acknowledged trade remedies are often invoked with respect to labor-intensive manufacturing industries, the area of perhaps greatest public discontent.  Relief from trade distortions, when seen from an exporter’s point of view impairs market entry and is unpredictable.  From a domestic industry’s point of view, relief when available is episodic and insufficiently effective.  Domestic adjustment measures are rarely adequate and too often are not prescribed so as to accompany import-restricting trade measures.  When the response mechanisms are seen by exporters as being illegitimate and by importers as being ineffective, the trading system appears to be imbalanced from both perspectives. 

John H. Jackson, a law professor who was one of the fathers of the idea of the WTO, at one time spoke of the need for interface mechanisms between countries whose domestic practices differ.(6)  The absence of appropriate buffering mechanisms can lead to a build-up of pressures that ultimately cause structural harm to the system.  Steam engines had governors to release excess pressure.  For the WTO, either the means will be found to deal with trade frictions, or excess pressure can and will be vented through resort to measures taken outside of the WTO framework. 

If the capacity of the circuit-breakers of the WTO is inadequate to contain a surge in the perceived need for their use, there will be increased risk to the system itself.

Systemic risks are heightened if there is already a level of discontent due to a perceived imbalance of rights and obligations, and the view that others have more benefits from the system than the Member making the observation.  The durability of the system depends on the conclusion being reached by most countries that despite these comparisons, in fact the benefits of belonging far outweigh the costs. 

This is insufficient cause for complacency.  Improvements are needed to reinforce support for the trading system.  It has been on the wane in some important quarters.  Every Member government of the WTO likely has at least an implicit social contract with its people that addresses their looking after their employment.  It would not be too surprising if it were discovered that there was a similar collective commitment — a social contract among Members — to be found in their World Trade Organization.  It would extend to the employment objective cited in the Marrakesh Agreement establishing the WTO as well as to economic development.  At the founding of the WTO, the parties recognized the need for positive efforts designed to ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development.

Employment and development are subjects that will increasingly be used to define balance in the multilateral trading system.

Trust

The multilateral trading system depends almost entirely on Members voluntarily living up to their commitments.  It is true that the structure of the WTO provides a remedy through dispute settlement, but international trade would largely cease if trade-restrictive measures that were inconsistent with the rules were as a regular matter put into place and only removed prospectively through lengthy litigation — after being ruled to be inconsistent by a dispute settlement panel, followed by an appellate finding, followed by adoption of the same by the WTO’s dispute settlement body, followed by a ruling by a compliance panel, followed by threatened or actual retaliation. 

No negotiations would take place providing either increased market access through trade liberalization or the formulation of rules, if there were a low expectation that the resulting agreement would be lived up to by its signatories. 

Fortunately, most obligations are taken seriously by the WTO Members and are fulfilled.  Otherwise the system would not work. 

Where the coverage of the agreements is incomplete, the situation is different.  Then there is freedom of action.  The rules may also not be sufficiently prescriptive to meet every contingency.  While there can be a justifiable hope that trade will remain unrestricted, there is no guarantee that this will be so.  In the recent case of export controls imposed because of concerns over short supply of medical devices, for example, or pre-emptive purchasing, or pre-emptive investments in companies that produce medical supplies, there is a danger to trade as well as to amicable relations among Members may be cast adrift in an ocean of policy space.  Trust will erode.  To the extent that it exists, it will be based on a hope for international cooperation, not on the existence of clear rules. 

For the WTO, trust is a perishable commodity.  If there is too much testing by Members of the outer limits of existing rules or the taking excursions outside of them, trust deteriorates, and the multilateral trading system becomes less reliable.


WTO Members can make progress toward improving the organization to help it to create a better world through building on the values that are inherent in the system, by defining current problems clearly, and working together pragmatically to find solutions.  Identifying guiding principles is a means to ascertain how to improve the multilateral trading system.  Potential paths forward may be found in the several initiatives underway as a result of the 2017 Buenos Aires Ministerial Conference, such as on E-commerce, and the initiatives tabled by a number of WTO Members in response to the current pandemic. 

Notes:

  1. Remarks before the Korean International Trade Association. 27 May 2020 https://www.wto.org/english/news_e/news20_e/ddgaw_27may20_e.htm back to text
  2. It is an unspoken objective.  Does one need to express it as  “Thou shalt cooperate” to make it into a principle?  Without a spirit of cooperation and operation by consensus, the organization would seize up. back to text
  3. The earliest principles stated at the time of the founding of the multilateral trading system in the 1940s and only recently revived through the accessions process are these. Trade as an agent to promote peace and stability is addressed in my remarks of 16 June 2020, https://www.wto.org/english/news_e/news20_e/ddgaw_16jun20_e.htm , and prior talks.   back to text
  4. Article XII Members, those who joined after the WTO was created, often state that their obligations are more extensive than those of the original Members.  This is the case because joining the WTO requires negotiations with current Members whose trade interests have expanded to additional subjects since the organization was founded in 1995. back to text
  5. Dani Rodrik, Joe Stiglitz, for example.  See: https://drodrik.scholar.harvard.edu. back to text
  6. https://books.google.ch/books back to text

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