Headless World Trade Organisation not good for Ireland’s trading companies
The WTO has kept the worst elements of protectionism at bay and has adjudicated on a wide range of international disputes with admirable skill. File picture: Barry Sweet
In a surprise move, the Brazilian who has been heading up the World Trade Organisation (WTO), Roberto Azevedo, stepped down from his role as director general last Monday, amidst acrimony between the US, China, and the EU and without a replacement nominated for the post.
This leaves a void in the global trading system that Ireland depends on for protecting its key export sector from abuse by unscrupulous traders, outside of the EU protection rules — a situation which is likely to become more important from January 2021 when the UK leaves the EU and may opt to trade under WTO rules only.
Despite a torrid few years of negative media commentary and political neglect, the WTO has kept the worst elements of protectionism at bay and has adjudicated on a wide range of international disputes with admirable skill, which seldom get media coverage.
Ireland and other open trading nations rely on the WTO's stable, predictable, and dependable rules for doing business internationally. Ireland’s manufacturers gained substantially from reduced tariffs of over one-third and scrapping them on 40% of manufactured goods, following the WTO global agreement in 1995.
The loss of the world’s primary trade referee could turn the typically deliberate process of resolving international disputes into a free-for-all, paving the way for an outbreak of tit-for-tat tariff wars.
Right now, the world economy needs a strong leader, who can deliver strong medicine to help recovery from the coronavirus-induced recession which has hammered world trade and investment.
Throughout the pandemic responsible politicians failed to throw the lifeline of fresh cross-border co-operation; instead they have tolerated protectionism in various guises.
"The WTO is facing its deepest crisis since its creation,” Phil Hogan, the recently departed European trade commissioner, told members of the European Parliament his year.
If the rules governing international trade can no longer be enforced, “we’d have the law of the jungle”.
Eight countries have nominated their candidate for the WTO director general post. Insiders believe that European countries will rally behind one of the two hotly-tipped African contenders — Kenya’s former Trade Minister Amina Mohamed and Nigeria’s Ngozi Okonjo-Iweala, a former managing director of the World Bank and chair of the board of Gavi, the vaccine alliance. However, Ms Okonjo-Iwela’s campaign may not be helped by its association with the US political strategy and consulting company, Mercury Public Affairs, a Washington DC lobbying firm with close ties to the Trump administration.
Few believe that Liam Fox, a UK nomination and Brexiteer, sacked as international trade minister by Boris Johnson last July, has much chance of securing the job.
“Fox’s nomination is a bit of a joke,” said Vince Cable, trade minister in David Cameron’s government.
Former EU Trade commissioner Phil Hogan had floated the idea of running for the post, before withdrawing when EU support was not forthcoming.
The WTO has not had a boss from Africa and, with the long-anticipated African Continent Free Trade Area to become operational in January 2021, this could be a very opportune time. However, there are concerns that the continent’s leaders have not rallied behind a single candidate, with Egypt’s Hamid Mamdouh also throwing his hat into the ring.
In a worrying sign, none of the big block countries/regions — the EU, US, China, India, or Russia — have nominated a candidate.
The Geneva-based body, established in 1995, provides a forum for its 164 member countries to administer a system of rules governing global trade.
However, after the collapse in 2016 of its last major update round of negotiations — the Doha round — the WTO has seen one of its main functions, arbitrating trade disputes, hobbled by a dispute with the US.
The Trump administration has blocked the appointment of new judges to the key appellate body, accusing the WTO of having treated the US unfairly.
Since then, the US has gone on to enforce their own law, sidestepping WTO rules in moves protecting its steel and aluminium industry by imposing tariffs on Canada, Europe, and Japan. And the US attempts to rebalance its general trade imbalance by applying punishing levies to a wide range of Chinese goods.
US president Donald Trump and his top advisers have criticised the WTO for giving China a free ride since becoming a member in 2001, doing little to curb Beijing’s unfair trade practices in forced technology and intellectual property breaches.
Many other nations, including the EU member states, agree with the US that the WTO has failed to adequately police Beijing for using a mix of private enterprise and state support to dominate global industries.
However, few agree with Mr Trump’s methods of resolving the China question.
Japan, Canada, China, the EU, and other governments are relying on the organisation to determine whether Mr Trump’s tariffs on steel and aluminium violated global trade rules. However, in an indication of the growing lack of trust in the WTO, many of those governments — including the EU, Mexico, and Canada — have not waited for a ruling before imposing retaliatory tariffs on American goods.
The prospective weakening of global trade rules has worried smaller nations such as Ireland. It has also rankled the EU, a strong believer in the multilateral system whose economy is heavily dependent on trade.
Ireland’s priority in these negotiations has been, and continues to be, to see the process of trade liberalisation continue in a fair and balanced way and to support the strengthening of the WTO in its provision of a stable and consistent framework for the regulation of world trade.
In a worrying dysfunctional sign, the appellate branch of the WTO’s Dispute Settlement Body, sometimes called the supreme court of world trade, stopped functioning in December after years of relentless US opposition.
So far however, the US has avoided expressing a preference for any candidate and has not embraced calls for an expedited process. There seems every likelihood that the US will simply avoid a firm commitment in any direction until after the upcoming presidential election in November.
Should Donald Trump secure re-election, the director-general nomination is likely to be the Nigerian supportive candidate, but we can expect the objections to the WTO budget, the Appellate Body, and a range of other issues to continue.
If Joe Biden wins, the US will want to signal re-engagement with international global bodies by backing a consensus candidate they find palatable. However, this is unlikely to be top of the Biden administration’s priority list and — at any rate — would have to wait until he is inaugurated in the new year.
There is little doubt that China violates the spirit, if not the letter, of WTO rules on intellectual property and subsidies. However, when the US and Europe complain that China is infringing “global norms and rules”, they forget their own economic history. China’s policies are not so different from those that they too embraced while catching up with technological leaders of the time.
They also forget that China’s economic policies have generated not only significant domestic economic growth and poverty reduction; they have also created a huge market for western exports and investment.
However, it is worth looking more in depth at a key complaint of both the US and EU about Chinese abuse of intellectual property. And, it is a big concern of many Irish software companies doing business in China.
We are told that there is simply no recourse in WTO rules for challenging requirements of the Chinese for technology transfer, yet if you look at the accession agreement that China signed when joining the WTO, it binds China.
As a member of the WTO, you find there are specific provisions prohibiting forced technology transfer. These provisions can give rise to claims in WTO dispute settlements against such required technology transfer. In fact, the protection provided for trade secrets in the WTO intellectual property agreement, the Trips Agreement, goes considerably beyond anything that has been said about trade secrets in other international intellectual property conventions.
Yet, we are ignoring the opportunity provided by this article to support claims in WTO dispute settlement against China where China has violated this obligation.
If the WTO has become dysfunctional, it is because politicians and businesses have not given it the support needed to update procedures and systems to match the changes in global trade practices.
Moreover, its role as the leading forum for international trade-policy co-operation is increasingly eroded by the proliferation of regional trade agreements to which governments, led by the EU, have engaged in.
However, concluding that the WTO is a failure would clearly be premature. Now, more than ever, we need a trusted global trade referee.
The trade war with China is a clear indicator of the need for an honest broker to mediate a fair settlement that does not damage the legitimate trade aspirations of other countries.
A fully functioning, updated, and respected World Trade Organisation continues to be essential.
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