Trade is a much more powerful means of promoting development. While the World Bank disbursed $154 billion in loans in 2019, global trade was worth $19 trillion in the same year. But the job of the WTO leader is similar to that of the conductor of an international orchestra whose members have the freedom to play what they like and are intent on playing mostly tunes favoured by domestic audiences. Each one of them must agree to change the national tune for the conductor to produce a harmonious melody.”
Nigeria’s two-time finance minister and a former director at the World Bank unsuccessfully tried in 2012 to become president of the World Bank. On the 16th of February, 2021 she got a bigger job when she was confirmed as the new Director-General of the World Trade Organisation. Trade is a much more powerful means of promoting development. While the World Bank disbursed $154 billion in loans in 2019, global trade was worth $19 trillion in the same year. If Africa is able to increase its share of world trade from 2% to 3%, this would generate additional income for the continent that would be about three times greater than all the aid that it receives. The role of the WTO is to remove barriers to the growth of trade amongst countries.
The WTO works with countries to agree on mutually-accepted rules on an array of issues like labour standards, subsidy to local industries, fish, meat and poultry diseases and safety, levels of environmental protection, etc. so that trade is not impeded because countries bar imports on account of different regulatory different standards or perceived unfair practices.
But the job of the WTO leader is similar to that of the conductor of an international orchestra whose members have the freedom to play what they like and are intent on playing mostly tunes favoured by domestic audiences. Each one of them must agree to change the national tune for the conductor to produce a harmonious melody.
Mrs. Okonjo-Iweala will have to hope, pray and work very hard so that she would not wish, at the end of her seven-year tenure, she had gotten the World Bank job rather than her new WTO engagement.
Here are some of the key (closely related) issues why:
A Stalled Engine: The last successful trade round, the Uruguay Round, was concluded 27 years ago in 1993; it is also the round that saw the creation of the WTO. The original trade negotiation round (to reduce subsidies, tariffs, and quotas which erected barriers to international trade), known as the General Agreement on Tariffs and Trade, was signed on October 30, 1947, by mainly developed economies who wanted to boost economic recovery after the second world war by facilitating increased global trade. Eight rounds of trade negotiations were held between the creation of GATT in 1947 and the 1993 Uruguay Round, each progressively eliminating and reducing barriers to trade in more areas of the global economy. Established in 1995, the WTO is akin to a secretariat for administering the rules.
The system has stalled. The Doha Round, the last attempt to further liberalise world trade was rested in 2015 after 14 years of negotiation mainly because of the failure to agree on terms for agriculture exports. The last DG of the WTO, Roberto Avezado, left in August 2020 before the end of his tenure due to frustration over the evident breakdown of the WTO/GATT system as countries resorted to bilateral and plurilateral agreements such as the Transpacific Trade Partnership signed under the USA leadership with 11 Asia-Pacific countries in 2016 but which former President Trump withdrew from and the EU-China Investment Agreement, concluded in December 2020.
Irrational Nationalism: The system is broken because national politics has become dysfunctional; populism trumps expertise. The best illustration of how populist politicians could lead voters to self-harm is perhaps the United Kingdom’s decision to leave the European Union. It illustrates the disruptive effects of the chauvinistic preference for national rules in place of multilateral cooperation. Before the new year, UK citizens could drive pigs, cattle, etc. to sell in France, Holland, Germany, and other countries of the 27-nation European Union but after the 1st of January when Britain left the EU, British people found that they couldn’t drive into any EU nation with even a single sandwich containing meat because the UK is no longer subject to EU regulations for preventing animal diseases. Suddenly, British sandwiches became potentially disease-carrying and had to be confiscated at EU borders. The consequences of Brexit have been far more damaging to business. What are the prospects of getting voters to cast ballot in favour of new trade liberalisation rules if the British could vote in favour of jettisoning rules that have governed trade with their largest trading partners for 46 years?
China Versus United States of America Trade War: Before former President Trump, America focused on liberalising trade with key countries like Canada, New Zealand, Vietnam, Singapore, etc. (with the Transpacific Trade Partnership) after Doha. Under Trump, America turned to making its economy great again by blocking exports, mainly from China. China and America have imposed higher tariffs on about $310 billion worth of imports (from each other). Difficulties agreeing on rules for agriculture tariffs with countries like India frustrated the Doha Trade Round. Now advanced economies bicker over rules on everything from e-commerce to subsidies and information technology. Trump may be gone but his ideas have infected American politics and will influence economic and trade policy for a while. Traditionally, supporters of free trade, the Republican Party is now protectionist. Newly elected President Joe Biden’s desire to return America to multilateralism may not extend to the promotion of free trade. He has asked, through an Executive Order, that the rules requiring American government agencies to spend federal fiscal interventions on only goods Made in America. Rules restricting the export of sophisticated technologies to China, ostensibly for security reasons but really intended to slow down China’s mastery of advanced technologies, are also likely to stay. It’s all good politics but awful economics. A study by Oxford Economics for US-China Business Council calculates that the Trump anti-China tariffs could cost the American economy up to $1.6 trillion by 2025.
Rules without Referees: The WTO is essentially a system of rules for international trade: its Appellate Body, a standing court of seven persons hears and rules on disputes among members. The USA has been its “chief customer”, taking 124 cases before the judges and defending itself in 156 cases. The Obama administration brought more cases to the Appellate Body than any other country between 2009 and 2017, targeting China for issues such as subsidies for agriculture, aircraft, duties on steel imports, etc. Declaring that the Appellate Body is pro-China, the Trump administration started to block the appointment of new judges until the number fell below the three required to review appeals in December 2019. The Biden administration has delayed appointing new judges. This is the most urgent task and test that the new DG is facing.
A Pandemic of Tariffs: A pandemic has struck the world economy at a time of escalating tariffs and rising protectionism. There is some evidence that there are increased trade-restricting measures due to the pandemic. The world needs freer trade to contain the economic scourge of the new coronavirus pandemic but the political instinct would be to raise the national flag against imports are economic growth drags.
A Domestic Embarrassment: The “body language” and actions of the current Nigerian government are resolutely anti-trade. President Muhammadu Buhari in 2019 shut land borders with both Benin and Niger Republics to end smuggling activities across the frontiers, a move that hugely affected several businesses and stoked inflation. Just four of those land borders were reopened in December 2020. Multiple currency controls do a more disastrous work crippling trade and the economy.
Watchers of international trade and the WTO system believe the WTO requires a DG with access at the top of politics in the main trading nations. Mrs. Ngozi Okonjo-Iweala has diplomatic skills and tenacity. Third-world solidarity would help to court politicians in important countries like India.
Time will tell if her charm is enough to crack the top echelons of the Democratic and Republican parties in the USA to produce the domestic deals required to make the WTO work.