If the G20 leaders’ summit in Riyadh proved one thing, it was that there is an overwhelming consensus that multilateral architecture is an important cornerstone of the world order.
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Just as international collaboration on health is critical to combating the pandemic, trade is crucial when it comes to the distribution of protective equipment, vaccines, therapeutics, and diagnostics. More than that, a fair and equitable trading system will also play a major role in the global post-pandemic economic recovery.
To that end, the WTO is crucial. It was not just the G20 that endorsed the organization, as the Asia-Pacific Economic Cooperation (APEC) forum also did so when it met virtually in Kuala Lumpur this month. The WTO has not been the happiest of places over the last couple of years, as bilateral squabbles, particularly between the US and China, seemed to take precedence over a multilateral approach.
The discussions of the trade ministers evolved on the basis of the following four principles: Shared objectives on growth productivity innovation, job creation, and development; foundational principles and underlying objectives; forward-looking policy visions; and sources of policy principles.
The overarching finding was that an effective multilateral trading system can only work if the WTO rules apply equally to and are observed by all of the 164 member countries.
The world and world trade have evolved since 1994 and criticism of the WTO, its bureaucracy and long-winded processes precede the Trump administration. The G20 ministers tried to lay the foundation for future reform in the Riyadh initiative.
Its explicit goal is to provide “an additional opportunity to discuss and reaffirm the objectives and foundational principles of the multilateral trading system and to demonstrate ongoing political support for WTO reform discussions.”
Issues discussed leading up to the G20 summit were the differentiation of developing countries in availing special treatment, electronic commerce, investment facilitation for development, and the status of micro, small and medium enterprises (MSMEs).
The last is particularly important, as MSMEs account for 95 percent of enterprises globally and are by far the biggest employers. State aid, including subsidies to industry and agriculture, was another important point. China, India and South Africa were adamant about the distorting nature of agricultural subsidies in OECD nations.
In the end, the Riyadh initiative represents a compromise between developing and developed nations, as well as balancing the priorities of the US, China and other countries. The multilateral stage is one of compromise, where hard and fast solutions often prove elusive. However, the Riyadh initiative lays the foundations for further discussion.
Therefore, it was crucial that it was endorsed by the final communique of the G20 leaders’ summit.
The hard work of reforming the WTO has only just begun. First of all, the 164 member countries need to agree on the next director-general. The favorite is Ngozi Okonjo-Iweala, a former World Bank economist who instituted wide-ranging reforms when she was finance minister in Nigeria and who was also an unsuccessful candidate to lead the World Bank.
The other candidate is South Korean Trade Minister Yoo Myung-hee. The Trump administration has so far vetoed Okonjo-Iweala, which is a big hurdle, because the director-general has to be elected by consensus.
The decision on who heads the WTO is overdue and either the US will be able to extract concessions from the body to ensure it supports the Nigerian candidate, who coincidentally also holds US citizenship, in the next two months or the winning candidate will get the nod once Joe Biden assumes office.
Another sticking point is the WTO’s Appellate Body (AB), which is in limbo because the US has refused to endorse new judges for its three-member panels. They also have to be chosen by consensus. It is hard to overstate the importance of the AB because it can decide on conformity with WTO rules when there are disputes. Oddly enough, the US has historically been one of the biggest beneficiaries of AB rulings.
But first things first: Any organization needs competent management to be effective and the WTO is no exception.
Therefore, the appointment of the new director-general is of paramount importance.
Secondly, a rules-based organization needs to have the firepower to enforce its principles and resolve conflicts, which is where the AB comes in.
There is a broad consensus that trade matters and the rules-based architecture of the WTO is important.
We can expect the Biden administration to strike a more collaborative tone with the WTO. However, the last four years have changed the global landscape, which also holds true for trade.
Biden will also look at history, particularly at how the North American Free Trade Agreement negatively affected President Bill Clinton’s midterm elections, which was why Barack Obama only tackled the Trans-Pacific Partnership (TPP) in his second term.
Globalization has been controversial, and not just among Republican voters. The anti-globalization groundswell has increased over the last four years, around the world as well as in the US. This ties the hands of many leaders because, in the end, all politics are local.
This being said, we are in a better spot than we were before the G20 and APEC summits because there is now a broad consensus that trade matters and the rules-based architecture of the WTO is important. There is also agreement on the need for reform.
Once the new WTO director-general is in place, reform of the body can start in earnest. Don’t expect it to be a walk in the park.
Multilateral decision-making is hard. However, the future efficacy of the WTO depends on successful reforms, for which the Riyadh initiative has laid the foundations.
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