Geneva (14/07 – 37.50) Global uncertainties have given birth to pronouncements that range from nonsense to seriously dangerous such as that the WTO is dead and that globalisation has run its full course. The WTO is not dead, and neither is globalisation.
The world needs desperately to avoid the economic policies deployed by economically illiterate policymakers driven by populism and fear. That’s how in the 1930s it descended into countries collectively pointing economic weapons at themselves with beggar-thy-neighbour protectionist policies.
The Bretton Woods institutions were forged to avoid a repeat of those dark times. Three ideas defined those institutions that became the World Bank, the IMF and the WTO and their role: the idea of development, the idea of embedded liberalism and the idea of multilateralism. These rules for economic exchange and institutions for economic cooperation were as much about political security as they were economic security.
Great power politics and the transition of power threaten the order that evolved out of Bretton Woods but there are no alternatives except economic and political disorder. Some may think we’re already in a world of disorder, but things would be significantly worse without the legacy of those institutions that remains in place.
Strategic competition between China and the United States has made global cooperation much harder. Both countries are the source of global uncertainty but neither has yet walked away from the WTO or global arrangements like the G20. The world’s two largest powers account for about 30 per cent of the global economy, and between them they have considerable ability to create uncertainty about the rules. On the other hand, the overwhelming majority of countries, representing 70 per cent of the global economy — and an overwhelming majority of countries — want a rules-based order that constrains the major powers.
The already difficult situation has been made worse by Russia’s invasion of Ukraine and the resulting food and energy crises. Recovery from the pandemic is incomplete and we’re starting to see what a changing climate looks like.
The darkening global scene makes the good news out of Geneva last month that much more significant.
The 12th Ministerial Conference, or MC12, of the WTO produced the ‘Geneva Package’ that included only the second new multilateral agreement (after the Trade Facilitation Agreement) in the WTO’s 27-year history to end fisheries subsidies as well as a commitment to reform of the institution and restoring the dispute settlement system so rules can be enforced.
‘MC12 was a significant achievement relative to expectations and the previous meeting, where ministers could not agree to a joint declaration’, argues Bernard Hoekman in the first of this week’s lead articles.
Aside from the global environmental importance of the fisheries agreement, it is important ‘because repeatedly missed deadlines to conclude an agreement had undermined the credibility of the WTO as a negotiating forum’, Hoekman explains.
The Geneva Package also included measures relevant to the issues that confront the WTO’s 164 members today: an agreement to limit (or at least to ‘exercise restraint’ on implementing) export restrictions on food, bolster trade cooperation during crises — including during pandemics — and to extend a moratorium on customs duties on e-commerce. The agreement to reform the WTO and how it functions will help to move the body beyond the paradigm of single undertakings involving all member countries having to agree to everything in order to proceed.
Significantly, ministers also decided on a waiver under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) that allows for the manufacture and export of COVID-19 vaccines without the consent of the patent holder. As Hoekman argues, that ‘decision showed WTO members were able to conclude an agreement on a highly contested subject and do so in a way that differentiates across developing countries’, a long-standing problem in the WTO. China, as a developing country with vaccine manufacturing capacity, excluded itself from the waiver so the deal could proceed, ‘illustrating that developing country status in the WTO need not preclude differentiation in the application of rules’.
None of these measures are perfect — nor will they resolve the core issues that are causing the global order to fracture. But they are a rare step in the right direction and demonstrate that multilateral cooperation is far from dead.
China’s compromise was important. The Biden administration may not be able to depart from Trump’s America First tariffs on China and the US veto of dispute settlement body judges, but at least Washington is not playing spoiler in global governance, as it did under the previous administration. India remains recalcitrant in the WTO but it at least did not veto the Geneva Package.
What happens next is important. MC12 provides momentum but as Ken Heydon argues in our second lead article this week, ‘turning the MC12 into a game-changer for the trading order will require a level of political resolve from G20 leaders that so far is still lacking’. The G20 is not a negotiating forum and does not represent the 164 members of the WTO but it can mobilise political will from the major powers.
‘The G20 must give a coordinated boost to the rules-based order’, argues Heydon, ‘by stressing that autarky and unilateralism are simply a recipe for protectionist capture, retaliation and trade friction’.
The focus then now shifts to Asia.
As this year’s G20 host, Indonesia has its work cut out. It has to focus on managing the geopolitics of hosting a leaders’ summit given Russia’s membership of the body, but now also has the opportunity to build on the Geneva Package given its previous initiatives on multilateral trade reform. Indonesia alone accounts for around half of Southeast Asian GDP and population. It is also chair of the Group of 33 developing countries in the WTO, and as such, Indonesia has the ability to build bridges between the main protagonists in a geopolitically fraught environment.
There’s a lot at stake. The post-war order enmeshed the United States, at the time the world’s largest economy and then as now the most important military power, in a system of rules that constrained its ability to use its economic power for its own strategic ends. The accession of China to the WTO in 2001 was the beginning of a process by which it was similarly embedded into an order that constrains its ability to coerce smaller nations economically.
Globalisation is far from dead and the WTO — weakened though it has been — is more relevant than ever. The process of enmeshing the major powers in rules was given a boost in Geneva. That process needs to continue in Bali.