Negotiate, adjudicate, rejuvenate: the challenge for the WTO

That’s one hell of an in-tray. Ngozi Okonjo-Iweala on Monday took over as director-general of the World Trade Organization and was almost immediately confronted by what seems to have been a somewhat fractious general council of ambassadors, underlining the depth of divisions within the WTO’s membership.

Trade Secrets will today and next Monday be looking at what she and the members might do to drag the institution back towards relevance. Here in Brussels there’s more EU-UK argy-bargy over the post-Brexit trading arrangements. Anyone thinking that Brexit was going to be a short sharp conflict followed by a lasting peace might perhaps read up on the hundred years’ war, including who eventually lost. Charted Waters looks at a surprising aspect of the pandemic — a near-record number of new businesses.

Confronting China and the awkward squad

The World Trade Organization has been in trouble for so long that the WTO-reform industry is now a major producer interest in its own right, which will no doubt soon hire some expensive lobbyists and set about negotiating itself preferential treatment in trade deals. 

The action-forcing, or at least communiqué-forcing, event concentrating minds is the full meeting of ministers from the WTO’s 164 member countries, which has just been set for late November/early December in Geneva. Usually biennial, the ministerial was originally planned for Nur-Sultan in Kazakhstan last year, postponed to this summer because of Covid-19 and now postponed again. The Kazakhs were still keen on hosting it there in November, apparently, but average temperatures in Nur-Sultan then are minus 0C: too many metaphors present themselves about the WTO in the deep freeze, the biting winds of protectionism and so on.

The institution has its best chance for a while to claw its way back. Joe Biden’s administration has signalled its willingness to engage with the WTO, first off by unblocking Okonjo-Iweala’s appointment. But it’s only one of the tools it wants to use for its most important trade task of reining in China — clearly explained here last year by Mark Wu, then at Harvard Law School and now a senior official in the office of Biden’s US Trade Representative.

The WTO basically doesn’t have executive powers: the director-general chairs meetings and has a secretariat of clever but underused bureaucrats, and beyond that it’s just about their diplomatic skills in corralling governments towards consensus. The substantive functions it does have are legislative (negotiations) and judicial (dispute settlement). 

Looking today at negotiations (we’ll leave dispute settlement till next week), it’s depressing to remember that in the WTO’s 25-year existence, its members have concluded essentially one multilateral agreement, a minor deal on trade facilitation. It has membership-wide talks on the go on fisheries subsidies, plus plurilaterals among smaller groups of countries on various subjects including ecommerce (in fact covering digital trade more broadly), domestic regulation in services and making investment easier (“investment facilitation”).

Of those, only fisheries has any real chance of producing something substantive by the ministerial. The ecommerce agreement is addressing the right issues but is forced to dance around the huge question of cross-border data flow because a big ideologically driven regulatory power obsessed with strategic influence doesn’t want to make liberalising commitments. We refer, of course, to the EU — though China’s not keen either.

There’s also a more general problem with plurilaterals. Governments have turned to smaller-group deals because unwieldy and conflict-ridden membership-wide deals just weren’t happening. But India and South Africa, the WTO’s awkward squad, argue that plurilaterals undermine the principle of treating all members equally, even if all WTO members get the benefits. (For the complex legal technicalities, see former WTO official Peter Ungphakorn’s exposition here.)

Few other big countries seem to think that makes much sense — hence the tension in this week’s general council — and think it’s largely about gaining leverage. India and South Africa are trying to force changes in agricultural subsidy and tariff rules of the kind that triggered the collapse of the Doha round of multilateral trade talks in 2008 and have zero chance of being resurrected.

At its worst, this leads straight back to negotiating impasse. Coalitions of the willing could agree plurilaterals outside the WTO, but then the institution would be further undermined.

Another big issue in negotiations is, if anything, trickier, since it involves convincing a much bigger and tougher customer: China. The WTO rules constraining state subsidies are OK as far as they go, but they don’t go anything like far enough for the EU, US and Japan in constraining China’s state-led growth model. The three powers in 2017 set up a trilateral initiative to write new rules to discipline subsidies, state-owned enterprises and forced technology transfer. But to get those adopted at the WTO will require Beijing’s acquiescence. It’s very hard to think of anything that the trilateral members and the rest of the membership could offer China in return, except an investment facilitation agreement it doesn’t urgently need and a vague warm glow of satisfaction from keeping the multilateral show on the road.

In other words, getting anything done in negotiations is going to need those director-general diplomatic skills practised at an extraordinarily high level to overcome deep-seated differences and resentments. We’ll be watching with interest but not with a great deal of confidence that much will get done in the short term.

Charted waters

Some things — such as supply chain bottlenecks — you would expect to see during a pandemic. Others, such as near-record openings of US businesses, less so. However, it appears the pandemic has inspired a wave of innovation here, with the number of new companies opening in January the second-highest on record.

Don’t miss

• Today’s Big Read is on US-China relations, specifically how the Biden administration believes it can develop a more effective China strategy if it can work closely with old friends.
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• EU-UK relations have been plunged into a new crisis after Brussels warned Britain would break international law by taking unilateral steps to ease the impact of Brexit on Northern Irish businesses.
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• Germany’s cabinet has approved a law on due diligence to enforce the protection of human rights and environmental standards along global supply chains, prompting criticism that ministers had either gone too far, or not far enough.
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Tokyo talk

The best trade stories from Nikkei Asia

• The Myanmar coup has raised in Beijing the spectre of a 2018 incident when Myanmar authorities banned rare-earths exports, on which China relies heavily. 
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• Austria’s Magna Steyr is becoming the manufacturer of choice for Asian tech companies entering the electric vehicle industry, the company’s president told Nikkei in an interview. 
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Source: Economy - ft.com