"If we really all support the WTO, if we really do, we have to bear in mind that multilateralism doesn't mean that we get what we want. It means we get what is possible…..The system is not perfect. But it is the best we have. And we are all going to regret very deeply should it ever cease.''- Roberto Azevedo, WTO Director General, MC 11 Closing ceremony
Director General Roberto Azevedo sounds rather very pessimistic about the organisation he is steering now. He has reasons to be so. It took considerable efforts and time starting from the Havana conference of 1947 ( that led to the establishment GATT) to the Uruguay Round of Trade Negotiation extending over close to eight years ending in 1994 to reach where we have reached now. The World Trade Organisation (WTO) came into existence on January 01, 1995 providing a ruled-based global trading system with a clearly outlined dispute resolution mechanism. It is also definitely far more democratic than other multilateral organisations such as the United Nations (UN), International Monetary Fund (IMF) and World Bank (WB). Its (WTO) Ministerial conference, which meets every two years, is the highest decision-making body. Its members include trade ministers and other senior officials from member countries, customs unions and accredited non-governmental organisations (NGOs). The Ministerial Conference (MC) is empowered to take decisions on all matters relating to the multilateral trade agreements.
The 11th Ministerial Conference of the World Trade Organisation (WTO) was held on December 10-13, 2017 in Buenos Aires, Argentina. The conference concluded in deadlock without any substantial outcome as no consensus could be reached by 164 members. The trigger for the deadlock came from the USA supported by other developed economies who blocked permanent solution on government stockholding of food to ensure food security. This led to counter response by India, along with other developing economies, by toughening their stand on this issue. China and India jointly proposed to the WTO calling for the elimination of farm subsidies by developed countries. These farm subsidies are known as Aggregate Measurement of Support (AMS). The way the AMS regime operates creates an asymmetry how rules relating to trade in agriculture are applied between developed and developing countries.
Food security is not a trade issue, and as such beyond the jurisdiction of the WTO. But, in reality, trade in agriculture (which has implications for food importing countries to ensure food security) has been grossly distorted by farm subsidies in developed countries at much higher levels than the ceiling applicable to developing countries. That is the reason food security has become an agenda item for the WTO. Developed countries have secured exclusive entitlements on AMS in previous Uruguay Round of trade negotiations. This has created a situation where some developed countries are targeting subsidies given to farmers in developing countries while allowing developed countries to retain their substantial subsidies given to their farmers. The European Union (EU) agriculture lobby in particular has practically caused the demise of the Doha Development Round. Therefore, the Sino-Indian proposal argues that AMS must have to go before any other reform in global trade in agriculture can be undertaken. But such a position is contrary to the interest of a food importing country like Bangladesh. It benefits from farm subsidies given by developed countries while India is also a food (food grain) exporting country (this has been a controversial issue since late 1970s as to how India has become a food grain surplus country). Agricultural trade reform measures as advocated by China and India will go against Bangladesh's economic interest. Therefore, Bangladesh must remain careful about India's proposed meeting to be held in February, 2018 to muster support for its proposed changes to rules relating to agricultural subsidy and related issues.
The US also further added to the stalemate by questioning certain countries' self-proclaimed development status. US Trade Representative Robert Lighthizer declared that it was wrong for five or six countries in the world presently claiming developing country status without specifically naming any country such as China. Mr Lighthizer appears to be totally feigning not being conversant with the dividing line between a developed and a developing country. He appears to be telling the world that the US has been treated very badly by the WTO. He was portraying a kind of economic victimhood. This is a strategy consistent with legitimising and carrying through Trump's "America First" policy designed to undermine and bypass the multilateral trading system. More ominously, Trump's "America First" doctrine is not only capitalising on uninformed apprehension about free trade but also reinforcing it. It has become a current fare now to blame trade for job losses when empirical evidence suggests that 85 per cent of jobs over the last 30 years were lost in the USA due to technological changes and innovations. If anything, trade enabled to maintain job growth in the tradable sector. There are empirical evidence available for the USA, which further suggests a widening trade deficit is correlated with rising gross domestic product (GDP) and lower unemployment and the mechanism through which this happens is capital inflows.
US trade policy under President Trump has increasingly become protectionist. His "America First" policy clearly conveys a message that trade is zero-sum game rather than being mutually beneficial. He, in effect, considers trade as an act of aggression and said so with regard to USA's trade relations with China and Mexico. His policy is a radical departure from his predecessors. Last time a US presidential candidate won the election on protectionist platform was Herbert Hoover in 1928. On assuming his office, as he increased tariffs, other nations retaliated in response and world trade declined dramatically between 1929-33, causing the Great Depression.
Stagnating wages and rising income inequality are products of domestic economic policies, not trade. Trump's recent tax cuts are going to cause further rise in income inequality and hardly likely to boost investment in manufacturing. Moreover, inflation-adjusted manufacturing output in the USA is on record high level now despite declining employment levels over time in the manufacturing sector. This is the result of highly improved productivity resulting from technological innovation and use of highly productive and highly skilled labour force. Renegotiating trade deals is not going create the type jobs Trump wants create. The USA has done very well and is always running trade surpluses in services trade. This is the sector where is dominates global trade.
The future of global trade has clearly become topic of serious discussion. Global trade now faces a series of challenges which is definitely impacting on trade flows. Of these challenges the core issue is the future direction of multilateral trading system. Also there has been a growing tendency to conduct trade outside the multilateral trading system (these arrangements are allowed under the WTO rules, but hardly they adhere to those rules) as reflected in the proliferation of bilateral and regional trading arrangements. An open trading system obviously makes some losers as others benefit. But not sufficient attention have been directed towards compensating the losers to cushion the adjustment costs of trade liberalisation. There has also been failure to better communicate the issues involved in trade liberalisation to enable the public to make an informed opinion.
A country like Bangladesh and many other least developed countries significantly benefitted from a more liberalised multilateral trade regime under the auspices of the WTO. Trade does not provide answers to all economic woes but domestic economic polies are needed to work along with trade policy to achieve desired economic outcomes. The global multilateral trading system is in flux now but there is not much of an alternative other than to pursue further trade liberalisation on a multilateral basis. This is particularly needed not only because economic benefits of free trade are well documented but also this is the principal way out for developing countries like Bangladesh to reduce poverty and achieve their developmental aspirations as well as enhanced welfare for all countries. Trade has not been equitable but has been beneficial to the people who are integrated through trade.
The writer is an independent economic and political analyst.
