The World Trade Organisation’s system of global trade rules has helped to lift millions from poverty and underpinned seventy years of global prosperity. As WTO members consider candidates for a new Director General this week, however, the WTO faces a crisis of credibility and inertia, set against a dire economic backdrop and political churn.
The WTO and its predecessor the ‘GATT’ are part of the global furniture when it comes to trade, offering a well-established set of trade rules, a means to enforce them, and a forum in which markets are progressively opened up through negotiation – at least, that has been the case until relatively recently. The WTO has helped create a more level playing field for all, including small states such as New Zealand.
Geneva beauty contest
Despite its successes, however, the WTO has been facing significant political and economic upheaval, now potentially brought to a head with a contest for a new Director General. Current DG Roberto Azevêdo made a surprise announcement in May that he would step down a year early, on 31 August, citing the need to avoid distracting members with a leadership contest as they prepared for the next big WTO decision-point, the Twelfth Ministerial Conference in 2021, pushed out by the pandemic from its original June fixture.
WTO delegations are accordingly hearing this week from a slate of eight candidates vying for the DG role. Like everything to do with multilateral trade, this is not going to be a blink-and-you’ll-miss-it process: only an optimist would place a bet on the new DG being in place by the time Azevêdo leaves, as the group of eight is gradually whittled down to a single consensus candidate in a process of shuttle diplomacy and entrail-reading led by New Zealand’s Ambassador to the WTO, David Walker, as Chair of the General Council.
The pool includes an impressive set of CVs – taking in former Ministers, brilliant technocrats and even an air force pilot – but also some welcome diversity: three women are in the running (the WTO has never been led by a woman), and most are from developing nations, with three candidates from Africa particularly highly favoured by the bookmakers (Amina Mohamed from Kenya, Ngozi Okonjo-Iweala from Nigeria and Hamid Mamdouh from Egypt); along with Jesús Seade Kuri from Mexico, Yoo Muyng-hee from Korea, Mohammad Maziad Al-Tuwaijri from Saudi Arabia, Liam Fox from the UK and Tudor Ulianovshi from Moldova.
“…global problems demand global solutions. It is clear that policymakers will need all the tools they can get to help pull economies out of this crisis, including keeping trade flowing.”
Labours of Hercules, the sequel
That said, the successful candidate, Hercules or no, faces a formidable task – slaying the Hydra would look straightforward by comparison. The WTO faces a series of challenges, some of which might best be described as existential. The new DG will need to help rebuild trust, credibility and social licence, especially on the negotiating agenda and in the dispute settlement system, against the backdrop of a pandemic and serious political churn.
The art of the deal
First, the WTO has struggled to assert its relevance. Most of the rules date back at least a quarter-century – with a few notable exceptions, including the extremely welcome decision in 2015 to eliminate agriculture export subsidies, long the bane of New Zealand dairy farmers. WTO members have failed to update the rules to keep pace with modern trade – not least, to reflect digital transformation, the need for greater inclusion, and the increasingly urgent imperative to address sustainability – but have also avoided taking the hard decisions for painful domestic reforms that further liberalisation would entail.
One of the major tasks for a new DG will be to facilitate the development of a package of outcomes for next year’s Ministerial. That will not be easy. The agenda includes ‘unfinished business’ from the Doha Round, including cuts to trade-distorting agriculture subsidies and the elimination of subsidies to over-fishing, along with a host of other tricky topics such as fossil fuel subsidies. New Zealand is playing a leading role on many of these. Global rules for e-commerce are also under negotiation – the importance of which has only been underscored by pandemic lockdowns and looming recession. Overarching all of this, however, and most unlikely of all on which to reach the necessary consensus, are highly contentious ‘reform’ issues including the scope of flexibilities for developing countries and rules on (Chinese) industrial subsidies.
A further complication is political. The Trump Administration, now into election season, has made no secret of its distaste for the “mess” of the WTO, last December paralysing the WTO appeals mechanism and more recently talking about a “reset” (upwards) of its WTO tariffs, a sentiment not unfamiliar from its trade war salvos against China and others. In June, a US Senator went one better and sought a Congressional vote to withdraw the US from the WTO, although this was in the end blocked. US leadership was fundamental to the creation of the WTO, and has always been central to progress in negotiations: its view on the DG contest is likely to be decisive, one way or another.
All of these challenges are set against a deeply disrupted economic picture. Protectionism had already been on the rise since the Global Financial Crisis, with growth at best fragile. With the advent of COVID-19, the outlook is dire. Global GDP is forecast to shrink by nearly 5 percent this year, with individual economies such as Singapore predicted to contract by many multiples of that figure. Trade could well fall further than during the Great Depression, with the WTO estimating a contraction of up to 32 percent.
In the early days of the pandemic, countries were quick to put the brakes on trade in essential medical supplies, and even in food. While this sort of beggar-thy-neighbour approach has been scaled back in many cases, the siren song of economic nationalism may be hard to resist as countries look to shore up faltering domestic sectors in the period ahead. Not everyone has followed the lead of New Zealand and Singapore on supply chains, or of Canada, New Zealand and others in the WTO on food and agriculture, and sought to respond to the crisis by strengthening global connections. That is a mistake: global problems demand global solutions. It is clear that policymakers will need all the tools they can get to help pull economies out of this crisis, including keeping trade flowing. The WTO’s system of rules, based on core principles of openness, transparency and non-discrimination, is fundamental to that. Without a determined, and perhaps even heroic, Director General in place in the WTO, the effort will be all the more difficult.
This post was prepared by Stephanie Honey, Associate Director of the NZ International Business Forum.