Ngozi Okonjo-Iweala’s Priorities as WTO DG

Business/Trade

Dr. Ngozi Okonjo-Iweala is the new Director-General of the World Trade Organisation. Yes, the first woman and first African to lead the global trade body. While the celebration over her appointment is ongoing, the reality is that the task ahead of her is challenging. Nosa James-Igbinadolor looks at the priorities of the new WTO chief

With the apex leadership of the World Trade Organisation (WTO) now empanelled with the selection of Dr. Ngozi Okonjo-Iweala as the new director-general of the organisation, there are growing expectations from across the world as to the capacity of the WTO under Okonjo-Iweala’s leadership to change the political economy and trans-national dynamics of global trade.

It will be arduous, though. The WTO is a member-driven organisation, which means all its major decisions are made by a consensus of 164 governments, not the director general.

The former World Bank Managing Director, who was confirmed as WTO director-general last Monday, becoming the first woman and the first African to lead the global trade body, has acknowledged the need for reforms. “It feels exciting and it feels daunting at the same time. I look forward to the challenge … deep reforms are needed to rebrand and reposition the organisation,” she said during an interview with CNN’s Christiane Amanpour.

Larry Elliot, writing in the U.K Guardian, agrees that Okonjo-Iweala is going to have her work cut out. “She has no real background in trade, although that may prove to be less of a handicap than some of her critics imagine. The last two WTO directors-general – Roberto Azevêdo and Pascal Lamy – struggled to make much progress with trade liberalisation despite knowing the subject inside out. Okonjo-Iweala believes a politician rather than another technocrat has a better chance of sorting out the WTO’s problems – and she is right because each of the three big challenges she faces has a political dimension.”

The COVID-19 pandemic has delivered possibly the biggest shocks to international trade since the Great Depression. Global trade in 2020 was projected to decline by 20%. As noted in a recent Economic Times commentary, only the most optimistic economic scenarios see trade returning to its previous level in 2021. Regardless of when the top-line numbers fully recover, however, the global trade landscape will still look dramatically different as companies shift their focus from fighting the pandemic to winning the post-COVID-19 future.

The commentary further posited rightly that as the pandemic “destabilises economies, intensifies geopolitical frictions and exposes the risks of current global manufacturing and supply networks, the pandemic is also likely to redraw the map of world trade. Companies will be compelled to revise their mix of products and the design of their supply chains, and governments their trade and economic policies to adapt to these and other shifts.”

Thus, ramping up global efforts to combat COVID-19 is one of Okonjo-Iweala’s priorities. She has already signalled that high on her agenda at the WTO will be to promote and facilitate the enhanced distribution of COVID-19 vaccines and protective equipment.

“One of … top priorities that I have, that I’m passionate about, is how can trade and the WTO play a stronger role in bringing solutions to the COVID-19 pandemic, both on the health side but also on the economic side,” she said recently. She added that while economic recovery was reliant on trade, solving public health challenges also required “good trade.”

Yet she faces dauting challenges in reforming the WTO to become the organisation become a driver of global trade and competitiveness.

The WTO was established in 1995 and has two key functions. One is legislative — drawing up new rules on trade in response to economic changes over time through negotiations among the member countries. The other is a judicial — dispute settlement procedures to judge whether member states are following its rules when a trade dispute crops up and to call on violators to correct their behaviour.

The organisation has struggled to prevent trade spats among member states, most notably the United States and China.

One of her first priorities, no doubt, will be the re-organisation of the WTO’s dysfunctional appeals body. The 164-member WTO has been operating without its Appellate Body, which arbitrates global trade disputes, since December 2019 after the Trump administration as well as the preceding Obama administration blocked the appointment of new judges, essentially freezing its ability to resolve extended and complex trade disputes.

The Appellate Body is an important element of the Dispute Settlement System of WTO, hearing appeals against the findings of the panel established by the Dispute Settlement Body (DSB). The Appellate Body (AB) ideally consists of seven members including the chairman. But on 10th December 2019, this body went into crisis as two out of its three remaining members’ four-year terms came to an end.

One of the United States’ main accusations against the Appellate Body is that it has overstepped its jurisdiction time and again, creating laws and indulging in “Judicial Activism”. It has argued that the trade organisation is lethargic and bureaucratic, and not fit for purpose to handle the problems posed by China’s state-dominated economy and unduly restrictive on US attempts to impose sanctions on countries that unfairly subsidise their companies or export at unusually low prices.

Many agree that judges on the appeals body are there to interpret trade law, not make it. It is generally agreed that the US will not fully engage with WTO – under any president – until that happens.

At a virtual press conference after her confirmation early last week, Okonjo-Iweala said reforming the dysfunctional appeals system was a priority. “There’s no point agreeing on more rules where the only place in the world, where countries can bring trade disputes is paralysed,” she said, adding that her priority will be to overhaul the system so that it works for all WTO members, with the aim of bringing a proposed set of reforms to the 12th Ministerial Conference, which will likely be held in June this year.

Tackling trade distortions from subsidies which is prevalent in China and which has often riled the United States is another key priority for the new WTO chief. China’s industrial subsidies are high on the agenda for the US, European Union (EU) and Japan, while Europe’s agricultural subsidies anger many developing countries. Much more than that, the political contest for global dominance between China and the U.S will continue to play out in the WTO; a war by other means. Okonjo-Iweala will have to address U.S concerns around the many trade tensions that stem from China’s incomplete transition to a free market economy. While China has significantly liberalised its economic and trade regimes over the past three decades, it continues to maintain a number of state-directed policies that appear to distort trade and investment flows.

According to a recent Congressional Research Service report, “major areas of concern expressed by U.S. policymakers and stakeholders include China’s alleged widespread cyber economic espionage against U.S. firms; relatively ineffective record of enforcing intellectual property rights (IPR); discriminatory innovation policies; mixed record on implementing its WTO obligations; extensive use of industrial policies (such as subsidies and trade and investment barriers) to promote and protect industries favoured by the government; and interventionist policies to influence the value of its currency. Many U.S. policymakers argue that such policies adversely impact U.S. economic interests and have contributed to U.S. job losses in some sectors”.

In an interview with the South China Morning Post last year, Okonjo-Iweala admitted the issue of subsidies was “fraught” and one of the “most challenging” and “divisive” items of work.

In addition, she will have the unenviable task of bringing the WTO’s rules into the contemporary epoch. She agrees that “the WTO rules are behind those of several regional and bilateral trade agreements which are incorporating a lot of innovations such as e-commerce and the digital economy,” adding that the pandemic has increased the importance and accelerated the role of e-commerce, which is expected to grow significantly in the coming years.

“E-commerce offers important opportunities for inclusivity of MSMEs and women in international trade, especially in developing countries,” she said. “To make it possible for some developing and least developed countries to participate in the e-commerce negotiations, we must partner with governments and other organisations to bridge the digital divide.”

Furthermore, the reactivation of the Doha Round of trade talks is primal to the success of Okonjo-Iweala. A test of Okonjo-Iweala’s leadership will be whether she can deliver on this unfinished business. The Doha Round was launched in Doha, Qatar in November 2001 and has remained moribund since then. The needs of developing countries were supposed to be at the core of the trade talks as a properly functioning global trading system would make the most vulnerable nations more resilient and reduce the gap between rich and poor countries.

International and domestic factors have been responsible for the long coma of the Doha Round. The international challenge is that the American and Chinese views on what the WTO should be and on how its large members should behave are irreconcilable. For the US, WTO rules should be made stricter and emerging economies should not receive any special treatment. China feels that a huge share of its population has not yet benefited from its open economy policy, hence that it still deserves some special treatment under current WTO rules.

The second reason which is often neglected but equally crucial is the domestic audience and electorate in the U.S and the E.U which tend to show intense antagonism to multilateral trade negotiations that they believe lead to job losses at home.

As noted by the Global Trade Review, the challenges facing the WTO are both numerous and complex, and “Okonjo-Iweala has a tough job ahead of her. Carrying out the wide-ranging reforms the organisation needs if it is to remain relevant will be particularly tricky, since the WTO agreement means that consensus from all members is required before any actions are carried out.”

Okonjo-Iweala understands this dilemma. She has posited that she intends to “ensure consensus does not stand in the way.”