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Six Home Truths for the New Head of the WTO

Whoever prevails in the race to be the next director-general of the World Trade Organization (WTO) faces some key realities as the global trade body chief.

The director-general has little power to strongarm governments into agreements, or to remould underlying power dynamics. But she can provide the mood music at a time when trade is not only weaponized but also a weapon of choice. A few home truths might be helpful.

1. It’s not you, it's me

It has been argued that trade wars are the international manifestation of class wars at home. If that is the case, the stability of the trading system will hinge on whether countries are politically prepared when deepening economic liaisons with others. Trade aggravates weaknesses in society. Countries' own social readiness for greater international competition is a prerequisite for a more functional, less fractured trading system.

The WTO, with its focus on codifying and reducing specific market distortions, is not where trade-related social challenges are addressed. Trade rules are blunt instruments to manage complex national dynamics. Encouraging better use of policies and international vehicles to meet social needs is a must for the long-term health of the trading system.

While the path forward is not straightforward, the new director-general can convene an honest, or at least factual, discussion on these thorny concerns, which have been articulated by poorer countries for years. Trade wars may be class wars but fighting trade wars will not win you class wars at home.

2. Trump is a symptom not the cause

It is easy to blame President Donald Trump’s antipathy, Xi Jinping’s China and other alleged rule-breakers as the culprits derailing liberal trade multilateralism, but a reset was long overdue.

Trade as a share of global output is widely deemed to have peaked in 2008, precipitated by a changing technology landscape and costs in manufacturing centres. Labour-intensive supply chains were already reshaped by automation and machine intelligence before increased political scrutiny cast further doubt over trade-dependent development models.

The perceived botch in aligning China with the market economy model also preceded Trump. That integration and interdependence did not bring economic convergence has long spurred calls for de-globalization.

The system was due a revamp well before COVID-19 forced a fundamental rethink over what goods are deemed 'essential'.

3. Retire hackneyed, self-serving received wisdoms

Pious claims that 'the multilateral trading system is a tide that lifts all boats' should be put to rest. No, it does not. It provides a shared framework for commercial exchange, but nations find themselves in vessels of varying capacity.

Trade might make countries richer overall, but the benefits are unevenly spread. Extolling the benefits projected in general equilibrium models can sound like cheques in the post, especially when most politicians have spent decades ignoring rather than confronting distributive effects.

4. Hyperboles don’t sell, but realism might

Neither lofty promises nor the doom and gloom of absolute de-globalization would get the multilateral trading system out of the current jam, but plainer speak might just help. Whether your supply chains are just-in-time or just-in-case, they would both benefit from a solid rule-based multilateral trading system.

Resilience has many faces; it is ultimately a country’s choice to pick one version over another. Over-reliance on one supplier certainly shows the limits of the just-in-time global economy, but the rallying abundance of PPE in the end also shows how trade can be a safety net for the just-in-case economy.

Unless governments recognize that trade is a hard-to-replicate provider of last resort, we could sleepwalk into a new normal without a net.

5. There is no way back to business-as-usual

Unlike with previous trade spats, today there is no clear path towards a functional new normal. The current stalemate means WTO members may have to keep returning to the drawing board while the bifurcated world forces them to take sides not only on trade but also technology choices.

Fresh challenges also lie ahead over how best the WTO can respond to the seismic shifts in the role of the state given the scope and the size of rescue packages around the world.

The new director-general will have the thankless task of helping break up fights before the point of no return, which will require an excellent political nose along with jedi-like manoeuvres.

6. The 'trade and' agenda is the future trade agenda

The liberalization agenda has stalled in its momentum, but has it run its course? Some depict trade negotiations as boxing matches while belittling the need for compromises. Others decry the impacts of opened markets on the domestic poor. If even the champions turn their back on liberalization as a goal in and of itself, what instead will be the driving rationale?

For years the WTO has flirted with 'trade and' agendas, whether it is trade and environment, climate, gender, health, or development. Now is the time to recognize that addressing the intersection of trade with these other areas of public policy should not only be near the top of the WTO's to-do list. It is the to-do list that would safeguard any future multilateral trading system.

Even if multilateral diplomacy delivers more promised goods, the transaction costs incurred will continue to draw attention. But then how palatable are the alternatives, really? Statement diplomacy over the past few years through plurilateral initiatives did not plug the gap, while also ridden with transaction costs, coupled with the whiff of irrelevance.

Finally, the WTO led by the new director-general must acknowledge that there is no technical solution to the free-rider problem because punitive measures on trading partners will likely ricochet.

The political cost of accepting free riding has gone up, not down, over the past two decades. Multilateralism in an interdependent world means that winners may not feel particularly victorious, but it also means that they won’t lose.

This is a version of an article originally published by the World Economic Forum.

 

Channel website: https://www.chathamhouse.org/

Original article link: https://www.chathamhouse.org/2020/10/six-home-truths-new-head-wto

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