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Iwish to express my deep appreciation to the Cairo Forum for including me in this important discussion at a time of testing for the multilateral trading system. My thanks also to the eminent chair of our panel, Hamid Mamdouh, and my fellow panelists, the highly experienced Dr. Stefan Schepers, and Ms. Valerie Picard, bringing respectively the points of view of from Europe and from the private sector to our discussion today.
1. First, what is to be expected from the United States?
The United states has cast aside it's major trade obligations under international agreements, particularly under the General Agreement on Tariffs and Trade (GATT) and the other trade agreements administered by the World Trade Organization (WTO). Foremost among these obligations was keeping tariffs at or below contractually committed levels and acting in a nondiscriminatory (most favored nation (MFN)) manner. The United States replaced its former trade agreement relations with its trading partners with unilateral tariffs in almost all cases and entered into a series of bilateral agreements with most of the larger trading nations, obligating them to give it preferential treatment both in terms of trade as well as investment in most cases.
It will take time to sort out how the world trading system is to be structured after this shock. What we know for sure is that trade with the United States is governed by US unilateral measures and bilateral agreements with the US, having in the main nothing to do with the primary trading rules that were existence during the 80 years stretching from 1948 to through 2024 – agreed tariff rates applied without discrimination. There is a hole in that system.
The predictability and stability provided by the multilateral trading system, for a very sizable part of world trade, no longer pertains. It is important, however, to keep in perspective the fact that the United States represents only 13% of World Trade. The remaining 87% of world trade persists as it recently did -- countries continue to adhere to the rules that existed on January 1 of this year. Of course, there are serious questions about how each of the major players respects those rules. For China, whether it's economic system that relies very heavily on the state and its trade coercive measures indicate something other than full participation in the multilateral trading system in accordance with the rules of the WTO. There's a similar question for the EU. It is within the formal rules of the organization but has trading relationships on a preferential basis with many the trading partners of the European Union, taking extensive use of an exception to the rule of nondiscrimination, the MFN rule.
The fact that America's major trading partners have concluded deals with the United states has tended to ratify the new US regime with respect to its own trade. This started with the UK, spread through the European Union and Japan and now covers a large amount its trade.
However, it must be concluded that a higher degree of unpredictability in trade with the United States than that which prevailed in the period prior to this year will characterize trade with the United States at least through 2028.
2. What is to be concluded with respect to the current state of the world trading system?
There is speculation on several fronts that should be laid to rest at the outset.
The world is not splitting into three trading blocs – coalescing around the United States, China and the European Union. Even America's closest allies do not wish to have an exclusive trading relationship with the United States and seek to diversify their trade even further. Nor has the WTO come to an end for all intents and purposes as some scholars and trade experts have opined. Channeling something that American humorist Mark Twain said, the reports of the WTO's demise are greatly exaggerated.
It is also said that the world should now plan to get along without the United states as the WTO member. There was a program on this at the public forum in Geneva at the WTO in September, "The WTO without the United States", in which this idea was talked about in terms both positive and negative. It was said by some that the US should just leave as it seems to have abandoned the major precepts of the trading system. Matthew Wilson, the ambassador of Barbados, speaking for the countries of the Caribbean, said this is not something that his group of countries wants to see happen at all. Moreover, the United states has not resigned from the World Trade Organization despite its glaring nonconformity with its central obligations. It was in arrears but has now paid the dues that the Biden Administration should have paid last year, and it is no longer in arrears. It has sent to the WTO a Deputy Director-General and nominated an ambassador to the to the WTO, both of whom are highly qualified individuals and have no record of being against the institution. President Trump during this second term may have ignored the WTO but has not expressed an opinion that the United States should leave it.
The world's trading nations seem to be settling in the main to somewhat more stable, but higher US tariffs, the absence of retaliation against the United States, and bilateral deals with the world Economic growth due to the imposition of the US tariffs and the uncertainty that has been caused.
Of course, there still are major questions to answer: what is the trade relationship going to be between the two largest trading countries, the United States and China? As I was preparing these remarks, the answer was still very unclear although a truce has been announced by Presidents Trump and Xi Jinping on October 30. There is also a question of what trade relations are going to be in North America as the situation with Canada is highly unsettled and the USMCA, what used to be called the North American Free Trade Agreement, is up for review this next year. With the cancellation of the Agency for International Development, it is not at all clear that the United States will be open to aiding the developing world.
Also unsettling is the widening list of so-called "national security" section 232 cases brought by the administration on a sectoral basis starting with steel and aluminum and auto parts but extending in the direction of many other key sectors for American trade. Political as well as economic causes motivate these tariffs. The US president has threatened to use additional tariffs against Canada to punish it for a commercial aired during World Series baseball games in which teams from the United States and Canada were competing that played the words of former President Reagan expressing anti-tariff views.
3. What should the rest world do?
Keep calm and carry on. Continue to trade with each other under the rules of the WTO, improving the world trading system to the extent that they can do so.
4. The loss of American leadership for the multilateral trading system
The central factor for the world trading system is not just US unpredictability and lack of compliance with the major rules of the system, but it's withdrawal over time well before this Trump administration from leadership in the organization. The void has not been filled by the European Union, nor by China. The so-called middle powers, what I have labeled the international trade progressives, has so far not been a substitute for the partnership of a largely benevolent hegemon, the United States, partnering with the EU and a few like-minded market economies.
5. What is the likely future for WTO reform?
It is unlikely that there is a single member of the 166 nations and economies engaged at the WTO that is fully satisfied with how the organization is progressing. The fact is the GATT era ending with the founding of the WTO in 1995 was far more productive in terms of international negotiations then the WTO era.
The deficiencies of the WTO are all too plain. The WTO members have not found a way to add to the body of world trading rules. They can often neither conclude nor formally recognize the results of their negotiations. They are no longer able to have a single dispute settlement system applicable to all. They have not met the central challenges of this time where solutions must involve trade -- not the COVID 19 pandemic, not food insecurity, not the digital revolution, and not the emerging challenge of the effects of Artificial Intelligence (AI).
6. What steps should be taken now to improve the effectiveness of the WTO?
It would be thoroughly self-defeating and a step in the wrong direction to ostracize the United States, just to throw it out of the organization or to assign it second- class citizenship. There is not a World Trade Organization without the United states period, full stop. To a degree, the WTO without the US would follow down the path taken by the League of Nations. Take for example the area of product standards including sanitary and phytosanitary (SPS) regulations. It would be a profound error to rely on China and the European Union to dictate how the world will deal with product standards. This subject is far more important for world trade than tariffs. Tariffs generally allow trade to take place, although less efficiently. A product standard can cut off trade completely. Look at the case of beef hormones and genetically modified organisms (GMOs) or what might happen to the regulation of trade in nonrenewable resources in the name of environmental concerns.
For the foreseeable future it is highly unlikely that there will be a means of putting new agreements into place as a formal matter and it is not worth the energy to attempt this. Nor is the effort worthwhile to continue in the near term to formally adopt changes under the heading of "WTO reform." Rather, what is need are:
- TRANSPARENCY --it is essential that the Secretariat and the Director-General guarantee to the extent of their capabilities that there is full transparency of all trade measures, and measures that affect trade, including investment understandings. There should be a standing trade policy review mechanism for current trading arrangements which are very varied and new challenges such as artificial intelligence and how it affects the trading system
- DELIBERATION --those who wish to participate in a plurilateral agreement that is consistent with the purposes of articles of agreement of the WTO should be free to do so. The pragmatism that characterized the GATT era should be revived
- DISPUTE SETTLEMENT --dispute settlement should be binding as a condition for any country seeking to utilize the dispute settlement system. This can be accomplished through the multiparty interim arrangement (MPIA) or by separate understandings that each WTO member can file with the secretariat. To fail to agree to a method of accepting results is to accept a decision against one by default.
- ORGANIZATION OF THE MEMBERS --the institution needs to organize itself to address the major challenges that are before it, such as climate change, food security, and dealing with future pandemics. It needs a board of directors like the International Monetary Fund, and the World Bank have, chaired by the Director-General. A committee of the whole cannot administer effectively the rules of the world trading system.
- A FULLY FUNCTIONING EXECUTIVE – The Director-General should be expected to suggest the agenda for the Board and Members and should chair meetings of the Executive Board representing the largest trading members and the membership of the whole.
- A WTO working party should be formed to consider how to receive the expert input into WTO from business, both industry and agriculture, labor, economic development, environmental concerns, threats to world health, and the like. This might best be accomplished by urging countries to replicate national/member level advisory committee structures, such as the US has as required by statute (section 135 of the Trade Act of 1974, sending reports periodically to relevant parts of the Secretariat and committees of the Board or General Council meeting as a committee of the whole.
It is true that much progress may be made in regional agreements and other sub multilateral agreements, and not necessarily at the WTO, and that is fine but all of these efforts should be in the form of global plurilateral agreements, a term I think first used by former EU trade minister Cecilia Malmström meaning that regional agreements should be designed to be ultimately multilateral even if subscribed to at the beginning by a subset of the trading countries participants.
As for the upcoming ministerial meeting in the Republic of Cameroon, every effort should be made to have an agreed outcome stating their common purpose and the fundamentals of the system with which they all commit. A re-dedication to international cooperation is needed, with, to the extent possible, agreed steps to operationalize what would otherwise be statements of high principle without practical meaning.
Conclusion
During the hegemony and the active leadership of the United States, combined with a few like-minded, a world trading system was created that has resulted in world economic growth and well-being unprecedented in human history. It is true that it was not without its flaws. It did not consider fully other societal objectives. That should not obscure the fact that allowing what Adam Smith saw as a good practice, namely the openness of markets to allow specialization in what economies could do best, would provide maximum global benefits. Efficiency is the primary goal, tempered by other societal objectives. It is true and we've learned a hard lesson that a rising tide does not lift all boats, but a stagnant pond lifts none. The way forward lies with greater international cooperation not less.
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