DEPUTY DIRECTOR-GENERAL ALAN WM. WOLFF
COVID-19 and the Future of World Trade
Alan Wm. Wolff, Deputy Director General, World Trade Organization (WTO)
Through a virtual discussion
The pandemic is an unprecedented challenge in our time not just to world health but to the global economy.
National governments, pressed for a response, enacted both trade restrictions and import liberalizing measures with respect to medical supplies.
Fortunately, in terms of numbers, the liberalizing trade measures have exceeded those restricting it.
The WTO Secretariat has obtained notifications of measures from its Members and published information on its website. This provides essential transparency for planning both by national policy makers and for businesses.
The WTO has also alerted members to the effects of the pandemic and the responses to it, by issuing a Trade Forecast. Due to the direct effects of the pandemic, depressing both supply and demand, as well as to a much lesser extent trade measures, the WTO has projected that global trade will decline by 13% to 32% this year.
Keeping trade open in the face of the pandemic has been the subject of trade initiatives led by Singapore, New Zealand, Canada and Switzerland. These initiatives have been circulated to the 164 Members of the WTO and have gained additional adherents.
The evolving shape of world trade, including global supply chains, will be shaped primarily by a how businesses view future economic conditions. There will be some limited on-shoring to the extent that government policies will be available to support this reflow from an era of globalization. But government budgets will already have been strained by fiscal measures to fight the pandemic. The availability of funds to support on-shoring is likely to be limited to targeted efforts, primarily perhaps for medical supplies. And even there, government stockpiles (with domestic sources preferred) may be preferred to direct industrial support. The products effected and duration of the support may be limited. On-shoring is likely also to be affected by tax measures designed to restore government finances.
Supply chains will also be affected by some likely diversification among foreign suppliers. But again, this will be limited by economic viability. Businesses can plan for contingencies but in the end must preserve revenues and profits.
The leanest of just-in-time supply chains may be a level of efficiency that can no longer be afforded. So, inventories will rise, but again be constrained by the economics of running a business.
Outside of supporting the production and stockpiling of medical supplies and vaccines, technology and market forces will be much greater factors determining trading patterns than government policies, including the use of regional trade agreements. In an extreme emergency, even membership in a customs union did not prevent some individual national actions which were at odds with the ideal of a single market.
Regional trading arrangements can be useful for exploring paths forward for rule-making where progress would be more complicated to achieve on a global basis. In addition, regional integration can be productive and should be fostered. Nevertheless, in terms of total trade flows, sub-multilateral agreements are not determinative. Businesses still have to serve markets wherever they are located and will continue to need to reach out beyond the regions in which they are located.
As a WTO official, my primary concern is with how well-prepared the multilateral trading system is for the challenges that it now faces and that it will face. For the World Trade Organization, there are three classes of challenges:
- first, dealing with the trade aspects of the pandemic;
- second, discerning trade measures that can aid in the economic recovery; and
- third, planning systemic reforms.
Part I. Responding to COVID-19.
Epidemiologist predict that there will likely be a series of second waves of the coronavirus. There is the potential for additional national restrictions being placed on the availability of vaccines and pharmaceutical remedies outside of the country of their invention and/or production. The values of the multilateral trading system will be needed more than ever in order to minimize disruptions of the necessary means to meet upcoming health and economic challenges.
Collective actions are now essential.
Suggestions that have been made include that WTO Members:
- Build on the various initiatives led by Korea, Canada, Singapore, New Zealand and Switzerland to give coherent direction for the crafting of national trade policies
- Agree, as in the WTO Agreement on Agriculture, to consider the effect on others of applying export restrictions, to provide prior notice, and to engage in timely consultations.
- Consider including in any restrictions a sunset clause and providing for a roll-back of current trade restrictions.
- Give multilaterally agreed guidance for the sharing of scarce medical supplies, including vaccines.
- Consider putting into place, a Members Emergency Task Force or other mechanism to flesh out options for consideration by Members.
Part II. Measures to assist with the recovery.
Suggestions that WTO Members could consider include:
- Agreeing on trade liberalizing measures that would aid in the recovery, such as tariff reductions.
In addition, the WTO Secretariat could engage in heightened coordination with international financial institutions and private sector actors to restore trade finance.
Part III. Systemic reform
In the current upsurge in criticism of the inadequacies of the collective responses to the pandemic, the WTO is receiving heightened scrutiny.
Were the WTO Members to join together to meet the trade challenges of the coronavirus and the desperately needed economic recovery, most public criticisms of the WTO would likely disappear. But the problems preceded the pandemic and will, absent reforms, persist after the pandemic is over and its after-effects have been addressed.
It is necessary to understand what values the multilateral trading system is designed to promote before it can be reformed.
A serious inquiry into this subject would serve three purposes:
- to know the value of what we have in the current system,
- to determine if the values of the current system enjoy the support of all WTO Members, and
- to address the degree to which the WTO is of sufficient continuing relevance as it is at present or whether it needs fundamental change.
My list of the underlying values of the WTO has 16 entries. They include a number of basic principles.
The first two, not obvious to all of us today, are supporting peace and stability. This was the key concern of the founders of the multilateral trading system in 1948 and the central objective of conflict-affected and fragile acceding members today,
Other values, such as nondiscrimination, transparency, reciprocity, international cooperation and the rule of law are more obvious.
Still others are more nuanced, less obvious perhaps, and emerge only upon reflection. They include well-being, equality, sovereignty, universality, development, market forces, convergence and morality.
A recent addition to the list is sustainability.
A serious discussion of WTO reform is long overdue. The pandemic simply adds to the urgency of it taking place.
COVID-19 and the Values of the World Trading System
The seriousness with which reform efforts are undertaken will be key in determining whether the WTO reasserts the historic centrality of its global role in managing international trade relations in the years ahead.(1)
The impact of COVID-19 has been profound on the health of the world’s populations as well as on the global economy. It is the functional equivalent of a neutron bomb having been released that sickens humans but not animals or equipment. As a result, factories were idled, restaurants were empty, and countless lives ceased being productive. And there has not been full recovery yet. This is not the first pandemic and it can be predicted with near certainty that it will not be the last.
It is highly likely that the world that emerges from this pandemic will be very different from the one that preceded it. That is the view articulated by Martin Wolf of the Financial Times in a brilliant five-minute podcast released on 13 May 2020. It is hard to argue with his conclusions. Global supply chains will be re-thought. The digital economy will be more imbedded in every situation in which it can be applied, not least for working remotely instead of in centralized locations. Employment may be depressed for a very long time to come. The world’s finances will have been transformed from surpluses to deficits.
In this context of unprecedented challenges, serious questions are emerging as to the value of the World Trade Organization at present and for the future. The Ambassador to the WTO of the world’s largest exporting nation stated on 12 May, in an interview with a seasoned former U.S. trade negotiator, that the WTO had failed to respond adequately to the COVID-19 crisis. This refers of necessity to the fact that, driven by expediency, nation-states mostly responded individually, not collectively, to the crisis, in many cases without reference to the impact on the interests of others. The Ambassador attributed the reason for the WTO’s “poor performance” to lack of leadership and diminishing trust.
The unavoidable question presented is whether the WTO is fit for purpose, now in the midst of this crisis and for years to come. The crisis heightens the need for an examination of the underlying principles and values of the WTO and addressing the degree to which the WTO is of sufficient continuing relevance as it is or needs change. This last question has been answered before it is asked, as the G20 leaders called for WTO reform well before there was the slightest thought that a pandemic was in the offing.
The institution is and has been under obvious stress -- due to the rise of populism, due to trade wars, due to a failure to demonstrate that the world’s trade negotiating forum could still produce negotiated results, and due to its failure to maintain the WTO’s much-touted dispute settlement structure.
There is now a need for immediate action to control the harm that can be caused by trade restrictions in response to the current global health and economic crises and to aid in the economic recovery that must ensue. This is also a time when it is necessary to consider the future of the multilateral trading system. A fresh appraisal is required despite the fact that the system has been highly successful by most measures during its 70-plus year history. The most telling measure of past performance is that the world economy has grown by multiples and much (but not all) of world poverty has been eliminated. World trade played an important part in delivering this vitally important result. This said, a strong positive track record is no longer sufficient. Resting on laurels at this juncture can only lead to decline.(2)
All WTO Members profess that they are fully committed to multilateralism and thus to the maintenance of the multilateral trading system. Although the degree of adherence varies, it is necessary to at least identify and assess the extent to which consensus exists on the fundamental precepts underlying the organization as a first step toward understanding what a WTO 2.0 can and should consist of. The WTO would be an empty shell if all it consisted of was an agora, an open space devoid of principles in which, were there a consensus, agreements could be negotiated.
This exercise should not be undertaken to the exclusion of making incremental improvements in the trading system. Nor should progress in this regard result in an unduly extended exercise. Achieving the ideal construct among nations is a bridge too far. Pragmatism is needed. Purely philosophical discussions tend to be of very long duration and do not yield immediate results. The councils of the early Christian Church spanned centuries, from 325 to 787 AD, and established a consensus only by condemning or anathematizing a series of those who engaged in what was deemed to be excessive experimental thinking(3). Our modern time frame must be infinitely shorter, as current challenges require near-term responses, and if possible, more inclusive.
Despite an extensive history of an attempt to manage commercial relations among nations, there is no clear single source listing the principles which shape the multilateral trading system. Nor is there a constitution to foster organic growth. Accretions have to be just that, added to over time by consensus of the full Membership. Expansion through adjudicatory interpretation has encountered limits.
The document that gave rise to the multilateral trading system was a contract, the General Agreement on Tariffs and Trade (the GATT). It served for nearly a half century as an ad hoc arrangement necessitated by the fact that the International Trade Organization (ITO) failed to come into being. The GATT contract has none of the trappings of a founding document. It is not a constitution. It has no preamble containing precepts nor even a statement of objectives. The Marrakech Agreement creating the World Trade Organization (the WTO) does contain objectives.(4) It is usually not cited by Members for the full range of the WTO’s purposes, but selectively, to advance particular causes. In addition to looking to these founding documents, there are some principles which can be gleaned from practice. They remain unenunciated but are nevertheless very real.
The following is an attempt to discern and identify the principles and values that govern or may be expected to govern the multilateral trading system and the World Trade Organization in which it is embodied.
At the most fundamental level, the system, like the European Union (née European Communities and European Economic Community), was founded to promote peace. It seems rather quaint to cite peace in the current context. Surely it is an anachronism of remote historical interest at best. Something to be left to academic inquiries. How relevant is it today?
The quest for peace has strong philosophical roots —
The idea of perpetual peace was first suggested in the 18th century, when Charles-Irénée Castel de Saint-Pierre published his essay “Project for Perpetual Peace” while working as the negotiator on the Treaty of Utrecht. However, the idea did not become well known until the late 18th century. The term “perpetual peace” became acknowledged when German philosopher Immanuel Kant published his 1795 essay Perpetual Peace: A Philosophical Sketch. (5)
In this essay, Kant states:
There must be a league of a particular kind, which can be called a league of peace (foedus pacificum), and which would be distinguished from a treaty of peace (pactum pacis) by the fact that the latter terminates only one war, while the former seeks to make an end of all wars forever. This league does not tend to any dominion over the power of the state but only to the maintenance and security of the freedom of the state itself and of other states in league with it, without there being any need for them to submit to civil laws and their compulsion, as men in a state of nature must submit.
Kant was setting out a fundamental purpose of humanity, to create a state of perpetual peace. In order to serve this end, the liberal international order was constructed based on four pillars — the multilateral trading system (ITO and GATT, and the successor WTO), the United Nations, the IMF and the World Bank. All of these institutions were intended to help build a better world after two world wars. They were each part of an effort to underwrite the hope for perpetual peace. In this context, the WTO and the GATT are not simply contracts, but are a purposed construct for achieving a much more basic human aspiration.
That said, you will not hear Immanuel Kant being quoted in recent interventions by WTO Members. The idea of promoting peace seems very remote in most respects from subjects that daily engage the minds of the commercial diplomats who represent the Members in the corridors and conference rooms of the WTO in Geneva. Yet sustaining peace was very much on the minds of the founders of the multilateral trading system. This is evidenced by the very first paragraph of the Havana Charter(6) for the International Trade Organization, the intellectual forebear for the WTO, which states:
RECOGNIZING the determination of the United Nations to create conditions of stability and well-being which are necessary for peaceful and friendly relations among nations,. . .
. . . they hereby establish the INTERNATIONAL TRADE ORGANIZATION through which they shall co-operate a[s] Members to achieve the purpose and the objectives set forth in this Article.
I have set out in prior remarks a short history of the role of peace in trading arrangements which led to that moment of creation of the multilateral trading system and of the disappearance of “peace” from our WTO lexicon -- until its resurrection by the conflict-affected countries which are in the process of acceding to the WTO. These fragile economies are unexpectedly numerous. The list includes Afghanistan and Liberia, both of which joined five years ago, and now Ethiopia, Somalia, Sudan, South Sudan, Timor-Leste and Iraq among others. For these countries, and those who seek to help them accede to the WTO, the promotion of peace is a very real principle and cause espoused as being a fundamental motive for becoming and being a Member of the WTO. Their hopes for peace find a distant echo, what U.S. President Abraham Lincoln called the “mystic chords of memory”(7), in this case a first founding principle of the multilateral trading system’s striving for peace. For these fragile economies, the link of expanding their trade through integration into the world economy to their own economic growth, to increasing stability and thereby improving the possibility of sustaining peace is not a quaint theoretical notion, it is a pragmatic policy at the core of their survival as nations.
Economic growth through trade does not guarantee peace. It did not for the nations that entered into the First World War, all of whom enjoyed robust trading relationships with each other before they began engaging in one of the bloodiest of human conflicts. Trade does, however, help increase the chances for peace to be achieved and maintained. There is no peace where there is complete uncertainty in trade relations. Moreover, throughout history, cutting off trade has been a method of warfare. In its current manifestation this can take the form of imposing export restrictions or engaging in cyber-attacks that disrupt the economies and commerce of others. It cannot be said that the WTO overregulates with regard to such measures.
And the earth was without form, and void;
and darkness was upon the face of the deep(8)
Homo Sapiens for hundreds of thousands of years apparently invented nothing. There was no clear physiological reason for this, no limits imposed, insofar as anthropologists know, due to human brain size. One answer to this paradox may be that inventiveness requires at least a modicum of a stable environment.
This is also true of entrepreneurial activity. It is an axiom of business that it needs a degree of certainty, of predictability, in order to plan, to take risks. The word stability also figures in the opening line of the ITO Charter quoted above:
RECOGNIZING the determination of the United Nations to create conditions of stability….
The entirety of the GATT and the WTO rule book, including the accompanying procedures, are designed to impose a degree of order for the conduct of global commerce. Tariffs are not to exceed contractually committed levels other than in certain limited and usually temporary circumstances. This obligation is contained in one of the cornerstone commitments of the GATT Articles, set forth in Article II. In addition, under WTO rules, proposed standards are to be notified in draft for comment by other WTO Members. Transparency is required throughout the two dozen agreements that constitute the WTO’s rulebook. The grand design of the entire sweep of WTO rules and procedures is to provide greater certainty for world commerce, to create a degree of stability that enables trade to take place and entrepreneurs to plan.
None of this is perfection. What exists at present was the result of a common effort spanning just over seven decades to provide order. The result, the WTO, provides conditions governing almost all of world trade. Even with whatever shortcomings in coverage or compliance that are identified, this is a remarkable achievement providing greater harmony for the governments and the peoples of the planet.
The rule of law
There can be no stability without the rule of law. In its absence is anarchy or despotism. There is little reason to have international agreements if they are not going to be adhered to. In history there are many examples of treaties not being lived up to. That does not mean that international agreements are not useful. They improve the conditions for international commerce.
The WTO functions not in the first instance on dispute settlement, which is more often than not lengthy, cumbersome and expensive. It functions on self-restraint. The legal maxim pacta sunt servanda, agreements are to be obeyed, largely works, from the time of the 17th century Dutch legal scholar Hugo Grotius to the present. It is the idea that a country’s word, once given, is to be relied upon provides support for achieving the goals of post WWII liberal internationalism.
Trust must be built by conduct over time that induces a willingness of others to rely on a country’s promises about its future behavior. In nuclear arms limitation negotiations, this conduct consists of “confidence building measures”. This is a description of how sufficient trust could be created between adversary nuclear powers that they could find common ground to avoid destroying each other and the planet. That WTO Members will in general live up to their obligations is the basis for trust, the central factor underlying the success of any system of international relations that does not rely on coercion. Every social system depends on trust. The alternative is chaos.
Returning to the opening words of the Havana Charter for the ITO:
RECOGNIZING the determination of the United Nations to create conditions of stability and well-being
Stability by itself does not produce well-being. Stability can as readily promote stagnation as economic growth. It is a pre-condition not a guarantee of improvement in the economic lot of trading nations and their peoples. Nor does trade guarantee economic growth. It is a multiplier, an accelerant of possibilities. As theorized by Adam Smith and elaborated upon by David Riccardo, specialization within an economy and then internationally allows for a higher level of income on average. It does not address distribution of benefits, just that there are far more economic benefits to share with trade than without. The major determinants of trade flows are macroeconomic forces, but liberalized trade taking place within a context of agreed rules has a positive effect, while trade restrictions have a negative effect.
That there have been major benefits from trade since in the post-WWII period should be beyond dispute. As noted, trade is a large multiple of what it was in 1947, and from what it was when the WTO was founded in 1995, and so are the levels of national and global income. In addition, the reduction in the levels of global poverty has been dramatic.
Well-being is more than economic efficiency. The WTO charter (the Marrakech Agreement) sets out as a purpose:
full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services
It is to have broad societal benefits. The mosaic on the wall of the main entrance to the Centre William Rappard in which the WTO makes its home was inherited from the International Labor Organization. It reminds any visitors who pause to read it that a concern of the house must be to provide “social justice”.
Whereas universal and lasting peace can be established only if it is based upon social justice; … .
The mosaic also refers to:
the protection of the worker against sickness, disease and injury arising out of his employment . . ..
The plain meaning of the term “well-being” must also be read to include health. Aside from national security, which is the province of the United Nations and nation-states, well-being rests on both global health and economic circumstances. The hard lesson of the pandemic is that a global health crisis gives rise unavoidably to a global economic crisis. Both inevitably involve trade policy. How countries react matters.
A fundamental measure of the value of the WTO, and the multilateral trading system it embodies, is how well it serves the well-being of the world’s peoples. While the WTO Members might be excused by the suddenness of the arrival of COVID-19 for not having thus far formulated a collective response, this justification would have lost any force when and if the coronavirus returns as predicted in the fall for a second wave. And there will be no excuse at all for a lack of preparedness for future pandemics.
In the relatively near future, the current concerns over export restrictions will be remembered as being relatively minor occurrences as compared with any differentiation among nations in the availability of an effective vaccine.
In the Atlantic Charter(9), the document that Franklin Roosevelt and Winston Churchill issued to state their aims for the world that they envisaged as emerging following the Second World War, they stated that they would:
… 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;
The ideal of equality has a distinguished, if relatively modern, pedigree. The founding first principle of the United States, enshrined in the most famous of its documents of origination, the Declaration of Independence, is that “All men are created equal”. This is a statement that has echoed across the ensuing centuries and around the world. Similarly, equality is a founding principle of France, adopted by Maximillien Robespierre(10), stated as one of three central objectives of the French republic -- liberté, egalité, fraternité. It is a powerful organizing mandate.
Equality is an unstated principle of the WTO. All WTO Members have an equal right to speak, vote (although operating by consensus has eliminated voting, and instead gives each the unspecified right to join, abstain, or block a consensus) and table proposals. All countries regardless of size have a right to demand support from the Secretariat for such activities that they wish to pursue at the WTO. Moreover, the principle of equality conveys with it the concept of inclusiveness, often cited as one of the hallmarks of the organization.(11)
Of course, equality is an aim, not an instant result. Within a domestic economy and among nations, there is little equality. In the WTO, as often elsewhere, the levels of capacity of Members differ. In physical terms, for example, some delegations to the WTO are nonresident, not being able to afford maintaining a permanent mission in Geneva. Moreover, many country representatives have multiple responsibilities within Geneva, covering not just the WTO but also a number of other international organizations. And some have responsibilities to represent their country in Bern or in more than one capital. Capacity is one limit on enjoying equality.
How well the principle of equality works depends on whether those WTO Members with greater capacity take on proportionally greater responsibilities for the success of the common endeavor -- the functioning of the organization, its maintenance and growth. Fortunately, a number of the small and medium-sized members do take on a higher than average level of responsibilities.
Equality of treatment is imbedded in the GATT 1947 and WTO/GATT 1995 in the principle of nondiscrimination. It is sufficiently basic to the DNA of the GATT that it occupies pride of place in its first provision, Article I. Nondiscrimination is the rock upon which the church of multilateralism is built. A close relative of nondiscrimination is national treatment, which is a requirement of nondiscrimination as between domestic and foreign products for certain internal purposes, such as internal taxes. National treatment is installed as the third of the first three GATT articles.
Nondiscrimination (also called MFN, or most-favored-nation treatment) is a rule by which most of world trade takes place. It still dominates despite the proliferation of preferential trade agreements. These sub-multilateral arrangements, many bilateral and some regional, are designed to offer better treatment to subject imports than products from other countries receive. This occurs because it is often impractical for businesses to meet requirements of rules of origin (content originating from parties to these agreements). Apparently, businesses determine that it is just not worth the effort to qualify their products to meet all of the requirements of preferential trading arrangements. The administrative overhead of tracing sources of components, especially where tariffs are low, which in most instances they are in the case of industrialized countries, and in many instances, for a number of products imported into developing countries as well.
The second major departure from nondiscrimination after preferential arrangements is the advent of modern trade wars and national security-related sanctions, which may now exceed in prominence antidumping duties which are more firm-specific. These measures are selective in application.
Sovereignty is not a subject discussed at the WTO, but it is very much present. For some it is articulated openly as the desire for “policy space”. For others, it occurs by asserting that a given rule was inapplicable to a given measure a Member wishes to, or has, put into place.
Sovereignty is respected. That which is not regulated or prohibited by the WTO rules is, by inference, permitted. This unconstrained freedom of action has often been advanced as a positive for participants in the trading system. There are a plethora of examples of unregulated conduct. These range from most domestic industrial subsidies to measures taken to preserve an endangered species or preserve domestic stocks of products deemed to be in short supply. This use of policy space can at times result in the actions of one country having adverse consequences for the interests of others. It is also not a positive if policy space means an absence of collective action where collective action is needed. Policy space can result in too many instances of uncoordinated national actions having an adverse impact on others. This has been the case in the current global health crisis. It should be obvious, but policy space invoked by large trading countries has more of an impact globally than it being claimed by smaller countries.
Every international agreement that includes obligations requires a participant to give up to a limited degree, some element of sovereignty. This occurs because not all actions that it will might like to take would be consistent with the agreement. While under WTO rules, it may still be completely free to act in a manner not in conformity with the agreement, it may pay a price for doing so. International agreements are entered into because the participating country determines that any narrowing of complete freedom for national action is more than offset by the gains to the nation from the restraints imposed on the actions of others. There is a willing trade-off of some flexibilities inherent in full sovereignty for reciprocal benefits.
Sovereignty in the evolution of the trading system is also preserved through how the WTO operates. The WTO operates in practice exclusively by consensus. No multilateral agreement can be put into place without support of a substantial number of Members and at least acquiescence from the rest. A limit on making progress in fully multilateral negotiations or other fully multilateral efforts is the fact that any Member can call a halt. Consensus has come close to being defined as unanimity. Operationally, consensus may be seen as travel on a train. As on a train, there is an emergency brake handle on each car. This brake, the ability of any member to prevent a consensus being reached, is a guarantee of not only sovereignty but a form of super sovereignty. For example, one Member can block a meeting agenda from being adopted. In effect, one Member is delegated the sovereignty of all 164 Members to stop an action. Forward motion depends functions only to the extent that no Member exercises its option to reach for the emergency brake except in the case of an emergency that threatens all. Again, as with any society or organization, self-restraint is fundamental, it is a precondition for the any social interaction, any collaboration to operate successfully.
A “negative consensus”, a concept that is applicable to adoption of panel and Appellate Body reports is the complete absence of individual Member sovereignty. All have donated their sovereignty into a pool from which no withdrawals are permitted. The irony of the two extremes of super sovereignty and none is that the rule of positive consensus rule has allowed one Member to end the operation of the negative consensus rule with respect to operations of the Appellate Body.
Clearly there are issues with respect to the application of either a rule of positive or negative consensus, absent some guidelines as to their limits. Limits would exist to the negative consensus rule having the last word in dispute settlement determining the scope of the rules of the WTO were the WTO’s rule-making function not moribund. The result of not facing this question, which no Member has suggested be faced, is that the multilateral trading system has ceased to function fully, neither for rule-making nor for dispute settlement.
It is worth noting that the degree of sovereignty given up by any WTO Member is in fact very limited. In dispute settlement, national compliance cannot be compelled by an adverse ruling. Compliance can be incentivized by the opprobrium for a Member’s failing to live up to its obligations and perhaps by the threat of offsetting action. The offset occurs because countries winning a case may have the right to restrike the balance of concessions of benefit to the losing party if the value of what they bargained for is diminished by actions found by WTO dispute settlement to be inconsistent with the obligations of the WTO agreements.
A value of the WTO with respect to the exercise by Members of their national sovereignty is the ample space the WTO agreements leave for pursuing national objectives, such as actions taken to preserve public health. There is a right to do so. When there is harm to others, there may be consequences in the form of national actions of others who may also act to serve their own interests. This state of affairs would exist absent a WTO, but there would be less transparency, less of a right to be consulted, and a lesser possibility for collective action. With no WTO, there might be the illusion of greater sovereignty, that is, no constraints whatsoever on a country’s actions. But given that all other countries would be likewise totally free of agreed constraints, the individual nation’s sovereignty would in reality be seriously limited.
A corollary of multilateralism is that by definition it must be all inclusive, bringing in all countries which are willing to assume the obligations of the system.
In a liberal international trading order that has as precepts equality and universality, development, that is, bringing all members to a level at which they can enjoy the full benefits and undertake the full obligations of memberships of necessity must be a primary objective of the system.
It is an article of faith on the part of some and perhaps many representatives of developing country Members of the WTO that a primary purpose of the WTO is development. This is articulated in numerous statements made in WTO General Council meetings. This is also translated into a belief that special and differential treatment is a right. This position has been elicited statements from some developed countries stating that there must be differentiation among self-designated developing countries depending on the capacity of each. This apparent clash of views has given rise to a spirited verbal exchanges with no resolution in sight.
It has been said by some that the WTO is not a development institution. This argument goes beyond the parameters of the differentiation debate. It clearly is a development institution in some respects. A basic purpose of the WTO is to facilitate economic growth, that is economic development for all. Clearly countries have differing capacities to take advantage of what is offered by the WTO agreements and the degree to which they can fulfill WTO obligations. It is in the interests of all WTO Members that continuing progress be made by each and every Member to fulfill these twin objectives — receiving benefits and living up to obligations. For this reason, technical assistance is made available to all developing countries, including internships for their future officials. There are on-site and in country training sessions on a wide variety of subjects, from the requirements of the Government Procurement Agreement to those of intellectual property protection.
The multilateral trading system supports specialization of production which in turn raises income levels in countries moving into more advanced stages of economic activity. This can and does occur also at a very basic level. For the cotton farmers of West Africa, being helped to take advantage of the value of what is often now wasted in underutilized by-products can make a positive difference. This is also a benefit for the national economies where cotton is produced and for world trade in general. Specialization also fosters the economic progress of advanced industrialized countries. Development must be a continuing value applicable to all. It is in aid of economic development for the benefit of all that Members seek to put into place rules to serve the emerging global digital economy.
The WTO can only function, and national policies can only be well-formulated, on the basis of sufficient knowledge of existing conditions. The WTO agreements, over two dozen of them, contain many requirements for making notifications. Just as the digital economy requires the free flow of data to function well, the WTO rules and processes require that information on national measures be current. This is far from being always the case. One bright area is that of the Technical Barriers to Trade (TBT or standards) agreement. WTO Members notify their measures in draft, making them available for comment. This is valuable to each Member, both for the reactions generated which help them to formulate effective standards and to avoid creating unnecessary barriers to trade. The process is also beneficial due to other Members making their proposed standards available in advance. This is an unsung benefit of the multilateral trading system but is very important to those engaged in producing goods for international markets.
The priorities of the original members were reconstruction and development; recovery from the ravages of war. For this reason, the original structure of the multilateral trading system was centered on rules to facilitate trade, through removal of quantitative restrictions and lowering of tariff levels. Environmental concerns were largely dealt with by avoiding having the rules interfere with national measures.
The interests of WTO Members have evolved and continue to evolve. In 2015, all WTO Members as members of the United Nations adopted a 2030 agenda which includes 17 goals for sustainability. These goals reflect Member priorities and are infused in their involvement in the work of the WTO. Groups of WTO Members are expressing interest in bringing into the WTO potential initiatives for promoting the circular economy (to reduce waste), curbing plastics pollution in the oceans, assisting in slowing climate change and disciplines on fossil fuel subsidies.
At the 2017 Buenos Aires Ministerial Conference (MC11), ministers decided on a work programme to conclude negotiations on establishing disciplines on fisheries subsidies by aiming to adopt at the next Ministerial Conference (perhaps at Nur Sultan in June 2021), an agreement on fisheries subsidies which delivers on Sustainable Development Goal 14.6. Goal 14 is to conserve and sustainably use the oceans, seas and marine resources for sustainable development.
The fundamental underlying assumption of the WTO is that market forces will dictate competitive outcomes. Few if any of the rules would have their intended positive effect if commercial considerations — price, quality, delivery, and the like — were overcome by political considerations such as the implementation of buy national policies due to government influence. The underlying assumption of market forces determining competitive outcomes could have undesirable effects extreme circumstances, such as the bidding up of the prices of scarce medical supplies during the pandemic to the disadvantage of those in need. This exception does not undermine the general underlying value.
A corollary of the principle that market forces are to dictate competitive outcomes is that the rules of the WTO are based implicitly, but without doubt, on convergence and not coexistence. If the desire is to have systems where market forces are not allowed to operate and deliver results, an underlying unstated assumption of the multilateral trading system would not be valid.
Coexistence would require a different WTO. Where there is no agreement on convergence, a new modus vivendi will inevitably be sought. The arrangement is likely to settle at a lower level of trade than the WTO rules would otherwise provide.
This is less a high-minded ideal than a practical political necessity. No Member’s trade negotiator wishes to go home from a negotiation and explain to legislators and their constituents that more was given than was received (with the clear exception of treatment of least developed countries). The degree to which flexibilities, policy space, and a temporary limitation on sovereignty is granted is often justified by obtaining reciprocal action by other Members. While strict reciprocity has practical limits, measuring only concessions made against concessions received, as a political matter there must be a general sense for all that any negotiation reaches balanced results.
This of course is not all that is involved with decisions on trade policies. Countries often remove tariffs on inputs of needed raw materials and food. They should not care very much if what they do in their own interests is not matched by others. This is what happened with respect to trade liberalizing measures applied to medical supplies in response to COVID-19.
WTO Members also can and should make a net positive contribution, giving more than they directly receive. The surplus beyond strict reciprocity is a contribution to making the trading system work for all, the creation of a common good, which is very much also in each Member’s own self-interest. Even the poorest, the least developed nations can make a net positive contribution. Providing good ideas for the system, innovations, are not the sole province of the most industrialized and largest trading nations. The least developed are certainly experts on many of their own needs. Practical suggestions are worth more than rhetoric, and this is true of all Members.
Collectively, the whole is greater than the sum of its parts. Trade is a multiplier of economic benefit, just as the capital in bank creates more financial support for its community than the amount of capital itself. The system will function best with net positive contributions from all.
International cooperation is the essence of multilateralism. Global cooperation has the potential to provide better results quantitatively and, in many instances, qualitatively than two nations working bilaterally or a few nations working together. In addition, some matters do not lend themselves to sub-multilateral outcomes. Regulation of subsidies is one of these subjects. Leaving some free to subsidize while others demonstrate restraint will lead to unequal conditions of competition.
There is no sub-multilateral arrangement that can equal the possibilities of global cooperation.
Morality, like other matters from the realm of philosophy, does not figure much in exchanges between trade negotiators. But as the multilateral trading system is the product of human beings and morality is part of their individual and collective composition, morality underlies the multilateral trading system, even if it is implicit. All actions taken could be explained solely in utilitarian terms, but there is more to the agreements than that. Were there no moral element present, there would probably not be a special provision related to intellectual property rights governing the availability of pharmaceuticals in cases of urgent need.
Conclusion — The WTO and the Pandemic and Beyond
A failure to tackle impediments to smooth and mutually beneficial trading arrangements among nations will undermine and ultimately reverse the extraordinary economic social and political gains that have accumulated to countries through trade since the beginning of the second half of the twentieth century.(12) (13)
The testing of the WTO is not over. The first responses to the current pandemic were made by individual nations, without coordination with others. Faster action was feasible on a national level but not on multilateral or even regional level. This may explain why there was no agreed collective response.
The next and most serious near-term challenge will be a likely series of second waves of the coronavirus with the potential for additional national restrictions placed on the availability of vaccines and pharmaceutical remedies outside of the country of invention and/or production. The preservation of policy space will have to be weighed against the benefits of seeking agreed restraints on action. The values of the multilateral trading system will be needed more than ever in order to minimize disruptions of the necessary means to meet upcoming health and economic challenges.
Hard on the heels of dealing with trade policy measures related to the virus is the pressing need to assist with the recovery with the world economy.
Collective action is essential if global challenges are to be met.
A basic question for the future is whether Members share the values listed. In the meantime, there is the COVID-19 crisis to deal with.
In the 15 May 2020 Special Virtual General Council Meeting, Members shared the problems that they faced due to COVID-19 and reported on actions they had taken. These reports, as well as proposals from outside trade experts, give an indication of possible ways forward for the WTO for consideration by WTO Members. These can divided into immediate actions, more far reaching solutions, and potential lessons for systemic reform at the WTO. (14)
Leadership is necessary to carry the system forward and for it to function well. The current COVID-19 related initiatives all were generated by mid-sized countries. That said, for moving forward, a consensus that is not endorsed by the largest trading Members — the U.S. China and the EU — might not prove reliable. Systemic change is unlikely to take place without the participation of the largest trading countries. Coordination among the three is important by itself, although it should function within a broader consensus.
There has been enough history of the WTO experiment to be very clear on what works well and what does not. A question is how to proceed. There has been a lot written by trade experts on this subject. One possibility is to task the Secretariat to provide a report on available options for reform that already have been advanced. Conducting workshops in a non-negotiating setting would provide Members with further information as to possibilities. Members could decide on how to organize further work based on the information collected.
WTO Members and Secretariat would do well to consider making sure that there is a separate policy planning function to anticipate future needs of the multilateral trading system. To my knowledge there is no dedicated resource of this kind anywhere for the trading system.
Missing in the list of principles and values in this catalogue is “Preparedness”. It may be a term absent from every founding document of every nation, customs union and international organization on the planet. I have not researched the point.
Contingencies have been identified. This is not the world’s first pandemic and probably not the last. We do not know the duration of the threat as second waves (and perhaps more outbreaks) occur. We do know that epidemics occur in regions and that second waves are very likely to happen. New technologies bring new possibilities and new disruptions.
Do measures from now on always have to be in place for wholly virtual WTO meetings to take place with possibly hybrid formats -- partially in-person, partially virtual, or partially in-person approvals and partially in writing? What will extremes of climate do to trade flows (for example, through an arctic passage or changes in where crops can be grown)? What would agricultural negotiations look like that attempted to promote agility in responding to food deficits? What will technology do to change how services are delivered or how goods will be produced (for example, 3-D printing)?
Forecasts can be wildly wrong. For example, forms of energy and their availability have shifted dramatically and may continue to do so. The fact that the future is unknowable does not mean that probabilities cannot be discerned. They should be thought about systematically, in Members’ capitals, among international institutions and at the WTO, with networked sharing of estimates and projections.
There is a civic duty owed by every citizen to the country to which he or she belongs. Likewise, there must, in the multilateral trading system, exist a civic duty of Members and their representatives to make the system work. Their governments have entrusted their representatives with the stewardship of the multilateral trading system. In ancient times the idea of civic responsibility was articulated in the oath that Athenian youths took at age 18. They recognized the duty of all citizens to pass their country on to the next generation in better condition than how they found it. That is the task ahead for all of us with respect to the WTO and the multilateral trading system which it embodies.
- Patrick Low, Hamid Mamdouh and Evan Rogerson, Balancing Rights and Obligations in the International Trading System. back to text
- The volume of merchandise exports increased 41 times between 1950 and 2019 while the volume of world real GDP rose 11.5 times over the same period. Since 1995, the volume of world trade has risen 2.7 times while real GDP has risen 1.9 times. Another way of putting this is that trade has grown 1.4 times faster than GDP. As for the reduction in poverty, the WTO only has data going back to 1981. In that year 42% of the world's population lived in extreme poverty, defined as income of $1.90 per day (2011 PPP). Today that share has fallen to 10%. back to text
- Condemned beliefs including: Arianism, Apollinarism, Sabellianism, monophysitism, Nestorianism, monothelitism, Pelagianism. back to text
The Parties to this Agreement[the WTO],
Recognizing that their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development,
Recognizing further that there is 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,
Being 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,
Resolved, therefore, to develop an integrated, more viable and durable multilateral trading system encompassing the General Agreement on Tariffs and Trade, the results of past trade liberalization efforts, and all of the results of the Uruguay Round of Multilateral Trade Negotiations,
Determined to preserve the basic principles and to further the objectives underlying this multilateral trading system,
Agree as follows: …
Establishment of the Organization
The World Trade Organization (hereinafter referred to as “the WTO”) is hereby established. back to text
- https://en.wikipedia.org/wiki/Perpetual_peace#cite_note-1. back to text
PURPOSE AND OBJECTIVES
RECOGNIZING 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 PARTIES to this Charter undertake in the fields of trade and employment to cooperate with one another and with the United Nations
For the Purpose of
REALIZING the aims net forth in the Charter of the United Nations, particularly the attainment of the higher standards of living, full employment and conditions of economic and social progress and development, envisaged in Article 55 of that Charter.
TO THIS END they pledge themselves, individually and collectively, to promote national and international action designed to attain the following objectives:
1. To assure a large and steadily growing volume of real income and effective demand, to increase the production, consumption and exchange of goods, and thus to contribute to a balanced and expanding world economy.
2. To foster and assist industrial and general economic development, particularly of those countries which are still in the early stages of industrial development, and to encourage the international flow of capital for productive investment.
3. To further the enjoyment by all countries, on equal terms, of access to the markets, products and productive facilities which are needed for their economic prosperity and development.
4. To promote on a reciprocal and mutually advantageous basis the reduction of tariffs and other barriers to trade and the elimination of discriminatory treatment in international commerce.
5. To enable countries, by increasing the opportunities for their trade and economic development, to abstain from measures which would disrupt world commerce, reduce productive employment or retard economic progress.
6. To facilitate through the promotion of mutual understanding, consultation and co-operation the solution of problems relating to international trade in the fields of employment, economic development, commercial policy, business practices and commodity policy.
ACCORDINGLY they hereby establish the INTERNATIONAL TRADE ORGANIZATION through which they shall co-operate an Members to achieve the purpose and the objectives set forth in this Article.back to text
- In his First Inaugural Address, Abraham Lincoln refers to the “mystic chords of memory” which unite Americans together. back to text
- Genesis Ch, 1:2. Bible, Old Testament. King James Version. back to text
- Issure at Argentia Bay, Newfoundland, in August 1941. back to text
- Discours sur l'organisation des gardes nationales. Article XVI. On their uniforms engraved these words: FRENCH PEOPLE, & below: LIBERTY, EQUALITY, FRATERNITY. The same words are inscribed on flags which bear the three colors of the nation. (XVI. Elles porteront sur leur poitrine ces mots gravés : LE PEUPLE FRANÇAIS, & au-dessous : LIBERTÉ, ÉGALITÉ, FRATERNITÉ. Les mêmes mots seront inscrits sur leurs drapeaux, qui porteront les trois couleurs de la nation.) — Maximilien Robespierre, 1790 back to text
- Perhaps to assure inclusiveness, the largest members in practice do not chair WTO Committees, allowing mid-sized and much smaller countries to have that role. back to text
- The Low, Mamdouh, Rogerson paper previously cited om note i. back to text
- It is beyond the scope of this presentation to address major topics that need to be covered to a greater extent by the WTO’s rules. Besides new subjects such as E Commerce and various environmental initiatives, Intellectual property in an increasing digital world, and services stand out. -- It was recognized over three decades ago that trade in services is an immense part of the world economy. The flow of services also promotes the flow of goods. Some services can only be provided in person across borders — such as the servicing and maintenance of capital goods. Marketing often involves in person contacts. The freer flow of people across borders enables both goods and services trade to flourish. The Covid-19 pandemic has pointed out how impaired world trade can be due to the loss of these economic transmission belts. back to text
A listing in my 7 May presentation to a webinar hosted by The Authority for Foreign Trade of Saudi Arabia included the following:
- Allocating scarce supplies, including through adopting:
- Best practices for sharing IP for medical supplies, equipment, as well as test data and formulae for vaccines and medications in a manner that fosters development of vaccines and their availability worldwide, and
- An understanding on rolling back trade-restrictive measures affecting food, goods and services, no matter the form taken (including domestic procurement mandates, etc.)
- An understanding on food security assured through more open borders and not through the imposition of export restrictions or accumulating excessive stocks.
- A negotiated multilateral protocol that permits the safe opening of national borders for travel for business, priority immigration and cultural purposes (e.g. for the haj). If an agreement is not practical within months, a code of conduct or statement of best practices could be agreed.
- An accord on export controls and equivalent measures (including, e.g., pre-emptive purchasing in whatever form), which could address;
- Procedures including prior notice and consultation on their justification;
- Conditions as to how they are applied, including the requirement that they be nondiscriminatory;
- A process for affected countries to register specific trade concerns, and
- Providing for limits on the duration of measures.
- Building on SPS and TBT best practices to reach a higher level of regulatory co-operation and further reduce trade frictions;
- Facilitating cross-border movement of personnel for essential services, including medical services and farm labor; and
- Coordinated efforts to enhance manufacturing of medical equipment and supplies.
Measures to Assist in the Economic Recovery
- Negotiated tariff reductions and tariff elimination where possible — zero tariffs could be considered for pharmaceuticals, information technology products, environmental goods, and products that already bear a low tariff;
- Facilitating the cross-border supply of services;
- Taking steps to restore trade finance;
- Providing stronger support for implementation of Trade Facilitation Agreement;
- Building on SPS and TBT best practices to reach a higher level of obligation;
- Guidelines with respect to heightened reviews of inward investment;
- Concluding successfully E-Commerce negotiations;
- Unwinding the deeper intrusions of the state:
- An enhanced understanding on the conduct of enterprises that are state-influenced; and
- Disciplines on domestic industrial subsidies and domestic support for agriculture.
- A concerted effort by WTO Members to support the successful implementation of the African Continental Free Trade Agreement (AfCFTA).