The Next WTO Director-General: No Easy Task

By Rachel Thrasher

The decision on the next Director-General for the World Trade Organization (WTO) has been delayed as the United States refuses to approve the global consensus around Nigeria’s candidate, Ngozi Okonjo-Iweala. Instead, the US insists on Yoo Myung-hee of South Korea. This deadlock is only the latest in two decades of paralysis experienced at the WTO, an institution facing an existential crisis.

What began with the Financial Crisis in 2008-2009, as countries turned inward and away from multilateral negotiations, has only intensified in recent years. In the midst of a COVID-19 pandemic that has disrupted global trade and supply chains, WTO members are responding by erecting protective barriers and export controls, the very kinds of measures that WTO rules aim to discourage and avoid. The new candidate, whoever she is, will not have an easy job ahead of her.

The fact that both final candidates are women is noteworthy on its own. As Christine Lagarde, head of the European Central Bank, has noted, female leadership could lend stability to international institutions, historically dominated by male presidents and directors. As the first female Director-General of the WTO (its predecessor, the General Agreement on Tariffs and Trade also never had a female leader), Yoo or Okonjo-Iweala will join Christine Lagarde, Ursula von der Layan (European Commission President) and Kristalina Georgieva (Managing Director of the International Monetary Fund) as heads of international financial institutions, and more change in the operation of those institutions may be on the horizon.

Moreover, per the requirement of the WTO that members consider “the diversity of the WTO’s membership in successive appointments to the post,” both would be the first representatives of their countries, and Okonjo-Iweala, the first African.

Which of these two candidates is more equipped to usher the institution into this new world? And what might a WTO under Yoo or Okonjo-Iweala look like? Both leaders have extensive experience working with their respective countries on issues of trade, but subtle differences have surfaced in recent interviews with both candidates.

Yoo, current Minister for Trade in South Korea, a country well into industrialization, has spent her entire career representing Korean interests in international trade negotiations. She was a major player in negotiating and drafting the recent Korea-United States Trade Agreement – one of the broadest and deepest agreements for either party. She knows trade agreements and, in particular, she knows how to broker a deal that will get the parties to a treaty to agree. In line with this approach, Yoo has focused her campaign on the modernization and updating of the WTO. In particular, Yoo has expressed a belief that there is enough momentum for serious reform of the multilateral trading system, and hopes to rebuild trust through strengthening the rule-making arm of the institution and making true progress in negotiations. In particular, she seems keen on resolving key issues of rulemaking include digital trade, investment facilitation and domestic regulation – all of which are major priorities for developed countries generally and the US in particular.

Okonjo-Iweala, on the other hand, has more experience in trade and finance, than in trade negotiations, per se. She has served two terms as Minister of Finance for Nigeria, a leading developing country, and worked for 25 years at the World Bank in various capacities, including Managing Director of Operations. Her expertise is primarily in development economics – an area of key concern for the developing country members of the WTO, and she is currently on the board of the Global Alliance for Vaccines and Immunizations (GAVI), which seeks to ensure equitable access to vaccines for all countries. She maintains a firm commitment to trade as an important instrument for economic growth, as well as for cooperation when facing global challenges such as the pandemic.

Of course, Okonjo-Iweala does not deny the need for the WTO to address long-standing, unresolved negotiations and bring the agreement into the 21st century, so to speak. However, subtle differences in language suggest that she does not support liberalized trade (and trade-related commerce) for its own sake. As she noted in an interview earlier this month, trade is an instrument – “It’s part of the arsenal of tools, if you will, with which a country approaches development,” pointing to the export-led growth exhibited by East Asia in the 1990s, which was facilitated by a wide range of industrial policies and domestic supports. She has worked in various parts of Africa with “‘behind the border’ issues,” employing policies to increase investment and domestic productivity. She also has emphasized the importance for developing countries of transitioning from trade in raw materials to added value – moving from cocoa to chocolates, for example.

Okonjo-Iweala doesn’t shy away from moving current negotiations forward. Indeed, in her interview, she made a point in support of the conclusion of the fisheries subsidies negotiations at the next Ministerial meeting, both for the sake of environmental sustainability, and to boost the institutional sustainability of the WTO. But she also noted that the WTO can support non-trade goals, like public health and development. She highlighted that the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) already has some flexibility built in to facilitate access to vaccines and treatments for all countries they need to complete recovery from the COVID-19 pandemic, though experts argue the policy space remains insufficient.

From her perspective, the primary obstacles to trade are related to capacity and logistical challenges – as typified in part by complicated and delayed border crossings on the African continent. The solutions she offers involve integrating access to finance, cooperation between the WTO and national and multilateral development banks, and offering technical assistance to supply developing countries with the infrastructure to take advantage of the benefits of a more modernized WTO.

It is important to note that, no matter who the new Director-General is, the position does not have the power to make large-scale institutional changes in short order. As a member-driven organization, the DG must be able to work with all nations and set aside her personal policy preferences in the interests of the organization. At the same time, the DG is poised to renew global trust in multilateralism generally and in the WTO specifically. She will be able to wield soft power to facilitate communication between members. And in the best case, by building member trust, she may have opportunities to play a role in helping members at odds to come to an agreement, as former DG Roberto Azevedo did in 2013.

Despite the fact that the Doha Development Round of trade negotiations promised a correction to the asymmetric outcomes from the WTO founding Uruguay Round (and to some degree, all the previous negotiating rounds as well), very little progress has been made over the past 20 years. According to recent research, most stakeholders want the new DG to focus on completing the current negotiations on new rules in plurilateral agreements (like e-commerce, investment facilitation and domestic regulation), monitoring COVID-19 trade policies and concluding negotiations on fisheries and agricultural subsidies. This is true even for countries not involved in the plurilateral negotiations, as these issues are seen as critical to demonstrating an on-going relevance for the organization.

A focus on strengthening rule-making at the WTO, however, could have devastating effects on the development trajectory of the WTO’s most vulnerable members. New rules at the WTO are likely to prioritize lowering trade barriers and deregulation in every instance. Digital trade proponents would make permanent the temporary moratorium on customs duties on electronic transmissions – a proposal that has stagnated since its introduction in 1998. Undoubtedly, this would play a part in facilitating trade in digital goods and services, which has the potential to provide widespread economic gains. On the other hand, research has shown that the existing moratorium has already had devastating effects on the fiscal space of countries that rely heavily on trade taxes for revenue. It has been linked also to increasing the debt burden for countries in a COVID-19 world, where sovereign debt defaults seem imminent for many.

Proposed rules in investment facilitation and domestic regulation would likely have a similar double-sided impact. Discouraging investment regulation and placing constraints around other domestic regulation is likely to smooth the paths of commerce, offering at least a few economic gains (though the distribution of those gains is likely to be highly inequitable). The other side of the coin, however, has extreme policy implications for developing countries. “Investment facilitation”, while ostensibly aimed at development, has become a euphemism for adopting strict investor-protection provisions at a multilateral level to promote increased foreign direct investment.

Plurilateral negotiations around domestic regulation seek to bind countries in other behind-the-border policies, specifically in sectors related to trade in services. This goes far beyond smoothing the paths to commerce and places an increasing amount of power in the hands of private actors through de-regulation.  Removing what little policy space some countries retain to harness foreign investment and regulate services for the benefit of their economies and constituents could have long-term negative effects on their fragile economies.

New rules and concluding the negotiating agenda are not the only things that stakeholders are interested in, either. Research shows that almost three-quarters of interested parties also would like to see the WTO make progress toward disciplines in the areas of industrial policies and subsidies more generally. Additionally, members seek a clarification of the role of the WTO in addressing climate change and promoting the Sustainable Development Goals, according to the study.

All stakeholders agree there is a need for reform. While some demand to extend the mandate of the WTO into new areas of rule-making, others argue that the institution must be reoriented to prioritize the needs of the majority in a way that is “resilient, socially inclusive, development-oriented, and environmentally sustainable.” In the latter case, much more drastic change may be needed to address the triple-crisis of today: climate, pandemic, and (imminently) sovereign debt.

Some have called for a “peace clause” on any WTO disputes related to COVID-19 policy measures, akin to the peace clause that India invoked to protect its rice farmers during the pandemic. This would ensure that countries have the maximum policy space to combat the virus, protect vulnerable constituents and mount a green and inclusive recovery. In particular, India and South Africa have sought to gain a temporary waiver of certain commitments under TRIPS, seeking to ensure that patent protection will not act as a barrier to access for essential treatments and vaccines. Experts have also argued forcefully for an extension of the TRIPS transition period for Least Developed Countries in the wake of COVID-19. Moreover, civil society and developing country members have called to suspend the negotiations on digital economy, allowing them to take stock of the impacts of these new commitments and consider the policy space they may need to engage a full economic recovery.

South Korea’s Yoo may have a breadth of trade negotiations under her belt and the political savvy to push WTO members to new levels of trade-related rule-making, but it may come at the expense of the existing policy space enjoyed by all members, especially developing countries.

Nigeria’s Okonjo-Iweala, on the other hand, seems to have both the diplomatic experience to build consensus between contending parties, and a “global macroeconomic perspective”, which helps her understand the implications of trade commitments. Furthermore, she remains committed to restoring the WTO to its “core principles” of non-discrimination and trade predictability and fairness, which could keep the institution closer to at least one of its original goals – helping developing countries benefit fully from world trade. However, her personal policy preferences alone will not have the power to shape the institution.

Whoever the next DG is, she will need to build coalitions of willing members to cooperate on issues of global concern, to advance negotiations in ways that are equitable for all members and facilitate a just economic recovery focused on long-term environmental and economic sustainability. 

Rachel Thrasher is a researcher at the Global Development Policy Center and the author of the forthcoming book, ‘Constraining Development: The Shrinking of Policy Space in the International Trade Regime,’ out May, 2021.