Tonight, in these remarks, it is simply not possible to bypass the present and concentrate solely on the future. The challenges of the present press in upon us and demand our attention; they must be evaluated and dealt with.
The respected and influential Economist newspaper in a story dated just two days ago contains an article headlined It’s the end of the World Trade Organisation as we know it. It is one of many articles focussing on the impending loss of the current appellate function of WTO dispute settlement system just 8 days from now, on December 10. In recent days the divisions among the Members have, at least for the moment, deepened, not healed.
On November 28, the Wall Street Journal quotes a highly respected trade expert and journalist who covered the WTO’s founding as saying that “The WTO was a utopian project. If you look at history, utopian projects usually fail.” (1)
The tone of much of current press coverage of current international trading relations is captured in the line from the English poet W.B. Yeats:
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world.”
Yeats’ poem was published in 1920. Scholars think it was written in reaction to the bloodshed of the Russian Revolution and the horrors of the First World War, and some, with hindsight, see the author as foreshadowing worse events to come — the global economic depression of the 1930s and the catastrophic the Second World War (The Great Patriotic War, as it is known in Russia).(2)
There are many reasons for the pervasive sense of disquiet concerning current international economic relations. In too many instances that which was certain has become far from certain:
- The course expected when China joined the WTO in 2001, of ever more amicable economic relations between China and the United States (and perhaps a number of others), has been disrupted;
- The United States was just three years ago on its way to joining 11 other countries in a Transpacific Partnership (TPP), and there were several other countries considering joining (including reportedly China) and then, as a first act of the new President, the United States withdrew from the pact;
- TPP would likely have provided momentum for conclusion of another trans-oceanic agreement, known by the non-euphonious acronym TTIP, the Trans- Atlantic Trade and Investment Partnership, between the US and the EU, but this effort stalled out; and
- Without doubt, those two agreements, each of which bound together countries accounting for about 40% of world economic activity, would have raised the immediate prospect of updating the WTO by being folded into an updated global trading system.
The possibility for that marvellous potential arc of global human progress becoming reality has, at least for the present, evaporated.
A stark question that was once only to be found on the edge of consciousness, is now given serious attention in the press. It is whether the multilateral trading system, embodied in the World Trade Organization, will itself prove to be ephemeral. This dark concern is triggered by a number of current events, extending beyond those just listed, among which are:
- That the prime mover and founder of the system has vacated that crucial role.
- That no truly multilateral arrangements have been entered into in the WTO since the organization was founded (arguably with the exception of the Trade Facilitation Agreement).
- That, while all swear fealty to multilateralism, most do not seem to wish to practice it
- Bilateralism is in vogue, as it seems a relatively easier path to take, even if it is one based on discrimination.
The rock upon which the multilateral trading system was built, equality of treatment (non-discrimination) is not gone but appears to have been buried under regional and bilateral arrangements.
That discrimination in any relationship, whether with respect to race, gender, religion, or international economic exchanges, is inherently unstable, is overlooked and poorly understood.
And, as noted, on top of these shortcomings,
The current structure of the WTO’s dispute settlement system, dependent as it is on enforceability of obligations, will in eight days be no more.
In this welter of negatives, is it time to give up on the multilateral trading system, to write it off the product of a colossal mis-design, containing within it the seeds of its own destruction? The clear answer is “no.”
Subscribing to an apocalyptic vision of the future is worse than premature, it is wholly unwarranted. Is this a period of elevated risk? Yes. Is there reason for concern? Again, yes. The challenges cannot be ignored. Indeed the WTO’s Members must not become resigned to stasis. They must not allow the multilateral trading system to be eroded, to drift into the realm of the ineffectual.
It is not time to abandon ship
At least a moment is needed to collect ourselves and take a look at some realities:
- World trade is slowing but has not declined or stopped. The current situation is not good, but it is not catastrophic. The pace of productive activity within the WTO far exceeds anything witnessed within the last decade.
- Progress is being made to discipline fishery subsidies, to stop the plundering of the world’s marine resources,
- Groups of countries accounting for three quarters of the world’s economic activity have joined together to craft rules
- To foster the growth of the digital economy
- To facilitate cross border investment
- To reduce domestic regulatory impediments to the provision of services
- To provide greater equality of opportunity to small business,
And not least,
- To empower women to share more fully in the benefits of world trade.
Nor have the WTO’s Members given up on finding a solution to the impasse over restoring the appellate function of the WTO’s dispute settlement system. Pragmatism rather than lassitude will characterize what comes next. There will be a variety of interim arrangements crafted to mediate and arbitrate disputes. WTO dispute settlement will still be the primary means to enforce WTO obligations, still relying on independent panels and reviewed as parties wish, by arbitrators. The gap between opposing positions on changes to be made to the WTO dispute settlement system is not an unbridgeable chasm. All that is needed is a modicum of good sense and a better understanding of differing points of view. The basis exists for resolving outstanding issues.
In its fundamentals, the multilateral trading system was not a utopian construct unsuitable for imperfect mortals and their nation states. Its principles are at the same time lofty and deeply pragmatic. It is to provide:
- Fairness for those engaged in productive activities, whether in services, farming, or manufacturing, or in creating digital products,
- Improvement in the economic well-being of all peoples,
- Food security, and a path to
- Peaceful international relations.
This is a lot to demand of any system, and of course the WTO, as with all human constructs, can use improvement. The bottom line is that it would be a mistake to underestimate the underlying strength and resilience of the multilateral trading system.
The WTO will endure, but it must and will be improved. Current events contain within them unique opportunities. They are best employed as a spur to action.
WTO 2.0 — The task ahead
From the above discussion and based on realistic prospects, we can dismiss a WTO Zero (a total collapse) or a WTO in Decline, WTO 0.5. These lie outside the range of likely outcomes. Standing still is also not sustainable. Stasis portends decline. Instead there will be improvements made to the current system.
WTO 2.0 is not a single agenda. It is not a single package. It is part of larger vision for the future of international relations, one that creates substantial new opportunities for individuals in a broad range of fields of endeavor — wherever trade can play a part. Most importantly, for those present in this room, in graduate studies here, as well as those who are students of geopolitics and international economic relations wherever they are located, contributing ideas to the future of the multilateral trading system presents a unique opportunity for each of you to participate in planning for a better future for the world through trade.
In the Italian Renaissance, painters and architects such as Filippo Brunelleschi, discovered perspective. They found a means to provide a focal point, to give depth to their paintings. Any set of international agreements designed to create a global economic system must also have a focal point. It will consist of a set of common objectives.
The current trading system was founded on three fundamental principles: non-discrimination as among sources of imports, a limit to the level of tariffs that could be applied on any given import, and national treatment, that is non-discriminatory treatment for imported goods once inside a national border, such as with respect to taxation.
There has been much elaboration of this construct, both in terms of additional elements to facilitate trade (i.e. promoting the adoption of international standards, providing for an opening of government procurement), as well as providing exceptions (e.g. for regional trading arrangements).
Questions to be resolved and to which you might apply your ingenuity follow:
- Are the WTO’s fundamental precepts still fully valid and susceptible to universal application?
- If so, how should their coverage be expanded (e.g. in a global digital economy)?
- Should the exceptions be limited or expanded?
- Maintaining balance
The system began with a prime mover, the United States, and those who were willing to subscribe at the outset.
Over time, countries joined the system, largely as a matter of economic necessity, until now with 164 Members, about 98% of world trade is subject to its rules.
Acceding countries come in through a process of negotiation. Thirty-six have joined since the WTO was founded in 1995, and twenty-two are in the process of acceding. These so-called Article XII Members and prospective Article XII Members have a higher level of obligations generally than have the original members. This is because as the interests of the existing Members evolve and they see new matters that can usefully be covered by the rules, they require more of new Members.
There are also changes over time of the relative positions of countries in the world economy, some rising dramatically relative to others.
Questions that you might usefully address:
Since the basis of the WTO is a contract, how are adjustments to be made as economic realities shift? Are rights and obligations fixed, or should they be adjustable? If adjustable, how should this be accomplished?(3)
The nature of world trade continues to undergo rapid change. The advent of the container and super container ships, the widespread employment of global value chains, the advent of the digital economy, and a shift in societal interests, particularly with respect to the planet’s physical environment, but also with respect to gender equality, all require adaptation of the trading system’s rules, procedures and institutions.
There are past examples of accommodation of the rules to current needs. Prominently, WTO Members are allowed to utilize the intellectual property contained in pharmaceuticals in order to combat major challenges of disease.(4) This is particularly important for the least developed among the WTO’s Members.
Similarly, at present, large masses of data can be assembled that could lead to improved treatment of cancers. The societal issues involved are not primarily about trade. But trade is increasingly relevant. National systems need some form of agreed interface with respect to the movement of data across international borders. This the WTO is well-suited to provide.
Data is both a product and an increasingly important integral part of all products and services. Global value chains will be rely ever more heavily on data, with 3D printing, new modes of delivery, and as AI finds an expanding universe of applications.
Questions for you to consider:
In what ways will profound changes in technology through the adoption of AI and machine learning demand new legal regimes for trade, including regulating the recognition of the ownership of IP created by AI and machine learning?
- Need this include rethinking of how protection is granted given the acceleration of innovation?
- What sort of transparency rules can be constructed related to the secrecy of algorithms to avoid the creation of protectionist barriers to trade?
- What kind of agreement will be needed to safeguard trade secrets, which may require an expansion of IP protection?
- In an age where giant companies may need to be relied upon for dealing with data, are multilateral rules required to deal with the interface of national competition policies as they affect trade flows?
Nations are faced with a need to address problems of radical changes in weather, with crop failures (most recently two crops in a row of onions in India where the crop is a staple of the cuisine), with outbreaks of disease among livestock (swine flu in China), with shortages of water for irrigation, with a growing consumer interest in waste reduction (through promotion of the circular economy), and for dealing with national measures regulating the production of carbon as a by-product of productive activities.
Question to be answered:
- Increasingly national measures will begin to change the way that trade takes place. How are trade relations best managed as countries choose differing paths to pursue environmental objectives, and proceed toward their individual objectives at varying speeds?
- Domestic support policies for industry and agriculture have profound effects on trade.
- Given varying levels of economic development, and diverging national policies and resources, what dividing lines are appropriate between domestic policy space and international regulation to counter major distortions of trade and investment?
Policy space is a euphemism for an absence of obligations, sometimes entirely justified, and at other times, at the expense of others. WTO Members have, with respect to the environment, policy space that is so unbounded that
- fish stocks are being depleted at the expense of the livelihoods of fishermen in very poor countries,
- oceans are being choked with plastic waste,
- water resources are being depleted, water that is needed by riparian neighbors, and
- the air being polluted is air that others need to breathe.
Question to be addressed:
The WTO does not set standards. It seeks to curtail measures that distort international economic exchanges, measures that favour the country that acts at the expense of others. What is the proper role of the regulation of trade to avoid environmental degradation that comes at the expense of not only the people of one’s own country, but adversely affects others?
Maintaining organizational coherence
Coherence is defined as the quality of forming a unified whole.
An organization whose hallmark is the enforceability of its obligations, that aims for universality of membership, that is being tasked with additional responsibilities, is going to need to resolve issues of governance. This is especially true to the extent that consensus has been needed to adopt or change any rule, and a reverse consensus (that is unanimity) is required to reject a report made by a dispute settlement panel after appeal.
Questions to be addressed:
To my knowledge, no Member has suggested that decisions be taken on any other basis than consensus. A positive consensus, however, is not unanimity; it is the absence of objection. What conditions are required to have assurance that this method of decision-making will be sustainable? When is it suitable to adopt agreements by only the like-minded? In plurilateral agreements, which benefits are appropriately retained solely for the benefit of the signatories, and which should be shared by them with all Members?
The name “World Trade Organization” implies “organization”. This term means having “the quality of being systematic and efficient”. 164 individuals might be able rely for governance on the holding of frequent town hall meetings; countries cannot do so, especially when their common endeavor is to operate something as complex as the multilateral trading system. The WTO utilizes a series of committees to conduct its affairs. The Members are supported by an experienced secretariat.
Questions to be addressed:
Is the WTO as an organization functioning at an optimal level either at the Member level or with respect to secretariat support? How does a world that is enabled by digital means provide additional means to enhance the operations of the Organization?
There are a series of international organization that have overlapping skills sets. Can coherence be enhanced through better cooperation among these institutions?
As with any system, the multilateral trading system is not perfect. But it can and must be improved. Common purposes must be identified and pursued. Within national capitals, those with expertise and sound judgment must define for their governments the larger vision that can enable international cooperation to replace dissention.
The stakes are very high by any measure. Progress can come in occasional leaps forward but will most often be incremental. Interests and objectives will vary by Member. The desired content of progress toward a “WTO 2.0” as seen from any capital will differ from that of others, based upon differing interests, capacities, factor endowments, and perceptions. It is the responsibility of each to put proposals on the table and to work hard for their adoption.
Political skills essential to the exercise of leadership are needed to make progress, to turn ideas into reality.
Those individuals having an interest in positive change, including some of you in this room, have a major opportunity to contribute to improving and strengthening the multilateral trading system, to make a difference in this times of increased tensions and challenges.
- Edward Alden, Council on Foreign Relations, in an article written by Jacob Schlesinger. back to text
- The Yeats poem reads in full:
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity. back to text
- The Bretton Woods system of fixed exchange rates did not evolve without friction. In 1971, some twenty-five years after the founding of that system, the United States imposed a unilateral, GATT-inconsistent, import surcharge, forcing acquiescence to a dollar devaluation and the loss of convertibility of dollars into gold, and moving the system ineluctably to a system of floating exchange rates. back to text
- The Doha Declaration on TRIPS and Public Health confirms that countries are free to determine the grounds for granting compulsory licenses, and to determine what constitutes a national emergency. back to text
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