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American Shipper

Fighting for its life

WTO must chart a new course amid rising nationalist challenges and U.S. bypass threats

   Roberto Azevêdo, director general of the World Trade Organization, has a problem on his hands—a growing “distrust” in global trade among many of the world’s population.
   “I ask you to stand up and make the case for the value that you see in trade and the trading system,” he urged colleagues at the end of February when accepting the appointment to continue for a second four-year term as the WTO’s director general. “This organization is here for a reason—to support economic development, growth and job creation, but also to support peace, cooperation and solidarity among nations.”
   But those selling points have been dampened recently by nationalist politicians, not just in the developing world but also among some of the most powerful industrialized countries in the world, such as the United States and United Kingdom. The British people last year voted to leave the European Union, while U.S. President Trump campaigned on the promise of “America first”—a form of economic nationalism.
   President Trump, in a 2017 trade policy report released last week, also suggested the United States should have the right to sidestep WTO decisions to which it objects and take unilateral actions to punish countries for trade violations.
   “Everyone is talking about the backlash against trade and globalization,” Azevêdo said at a Feb. 28 event, “Making trade more inclusive,” hosted by the Graduate Institute in Geneva. “There is growing realization that globalization could have been better managed—and that not enough has been done to spread the benefits and support those who have lost out. These communities deserve to be heard and responded to.”
   However, Azevêdo noted the biggest decimator of jobs across nations has actually been technology and innovations, not trade, and pointed to several recent studies that suggest about 80 percent of lost jobs is due to technology and innovation. 
   “Like trade, technological progress is indispensable for sustained growth and development. So the answer is not reject these forces,” he said. “We must embrace them and learn to adapt.”

There is growing realization that globalization could have been better managed—and that not enough has been done to spread the benefits and support those who have lost out.

   Azevêdo is concerned that politicians are countering the impacts of technology and innovation on their citizenry by wrongfully threatening to impose trade protections.
   “Protectionism would not solve the challenges before us—in fact it would make them worse,” he said.
   A recent UCLA-Columbia University study estimated if borders were closed to trade, “poorer consumers, who pay a greater portion of their earnings on clothing, food and consumer electronics, could see their spending power fall by 63 percent,” he said.
   “Moreover, trade barriers raised by one party leads to a response—and a potential domino effect,” Azevêdo said. “We must not talk ourselves into a crisis, or even a trade war.”
   The irony in this debate is that the majority of people in the both the industrialized and developing world believe in the value of free trade. Azevêdo highlighted a Gallop poll from early February that found that 72 percent of Americans view trade as an economic benefit. 
   “This is a record high,” he said, regarding the Gallop poll’s findings. “There are a number of reasons why this might be the case. Perhaps people have been inspired by the current debate, or are reacting to it. But it is striking that so many now see trade as an opportunity.”
   Azevêdo believes that to dispel negativities toward trade countries should ensure access to the right education and skills for their populations to prosper, double down on assistance to small companies interested in international trade, and enhance support for the unemployed. In addition, he said there’s a need to “ensure that the opportunities of e-commerce are available to all . . . Today, four billion people in the developing world remain offline.”

The irony in this debate is that the majority of people in the both the industrialized and developing world believe in the value of free trade.

   Under Azevêdo’s watch, the WTO scored a significant victory to improve the flow of global trade, namely through the Trade Facilitation Agreement (TFA), which entered into force this February. However, it rings a bit hallow when one considers that this is the first significant agreement reached by the trade body in its 20 years of existence. Often these efforts within the WTO become bogged down by industrialized versus developing country disagreements, which can drag on for years before they’re resolved. 
   For instance, in 2014, at the WTO Ministerial Conference in Bali, Indonesia, efforts to put the TFA in place were dealt a setback when a small group of countries, led by India, raised concerns about food security issues and blocked its implementation. The United States and India were able reach an agreement on food security to move TFA forward.
   More broadly, the WTO faces two immediate challenges to its place in the global trade hierarchy:
   • A series of failures at the WTO’s Doha Rounds to bring global consensus on key trade issues has shaken the faith of developing and developed economies. In lieu of that consensus, most trading nations have taken to conducting bilateral or regional multilateral negotiations (such as the now abandoned Trans-Pacific Partnership or regional deals between the Association of Southeast Nations with China and the EU). These deals were not discussed so much under the umbrella of the WTO as they were conducted as a means to get past the gridlock of the Doha Rounds. Let’s remember, the Doha Round commenced in 2001.
   • Second, any U.S. threat to circumvent WTO rules would deliver a serious blow the organization’s clout. It might not be a death knell, simply because many WTO members may seek to bypass the United States as a trading partner if it chooses to bypass WTO laws to take a more confrontational, insular path.
   There’s also the issue of whether the United States will itself more vigorously pursue cases it believes are valid and not being pursued with enough expediency by the WTO. That could, trade experts warn, lead to a tit-for-tat type of “vigilante justice” approach to trade remedies that necessitated the need for the WTO and GATT in the first place. These experts warn that taking remedies out of the WTO protocol could lead to a rapid escalation in penalties and punitive duties.
   But the Trump administration, by all accounts, intend to pursue a more combative path.
   “In the next week or so you’re going to start to see a lot more out of us on enforcement,” Commerce Secretary Wilbur Ross told CNBC this week. “I think it’s ridiculous to go to all the trouble to bring a trade case, win it and not enforce it against the other party. We will be a very strong enforcer of it.”
   Meanwhile, the WTO has also strengthened its relationships with other governmental organizations such as the International Monetary Fund, World Bank, African Union, Asia-Pacific Economic Cooperation, and the Group of 20 nations.
   Azevêdo said the WTO dispute settlement system has been in high demand among the membership. As many as 98 WTO members have participated in these proceedings, accounting for more than 500 complaints reviewed since the organization’s inception on Jan. 1, 1995. The WTO replaced the General Agreement on Tariffs and Trade (GATT), which started in 1948.
   However, Azevêdo believes the WTO and its 164 members still have lots more work to do to dismantle barriers to global free and fair trade.
   “This is still a young organization. We haven’t yet realized our full potential,” he told the WTO General Council in late February. “And, as a young organization, I think in some ways the WTO is still in transition.”