WTO’s next director-general will face a multitude of problems

At an elegant 1920s building set in a lush park on the shore of Lake Geneva this month, nine senior global politicians, six men and three women will be attending an extraordinary job interview. The WTO, once the hated target of anarchists and anti-globalization protesters furious about rigged rules and backroom deals that locked poor countries out of the world’s markets, is seeking a new director-general.

Yet few angry campaigners are expected to throng the center of Geneva on Jan. 29 and Jan. 30, as the candidates file into the WTO’s headquarters to set out their vision for the future of the global marketplace. More than five years into the financial and economic crisis, the once-hot topic of “globalization” is no longer where the action is.

“The WTO has lost an incredible amount of sex appeal,” said Ricardo Melendez-Ortiz, chief executive of the Geneva-based think tank International Centre for Trade and Sustainable Development.

In 1999, when a WTO meeting in Seattle was brought to a halt by street riots, it was the focus for protesters’ rising sense of injustice about the impact of globalization on the world’s poor. Yet 14 years later, many of the most fraught issues rocking the world economy — taxes, immigration, exchange rates — are being fought out far from Geneva. And there are signs that aspects of the “globalization” that was the WTO’s raison d’etre are being quietly unpicked.

The WTO, which polices international trade law, as well as being a forum for negotiations, is having to arbitrate a growing number of international disputes, as the temporary truce called for by the G20 countries in the depths of the financial crisis gives way to a more fractious climate.

China and the US, for example, are battling each other over allegations that China unfairly subsidizes its solar power industry. At the same time, multinational firms are beginning to reverse the relentless process of outsourcing, which has seen supply chains stretch out across the globe.

Meanwhile, the increasingly powerful emerging economies, burned by the experience of the financial crisis, are asserting their right to protect themselves against the surges of “hot money” that leave their economies vulnerable. Brazil, for example, has used taxes on foreign exchange — anathema in the days of the so-called Washington consensus — to try and stem the appreciation of its currency.

“The days of expecting a lot out of outsourcing are gone,” said Simon Evenett, a professor of trade and development at St Gallen University in Switzerland.

He says that is for two reasons: first, a jump in the cost of oil.

“These global supply chains were all the rage in the early and mid-1990s, when oil prices were US$20-25 a barrel,” he said.

Higher transport costs mean that each kilometer of a supply chain is a much more significant drain on a firm’s bottom line.

The second reason outsourcing has probably passed its peak is “a realization of the problems involved,” he said.

He cited issues with intellectual property, product quality and the treatment of staff in far-away factories as complications that make the process less of a boon for the bottom line than it once appeared.

Technology giant Apple was recently the focus of a series of negative press stories after problems at the Foxconn (富士康) manufacturing plant in China that produces the iPhone, and has announced that it will be bringing some manufacturing — albeit a small proportion of its total output — back to the US. The US’ growing energy independence is also likely to shift the balance toward more production at home by the country’s industrial giants.

This trend for “insourcing” means that many of the world’s powerful businesses no longer see much to be gained from pressurizing politicians to tear down the barriers to trade in a new set of international negotiations.

Global businesses were one of the key lobby groups pushing for an ambitious resolution of the Doha round of international trade talks, which outgoing WTO director-general Pascal Lamy has spent his eight-year term nagging, cajoling and bullying global politicians to try and complete.

When they started in 2001, in the wake of the attacks on the World Trade center, the negotiations were meant to result in an all-encompassing new settlement that tore down trade barriers and gave developing countries fairer access to the international marketplace. However, talks broke down in acrimony in Geneva in the summer of 2008 and the bravado of the early 1990s has been replaced by a growing sense that trade liberalization on the grand scale envisaged in the Doha talks has had its day.

“The high water mark of the WTO was probably in 2005-06, before we realized that Doha wasn’t really do-able,” Evenett said.

Part of the reason the Doha negotiations failed was that they were simply too ambitious, many observers said, relying on a so-called “single undertaking” approach, which sought an across-the-board agreement on the markets for agriculture, goods and services.

Emerging economies, which had been promised “special and differential treatment” in the talks, also became frustrated as the rich world sought to exact more and more concessions, wary of giving rising trade powers such as Argentina and China a greater competitive edge.

“Trade has a fundamental role to play in development, but it’s full of rigged rules and double standards, and the Doha round had the possibility of resolving some of that,” said Phil Bloomer, trade campaigner at Oxfam.

However, Melendez-Ortiz said Doha was also asking the wrong questions, focusing too much on tit-for-tat bargaining over import taxes and quotas and too little on the wider context.

“It’s an agenda that was defined back in the 1980s,” he said.

Heiner Flassbeck, professor of economics at Hamburg University and until recently chief economist at the UN’s trade arm, UNCTAD, believed that even now, when few people expect Doha to be revived, the WTO remains stuck with an outdated mindset, in which “free trade” is just about domestic subsidies and taxes on exports.

“We don’t have the conditions for free trade,” he said. “What we have is terribly distorted trade, driven by terribly distorted currencies and financial markets. Yet people run around with the fiction that this is somehow efficient and if you ended protectionist measures it would somehow be even more efficient.”

He said that the WTO just “doesn’t want to talk about” questions such as whether world exchange rates are fair; or whether globalization delivers for the poor, while even the IMF, usually considered the bastion of the Washington consensus, has overthrown conventional wisdom by questioning the impact of austerity, and throwing open the idea of “capital controls” to limit cross-border investment flows into vulnerable economies.

“The developed countries do not want to have these discussions,” Flassbeck said.

However, without confronting issues such as these, which are key to emerging economies, the WTO may risk becoming irrelevant.

“If they [developing countries] are not treated as equal partners, if their concerns are not listened to, why should they say, ‘we’re willing to open our markets more’?” he asked.

He said that any new leader of the WTO should try to reposition it as a forum for broad discussions about the conditions for free and fair trade.

“I think what the WTO needs is intellectual leadership,” he said.

Meanwhile, many of the most fraught contemporary issues in the global marketplace rarely find their way into the corridors of the WTO. The debate on international taxation, for instance, which has seen the picketing of Starbucks branches in the UK and is critical to whether developing countries benefit from inward investment, is being overseen by the Organisation of Co-operation and Development in Paris.

The free movement of people, another major source of frustration for emerging economy governments, is also rarely mentioned as an aspect of global trade negotiations; nor are conflicting competition regimes in different economies.

“There’s lots of developments where the WTO’s role is being eaten away. This forces a reality check on what it can achieve,” Flassbeck said.

And since Doha has been in the deep-freeze, the world’s trading powers have been busy bypassing the WTO by signing a forest of bilateral and regional trade agreements. These can help cement the relationship between trading partners; but from the perspective of development campaigners, they have two big flaws.

First, the major nations — the EU and US, for example — can use their formidable bargaining power to exact more favorable concessions from weaker countries than they could get away with in the forum of the WTO, where the governments of smaller economies can band together. Second, they create what has been called a “spaghetti bowl” of cross-cutting and contradictory rules governing different markets, which can be very expensive for producers in poor countries to comply with. In some cases, six, seven or even 10 versions of the same product have to be made to satisfy the rules imposed by various markets.

“The WTO should be the world trade system that oversees all these developments,” Melendez-Ortiz said, but it has no formal oversight of this web of new deals.

Front-runners for the WTO director generalship include former New Zealand trade minister Tim Groser and Brazilian Roberto Carvalho de Azevedo, with many of the other candidates coming from emerging economies, including Indonesia, Kenya and Ghana.

However, whoever triumphs in the drawn-out selection process, which will involve all of the WTO’s 158 member countries and take up to four months, has a tough job ahead.

“We desperately need new rules for a world that is not only obscenely unequal, but is facing a massive ecological crisis,” Bloomer said.

With new trade disputes coming thick and fast, “the danger is that the next director-general will be overrun by disputes, that will overwhelm the capacity for reflection,” he said.

January 15, 2013

Source: Taipei Times