DEPUTY DIRECTOR-GENERAL ALAN WM. WOLFF
At the Graduate Institute, Geneva, at the opening session of the Institute’s Geneva Trade Week, Joost Pauwelyn, Professor at the Institute, put the following questions concerning the future of the WTO and the World Trading System. Here are my answers.
- 1. Based on your work, the continent you are from or work in, and the many stakeholders you engage with, have you noticed any shifts or change in discourse as to “why we trade” and “what goals” the trading system ought to pursue?
We are living in a strange moment in time when we are experiencing an alternative reality. I am speaking to you virtually, an alternative to our being in the same room. This praiseworthy event is designed to launch in effect an alternative to the WTO’s usual annual Public Forum. Our host has become an eminent juridical person selected to serve in an interim alternative WTO dispute settlement arrangement supported by countries accounting for a very substantial share of world trade. In the United States, the term “alternative facts” has been coined. In the alternative universe (as compared with believers in the multilateral trading system), globalization is deemed by all too many to be the dominant cause of harm to national economies.
Next year my hope is that we shall return to actual reality. I know that at least there will be a WTO Public Forum next year at around this time. We will have a new WTO Director-General. The WTO Members and Secretariat will be re-energized. It is my hope that all of our lives can get back to a better normal in 2021.
What is real now is that during recent years there has been a marked rise in populism on both sides of the Atlantic Ocean and elsewhere, of nationalism and defensiveness when it comes to international trade. This is still fortunately a minority view, but it is sizeable. In the United States, there is a slim majority in favor of free trade agreements.(1) Anxiety about trade is, however, not uniform across age groups. Technology has continued to cause far more disruption than trade, but by and large the young have adjusted, in the United States and elsewhere. Polling data for the U.S. shows a strong pro-trade sentiment among the young.(2)
Globalization is targeted because technological change, which is far more disruptive, will not be attacked by most people. They like their smartphones, and most do not associate these small marvels with the decimation if not outright extinction of numerous industries brought about by its capabilities.
As is often said, because it is true, the benefits of trade are diffuse and are widely enjoyed but go largely unremarked, like having fruit out of season, thanks to trade. Consumers do not lobby their governments for fresh corn on the cob in mid-winter. The disruptions caused by trade are often concentrated. Those who are harmed are understandably vocal, and they do affect political outcomes.
All of us who support the multilateral trading system have failed to communicate adequately that what the WTO is primarily about is providing fairness alongside freer trade. If you are a worker in a manufacturing plant who is making a good, competitive product, a farmer producing a competitive agricultural commodity, or someone creating a competitive service or an innovative application for a smartphone, you will have a fair chance to sell in the world’s markets, not discriminated against, not barred by a standard or a high tariff. If, despite a Member’s obligations, your product is discriminated against and the rules are enforceable, there is a good chance at getting a fair outcome.
What about the future? Going forward, the trading system has to deliver better results for women and for micro, small and medium enterprises. It has to be responsive to current felt needs, for the global digital economy, for the environment. The trading system must address competition policy where it has a serious effect on trade flows. Market forces, not government fiat, have to determine competitive outcomes.
The trading system should make sure that global agriculture can cross borders more readily to be responsive to crop failures or outbreaks of animal diseases. The system has to be better in supporting concrete development needs, raising the income levels of all peoples. The system has to make trade measures transparent in real time. It has to cut the costs of moving goods across borders, costs which are often a multiple of the burden of tariffs. And when an industry is harmed by trade, when the result is workers becoming unemployed, there has to be the policy space to provide targeted, proportionate, transparent and temporary relief.
- 2. Do you think that with today's wide diversity and strategic competition between countries, economic systems, and political polarization within countries, a “new consensus” on trade and trade policy is possible? If so, what could be the common denominator, or guiding principles of such a “new consensus”?
I greatly favor improving the existing trading system but not starting from scratch to create something new. The central question is whether the Members, who all swear allegiance to “multilateralism” have enough in common to maintain and then improve the current system. I believe that each of them does, without exception.
There are two irreducible elements of necessary common ground: each Member must believe that trade can be good for its people, fostering its objectives, and it must provide that market forces will determine competitive outcomes. These are the two underlying conditions for membership in the world trading system, its irreplaceable common denominator, the guiding principle of the existing system.
Those two conditions are gating conditions, without which the foundation of the WTO would be severely eroded. To my knowledge only one Member is pledged explicitly to deliver the second condition — that market forces determine competitive outcomes (this was with respect to state-owned enterprises).
Six days ago, at the G20 Trade Ministers’ Virtual Meeting under Saudi Arabia’s leadership, the chair, in his summing up of its Riyadh Initiative, moved this analysis forward:
All members agreed to list the following as part of the principles of the WTO:
- Rule of law
- Fair competition
- Market openness
- Resistance to protectionism
- Reciprocal and mutually advantageous arrangements, . .[which] provide for differential and more favorable treatment for developing economies, including special attention to . . . least developed countries.
This is a pretty impressive list for the G20. Its members have not agreed to anything as concrete before, not since WTO Reform has been on the agenda. Some obvious omissions exist, such as agreement that there must be binding dispute settlement, the need for market-oriented policies, sustainable development, and rule by lockstep consensus. These were not agreed, but this is still not a bad list.
In thinking a few months ago about the Riyadh Initiative’s intention to come up with this list, I identified 16 values inherent in the WTO. These are:
- 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;
- 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.
After assembling that list, I subsequently identified three additional underlying values — a strong preference for openness for global trade 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.(3)
It is in realizing these values that improving the current system must be undertaken.
There is no “new consensus” at the moment, if this means a consensus for radical change. Exactly where would one find a new overarching consensus? Not currently among the largest three WTO members. And without their participation, what subset of mid-sized trading countries would or could form an alternative to the current multilateral trading system? Paraphrasing Winston Churchill, the WTO, the multilateral trading system, is the worst form of trading arrangement but for all the others.
To test the proposition that a radical new consensus is not currently possible, one can employ a few hypothetical alternative premises for a fundamentally different universal trading arrangement:
- Sharply limit government ownership, as this can distort trade in several respects. This will not occur in the current world. Few Members, if any, could join that arrangement.
- Aim for co-existence rather than convergence, the underlying assumption of the current system. Exactly what would have been gained in doing so? Trade peace at too great a cost.
- Jettison non-discrimination officially, make tariff commitments more malleable, celebrate every sub-multilateral preferential trading arrangement. Why would that make a better world?
Incremental change is occurring. The trend, started in Buenos Aires in December 2017 at the 11th WTO Ministerial Conference, is to move forward through coalitions of the willing, these initiatives are now towards the end of their trial stage and ready for broader deployment. These are Areas of Consensus (AoC), which are likely to eventuate into open plurilateral agreements:
- A consensus on an e-commerce agreement.
- A consensus on investment facilitation, addressing the needs of micro, medium and small enterprises (MSMEs), and putting into place new obligations with respect to domestic regulation of services.
Beyond this, what is foreseeable?
- A consensus on a future expansion of the Information Technology Agreement.
- A consensus on updating and expanding the coverage of the duty-free pharmaceutical agreement.
- A consensus on a new Environmental Goods and Services Agreement.
- A consensus on women’s empowerment.
None of these will be signed by all 164 current WTO Members. But each will be open to all WTO Members when they are ready. It is not necessary in the abstract to consider whether all of the benefits of these agreements will be available unconditionally to all non-signatories. The glue that holds any of these separate arrangements together is going to be the specific national interests of the parties in that area. This is the glue of all international agreements.
It is possible to envision the Members who are parties to any of the AoCs designating these as WTO agreements(4), perhaps depending on the willingness of other Members to go along, or relying on issues to be sorted out by dispute settlement (recognizing that the absence of an appellate body may impair its ability to deliver binding outcomes). This would be a complete departure from the two and a half decades of precedent in the WTO. The system is going to have to deal with this form of diversity as long as the agreements add to and do not subtract from what has been achieved on a fully multilateral basis.
There are some areas that require a multilateral approach. This applies to disciplines on industrial and agricultural subsidies. There can be allowances made for least developed countries, for example, as there generally would be in most agreements, but there has to be coverage of all those where their government support can affect the contours of international trade.
- 3. Can you give one or two concrete examples of what would need to change in the international trading system or trade agreements for them to be better aligned to the new goals, guiding principles or new consensus that you see emerging?
Examples of what will need to change to make the WTO fit for purpose, the primary purposes being the negotiation of agreements to update and improve the international trading system, to settle disputes, and to administer the multilateral trading system:
- (1) Agreement on when and where unanimity is appropriate and where it is not, in other words, an understanding on where the WTO consensus rule as currently interpreted is applicable, an understanding that consensus is not unanimity, that exploration of new areas of possible agreement is never forbidden but is encouraged — this is necessary to reach agreements more readily and for the organization to function;
- (2) Agreement on a single form of dispute settlement, binding but accountable to Members — enforceability of WTO agreements is the hallmark of the organization, it is a core element of the WTO; and
- (3) Agreement on how the governance of the institution of the WTO, the Director General, the Secretariat and among Members, is to function — this is necessary if the organization is to fulfil its objectives. Will there be a strong, pro-active, Secretariat assisting Members in their executive functions, e.g. assuring transparency through monitoring, initiating proposals, reviewing compliance, etc.?
A key question is how to proceed on WTO reform. The table is not fully set, the work has not been organized to have a Big Bang to create a new universe for trade. The first task is to create a useful forum at the WTO to discuss specific structural changes in the organization and its rules. What is needed is not to start afresh but to improve what we have. There is no reason to favor burning down what exists in the hope that something better will emerge phoenix-like from the ashes. What is needed is a conservative form of revolution, much the way the United States was created. Disruptions create opportunities, much as but for the counterproductive efforts of King George III, the founding of the U.S. might have been deferred for as much as a century. The imposition of barriers to the exercise of fundamental rights to address common issues causes new paths to be taken.
There must be forward motion. This can be incremental, or it can be more comprehensive, more systemic. Some might think that the geopolitical psychology is not right to attempt major reform. But a start can be made.
To maintain and increase its relevance, change in the WTO, its evolution, is essential. It is also irresistible. This is where a “new consensus” will form. The next step must not be deferred.