DEPUTY DIRECTOR-GENERAL ALAN WM. WOLFF
Thank you for the invitation to discuss the need to rise to meet current challenges in the world trading system.
Our moderator has put to us three issues for our reactions:
- Economists say we are entering a period of deglobalisation, the UN secretary general is warning for the Great Fracture, the US and China are talking about decoupling and dual circulation. In this changing global trade context, what role is there for the WTO?
- How can the WTO rebuild confidence in the global trading system?
- What should be the priority for WTO reform, and is reform of the WTO possible?
How can the WTO rebuild confidence in the global trading system?
I will concentrate on the second and third of these questions today. I do this for several reasons: As to the first item, what UN Secretary General Guterres called the “Great Fracture”(1), consisting of his choice of four horsemen of the apocalypse, namely “Surging Geopolitical Tensions, Existential Climate Crisis, Deep Mistrust, and Risky Technology”, the WTO can make a major contribution to the solutions but cannot itself resolve any of them. I have addressed in prior remarks how the WTO can be relevant to resolving some of the issues that are part of the geopolitical divide, how agriculture needs to become more agile in a time of climate crisis, and have noted that the WTO is in the process of grappling with making the current rules of the world trading system more relevant to the global digital economy.
As to the geopolitical point, what some call great power rivalry (although that is an over-simplification), most of the problems of the WTO pre-date our current outlook on global affairs. The differences between the two largest trading nations were not one of the central problems for the WTO although they will undoubtedly become a more prominent feature of the global trade landscape and will affect the WTO to a greater extent going forward. At present, the WTO will not affect but is likely to reflect geopolitics. Conflicts among nations(2) should not become an excuse for inaction on those matters that the WTO can more clearly resolve.
What should be the priority for WTO reform, and is reform of the WTO possible?
In late September, the G20 Trade Ministers again called for WTO Reform. They did not specify what its content should be.
The WTO rests upon three pillars — negotiation, dispute settlement and administration of the rules-based multilateral trading system. The loss of an agreed appellate function for dispute settlement has become notorious, receiving a lot of press coverage but not a solution. Only recently has the focus shifted to the less obtrusive fact that a forum for negotiations must yield negotiated results if it is to retain credibility.
In terms of priorities, this is one clear one:
The world is facing a global health and economic crisis. The trade policy challenges are two-fold: curbing counter-productive actions taken to deal with shortages of essential medical goods, and aiding — not retarding — economic recovery.
A time of crisis calls for action.
- In 1934, in the midst of the Great Depression, the United States set the course of modern global trade policy by negotiating tariff reduction agreements, with trade concessions applied on an MFN basis.
- In 1948, in a world that required reconstruction after the devastation of the Second World War and economic development for the post-colonial era, the multilateral trading system was founded with a framework of rules.
- In 1971, a misalignment of exchange rates caused the United States to impose an import surcharge and make demands for unilateral trade concessions from its major trading partners. This in turn led to the seventh major round of multilateral trade agreements, resulting in 1979 in the first nontariff trade agreements in the global trading system.
- In 1985, another misalignment of major exchange rates, with unilateral trade actions and threats of additional trade-restrictive measures, led to the convening of the eighth round of multilateral trade negotiations, the Uruguay Round, resulting in 1995 to multilateral agreements for services, intellectual property, investment and agriculture, and the creation of the World Trade Organization.
- In 2001, the challenge of unprecedented international terrorism provided the context for a ninth great round of multilateral negotiations, which effort peaked in 2008 with no agreements reached.
- In 2008-09, the world trading system endured a global financial crisis. It held the line against widespread trade restrictions, but this crisis did not give rise to major new trade negotiations.
With the exception of the most recent two decades, each major global economic crisis has been met with a burst of energy to improve the trading system and bring about further trade liberalization.
The world is in crisis once again, this time from a pandemic and its economic consequences. COVID-19 has provoked the worst contraction in global GDP since the 1930s. Forecasts predict a 4.4% decline in output, twice as deep as the economic downturn produced by the 2008-09 financial crisis. In the face of this serious decline, the annual IMF Board of Governors meeting earlier this month produced resounding calls for multilateralism.
IMF Managing Director Kristalina Georgieva stated that a third of the estimated $30 trillion to be lost from the trend of pre-COVID 19 global economic activity could be recovered if the international community adopted cooperative fiscal, monetary and trade policies.
Multilateral economic cooperation would help contain the damage, but it faces major challenges. Even before the pandemic, the trading system was characterized by difficulties in moving multilateral negotiating agenda forward, an impasse over re-creating a single agreed structure for dispute settlement and by trade tensions between major trading partners. Those engaged in trade and affected by it, the stakeholders of the trading system, have turned their interest and energy to other arenas and challenges.
Nevertheless, the multilateral trading system continues to play an essential role in the global economy. Its rules still govern the vast majority of world trade. Trade has dramatically increased to help ease shortages of personal protective equipment and other goods needed to fight the pandemic
But the fact remains that most of the WTO rulebook dates back 25 years. It needs major updates to be brought into line with new realities and needs. WTO reform must be about enabling the global trading system to keep playing its role, which is to boost the global economy by fostering stable and predictable conditions for cross-border trade.
RISING TO THE IMMEDIATE CHALLENGE
The pandemic gives rise to two related challenges for the trading system: providing essential medical supplies for the health of peoples of the world and contributing to the health of the global economy. Both are essential to global well-being.
With respect to the health crisis, trade can help to ameliorate effects of the disease and to slow its spread by making pharmaceuticals and medical supplies more widely available. When vaccines are available, trade can provide a key means to halt the global spread of the disease. We should have learned by now that there are no complete national solutions to these problems. As important, with respect to the recovery of the global economy, it is imperative that trade policies contribute by not accelerating the economic decline and by supporting the climb back.
There is no shortage of ideas as to what could be considered as part of a response. The steps taken would be in furtherance of the G20’s widely-accepted guidance, that restrictions be
proportionate, transparent, temporary, reflect our interest in protecting the most vulnerable, do not create unnecessary barriers to trade or disruption to global supply chains, and are consistent with WTO rules(3).
The following are some ideas that have surfaced in recently:
- For the requirement of transparency
- Notifications should be instantaneous.
- The Secretariat should be authorized to share best information available (subject of later verification by the authority promulgating a measure).
- A horizontal trade policy review should be convened to examine COVID-related measures on a real time basis.(4)
- Members could explore creating an Emergency Market Information System (an “EMIS”) related to COVID 19, on a subscription basis for contributors, with updates automatically notified to contributing Members as is currently done for standards notifications(5). (Enhanced information-sharing could cover all measures related to COVID-19, including actions affecting stockpiles and investment, compulsory licensing, as well as data on production capability, production, inventory, exports and imports. In short, the EMIS could cover all the information needed to make informed decisions with respect to essential supplies including medicines.)
- For the requirement that measures be temporary
- Measures should be required to contain a sunset clause, with a provision permitting renewal for cause.
- Duration could be tied to a finding by an international authority (e.g. the WHO) that conditions in the area where the measure is being applied is still in a state of “public health emergency” (or other technical definition)(6).
- For the requirement that measures be targeted and proportionate
- Develop an agreed standard (or illustrations of best practices) to give added definition to these terms.
- Members could be required to demonstrate that they have considered the standard and to explain any deviation from it.
- For the requirement to protect the vulnerable(7)
- The requirement contained in the Agreement on Agriculture, that Members should consider the effects on others of their export restrictions should become an obligation with respect to medical supplies, medicines and vaccines.
- Further clarity can be provided with respect to the provision covering export restrictions that specifies that Members are entitled “an equitable share of the international supply of such products”.
- Food security can be enhanced by ad hoc guaranteed supply arrangements.
- There can be enhanced efforts at capacity-building, including with respect to implementation of the Trade Facilitation Agreement and the Standards Trade Development Facility.
- There must be adequate trade finance to enable trade to play its role in lessening the effects of the pandemic.
- For the requirement of avoiding unnecessary barriers to trade or disruption to global supply chains
- A working party can be convened to discuss any measure adopted to deal with the pandemic, focusing on whether measures in the view of other Members is more burdensome than it needs to be or is it discriminatory either on its face or in its effects, or is disruptive of supply chains. (Diversification of supply chains would not be considered a priori disruptions of global supply chains.)
- For the requirement of consistency with WTO rules
- WTO dispute settlement can be definitive, but its timeframe would render it insufficiently responsive to a crisis. Provision can be made for expedited consultations involving any interested parties. These can be inclusive. This would be a companion to a standing emergency horizontal trade policy review.
Members have already been acting to facilitate trade in essential goods, by reducing tariffs and cutting red tape.
- Trade-facilitating measures need to be encouraged on the part of all Members. (Those put into place with respect to the pandemic exceed the trade-restrictive measures by a margin of nearly two to one).
- Beyond these positive unilateral measures, more robust multilateral measures(8) could be contemplated, such as:
- A standstill on new protection and trade-distorting practices, including trade-distorting pre-emptive procurement and investment, Interdiction of goods in transit, and excessive stockpiling.
- Suspension of tariffs on essential pharmaceuticals and medical supplies.
- A rollback of current export restrictions.
- Exemption of food aid from export controls.
- Other ideas for discussion include:
- Coordinated or joint production of essential medical supplies, etc.
- Freer movement of trained personnel, such as medical professionals.
- An examination of the operation of the WTO Trade-related Intellectual Property Agreement of expanded access to intellectual property.
The above discussion does not exhaust the range of possibilities.
SUPPORTING THE RECOVERY
In the 1930s, to deal with an economic depression of a magnitude not experienced previously within human memory, the administration of U.S. President Franklin Roosevelt was open to experimentation. Often what was done was contentious, and not everything worked, but in a crisis not to try to find solutions is inexcusable. At a multilateral level, the challenges are even more complex than at the national level, but they must be faced. Bilateral and regional arrangements can assist with the economic recovery, but they cannot fully meet a global challenge.
Very often past crises were met with broad trade liberalization. To be sure, substantial political will would have to be mustered. The fact that huge debts have been created to stimulate national economies may make even modest action to reduce tariffs very difficult, but that is not an acceptable reason to shrink from considering doing so.
- Applied tariffs can be bound at current rates.
- Tariffs can be harmonized by sector or more broadly, and to reducing tariff peaks.
- Low tariffs can be eliminated.
- As all large Members have agreed, contributions to trade liberalization should be proportionate with their current capabilities, by sector or more broadly.
Sectoral agreements. The ground has already been prepared for more targeted tariff elimination in the following three areas in which duty-free trade already exists and can be expanded —
- The Pharmaceutical Agreement. This agreement to eliminate tariffs was created in 1995 and updated repeatedly until 2010. The coverage can be updated, including covering currently essential medicines. World trade in pharmaceuticals has changed dramatically since 1995 and major suppliers which are not signatories should consider joining.
- The Environmental Goods (and Services) Agreement (EGA). Talks lapsed in 2016 and could be revived. The foundation exists for moving rapidly to completion if the political will exists.
- The Information Technology Agreement (ITA). Coverage of the ITA was to have been reviewed in 2018, but this has not taken place.
- Agriculture is too important as a part of the world economy to be left out of any concentrated effort in improving the prospects for global economic recovery.
- With government budgets under strain, there could be a roll-back of domestic support, increased market access, and an attempt to address food security through international cooperation.
- With the incidence of severe climate events increasing, agricultural supply needs to be more agile, flowing from food surplus to food deficit areas.
Digital commerce. The world of trade has changed dramatically since the WTO was founded. It is imperative that barriers to international exchange through e-commerce not increase. The moratorium on customs tariffs on electronic transmissions, little understood when it was adopted, needs to be made part of an understanding fit for current circumstances.
Trade finance. The WTO's role, which it played during the Financial Crisis, is to convene those engaged in trade finance — major private banks, the IMF, World Bank and regional development banks — to focus on re-building the linkages that allow the least developed and other small economies to participate in world commerce. An active role for the WTO is needed now more than ever.
Confidence in the ability of the WTO to negotiate rules, settle disputes and administer trade agreements would be restored by early successes. Some wins need to be put on the board.
The current interpretation and application of the use of positive consensus (where each Member has come to believe that it has a veto over every issue no matter how small) cannot be allowed to be an impediment to the functioning of a key raison d'être of the WTO, to negotiate agreements.
For negotiations, this can take the form of a package of agreed responses to the current health and economic crises brought about by the pandemic. To this can be added agreements from current negotiations underway, including fisheries subsidies and e-commerce. Of these the fisheries negotiations has an agreed deadline of the December 2020. However, despite the fact that it will be a major accomplishment to succeed in this 20-year endeavor, it will not be enough to change the narrative and the reality of the WTO's relevance to address fisheries subsidies negotiations. To save the fish, but not address the health and economic suffering of humanity, will not been seen as being acceptable.(9)
Members have been deprived of any oversight of the dispute settlement system. The means to this end is application of the concept of negative consensus, which seeks to obscure the fact that a winner in any litigation must agree to surrender the decision in its favor in order for any Member to have any control over the system. This is largely a nonexistent possibility.
Both of these supposed “consensus” mechanisms in reality consist of minority rule by a single Member, although which Member exercises complete control varies from instance to instance. What started out as democracy in ancient Athens devolved into tyranny. Self-restraint is needed for Members to exercise their veto with restraint and only when national interest and multilateral mechanisms provided no alternative.
For dispute settlement, agreement will in the end be needed on a single mechanism to which all who seek to litigate would subscribe. Any appellate stage must be accountable to the WTO Members as a whole.
There are interim steps that can be considered if an early agreement is not possible. One possibility:
- Any who choose to litigate would be required at the outset, when a panel is requested, to come to an agreement with the other party or parties as to whether the panel decision would be final and if not, whether it would be subject to arbitration or an alternative arrangement (such as the EU and a number of other WTO Members have agreed). No complaint could be brought without an understanding that the end result would be final.
For administration of the system, a serious review is needed of WTO governance. There is need to serve the executive functions of the WTO.
Governance of the organization is left to committees of the whole. There is no Board of Governors or Board of Executive Directors as the Bretton Woods institutions have. In addition, the Secretariat is not expected to take any initiatives.
A more robust role for the WTO Secretariat, to animate progress, comparable to the staffs of other international economic organizations will be essential to attaining successful WTO reform.
Systemic reform requires agreement on providing for executive functions.
The next step should be to convene one of more working parties (or joint initiatives) to begin a serious discussion on specific reforms in the WTO in structured discussions with the objective of reaching either continuous improvements in the functioning of the organization, or, if need be, a package of agreements.
Continued drift is unacceptable.
- https://www.un.org/press/en/2020/ga12238.doc.htm. back to text
- https://www.foreignaffairs.com/reviews/capsule-review/1992-09-01/conflict-among-nations-trade-policies-1990s, Howell, Thomas R., Alan Wm. Wolff, Brent L. Bartlett, and R. Michael Gadbaw, Conflict Among Nations: Trade Policies in the 1990s, Boulder, CO: Westview Press, 1992, xiv + 633 pages. back to text
- G20 Trade Ministers Communique. 22 September 2020. https://g20.org/en/media/Documents/G20SS_Communique_TIMM_EN.pdf back to text
- Cf. Under Annex 3 to the Marrakesh Agreement (establishing the TPRM mandate), paragraph D provides that “… Between [TPR] reviews, Members shall provide brief reports when there are any significant changes in their trade policies …”, and present an annual update of relevant information (and possibly a horizontal discussion at the Trade Policy Review Board). This provision has never been used. back to text
- Similar to E-ping which is used for product standards. https://www.epingalert.org/en back to text
- One possible formulation: Members are to “take into account”. back to text
- Vulnerability with respect to short supply of a particular essential product in a time of pandemic is not likely to be evenly spread. For example, a low-income country may become a major net exporter of masks. A country with a low per capita GDP may yet be able to produce more vaccine than its domestic needs require if parts of its economy are in fact very advanced. back to text
- There is logically a middle path between an enforceable rule under WTO dispute settlement and a list of best practices voluntarily adhered to. There could be binding codes of conducts under which only signatories would have a right of enforcement. — Any of these approached would enhance international cooperation. back to text
- Matthew 4:19 back to text