AT THE WTO - AMERICA STEPS BACK

"Atlas, tired of his burden, shrugged. The country that was indispensable to the creation of the international trading system has opted out of its leadership role, and the date and nature of its return to anything like its former position is completely uncertain."

Alan Wm. Wolff

November 8, 2017

Back in June, the Director General of the World Trade Organization, Roberto Azevêdo, announced that Alan Wolff would join the organization as one of the WTO's four Deputy Directors General. On October 1, Mr. Wolff took up those new responsibilities. A former Deputy USTR, former chairman of the National Foreign Trade Council, and one of the America's - indeed the world's - best known trade lawyers, it is hard to imagine anyone better prepared for a senior role at the WTO than Alan Wolff.

In Washington earlier this month, Mr. Wolff gave a lecture at American University on November 8 and a major speech at the CSIS on November 13. Today's quote is from the first of these, the lecture at American University, and that is the focus of this entry. We have, however, slipped in a line or two from his presentation at CSIS as well. 

Mr. Wolff sees the GATT--the agreement and the institution that grew up around it-and its successor, the World Trade Organization as a marvelous achievement, and one for which the United States deserves the lion's share of the credit. Indeed, his lecture began with the statement that "Since the mid-1940s most of world commerce has been conducted within a Pax Americana." He explained:

At the outset, Mr. Wolff made it clear that he was not speaking for the WTO but rather sharing views formed over a lifetime of work in the vineyard of trade policy. Nevertheless, his lecture included, as one would have expected, references to the major WTO achievements of the last few years, including the agreements on Trade Facilitation, trade in information technology products, and disciplines on agricultural subsidies. It also included references to agenda items for next month's WTO ministerial meeting in Buenos Aires, Argentina. We shall return to those in later entries. 

Our focus today is on just two elements of Mr. Wolff's lecture at American University: i) his lament at America's withdrawal from the GATT-WTO leadership role it filled for 70 years, and ii) his question, who will step in to fill the void? As for the first of these, here is the full paragraph with today's featured quote, plus a few words from the next one.

The change in America policy was not the result of long-term planning. It was the almost incidental product of direct, as opposed to representative, democracy.

That second paragraph concludes with a reference to Donald Trump becoming the 45th president of the United States.

We know of no one in the world of trade policy who gives a better speech than Alan Wolff and no one more worth listening to. And there is no denying that the Trump presidency has brought sharp, dramatic changes in American trade policy. The President's withdrawal from the Trans-Pacific Partnership Agreement was the first of these. The American insistence on a renegotiation of NAFTA the second. But for us, the WTO doesn't quite fit the pattern.

TPP was a new agreement, forged with American leadership. NAFTA, we would argue, was working well. But the WTO is a different story. At the very least, the debacle that was the 1999 Seattle Ministerial - the battle in Seattle - was a hint that maybe the bloom had gone off the rose of American leadership. Yes, two years later in Doha, Qatar, (and two months after 9-11) a new trade round was launched. What followed then was the long deadlock of the Doha Round negotiations, a deadlock that American leadership could not break. 

These comments are in no way a criticism of the American officials involved in any of those efforts. The simple fact is that the world of the second decade of the 21st Century is very different from that of the late 1940s. The United States is no longer the world's largest exporter; China is. And China is not far behind the U.S. as an importer, which means that, increasingly, countries look to China and the EU as the customers with whom they most need to curry favor. These changes in trading patterns were bound to have some effect on the GATT-WTO trading system. If anything, those effects were magnified by the creation of the World Trade Organization in 1995, which changed the character of the system's core. Where once the center had been an agreement, now it is an organization.

 
All that said, and before turning to the question of where leadership in the WTO will come from, there were some critical points in Mr. Wolff's speech at CSIS - points with which we strongly agree - and we need to mention them. For us, these three, in particular, stood out. 

On the function of the WTO. "The chief value of the WTO system is providing essential stability without which business would have far less certainty. Without the WTO system in place, economic activity - both cross border and domestic - would be sharply reduced."

On the need for change. "Going forward, the WTO ... needs to change in a number of respects. ... Without change the Organization is at risk of not remaining fully relevant."

On leadership.  "The institution needs renewed leadership on the part of its member countries."

With respect to that last point, Mr. Wolff suggested at CSIS that "The United States should return to a leadership role, working with others for common objectives." As we read it, the American University speech was somewhat more speculative, as he walked through the list of possible candidates. Among the smaller countries in the WTO, those who see themselves as friends of the system may have more to offer than one might expect. 

 
Among the larger countries, Japan has other fish to fry. The EU is pre-occupied with Brexit, and "China seems hesitant to take up the mantle cast aside by the United States." One needs to say just a bit more about both the EU and China. While Mr. Wolff's comments on China struck us a straightforward assessment, his comments on the EU had in them the germ of a petition. "Perhaps it is unrealistic for Brussels to consider a change in priorities," he said, "but the impact on the world economy of a rudderless WTO is potentially far greater than any of the possible BREXIT outcomes."

Doubtless you will read the Wolff Washington speeches for yourself. The only point we would add on this question of leadership in the WTO is the parallel question, who, what country or countries, would be followed? Ultimately, we suspect Alan Wolff is right: the outlook for American leadership is brighter than that for any other country. We say that for the simple reason that, arguably, America has the best track record for relatively altruistic action on a global scale. But it is going to take time. For its part, America needs to work through the immediate issue of the NAFTA negotiations. As for the WTO's other 163 members, they don't seem ready to follow anyone. So first they need to be a little more concerned than they are now about the future of the WTO.