Saving the World (Trade Organisation)

The World Trade Organisation system has underpinned seventy years of global prosperity and has helped create a more level playing field for trade, even for small countries, but the global rules framework is now facing something of an existential crisis. The ‘friends of the system’, including New Zealand and others, along with the WTO itself, are rallying – but the path ahead will be challenging.

The more open, less distorted markets fostered by the WTO system have helped to reduce poverty, create jobs and improve living standards for billions of people. Enforceable global trade rules have enabled its 164 members both big and small to thrive and to defend their interests even against much larger players. (In New Zealand’s case, for example, we have won trade disputes against Indonesia, Canada, Australia and even the US.)

Following a decade of strong headwinds, including for the Doha Development Agenda negotiations, major new questions are being raised over the WTO’s future. Not coincidentally, these issues are playing out at the same time as we are seeing both a backlash against globalisation in Western economies as well as a severe ratcheting-up of protectionist measures (already on the rise since the 2008 Global Financial Crisis) thanks to the US’s tariff-happy trade war. The WTO has cut its global trade growth forecast to 3.7 percent for next year, a significant drop from 2017’s 4.7 percent; WTO Director-General Roberto Azevedo has warned that an intensified trade war could knock 1.9 percent off global GDP growth.

A number of countries have launched complaints about the tariffs under the WTO’s dispute settlement mechanism, but the disputes system itself is close to crisis-point. The US has long been troubled by aspects of the system including what it sees as judicial overreach on the part of the WTO’s ‘Supreme Court’, the Appellate Body. In effect the US has slowly strangled the seven-member body by refusing to allow the appointment of replacement members. As of 1 October, the number of members dropped to the functional bare minimum of three; by December next year, it will be down to one.

But it’s not all gloom: we are now seeing a concerted effort to save the WTO. The goal of these efforts is to improve and modernise the now 20-year-old WTO rules, including in relation to the disputes system, WTO members’ policy transparency and looking at more substantive areas such as subsidies, rules for state-owned enterprises and intellectual property, as well as potentially updating global frameworks to reflect the evolution of modern business, especially looking at the digital economy.

Leading the charge have been the EU and Canada, with proposals on possible approaches to reform (although the US itself has not formally proposed anything and has said it disagrees with some of the proposals that have been made). The issues are also being discussed more widely, including bilaterally by China and the EU; in a trilateral dialogue of the US, EU and Japan (primarily focused on addressing current Chinese practices), and through a separate process that Canada is convening later this month of a small group of like-minded countries including New Zealand.   The WTO Secretariat itself has issued a paper on ‘Reinvigorating Trade and Inclusive Growth’ jointly with the International Monetary Fund and the World Bank. The paper underscores the “urgent” need for reform including better digital trade rules, improved transparency and also the greater use of “plurilaterals” – a departure from the traditional WTO big bang approach to negotiations, the so-called ‘single undertaking’ where nothing is agreed until everything is agreed across a broad agenda – to deliver quicker wins and build confidence. (New Zealand is or has been involved in three such Geneva-based plurilateral efforts, on services trade reform, information technology products and e-commerce.)

That said, the path will not be easy. Reforms that look like they are targeted solely at China will be hard sell in Beijing, whose agreement (like other WTO members’) would be needed for any reforms. Further, many will be quick to point out that much of the core Doha agenda remains ‘unfinished business’. A salient reminder of the work that remains to be done in agriculture has just been given by President Trump’s trade-war-related $12 billion aid package to farmers. New Zealand and others have questioned how these subsidies fit with US entitlements, which would have been cut if the Doha negotiations had succeeded. For our exporters, the worry is that not only are many agriculture products on tariff retaliation lists, which could displace affected product onto world markets, but also how much these subsidies may ramp up US production, creating further global market distortions.

New Zealand is a small, open economy, distant from most of its markets. Many of us will still have vivid memories of pre-WTO days of hard-scrabble living by our wits, charm and others’ goodwill in the global economy. Although we have a creditable portfolio of free trade agreements throughout the Asia-Pacific and in train with Europe, the WTO remains a crucial touchstone for our economic wellbeing. The importance of shoring up and saving the WTO, through these reform efforts, and by broadening popular support for the multilateral system by telling the story of its many benefits more compellingly, cannot be understated.

This post was prepared by Stephanie Honey, the Associate Director of the New Zealand International Forum and a former New Zealand WTO agriculture negotiator.