SPEECHES — DG NGOZI OKONJO-IWEALA
Thank you so much, Jake and Arrow for that kind introduction. It is wonderful to see Susan here. You've set a high bar for me to live up to.
Receiving this World Trade Award is an incredible honour for me. I am humbled to be following in the footsteps of Nelson Mandela, one of my great heroes, as well as those of Kofi Annan, former USTR Mike Froman, and Representative Stephanie Murphy. Tonight I hope to say a few words on investing in the Multilateral Trading System and the WTO.
Ladies and gentlemen, this era of ‘polycrisis’' — of compounding crises in the economy, the environment, public health, and global security — presents all of us with difficult questions.
At the WTO, we had already been grappling with challenges of reform and remaining fit for purpose. We must now figure out how to operate a multilateral system designed to foster interdependence and peace when some of our members are at war. The war in Ukraine has darkened the outlook for global trade and food security. We now forecast global merchandise trade volumes will expand by 3% this year — down from the 4.7% we were predicting last October, and with all the risks on the downside.
Businesses are asking themselves about their immediate responsibilities, and the risk and efficiency considerations or trade-offs that should guide their sourcing and investment choices.
Political leaders face momentous decisions about how to handle geopolitical tensions, the direction of the global economy, which will shape possibilities for countries' future prosperity.
As we think about how to strengthen the global trading system to face the challenges of the 21st century, we need to recognize that disenchantment with trade and multilateralism long pre-dates the war or even COVID-19.
We all know that decades of global economic integration and multilateralism fostered unprecedented prosperity. More than 1 billion people were lifted out of poverty before the pandemic, and poor countries narrowed the income gap between them and the rich countries for the first time since the Industrial Revolution.
But we also know that some were left behind. Even in countries as rich as the United States, insufficiently robust social and labour market policies meant many people and communities did not share fully in the gains from economic growth. The slow recovery from the global financial crisis amplified political anger, as did the perception by many that China unfairly supports its industry. Trade, trade agreements, and trade institutions became easy scapegoats for populist leaders in the very countries that had created modern globalization.
When the pandemic hit, shortages of key products turned a harsh spotlight on supply chains especially for critical products such as medical and semiconductor supply chains. Subsequent bottlenecks raised questions as to the wisdom of concentrated manufacturing in a few countries, just-in-time business models sprawling across borders with single points of failure, little inventory, and limited strategic stockpiles.
The war in Ukraine has justifiably added to questions about economic interdependence. It has driven up already-high world market prices for food and energy, squeezing household budgets and threatening a severe food crisis in Africa and the Middle East.
These developments have led many to conclude that global trade and multilateralism — two pillars of the WTO — are more threat than opportunity. They argue we should retreat into ourselves, make as much as we can ourselves, grow as much as we can ourselves. The talk is now all about decoupling and fragmentation of the Multilateral Trading System into 2 or 3 trading blocks. There are moves to support reshoring, nearshoring and friend-shoring. The new catch phrase is that of “secure trade”.
This is totally understandable given the tense and uncertain times we live in. But I believe we should not draw the wrong conclusions from these stresses. The Multilateral Trading System is a global public good developed over 77 years ago and nurtured overtime. As I said earlier, it has helped lift over a billion people out of poverty. It is not a perfect system, but rather than retreat from it we should invest in and strengthen it. We should reform the WTO that underpins it and upgrade its rules to deal with 21st century challenges.
Sure, some reshoring, near-shoring, or friend-shoring of supply chains seems likely and perhaps justified. But, while it is true that global supply chains can be prone to disruptions, trade is also a source of resilience.
Cross-border supply chains played a vital role in our response to the pandemic, helping to quickly ramp up medical supply production and access. In 2020, even as the value of global trade contracted by nearly 8%, trade in medical countermeasures rose by 16%. The Pfizer/BioNTech and Moderna vaccines rely on inputs and capital goods from 19 countries each — no single country can get the job done.
Trade has been an important driver of economic recovery from the pandemic. Global merchandise trade rebounded strongly, with a 10.8% growth in volume in 2021 after the lockdowns (and has been at record highs since early 2021), though as I noted earlier, the pace of expansion is now slowing considerably as a result of the war.
For all the focus on geopolitical tension between the US and China, merchandise trade between the two has been at historic highs — US merchandise exports to China broke records last year at $153 billion, while US imports from China at $542 billion were not far from the 2018 peak of $563 billion.
Retreating from trade would make countries more, not less, vulnerable to production shocks arising from natural disasters, crop failure, or disease outbreaks. That does not sound like good risk management in an age of climate crisis and pandemics.
Besides, fragmentation can be costly. WTO economists have done some simulations that show that if the world economy breaks into two trading blocs there would be an estimated fall in the long run level of real global GDP of about 5%, just from diminished specialization and technology spill overs. On top of that would be losses due to reduced scale economies, transition costs, disorderly resource allocation, worker hysteresis and financial and balance of payment distress etc.
A breakdown in multilateral cooperation would also make tackling problems of the global commons so much harder.
To take an immediate example, we desperately need international coordination to stabilize global markets for food and fertilizer, which have been badly disrupted by the war. At the WTO, we've been urging governments to refrain from implementing export restrictions and to share buffer stocks, so as to contain price increases and improve limited global supplies.
Multilateral cooperation on trade is essential to making climate action more effective and cost-efficient, by spreading cutting-edge green technologies, managing tensions around carbon pricing, and ensuring functional markets for critical raw materials.
The 164-member WTO remains a valuable tool for business and governments in this time of pandemic, war and fundamental threats of climate change. But it must be a reformed WTO and re-imagined and strengthened Multilateral Trading System. One that is still seen as delivering on predictability and fairness, whilst also addressing modern day challenges. We are committed to this reform and we seek your support.
The WTO should seek to help counter the genuine problems of excessive concentration and socioeconomic exclusion. Instead of de-globalization, we need ‘re-globalization’ that brings countries, people, and businesses from the margins into the global economic mainstream. This would create international markets that are deeper, more diversified, more inclusive — and more resilient.
What does this mean in practice? This means agreeing on new rules in areas such as digital trade, investment facilitation, and integrating micro, small, and medium-sized enterprises and women-owned businesses into regional and global value chains. It means complementing such rules with trade finance and supply side support.
- It means updating the WTO's subsidy rulebook to address level playing field concerns in agriculture, industry, and services. Together with the IMF, World Bank, and OECD, we issued a paper last week that summarizes current knowledge about subsidies, points to gaps and outlines areas of future work. The issue of unfairness and anticompetitive behaviour destroys trust among members and makes achieving new multilateral agreements difficult. So we must not shy away from tackling this, difficult as it is. We intend to continue putting together the information that will enable us to tackle this working with other equally concerned international organizations.
- We need a fully reformed and functional WTO dispute settlement system. Closing on new agreements and rules without restoring the system where violation of such agreements and rules can be dealt with damages credibility. I am happy to report that initial conversations have begun on the process for bringing about such reform. We hope to deepen this conversation at MC12 and agree a process for reform and restoration of the Dispute Settlement System. Valid USA criticism of overreach and delays by the Appellate Body have to be addressed.
- And we need to ensure that the WTO contributes to tackling the challenges of the global commons, from climate change to pandemic preparedness to the food crisis and the sustainability of marine fisheries.
This agenda for the WTO is very much in line with the objectives set out in our founding Marrakesh agreement: to use trade to raise living standards, create jobs, and promote sustainable development.
WTO members are already at work, and we are beginning to see results. Last December, 67 members accounting for over 90% of world services trade reached a deal on domestic regulation of services that promises to save services providers $150 billion every year, according to WTO and OECD research. The agreement breaks new ground by specifically building in anti-discrimination provisions to protect women. US leadership was particularly important in achieving this result. Members are also working on an e-commerce plurilateral agreement as well as. investment facilitation
Completing these two agreements this year will mean a versatile use of the plurilateral instrument. A reformed and strengthened WTO needs a diversified tool kit of negotiating instruments and the plurilateral must be one of them. Whilst we tackle these new issues, we must also strive to conclude on legacy agreements such as the Agriculture and Fisheries Subsidies Negotiations. We must deliver a WTO Response to the Pandemic. It is disappointing to see how long it is taking to close these agreements or how difficult it is for members to rise above their own political and particular issues and arrive at agreements that are for the common good.
The atmosphere at the WTO is difficult and the Ukraine war does not make it any easier. So, what does this mean? Does it mean we slow down or give up work? The answer is a resounding NO. What it means is that we get creative about how we work, that we press on. This is what we have been trying to do and will strive to do at MC12. We owe this to the ordinary men and women whom the WTO is meant to serve. The future agenda before the WTO is exciting. The future of trade even more so because that future is digital, it is green, it is services. The WTO must grasp that future.
Let me conclude by borrowing some of Nelson Mandela's words. “It always seems impossible until it is done”. While Winston Churchill said, “never give in, never, never, never, in nothing great or small, large or petty”.
Ladies and Gentlemen, we shall never give in on the Multilateral Trading System or on WTO Reform. A reinvigorated WTO and a strengthened global trading system are musts. Let's work together to harness these global public goods!