With an escalating trade war between Beijing and Washington, and another trade war between Seoul and Tokyo, Middle Eastern oil supply price shocks, and rising protectionism, everyone knows that the outlook for world trade is bleak, right?
Wrong.
“We are headed to a better place. But we are going through a rough patch,”Alan Wolff, the deputy director general of the World Trade Organization, said while giving an address to the Lowy Institute on the topic of risks and opportunities in world trade.
“I am very optimistic… the world is changing in a better direction. It’s not in the [media] headlines, but it is coming,” he told a packed function room, adding that none of the current damage to world trade is irreversible.
Non-discrimination
Commenting on the origins of the modern world trading system, Wolff remarked that, after World War II, U.S. trade experts wanted to get rid of trade preferences. The U.S. had been on the wrong end of the U.K.’s Imperial Preference system. This led to the “Most Favored Nation” principle, which, despite its name implying favouritism, actually means non-discrimination in trade between nations.
“The decline of non-discrimination will take a long time to repair. Restoration of non-discrimination is highly likely but it will take time,” Wolff said. He pointed to the trend around the world to create rules against discrimination on the basis of attributes such as gender, ethnicity or sexual proclivity.
“Trade will be aligned with non-discrimination over time… the world has a taste for non-discrimination and won’t go back to discriminating,” he told the audience.
Issues and challenges: consensus and conflicts
Wolff also turned his attention to some of the issues and challenges facing the World Trade Organization. Firstly, he pointed to a failure to set new trading rules. This failure is caused by a requirement to have unanimous consensus.
“If one country does not want something on the agenda, it can put its hand up and stop it. It does not go on to the agenda,” he said, adding that “matters that are ripe for agreement have not happened”.
He argued that the current environment is not “a time of trade liberalisation,” and that countries do not feel they have political support for trade liberalisation.
Wolff also addressed criticism that conflicts in trade are a failure of the WTO. But, he argued, no major treaty prevents conflict. He pointed to several major treaties after World War I, such as the Treaty of Versailles, which ended WWI, or the Kellogg-Briand Pact which was a resolution between the signing countries not to use war as a way to end disputes. World War II subsequently began in 1939.
“The World Trade Organization is not designed to settle conflicts of that nature,” Wolff said.
He also specifically addressed trade conflicts in his speech and said that they have to be managed and resolved by the parties themselves.
Enforceability and appeals
A further issue relates to enforceability of decisions. While the WTO is set up to create dispute settlement between the parties, some disputes go to a full panel which hears submissions from both parties. It will eventually issue a report, which becomes a ruling after 60 days. However, both sides to a dispute can appeal.
The Appeal Body of the WTO is supposed to have seven judges sitting on four year terms. Judges can can have a second term. However, many of the terms of the judges have expired and no new judges have been appointed. That means that the Appeal Body currently does not have enough judges to actually hear an appeal.
Although there is no Appeal Body at the moment, Wolff believes that one is necessary.
“You need the ability to have an appellate body to create a consistent set of rules and correct egregious errors,” he said.
However, he pointed out, the member states of the WTO are, in practice, working to resolve their disputes without that appellate body.
Vietnam and Indonesia have agreed to abide by the original decision in their disputes, Wolff said. Meanwhile, the EU and Canada will appoint previous members of the appellate body as arbitrators. The EU and Canada will abide by the decisions of their arbitrators.
“Can it change?… I believe so. There’s no apocalypse yet and I don’t see it coming,” he told the audience. Wolff regards the current situation as changeable on the simple grounds that the WTO member states set up the Appeal Body in the past and they can decide to reconstitute it in the future.
In the future: freer trade
Looking forward, Wolff sees it as likely there will be freer trade in areas that are currently contentious, such as agriculture.
Owing to the effects of climate change and population growth, Wolff foresees a requirement for a greater flow of food from areas of surplus to areas of deficit.
“Freer trade in agriculture will be forced, it will be essential. Physical need will be a driving force… reality intrudes,” he told the audience.
Following his speech at the Lowy Institute, FreightWaves caught up with Wolff and asked him about the 14 year dispute between the U.S. and the E.U. over subsidies to Airbus and Boeing. The U.S. has a ruling that allows them to enact tariffs in respect of subsidies to Airbus; meanwhile, the EU is awaiting a WTO decision about U.S. subsidies to Boeing. That further decision is expected in about six months.
Wolff declined to be drawn on the outcome of the dispute, saying that it was a matter for the parties to settle. In relation to the substance and duration of the dispute, he commented that it was “complicated stuff”.
“If it were easy, the results would have been in years ago. What is a subsidy? How do you measure it? These are very complicated questions. We haven’t heard the end of this one yet,” he commented.
In relation to the Beijing/Washington trade dispute, he commented that he didn’t think there is “an overnight solution”. In line with his address to the Lowy Institute, he concluded that, while the WTO can help by implementing solutions, the dispute has to be “solved by the parties”.