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Info Service on WTO and Trade Issues (Sep25/07) Geneva, 9 Sep (D. Ravi Kanth) — The World Trade Organization Director-General, Ms. Ngozi Okonjo-Iweala, has described the Trump administration’s imposition of reciprocal tariffs as “unilateral”, while simultaneously conceding that “several of the criticisms” leveled by Washington over the WTO’s failure to deliver outcomes sought by the US “are valid.” In an op-ed published in the Financial Times on 4 September, Ms. Okonjo-Iweala argued that “successive US administrations have made reasonable criticisms about the WTO’s rulebook.” She added: “While one may not agree with today’s unilateral approach [deployed by the Trump administration], it is clear that several of these criticisms are valid.” She specifically cited US and other industrialized countries’ complaints regarding “lack of transparency from members, level playing field issues, unfair trading practices, and potential overreach of the Appellate Body” – remarks widely interpreted as indirectly referencing Washington’s repeated criticisms of China’s allegedly opaque trade practices, according to people familiar with the development. Notably, while the DG observed that “in the past six months, the global trading system has been jolted by the US’s unilateral actions,” she did not elaborate on why these actions are deemed “unilateral” within a rules-based trading system, nor did she address how Washington’s policies have arguably dismantled the very multilateral framework that has underpinned global trade since the establishment of the GATT in 1948 and the WTO in 1995. “The revisionist narrative of American victimisation obscures this record, distorts the historical basis of the system, and undermines confidence in its legitimacy,” said a former South African trade diplomat, who preferred not to be quoted. “The US has been both the architect and a principal beneficiary of the multilateral trading system… Far from being disadvantaged, the US shaped the multilateral rules in ways that delivered enduring structural gains across its most competitive sectors,” the diplomat wrote in a paper published by the Geneva-based South Centre. The DG’s apparent silence on the erosion of the two foundational pillars of the global trade order – Most- Favored-Nation (MFN) treatment under Article I and the binding sanctity of scheduled tariff commitments under Article II of the GATT – has been interpreted by some as a tacit cover-up of US actions. “It’s a conspicuous omission,” said a trade envoy, speaking on a background basis. While noting that “obituaries of the multilateral trading system have appeared since at least the 1980s,” Ms. Okonjo-Iweala acknowledged that “the ongoing disruptions – caused by one member, namely, the Trump administration – are unprecedented in speed and scope, and have undeniably shaken confidence in open and predictable trade.” Her attempt to draw parallels between the Smoot-Hawley tariff moment of 1930 – when the US greatly increased import duties on a large number of goods, aimed at protecting US farmers and industries during the early Great Depression – and today’s damage to the Multilateral Trading System (MTS) and the WTO has been criticized as being misplaced. “The comparison feels forced and historically incongruent,” said people familiar with her op-ed. NORMAL TRADE CONTINUES? In her op-ed, the DG cited recent WTO trade projections: “Global goods trade volumes are expected to grow by 0.9% this year – well below the 2.7% projected before the new US tariffs, but an improvement from the 0.2% contraction predicted in April.” She noted that following recent agreements, “US trade-weighted average tariffs have jumped from 2.4% at the beginning of the year to 18.4%.” Despite this turbulence, she claimed, “the rest of the world has mostly continued to trade on normal terms, as businesses scramble to re-calibrate.” She pointed out that according to WTO analysis, “roughly 72% of global goods trade is still operating on basic “Most-Favored-Nation” (MFN) tariff terms.” However, critics question the relevance of this statistic if the world’s largest trading nation is actively undermining the MFN principle. “If the anchor of the system is removed, what does “normal” even mean?” asked sources who requested anonymity. The South Centre’s analysis warned, “Historically, smaller and poorer economies have gained more from a rules- based multilateral system than from bilateral bargaining… The erosion of that baseline protection leaves many without meaningful market access.” The DG maintained that “WTO members have, at least thus far, avoided what could have been a bruising retaliatory trade war with the US … And they have generally refrained from escalating restrictions on each other’s goods and services, as happened in the 1930s.” Analysts, however, find the historical comparison to be unhelpful. “Invoking the 1930s amid today’s multi-pronged, existential poly-crises is neither here nor there,” said one analyst, speaking off the record. Though she avoided explicitly naming the phenomenon, Ms. Okonjo-Iweala acknowledged signs of trade divergence. “Even as we begin to see Chinese trade shifting to other markets as trade with the US contracts, most WTO members have responded with instruments inspired by the existing rulebook,” she said. Yet, she added cautiously: “Whether this continues or not remains to be seen.” Her characterization of the fallout – reducing large-scale job losses in export sectors (including in India, where the Trump administration imposed a 50% tariff) – as indicative of “a global trading system marked by a stable core within an unstable equilibrium” struck some as being dangerously complacent. “That’s not a prognosis – it’s a normalization of collapse,” said the analyst. At a time when globalization is being widely blamed for exacerbating disparities and unemployment – including in her native Nigeria – the DG appeared to shift the blame. “Much of what is blamed on trade these days has more to do with technological changes, inadequate social policies, and macroeconomic imbalances in big nations such as China and the US.” NEED FOR REFORM – BUT WHOSE REFORM? Given the MTS’s apparent “comatose” state, Ms. Okonjo-Iweala strikingly argued: “Built for interdependence, not over-dependence, too many members today are over-dependent on the US for market demand and on China for critical supplies. This is not a recipe for global resilience.” She called for reform – but without specifying whose responsibilities or failures necessitate it. Citing WTO data on farm subsidies, she noted: “Several feel the WTO system does not deliver sufficient benefits for the most vulnerable, and allows too many farm subsidy-related market distortions.” Yet, while acknowledging that members – particularly developing countries – have long-standing problems with the system, her proposed “solutions” bear little connection to those grievances. This disconnect is symptomatic of what one trade policy commentator has described as the WTO’s “pervasive black hole of doing nothing”: an institution that absorbs criticism without delivering structural change. As custodian of the WTO, critics ask of the DG: Why not name the culprits? “Doesn’t she know the true scale of trade-distorting farm subsidies offered by the US, the EU, and other industrialized nations – subsidies that devastate smallholder farmers across Africa?” asked a former African trade envoy and ex-chair of the WTO’s General Council, speaking on a background basis. While the US aggressively pursues what critics call a “coercive” industrial policy, the DG has remained silent, instead observing that: “Many emerging market economies say they need more space to industrialize – and some advanced economies now do too.” Ms. Okonjo-Iweala urged WTO members to “use the present crisis to tackle the problems they feel bedevil the system.” Yet, the “present crisis” was precipitated by one member – the US – while her call for “modernizing the rulebook, which mostly dates back to the early 1990s,” implicitly asks all members to pay a collective price for the US unilateral actions. One of her most contentious proposals concerns the WTO’s principle of consensus-based decision-making. “The treasured consensus decision-making system must not become a recipe for paralysis,” she wrote in her op-ed. Critics see this as aligning with long-standing efforts by the US and other industrialized countries to replace consensus-based decision-making with mechanisms like “responsible consensus” or “flexible consensus” – practices many consider to be legally dubious under current WTO rules. “If the US’s actions are unilateral and inconsistent with the rules, the DG’s statement on consensus is equally inconsistent – and arguably illegal,” said the former African trade envoy. From consensus-based decision-making, the DG pivoted to advocating “plurilateral” agreements. “They already allow coalitions to negotiate in areas of importance to them, such as digital trade or investment facilitation,” she noted. But plurilaterals must also follow established WTO procedures, including obtaining prior consensus at ministerial conferences. “These are being pursued without such agreement. The DG’s endorsement appears to sanction systemic rule- breaking,” said another trade envoy, speaking anonymously. The WTO’s binding two-stage dispute settlement system has been functionally broken since December 2019, due to repeated US blockage of Appellate Body appointments. Recently, the US Trade Representative, Ambassador Jamieson Greer, reportedly declared that “sovereignty will prevail over multilateral rules.” Yet, the DG merely offered this comment: “Another area where members need more creativity is the WTO’s dispute settlement system.” What form this “creativity” might take – and how it could restore a binding, enforceable dispute settlement system – remains unexplained. “Without enforcement, the WTO is a paper tiger,” said multiple sources. The DG noted that several WTO agreements “on health and safety standards, information technology, customs valuation, and intellectual property” continue to “provide predictability”. But without a functioning dispute settlement mechanism, critics argue, these agreements are unenforceable. “Predictability without enforcement is an illusion,” said people familiar with her argument. Ms. Okonjo-Iweala also lent support to the informal “Friends of the System” coalition – which she referred to as “middle powers,” including Singapore, Switzerland, Uruguay, Australia, the United Arab Emirates, New Zealand and the United Kingdom – noting that they “see the global trading system as central to their prosperity, and are trying to deliver the necessary modernization.” +
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