It has been a major player in the regulation of international trade for more than two decades, but in recent years, the World Trade Organisation (WTO) has not been without challenges. As part of a global panel, Creon Butler, Director, Global Economy and Finance Programme, The Royal Institute of International Affairs shared with us his perspective on the outlook for the WTO.
The COVID-19 pandemic is an unprecedented global health and economic crisis. The WTO can play a crucial role in helping manage the immediate economic crisis and in ensuring that the world economy which emerges is more prosperous, equitable and resilient.
But to achieve this the organisation will need strong support from its member countries – since it can only operate under consensus – and effective leadership from its next Director-General.
Exiting from the crisis is going to be harder than many expected. The International Monetary Fund’s latest forecast is for a fall in global GDP of 4.4% in 2020, with world trade down 10.4%. There is likely to be a bounceback in both GDP and trade in 2021, but it will be against a backdrop of sharply lower cross-border investment flows, higher sovereign debt and increased unemployment, particularly if the need for social distancing continues while financial support for business is reduced.
Even those sectors that should in principle be entirely viable once the virus is eventually eliminated (for example, arts, leisure and foreign travel) may not return to their previous strength for a long time because of the loss of financial and human capital during the crisis. And the reduction in time in school over the initial six months of lockdowns may have a serious permanent effect.
Other long-term effects will result from the crash course the world has undergone in the use of technology for remote working and the much stronger focus on resilience in managing business operations, particularly international supply chains.
Against this background, all four of the WTO’s principal roles are relevant, namely: operating the global system of trade rules; acting as a forum for negotiating trade agreements; settling trade disputes between members; and supporting the needs of developing countries.
There are three specific areas in which the WTO’s contribution in the next few years will be critical.
First, it provides a framework under which countries can monitor, manage and discuss trade measures linked to the pandemic. Countries are allowed to impose restrictions to protect their citizens in emergencies that might otherwise conflict with trade rules. However, they must be notified, they should be applied in a way that does not discriminate between WTO members, and they should not constitute a disguised restriction on international trade.
Second, it provides a forum for new trade agreements to be negotiated, enabling the world to capitalise on new opportunities. This includes agreements to facilitate trade in digital services and other aspects of the digital economy, and agreements to facilitate trade in goods and services that are important to low-carbon transition and the green economy.
Third, and perhaps most difficult, the WTO may provide a forum for countries to reach agreement on withdrawing the extraordinary government interventions that have been necessitated by the crisis. It is unclear at this stage how important this will be, but it is crucial in order to preserve international competition over the long term that many of the interventions that have taken place do not become permanent.
The WTO will need quickly to resolve at least some outstanding disputes and tensions that have overshadowed its workings in recent years. Most important is the need to find a permanent solution to the crisis in the dispute settlement system, where the highest authority for disputes – the Appellate Body – has effectively been suspended since December 2019.
It will also need to complete the process of appointing a new Director-General. The field has been narrowed down to two female candidates, both very well qualified: Ngozi Okonjo-Iweala of Nigeria and Yoo Myung-hee of the Republic of Korea.
Finally, prospects for the WTO to play a substantial role in supporting the global economy are improved by Joe Biden’s win in the US Presidential election. His willingness to work with the multilateral system to achieve common goals is likely to be vastly greater than his predecessor’s.