TWN Info Service on UN Sustainable Development (Feb18/14)
23 February 2018
Third World Network

United Nations: Former DG Lamy points to a "WTO minus the US" scenario
Published in SUNS #8627 dated 22 February 2018

Geneva, 21 Feb (Kanaga Raja) - Highlighting the threat of a United States trade "offensive" at the World Trade Organisation (WTO) including its blocking of the selection processes for the appointments of three Appellate Body members, former WTO Director-General Pascal Lamy has suggested that one possible outcome of this US move would be that the other countries at the WTO build "a WTO minus the US".

Lamy's remarks came at the Geneva Dialogue, entitled "Trade in Crisis: Headwinds or Maelstrom?", convened by the Secretary-General of the UN Conference on Trade and Development (UNCTAD), Dr Mukhisa Kituyi, on 19 February.

Speaking at this event, Lamy, who is now President Emeritus of the Jacques Delors Institute, said that in his vew, the US trade offensive will lead to three possible outcomes - soft, middle and hard.

The soft outcome would be reform of the Appellate Body jurisprudence, while the middle scenario, which he said is most likely in his view, would be to go back to the old GATT (situation), the precursor to the WTO, with shallower disciplines and less enforcement.

"The third possible scenario is what I call "the lonesome cowboy", which is either the US quits or the others, in order to resist this US offensive, build a WTO minus the US," said Lamy.

[Lamy's third scenario was envisaged and discussed in an earlier SUNS article, "Contemplating the unthinkable, a WTO without the US", by Chakravarthi Raghavan in SUNS #8590 dated 6 December 2017. SUNS]

Besides Lamy and Dr Kituyi, the other panellists at the event included Baroness Valerie Amos, former UN Under-Secretary-General for Humanitarian Affairs and now Director of the School of Oriental and African Studies (SOAS) at the University of London, and Ms Anabel Gonzalez, former Senior Director, Global Practice on Trade and Competitiveness at the World Bank as well as former trade minister of Costa Rica.

The informal dialogue was moderated by Mr Jeff Koinange, a journalist from Kenya and talk show host on Citizen TV.

Koinange noted that multilateralism seems to be at an impasse today, and asked whether all this is to be blamed on trade.

Dr Kituyi said that the crisis in multilateralism touched trade in that it is a crisis in rule-making through the multilateral process. Trade as such is not in a crisis. It is rule-making that is in a crisis.

The UNCTAD Secretary-General said trade is an easy scapegoat, and that the problems of globalization are being put at the doorstep of trade.

The reality is that many more people have traded their way out of poverty than the number of people who are falling behind because of unequal distribution of trade.

Similarly, he said, the crisis in trade as such is a crisis of the distribution of gains. It is not a crisis of trade as a phenomenon.

The liberal notion that opening up markets will fix problems has compounded the problem of a retreating welfare state, and without adequate social investment in the education of the labour force or comfortable retirement for the labour force, said Dr Kituyi.

These are all being put in a simple argument that is easier for the politicians to sell - trade is the enemy. Fix trade and build protectionism and the problem goes away.

Baroness Amos said that the shifts in economic and political power that is being seen around the world has been destabilising and threatening, particularly for those countries that have been at the centre of the rules-based system for such a long time.

For people in developed economies such as the United Kingdom that were promised a great deal out of globalization, people feel that promise has not been delivered and that has been deeply destabilizing.

In developing countries or developing economies, however we choose to describe them, the development has been so uneven that in so many countries, they have made economic sacrifices on the back of which they were promised a degree of development and growth which has not been delivered. That has also been an element of it.

"We have to look at this is a much bigger global context and that this is not just about economics, or about trade, it is also about politics," Baroness Amos said.

Former WTO DG Lamy agreed that he did not think that trade is in a crisis, but he believed that the trading system is under threat.

According to Lamy, trade is not in a crisis given the context which is a surge in protectionist discourse stemming from the inability of the West to address properly the socioeconomic disturbances of trade opening.

He said that given this context, trade is doing well. If you look at the numbers, there is a bit of a surge in anti-dumping, safeguards and anti-subsidy measures mostly on the US side as we have seen recently with extremely important sectors of the modern economy which is steel, aluminium and (large) washing machines. That is the frontier of new technology.

"But so far, more bark than bite, overall," he said, in reference to the threat of a US trade offensive.

He said the US offensive against trade arrangements in general - not only multilateral but regional and bilateral as well - is that we have a US president (Donald Trump) who campaigned with the view - and he was very clear on that - that present trade arrangements are unfair to the US, and that it leads to a huge US trade deficit, which represents a huge number of US jobs "stolen" by the rest of the world.

As a consequence of that, there is a simple new trade agenda for the US which is "quit or change in favour of the US."

"That is the situation we are in," Lamy pointed out, adding that this has been followed by the precautionary measure which is blocking the (appointment) of Appellate Body members at the WTO.

In his view, this US offensive will lead to three possible outcomes - soft, middle and hard.

The soft outcome is reform of the Appellate Body jurisprudence, while the middle option, which is the most likely in Lamy's view, is to go back to the old GATT, with shallower disciplines and less enforcement.

"The third possible scenario is what I call "the lonesome cowboy", which is either the US quits or the others, in order to resist this US offensive, build a WTO minus the US."

In his view, the big problem behind all of this is that it is not a tactical choice. The reason behind this is that the US president and the people working with him have a view of trade "which is a medieval one".

For the past 50 years, Lamy said, "we believed that trade was a win-win game, to the price of socioeconomic disturbances which have not been well addressed. But overall we thought it would work."

"The new view on the US side is that trade is a win-lose game, and that there is a winner and a loser and better me be the winner and you be the loser."

This is dangerous because it is a theory of trade which is totally at odds with the reality of global value chains.

Lamy maintained that the trading system is not right. There are areas where the US is right to say that, for instance, China is taking it easy with part of the issues not least because multilateral disciplines are not what they should be on issues like public procurement or subsidization.

Ms Gonzalez, former senior World Bank official, said that she believes that there has been a shock to the system.

She highlighted the role that trade can play in delivering on the Sustainable Development Goals (SDGs).

"I think this is time that the trade community also thinks about how to leverage trade for the attainment of the SDGs."

The global environment on trade is not conducive at this moment. Trade itself is doing fine. It is estimated that for 2017, trade would have grown by 4.3% which is actually the highest level since 2012, she said.

The problem however is with the trade policy environment. Another factor is technological change which is impacting trade and investment patterns.

In terms of the prospects for trade and investment liberalisation, Ms Gonzalez was of the view that they have weakened considerably in recent times but also on long-term trends in terms of diminished trade opening since the early 2000s.

She said the US has been "repositioning" on trade, based on the notions of fair and reciprocal trade, with the purpose of achieving the reduction of bilateral trade deficits.

In this context, she cited the withdrawal of the US from the TPP, the suspension of TTIP, the renegotiation of NAFTA and revision of certain parts of the US-Korea free trade agreement.

She also pointed to the increase in the number of investigations relating to trade protection that have been initiated, and talk of a reciprocal tax to leverage tariffs that US exports face in other markets.

"So this is an important shock to the system," Ms Gonzalez said.

But she said that there is also "positive energy" coming from certain quarters. "If we look at what is going on in the area of negotiations of preferential trade agreements, there is some room for hope."

In this regard, she pointed amongst others to the renewed leadership on the part of the EU in the negotiation of a number of preferential trade agreements, the leadership of Japan in resurrecting the TPP, China's Belt and Road Initiative and the African Continental Free Trade Area (CFTA).

The question is can we leverage this positive energy to navigate the challenges that the system has in a way that does not lead to fragmentation, but rather to strengthening, of the system, she asked.

Baroness Amos said that countries always play the multilateral system - whether they are powerful countries in the system or not so powerful countries in the system - for their own ends.

"The challenge we have right now is the extent to which we allow countries to lead us down a particular cul-de-sac because they don't like the way the system is being worked or the extent to which we are strong enough to take collective action particularly in the context of the delivery of the SDGs."

The moderator asked the panellists about the Buenos Aires ministerial conference last December, which some have called a complete failure while others have called it a debacle.

Do countries need to keep banging their heads on the negotiating table or are there other ways forward on trade and development, he asked.

Lamy in particular was asked if he were the WTO DG, what would have happened at Buenos Aires.

Lamy said that he is the only one on this panel not to be able to answer this question. He said that when he started in politics, he was once told "be careful, in politics you always succeed incapable people and you are always succeeded by ungrateful people."

He said that trade is doing well and that volumes of trade are fine. At the end of the day this is what matters for those of us who believe that trade opening works for welfare.

He believes that there is a backlash against trade "in a part of the world, a relatively small part of the world by the way" and this stems from the fact that the conditions under which trade opening works for welfare has been forgotten, or has not been addressed properly in recent decades.

This does not prevent trade from growing and trade opening to keep moving, said Lamy.

Dr Kituyi noted that when he met Baroness Amos and Lamy at the WTO Cancun ministerial in 2003, there was a push for the so-called Singapore issues, with developing countries insisting that the Doha agenda be completed before moving onto anything else.

He said fast forward 15 years to Buenos Aires there is still disagreement on new issues and intransigence on the old issues.

He said everybody is looking at the Trump White House as wreaking havoc to the multilateral trading system.

The reality is that over the past 20 years, the US has not been very happy about the multilateral trading system.

"We cannot wish away reality," Dr Kituyi said, adding that the liberalism that celebrated globalization failed to say that even free trade has to be disciplined under ceratin types to reduce the numbers of losers.

Ms Gonzalez said that the multilateral trading system has shown some capacity to adapt to the changing circumstances.

Baroness Amos said while trade has the ability through growth to tackle inequality, there is also concern about growing inequality that is seen within countries.

There are a whole set of associated social factors which we are expecting to be addressed through a trade agenda. It is not just about trade, it is about a host of other social, economic and political consequences of a trade agenda which have a direct impact on the welfare of individuals in particular countries.

Lamy said the biggest lesson learned at Buenos Aires was that WTO members could not agree on disciplining fisheries subsidies.

This is not a developed versus developing country issue, he maintained.

As to where the problem is with fisheries subsidies, the problem is as in many of the issues, with the "elephant in the room, which is called China," he maintained.

The reality is that at the root of the problems we have is the problem whether China "is a rich country with many poor or a poor country with many rich."

The US view has been for the last 15 years that China is a rich country with many poor, hence China should join the bandwagon of developed country trade disciplines.

China's view has been that it is a poor country with many rich and that it will take some time before a poor country with many rich takes the same sort of obligations as a rich country with many poor.

Does this mean that the US is wrong when it targets China as the "big cheater" in the trading system?

"I think they are wrong in that," said Lamy. China does not cheat, he added.

China abides by the rules it has subscribed to in the WTO. China has been very efficient at making sure that the rules of the WTO do not discipline China more than what they did in 2001, especially in areas like subsidization or public procurement.

"I find it absolutely unfair that given the size of China in today's world economy that the Chinese public procurement system is not open. And on this I think the US has some right to say that the balance hasn't moved the way it should have."

This sort of thing should be more widely recognised and a more "frank conversation" should take place in these areas, said Lamy.

Dr Kituyi noted that fisheries subsidies was never properly a trade issue, until one Pascal Lamy smuggled it to the agenda of the WTO.

When you look at disciplining fisheries subsidies, it is not a trade issue as such, but it is an ecological and livelihood, and a developmental issue.

Those of us who hope that because the WTO has a disciplined way of tying up commitments into rules that are enforceable, we look to deliver some skeletal rule-making on fisheries to them at Buenos Aires.

Baroness Amos said that essentially, this is about courage. "This is about the courage of countries within the United Nations to recognise that they have a degree of power and influence without the United States."

"That when a power vacuum is created, countries can actually fill the power vacuum. The opportunity exists to do that."

In her view, the countries within the system shouldn't feel cowered by the fact that the United States is going down one particular line in terms of the perceptions of its own national interests, because what it is actually doing as opposed to the rhetoric are two slightly different things.

"In fact it is quite difficult to know what the policy actually is outside of the rhetoric. But it does create an opportunity for the other countries to exercise the power and influence that they have in a courageous way to take this agenda forward."

Lamy said if the "coalition of the willing is breaking down, let us build a coalition against the unwilling. If that is the name of the game about trade, better think twice."

Referring to the US, Lamy said that if a major power does not want to play by the rules of internationally disciplined trade, the others will have to react.

"I am not saying this is Plan A. I think Plan A is trying to see whether there is legitimate concern which can be addressed. That would be my preferred option."

"You have a problem, tell us what the problem is. Please convince us you have a serious problem."

He said that he is personally not convinced that the US has a serious problem with the track record of case law in the Appellate Body.

When he looks at the numbers, the US wins 80% of its offensive cases and 80% of the defensive cases, like anybody else.

The question is whether the US problem is trying to fix a number of issues or whether the US strategy is to wreck the system, said Lamy.

In some concluding remarks at the end of the session, Ms Gonzalez said that trade is fundamental for growth and for development.

"We need to confront the tensions that the system has. There are alternatives out there but it is important that all members participate in this discussion."

Baroness Amos said that collective action is key. "Remember you have enormous power and influence when you act together."

Dr Kituyi said that the world is not as bad as we make it sound. We are going through a slight turbulence, but we will be able to move past this to a world driven by inclusive trade, he added.