The Future of Trade Rules

With the creation of the World Trade Organization (WTO), the 1990s saw decisive progress in the development of world trade rules, helping consolidate economic globalization. Since then, geopolitical power shifts and the 2008 crisis have inflamed tensions between countries. So much so, that some of these rules are now being challenged and the very existence of the WTO is threatened. This high-level panel attempted to determine whether a new consensus can be found to save the existing trade order.

Date : 12 November 2019

Paris, France – Grande Halle de La Villette, The Stage

Speakers

  • Moderator: Pascal Lamy, President, Paris Peace Forum
  • Alan Wolff, Deputy Director General, World Trade Organization (WTO)
  • Bruno Le Maire, Minister of Economy and Finance, France
  • Tharman Shanmugaratnam, Senior Minister of Singapore, Chairman, Monetary Authority of Singapore (MAS)
  • Arancha González, Executive Director and Chair, International Trade Centre (ITC)
  • Hu Shuli, Publisher, Caixin Media

Key takeaways of the discussion

The panel discussion revolved around the urgent need to restructure the current international system regulating trade, and therefore around the challenges faced by the WTO. Panelists highlighted the following causes of current problems:

  • Minister Bruno Le Maire recalled that the issues pertaining to trade disputes settlement, intellectual property, state subsidies or free access to public markets had already been identified back in 1994 and should have been solved before China joined the Organization in 2001. The lack of a timely response made things only worse for the WTO after China became a major trade actor.
  • Alan Wolff said that “in a context of rising populism, it is easier to blame trade than technology, although trade is not evil and has brought a lot of positive development in the world.” In his diagnosis of the current unstable situation, he mentioned the rise of China as a new economic power and of other developing countries, the underinvestment of the major trading countries in the system, the US reluctance to accept the dispute settlement mechanism for the past 15 years and the lack of involvement from international organizations or NGOs. “Our system is about convergence, not coexistence,” he added. “Coexistence is about everybody going their own way. The whole idea of multilateralism is that we are converging.”
  • Arancha González identified three problems. The first one being that “trade rules are not adapted to the realities of trade in the 21st century, as they were made in the 20th century, when it was all about borders, goods, the EU and the US, protection and not precaution.” She stressed that inequalities are increasing, and that social safety nets are not adapted to be truthful to the UN goal of “leaving no one behind.” Finally, she pointed that trade had become but a weapon within the much larger geopolitical and technological fight and strategic rivalry between China and the US. She advised to refer to the WTO preamble stating that trade is at the service of full employment, protection and preservation of the environment, and raising standards of living. Contracting countries are thus “either not doing what they said they would do, or not saying what they really are doing.” WTO members should go back to this consensus dating back 1995 that they agreed on and signed.
  • Minister Tharman Shanmugaratnam acknowledged “the failure of domestic policies to help those who lose out from economic globalization. Social development should not be left to the market,” according to him. But he argued that in spite of a political momentum going away from free trade and corporative internationalism, surveys showed that the majority of people still believed in free trade, as isolationism would mean a drop in the standards of living, productivity and growth that would affect all. He expressed his confidence that this reality in people’s lives will eventually exert its influence on public policies and politics.
  • Hu Shuli explained that the general opinion in China is that the WTO should be “improved to stay relevant rather than abandoned…There is a consensus that multilateralism is the best solution for China’s trade and the country.” China definitely wants to push for WTO reform and the international restructuring process with practical solutions being discussed in strategic circles and is serious about contributing. “However, a more constructive dialogue is needed.” She asserted that even if China had miraculous achievements on poverty alleviation in the past few decades, with millions still living in destitution, it could not be considered yet as a developed country.

After identifying the roots of the problems, panelists put forward the following recommendations:

  • Bruno Le Maire first expressed that the unilateral “trade wars waged by the US were not a solution for anybody,” but only a counterproductive dead-end with negative consequences for all. He supported instead a collective approach to tackle the issues of digital trade, intellectual property, public procurement or environment protection. Regarding the dispute settlement mechanism, he specified that he agreed with the US view that this body could “only be efficient if it sticks to enforcing and not setting the rules” and if it “is not there to impose rules instead of the State.” Finally, he stressed that no WTO reform could be carried out without reshaping our economic and capitalistic development models which have brought about serious inequalities and environmental damage for the past decades. “The WTO reform is only the tip of the iceberg. 20th century capitalism is dead. Not changing our current model only brings legitimacy to populists forces who thrive on its flaws. New political and economic principles need thus to be redefined even prior to rebuilding a multilateral trade system.”
  • Minister Shanmugaratnam recalled that “the existing system has some inherent flaws as it requires universal consensus, uniform rules applied to everyone and enforcement at the same time.” He added, “You can’t be at the three corners of this impossibility triangle. You can get two but not three. The pragmatic way forward is to go for a plurilateral approach with negotiations.” He gave the examples of the statement on e-commerce or the development of norms for ethics, governance and innovation on Artificial Intelligence (AI) which Singapore is currently working on with other countries. With this pragmatic approach, coalitions of the willing (including the EU, China, Singapore, etc.) could take the lead and propose a grand bargain on WTO reform that benefits all. He explained that such coalitions can move forward either through regional free trade agreements (making sure that every item is WTO-consistent) or with joint statement initiatives within WTO initiatives (including a critical mass of countries occupying a major share of global trade). The challenge is then to maximize and incentivize participation in these initiatives while maintaining high standards in these agreements. Such initiatives are already taking place for investment facilitation or e-commerce for instance in which the US is very active, thereby showing that the country is not retreating from all multilateral actions. Finally, he concluded that Free Trade Agreements (FTA) should factor in environmental protection more systematically and that trade can be a powerful way to move to intensive growth rather than extensive growth. There’s a large space for policy making that promotes trade, productivity growth, capacities using sustainable energies and moving away from unclean ones.
  • Alan Wolff highlighted the need of an increased leadership and commitment in the WTO from Brussels, Washington or Beijing. According to him, the convoy system doesn’t work because “we need the unwilling as well as the willing to be in that coalition. Nobody will save things unilaterally. It only works if everybody’s on board.” Current problems can be solved with flexibility: the countries convinced by the system need to convince the US and find a middle ground as to how the system can work. He added that developing countries want to be integrated in the world economy and would even accept a higher level of obligations and standards, as they want a chance at peace, the same way the countries who signed the General Agreement on Tariffs and Trade (GATT) did back in 1947. They need ways to get new value for their products, and could pool together in the same direction. He added, “Every country has to make a net positive contribution, even if it is intellectually if it is too poor to make a trade commitment. It has to put ideas on the table and work towards their achievement…There is a crisis of relevance and we should set 2025 as a goal for moving to a WTO 2.0 for adoption at the MC-15 Ministerial Conference…This restructuring can be done, it will take time and this should be a reason for optimism.”
  • Arancha González stated that “we need good doses of confidence-building measures, because now, there’s a lack of confidence between WTO members.” She gave the example of the members’ decision to do away with the subsidies contributing to overfishing. According to her, “having the trade and environment communities getting together for action during the COP15 on biodiversity would be a confidence signal to deliver results.” She also called for more coherence between the members, especially on digital trade, cybersecurity, AI or data protection which are also discussed in other organizations such as the International Telecommunication Union (ITU) and need more compliance-checking and consistency. Finally, she declared that “reforming the current system is not about choosing between the US and China, no country can. It’s about choosing between order or chaos.”
  • Hu Shuli argued that instead of debating over China’s status to determine whether it is a developing or developed country and “a poor country with a lot of rich people or a rich country with a lot of poor people,” the best way forward would be to have the same treatment for both categories of countries. Other speakers added that if the system had to accept and adapt to the new “China factor,” China also had to adapt itself to the multilateralism commitments it takes on for itself and how it promotes multilateralism and open up its economy. Minister Shanmugaratnam said “it is in the interest of everyone that they do so and be part of this interdependent global order rather than having it becoming independent actor…We should be careful with pressuring China into liberalization because it can cause the opposite, a retrenchment within its borders,” he warned.

Resources

Explore more in the contributions by Pascal Lamy and Arancha Gonzalez to the Medium blog of the Paris Peace Forum.

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