The WTO’s main problems aren’t organisational: they are political

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Hello from Brussels. So the WTO needs a new director-general to succeed Roberto Azevêdo, and the convoluted machinery of the appointment process cranks unexpectedly early into life. In today’s paper we interview a couple of the early contenders — Amina Mohamed of Kenya, a strong contender known to some Trade Secrets readers for chairing the WTO ministerial in Nairobi in 2015, and Britain’s Peter Mandelson, a rather longer shot. Today’s main piece, riffing off that, is on whether the WTO’s problems are really an HR issue in any case. Our tit-for-tat guest is Stephen Adams, senior director at Global Counsel, the adviser, while our chart of the day looks at falling US imports of electric vehicle parts.

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The WTO’s weakness: it’s nothing personnel

Speaking to Amina Mohamed and Peter Mandelson this weekend, it struck us how cautious their views were. The WTO is a member-driven organisation. It needs steady but not radical reform. The DG has convening power, but has to convince the membership to get anything done. To some extent these are the kind of soothing truisms you need to say to get appointed. But still it’s unclear how the near-stasis under Azevêdo will change even with a candidate as well-qualified as Mohamed.

At this stage it’s anyone’s guess who becomes a favourite, let alone wins. Even if the procedure is truncated to produce a new DG by September when Azevêdo leaves we’ve still got a while. In particular, the role of the Trump administration is a total unknowable. It’s highly unfortunate that, by resigning a year early, Azevêdo has given Trump a big spanner and pointed the way to the works. 

More fundamentally, how much does it really matter who gets appointed? Are the WTO’s weaknesses mainly to do with personnel, structure, or politics? We’d strongly argue the third.

Coming on top of the continual attacks from the US and the Appellate Body impasse, the WTO’s not having a good Covid-19 crisis. Recently Zhang Xiangchen, the Chinese ambassador to the WTO, told an Asia Society meeting the WTO’s performance was “poor” — due, he said, to “the lack of leadership and the diminution of trust among members”.

It’s hard to disagree the WTO has been largely absent. It’s been unable to stop the surge in export restrictions on medical gear imposed even by supposed free-trading multilateralists like the EU. It has made a blood-curdling forecast of collapsing goods trade, issued vague bromides against protectionism, provided a forum for non-binding promises about food trade and that’s about it. 

Partly this reflects the WTO’s institutional limitations. There may be strong restraints on export bans in the rule book, but there are loopholes you could march a whole regiment of Big Phil Hogans through. (Also a possible DG, though not popular with the Trump administration, let’s say.) It’s also clear Azevêdo’s instinctive caution — he’s an electrical engineer by training, not a class of reckless risk-takers — isn’t ideal to lift the profile of an institution struggling for relevance.

Amina Mohamed is well-qualified as a candidate to be the WTO’s director-general © Jewel Samad/AFP/Getty

But this isn’t really a personnel issue. The DG before Azevêdo, from 2005-2012, was the Frenchman Pascal Lamy. He came straight from being EU trade commissioner, one of the two most powerful ministerial-level trade jobs in the world. Lamy was famously energetic and politically well-connected. Along with Robert Zoellick, his kindred spirit number at USTR, he’d been instrumental in launching the Doha round.

But Lamy was helpless when trying to bridge the gap in Doha between the market access US farmers wanted and what India and its allies would give. As early as 2006, certainly by 2008, the US was letting Doha die. Washington lost confidence in Lamy after his continued insistence in trying to push it forward, and he left office with his precious project having abysmally failed.

Since then, the WTO’s attempts to revive its negotiating function have involved smaller plurilaterals on services, ecommerce and so on. They were a perfectly good idea. The FT supported them from the off. But the WTO’s main problems aren’t organisational: they are political. Creating plurilaterals streamlines processes. It does not conjure political will. The services talks, for example, ground to a halt even before Donald Trump put them in the deep freeze, largely because the EU refused meaningfully to discuss rules on data flow.

And there’s the point. Apart from a smallish secretariat (of generally high-quality officials, to be fair), the WTO doesn’t have much of an existence outside a fat rule book and a horde of even fatter-headed member governments. No director-general can force their hand. You could install one of the great diplomatic heavyweights of history as DG — Cardinal Richelieu, Thomas Jefferson, Benjamin Disraeli, one of the wilier Ming emperors, whoever. But unless governments agreed to use the WTO to face down their own protectionists, it wouldn’t make much difference. 

That’s not a situation that will change during the appointment process. Let’s hope, though, that at the very least the candidates spice things up a bit by challenging the member governments to do their bit. After all, we’ve got months of this process to come.

Charted waters

Elon Musk made the news last week with his controversial decision to reopen his Tesla plant in California. The company has been working on producing new electric vehicle batteries that it hopes will make electric vehicles competitive on cost with normal cars. But coronavirus has not been kind to the EV market in general, with US imports of materials down this year.

Line chart of Change in imports over the previous 12 months vs the same period one year earlier (%) showing US battery imports fall flat

Tit-for-tat

Stephen Adams © Oh Brother Photography

Stephen Adams, senior director at Global Counsel, joins us to answer three blunt questions:

What effects are Covid-19 having on so-called Mode 2 trade, such as higher education, and how best to alleviate this?

In trade policy jargon Mode 2 is consumption of a service abroad — a person travelling to another jurisdiction to consume (import) a service supplied (exported) by a foreigner. Mode 2 is exemplified by tourism and foreign students in higher education. Conventionally, Mode 2 tends to be relatively open trade because the main barriers to it happening are personal travel restrictions, which are relatively rare. Covid has turned out to be the biggest crisis for global Mode 2 trade in the modern period by a long way. The absolute and relative fall in tourist arrivals in 2020 will be the sharpest on record — as much as 30 per cent, according to the World Tourism Organization. In the 2009 downturn they fell by a fraction of that. A similar uncertainty hangs over study abroad, which is a huge component of the UK higher education export mix. Tourism in particular is a major export for both developed and developing countries, often with insecure employment. So these are sectors where long-term pandemic management needs to be carefully thought through. There is perhaps a role for the World Trade Organization in helping states work on transparency protocols and best practice for lifting and imposing travel bans or restrictions.

Do you think the idea of transnational bubbles like the ones being discussed between Australia and New Zealand are a good idea?

Given the dependence of New Zealand in particular on tourism export revenues, there is a clear case for finding ways of enabling personal movement internationally without jeopardising public health aims. As large islands, this is relatively feasible. States have got considerable leeway in invoking public health aims to indirectly restrict — or open — trade in a variable way, although they do need to be consistent in their reasoning.

Are the UK’s manufacturers right to push back against 14-day quarantine proposals on trade grounds and free movement of workers? Or is it worth taking short-term pain for long-term gain?

This is an unavoidable collision between trade and public health aims. External travel has to be a variable in any attempt to control transmission. It is challenging for UK manufacturers and businesses because so much UK trade arrives from the EU by roll on/roll off (RORO) road transport with long-haulage drivers and segmenting journeys is a headache. It just underlines a general point about the way in which short-term personal movement is routinely integrated into trade models via sales, servicing or senior management travel. While we are in full containment mode, this movement will take an unavoidable hit.

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