The member states of the World Trade Organisation (WTO) have agreed on Dr Ngozi Okonjo-Iweala (66), a Nigerian­ former finance minister, as the future Secretary-General. Okonjo-Iweala has worked as a development economist at the World Bank and as a board member of the Global Vaccine Alliance against Covid-19.

This factsheet explains what the election means for the organisation and why the WTO’s work is important for export-oriented economies like Germany.

A Conversation with Dr. Christian Bluth, economic expert on WTO reform at Bertelsmann Stiftung

Facts and figures on the WTO

What is the role of the General Secretary?

­The World Trade Organisation (WTO) sees itself as a member-driven organisation, i.e. the member states determine the agenda and procedures within the ­organisation. The Secretary-General has hardly any formal power.

However, some of her predecessors were able to ­influence the success of negotiations in their ­function as bridge-builders between the members, as agenda-setters and through ­effective public relations. The last General Secretary, Roberto Azevedo, was perceived by many as reticent; a more present and confident personality can make a difference here.

What are the central tasks of the WTO?

The WTO was founded in 1995 on the basis of the General Agreement on Tariffs and Trade (GATT) and now has 164 member ­states. The WTO has three central functions – all of which are in crisis:

The WTO is the basis for negotiating multilateral agreements on binding ­rules in international trade. These include, in particular, the principle of most-favoured-nation treatment, which ensures that all members benefit equally from trade privileges­, the prohibition of preferential treatment for domestic companies over foreign companies, and the binding fixing of tariff rates.

Problem: Since the Doha Round could not be concluded in 2008, the WTO has hardly managed to conclude negotiations successfully. Decisions require the consensu­ of all 164 member states, but the interests are often too different for that. There is an urgent need to develop modern rules for the digital economy, against distortions of competition and for better sustainability standards.

The Dispute Settlement Body of the WTO decides on disputes between member ­states and thus creates legal certainty. If the Dispute Settlement Body rules in favour of a party­, it is given the right to impose tariffs equivalent to the damage. The panel consists of two instances.

Problem: The Appellate Body, the second and decisive instance, is currently unable to make decisions because the Trump administration blocked the nomination of new members of the body until the number fell below the minimum quorum. Thus, no ­last-instance rulings can be made.

The WTO should ensure transparency of national regulations. For example, it is important for exporters to know which rules they have to comply with when exporting goods­. WTO member states therefore have an obligation to report relevant measures to the WTO, including policies and regulations that may be relevant to competition policy.

Problem: Many member states only provide information on regulations with a long delay and in some cases incompletely, which means that the WTO cannot fulfil­ its transparency task. In view of these difficulties, WTO members agree on reforming and modernising the institution. However, there is no agreement on the appropriate measures­ and objectives.

What does the WTO bring to its member states?

Despite its need for reform, the WTO brings substantial benefits to its member states. The existing rules create a market environment that is more predictable. For example, countries cannot usually drastically increase their tariffs at short notice.

The Dispute Settlement Body also creates a certain degree of legal certainty. For exporters – and thus for export-driven economies like Germany – such a predictable­market environment is a crucial prerequisite.

A Study from 2019 examines the macroeconomic gains from the WTO and GATT ­before it. The biggest winners are the US ($87 billion), China ($86 billion) and Germany ($66 billion). However, when these gains are calculated on a per capita basis, it is small, open economies such as Malta, Singapore, Switzerland, Belgium and the Netherlands that do well.

WTO

Questions and answers to Dr Christian Bluth,
economic expert at the Bertelsmann Foundation

What should be the priorities of the new General Secretary?

Christian Bluth: First of all, Ngozi Okonjo-Iweala has to establish trust in herself and in the organisation. At the same time, she has to prove that she is able to act as an honest broker and that the organisation can achieve results for its member states.

That means a lot of work. A ministerial conference is planned for the end of 2021 – decisive breakthroughs have often been achieved at such conferences in the past. However, a lot of preparatory work is still necessary for this.

Currently, there are negotiations on rules for the digital economy, sustainable investments, services and fisheries subsidies. To show that the WTO is capable of action, it would be necessary to bring at least some of these ­reach of a conclusion. Another success would be for member states to agree on a concrete negotiating track on various aspects of WTO reform.

What can be expected from the new US administration?

Bluth: The Trump administration has not played a constructive role in the WTO. Not only has it openly violated WTO law, but it has also blocked the appointment of the Secretary General and the members of the trade body for a long time, thus weakening the organisation at ­crucial points.

The Biden administration has committed itself to multilateralism. Therefore, a more constructive approach is to be expected. This does not mean, however, that the criticism that the USA has been making of the WTO since Obama’s administration will be silenced overnight.

It will not be as if a switch has been flipped. Before the problems can be solved, there will be negotiations, which may also be difficult. But we can assume a more constructive attitude­.

What should a reform of the WTO look like?

Bluth: The most important thing is to overcome the blockade of the organisation. The­consensus principle no longer works with 164 members. A balance must be found between­ more efficient cooperation and maintaining the multilateral approach.

We therefore propose so-called “open plurilateral agreements”: Here, a “coalition of the willing” comes together and negotiates more far-reaching rules. However, there is no obligation for non-participants to adopt these rules. At the same time, these agreements remain­ open for further countries to join at a later date.

This proposal goes beyond the current attempts within the framework of the Joint Statement Initiatives (Paper).

In addition, we believe it is important for the WTO to develop effective rules on subsidies. The resulting market distortions and negative competitive effects – for example, when a company gets into difficulties because of subsidies to its competitors­ – are a major cause of criticism of trade and globalisation. The first thing that should help here is to create a clear database (which is currently still lacking) that forms the basis for rules that prevent negative competitive effects­.

Thirdly, it is important to regularly review and improve the functioning of the organisation. To this end, there should be a periodic review process, as has long been standard in other international organisations such as the IMF or the OECD.

An overview of the Bertelsmann Stiftung’s WTO reform proposals is available at this link.

Additional information

Dr Christian Bluth, Senior Expert for Globalisation, World Economy and Trade Policy of the Global Economic Dynamics Project (www.ged-project.de), coordinates the Bertels ­mann Stiftung’s work on reforming the world trade system and the WTO.

 

Our expert:               

Dr. Christian Bluth, Phone: 0 52 41 81 329

E-mail: christian.bluth@bertelsmann-stiftung.de

 

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