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Global Trade Reset — time to order your MWGA cap?

A Global Geneva Special Report for subscribers to our free email newsletter (2800 words).

By Peter Hulm

Roberto Azevêdo may have thrown in the towel at the World Trade Organization at a desperate period of its history, but you can argue this was a well-chosen time: WTO's dispute settlement tribunal, its main reason for being, in default of progress in trade negotiations, is stimied. No-one knows where world trade will go next, post-COVID. Rather than ducking out from a crisis, the Brazilian diplomat has opened the way for a new breath of fresh air to shake up the system.

And almost everyone taking part in three one-hour webcasts on 8 July 2020, rebroadcast by the Geneva-based World Economic Forum from among its eight web sessions on a Global Trade Reset, argued that the WTO needs a shakeup. Shi Jingxia, a Professor at China University of International Business and Economic, Beijing, even gave the sessions a slogan: "Make the WTO Great Again".

Though they all want it to succeed, the question is: how much of a shakeup does the WTO need. And how long will it take? Don't look for the MWGA baseball caps yet.

P.S. Azevêdo's farewell remarks to the General Council on 23 July 2020 are linked here.

panel 3
Webcast panel 3: Penelope Naas of UPS, moderator Pierre Habbard, Google's Karan Bhatia and Jesus Seade of Mexico

The bluntest speaker was John W.H. Denton, Secretary-General of the Paris-based International Chamber of Commerce (ICC), "the institutional voice for 45 million businesses" around the world. Other international trade agreements have recently upgraded their terms in the light of economic developments, he reminded his audience. "Where's the upgrade for the WTO?" he asked.

As for the new boss, "we need someone there who is capable of driving an informed agenda and understands the nature of the modern economy."

So far, there's no European candidate (the Brit is a Brexiteer), and not likely to be one, as the European Commissioner for Trade Phil Hogan from Ireland indicated at the end of the final session — "I'm sorry there is not a European candidate but this is the way it is".

phil shoganjohn denton

EU Commissioner Phil Hogan (left) and John Denton of ICC (right)

To an outsider this looks like a classic political mistake in the U.N. system of dividing out the spoils of institutional leadership. With the U.S. battling China on trade, it seems a distinct advantage to have a European in charge who could jolly the EU into taking steps to modernize the WTO. The EU is already working with other "likeminded" countries in the W.T.O. to formalize an agreement on access to health care products, Hogan noted. Anyone other than an EU contender could seem to be leading from behind.

Briefing from a presumed contender, and a new road map

What viewers of the last session did get was an encounter with one of the eight 'non-contenders' for the Director-General's job, Jesus Seade (bottom right, top photo). Undersecretary for North America in the Secretariat of Foreign Affairs of Mexico, he was his country's chief negotiator for the recently completed NAFTA2 (USMCA). What the sessions also offered was a road map for how WTO could move forward.[See link at the bottom of this article for promotion of Nigeria's contender]

Seade, in the traditional diplomatic fashion, refused on 8 July to confirm or deny that he is running while referencing the reports (Mexico nominated him on 8 June and he made a statement to the WTO General Council on 15 July). But Seade demonstrated he has an original take on many trade issues as well as a forthcoming willingness to deal with difficult questions.

He divined that, if economic sectors cannot go digital, they are likely to lose out post-COVID, such as retail outlets from shopping malls to grocery stores. Without major financial support, the fallout from COVID-19 is going to disrupt "a large amount of urban commerce, a lot of city centres as we know them".

Back to branding — and the cost for small businesses

Another impact of the crisis is that "consumers are returning to brands, to brands that they know and that they trust", so SMEs and local branding lose out. Almost 1.5 million small enterprises had closed permanently in the first four months of the pandemic. "This will get worse, the longer this continues."

But, he noted, "this is a very perverse development", going "totally contrary" to demands for a brake on globalization to protect smaller and weaker producers "who are unable to compete with the giants".

Seade also commented: "WTO has a serious communications gap generally" and added: "A measurable amount of the Director-General's time should be put into communication, to visiting countries, to listening, explaining...taking part in events like this one. Communication is central to this organization."

SMEs to the forefront

As for understanding how modern economies operate, he pointed out that NAFTA2 has a whole chapter on small and medium enterprises (SMEs), providing for cheaper loans for SMEs through syndication, collectivization of purchases and even collective branding to gain scale — "reasons why SMEs play a very small part in international trade".

He suggested this is an issue WTO could explore. As countries remove restrictive trade measures imposed under COVID-19, there is "ample room for mutually beneficial cooperation" through "a global mediator, which can be no other than the WTO," the Mexican Undersecretary added.

For example, countries need to exchange information on the removal of measures and plans, "key for trading partners upstream and downstream".

Overcoming economic nationalism

He also spoke strongly against economic nationalism introduced with the aim of reducing dependency on other countries, particularly a single country or champion. "Onshoring or nearshoring [...] is not the answer to dependency," he declared. "The right way is to introduce means to diversify your procurement [...] not to kill trade."

He described the wave of economic nationalism as "the same as the old protectionism". "These are fundamentally excellent ways to shoot yourself in the foot," he suggested.

'Invest in education'

Seade urged countries concerned about export prospects to spend money on basics such as education. [Coincidentally, the UN's Economic Commission for Europe the next day published its guide to measuring the economic value of education and training, and documentation on five national studies, which reported that enterprises in Canada themselves account for 20% of the overall spending on this key issue (LINK)].

The Mexican Undersecretary also noted the surge in online education as a result of the COVID-19 lockdown. Universities in the United States, Europe and Australia earned a big part of their incomes from Chinese student fees, he reminded his audience. One result was a search for new forms of online delivery.

An end to Mexico's salary freezing contracts

Even when investing more in education, developing countries would still have a comparative advantage in their lower salaries, not because of exploitation but because of their lower cost levels, Seade noted. Mexico has faced criticism for over 30 years for protection contracts that effectively froze salaries, and this has now been abolished in ambitious labour reforms that have gained political consensus across the board, he said.

Best in class for digital trade

NAFTA2 also has a "best-in-class" digital chapter, noted Google's Karan Bhatia (bottom left, top photo). "I'm a big fan of the WTO," he declared. "Digital technologies are by their definition global in design for their power and potential. Plurilateral initiatives, while helpful and applauded, are not going to bring a resolution to these broader architectural challenges that we face."

Negotiations on ecommerce rules are taking place already within WTO. "It is exciting that there has been some progress," Bhatia observed. "This kind of global coordination, done globally, is critical."

In response to a question on whether digital trade could exacerbate inequalities, Seade agreed it could but not necessarily. "This is not the 1970s or 1980s when the technology was the preserve of the United States and some European countries," he observed.

The new giants in technology

China and India today are giants in digital technology. Countries like Pakistan, Turkey and Latin American nations are all players (a major Turkish leader was on the opening panel, featured below).

One major development which WTO still has to tackle is the rise of ecommerce, which came about after WTO succeeded the General Agreement on Tariffs and Trade (GATT) in 1995. "For heaven's sake," Denton exclaimed, "we actually have to argue to maintain a moratorium on tariffs being placed on digital downloads, which is the underpinning of the operation of ecommerce and for the development of database businesses" (see a view from UNCTAD below).

A new era? But free trade is not dead

The panellists want the WTO to provide the solutions, even John Denton. "WTO is best placed for this," he noted. But it if can't, "we have to find workarounds".

Can we trust G7 countries [major powers] not to take unilateral actions? one viewer asked.

"The G77 [of developing nations] will not be told what to do by the G7," Denton declared.

Shiheadwall
Shi Jingxia and Mattias Hedwall

Shi Jingxia, a Professor at China University of International Business and Economic, Beijing, agreed. "Even globalization is not going away," she argued, with this caveat: "It may look somewhat different post the pandemic." We might be moving into an era of plurilateral trade agreements that could eventually become multilateral.

Mattias Hedwall, Global Head of International Commerce & Trade at the commercial law firm Baker McKenzie International, likewise commented: "Free trade is important and it will not go away."

But firms will need to study their supply chains to determine where high risks and high costs occur. They now face "a new landscape to navigate in, and it changes rapidly". Firms, he said, "must be agile, resilient and prepared."

Human rights to the fore

And it's not just about value chains, though these account for 50% of global trade, as World Economic Forum President Boerge Brende pointed out. Demand and logistics also need to be considered in determining how trade will develop, Hedwall noted.

But clever companies these days are also taking into account human rights and sustainability aspects in their supply chain reviews. "This is expected by regulatory bodies these days, for example on the export control side,” Hedwall points out.

Asked which trade rules are particularly outdated, he suggested those on export controls and security in the transfer of information. These were often "quite frustrating" for lawyers.

John Denton didn't put all the blame for the current crisis on the WTO, pointing to broader developments that have been exacerbaed by the crisis. "Many governments have no idea how to get liquidity into the economy," he argued. Bangladesh's garment industry of small and medium enterprises (SMEs) has collapsed in the face of online shopping, putting one million people out of work when the SMEs lost their business and the expected cash from orders did not arrive.

Most SMEs don't have business continuity plans for a crisis, Denton observed. As a result, the ICC has produced a guide for coping during COVID-19 (LINK, available in several languages and estimated to take some 13 minutes to read).

Shi noted, too, that WTO's problems pre-dated Trump and went back to the Obama administration. But it remains "a very important institution". And it is in China's interest to continue its reforms.

Women in the COVID-19 crisis

Penelope Naas of UPS (upper left in top photo), Co-Chair of the Forum's Council on Trade and Investment, pointed out that the COVID-19 crisis had disproportionately affected sectors with many female workers, such as the care and service industries. WTO reforms could focus on these gender-related issues, covering training and skills, enabling environments and using financing to correct the digital divide. UPS is working with the Geneva-based International Trade Centre to help women entrepreneurs (LINK).

At the same time, COVID-19 had its upsides: activities such as mask-sewing, involving tens of thousands of people, and local production of vegetables could provide new work and income. Bhatia added: "When you can equip women, particularly in disadvantaged communities, even with the most rudimentary technology [such as] a smart phone, it can be life.changing [...] building communities."

Small businesses can still gain

Small businesses, too, are five times more likely to become an exporter once they start using digital tools, he observed. A third of small businesses surveyed said that without digital technology they would have shut down.

One of those who did well in the changing circumstances brought about by the pandemic was Turkey's HepsiBurada, a leading e-commerce platform in its region.

murat emirdagMurat Emirdag, its Chief Executive Office, drew five conclusions from his company's experience:

'Why I am very optimistic about the future'

Looking post-COVID, Brende asked Emirdag where he saw his company in 10 years. He hoped the company would be doing business from Germany to India, Emirdag replied, adding: "The future of the world will be shaped by innovators and entrepreneurs", leaving him "very optimistic" about the future if the benefits of free trade are preserved.

Phil Hogan said the crisis had demonstrated the resilience of global food chains, despite the early panic about supplies. "COVID-19 is a transformative evenr in trade history," he stated. Firms showing flexibility and incentives for staff through teleworking have been the big winners. Lockdowns around the world have offered people "a glimpse of what a cleaner, greener world looks like".

brown bag webinar panellists

Alisa Dicaprio (top left), Scott Lincicome (top right), Dmitry Grozoubinski (bottom left), Henry Gao (bottom right)

 

Problem areas

In the Internet equivalent of a brown bag lunch, a mid-day webinar highlighted some of the difficulties moving forward. Alisa DiCaprio, Head of Trade and Supply Chain at the blockchain technologly company R3 CEV, reminded business viewers that bills of lading for deliveries often have to be on paper and signed, making offloading impossible in some ports because national lockdowns stopped companies from being able to produce the legal documents.

Moderator Dmitry Grozoubinski, Director of the training consultancy ExplainTrade, noted that the U.S.-Europe 16-year Boeing-Airbus dispute over support for the manufacturers is costing $7 billion a year in retaliatory tariffs and could continue "till the end of time" if nothing can be settled through the WTO (LINK). He also pointed out that some 70 countries have imposed export restrictions in the wake of COVID-19, and these need to be lifted.

'Free trade is a hard sell'

Scott Lincicome, a Senior Fellow at the Cato Institute, outlined some of the difficulties in persuading the United States to soften its international trade stance. Free trade is "a very difficult sell", he observed. Trade is only a burning issue for swing States rather than the whole of the U.S., and there's no "elevator pitch" that will convince opponents, even arguing against protectionism's "very high costs", ineffectiveness and susceptibility to political corruption. In the rust belt, the disruption to trade is what counts with voters.

Henry Gao, Associate Professor of Law at Singapore Management University, gave his interpretation of China's newly declared slogan of "trade power". This involves improving the quality and quantity of imports and exports, moving up the value chain, promoting knowledge.-intensive industries and Made in China, increasing domestic consumption, and diversifying its trade including with sources such as Russia and Iran, he suggested. Lastly, he added, China wanted to develop new trade rules such as the regional level.

In the meantime, the global economy is expected to take a major hit this year (6%), contracting for the first time since the financial crisis of 2008, and real growth may only return in 2022, Brende observed at the opening of the first broadcast webinar.

An online poll taken during the lunchtime webinar found 53% of the voting viewers expect cross-border trade to be harder in two years. 25% expected it to be the same, and 13% significantly easier, but only 6% think international trade will be significantly harder. Business confidence seems relatively good compared to the headlines predicting disaster.

Links

World Economic Forum papers and reports:

Here are 3 ways businesses can survive and thrive through COVID-19 and beyond23 July 2020: Organizational agility is now central to business survival. Digitalization should be seen as grounds to change the business model creatively for the better. Cooperation with previously unlikely partners proffers a more effective means to generate collective new gains.

Global cooperation is more vital than ever23 July 2020: "Trade has become less about creating win-win agreements and more about gaining advantage at the expense of a global competitor. In late 2019, the International Monetary Fund warned that rising trade tensions would pose a drag on economic growth of approximately $700 billion in 2020."

World Economic Forum webpage on its Trade Multistakeholder Conversation (LINK)

The Great Trade Reset (LINK)

Trade Uncut (LINK)

Society, Trade and COVID-19 (LINK)

Some WTO rulings News (LINK)

D-G's farewell remarks (LINK) as above: "Members now have a foundation on which to build new rules and standards, without ever forgetting the multilateral track and the fundamental issues that must still be addressed more fully."

The W.T.O's final five candidates — 18 September 2020 (LINK)

The eight candidates for WTO Director-General and their bios/statements. All dealt with WTO problems, the D-G's role, negotiations particularly on fisheries, ecommerce, post COVID-19 and (somehow) gender in the secretariat.

Seade's statement to the WTO General Council: WTO back at the center of global governance for the benefit of world economic growth, and a D-G close to all members north and south, east and west. "In the absence of [a] fundamental sure-footedness on the WTO’s inner workings, at the first serious discussion among senior trade negotiators, the new DG will quickly be marginalized and sidelined." (PDF)

Ngozi Okonjo Iweala of Nigeria's statement to the General Council on 15 July: Technical assistance for weaker members, standardize best practices, strengthen Secretariat to support members. "The WTO appears paralysed at a time when its rule book would greatly benefit from an update to 21st century issues such as ecommerce and the digital economy, the green and circular economies. Issues of women and trade and Micro Small and Medium Enterprises (MSMEs) are important to ensure greater inclusion." (PDF)

Nigeria's WTO contender promoted by website at home (LINK)

Abdel-Hamid Mamdouh (Egypt): Reform, address DOHA issues, find enforceable solutions."Reform conversations should not be about the future of the WTO but about the WTO of the future" (LINK, PDF)

Tudor Ulianovschi (Moldova): reinvigorate WTO, safeguard and improve dispute settlement, improve compliance and monitoring. "WTO is facing unprecedented challenging times. [...] Focus on smaller, incremental gains" (LINK, PDF)

Yoo Myung-hee (Republic of Korea): "More relevant, resilient, and responsive. Stagnant negotiations have had negative consequences for all of the WTO’s functions, and, to some extent, contributed to the current problems facing the dispute settlement system. [...] The WTO should pursue inclusive trade initiatives encompassing overall development issues, as well as specific, cross-cutting issues such as MSMEs, women’s economic empowerment, and environment. Among others, we should deepen our efforts to help developing countries, especially LDCs,secure a larger share in the growth in international trade" (LINK, PDF)

Amina C. Mohamed (Kenya): "Reform, Recovery, Renewal. You do not all share the same reform priorities. This makes it essential to work together for convergence around elements that all can support. We need a WTO that is fair and equitable, taking into account the level of economic development of each member. All WTO Members must be prepared to contribute to improving and strengthening the organization, so that it can facilitate trade for the benefit of all, and contribute to economic recovery from the effects of the pandemic" (LINK, PDF)

Mohammad Maziad Al-Tuwaijri (Saudi Arabia): establish critical success factors for WTO, set key performance indicators, make structured analysis."The WTO needs a DG who helps Members to guide the system forward by constantly assessing performance and helping find ways to introduce gradual transitions toward improved functioning and, where necessary, to support reform to stay the course into the future" (LINK, PDF)

Liam Fox (United Kingdom): Focus on outcomes, not process. "Show people jobs, show them prosperity and hope for the next generation, [...] that is how we will be validated in their eyes" (LINK, PDF)

The campaigning phase for DG now runs until 7 September, shortening the specified process for candidates to "make themselves known to members", and is then followed by a WTO members' consultation to last "no more than two months" (LINK)

Should digitally delivered products be exempted from customs duties? Guess the answer (LINK). UNCTAD estimated that the potential tariff revenue loss to developing countries due to the moratorium was $10 billion in 2017. Developing countries can generate 40 times more tariff revenue every year compared with developed countries by imposing customs duties on electronic transmissions.


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