Monday June 17, 2024

The WTO: decisions and constraints

By Hussain H Zaidi
March 01, 2021

The selection of Ngozi Okonjo-Iweala, a Nigerian national, as the director-general of the World Trade Organization (WTO), is significant for at least two reasons. She is the first woman to head the WTO, which was set up in 1995 as one of the three premier organizations for global economic governance. The IMF is already being led by a woman. Okonjo-Iweala’s appointment may be seen as yet another indication of growing women empowerment and dismantling of gender-based barriers which for centuries prevented women from taking up strategic jobs.

The new WTO chief is also the first African to head the organization. Africa being the most impoverished continent of the world, the appointment of an African to one of the top offices for global economic governance is a good omen, particularly in view of the fact that in the WTO all decisions, including appointing the director-general, are made with consensus.

Okonjo-Iweala has made history by being the first woman and the first African to head the WTO. Yet she would probably prefer to be remembered as someone who helped steer the WTO out of an existential crisis. In fact, the impasse over her selection lasting several months was a reflection of the tailspin into which the 164-member organization has fallen in recent years. To be sure, the crisis predates the advent of former US president Donald Trump, who has got a rap on the knuckles on several international issues, including the WTO. Although by his opposition to multilateralism and through his unilateral actions, Trump undermined the efficacy of the WTO, the organization had been in disarray long before his rise. To appreciate the current WTO predicament, it’s imperative to look at the organization’s raison d'etre.

The WTO promotes international trade in three principal ways: (a) making it freer by dismantling barriers to cross-border flow of goods and services; (b) promoting transparency and fairness by making it obligatory upon the members to publish their trade-related legislative or executive measures in time and avoid unfair trade practices, such as intellectual property right (IPR) violations and dumping; and (c) and making trade seamless by cutting the time and cost of doing international transactions.

To this end, the WTO charter stipulates three principal functions for the organization: The first of these is the executive function, which consists in administering the agreements which form part of the WTO. These agreements, which pertain to trade in goods, services, and IPRs, put in place a rule-based system by creating both legally binding rights and obligations for the member governments. These agreements are very comprehensive in scope. The basic idea is to encourage members to pursue liberal trade policies.

The second function is quasi-judicial and follows from the first. If a member doesn’t meet its obligations; or its domestic laws or executive actions are otherwise discordant with any legal provision of the WTO such that they undermine the corresponding rights of another member, the latter can challenge the offending measure. To this end, the organization has a well-structured dispute settlement system.

Since trade liberalization is a continuous process, the third function of the WTO is to serve as a forum of multilateral trade negotiations aiming at further pulling down barriers to trade. In recent years, these functions of the WTO have been in the doldrums, making it look like a ramshackle organization. This has led many to even call into question its raison d'etre.

Like the UN, the WTO is a member-driven organization. The acts of omissions and commissions of such organizations reflect the priorities of their members. The efficacy of such organizations is contingent upon the members’ commitment to organizational goals. If the UN has failed to resolve such outstanding issues as Kashmir and Palestine or was used to invade Iraq, the responsibility for such highly questionable acts lies with the members. When in 2010, the major powers decided that Iran needs to be punished for its nuclear programme, the UN Security Council (UNSC) put sanctions on Tehran. When in 2015 the same powers struck a nuclear deal with Iran, the UN followed suit by lifting the sanctions.

It would be preposterous to assume that in case different persons had headed the UN Secretariat at crucial times, the world body would have acted differently. The successes as well as the failures of the UN are those of its members. The role of the secretariat is that of coordination among the members and implementation of their decisions.

The same goes for the WTO, but there’s one crucial difference in decision-making between the two organizations. In the UNSC, five members have veto power and decisions are made by the majority, provided no veto is cast. In the WTO, all decisions are made by consensus and so every member has the power to veto an impending decision. Thus, decision-making in the WTO is absolutely democratic, as there are no privileged members.

But this doesn’t preclude power play in the WTO. In theory, any one member by a dissenting vote can rock the boat of the rest of the members. In practice, big economies or coalitions of countries block decision-making. Trade liberalization has both winners and losers and every economy has both efficient and inefficient sectors, which it is eager to open up and protect respectively. This gives rise to a clash of interest as the gains for one member or a group of members may represent the loss for another.

Different coalitions, with often overlapping interests have remained at work in the WTO. For instance, developing countries by and large are keen to protect their manufacturing sectors. Most of the developed economies, notably the US, West European countries and Japan, are eager to shield their relatively inefficient agricultural sectors through subsidies and tariffs. Exceptions are Australia and New Zealand, which would be among the greatest beneficiaries if trade in agriculture was liberalized. Likewise, the labour abundant developing countries are itching for greater access for their workers to the markets of developed countries, while the latter’s interest centres on enhanced market access for their multinational enterprises.

Then there are the least developed countries (LCDs), which enjoy the status of free riders in the WTO: they have rights but are exempted from fulfilling almost all the corresponding obligations. Since they are in a position to scuttle any agreement, the LDC coalition makes sure they continue to enjoy their preferential status, often at the expense of developing countries, the economies of quite a few of which have been outperformed by some LDCs in recent years. For example, it is in the interest of countries like Pakistan that developed countries remove the relatively high tariffs on labour intensive products, such as textiles and garments. But LDCs such as Bangladesh, which have thrived on duty free access to the markets of developed countries, resist such moves. The LDCs have in no small measure contributed to the impasse in multilateral trade negotiations.

Trade informs almost every aspect of life. It also represents a trade-off between competing interests. When a country opens up its market, it not only opens up its economy and workforce to foreign competition but exposes its culture and institutions to alien ideas as well. An even bigger issue at present is that of the sharing of citizens’ data with foreign apps and big-tech, and its possible ramifications for individual privacy and national security and sovereignty. At times, such concerns are genuine; at times they are baseless. But those who decide whether the concerns have substance or are baseless often represent competing interests.

The Covid-19 pandemic is also exercising an adverse impact on the WTO. Although the pandemic has underlined the need for a multilateral response to global challenges, in practice, protectionism is gaining currency as countries seek to revive their sagging economies. Thus, while one wishes the new WTO head all success, it is for the organization’s members, not her or her staff at the secretariat, to salvage the organization – which many believe is on the death-bed.

The writer is an Islamabad-based columnist.


Twitter: @hussainhzaidi