DEPUTY DIRECTOR-GENERAL JEAN-MARIE PAUGAM
Distinguished members of the European Economic and Social Committee,
Ladies and gentlemen,
Thank you for giving me the honour and opportunity to address you on behalf of the World Trade Organization.
This is also a personal honour for me, as a citizen of Europe with a strong interest in the European Union.
Moreover, I am noticing a strange and strikingly fatal similarity between the WTO and the European Union in that it comes more naturally to speak about their failures than their successes.
For example, I am privileged to be part of the first generation of Europeans who have never experienced war within the European Union. For me this is reason enough to justify the European Union undertaking. But these are things we rarely recall, and the natural question is the one you ask, Madam Chair: Will our lives be better tomorrow? Does Europe make a difference? The same question is being asked on a daily basis to the World Trade Organization: Does the WTO make a difference to people’s lives?
The WTO is not a Union and has no desire to become one; it is a treaty-based intergovernmental entity built on cooperation. Yet like the EU, it must answer this question daily and sometimes is subjected to the same treatment. The difference it makes by merely existing is forgotten when all eyes are trained on its challenges or failures. My intention is not to conceal these difficulties. On the contrary, by discussing them we explore how we can do better.
But first, if you allow me, I would like to start with our successes and evoke as the starting point of our discussion the reason why the European Union rightly considers with reason the WTO to be one of the major achievements of the international community.
1— The first point I‘d like to make is that the WTO system has worked rather well, at its core, in the wake of the significant crises that have recently rocked the global economy. The international trading system has just demonstrated its resilience and its usefulness in the face of two major shocks: the trade war and the COVID pandemic.
Both are of course very different in nature: one was caused by politics and the other by bioeconomics. One came from the superstructure while the other came from the infrastructure. Without comparing their causes, they had three effects in common.
The first direct effect was to increase the cost of globalization through customs tariffs set for the trade war, restrictive economic measures and lockdown measures in the face of the pandemic.
The second, probably more important even, was to heighten uncertainty surrounding globalization: How could investment and trade decisions be made without knowing what the markets of tomorrow would look like? Businesses felt the brunt of that and a recession followed.
The third effect was to plant a seed of doubt about the nexus between nations and globalization: Could global value chains be trusted to guarantee supplies to our nations? Should part of the production of basic commodities be relocated, especially for medical products? Many businesses asked themselves this question first but then it became a political and executive issue because it has to do with sovereignty. And this has been happening everywhere in the world.
To these three questions, the World Trade Organization has brought positive responses. Not by negotiating new treaties, but simply because it exists and because its disciplines were useful.
Overall, the organization resisted the trade war: yes, unilateral measures were taken, and yes, they were the subject of disputes, but they did not result in a path of uncontrolled reprisals; so, from this perspective, we learned our lesson from the 1930s and did not repeat the same mistakes. Or in 2008 in the wake of the financial crisis or in 2020 in the face of the pandemic. And it was precisely to avoid repeating the same politico-economic mistakes of the past that the system was established.
It also resisted medical nationalism, aided by appeals from the G20 and within the WTO. So, from this perspective, our reports are formal - you know that we monitor and report every six months on trade measures taken despite their inherent limits in terms of methodology. While we witnessed a proliferation of restrictive measures at the beginning of the pandemic, in the first month or two, especially controls on exports of medical products, States quickly chose the path of cooperation and trade facilitation. Trade liberalization or trade facilitation measures took precedence over restrictions. And the data can judge for us: in 2020 international trade was plummeting by 8% annually while trade in medical products increased by 16%.
Today, there is a considerable upturn in global trade and strong growth. While it is true that these indicators differ from one region to another, the recovery is unmistakable, and is being supported by the system. We are also witnessing a gradual dismantling of the trade measures that had been put in place last year. Our next report should confirm this.
I am not saying this is an exact science, nor am I trying to make a scientific causal link between the WTO's role and the trends observed in the real economy. My message is that overall, the system worked well in the face of these shocks. All of that to say that it does have an intrinsic value and is deserving of the support that governments and businesses place in it even, or especially, when it is in difficulty.
2— And it is in difficulty. Great difficulty. For a long time, it has been said that the WTO is in crisis and calls have been made for its reform. Where is this coming from? From the fact that the system's three functions have been henceforth severely altered.
The function of administering agreements. This is the one that is working the best. Our committees are busy working on a daily basis to resolve amicably several trade issues through cooperation. But we are facing a major roadblock: a significant number of our Members no longer fulfil their basic obligations, which consist of notifying the membership of measures they are taking. Yet as you know, this obligation of transparency is the cornerstone of the system.
The function of negotiating agreements has not yielded many results since the inception of the WTO. Two multilateral agreements: one on compulsory licensing for the production of pharmaceuticals in times of a pandemic, which is very important, especially in the current situation, and the agreement on trade facilitation, have been concluded. And the plurilateral agreement on the liberalization of trade in information technology products (ITA) also emerged.
The remaining multilateral negotiations are very difficult. The negotiations on agriculture have not advanced since the organization’s inception. Fisheries negotiations, which were initiated 20 years ago and were elevated to the status of a sustainable development goal, are in their final phase but their outcome still remains uncertain. Discussions on the WTO’s response to the COVID pandemic have been stymied by major differences concerning IP rules. The taxation of e-commerce, for which the WTO had approved a moratorium in 1998 on the imposition of tariffs on digital transactions, is also very controversial.
However, this negotiation function was boosted through the launch in 2017 of plurilateral discussions, i.e. bringing together only those countries willing to participate. The greatest efforts are being made today in these discussions to update global trade rules: on the regulation of e-commerce (above and beyond the single issue of taxation of transactions), on services and investment, and soon, we hope, on the environment. In fact, the WTO is trying to position itself through this plurilateral track to deal with the two structural changes to the economy and world trade: digitalization and decarbonization.
And lastly, the dispute settlement function. You are aware that the establishment of an Appellate Body was one of the important achievements/milestones of the Uruguay Round, which established the WTO. This Appellate Body worked very well, helping to interpret WTO law and resolve many a trade conflict. Perhaps it even worked too well because, resorting to the Appellate Body, which, according to the spirit of the texts, should be a last resort, had become almost systematic. Its interpretations of the law tended to also be considered as legal norms. In a word, this small body was tending to “judicialize” and to play an ever larger role in producing rules, so much so that the negotiation function lay barren. The EU accommodated this evolution rather comfortably as its very nature is conducive to the dynamics of an economic integration stimulated by a supranational jurisdiction. The majority of WTO Members also supported this body. However, the United States, which has never accepted any international court, started feeling increasingly uncomfortable about this vis-à-vis their sovereignty, even though they have widely benefited from the system by winning a very high number of their disputes. Under the Trump Administration, they decided to demolish this Appellate Body by blocking the renewal of its outgoing members.
Madam Chairperson, this is how things stand on the eve of our Ministerial Conference scheduled for late November. So, to revert to the three possible outcomes envisaged by David Henig that you have mentioned - revival, regression or disintegration — which scenario awaits us? None, I would say, preferring the term “rebuilding” myself.
And what we must rebuild, first and foremost, is a minimum of trust, without which no negotiations can take place. And this trust has been seriously eroded for a long time now.
The trust of the majority of the developing world in a system where agreements are perceived as being unbalanced and in favour of the developed countries: be they through flexibilities granted under special and differentiated treatment, the right to subsidize agriculture or IP rights. The frustration associated with this perceived imbalance is sometimes compounded by a kind of resentment — let us not shy away from words — when addressing issues of global public goods such as fisheries or other environmental concerns. Who is the main culprit when it comes to the destruction of oceans and biodiversity and climate change? Who should the restrictive disciplines in these areas apply to? This is the question many developing countries are asking. And today this is the key for unlocking the negotiations on reforming fisheries subsidies.
There also has been an erosion of trust from a vast majority of the developed world, not just the United States, in the face of the timidity of large emerging economic powers to take on responsibilities in the trading system corresponding to the level of their economic prowess while many still benefit from developing-country status and display some scepticism about the benefits of multilateral rules for their benefit.
Trust between China and the United States has been largely eroded: I need not recall the systemic rivalry between these two powers, revealed as it is every day in the press and through diplomatic channels.
And the list goes on of manifest examples of an absence of trust.
It is this trust that needs to be rebuilt as a top priority because as the motto inscribed on the coins of the Knights of the Order of Malta goes: “Non aes sed fides” “This is not money, but trust”.
4— So how are we going to achieve this?
By being realistic: all our Members agree that the 12th WTO Ministerial Conference will be a conference of stages, the start of a transformation, rather than a revolution in itself.
By being proactive because we have to start writing a new script, one that can answer your question, Madam Chairperson, by showing that the WTO really works for people. What we want and what our Director-General Dr. Okonjo-Iweala is asking from us, is to achieve concrete results that give a sense of purpose back to the organization and restore the trust that its Members have in it and in themselves.
Concluding the fisheries negotiations would be a major success and a milestone for the organization by helping to achieve one of the sustainable development goals.
Agreeing on the role of trade in overcoming the COVID pandemic and emerging from the crisis by devising a pragmatic solution that would facilitate access to vaccines would also be a concrete result.
Making huge strides in the agriculture negotiations, in particular domestic subsidies and the issue of food security, would be essential.
Reopening the dialogue with the United States on the future of the dispute settlement mechanism with a view to developing a work plan for reforming the DS mechanism and the WTO architecture in general would be a very important positive step.
Advancing on the plurilateral undertakings that I mentioned earlier could be another goal: MC12 should also mark the launch of several crucial initiatives in the areas of trade and sustainable development, such as reforming subsidies for fossil fuels and initiating dialogue to combat plastic pollution.
And lastly, we can achieve this by being optimistic. The die has not been cast and the Director-General is receiving lots of messages of support and commitment from world leaders. We have a month and a half left to turn them into concrete and consensus-based solutions.
With your help, ladies and gentlemen, members of the European Economic and Social Committee, and with the help of the forces you represent within the European Union, we shall succeed.
Thank you again for your invitation and your attention. I am ready to answer your questions but above all, I am ready to listen to you about the direction you hope to see the WTO take.
The recording of the event can be viewed here.