With the WTO’s credibility in crisis, no wonder globalisation is in retreat

As the world’s trade ambassadors gird their loins for the upcoming 12th Ministerial Conference (MC12) in Geneva, I did a quick search on the World Trade Organization website to discover what they hope to deliver.

The list was short: a deal to eliminate fisheries subsidies, measures to strengthen food security, and an agreement on stronger health security measures, in particular a waiver on intellectual property rights for Covid-19 vaccines. Progress was “critical for the WTO’s credibility”, the statement said.

There were other items being promoted by the European Union on industrial subsidies, state-owned enterprises, and trade rules to protect the environment, but with no particular expectation that MC12 would deliver anything concrete in the short term.

Then I saw that the WTO report was dated May 3 – not two weeks ago but May 3, 2021. Here we are, a year later: the agenda remains unchanged and absolutely nothing has been achieved after MC12 was repeatedly postponed, from June last year now to June 12-15 this year.

The lack of progress has indeed had a critical impact on the WTO’s credibility, most forcefully – and poignantly – expressed in a recent paper by Alan Wolff, who retired in March last year after four years as the WTO’s deputy director general.

“There have been no negotiated outcomes during the [27 years] the WTO has been in existence, other than a 2015 agreement [ …] to ban agricultural export subsidies [ …], guidance documents for telecoms and financial services, and the Trade Facilitation Agreement reached [in Bali] in 2013,” he said.

No wonder support for globalisation, and willingness to negotiate multilateral trade agreements, is in such perilously short supply. With an annual budget of almost US$200 million, one can rightly ask how so much money can have been spent on highly paid officials over such a long period with so little to show for the investment.

Or, since the WTO is funded by member contributions, one might ask why so many governments continue to be willing to spend such huge amounts of money when they clearly have no interest in trade liberalisation.

As former US trade negotiator Wolff notes, the US, “the original architect and guarantor of the trading system, has not demonstrated a willingness to make the necessary investment in the WTO to revive it as a negotiating forum”.

Nor have others shown more willingness, largely because politicians have been keener to respond to domestic political lobbies than to agree to rules that level the playing field and enable greater efficiency, higher productivity, keener competition and improved supply reliability.

When WTO ministers finally meet, will they agree on anything?

Academics such as Harvard University’s Dani Rodrik have strived to legitimise this reluctance by complaining of hyper-globalisation, a weasel word intended to redefine the global trade narrative to give respectability to US protectionist lobbies who mourn the loss of their monopoly over the setting of international trade rules.

The process is simple: you don’t want to be accused of protectionism, so you defend against pressure to set internationally balanced rules by complaining that globalists have overstepped by creating hyper-globalisation. In creating and defining hyper-globalists as enemies of true globalisation, you then defend local protectionist interests in the guise of defending “true” globalisation.

If any significant global liberalisation had been achieved over the 27-year life of the WTO, the hyper-globalist complaint might be more plausible. But in light of such insignificant progress, the hollowness of the claim is plain to see.

Yet Rodrik’s complaint is driven by a legitimate and perhaps intractable problem: as problems increasingly can only be resolved by cross-border, multi-country discussion and agreement, the perennial conflict of interest between national politicians who respond to, and act in the interests of local lobbies, and the cross-border compromises needed to solve global problems, becomes harder to reconcile.

As Rodrik acknowledged, we need “a better balance between the prerogatives of the nation state and the requirements of an open economy”.

This is true not only in setting trade rules. It applies to the management of the climate crisis and environmental sustainability, and to the effective defence of our communities, whether struck by a global pandemic or a Russian invasion.

A solution lies not in contrived academic arguments over the difference between globalisation and hyper-globalisation, but in just two things: effective identification of those areas where internationally agreed management is essential, and empowerment of the institutions that can forge the agreements needed.

This screamingly obvious need has been apparent since the beginning of the Covid-19 pandemic, where the World Health Organization has had neither the funds nor the authority to optimally defend global health interests. It is apparent in the failure of the Intergovernmental Panel on Climate Change’s conferences to make progress on reducing carbon emissions.

WTO stuck in past while trade war, climate change, pandemic threaten globe

And it is apparent in the meagre achievements of the WTO. Note the fisheries subsidies, which amount to around US$35 billion a year and need to be eliminated for the sake of the WTO’s credibility, remain in place despite 21 years of negotiation. Note the even costlier farm subsidies (amounting to around US$447 billion a year) and fossil-fuel subsidies (estimated at US$351 billion), where similarly negligible progress has been made.

Wolff’s cri de coeur makes great sense. “The liberal international order requires active defence,” he argues: “Collective, multilateral responses will be necessary. Fragmentation of the trading system is not a sustainable long-term trend. There will be a return to multilateralism.” If the laws of the jungle are to be kept at bay, the global rules-based trading system “needs a rebooting”, he says. “Enlightened self-interest must and will at some point come into play.”

Whatever the common sense of Wolff’s assertion, it is at present more a plea than a statement of fact. However much credibility is at stake, it is highly unlikely that any one of the deliverables defined in that May 3, 2021, statement will be agreed when trade ministers meet in Geneva for their long-delayed MC12. Sad but true.

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view