logo-eui RSCAS

What Does the WTO Need From its Next DG?

hoeckmanBernard Hoekman is the Director of the research strand “Global Economics”. He has held various senior positions at the World Bank, including Director of the International Trade Department and Research Manager in the Development Research Group. He has also worked as an economist in the GATT Secretariat and held visiting appointments at SciencesPo. Read more..
Petros_MavroidisPetros C. Mavroidis is the Director of the research strand “International Trade Observatory”. He is Edwin B. Parker Professor of Law at Columbia Law School in New York, on leave at the EUI. He was Chief-reporter at the American Law Institute project on ‘The Law and Economics of the WTO’. He has published in the law and economics of international trade organization, and is advising developing countries at the WTO.

The WTO is going through a leadership transition. After 8 years the incumbent Director-General (DG), Pascal Lamy, steps down on September 1, 2013. Who replaces him matters. First, because the WTO is not generating the trade liberalization and policy reforms that will stimulate investment and job creation—a key issue given the grim economic situation today. Second, to safeguard past achievements: the rules-based multilateral regime was created to help prevent a recurrence of nationalistic trade policies and conflict. It provides a platform for communication and for nations to sit down together to agree on rules of the game and resolve disputes in a peaceful manner. It is critical there be a strong voice that reminds all stakeholders why the system was created.

The WTO is going through difficult times: after 12 years of talks the Doha round is deadlocked; the US and the EU, traditionally bulwarks of trading system, are pursuing regional agreements to address issues that are (should be) on the table in the WTO. Prominent examples are the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership talks; others have followed down this road as well. The proliferation of preferential schemes is a major challenge and raises legitimate doubts whether the WTO can deliver trade opening deals.

We believe the WTO continues to have a vital role to play. Although the DG cannot force governments to do anything, s/he should help the membership identify options that can promote growth in ways that do not undermine the multilateral trading system. On many issues the world can gain more from multilateral deals than going plurilateral: regulation of subsidies, trade facilitation and trade and development are obvious candidates that are on the Doha round agenda; the same applies to “new” areas such as trade measures aimed at environmental objectives.

In our view the next DG must get members to go beyond “business as usual”. The WTO needs to engage more directly with two key constituencies – the business community and regulators – to ensure that its work on trade issues addresses priorities that will have a significant economic impact.

In Race for the WTO Director-General Job: Seven Candidates Speak, seven contenders for the job discuss the challenges confronting the WTO and their vision for moving forward. Their views are summarized succinctly by Rob Howse [here]. Now that we have a set of views from the candidates we are interested in hearing what others think. Some questions that come to mind:

  • Should the DG be an experienced politician or does the organization need a leader with business or non-government management experience? Would for example a former CEO of a multinational be better able to ensure that WTO activities address priority policy issues that matter for job creation and economic growth?
  • Should the DG spend his/her energy on trying to conclude the Doha round or try to manage a process that leads to an alternative agenda for the organization?
  • Should the WTO (and its DG) be more pro-active in reaching out and engaging with business and other stakeholders?
  • Should the new DG maintain the role the WTO has been playing in initiatives such as Aid for Trade, or should it rethink this involvement? Was the move to focus more on development issues a mistake in diverting the focus from its core business or is this an essential element for making progress in extending the rules-based trade regime?
  Race for the WTO Director-General job Get the views of 7 candidates on the world’s trade governance problems. Read the Vox.Eu e-book with an intro by Bernard Hoekman and Petros C. Mavroidis Read “Seven of the Nine DG Candidates Speak Out”, by Rob Howse, 3 April 2013, International Economic Law and Policy Blog Listen to the interviews with many of the candidates on the Centre for Global Development website  

Comments (19)

  • Longyue Zhao

    |

    In today’s world, WTO is a very important international economic organization. Since its foundation, it not only plays a non-exchangeable role in promoting the liberation, and standardization of trades, and also settling trade disputes, but it also promotes the economic development of developed and developing countries. As a basic entity, WTO enjoys three functions, supervising the implementation of the existing rules, settling trade disputes and formulating new trade rules. However, faced with the complex reality, it is very difficult for WTO to realize and implement its functions. Therefore, for the new director general, the primary missions are maintaining the vitality of the rules, lifting the world’s confidence in multilateral trade systems and finding new ways to solve key issues.

    The challenges faced by WTO today are not only internal mechanism problems, but also challenges brought by the change of world political and economic environment. In recent years, the change of the world economic system and the shift of focus on world economic growth have deeply changed the previous political and economic relations. After the financial crisis of 2008, we have put more attention on the development of global governance mechanism, the emerging nations and the European sovereign debt crisis. However, the Doha Round negotiations seem to be neglected by the world. Moreover, the old contradiction, like the uneven development between the North and South, is influenced by the change of the world economic system, thus fiercely dashing against the multilateral trade system. Some analysts think the trading system is in hot water, and will even collapse in the future. Studies by Chinese scholars suggest that key challenges faced by WTO are the contradictions between multilateral regime and bilateral regime, managing trade protectionism and the damage to the WTO rule-making and enforcement functions caused by the Doha Round negotiations.
    Considering the development process of the multilateral trade system and the many practical problems it faces, the WTO now is confronted with many challenges, which are mainly focused on three areas: the disagreements and confrontations between developed and developing countries, the general and unfocused solutions to the practical problems, and the conflicts between multilateral institutions and regional institutions.
    The first problem is the disagreements and confrontations between developed and developing countries. There are 159 member states which are in different development levels of WTO. As they play different roles and have different positions in the international division of labor, their requirements in the multilateral trade system are also different. The Uruguay Round negotiation was essentially a “deal” between developed and developing countries. That is to say, developed countries made concessions in negotiations on agricultural products and textiles, and developing countries agreed to include new issues such as service trade and intellectual property rights into the negotiation process of WTO. In many areas being negotiated today countries are limited in what they can offer making disagreement between developed and developing countries inevitable. At the same time, “decision-making by consensus” and the “package principle” have made it difficult to reach a final agreement between developed and developing countries. “Decision-making by consensus” means that the final agreements can’t be signed as long as one state objects; the “package principle” means that the agreements on all the other issues also can’t be reached as long as states can’t reach an agreement on one issue. So these two factors indicate that if one state can’t accept one issue, no agreements can be signed. In this way, even the negotiations that have fewer disagreements will progress slowly due to the disputes of both sides. So it is very hard to reach agreements between developed and developing countries.
    Second, with the development of WTO, the issues that are the focus of attention are not limited to tariffs but also cover much more new areas that have already been integrated into the WTO agenda. Some studies show that as countries have different “relative returns” in different policy areas, adding new issues into the negotiation can contribute to find the balance point of interests. Therefore, compromises can be made when there are serious disagreements. But in fact, in WTO negotiations, developing countries particularly pay attention to “traditional issues” such as tariffs and agricultural access while developed countries are hardly bothered by these issues. Developed countries prefer new issues such as climate change and they force developing countries to accept these new issues by occupying the moral high ground. The reason why developed countries are raising on these new issues, which do not meet the actual needs of developing countries, and propose the high standard, is that they want to affect the negotiation process on issues that developing countries are concerned about.
    The last problem is the damage to WTO regulations. Actually, the major functions of WTO are connected with its rules, which include making, conducting and reviewing the regulations. The damage to WTO rules means the foundation of WTO being undermined, which is mainly reflected in three ways. Firstly, the Doha Round is advancing slowly and the needed update of regulation is hard to move forward. The Doha Round is the first negotiation that has “development” as the theme instead of the “trade liberalization” that was central to the development process of the multilateral trade system after World War II. However, the Doha Round carries too many issues and expectations, and experienced too slow and complicated processes, which makes it hard for WTO to update its regulation and adapt itself to the rapid changes of the world economy. Secondly, the authority and the effectiveness of the WTO rules are being challenged. For example, the dispute settlement regulation seems fair, but actually it does more good to the developed countries. For example, even if a developing country wins a lawsuit in the dispute, taking trade retaliation measures is not a wise choice for it, especially if the object of retaliation is a great trading power, for it is disadvantageous for the developing country to use its own power to implement retaliation measures when there exist asymmetry interdependence between developing and developed countries. Meanwhile the U.S. often uses its domestic law to replace the international law in order to fight against the dispute settlement mechanism. In such situations, the authority of WTO must be questioned. Thirdly, the multilateral system of regulation is challenged by bilateral regulation. The “most favored nation” principle is one of the basic principles of the multilateral trade system. Although the rules of the WTO do not reject FTA and there are different opinions about whether the effect of FTA “promote” or “harm” WTO in academic circles, there is no doubt that FTA’s “special” regulation means the WTO’s MFN rule is faced with the embarrassment of being the “least favorable treatment”. Especially for TTIP (Transatlantic trade and investment partnership agreements) and TPP (Trans-Pacific Strategic Economic Partnership Agreement), which are particularly carried out by the U.S, the “high standard” and the “new content” they claimed are very likely to have a tendency to rebuild global trade rules, which is fundamentally shaking the status of WTO regulations.
    Based on solving the three fundamental problems we mentioned above, the new DG should start from the three aspects below.

    First, WTO’s organizational management should be further improved to balance the benefits between developed and developing countries, thus relieving the serious opposed situations and building a strong bridge between them. That means we need not only the economic attainments of the new DG, but also his political means and skills. Available methods are listed as below: stop decisions made within a small amount of people to let the negotiations become wider and more transparent, and listen to more opinions of developing countries; increase the right of speech of developing countries in WTO especially for emerging nations, and when appointing administrative officers, give more care to developing countries based on equality; limit the collective trend among WTO members, and invite some related countries to form an official round-table group or meet on some relevant topics to avoid the confrontation among different groups.

    Second, confirm WTO’s research and analysis function and seek for new ways to solve important problems. Furthermore, stick to WTO’s initial aims, work on trade liberalization and global economic development, and to work for the better for the world. When talking about the fundamental and directive issues, pay attention to the developing countries’ demands at the same time. Also, the new DG must properly deal with two different relationships. One is the relationship between traditional and new emerging topics. The other is the relationship between topics that developed and developing countries are concerned about. On one hand, new topics reflect new issues. WTO has the need to concentrate on many new topics related to trade, but it must solve the “traditional topic” first. So the Doha Round Negotiation’s process must be pushed forward. It is certain to say that if Doha Round negotiation does a good job, discussions around new topics will be easier, too. But if there are difficulties in the Doha Round negotiation, efforts to discuss new topics will not work efficiently. On the other hand, different countries are concerned with different topics. Common matters should be captured as well as developing countries’ requirements. Since opposing trade protectionism, promoting trade liberalization and promoting balanced development of the world economy are what the WTO stresses in its work, developing countries’ troubles faced when pushing their exports must be clearly learned by WTO.

    Finally, face the challenges of FTA actively, take control of regions normal trade agreements, make a balance between regional trade agreements and multilateral trade agreements, actively drive the Doha Round negotiation ahead, and strengthen the world’s confidence in WTO’s multilateral trade regulations. Actually, regional trade agreements have been planned to deepen the multilateral trade liberalization, but in fact, it gradually becomes a way of competition for some countries. And even they are leading to obvious discrimination, which will arouse resistance within nations being treated unequally and lead to more regional trade cooperation, If that continues, the world market will be split up. If WTO wants to gain the world’s trust, the new DG must take positive measures to limit the bad influence brought by “membership driving”, “power orientation” or “divergence between North-South”. The Doha Round negotiation should be promoted step by step to make WTO form a model that supplements a focus on multilateral regulations, which will maintain WTO’s hard-core status in the world trade.

    We cannot neglect the contribution to the world economy made by WTO, which matters a lot to both developing and development countries. The new DG must multilaterally coordinate different issues to solve the present problems of WTO, which is

  • Arevik Mkrtchyan

    |

    Preferential trade agreements and the WTO: Lessons from the Eurasian Customs Union

    The rise in free trade agreements (FTAs) has lead to concerns that such agreements could challenge the relevance of the WTO. The newly selected DG of WTO comes from Brazil, a member of a customs union (CU), Mercosul, as well as several FTAs. In this regard there is some continuity in the leadership of the WTO, as the incumbent DG comes from France, also a member of a customs union. Most of the trade initiatives that have been launched recently – such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership – are FTAs, but the number of CUs has also been expanding. In this regard, the case of recent WTO member Russia may be particularly instructive in helping the WTO membership to identify the implications of alternative forms of trade integration for the WTO.

    Just two years prior to joining WTO, Russia formed the Eurasian Customs Union (ECU) with Belarus and Kazakhstan. CUs, unlike FTAs, are necessarily regional, and give more scope for deep integration. The ECU arguably creates gains, particularly through reduced trade costs with the most immediate neighbours, that are not in competition with multilateralism and indeed likely to strengthen the incentives of Russia and its CU partners to pursue a multilateral agenda (Gnutzmann and Mkrtchyan, 2013). A key challenge for the WTO is to support such a dynamic by pursuing an agenda of trade facilitation between trade blocs.

    Established in 2010 by Russia, Belarus and Kazakhstan, the Customs Union was able to harmonise more than 85% of tariff lines from the outset. This meant, on average, small external tariff declines for Russia and Belarus, while increases for Kazakhstan were very pronounced. While Russia is a prime importer of the CU partners, the reverse is not true. This pattern prompted concerns of trade diversion towards Russia (Tarr, 2012) as a result of the CU; supporting evidence for this is provided by Isakova and Plekhanov (2012) for the case of Kazakhstan.

    The members of the ECU rank near the bottom of World Bank’s Trading Across Borders index, hinting at large trade costs on top of formal tariffs. The removal of the last internal customs posts – effective from July 2011 – may thus bring gains, creating the potential for integrated supply chains in the ECU area – and going beyond what could be achieved multilaterally. Further, benefits from reduced trade costs serve also exporters from the rest of the world, somewhat offsetting adverse tariff effects: since rules of origin are no longer in effect, they can import to the ECU market through any of its members. In time, this may lead to competitive pressure to improve the efficiency of ECU member’s borders.

    The ECU, even if offering complementary gains to the WTO, might create extra challenges for the WTO. Russia’s accession was negotiated for many years, during which concerns by trade partners accumulated in a number of areas, some of which are now the subject of WTO disputes. This is the first direct visible impact of the entry, publicized in the media. On top of that, as Tarr and Volchkova (2010) argue, Russia had already negotiated MFN or better status before accession with most trading partners – leaving little scope for improvement of market access through WTO membership. Instead, the interest might lie in the rules–based approach under WTO that will help to reduce nontariff barriers. Technical assistance of the WTO for Russia to become as experienced as the old members in determining the barriers the Russian companies face when exporting is the way to give the country a bigger stake in future rounds. The relatively immature Customs Union cannot fulfil a similar role for Russia – or indeed the other members, which are at different stages of their individual accession processes – pointing to complementarity between regional and multilateral approaches. However one has to note that the small immediate improvements in the market access might cause certain cautiousness or even disappointment of Russia with WTO membership. In that case, engaging Russia in further agreements will be a challenge and the option to go regional will just increase the threshold for the WTO. In fact, slow progress of WTO negotiations prompted the formation of the CU.

    Separate attention should be given to the attempts to extend the membership of the Customs Union to other CIS countries, in particular Kyrgyzstan and Ukraine, possibly associated with revision of bound tariffs for these countries. Ukraine, as a small open economy between EU and ECU, is very interested in joining a trading bloc that would grant it free market access. Ukraine showed particular interest in the DCFTA but its slow and unclear progress together with Russia’s readiness to offer concessions increased Ukraine’s interest in the ECU. In any case, Ukraine’s actions do not signal attempts to lock-up and divert trade from the rest of the world but willingness to join neighbouring regional agreementsrs in a liberalised world trade and neighbour that each grant discriminatory access to their members (Dragneva and Wolczuk 2012). From that perspective the challenge WTO faces is to facilitate trade between emerging blocs rather than deal with the issue of trade diversion created by a specific trading agreement.

    Russia’s near–simultaneous accession to the WTO and the formation of the Eurasian Customs Union presents an important case study for the tension between regionalism and multilateralism in the world trade system. In its current form, the CU does not challenge the relevance of WTO for Russia, whose main partners are the EU and China. However, if future multilateral progress is slow and the expansion of the ECU comes to pass, this assessment may need to be revised. In my view the CU largely addresses issues that are quite distinct from WTO membership, such as high internal trade costs. Moreover, it is precisely the multilateral trade liberalisation between unequal countries that prompts small and medium players to be interested in the regional integration. Understanding regional agreements as a consequence of successful trade liberalisation would re-frame the challenge of the WTO from how to remain relevant in the presence of so many discriminatory preferential agreements to how to reduce the trade frictions between emerging trading blocs.

    References
    Dragneva, R. and Wolczuk, K. (2012). Russia, the Eurasian customs union and the EU: Cooperation, stagnation or rivalry? Chatham House Briefing Paper REP BP, 1.
    Gnutzmann, H. and Mkrtchyan, A. (2013).Mutual protectionism: Evidence from the customs union of Russia, Belarus and Kazakhstan. forthcoming, EERC Working Paper.
    Isakova, A. and Plekhanov, A. (2012). Customs Union and Kazakhstan’s Imports. European Bank for Reconstruction and Development, London.
    Tarr, D. (2012). The Eurasian Customs Union among Russia, Belarus and Kazakhstan: Can It Succeed Where Its Predecessor Failed? New Economic School, Moscow, mimeo.
    Tarr, D. and Volchkova, N. (2010). Russian trade and foreign direct investment policy at the crossroads. World Bank Policy Working Paper 5255.

  • rorden wilkinson

    |

    Plus ça change?
    Why Azevêdo’s appointment is likely to change little

    Despite the welcome relief provided by the contest for Pascal Lamy’s successor as Director-General of the WTO—in terms of the momentary distraction it offered from the deadlock of the Doha round and in illustrating that agreement can be reached among WTO members—Roberto Carvalho de Azevêdo’s appointment as the Organization’s new head is unlikely to usher in a sea-change in the WTO’s fortunes. As seasoned observers of trade politics we know this; we openly recognize it; yet we all cling to the hope that critical moments such as these will bring something fresh to the Organization (and the round), inject much need confidence into a still ailing global economy, and (for those of us that still hold on to the idea of the Doha round as a development focused endeavor) deliver meaningfully opportunities for equitable growth in the world poorest and most vulnerable economies.

    In a piece published in The Tribune in March 1946 George Orwell bemoaned our capacity—indeed our tendency—to hold totally contradictory political ideas simultaneously together in our heads, and our failure to reflect on why we do so despite obvious evidence to the contrary. For Orwell the reason for our political and ideational schizophrenia lay in the “test” to which our beliefs would ultimately be put. As he so eruditely put it:

    When one is making out one’s weekly budget, two and two invariably make four. Politics, on the other hand, is a sort of sub-atomic or non-Euclidean world where it is quite easy for the part to be greater than the whole or for two objects to be in the same place simultaneously … [These] contradictions and absurdities … [are] all finally traceable to a secret belief that one’s political opinions, unlike the weekly budget, will not have to be tested against solid reality (Orwell, 1946).

    The history of the WTO—and indeed the GATT before it—shows that successive new dawns have fallen foul of the flaws in the multilateral trading system’s very design. At one level, this frustratingly slow march forward might not be a bad thing—the kind of liberalization that the GATT/WTO have overseen has certainly not delivered equitable trade-led growth for all; at another level, it has locked us into a form of politics that is premised on believing that we can break out of the cycle in which we find ourselves without doing very much at all.

    While time will surely show the hopelessness of our belief in this latest new dawn, the very fact that we all share that hope diverts our attention away from the root causes of the WTO’s ills and the solutions that might best be applied to address. Azevêdo is clearly a consummate and talented diplomat, administrator, and politician. His personal qualities are not in doubt. Yet, he like the rest of us, is operating too close to the coal face to be able to stand back and ask questions about where this seam of fossil fuel might be going or how we might best extract it.

    This last sentence is actually quite revealing and points to two of the three main problems that confront us—because we are all in this together—when we think about how to make the WTO, and the global economy, function better and deliver meaningful trade led gains for all. It not only points to our inability to stand back from the problem and ask broader questions about where we are going (a problem that is entirely understandable as politics encourages speed rather than reflection and contemplation)—problem number one; it illustrates something of the tongue-twisted and metaphor laden fashion in which all of us as trade commentators have come to speak—problem number two.

    While metaphors have an appeal in that they present an argument whose logic can be easily consumed, they abstract debate and ask us to deal with an issue as if it were like something else rather than the way that it actually is. Moreover, they encourage us both to accept a logic that the metaphor presents, as well as to act in accordance with that logic, as a way of fixing problems perceived (they also actually help us identify “problems” albeit that they might not necessarily be the appropriate ones). So, if liberalization is a bicycle, we need to keep it in motion or else the rider will fall; if it is a patient in a grave condition, we need surgical or pharmaceutical intervention; if it is in crisis and the world economy is teetering on collapse we need to push the panic button and act quickly. Yet, trade, its liberalization, and the political apparatus we have to govern it (the WTO among other things), are as little like fossil fuel and its mining as they are bicycles, the critically ill, or global economic catastrophe.

    So why can’t we see it that way? The answer is because we have all—Azevêdo included—come to speak, think, and act in these ways. As Azevedo said in an interview with Associated Press the week before he was announced as the new DG:

    I think we’re getting a very sick patient. The WTO at this point in time is not doing well. It’s almost like the next DG [Director-General] is coming to the operating table with a very sick patient on it … In my view, he [the DG] has to put on the gloves, the mask and start operating immediately, because the patient is almost terminal.

    In restating his belief in his own candidature, he continued,

    The contribution I have to the system is that when I come to the table, I won’t have to open a book and, you know, start reading medical practice (Azevêdo reported in Heilprin 2013).

    Azevêdo, like the rest of us, should not see the WTO as a patient that requires a form of surgery in which he is skilled—if for no other reason than Azevêdo, and many capable others that have headed and worked in and around the GATT/WTO for many years, have had ample time to surgically intervene; but to no avail. The real problem is that we have failed to stand back and ask “what is the purpose of the WTO and how should we refashion it to meet that purpose?” rather than to carry on trying to fettle a machinery that has long since ceased to be—ideationally and practically—a force for the promotion of equitable economic opportunity, trade-led or otherwise.

    In addition to breaking out of the unhelpful ways we have come to talk and think about the WTO, and to standing back and ask what we believe the purpose of the Organization should really be (and here I mean something more meaningful than lip-service to “an expansion in the volume and value of trade” that connects up the purpose of the WTO to wider concerns about the environment, food, water and energy, growing inequalities within and between states and communities, wider social exclusion and marginalization, gender equity, human rights, and entrenched poverty and destitution, and so on) we need also to ask ourselves whether the way that we have gone about encouraging trade-led growth is any longer an appropriate means of liberalizing trade—problem number three. Do we still really believe that competitive negotiations among political units of dramatically different size, capability, and shape are likely to yield equitable trade-led growth for all? If we do, we continue to delude ourselves and to ignore the gulf that has opened up in the meaningful trade opportunities that have been negotiated for rich and poor countries alike over the past 70 years.

    My own view is that we desperately need a world trade organization, but we need one that is dramatically different from the one that we have today. We need one that is organically connected to a broader set of shared global values in a way that the post-war institutions originally were. We need an approach to trade that provides opportunity for all and a system that is judged not on how it contributes to the expansion of wealth in those countries and among those people that already have, but how it treats those that continue to toil in destitution and who so far have had little opportunity to help themselves. Most of all, we need an organization whose role is determined by the good that it can do, rather than its capacity to act as a brake on liberalization in areas of vital importance to many of the world’s poorest—not just in agriculture, but that would be a start.

    Azevêdo will not be able to oversee this change irrespective of whether or not he shares my vision. He has been appointed as the head of an international civil service that is designed to maintain the status quo, rather than to bring about change. Yet we will continue to believe, in the short term at least, that despite obvious evidence to the contrary Azevêdo’s appointment promises a new dawn. What we need to do is—as Orwell (1946) puts it—see “what is in front of our nose,” recognize that two and two do make four, and that without a fundamental rethink and root and branch overhaul, it will be business as usual in the WTO for some time to come.

  • CBarfield

    |

    A Realist’s View of the Global Trading System

    There is great lamentation these days about the state of the multilateral trading system and its institutional symbol, the World Trade Organization (WTO). The Doha Round of multilateral negotiations has now dragged on for twelve years, with no end in sight on major issues. From 2003, when the first breakdown came at Cancun, Mexico, through a further standoff in Hong Kong in 2005, and a huge negotiating defeat after a marathon 2008 session in Geneva, world leaders have executed a political ritual: frantic calls for the “political will” to successfully conclude the round, followed by a total absence of action. Indeed, the greatest damage inflicted on the WTO has come from these feckless and increasingly vitiating global calls for action.
    Now, attention is focused on salvaging a “mini” outcome when WTO trade ministers meet in Bali in December. But even this token outcome seems in jeopardy. In a stinging, blunt assessment of the prospects for even minimal success, U.S. WTO Ambassador Michael Punke recently stated that “the picture is grim.” In Punke’s view (echoed in part by WTO Director General Pascal Lamy), WTO trade negotiators, rather than converging on vital compromises, are moving farther apart on key areas-trade facilitation (customs reform, removal of transportation and regulatory blocks to moving goods and services) minor agricultural trade reforms, and granting free trade access to the least developed nations.
    Whatever the outcome in December, the world trading system is almost certainly in for a time of reflection and retrenchment before moving forward on major new trade issues-so-called 21st century challenges: the impact of supply chains and state-owned enterprises on trade policy, investment, intellectual property advances, services, health and safety regulations and labor and the environment. In my view, the most realistic avenue to future advances will come from building from the ground up. Specifically, this means monitoring the substantive results of the major new regional and trans-regional trade negotiations that have been launched, or are in process of being launched-and then gleaning these new liberalization commitments as the foundation for a new multilateral trade round several years down the road.
    Why do I think this is possible and politically the most attractive option? First, just look around at where liberalization is occurring (beyond the substantial unilateral barrier reduction by individual nations). It is through bilateral, plurilateral and regional trade agreements. There are now over 300 bilateral trade agreements in operation, and many more being negotiated. On average, WTO members belong to 13 FTAs. It is true that many of the FTAs are shallow, and do not cover many “21st century, inside-the-border issues. But most provide zero tariffs in the near future for over 90 percent of manufactured goods, and many do include some services, investment and other regulatory reforms.
    Of greater import, however, are the relatively new regional and bilateral agreements that do tackle head on behind-the-border barriers to trade and investment. Examples on the bilateral level include the U.S.-Korea FTA, the EU-Korea FTA, and the proposed US-EU, EU-Japan, and Canada-EU FTAs. These “deep integration” FTAs in turn will provide a partial template for much larger regional FTAs that are being negotiated: the Trans-Pacific Partnership Agreement (TPP) that now includes 12 trans-Pacific nations, with future eligibility for all APEC nations; and the Regional Comprehensive Economic Partnership (RCEP) agreement, that includes all of the ASEAN nations, plus Australia, China, India, Japan, Korea, and New Zealand. The real breakthrough here is that big economies-U.S., Japan, China, EU-are now negotiating with each other, breaking the older FTA model of larger countries negotiating “hub and spoke” FTAs with many small countries. Clearly, the outlier is China, which is a member of RCEP that includes Japan, but is not currently negotiating with the U.S. or EU, either directly in within a larger regional framework.
    The negotiating timetables are important for future WTO negotiations. Most of key bilateral FTAs-US-Korea, Korea-EU, Japan-EU and Canada-EU-are either completed or have deadlines within the next year or so. The TPP has set a goal of completion by the end of 2013 (with a more likely date of mid-2014). The RCEP nations are aiming to wrap up their negotiations two years from now, at the end of 2015. In effect, the trading world is witnessing a real time experiment on how far and how fast renewed liberalization can go on a bilateral and regional basis.
    These are all ambitious negotiations and they may fail or fall well short of their liberalization goals. But by 2015, we will have a much clearer picture of what is possible in the juxtaposition of old-fashioned 20th century protectionism against 21st century liberalization goals. The lessons learned from these negotiations will provide the baselines for a future, realistic WTO trade negotiating agenda.
    Does this mean that the WTO must stand still over the next several years? By no means-it should use that time to get its own house in order. Besides substantive conflicts, other lessons from the Doha Round failure implicate the mechanics of WTO negotiations, and a number of suggestions for procedural and administrative reforms have surfaced and need to be vetted-should the rule by consensus be scrapped and replaced by a “critical mass” of members for rule adoption; should the so-called single undertaking whereby agreement must be achieved in all areas before a round is complete be scrapped in favor of a “variable geometry” of individual sub-agreements; should the WTO Director General and/or the Secretariat be granted additional authority to suggest compromises to get around negotiating roadblocks? These are just a sample of a procedural negotiating agenda. In some circles, it has been assumed that such changes will come easily. Not so-large and small nations will calculate their gains and losses from procedural changes with just as much zeal as they devote to substantive issues. The changes being contemplated will require a detailed and politically dicey negotiation. Thus, there is plenty for WTO members to decide while awaiting the results of current bilateral and regional negotiations.

  • P. J. Lloyd

    |

    Contribution to the European University Institute e-book on the Global Trading System

    The selection of the next Director-General of the WTO is a fitting time to review the direction of the WTO itself. It is in a state of turmoil because of the failure to complete the Doha Development Round of multilateral negotiations, the first attempted under the aegis of the WTO, and badly needs direction.

    The constitution of the WTO is laid down in the Marrakesh Agreement which established the WTO. The direction of the Organisation is set out in that Agreement as a mixture of objectives and general statements. I shall paraphrase these in the form of four principles:
    1. The WTO seeks a more open environment for the trade in goods and services of all Members.
    2. Multilateral access is preferred to discriminatory bilateral or regional access.
    3. In liberalising trade in goods and services, it should do so for all commodities.
    4. Reciprocity is the basis of negotiations of trade barriers.

    After 12 years of intensive negotiations, no agreement is in sight. Many reasons are commonly cited; for example, the large agenda, the Single Undertaking, and the uncompromising stance of some Members. In my view the fundament reason is the lack of a vision of a future trading system. The Washington Consensus liberal view of the world economy, which guided the GATT under the leadership of the US and the EU (as well as the World bank and IMF), has collapsed. It has been replaced by a multi-polar system with each of the poles having different views about the evolution of the global trading system. Many Members do not see that reducing their own barriers to trade is beneficial to them, despite repeated studies by the World Bank and others which show that the main benefits of trade liberalisation for all Members come from their own liberalisations rather than improved access to the markets of other countries. Modern mercantilism leads them to argue that trade liberalisation is a good thing, provided they do not have to do it themselves.

    The WTO has also failed to do anything substantial in relation to reducing discrimination in world trade. On the contrary, it has flourished as never before during the time of the WTO. The WTO itself has adopted a view of regional trading agreements (for example, in the World Trade Report 2011 survey of these agreements) that is much too sanguine, in my view. The extent of preferential access available to Members that have signed agreements with most of their trading major partners is such now that they have little incentive to negotiate for improved multilateral access. This applies to the EU and the US for example but it also applies to Developing Countries such as Mexico and Chile. There is little the WTO can do to reverse this – the horses have bolted. The only way of reducing discrimination now is a major reduction in MFN barriers to trade.

    Trade policies affecting the Developing Countries do need special attention. But the WTO is not a development organisation. There are no classes of Members in the WTO, as there are in the United Nations Framework Convention on climate change (with its distinction between Annex I and non-Annex I countries). Much more needs to be done to improve Developing Country access to world markets by adopting measures such as EBA for all LDCS and greatly liberalised trade for cotton exporters. But Developing Countries also need to reduce their own barriers which hinder the more efficient allocation of their resources and increasingly restrict access to other Developing country exporters. The greatest steps that the WTO could adopt to assist the growth prospects of Developing Countries as a group would be the liberalisation of world trade in agricultural goods.

    The WTO also faces calls for new rules relating to so-called 21st Century issues. In each of these issues, the WTO needs, before it acts, to establish a clear benefit from multilateral rules that is not available from concerted unilateral action. Some of these issues are outside the scope of the WTO as currently constituted: this applies, for example, to exchange rate misalignments and proposals for increased flows of labour from Developing Countries to Developed Countries. Others need careful examination in the WTO. As an example, the proposals for improving the volatility of food prices and food security must guard against measures which restrict trade. The best thing that can de done here is to reduce barriers to trade in agricultural goods. Trade among nations spreads risk and reduces price fluctuations.

    Much needs to be done to improve the rules relating to trade but the WTO should hasten slowly.

  • Fredrik Erixon

    |

    Reviving the mechanics of effective mercantilism

    As so often these days when I think, write or comment about the World Trade Organisation I feel, when responding to Bernard and Petros’s questions, torn between idealism and realism. It is tempting to argue the way something ought to be – but my comments below are rather, as Spinoza would put it, about the way something is: where the WTO finds itself now.
    First, I don’t think the WTO is going through an existential crisis. It is not about to be extinct. Nor are the accomplishments of the multilateral trading system since 1947 seriously challenged. Most governments in the world appreciate the WTO and respect its role as adjudicator in trade disputes. There are slippages here and there – but they don’t add up to a significant challenge to what has been achieved in terms of MFN market access and multilateral rules in the past.
    Nor do we have a general crisis of free trade. Most governments in the world are engaged in negotiations or acts of market-access liberalisation. They are, for the most part, suboptimal strategies, but they show governments are not contesting the post-war compact for freer and more trade. No one is offering a credible alternative to the idea of foreign economic cooperation based on progressive reductions of barriers to trade.
    None of this is to suggest that there ought not to be profound improvements in the policy and politics of world trade. But it sets the framework for a meaningful dialogue about the future of the WTO and alternative strategies to liberalise trade.
    Second, leadership for the WTO is important, but in current circumstances that leadership role has very little to do with the current or the future Director General of the WTO. The leadership challenge for WTO is much more broad and complex than the immediate task facing WTO members now: electing a new DG.
    All contenders in this race have been able people – with solid knowledge and experience of the WTO, and with executive qualities in trade policy. They could all do a fine job. But, in the spirit of frankness, none of them look to be the sort of exceptional leader that really could make a big difference for the WTO as a body for negotiations of new market access and rules. The problems for the WTO as a relevant body for future trade reforms are structural rather than individual. A truly exceptional individual could perhaps play a critical role in dissolving those structural problems. But I can’t think of anyone today who would fit that bill.
    My conclusion is this: let us not pretend this leadership race is about profound substantial matters, let alone the future of the WTO. This contest is rather about who is going to be the ringmaster of the Geneva trade circus. That is not a very exiting issue.
    Third, I find two structural problems to be particularly important to address. The first one is about leadership for global trade liberalisation. The question is: now that the United States has resigned from its Cold-war role as prime leader for trade liberalisation, what formation of countries could substitute the US in offering real leadership (backed up by requisite political, economic, and institutional qualities) for new global trade reforms? The U.S. was never a hegemonic power in global trade. It was dependent on a group of systemically important and willing followers that supported the direction for trade liberalisation that typically was set out by U.S. governments. That era is now gone. And that is good news. The bad news is that those countries that are necessary to get behind an MFN-based trade deal have had conflicting positions on what has been negotiated in the Doha Round. That Round should now be put to rest: key elements of the Round will resurrect in new forms (or have already done so), but the design of the agenda reflected preferences and positions that have changed. But can there be alternative negotiation agendas that systemically important countries can support? That is a tough question for a member-driven, consensus-based organisation to address. Yet no MFN-based liberalisation will happen unless the bigger economies are all supportive.
    The second challenge is about the growth of government and arcane, trade-distortive governmental regulations. Trade liberalisation has effectively been about expanding the scope of the market economy by reducing barriers to trade and disciplining government interventions in the economy. Yet that agenda is much tougher today than in the past. In most parts of the world, there is little political appetite for such a free-market agenda. And now that tariffs and other traditional barriers to trade have been significant reduced, the new areas for market-access liberalisation and rules are much more intimately connected to the welfare state and the regulatory state – or views on the role of government in an economy. Past rounds of trade liberalisation has been driven by a spirit of expanding the size of the market economy in the world and within countries, and/or to facilitate greater and mutual industrial-sector expansion. And these sentiments don’t seem to guide many countries today.
    Lastly, going forward I see two areas that the WTO as an institution, and its Director General, should be engaged in. The first is how various coalitions of the willing could negotiate new trade agreements and bring them into the WTO without risking punitive action from other member states, even if these agreements are non-MFN.
    The second area is how to revive effective mercantilism – especially how to get firms to be directly affected by efforts to liberalise trade. I say this as a free trader. For the likes of me, GATT/WTO has always been a pact with the devil. Mercantilism is a flawed ideology. It is a bad master. But it has been a good servant in several rounds of trade negotiations. Trade negotiations are still efforts guided by generating as much export gains as possible. The problem for the Doha Round is that it was never really felt as a trade-liberalising effort that would affect the bottom line of many export-oriented firms. In an ideal world, countries would negotiate with the aim of creating economic efficiency – boosting import gains as much as export gains. And companies reaping the import gains would be as heavy lobbyists as companies capturing the export gains. But that is not how the world of trade negotiations operates.
    The question now is: what trade negotiation agenda could revive the mechanics of effective mercantilism?

  • Aluisio Lima Campos

    |

    WTO PROBLEMS AND SUGGESTIONS FOR THE NEW DG

    As a multilateral organization, the WTO has three basic functions: provide a forum for the negotiation of agreements, provide a legal and institutional framework for the implementation and monitoring of those agreements, and provide a system for the settlement of disputes arising from interpretation and application of agreements. As important elements for the smooth discharge of these functions, it is vital to have transparency and what I call “intellectual openness”.

    I will start with the third basic function, dispute settlement, because it is the only one working at this point. Even though the level of non-compliance has been increasing lately, the DSB has proven its effectiveness in several landmark cases and, to its credit, has not shied away from new issues when confronted by them. It is also the only area in which PTAs defer to the WTO, as many either include the option of or mandate that disputes arising between their signatories be resolved at the DSB. Despite its critics, here is where the WTO has a leading and indispensable role, which should be the target of the new DG for the two other basic functions.

    On the function of implementation and monitoring of the agreements it is important to note that it is being undermined by predatory currency misalignments (PCMs). This is going on while the WTO sleeps, as if nothing bad was happening. PCMs are being used by some members to gain advantage over other WTO members, by increasing the devaluing country’s effective tariff protection, even beyond its bound rates, and decreasing that of others. A PCM comes about when a currency is significantly undervalued, for a longer period of time, not there to correct an economic imbalance and not justified by the devaluing country’s economic fundamentals.

    Under these circumstances, there is no reason for countries to negotiate tariff reductions or bound rates at the WTO when all can be wiped out with a single devaluation.

    Worse, agreements on anti-dumping, anti-subsidies and safeguards are also useless if PCMs are allowed to go on unchecked. If a PCM is big enough, all import tariffs and trade remedy instruments of the devaluing country’s trade partner can be rendered ineffective. Currently, countries can go ahead and agree with relatively low tariff bound rates at multilateral (or bilateral or regional) negotiations, devalue later and pay no penalties for violating their tariff commitments with the WTO (or bilateral or regional trade partners).

    The private sector in the United States and in other countries is beginning to understand that any concessions they get from trade partners in a trade agreement is not worth the paper it is printed on without a foreign exchange provision that offers them insurance against PCMs. This problem will still be out there when the new DG takes office and it will be her or his responsibility to restore the confidence that agreements can and should be implemented as originally negotiated, keeping the same balance of rights and obligations for all signatories.

    On providing a forum for the negotiation of agreements, the WTO is failing badly. The profusion of preferential trade agreements, now given new impetus by the TPP, TTIP, Pacific Alliance, among others, is solid proof of this sad state of affairs. This raises another problem, would it be possible, at some point in time to harmonize all their disparities in rules of origin, levels of preference, protection of intellectual property, investments under one multilateral agreement? That remains to be seen. Notwithstanding these problems, for better or worse, preferential trade agreements (PTAs) are breaking new grounds while the WTO’s role as a forum of negotiations, borrowing from the solemn words of General Douglas MacArthur, is fading away.

    In addition, the inconclusive Doha Development Round (DDR) is the giant anchor that is holding the organization back. The new DG will have to work hard and behind the scenes to produce some sort of agreement at the Bali Ministerial, just three months after taking office. Trade facilitation looks like a good candidate for Bali. The new DG could extract some sort of commitment from members to engage in serious negotiations on the other topics later on. It is important to keep in mind, however, that the core of the DDA – Agriculture – must be resolved in a not too distant future. Failure to do so will just create another powerful anchor preventing the WTO from going forward.

    Affecting the WTO in general, there are two other very important issues that should also require the DG’s attention. One is the question of transparency, where significant progress has been achieved since the Seattle Ministerial, but where more can be done. Regrettably, panel and Appellate Body hearings remain closed to the public. Expanding web casting to all cases and hearings would be a notable improvement. In external transparency, there has been improvement in both public and citizen access to information to WTO procedures and decisions. Nonetheless, complaints as to lack of transparency in practices and procedures, as recently exemplified by the objections of Kenya with regard to the DG election process, continue.

    The other is what could be categorized as “intellectual openness”. While international trade, the core and raison d’être of the WTO, incur continuous changes and expand in scope as new issues that affect trade are added to its field of study, the organization has lagged way behind in this evolution. One would have expected that the WTO would at least intellectually engage and follow these developments with research and open discussions, but it has not been the case. This is a practice that should only enhance the quality of information provided to the WTO membership which can only help in providing robust suggestions and assisting member governments in solving new and outstanding problems.

    However, open research and discussions have not been the norm for new issues at the WTO, especially if the topic is controversial, like trade and foreign exchange, for example. While very little has been done at the WTO on this subject, all research and open discussions are taking place outside it, in universities and think tanks. I would argue that controversial issues should require even more research and discussion, so we can all learn more and thereby come up with solutions. In fact, openness in research and discussion should be part of the regular intellectual work of the WTO, making both of them an even more powerful tool to inform member countries and thereby assist on decisions. I would suggest that the new DG instill a new thinking in the organization, one of intellectual openness, which welcomes rather than inhibit research and open discussions. This would allow the WTO to break free from the past and start looking towards a brighter future, more in sync with its context and times.

    Aluisio de Lima-Campos is the Economic Advisor at the Brazilian Embassy in Washington and Chairman of ABCI Institute (Brazilian International Trade Scholars).

  • Sebastien Jean

    |

    Challenges ahead for the next WTO DG: Take the Doha loss and move toward an updated multilateral trading system

    Leading an institution like the WTO is an extremely challenging job. In the present context of enduring gridlock, with the prospect of taking office just before a potentially crucial Ministerial Conference in Bali, the task becomes utterly daunting, to say the least. Claiming the Doha Round to be alive has not been credible for some time. After twelve years of make-or-break meetings, last-chance conferences, and missed deadlines, the value of this claim has shrunk dramatically. One of the jobs of an investment advisor is to help their clients to decide when to accept stock market losses. The first challenge for the next DG is to help the members accept that this moment may have come for the Doha Round negotiations. The best outcome would of course be to find a deal, even one that is far more limited in scope and ambition than what has been discussed so far. Even a modest agreement would be invaluable in helping consolidate a rule-based system which remains unparalleled in international arenas. Calling it an early harvest, a development package, or whatever is not important. What is important is that such an agreement would clear the ground and allow progress to be made on updating the trading system. A lot has been invested in the Doha negotiations, and members seemed to have close to agreeing on the contours of a deal in 2008. But these negotiations are only an asset for the multilateral trading system to the extent that an agreement is possible. If this is not the case anymore, they will become a millstone, preventing members from focusing on a badly needed update of the WTO software. This is a second major challenge the next DG will face.
    Such update will require boldness and open-mindedness, because several long-standing features of the WTO now appear out of date. One is the single undertaking principle, which may have been useful in the past to avoid free-rider strategies, but increasingly hamstrings negotiations by setting objectives that are impossible to reach. Another is special and differential treatment: duly taking into account the fragility of poor countries is more important than ever, but the traditional approach is outdated. It no longer makes sense to distinguish only between developed, least developed and other developing countries. Not taking into account the widening differences across developing countries is a sure recipe for failure, as illustrated by recent history.
    The substance of the WTO agenda also needs to be rethought. In manufacturing, it should take into account the new status of emerging countries and the central importance of global and regional supply chains. In agriculture, the multilateral trading system will only be considered legitimate if it contributes significantly to food security. Efforts to address the risks of large-scale excess supply and low prices cannot remain the main – some would say the exclusive — focus of disciplines and rule-making, even though prices cannot be assumed to stay high forever. The only consistent approach here is to limit distortions to market-based adjustment mechanisms, whatever their direction. Finding a suitable way to translate this general approach into updated disciplines should be a priority, no matter that it is difficult.
    Another challenge is to create a more favorable intellectual climate, and this requires support for – and relying more heavily on – sound analysis and accurate information. Despite some caveats, the virtues of trade liberalization have been widely documented by economic analyses. But the corresponding facts and mechanisms have become increasingly complex. It is well known that the gains from trade are diffuse, while the costs of greater international competition are more concentrated and therefore more easily visible. Sound policy making requires refined analyses to understand better what is at stake and how to make the best out of available policy options. This requires relying upon detailed analyses of trade policies and their consequences. Facilitating such analyses and bridging the gap between research and policy is an important task for the new DG. Export restrictions are an example: several studies have shown that such tools, initially presented as aiming at price stabilization, may actually entail significant destabilizing effects at the world level – even though their use should not necessarily be completely ruled out for the poorest countries. Non-tariff measures are another interesting case in point: their nature and objectives are so diverse that much work is needed to characterize accurately their economic consequences, and to strike the right balance between their costs and benefits. More broadly, research is critical in thinking consistently about the legitimacy of trade disciplines, by making it possible to go beyond a simplistic focus on trade impacts. Increased reliance upon scientific analyses when settling disputes has arguably been among the important achievements of the WTO so far. When agreement needs to reached on complex issues, between numerous and diverse partners, promoting a culture of evidence-based decision-making may prove to be a key ingredient in making advances possible.

  • gary Horlick

    |

    WHAT IS TO BE DONE?

    One of the most interesting aspects of the current contest for the Director General post at the WTO is the very large number of excellent candidates. An organization on its death bed would not logically attract so many people who think it is good for their career. Perhaps one attraction is the rich agenda available to the WTO in the near future if the Members choose to embrace it. As is frequently pointed out, the WTO is a “Member-driven” organization, and the fate of initiatives such as the Doha Round is determined by those Members, not the DG. That said, there are a lot of areas where the DG can make a major effort, and perhaps a major difference:

    • The most obvious to task is to preserve as much as possible of the vast amount of useful work done in the Doha Round. A package at the Bali Ministerial this December, including at least trade facilitation, would be a nice first step in that direction, but there is a lot more to be saved. Any WTO negotiation inevitably involves a lot of tradeoffs, some of them good for policy reasons and some not, but the initial stage of a negotiation, certainly the case in Doha, involves a huge amount of highly useful technical discussion, to sort out good ideas from bad ones, and to flesh out the details of the good ones. At some point, sooner rather than later, the WTO will have to take up the problems of trade in agriculture and food, and a succession of very capable chairman of the agriculture negotiation produced extremely useful solutions to numerous technical problems which had to be solved before tradeoffs could be made. Issues such as measurement of subsidies, ad valorem equivalents, and so on, even if not resolved already, were at the very least clarified in useful ways, and work should be moved forward. Similarly, in antidumping, numerous minor technical solutions included in the first chairman’s draft and then dropped for negotiating reasons should be agreed through the Committee on the Antidumping Practices and put into effect. And if the fishery subsidies issues cannot be agreed in Bali, the enormous amount of useful work in that area should be taken up again and a search for negotiating solutions undertaken urgently, before there are no more fish about which to negotiate. (Only slight hyperbole there.)
    • Completion of the physical plant. This seems merely mechanical, but the disruption inevitably caused by the very necessary renovations should be completed as soon as possible. And definitive maps with office and telephone numbers posted on line!
    • Transparency. Halting strides have been made in WTO transparency, most notably the “opening” of several panel and Appellate Body hearings. But that “opening” consists of a censored televised version piped into another room. It would probably be cheaper to just stream the audio and video, rather than go through all the registration and security. It would certainly be more transparent and, even more important, fairer. The Law in its majesty apparently permits not only the rich and the poor alike to sleep under the bridges of Paris (Anatole France, The Red Lily), but also to fly to Geneva from all over the world to attend the “opening” hearing. I admit a clear bias—I teach this stuff, and the video would be a superb teaching tool for students, as well as clearing up a lot of misperceptions about the very honest way in which the WTO dispute resolution system works.
    • A new DG should undertake a major project, including from multiple Divisions as well as people outside WTO, to start planning a negotiation leading to the “domestication” of all the major free-trade agreements into a more coherent package. This will be a lengthy and complicated process. Indeed, something similar had to be done in the original GATT negotiation because of the proliferation of such preferential deals before the war.
  • Patrick Messerlin

    |

    Being Director General (DG) of the World Trade Organization (WTO) is probably the most difficult job among all the international organizations. At a first glance, the DG’s status seems comparable to that of the President of the World Bank or of the Managing Director of the International Monetary Fund. But, this parallel is illusory for several reasons:

    • The WTO DG has a portfolio of issues that is much narrower than those of the two other institutions, and these issues are generally (incorrectly, but this is not the point) perceived to be much less important than the macroeconomic, monetary and development issues dealt with by the IMF and the World Bank. This difference in portfolios is best illustrated and magnified by the fact that the DG has no money to disburse.
    • The WTO DG works with Trade Ministries which are junior ministries compared to Finance Ministries—the primary counterpart for the IMF and World Bank. Being part of the Finance Ministries does not enhance their status; being part of the Industry Ministries lowers its; it is only when Trade Ministries are part the Foreign Affairs Ministries that they may enhance their domestic, hence international, status—but this is a relatively rare occurrence.
    • The WTO DG has (contrary to the heads of the IMF or WB) not enough staff to be able to exert strong leadership based on economic analysis and knowledge. This is not just a question of funds but reflects a much more important point, namely that the battle for convincing the populace of a country of the net benefits of freer trade has to be fought in each country—not in Geneva.
    • The WTO DG can’t rely on a voting procedure that he/she may use for clarifying the situation (the balance of interests) at a critical point of time.
    • Last but not least, as is well known, the true masters of the WTO are the Members—not the DG. This is not primarily a legal question. It is in the intrinsic nature of the WTO: Members are driven by mercantilist perspectives, leading to a permanent situation of conflicts among themselves. They do not have a strong sense that they are fighting the same battles (achieving low inflation and sustaining positive growth rates) and need to cooperate in order to achieve common objectives, as in most macroeconomic issues.

    In short, the DG is at best an ‘international special envoy’ among the countries. He/she should have a strong sense of service “à la Suisse” and a good dose of Confucian humility. Such characteristics are extremely difficult to maintain in a world dominated by instant and repetitive media looking for big failures or successes in order to attract viewers, and prone to ‘personalize’ issues and events.

    In addition to these constraints on what the DG can do, the post-1995 WTO period suggests two crucial points which are often ignored.

    First is the much stronger role that should be played by middle-size economic powers. In the GATT history (as was true in the history of the EU) the role of the middle-size economic powers as a source of initiatives and compromises has always been crucial. The best illustration may be the effort by Columbia and Switzerland to create momentum on the agricultural issues in the mid-1980s. They were instrumental in putting together the famous “café-au-lait” coalition which was key for re-introducing farm and agro-business products under the GATT coverage—closing definitively the door to a host of negotiated or self-proclaimed waivers on trade negotiations in these goods.

    The reasons for the “disproportionate” influence of middle-size economies are easy to understand. First, these economies are the best placed to realize the benefits from a multilateral trading regime: they are big enough to reap large gains from trade liberalization, and small enough to have no preferable alternatives. Second, initiatives launched by middle-sized economies are less likely to be received by the other WTO Members with negative prejudices and the fear that they reflect some Machiavellian motive. Third, initiatives tabled by middle-size economies are felt to be more malleable by both their initiators and the receiving membership. In short, they are a better basis for finding compromises.

    The second aspect which too often has been missed during the last twenty years is that the WTO is above all a negotiating forum—a kind of ‘bazaar’ where countries negotiate commitments on their future trade and regulatory policies (regulatory policies since 21st century trade liberalization requires agreements on norms (goods) and regulations (services)).

    The key actors in this bazaar are the Geneva-based Ambassadors, not the Trade Ministers. Of course, Ambassadors to the WTO convey the positions of their governments to the rest of the membership. But, ‘true’ Ambassadors have two faces, like the Roman god Janus. They also convey the position of the rest of the world (or at least of the most important trading partners of their country) to their Ministers. In this respect, they have to enlighten their governments, and even to convince them to do or not to do certain things. In this role, they are unique: their Ministers are highly unlikely to have the rich array of information that Geneva-based Ambassadors can get quickly (if necessary, an Ambassador can exchange views with a dozen key trading partners within a few days).

    A DG needs to work closely with the Ambassadors. He is no substitute to them. He/she cannot achieve the same results by travelling from capital to capital, all the more because, when doing so, he/she will almost inevitably favor the large countries. His/her legitimacy for Member governments is an open question: it is strongly limited by the fact that he/she is not (or not anymore) a Minister, that is, a political decision-maker.

    All these remarks may look terribly “GATT-minded” and hence seem old-fashioned. But, is it not the main lesson of the last twenty years (1995-2013) that we have lived too long on a costly “hype” about the WTO? The Uruguay Round was seen by too many as the starting point of a new bright era where powerful international institutions would become key decision centers. The reality is quite different. Countries largely remain in charge for a host of reasons (it is beyond the scope of this note to examine them). We have to come back to a more ‘GATT-minded’ approach, based on plurilateral agreements, multiple speed agreements and a DG who is more in tune with these realities. That is not so bad: after all, the GATT achievements compare well to those of the WTO.

  • CUTS

    |

    Role of the next WTO DG: Addressing 21st Century Trade Challenges through Institutional Cooperation
    Pradeep S Mehta and Bipul Chatterjee, CUTS International


    The political situation which the next Director-General (DG) of the World Trade Organization (WTO) will inherit is unenviable as the future of multilateral trade is at crossroads owing to countries exploring other avenues to conclude trade agreements as a result of the protracted Doha round. As countries ponder if the WTO will continue to remain relevant as the platform of policy making, we consider if inter-institutional linkages can present a solution to deal with the 21st century challenges.
    One of the most critical tasks for the next DG is the reinforcement of the continued relevance of the multilateral trading system in a single undertaking format at a time when countries are increasingly resorting to non-multilateral trading agreements, and also pushing for variable geometry.
    This is particularly significant in the context of ‘shifting economic geographies’ where power is increasingly moving to the East at a time when the world is facing both economic crisis and disruptions triggered by unresolved 21st century issues such as climate change, food security, environmental damage etc. Though these disruptions have so far resulted in further eroding the stability of the negotiating system owing to the accrual of limited benefits to its populace as opposed to the costs, there is great potential to increase growth through tapping into global value chains.
    The solution is to broaden/equalise the focus on developmental issues with the pivot on open trade considering that countries may resist policies which induce only trade-related reforms. This can be achieved through a Geneva Consensus on Multilateralism, an essential element of which is facilitating institutional linkages between the WTO and other intergovernmental organizations which are engaged in ‘global economic issues’.
    The CUTS Survey: ‘Making trade a tool for poverty amelioration in the 21st Century’ had indicated that one of the foremost trade challenges being encountered concerns linkages between trade and global public goods such as climate change and food security, apart from the perils of non-tariff measures. The CUTS Survey also demonstrated that the linkages between the WTO and appropriate inter-governmental organisations to negotiate multilateral accords on trade and climate change, trade and food security could be facilitated through inter disciplinary working groups. Accounting for the shift in economic powers, the survey respondents note that while the WTO could provide the platform, the major developed and emerging countries have a responsibility to provide system stability.

    Coordination between WTO and other relevant intergovernmental/multilateral bodies
    Until now, the WTO’s coherence objective has revolved around just the Bretton Woods Institutions. leaving other critical issues such as food-security without a forum for discussion. Can this be improved by creating instruments or mechanisms to bridge the gap between the vastly different objectives which the pertinent organisations may have? The new DG will have to explore if questions pertaining to agricultural policy can be addressed in conjunction with the FAO, industrial policy can be formulated jointly with the UNIDO, monetary policy with the IMF, fiscal policy with the World Bank, labour policy with the ILO, health policy with the WHO and competition and investment policy with UNCTAD.
    Achieving coherence may seem insurmountable in some cases – the ‘Access to Medicines’ debate is one of those issues where the need to reconcile the stand on policy is imminent. Is there a need for inter-institutional agreement between organisations like the WTO, WIPO and the WHO on global access to medicines? Another pertinent example is that of UNFCC norms of climate change and the increasing exercise of protectionist measures in developing countries owing to which trade in green goods is increasingly under the scanner.
    Studies conducted by the WTO on 21st century issues should involve other multilateral organizations. A relevant example is the joint report on ‘Price Volatility in Food and Agricultural Markets’ addressing the food-security crisis by the IFPRI, the WTO, the FAO, the UNCTAD, the World Bank, OECD, the UN HLTF and IFAD in 2011 amongst others. The example of export restrictions in the report demonstrates the enhanced value of such studies. The report identified that export restrictions were prejudicial to food security not only in terms of trade, but also that policies exacerbated the food crisis. Such reports help decision-makers to devise a solution based on better access to information and analysis on both sides of the issue.
    Another question which should be addressed by the next DG is what should the inter-institutional agreement encompass? Should institutional relations remain based on aspects of cooperation between the institutions that merely confer observer status and involve information-sharing, or should it extend to according responsibility for achieving real development?

    Better Implementation of Policies derived through Coherence
    As has been noted in earlier discourse over the issue of coherence between the WTO and other organisations, consensus has to be arrived at a domestic level prior to establishing global coherence. It is critical that national governments communicate the benefits of a coherent trade policy to all the possible stakeholders. The WTO DG has to consider whether the benefits arising from enhanced cooperation between the international institutions can be taken down to the countries themselves if linkages between the WTO and the other international organisations can be facilitated by establishing working groups in the capital of every country or at least in a region. These institutions can be facilitated by a UN agency.
    Further, should the application of the trade policy review tool be expanded to identify not only measures which hinder free flow of trade, but also those policies and international operations which interfere with the achievement of the goal of poverty amelioration and reduction in income inequality? Especially during economic crisis situations, even amongst economic policies, trade policy has to be better aligned with monetary policy, fiscal policy, investment policy, and competition policy.
    Another question is that should due attention be accorded to capacity-development programmes in developing countries by channelling aid for trade into funds which help developing countries develop the capacity to deal with the linkages between trade and non-trade issues.

  • Asanka Wijesinghe

    |

    Challenges to new DG: Play the role of a political economist

    An important manifestation of economic globalization for developing countries is the impact of barriers to agricultural exports from developing countries, including the role of sanitary and phytosanitary (SPS) measures. The WTO’s success in the future, or at least its survival, will depend on the degree of integration of the developing countries and the benefits they obtain from the mutual liberalization of world trade. For this intra and inter-national reforms are required. The former should be done by sovereign nations, while the latter should be done within international bodies.

    It is obviously true that the liberalization of tariffs and quantitative restrictions paved the way for developing countries to harvest more benefits, in terms of increased export performance of both traditional and non-traditional products. However, food safety and quality standards are still daunting the success of exports of developing countries. Is the WTO capable enough to address these conflicting interests of its member nations? My answer is no, and I would like to suggest that the deadlocked Doha rounds and lukewarm reactions of member countries indicate a serious threat to the future of this umbrella body for global trade. I see two possible reasons for the inability of the WTO to address the conflicting interests. First, the institutional weaknesses of WTO that are manifested by indicators of underperformance that include lack of progress on the Doha round and the poor involvement of a block of its members, largely from the developing countries. Second, the weak institutional capacities of the developing countries and their attitudinal biases against the WTO. Unfortunately these reasons are mutually reinforcing!

    The fundamental question in the liberalized global trade arena is whether developing countries benefit from tariff liberalizations and easing of quantitative restrictions. The answer is undoubtedly yes! But agricultural and food exports from developing countries are still facing non-tariff measures, such as SPS measures imposed by the developed countries. The result is a severe blow to the export competitiveness of the developing nations as a result of escalated trade costs. If these environment and health related trade barriers are scientifically ill-found, and lack a justifiable cause, the affected countries can bring the cases to the WTO dispute settlement bodies. However, weak institutional capacities and lack of technological sophistication make this impossible. The net result is marginalization of the developing nations in the world trade arena. The political implication of this marginalization is quite significant. When developing countries’ agricultural and food production are not allowed in world trade, the popular discontent about the WTO and world trade increases. This discontent is critical as agriculture is the largest sector which still employs the greatest portion of the labor force. As this segment has a great political lobbying power in national politics, there is a tendency for the political forces that are in favor of the market economy, world trade and the WTO to be defeated.

    The new DG of the WTO should consider this aspect through the eye of a political economist. At the moment, what is required is to integrate the developing countries in world trade and to ensure that the economic benefits reach the rural mass that holds the highly important domestic political power. What should be the mechanism? The mechanism should be essentially a meaningful dialogue, with genuine commitment of all the nations for greater domestic and international reforms for strong institutional capacities. While some may regard this kind of discussion as just a utopian idea, it is better to start it. Finally, I would like to add that the rise of the market economy, even at its preliminary stages, was a driving force for the freedom from suppressive social institutions. The WTO should play the role of guardian of such achieved freedom and be its promoter.

  • robert wolfe

    |

    The new Director-General of the WTO takes office at an apparently critical juncture, barely three months before the supposedly make or break Bali Ministerial. If Members fail to agree on the mini package of issues proposed for that meeting, the WTO will be discredited, leading countries will give up on the WTO as a forum for negotiations, and global value chains will roam the earth unimpeded. I think in contrast that things are not as dire as all that. Many of the Doha Round problems were due to a general malaise in multilateralism and to structural changes in the world economy that undermined the premises of the round. Perhaps most of all the leading players changed in mid-stream. Until the U.S. and China learn how to develop a trans-Pacific accommodation comparable to the one painstakingly established across the Atlantic, new negotiations will be stymied. Improvements in how the WTO negotiates are possible, but the Doha Round did not fail for institutional reasons.

    Nor should the new Director-General worry over much about the noodle soup of bilateral and regional trade negotiations. Politicians are showing an endearing faith in written rules. In the improbable event that all the negotiations succeed, and that strong obligations are actually implemented, firms in global value chains might have trouble learning how to navigate the thicket of rules. The so-called “mega-regional” trade negotiations may be exciting, but China, India, and Brazil are not participating, and probably will not. If their acceptance of any new disciplines is thought important, it seems likely that they will eventually have to be negotiated at WTO. But whether or not the current negotiations succeed, it’s good that countries are talking. If they develop good ideas, no doubt they will bring them to Geneva. In the meantime the new Director-General may need to rag the puck, as hockey defensemen do while waiting for their team to return to full strength.

    Let me now turn to the questions posed by Bernard Hoekman and Petros C. Mavroidis.

    Should the DG be an experienced politician?

    At the outset I thought that the role of ministers was crucial, and that therefore ministerial experience was vital. Now I am not so sure. Whether or not the new Director-General has had political experience, s/he must be able to work closely with both domestic leaders and Geneva ambassadors.

    Pascal Lamy, worried by a “disconnect” between Geneva and capitals, has always maintained close contact with ministers. Having been a minister himself, he saw ministers as his real peers and colleagues. He is always eager to call them back to Geneva to make the key decisions, ignoring ambassadors who would keep talking forever. Maybe he thought ministers and ambassadors live in different worlds, one participant told me late in the round, but hell has no fury like a bureaucrat scorned. The Secretariat could once pretend that if the ambassadors were intransigent it was because they were on their own, playing a personal role with no instructions from home. Appealing over their heads to ministers might have helped to break an impasse. Given the internet, however, it is unwise to assume that ambassadors are not in close contact with their capitals, or that their own constituencies at home are not able to follow events in Geneva. It is said that during an unscripted discussion at the Toronto G-20 Summit, other leaders were surprised that U.S. President Obama sounded just like his negotiators in Geneva. They should not have been. When ambassadors do not agree, it could be because a deal is not ripe. They are the only ones who are in a position to understand the whole round. For many countries their chief negotiator is the Geneva ambassador, not someone in the capital.

    Unlike the Uruguay Round, the Doha Round has been marked by a remarkable number of so-called mini-ministerials. I thought they were important, and so was surprised when negotiators in Geneva were irritated by them, and even more surprised when the ministerial guidance had no apparent effect in Geneva. I discovered that announcing a mini-ministerial brought Geneva work to a halt because nobody wished to pre-judge what ministers might say. It turns out, however, that the drafting for the mini-ministerial statements was usually done in Geneva, because that’s where the experts are, for most Members. At some mini-ministerials some countries were represented by the Geneva ambassador, and those ambassadors usually accompanied their ministers.

    Political engagement in trade negotiations is essential, but tough decisions must be well prepared for ministers with limited time and even more limited technical knowledge. Elements of a package have to be assembled bit by bit. A beast as cumbersome as the WTO cannot negotiate on the fly. If the Director-General had been allowed to keep the list of issues for decision at the July 2008 informal ministerial small, the gamble of bringing ministers to Geneva might have worked. He would have been better off had he been able to exclude all the second tier issues, including services, and if the list of open agriculture and NAMA issues had been shorter. The role for ministers is to knock off the last few square brackets, and to bless the assemblage when the Single Undertaking is ripe. I now think that while ministers have to understand the issues, they cannot drive the process.

    The political challenge for the new Director-General will be constructing a functioning bridge club at ministerial and chief negotiator level, a task that will require a delicate approach with both political and bureaucratic actors. The absence of a functional equivalent to the old Quad hurt the Doha Round, despite valiant efforts by Pascal Lamy to bring one into being.

    Should the DG spend his/her energy on trying to conclude the Doha round?

    No: this parrot is dead. Since the grieving relatives do not want to face reality, the new Director-General should encourage them to send Doha to the Old Rounds Home and move on, whether Bali succeeds or not.

    Some of the “Elements for Political Guidance” adopted by the WTO’s 2011 Ministerial Conference were delusional in their rhetorical claims that the Doha Round could and should be finished. Members had no inclination to re-open the delicate bargains that had been fought over at ministerial meetings in Seattle, Doha, Cancún, Geneva (July 2004) and Hong Kong. While accepting that they might agree on some areas now thoroughly chewed over, they want to retain the progress already made in parts of the negotiation not yet stabilized, because that too has been painfully achieved. But what made sense in 2005 or 2008 is no longer viable.

    When it is time to discuss the post-Bali agenda, the Director-General should encourage Members to ask not where firms demand new rules (they are not experts in the alphabet soup) but what they ask for. Firms tell you specific interests, not general aspirations. And much of what they are asking for, as Hoekman and Mavroidis suggest, involves regulation. The Doha Round never got to grips with the regulatory issues that will be important in all new trade negotiations. I suspect that the major players will only be able to conclude deals among themselves on such domestic issues in Geneva. And it will not be easy. Regulatory agencies have different missions—safety, security, environmental protection—and regulators therefore do not always see a need for reciprocal negotiations. Some regulators need to work with their counterparts; others do not.

    Should the WTO (and its DG) be more pro-active in reaching out and engaging with business and other stakeholders?

    I think the WTO has made significant strides in this direction in the past four years, a pace of change which should continue, but I doubt that being even more active would be useful.

    Was the move to focus more on development issues a mistake?

    The new Director-General will have to grasp the differentiation nettle: all developing countries are not alike.

    The development mandate never made sense. It arose from the pre-Doha debates about “implementation” of the Uruguay Round agreements, which had been based on the assumption that they were a “bum deal” for developing countries. Desire to “rebalance” all bargains led to the “implementation” debates, which led to the Seattle breakdown, which in turn led to the Doha Development Agenda and endless subsequent debate on the wrong issues.

    When “policy space” is thought to mean water in tariffs, in the form of unnecessarily high bindings, and “special and differential treatment” comes to mean weaker disciplines for all developing countries, including emerging economies and new members of the OECD, then the structure of multilateral rules risks unraveling. The development framing rests on the outdated assumption that the obstacles to development are restrictions in north-south trade, whereas the largest remaining obstacles affect south-south trade.

    The further delusion is that the United States should still be willing to pay for a stable trading system by offering unreciprocated greater access to its market. The same countries who happily point to the greater economic weight and therefore influence of the emerging economies fail to note the corollary: precisely because the U.S. counts for less in the world, Congress will be harder to move since any U.S. action will cost more and have a smaller payoff for Americans. With a greater role for developing countries eventually comes greater responsibility.

  • Pierre Sauve

    |

    Two core challenges for the next Director General

    Charting a future course for the WTO at a time when its membership is as mired as ever in the intractable challenges put up by the Doha Development Agenda is a decidedly daunting task. The next Director General will inherit a multilateral trading system that has seen better days. It has, sadly, become increasingly difficult to talk of the Doha Round in the present tense. In two and half decades of involvement in trade diplomacy, it is hard to recall a moment as uncertain – some might say as bleak ‐ as the one the multilateral trade community currently confronts.
    There is, of course, undue hyperbole in the above comments. Trade policy has a marked propensity towards emotional overshooting. Undue WTO‐pessimism often derives from the predominant tendency to regard the trade body as a one‐trick (i.e. market opening) pony. There is little denying that the WTO’s trade liberalizing and decision‐making machinery show a number of worrisome signs warranting serious attention on the part of Pascal Lamy’s successor. Still, one would be hard pressed to sustain the argument that the WTO’s equally core adjudicatory and surveillance functions suffer from debilitating institutional shortcomings. Maintaining a sense of policy proportions is thus a precondition for thinking clearly about what might lie ahead for the multilateral trading system.
    The next DG’s first clear priority will be to salvage what is salvageable at MC9 in Bali. What may ultimately transpire at the next Ministerial gathering will have probably long been established by the time the new Director General takes office on September 1st. None of the highly competent candidates still in the race can be expected to deliver miracles in such a time span. Nor should they be. Still, the new DG and his or her senior management team can help set a tone, send signals of a new way of doing things, provide hope and help restore confidence much the same way that Pope Francis has galvanized his troops with a discourse that is tinged with humility and a compelling call for a return to core beliefs.
    Five years into one of the deepest economic crises the world has known, and at a time of growing restlessness over how the spoils of globalization are being shared both within and across countries, there is today a crying need for more economic justice. The very DNA of the WTO – its emphasis on transparency and on orderly, progressive, change, its promotion of the core values of fairness and non-discrimination, its embodiment of right over might – offers a potentially strong antidote to many of the ills of today’s world economy. The next DG will need to use the full – if constrained – power of his or her pulpit in voicing the moral imperative for greater distributive justice.
    Beyond picking what is arguably the Doha Round’s lowest hanging fruit – a deal on trade facilitation – by no means an inconsequential outcome in a world where development economics ascribes increasing importance to the thinning of borders for income growth, the next DG’s first real test will be whether he or she can get Members to agree to a compelling development package. The elements of a development-friendly Doha Round package are by now familiar to all. If WTO members fail to muster the plain common sense to help the most disadvantaged among them to share more broadly in the benefits of trade liberalization and rule-making, they will supply the Organization’s many detractors a compelling reason to question the organization’s future.
    A credible down payment on development is a crucial pre-requisite for looking forward, arguably the second most pressing imperative facing the next DG. To progress and chart a sustainable future path, the WTO system needs a revamped operating system – one that ensures greater adequacy between the world economy of today and the trade rules that should govern such a new environment. Absent such adaptive efforts, the multilateral community is left with a rule book designed in the early 1990’s. Tectonic changes have occurred in the world economy since the end of the Uruguay Round, not least the digital revolution that is fast changing the geography of trade, and the inability of the WTO membership to revisit its collective rule‐book seems certain to shackle the institution’s quest to stay relevant and negatively affect the legitimacy of those functions that the WTO has continued to perform well even with a dated rule‐book.

    The costs of non‐Doha are thus not merely commercial in character. They also carry genuine institutional consequences. Any meaningful effort to “reset” the WTO button must thus focus on the need for change on both the liberalization and rule‐making fronts alongside the organization’s decision‐making machinery.

    There is today a pressing need to consider constitutional changes in the WTO’s governance structure and modus operandi so as to allow greater flexibility in decision‐making, agenda‐setting and the very conduct of negotiations. Simply put, the time has come to reconsider the pros and (mostly) cons of the Single Undertaking and explore ways of embedding needed doses of flexibility into the multilateral trading system. Conceived at the end of the Uruguay Round by the Quadrilateral countries as a means to prevent free‐riding and ensure full compliance by all Members with the Round’s ambitious outcomes, the Single Undertaking has today become a powerful source of collective inertia, providing an effective veto to all members and a ready‐made excuse to foot drag for those wishing to do so, whether for substantive or tactical reasons.

    The next WTO DG must have the courage to say loud and clear that, far from suffering from a democratic deficit, the WTO is arguably afflicted by an excess of democratic virtue! The next DG should help chart a way to embed greater doses of variable geometry in ‐ and/or critical mass approaches to – the way in which decisions are taken, agendas set, negotiations conducted and agreements reached.

    On many rule‐making issues – take trade and competition or trade facilitation for instance, the risk of free‐riding on MFN‐brokered outcomes is arguably non‐existent. Critical mass or full (i.e. unconditional) MFN approaches can and should thus be envisaged in such instances. Where market access issues are more prominent – think services, government procurement or investment for example, there is clear legitimacy to the belief that non‐participating members should abstain from claiming or be rewarded with MFN benefits. In such instances, MFN‐constrained plurilateralism in the manner of the numerous codes brokered in the Tokyo Round could define the new norm, so long as all WTO Members are free to take part in the negotiations in a fully transparent manner, that these are serviced impartially by the WTO Secretariat, and that all Members are given the opportunity to opt‐in at a later date if desired through an accession clause designed for this purpose.

    The experience from the Tokyo Round codes suggests that their “partial equilibrium” nature helped pave the way for their subsequent multilateralization in the Uruguay Round (admittedly with the help of the Single Undertaking!). The Organization’s increasingly diverse membership – and the overwhelming influence that developing countries already wield given their share of its membership – a trend that is set to grow as pending accessions proceed – make the quest for greater flexibility all the more justified and necessary.

    Forward movement is not a luxury for the WTO system, it is an absolute necessity, not least because the world of trade and investment is ever changing, with new patterns of comparative advantage and, thus, of trade and investment integration emerging, new voices in need of being heard, both within and outside the trading system, trade and non‐trade sensitivities in need of greater policy reconciliation, new responsibilities assumed by those whose systemic influence has recently become significant, and new negotiating challenges taken up.

    The WTO’s next DG cannot succeed without a clear vision of how and why the system must evolve to stay relevant and remain an indispensable anchor of shared global prosperity. There is little doubt that the WTO’s next Director General faces daunting challenges, deeper and more ominous perhaps than any of those faced by his or her predecessors. Doing the job well will require a combination of contrasted skills: steely resolve and humility, intellectual leadership and a capacity to work alongside Geneva-based delegates in search of workable solutions. Luckily, such a skills set seems in ample supply among the candidates vying for the position.

  • jlacarte

    |

    I have known all the Directors-General, both of GATT and the WTO, in many cases very closely and in others a bit less. This experience allows me to look back and form a view of the virtues or otherwise of those who have held this key position in world trade, and of those who will succeed them.
    Out of this vision, a certain number of aspects stand out as to what is in my opinion most important for the new Director-General who will soon be installed at the helm of the WTO Secretariat.
    There are two obvious requirements that any candidate must fulfil: the first one is, of course, intelligence, and the second is complete familiarity with the working of the organisation. One cannot contemplate granting such responsibilities to anyone who would be learning as he went along. This is out of the question, least of all when the WTO is deep in the morass of an interminable Doha Round. Certainly, what is needed is a person who can simultaneously encompass both the great political and economic concepts which are part and parcel of world trade at the highest level, while being capable of following and contributing to negotiating processes of an extremely technical character.
    The third requirement is the capacity to convey to the whole membership that the Director-General is truly impartial and trustworthy, and will keep exclusively to himself any confidence that is volunteered to him.
    I cannot emphasise too much the importance I attach to this question. The membership of the WTO is very large and varied. It includes countries of widely differing cultures, languages, population, resources, and degree of economic development, and – as a consequence – equally varying needs and expectations. Everybody wants the Director-General to concern himself with their problems and, while recognising that this is a tremendous task, I believe it is a necessary one if credibility is to be attained.
    There is always a fine balance to be kept between the permanent representatives of governments and the Director-General. The former rightly consider that it is incumbent upon them, acting collectively, to decide on all great issues. However, because of the conflicts of interests that inevitably separate them, they are well aware that there is only one person whose duty consists of bringing them together with tact and forward-vision to the point where they can reach consensus.
    This is the key role of the Director-General, and if he does not have the confidence of the membership, then he cannot fulfil his basic obligation to the organisation.
    To go back a long time, and so avoid any comparisons with more recent holders of the post, I can recall Sir Eric Wyndham-White in the GATT period. I knew him very well and – as his deputy for a time – we often had vigorous but friendly discussions, which do not influence in any way my opinion of him at this moment.
    Eric was intelligent, had a strong personality that was evident to all, could talk on even terms with anybody at all and – most significantly – had the confidence and respect of the contracting parties. Thus, there was never a question of finding a successor, and he only withdrew from GATT at his own volition and after very many years, when he decided to switch his talents to the private sector.
    Perhaps this is the best thumb-nail sketch I can provide for the new Director-General of the WTO, at a moment of indisputable institutional crisis arising from the stagnation of the Doha Round.
    Intelligence, knowledge and trust, allied to the moral courage to show that the commitment to the WTO outweighs any consideration of job security, is my answer.

    Ambassador Julio Lacarte, former Minister of Trade of Uruguay, was Chairman of the GATT General Council and served as Deputy Executive Secretary of the GATT at its inception. In 1995, Lacarte was selected as the first chairman of the WTO Appellate Body.

  • RMedhora

    |

    As the next Director General of the World Trade Organization takes office, it might be useful to reflect on what awaits him or her. First, the good news. Despite the quite justified comments about the multitude of bilateral and regional trade deals that are overtaking the multilateral trade system centered around the WTO, global trade itself is not in crisis. A remarkable dog-that-didn’t-bark aspect of the current economic crisis is the resilience of trade flows and lack of any major trade disruptions in the past five years. For a group still looking for a landmark success, the G20 should be given some credit for having averted outright trade wars through the statements and actions of its leaders.
    This might still change, if the three quantitative easing programs (in the US, Europe and now Japan) result in a currency war. Much depends on whether the programs work through the expenditure/investment channel rather than the exchange rate channel. If the latter, it is hard to imagine what the WTO might do to manage the consequences.
    Another bright spot is the dispute resolution mechanism, a success in the sense that the number of cases brought to this process and the number of countries using it is rising. There is very little the head of the WTO can do to change matters in either direction, so best to garner the plaudits.
    The albatross around the WTO’s neck that is the Doha Round must be shed. Rather than proclaim smaller and smaller visions of it still alive, the next head of the WTO is best placed to use whatever honeymoon period he or she is afforded by the member states to proclaim, doing the best impersonation he or she can muster of John Cleese in the Dead Parrot sketch, the Round over and to move on. To what? There is room for discussion here, but it is not clear if the single undertaking approach holds much promise going ahead. If even some of the current issues are to be tackled – intellectual property, investment, climate change, technology transfer – then they deserve to be treated on their own merit, and not part of a grander, fruitless bargain of the sort that got us into the Doha mess in the first place. At any rate, the challenge posed by countries voting with their feet and fleeing the multilateral arena for bilateral and regional ones cannot be met by clinging on to Doha. Best to disassemble it, add and subtract topics, and demonstrate the usefulness of the WTO as a negotiating forum by showing progress on a specific issue.
    Unlike the International Monetary Fund and the World Bank, the WTO’s research, training and outreach arms are modest in their size and reach. This is one legacy left over from the GATT days which should be overcome, with the DG insisting to do so not just for the good of the organization, but to strengthen the global constituency for multilateral free trade. For starters, the WTO Chairs program could be expanded and deepened, and the WTO’s sporadic and frankly ineffective “training” courses could be systematized into an Institute along the lines of what the IMF and World Bank run.
    Does it matter whether or not the head of the WTO hails from the developing or developed world? The IMF and World Bank are so sullied by their headship selection processes that there is an easy win for the WTO here. An open, competitive and transparent selection process is more important than the nationality of the person it yields. Perhaps a leader with vision and management skills selected through a credible process is not enough to change what appears to be an inexorable drift away from the WTO-centered global trade regime. But not even trying will guarantee irrelevance.

  • Robert Zoellick

    |

    Opinion Editorial published on the Financial Times (1 April 2013)

    Starting this month, the 159 economies of the World Trade Organisation will begin the selection of a new director-general. Instead of the usual practice of a selection based on personality and nationality, the nine candidates for WTO chief need to answer questions of policy leadership.

    Pascal Lamy, the current director-general, made every effort to complete the Doha round of global trade negotiations. But that deal, launched in 2001, has foundered on differences between developed economies and major emerging markets. As a result, the WTO is at risk of being pushed aside.

    The action is shifting to other venues, with the announcement of a US-EU trade negotiation being just the most recent. The next DG needs to have a policy agenda to modernise trade multilateralism to meet new challenges. I urge that each candidate should be assessed by the substance of their answers to five questions, which are drawn from the work of Gary Hufbauer and Jeffrey Schott of the Peterson Institute.

    First, will you push for a “small package”, drawn from the Doha negotiations, of special benefit to poorer countries? The years of work have identified potential deals, starting with removing quotas and tariffs on almost all the exports of the least developed countries, which account for less than 1 per cent of world trade.

    Given the changing outlook for world agriculture – a shift from chronic surpluses to increased demand – the WTO could end agricultural export subsidies and exempt humanitarian aid from food export controls, as the Group of 20 recommends. The WTO has also identified steps to facilitate trade through streamlined documentation and customs procedures. And the package could include reforms to the WTO dispute settlement process that would boost transparency and encourage speedy decisions with more settlements. Such a package would benefit the most vulnerable economies, while demonstrating that the WTO can still do business.

    Second, will you encourage the completion of an international services agreement that offers reciprocal liberalisation to all economies willing to join? Some topics – such as the rapidly increasing services trade – have been held back because all WTO members are not yet willing to commit to openings. But when the WTO stalls, the dealmaking moves elsewhere. The global trading system should encourage “liberalisation by the willing” with others joining when ready. The services trade is increasingly important to boosting productivity in developing countries seeking to avoid the “middle-income trap” and to lowering costs of critical infrastructure development.

    Third, will you support zero-for-zero “plurilateral” accords that bind all signatories to eliminating tariffs and other barriers reciprocally, sector-by-sector? For example, the information technology agreement of 1996 led to a boom in global sourcing and supply chains for IT products, by getting rid of barriers to trade in this sector. But its list of goods needs to be updated for the digital age, and the ITA II should include services. If the WTO does not create opportunities to conclude new liberalising deals within its framework, the action – and the creation of new rules for new issues – will move elsewhere.

    Fourth, are you willing to press for principles to require fair dealing by state-owned enterprises? The increased importance of SOEs in the world economy – in financial services, telecommunications, steel, chemicals and energy, and other natural resources – requires new rules so that private businesses can compete fairly with state capitalism. The rules need not push privatisation or rollbacks of state enterprises, but they should require transparency, commercial behaviour, declarations of subsidies, nondiscrimination and open procurement. As sovereign wealth funds discovered after they signed the Santiago principles in 2008, agreed, transparent rules build acceptance in the international system. Without such rules, many state enterprises, which seek to trade and invest abroad, will find themselves subject to new barriers.

    Finally, will you agree to launch a discussion with the International Monetary Fund about the application of the existing WTO and IMF rules requiring that exchange rates shall not be manipulated to gain unfair trade advantage? Given the extraordinary monetary policies spawned by the financial crisis – and the risks of competitive devaluations of currencies – multilateral bodies should not abdicate responsibility on these questions. If multilateralism fails, unilateralism may prevail. Brazil has already urged the WTO to discuss these questions.

    The WTO members need to face up to the key trade policy questions of the day, even if they do not yet agree on the answers. If the WTO members do not select a new leader with an agenda, global trade diplomacy will drift and other negotiations will fill the vacuum. A substantive selection process can give the WTO chief a mandate to get things done. That is what good global governance should be about.

  • KElliott

    |

    Frustrations with the Doha Round aside, the World Trade Organization (WTO) is still one of the most effective international institutions around. The WTO demonstrated its continued strength during the Great Recession when trade protectionism remained muted. And even in more normal times, it remains relatively robust because its members, developed and developing alike, see benefits from having a rules-based trade system.

    There is also no question that the WTO is facing serious challenges. One of the biggest will come in Bali just months after the new Director-General takes over: what to do about the comatose Doha Round. In their various statements, the candidates emphasized the importance of a positive outcome at the ministerial meeting in December. They were less clear on what should happen next. Assuming that the ministers are able to cobble agreement on a few things together—trade facilitation, duty-free, quota-free market access for the least-developed countries, and something on agriculture—my view is that they should declare victory and move on.

    Moving on would not mean abandoning everything on the existing agenda. The WTO will have to address agricultural subsidies and tariffs in some fashion, but a fresh start would allow the agenda to be updated and reshaped in ways that would better meet members’ needs in the 21st century.
    Moving on also requires understanding why the Doha Round turned sour. One argument is that there are too many cooks stirring the broth and too much democracy in settling on a recipe. My interpretation is that the Doha Round is deadlocked, not because poor countries are blocking it, but because the big players cannot agree among themselves. Beyond the substance of the issues, a key institutional factor is the policy of special and differential treatment for developing countries, combined with the lack of differentiation among developing country members (except for the UN-designated least-developed countries). It simply does not make sense for Brazil, China, and India to be treated the same under WTO rules as Bolivia, Kenya, and Sri Lanka. Industrialized countries clearly expect more from the larger emerging powers in exchange for opening their markets more widely. And, while few are willing to say so publicly, many smaller developing countries were leery of a Doha Round deal, not because they were afraid of opening their markets to the United States or Europe, but because they feared opening up to China.

    Some would say that the answer is to end special and differential treatment, but that goes too far. Developing countries differ widely in their development needs and in their capacity to implement and enforce some rules, for example on intellectual property. The large emerging market economies are now members of the G20 and they are, rightly, demanding more of a say in running international institutions and managing the global economy. But more power also entails more responsibility and in the WTO context that should include accepting more disciplines than weaker members.

  • jayaroy@deloitte.com

    |

    Adherence to multilateral trade rules remains a necessary condition to derive optimum results from trade liberalization, especially for the developing countries. Doing so supports rapid growth of exports of goods and, more so now, of services, greater inflow of FDI, and the employment generation needed for poverty eradication and income equality. In short, outward-oriented development strategies benefit from the multilateral rules of WTO.

    But the focus of WTO has to drastically change from long comprehensive rounds. It needs to define and expand areas covered by the trade rules to allow achievement of the gains from trade through greater market access. Much closer partnerships are needed with the other multilateral institutions, with regional bodies, regulators and the private sector to help enforce these rules and in implementing trade policies. The WTO needs for example to champion a real and effective trade/transport logistics agreement that is fully endorsed and financed by the regional and multilateral bodies to drastically reduce the Number 1 bottleneck to global trade and investment flows: massive trade transaction costs. Trade facilitation reforms have not yet been able to reduce the trade transaction costs that plague most developing countries, and even stand in the way of meaningful pursuit of regionalism. Making progress requires joint action by WTO and the development institutions.

    Similarly, we need clearer and fair rules on trade in services, which can only be achieved if regulators become a more integral part of the WTO process, and ensure that regionalism does not result in trade diversion outweighing trade creation. Here again this can only be achieved if the WTO becomes more inclusive and works with other organizations.

    The next DG has a formidable task without having the luxury like several World Bank Presidents had of being able to pursue a major reorganization of the institution to reflect the new directions. The same-sized Secretariat has to perform the new tasks. He/she must also need to hear views of people from different groups, not just relying on the trade policy advice from internationally recognized trade experts, and the powerful and growing “Geneva Club”. The language of trade policy has to change from citing WTO articles to something a layman understands and business people can relate to.

    The new WTO DG must recognize that trade policy is an integral part of national development strategy and is intrinsically interlinked with its other components. Hence it is of paramount importance to be in constant touch with the government, not just at the central level, but also at the state, and in some cases, local level, with the private sector, with parliamentarians, and the media across a truly representative sample of countries. The new DG must convince policy makers, the private sector, and the general public, of the importance of trade policy and the role played by WTO in promoting trade for inclusive growth.

    The necessary qualifications for the next DG in my mind are:
    1) A Trade minister/ Chief trade negotiator, preferably from a complex developing country, and who has grappled with trade facilitation, regionalism, and trade in services issues. Trade facilitation needs to be championed by a DG from the South to counter misgivings that it is an agenda imposed by the advanced countries.
    2) Total familiarity with the WTO set up in Geneva.
    3) Commanding respect of a vast network of politicians, industry CEOs, including of MNCs, top officials of multilateral institutions, and key bilateral donors.

    Among the nine candidates, Mari Pangestu and Amina Mohamed fit this bill, with a definite edge for the former.

  • smarchi@marchigroup.ch

    |

    First Moves For a New WTO DG

    The campaign to replace the Head of any international, intergovernmental organization is a mixture of ideas, intrigue, and politics. In this regard, the WTO is no exception.
    However, underwriting these three elements is new energy, and the hope for renewal. In other words, the possibility of a fresh start. And this is a very healthy side of the current WTO DG selection process, especially since the organization has had a tough go of late.
    Bernard, Petros and others have highlighted a number of valuable issues which, for them, would help constitute that fresh start in leadership. Let me complement their thoughts by sharing with you 6 practical moves that the new DG should consider from the very start;

    First, the new DG should reach out and listen.
    It is indispensible for her/him to reach out and broadly engage different people in the trade constituency. Ask for their candid advice and ideas. Pose questions and challenge their proposals. Listen to them.
    The new DG — and all those involved — must learn from the shortcomings and mistakes of the last few years. She/ he must fully understand and appreciate the bumpy road that the trade institution has travelled, if they are to help pave a smoother road ahead. She/he must also be able to seize on some novel and creative solutions that will help address the challenges that confront the WTO.
    With time, all DG’s run the risk of retreating into a small ‘bubble’; a cocoon of advisors. This is dangerous, given the globality of the task. Thus, seeking input should not be a one-off initiative at the start of the mandate. It must be an ongoing commitment. Just like education is a life-long endeavor, the DG must never stop learning from her or his trade base.
    Towards this end, I would also propose that the new DG establish one or two permanent, informal bodies that would allow a constant flow of information to her/ him , and to WTO Members. She/he could easily set up a WTO Business Advisory Board and a WTO Public Advisory Board (consisting of civil society, academic, and other representatives), which would ensure ongoing counsel and sustained dialogue.

    Second, the new DG should make a special effort to consult the private sector.
    It is no secret that, in recent years, the business community has been less active and interested in the affairs of the WTO.
    Rightly or wrongly, many of them believe that because the organization is still deadlocked on the DDA after 12 long years, it may not be worth their time and effort to engage. In other words, what they are really saying is, ‘call me when you have something to tell me’.
    But I would encourage the new DG to ‘call’ them right away.
    After all, the WTO is in the business of liberalizing trade so that the private sector can achieve more trade and in the process, create more economic opportunities, growth, and wealth which, all peoples, in all countries, are demanding.
    If the business community is turning away from the WTO, then its future is in jeopardy, because it brings into question the very mission of the WTO.
    The new DG therefore needs to hold a series of business roundtables. A business listening tour with CEO’s and Business Associations. Not to worry, they will come and they will definitely speak their minds — if only to ‘check out’ what the new Boss is made of.

    Third, the new DG needs to motivate the WTO Secretariat.
    From first-hand experience, I know that the Secretariat is a dedicated group of professional who believe in the cause. But, to be candid, they are down in the ‘dumps’. I have never seen them this demoralized. Their spirits need to be lifted, and this is a prime responsibility of the DG.
    The new DG should hold an early ‘town hall’ meeting with all WTO staff. She/ he should open up to them. Tell them something about herself/himself. Outline some ideas for the job, and the organization. Then, invite the staff to speak about matters which are important to them. Listen, and do this at least annually, in an effort to create an open and honest relationship.
    With WTO Directors — who are the ‘generals’ of the Secretariat for the DG — the new DG should have regular (weekly/bi-weekly/monthly?) sessions with them. Seek their advice, and find out what their priorities and concerns are in their respective divisions. This will be mutually beneficial and again, it would help build a trusting relationship with the Secretariat leadership, which is essential for a well-functioning Secretariat.

    Fourth, immediately meet and consult the WTO Ambassadors on an on-going basis.
    They just elected the new DG and like the Secretariat, they too are rather unmotivated.
    The Ambassadors don’t like the fact that they are stalled on the DDA anymore that the next WTO supporter. But more importantly, they desire and need to have a first class working relationship with the DG.

    I have seen DG’s overlook Ambassadors in favor of going directly to their respective Ministers, Presidents, or Prime Ministers. Don’t get me wrong, having a healthy rapport with Leaders is important for a DG.
    But that should not come at the cost of her/his relationship with Ambassadors. Any DG that has tried this has paid a huge price. You see, at the end of the day, those Ministers and Leaders will rely and trust their own Geneva Representatives when it comes to promoting and protecting their vested economic interests.
    Trade politics is also a circle.
    Consequently,the new DG must send a clear signal that she/ he understands the importance of this relationship, and that this will be nurtured and sustained throughout the entire mandate.

    Fifth, involve Trade Ministers beyond negotiations.
    Again, from first-hand experience, the WTO does not come close to utilizing Trade Ministers to their fullest potential.
    Ministers are only called upon to negotiate. While this is clearly an important obligation, it should not constitute their exclusive responsibility. In fact, if truth be told, the nitty-gritty of negotiations is not the strength of most Ministers. Not because they are incapable, but because their time is spent on so many other political fronts — caucus, Cabinet, local electors and constituencies, domestic issues, etc. — that they can’t afford to dedicate the space to master the intricate details of trade negotiations. As a result, they rely on officials for the micro, and they take care of the macro.
    But when it comes to issues like the size and management of the Secretariat, the WTO Budget, WTO reform, running the Ministerial Conferences, and public and private sector outreach, Ministers can and should add much political value. Have them take strategic ownership of these issues and events, and become real partners of the DG.
    Why, for example, is there not one single Committee of Trade Ministers working on a dossier (WTO reform?) of some significance, with a view of reporting their findings and recommendations to the next Ministerial Meeting in Bali?
    This is not overly complicated. It’s just common sense.
    Finally, the new DG should choose a Chief of Staff that understands both the WTO neighborhood, and the larger outside world.
    I view this position as being of crucial importance to the DG, and a central conduit for the trade constituency at large.

    Accordingly, that person should not just be a trade technocrat. Nor, should that person be a total stranger to the inner workings and culture of the WTO. The ideal candidate should be someone who can bridge both worlds — for the DG and for the trade community. Someone who can see the big picture, and think long term. Someone who can offer sound, balanced, and realistic advice to the DG and through their counsel, enhance the judgment call of the DG.
    And the DG should know that such people do exist. She/ he should take the time necessary to pick the right woman or man for the job.
    In closing, some may argue that these first moves are ‘small’ steps for the new DG in contrast to the trade policy agenda that awaits her/him. However, in the immortal words of Neil Armstrong, these could prove to be ‘giant leaps’ forward for the WTO.

Comments are closed