DIRECTOR GENERAL ADJUNTO ALAN WM. WOLFF
The topic of our conference is “Rethinking the International Trade Architecture”. I can report to you at the outset that there is no re-thinking of the architecture for international trade that is currently in evidence in Geneva, not at the World Trade Organization (WTO).
This does not mean that there are no negotiations in process with respect to new rules. There are, such as for E-commerce — an extraordinarily important endeavour and one that is led by Australia’s Ambassador to the WTO, Frances Lisson. It simply means literally that changes in the architecture of the trading system are not being discussed.
There is of course much activity outside of the WTO that has an architectural aspect. Increasing nationalism is prevalent in many countries. Perceived self-interest is not resulting in building new multilateral institutions. Regional and bilateral agreements are much in vogue. These more limited arrangements are more in keeping with the temper of these times. These arrangements alter the appearance of the basic global trade architecture. All rest on the foundation of the multilateral system. They connect various national nodes but are, I believe, transitory. Like the Victorian additions of porticos to Greek revival buildings, I believe that a future generation will sweep them away, in the interests of purity of design and improved functionality.
In the near future, it is more likely than not that the forces of global disintegration (not meaning collapse, but an emphasis on regional and bilateral arrangements, and unilateral measures) will be greater than those of global integration. There will likely be hard economic times ahead, especially as automation due to artificial intelligence causes disruptions. This is not a context in which trade liberalization is likely to be a dominant policy. But the long-term trend line, extending from British mid-19th century policy to the present and into the future, is and will be toward global openness. Just as the Enlightenment did not govern all succeeding human activity that followed but has ultimately been the driving intellectual force of human progress, the multilateral approach will ultimately prevail. That time, come what may in the intervening years, will arrive. This is what my remarks today are about.
The WTO in 2050
This does not mean that we cannot here and now address the question the sponsors of this conference have chosen and examine what the future holds for the international trade architecture. To do this, I propose that we try it is best to visualize what the world trading system will be in the year 2050. Once that vision is defined, we can think about what, if any, changes will be necessary in the existing institutional structures on the way.
Predicting the future can be a challenging exercise. Few contemplating the launch by the Soviet Union in 1957 of the first earth satellite, called Sputnik, could readily imagine that the Soviet Union itself would be no more thirty-four years later.
Although the pace of technological and other changes is continuing to accelerate, in the field of trade we can be reasonably sure about some of the basic conditions that will shape trade three decades from now:
- The world's population will increase by 2.2 billion.
- Consequently, the demand for food will increase dramatically, and at the same time there will be a vastly expanded pool of human talent and labour.
- Demographics will change the relative influence of countries.
- India, Indonesia, Nigeria and Pakistan will have greater influence both as markets and sources of supply. The United States will also gain in population and remain influential.(1)
- For the largest trading countries, with increasing economic power will likely come a predisposition to favour more open markets (a/k/a free trade)(2). This was true for the UK, the U.S. and China and will be a path followed by others.
- Of course, size is not the only factor leading to influence. Singapore and Jamaica are small but have contributed more to the multilateral trading system than their size would imply. Small countries have in many cases provided examples of openness but cannot by themselves configure a system unless the largest also contribute.
- Due to shifts in weather patterns, as harvests became less reliable, world agricultural trade will have to be more open and agile to move supplies from areas of surplus to those of deficit.(3)
- Global commerce will be, for the most part, digital.
The further expansion of 3D printing and other technological advances will change the nature of trade.
- Advances in transportation will shrink geographies even further.
- Drone and other autonomous airborne deliveries will likely be able to move greater quantities of goods from one area to another using less energy.(4)
- The use of Artificial Intelligence (AI) will transform the administration of the world trading system. (The world will have progressed much further toward achieving Artificial General Intelligence (AGI), or singularity (equivalence in reasoning capability to the human brain, but much faster and with far greater capacity).
- Transparency will be commonplace.
- Reportedly e-retailers now have 30,000 pieces of data on each e-consumer.
- In the future, with the application of artificial intelligence, the amount of data available on government measures will be immensely greater.
- Trade measures will be instantly known to all and will be curated by the WTO, without requiring the intervention of Members to make notifications.
- Proposed changes in national tariffs and other measures affecting trade will be evaluated by AI in draft, for both their impact and their consistency with WTO obligations.
- Every proposed national measure will be vetted in advance, and an immediate right to specified trade compensation will exist whenever AI determines that agreements have been breached (subject to rare appeals).
- Trade negotiations will be greatly assisted through the analyses provided by AI, but in the end human judgments will determine what is feasible and desirable politically as well as economically(5). Trade negotiations will always be a political process domestically and internationally. AI will never be able to impose obligations on Members. That will, as always, require a sovereign decision of each Member.
- Decisions will continue to be taken by consensus, but it will be understood by all that consensus does not mean unanimity.
- Adoption of new agreements will gain strong support of a sufficient number of Members and acquiescence by the others in order to assure that new agreements become the acquis of the WTO.
- Most of the developing countries in 2050 will have progressed dramatically, and attention will be focussed on the remaining least developed.
- Economic development will be spurred by tailored programs of assistance proposed by AI applications.
- Examples of past successes will be sought as models, such as the world’s 2020-25 assistance to the Cotton-4 (Benin, Burkina Faso, Chad and Mali), a program designed to improve income from cotton by-products, place limits on domestic subsidies received by competing suppliers, and provide increased market access.
- AI will have reviewed all cases of infant industry protection and will have gamed out outcomes, as Alpha-GO did(6), including what happens when protection is applied, whether other countries would also protect their industries, what the likelihood is of a protected industry becoming internationally competitive, what the costs are to foreign competitors and domestic consumers, etc.(7)
- Proposed resolutions of disputes will be identified in a fraction of a second.
- The Boeing-Airbus 15-year litigation will be used as a test case for trying out new computing capability, as the game of GO has been used in recent times.
- Appeals from AI-determined outcomes of dispute settlement cases will be allowed but a high burden of proof will be required for a Member losing a case to avoid being bound by the AI suggested outcome.
- To establish automated dispute settlement will require an intense negotiation with respect to the assumptions (algorithms) that are to be built into the relevant programs. The negotiation will address which factors are to be considered and which methods of analysis are to be utilized.
- Added to the criteria to be applied, if there is more than one outcome that is legally possible, will be consideration of the choice that is the most appropriate for the trading system.
- The dispute settlement system, to be sustainable, will require a substantive role for Members who will engage in a review process. Members will determine the disposition of a matter, for example, when a claim is made that the rule to be applied is not justified in the light of current circumstances, or that the outcome is systemically inappropriate. The WTO of the future will depend upon and have an ability to legislate.
- Consumer preferences will play a much larger role in determining trade flows.
- An example is from2019 when Greta Thunberg’s skipping school for a greener planet founded an influential student movement.(8)
- All goods and services serving the environment will be duty-free.
- Fish stocks will have been replenished as fisheries subsidies will have been curtailed, and under the fisheries subsidies agreement the degree of unregulated, underreported, and illegal fishing will have become minimal.
- Fossil fuel subsidies will have been eliminated.
- Domestic support for agriculture will be much reduced, as much due to budget constraints as to negotiated limits, but also because increases in global demand will reduce the demands for protection and subsidization.
- Limits will be established to discipline the granting of domestic subsidies for industry.
- There will have been a great convergence of domestic economic systems removing a major source of past conflicts.
- Trade-related aspects of competition policy will be subject to WTO rules.
- While significant displacements continued to occur with the introduction of new technologies such as AI, the adverse reaction to globalization will have passed with the generation that was much concerned with it.
- Spheres of trade influence will have evaporated, just as Great Britain’s imperial preferences of the 1930s became an historical artefact.
- The history of the last century and the first two decades of this one is a struggle against discrimination. Trading countries will generally have concluded that the less efficient and unequal world of RTAs and FTAs are no longer a rational choice, as progress could be made on a broader front.
- Long-distance bilateral “free trade” agreements will have been terminated years earlier, as compliance with rules of origin was not worth the effort of those engaged in commerce and the discrimination inherent in these agreements was ultimately considered noxious by non-participants.
- Truly regional integration, starting with the formation and enlargement of the European Union, NAFTA, and spurred on by the success of the African Continental Free Trade Agreement, will have led to greater regional trade liberalization. The trade aspects will largely have been folded into the multilateral trading system.
- Deeper integration through single markets and select areas of coordination, such as setting standards jointly or establishing common criteria for certain services, will still have a role to play.
- One world order, the multilateral trading system, will become universal and supersede other arrangements (other than agreements promoting regional integration), as efficiency per David Riccardo makes the most sense to most trade officials as an organizing principle. Centripetal forces will prove stronger than centrifugal ones.
- The WTO will be the world’s trade negotiating forum, the world’s trade dispute settlement venue, and the world's premiere source of knowledge, data and analysis on international trade, that will be available readily to all.
- The WTO of the future, to deal with the enormous amount of available data, to help members consider alternative paths forward, to provide analyses for members and the public, and to assist in compliance with obligations, will need to have a secretariat that functions more like those of its sister international organizations, the International Monetary Fund and the World Bank.
The World Trading System in 2020
We can try to envision the future, but we do not live in it(9). To get to the anticipated 2050 landing zone, current challenges must be met. The most prominent of these are the following seven:
- Conflicts among nations. (The U.S.-China trade war has been followed by an outbreak of trade hostilities between Japan and Korea). Unfortunately, international agreements cannot prevent the outbreak of wars of any kind, including trade hostilities. The issues involved will have to be settled by the interested parties. This does not mean that the multilateral trading system is irrelevant. Solutions to conflicts can be fostered by the trading system and can lead to improvements being made in the system.
- Renouncing international agreements is no longer rare. This creates added uncertainty in many fields of international relations, not excluding trade relations. With adjustments to the system, there will need to be a return to living up to the requirement of pacta sunt servanda (international treaties should be upheld by all the signatories).
- The absence of an appellate process in WTO dispute settlement can lead to an increase in the number of instances of retaliation and counter-retaliation. There is a widening area of consensus for improvements to be made in the system that promises movement in the direction of overcoming the current impasse. In the interim, there are pragmatic ways of patching the current system with substitute arrangements. The default is more likely to be pragmatism than chaos.
- Most legal systems depend more on self-restraint rather than on coercion to be effective. The tendency toward self-restraint can erode, breaches can accumulate, and beyond erosion, avulsion (e.g. as in a cliff falling into the sea) can occur(10). Any international system relies primarily on trust. Trust can also be rebuilt. There needs to be a record of positive experiences in trading relationships, instances of co-operation, small agreements leading to larger agreements. With the restoration of an equilibrium in major bilateral trading relationships, even on a provisional basis, trust can be rebuilt even where today there is conflict.
- A liberal interpretation of rights under the WTO agreements to impose measures and countermeasures “within the rules” can become more common. The result is a new balance of trade concessions, but at a more restrictive level. With appropriate international agreements, these kinds of tariffs can be removed
To be sure, these are serious risks, but they can be reduced, managed and then overcome. Few can be unaware of the gravity of the situation. However, one can either give up in despair on maintaining and improving the multilateral trading system or respond with an action program. There is clearly an interest on the part of WTO members to maintain and improve the multilateral trading system.
The system is being tested and will continue to be tested, but it will endure, because that is what its Members require in their own self-interest, and in the broader interest of all participants in world trade.
There is, in fact, progress in the WTO on a number of fronts. In the nine months between now and the next WTO ministerial meeting (MC12) in June 2020 in Nur-Sultan Kazakhstan, continuing advances will be taking place in the work of the WTO committees, such as on product standards, sanitary and phyto sanitary standards, in disputes being settled, and in accession working parties, among a broad array of activities.
Possible breakthroughs can occur in the form of a potential agreement to limit fisheries subsidies, and possible conclusion of open plurilateral agreements on E-commerce and investment facilitation. The next nine-month period could resemble 1979, when new agreements (government procurement, customs valuation, and product standards) were added to existing rules. In addition, the WTO may come even closer to universal membership, as up to five countries may accede to the WTO during, prior or shortly after, the June 2020 Ministerial meeting.
Conclusion — Getting to the future.
The multilateral trading system is vitally important to the health of world economy. The rules and processes of the WTO undergird the economic well-being of all trading nations.
Institutions that fail to adapt do not survive. This Darwinian truth applies with equal force to international organizations as it does to various species.
Structures ought to be designed primarily to serve the purposes of those who will use them, and not primarily an artistic expression of the architect(11). This is particularly true of the international trade architecture. Pragmatism, utility, will dictate results. Function will dictate form. As is clear from the considerations I have listed, I believe that there will be a WTO in the year 2050, and that it will be an improved version.
The chief attributes of the system will remain inclusiveness, universality of membership, enforceability of obligations, with an ever-increasing scope to cover international trade as it evolves. The global trading system will be more effective with respect to all aspects of global needs, not least, economic development. The ultimate purpose of the system will be convergence not simply coexistence.
The task at hand for those involved in the WTO at present, particularly the delegations accredited to the WTO, is to achieve in the near term as much as they can, progressing toward making their visions of WTO 2050 a reality — improving the effectiveness of the constituent parts of the WTO — rule-making, dispute settlement and monitoring and analysis.
- https://www.forbes.com/sites/niallmccarthy/2017/06/22/the-worlds-most-populous-nations-in-2050-infographic/#1e182d8139f6. Back to text
- Craig VanGrasstek in his superb book on US trade policy states this proposition. Trade and American Leadership, Cambridge University Press, 2019. Back to text
- https://www.nytimes.com/2019/08/09/opinion/climate-change-food-report.html?action=click&module=Opinion&pgtype=Homepage. Back to text
- https://thefutureoftransportconference.com. Back to text
- Pierre Wack, the chief stragegist for Shell Oil, was well known for his decision tree analysis which predicted each of the two oil crises of the 1970s. AI brings this talent both to negotiation and dispute settlement. It builds on human experience, and is extended by the application of Bayes' Theorem of applying probabilities to multiple different but related issues, to determine probable outcomes. Back to text
- https://en.wikipedia.org/wiki/AlphaGo. Back to text
- The benefits and costs of infant industry protection will be gamed out using AI, just as in a Go or chess match. If domestic pens are protected, they cost more than they would otherwise. Elementary schools could order less of them, or pay their teachers less, or order a few less soccer balls. Protection has its costs. What is worst for society, the increase in the costs of basic education. It would be like having import duties on needed cross-border dataflows, which may be the equivalent of taxing the tools of economic development. Now imagine that because of protection of pens, notebook makers, soccer ball producers, backpack makers, clothing makers and many others in the economy demand similar “support/protection.” Suddenly it really does get more expensive and add up, and then there truly is not a lot left over for “other things”. And with the protection firms get a bit lazy - they often don't innovate around production processes or products, but then spend a fair amount on maintaining their privileged protection in the market place. These last two points add up to the main and very valid critique of protection and the notion of infant industry. Of course, some interventions will work — but generally they will have to involve domestic producers who are granted some transitory domestic protection from competition, and then perform successfully in the global market place. At that point, successful industrial policy requires that other countries keep their markets open (success cannot be easily found if foreign competitors are also protected). -- I am indebted to Bob Koopman, the WTO's chief economist, for this example. Back to text
- https://edition.cnn.com/2019/03/14/world/global-climate-strike-teenagers-school-walkout-greta-thunberg-intl/index.html. Back to text
- Sign in St. Paul's school library, Christchurch NZ: “Those interested in time travel, please meet here last Thursday at 8 pm”. Back to text
- The sudden separation of land from one property and its attachment to another, especially by flooding or a change in the course of a river Back to text
- This view was articulated in very strong terms by my sister's late husband, Martin Bloom, whose views are contained in his book, Accommodating Life: An Architect's View, available through Amazon.com. Back to text