The Next Director-General and WTO Reform: An Interview with Rashmi Banga, UNCTAD
The World Trade Organization (WTO) has delayed (again) the appointment of the WTO’s Director-General, on the heels of the US presidential election outcome. Up to this point, the Trump Administration had blocked an otherwise consensus-based appointment of Nigeria’s Ngozi Okonjo-Iweala, and the WTO may be awaiting the more conciliatory approach expected by President-elect Joe Biden. In anticipation of this decision, I sat down with Rashmi Banga (UNCTAD) to talk about the future of the WTO’s Director-General and the institution as a whole.
Rashmi Banga is the Senior Economic Affairs Officer in the Unit on Economic Cooperation and Integration among Developing Countries, in the Division of Global Development and Strategy, of the United Nations Conference on Trade and Development (UNCTAD). She holds a PhD in Economics from the Delhi School of Economics, and her recent work has focused on the impact of certain WTO plurilateral negotiations for the eventual signatories of those agreements – especially the Information Technology Agreement and negotiations on Digital Trade.
This interview has been edited for clarity and length.
Rachel Thrasher: What can you tell us about the specifics of the role of Director-General (DG) at the WTO and the power the DG might have to make changes or guide the institution’s trajectory?
Rashmi Banga: The role of the WTO is to provide a common platform to Member States to negotiate multilateral trade rules. The WTO facilitates these negotiations and provides guidelines for their implementation. The WTO’s function therefore includes a dispute settlement mechanism, which means that if there are any disputes among Members states with respect to following the negotiated and accepted trade rules, member states can go to the dispute settlement mechanism. In other words, the functioning of the WTO involves not only facilitating negotiations on trade rules, but also ensuring that these rules are implemented by all member states.
The key role of the DG is to see that the WTO functions properly and delivers on its mandates. The DG is also the chair of the trade negotiating committee, which overlooks the negotiation process, ensuring that it is carried out in a transparent manner, according to the rules of the WTO. The DG exercises a kind of soft power, because it is up to him/her to make sure that the negotiations that are taking place are in accordance to the Work Programme, which has been agreed prior to the negotiations.
If the negotiations are stalled, for example, the DG can also use diplomatic skills to talk to the representatives from the capitals and the delegates, so jams are smoothed out. Moreover, in order to make sure that the WTO is delivering on its mandate, the DG also has to ensure that the WTO has a fully functioning dispute settlement mechanism.
Although the DG’s role is more of a facilitator than a decision-maker, I see the DG as much stronger than just a facilitator, someone who can play a very strong role, depending on his or her ultimate direction.
For example, in the Doha Development Agenda, which is currently mandated to be negotiated, there are around 20 areas identified for negotiations. However, there is a group of around 80 countries, which are negotiating an agreement outside of the WTO (the Joint Statement Initiative (JSI)) on E-Commerce and other areas, with full support from the WTO Secretariat both in terms of human resources and institutional support. Going forward, the new DG will decide whether to continue to provide support to these new issues negotiated among countries outside of the WTO or to focus attention of the Members on the mandated issues, like the existing Work Programme on E-Commerce.
Rachel Thrasher: What is something you wish people understood better about the process for selecting the new DG?
Rashmi Banga: Many questions have been raised about the process. A consensus must emerge for a DG to be selected, where even if one country blocks the selection of the DG, the selection is stopped. However, the process this year has given rise to other transparency concerns among the Member States.
For example, due to the COVID-19 pandemic, a software program was used by the Member States to name the candidates of their choice, but nobody knows who all have access to this software. If a big country is able to get information on which countries selected which candidates, then there are chances that there could be diplomatic pressure on those countries. Furthermore, the US has been questioning the Nigerian candidate in part because a regional balance is required in the support given to the candidate. But the process is not very transparent, and so the people do not know which candidate got support from which region.
Rachel Thrasher: We’re at a stalemate and as you just noted the United States is blocking the nomination of Ngozi Okonjo-Iweala. Do you see a way forward? Is there any way to get around this, or are we are we stuck with a consensus process?
Rashmi Banga: I think the consensus process is a very important process for the WTO, which has been agreed as one of the core principles of the negotiations in the WTO. In the past there have been some challenges to this consensus process, and there have been allegations by some countries that it is the reason why there is no movement forward in the negotiations. But the whole process of multilateralism in the WTO is based on the consensus process and I don’t think it should be changed.
When the negotiations take place, it is a give and take. The members arrive at a consensus for a particular agreement only when they know that on balance, they are okay conceding something, because they have received benefits in exchange.
When it comes to the DG selection, it is hoped that there will be a way forward when the new administration comes in the US. For any movement in the WTO, political will is necessary, which has been lacking with the current administration.
Rachel Thrasher: This will be the first time the WTO will have a female DG and also, if Okonjo-Iweala wins, the first African to hold the post. Do you think that these steps in representation are important for Member States or for women worldwide? How do you see those being important?
Rashmi Banga: It is very important to have women in the top positions in important organizations like the WTO. If you look at the representations of total female negotiators in the WTO, you will find that there is a gender bias against women in the selection of people sent to negotiate at the WTO. Having a woman in the top position can encourage Member States to send more women negotiators to the WTO. This acts as a pull factor, something that can influence decisions in the capital.
Rachel Thrasher: What are the strengths of the two candidates and what do they bring to the potential role?
Rashmi Banga: The candidate from Nigeria has a broader view of development and global economy. She has never been a trade negotiator, so she may not know the nuances of the negotiations or the agreements. But her strength would be that she’ll be able to give an overall direction to the WTO, especially when it comes to the reform agenda, or issues that are blocking the progress. She has worked in the World Bank and has experience in making a multilateral institution work and deliver on its mandate.
The candidate from South Korea, as a former trade negotiator, would know all the nuances of different agreements. In other words, she may see the trees, while the candidate from Nigeria might see the forest. Knowing the nuances in the agreement is also a big strength, because when negotiations are stalled, you know exactly what the sensitive areas are. Once you know the sensitivities of the countries, especially because history plays a very big role in the WTO negotiations, you can bring countries back to the table and facilitate the negotiations in a particular direction. That would be her strength.
Rachel Thrasher: Do you see their different personal policy approaches, being significant in the way they would direct the WTO going forward?
Rashmi Banga: The main objective is the same for both of them: to make the WTO work, to increase the trust of Member States in the WTO, to make the WTO deliver on its mandate. The key objectives and the direction therefore remain the same, even if their personal policy approaches differ.
Rachel Thrasher: What are key priorities for reform, from your perspective?
Rashmi Banga: I think one of the main reasons that the WTO is losing its trust is because it has not been able to deliver on its core mandate, which is development, and using trade as a means of development.
When the Doha Development Agenda (DDA) was launched, one of the objectives was to increase the market access of developing countries exports, but the WTO has not been able to deliver on this core element.
What I would like to really see when the new DG comes, is the rebuilding of trust in the WTO, and that can happen only with the conclusion of the DDA. There has to be serious efforts made to bring countries back to the table and to negotiate on the existing Work Programme. The DDA should be concluded before new issues are brought on the table; attention should not be diverted towards negotiations outside of the WTO.
The next thing that needs to be done is to make the dispute settlement mechanism more functional. Especially with the ongoing tariff war between the US and China, it is very important to have a place where countries can launch a dispute and expect some kind of solution when other members are not playing by the rules.
At present, some of the core elements of the DDA are being challenged by the developed countries, like special and differential treatment (S&D). S&D is a core principle and a negotiated outcome for the developing countries, –who gave a lot to get S&D. The Agreement on Trade-Related Aspects of Intellectual Property Rights, for example, was conceded by the developing countries where gains went mainly to the developed countries. But now, S&D is being challenged. The new DG should include in its reform agenda in the near future, how to make S&D more effective, and how to implement it in a way that developing countries really benefit in terms of increased market access for their exports.
One reason for the stalemate in the DDA was that special and differential treatment (S&D) was not really implemented effectively. For example, the special and differential treatment given to Least Developed Countries (LDCs) is that they were not supposed to take any commitments in the agreements. In the Trade Facilitation Agreement (TFA), however, LDCs have taken commitments, although they have been given more time to implement them, but their S&D has been compromised.
When you talk about the WTO reform agenda, I would like to see negotiations proceed only on what is mandated to be negotiated and no negotiations on the new issues. It is also important to strengthen the core elements like special and differential treatment, the most-favored nation principal and consensus-making decisions in the WTO, and make them more effective. Most importantly, I think the focus has to be on concluding the Doha Round.
Rachel Thrasher: How does UNCTAD play a role in shaping these priorities and guiding Member States?
Rashmi Banga: One of the main objectives of setting up UNCTAD was to make countries understand that trade is a means to development and not an end objective in itself. UNCTAD helps Member States to negotiate trade agreements, whether in bilateral Free Trade Agreements (FTAs) or multilateral trade agreements in the WTO, which can help their progress towards the Sustainable Development Goals.
Apart from this, there are often financing issues, like tariff revenue implications of trade treaties. UNCTAD also has the mandate to assess the financial implications of FTAs like the revenue implications of any FTA or new agreements. UNCTAD also works on trade-related policies like competition policy and tax-related policies which can help countries design development friendly trade policies. Recent work in these areas include the implications of the WTO moratorium on electronic transmissions.
Rachel Thrasher: In addition to the work you’ve done on digital trade and its revenue implications, you recently did some research on the Information Technology Agreement (ITA). Can you give us a sense of the most significant or surprising findings from either of these areas of research?
Rashmi Banga: In the ITA, there is a lot of push to the developing countries to join the ITA expansion agreement. The problem with the ITA expansion is that many of the products included in the agreement do not even have the corresponding HS codes (established product codes from the Harmonized System of Classification for goods) –but they include just descriptions of these products. In such cases, it is very difficult to estimate the implications of the agreement on tariff revenues of the countries or on their policy space, which countries may need for their digital industrialization. As a result, it is a big challenge for developing countries to understand what the implications will be, given there is a lot of confusion as to which products are actually covered in that ITA expansion agreement.
In the area of digital trade, the WTO moratorium on customs duties on electronic transmissions has been renewed every two years since 1998, but it was not problematic till the digital revolution occurred. Now, countries cannot regulate or impose customs duties on software, which is used in almost all digital technologies. This may imply that the developing countries may lose the policy space to regulate their manufacturing and services sectors. Digital technologies like 3D printing, which are fast becoming mainstream, use software to 3D print many of the currently manufactured products. If software used in these 3D printers comes duty-free, then foreign firms can 3D print any manufactured product within the national boundaries of a country, sometimes even without physical presence. In that case, all the negotiated tariffs in the Non-Agricultural Market Access (NAMA) become meaningless because the products are not crossing the border; the software is crossing the border. Even the flexibilities in the General Agreement on Trade in Services (GATS) become meaningless. For example, if you want to protect your construction sector, and you say “no foreign direct investment in construction”, but a foreign firm can come and 3D print a house within your national boundaries without physical presence – how do you stop that?
The digital sector is still an infant sector in the developing countries and needs all the support of the governments to develop. Tariffs are a simple and effective policy instrument for regulating imports in the digital sector including electronic transmissions. Tariffs can also be used to regulate imports of luxury items like movies, video games, music etc., especially at times of crisis like the ongoing pandemic. Our analysis at UNCTAD shows that the developing countries can generate at least $10 billion of tariff revenue every year if the WTO moratorium is removed,
Developing countries need to develop their digital capacities and for this there is a need to understand the implications of digital rules. There is already a Work Programme on E-commerce in the WTO, which is a forum where Member States can freely discuss, not negotiate but discuss, these digital rules. Instead of discussing the digital rules and improving understanding about the digital rules, however, the attention of the Member States is being diverted because of the JSI, where highly technical texts are being circulated, and those developing countries which have joined are being asked to negotiate. Unfortunately, there is limited technical capacity in the developing countries to negotiate on those texts, further no one knows how the digital revolution will unfold and what digital products and technologies will emerge in the future. Taking commitments in digital products and services can therefore be counterproductive.
Rachel Thrasher: A number of people, including DG candidate Okonjo-Iweala, have noted that the lack of technical capacity is a primary obstacle for developing countries engaging in these negotiations. Given these technical obstacles, not to mention, political and other obstacles, can you think of any success stories that we can learn from to make progress in the areas needed?
Rashmi Banga: Only a few agreements have been successfully negotiated since the Uruguay Round. One is the TFA, however that was pushed by developed countries, mainly to facilitate their exports into developing countries. There was no significant progress for developing country exports going into developed countries. The TFA facilitated imports into developing countries more because it streamlined their customs processes while the custom procedures were already streamlined in the developed countries.
Another successfully negotiated agreement was the Peace Clause on food stock piling in developing countries. Unfortunately, it’s not a permanent solution to food security because it is a temporary clause.
A final area where we have seen a successful agreement is in the reduction of the prohibited agricultural subsidies by developed countries. Amber box subsidies (subsidies which are subject to challenge) have really gone down in developed countries. However, the increase in Green box subsidies has more than compensated for that change. Green box subsidies have no cap, so both the US farm bills, and the EU’s common agricultural policy provides far more subsidies in the Green box than what they were providing in the Amber box category. This latter example is a partial success story, therefore it is also important to make sure there are no loopholes in the agreement. For example, if countries had agreed to cap Green box subsidies, then there would have been less “box shifting,”.
If Member States seriously agree to negotiate on the mandated areas of the DDA, a lot can be achieved. They have to accept the basic principles of S&D and MFN and consensus decision-making. And they can decide to conclude the DDA and deliver at least on the core development issues. If proper direction is given to the WTO and Member States, and there is a political will to rebuild the WTO as an institution which can deliver on its mandate then we can look forward to successful multilateral trade agreement which will be inclusive and help developing countries to use trade as an instrument for achieving their development goals.
Rachel Thrasher: Is there anything else to say about this process, either advice to Member States or the new DG, whoever she may be, about the future of the WTO?
Rashmi Banga: The WTO is essential for developing countries, because small developing countries don’t have the bargaining power to negotiate a bilateral, or even regional, trade agreement that will benefit them. For that reason, multilateral trade agreements become very important for small and developing countries. Especially in the time of COVID-19, we need global strategy and global cooperation. We therefore need to revive WTO, rebuild trust in the WTO, and have the political will to conclude DDA successfully.