Speaking truth to power when power pays your salary

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Hello from Brussels. There was a lot more spice than usual (which is to say: some spice) at the World Trade Organization yesterday, with more to come tomorrow. The WTO’s regular (every two to three years) review of China’s trade policy has come around, conveniently timed just six weeks before the big ministerial meeting, itself shortly followed by the 20th anniversary of China’s accession to the WTO.

Dozens of countries including, unsurprisingly enough, Australia, together with the US, the EU, the UK and many others turned up to the meeting to make known their displeasure with Beijing, and there’ll be more of the same tomorrow. “The gloves are off,” one ambassador told us. There’s a useful thread on the oral interventions here. Unusually, China’s commerce minister, Wang Wentao, appeared at the WTO meeting (by video link), on top of the official statement that Beijing released as part of the process, and China will get a chance to rebut the meeting’s comments tomorrow.

In the light of this bureaucratic fracas, today’s main piece reflects on how organisations such as the WTO can maintain their independence when their big shareholder governments are in a permanent state of barney. Charted waters looks at trade between China and North Korea.

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The technocrats navigating a political storm

Here’s a global governance question for you, because we know how much you all like those. How do you speak truth to power when the power is paying your salary?

Tricky one, as the World Bank and IMF found out recently. Well-publicised ructions after accusations that the bank fiddled the figures in its annual Doing Business report following lobbying from China got the publication shut down for good. The issue also nearly cost Kristalina Georgieva, then at the bank and now the IMF’s managing director, her job for her role in the episode. Georgieva’s fate immediately became politicised into a proxy battle between those who want China’s influence pushed back and those who think Beijing is being scapegoated. This wasn’t the dispassionate exercise in assessing business climate the bank was supposed to be doing.

Politicising technical issues at multilateral organisations isn’t a novelty. The IMF itself, not an institution you associate with being easily intimidated, became an uncomfortable battleground for the currency wars of the 2000s and 2010s between the US and China. The US tried to turn the fund into a battering ram for its incessant campaign to get China to allow the renminbi to rise.

Initially, it largely got its way thanks to some fairly spineless management in the form of the unlamented managing director at the time and later jailbird, Rodrigo de Rato. Beijing fought back so strongly to influence the IMF’s analysis that under Dominique Strauss-Kahn, de Rato’s wilier yet also personally flawed successor, the fund’s board didn’t actually discuss China’s economy for years on end in case it provoked a blazing row. Prudently, IMF economists adopted an eclectic and indeterminate way of estimating exchange rate misalignments which wouldn’t obviously hand ammunition to one side or another. Nor was it just about China. Weary IMF officials during Gordon Brown’s reign as UK chancellor of the exchequer found the incessant lobbying for the fund to be nice about the British economy bordered on the obsessive.

You can see the temptation for multilateral organisations to veer towards making no independent judgments on their big shareholder countries at all. That is, of course, closer to the model of the WTO, whose permanent staff, the Secretariat (the clue is in the name), is much smaller and has less independent clout than those of the bank or fund. The WTO report that occasioned all those fireworks yesterday is aimed at establishing all the facts about China’s trade policy, not commenting on whether they are wise or not or even going into too much detail on whether the rules are being kept. As Peter Ungphakorn, former WTO staffer and guru on all things institutional, says: “It’s a peer review by members, not by the Secretariat.”

We’re told that the WTO Secretariat’s remit to stick to the facts doesn’t insulate the authors of these reviews from being lobbied by governments. Some countries might not want it pointed out how far behind they are on notifying their trade-distorting subsidies to the WTO as required by the rules, for example. But there is a clear distinction between the analysis and the interpretation.

Critics of the WTO would say that’s precisely part of its problem — that it’s paralysed by disagreements between its members and unable to act decisively on its own. It’s also on a much tighter leash than counterparts such as the bank, not least because it depends on regular budget contributions from members rather than funding itself through its lending activities. The Trump administration knew this very well, and threatened to withhold funding as a tactic to stop the WTO doing things it didn’t like.

While it’s a fair point to make that the WTO has these relative weaknesses, at least it doesn’t mean that an analytical function gets politicised to a degree that threatens the ability of the organisation to operate. The WTO trade policy review process is still going, while Doing Business is not. Ultimately, if the big shareholder countries of a multilateral institution fundamentally disagree on the basics of a given policy area, expecting a gang of technocrats to bring harmony with independent judgment and analysis seems a little optimistic. Letting governments batter away at each other with political arguments on the basis of a limited set of agreed facts might not bring agreement, but on the upside it doesn’t destroy the organisation in the process.

Charted waters

Sometimes trade figures offer a window into the broader political and economic climate. The chart below illustrates a case in point.

For more than a year and a half now, North Korea has operated even stricter than usual border controls in a bid to keep out Covid-19. While it’s never been exactly the most open economy in the world, before the pandemic there was a certain amount of trade with China. As the chart shows, that trade has ceased. But there are signs it’s picking up again, suggesting North Korea may be relaxing restrictions a touch. Claire Jones

Trade links

Paul Krugman thinks (NYT, $) that by lowering the Covid burden and spurring spending in services, vaccinations would ease supply chain strains. In more evidence of how much strong demand is driving those strains, the Port of Los Angeles has just seen cargoes hit record highs. An interesting thread from Flexport’s chief executive on what’s going on on the ground in Long Beach. Greg Ip of the Wall Street Journal, meanwhile, thinks ($) that the pandemic will spur a retreat from globalisation. Government officials in Vietnam are turning to text messages (Nikkei, $) to beseech workers to return to work as a labour shortage hits factories for the likes of Samsung, Adidas and Lululemon.

Local opposition to a lithium mine in Spain next to a World Heritage city underlines the challenges of Europe building self-reliance in supply chains.

The UK has reached an “agreement in principle” with New Zealand, a small economy 12,000 miles from Britain to which UK exporters already have good access, the real point being that it eases the UK’s entry into the Comprehensive and Progressive Trans-Pacific Partnership.

A top Uzbek politician told Nikkei ($) that Afghanistan should aim to be a regional trade hub, as Uzbekistan pushes to extend a railway through Kandahar to Belt and Road ports in Pakistan. Alan Beattie, Francesca Regalado and Claire Jones

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