News

Alan Wolff: “The importance of the rules-based multilateral trading system cannot be overestimated”

Alan Wolff: “The importance of the rules-based multilateral trading system cannot be overestimated”
Photo credit: AU-UN IST | Stuart Price

09 Oct 2018

At a speech delivered to the University of the Western Cape in South Africa on 8 October, Deputy Director-General Alan Wolff highlighted the importance of trade as an engine of economic growth and the benefits of WTO membership to the African continent.

He also underlined the need for governments to create an enabling domestic environment in order for Africa to thrive in an increasingly open world economy. The full text of his remarks is available below.

Africa’s Stake in the Multilateral Trading System

I will start by thanking the University of Western Cape for inviting me to speak to you today on “Africa’s Stake in the Multilateral Trading System”. This University has had a long collaboration with the WTO through the joint UWC/UP Joint LL.M Programme in Trade and Investment Law. The WTO has provided resource persons to teach in the programme. It is a Pan-African programme which brings together the best students from the continent. Some of the past graduates are working for the WTO and others are working for their national governments in the field of trade policy and also regional economic organizations. There is no more important contribution to the world trading system than training the next generation of leaders. That is what you are accomplishing here, and you are to be congratulated for doing so.

The Importance of Trade

Most in this audience will think it unnecessary to make the case for trade. But in the world today, with the rise of populism in many countries, it is worth reiterating a basic truth. For this I will use not my words but those of Chiedu Osakwe, Nigerian Chief Trade Negotiator and Director-General Nigerian Office for Trade Negotiations:

“The classical case for trade stands on the basis of an abundance of empirical evidence. Trade plays a key role in supporting strong growth in the domestic and global economy. Trade openness and its underpinnings of competition and innovation drive growth. Countries that trade and are open have consistently demonstrated stronger, sustained growth and resilience in times of crises, in ways that are superior to closed and insular economies with high barriers and restrictions.”

Importance of the WTO

My purpose today is to set out in very broad strokes the benefits of the WTO and the challenges that exist, with particular reference to the interests of Africa in the multilateral trading system.

The importance of the rules-based multilateral trading system cannot be overestimated. It has made a positive contribution to the expansion of the global economy and in the process lifted several millions of people out of poverty Since its establishment on January 1, 1948, world trade has expanded by 20 times, and world GDP has grown by 15 times. Despite current negative headlines about the imposition of trade restrictions and increased tariffs, which bombard us almost daily, in fact most of world trade continues to take place in accordance with agreed multilateral rules. These rules have made a valuable contribution over seven decades, and recently proved their worth in the severe economic test of the Financial Crisis and Recession beginning in 2008.

Africa and the WTO

Today, 44 African countries are WTO Members, constituting more than a quarter of the entire membership.

Two African countries were original parties to the GATT in 1947, namely South Africa and present-day Zimbabwe. By the end of the GATT era, which extended from 1947 through 1994, 41 of the 54 African countries had become GATT contracting parties. Since the founding of the WTO in 1995, an additional three African countries have joined it (Cape Verde, Seychelles and Liberia).

Nine African countries (Comoros, Somalia, Sudan, South Sudan, Ethiopia, Equatorial Guinea, Libya, Sao Tomé and Principe, and Algeria) are in the accession process. This demonstrates a profound shared belief in the potential of the WTO and the rules-based multilateral trading system as a tool for poverty alleviation and economic development. The system underwrites the effort to attain and maintain peace, much as it did for the original GATT members following the devastation of the Second World War.

In providing reasons for the accession of Liberia to the WTO, Mr. Axel Addy, the then Trade Minister noted that:

“Liberia sees the WTO accession as a process that provides an acceding government with a powerful instrument for domestic reforms to accelerate growth [and] strengthen institutional capacity. [It]…provides a unique opportunity to show the power of trade for poverty reduction; to show that development is not sustainable without trade; to show that trade can trigger economic transformation that is inclusive and sustainable; and, with the right support, the right reforms, the right innovations, we can transform lives using companion policies that support trade.

… [A]s a post-conflict LDC, Liberia was in a fantastic position to use the accession, as one [with] the domestic reforms, to emerge from the trinity of conflict, health crisis and youth unemployment.”

Countries are willing to go through a process of rigorous domestic reform do so not just to gain better access to the world’s markets but to reduce poverty, foster domestic growth and attract foreign direct investment. For many, those that are now or were not long ago affected by conflicts, it is a chance to bolster stability and enjoy better prospects for attaining and maintaining peace.

Notwithstanding the engagement of African countries their share of world trade has fallen, not least because of commodity-dependency in many economies and unfavorable price movements. But it is also a failure to create a domestic environment that enables their societies to thrive in an increasingly open world economy.

Involvement in the WTO and adherence to its disciplines facilitates a badly needed transformation. Africa’s population is estimated to increase from 1.2 billion persons today to 2.5 billion by 2050 and 4 billion by 2100. While this presents considerable challenges, it also provides opportunities for Africa. The continent can benefit from a demographic dividend and with the right policies can harness its enormous resources. Economic growth and sustainable development on the African continent will be greatly assisted through increased intra-African trade as well as trade with the rest of the world. Intra-African trade is only around 10% of total trade, which is a very low figure compared to other regions.

The African Continental Free Trade Agreement (AfCFTA) is expected to create an integrated market with harmonised customs and trade rules, facilitating the cross-border flow of goods and services and making Africa more attractive to foreign investors. Trade costs in Africa are among the highest in the world. This has a negative impact on the competitiveness of African firms and also deters domestic and foreign investment.

The continent is also in need of greatly improved infrastructure to enhance connectedness. Investments in this area are beginning to make a difference, but there is a long way to go. Connectedness needs to exist not simply in a physical dimension. In an increasingly digitalized world, information technology will determine the extent of participation of countries in the global economy. There is already evidence of technological progress in this respect. Africa is a pioneer in the use of mobile phones to conduct financial transactions. This has benefitted farmers and small businesses who have to contend with information asymmetries.

How the WTO is Supporting African Countries?

The WTO is committed to assisting African countries to harness international trade as a tool for alleviating poverty and achieving robust economic growth and sustainable development. African countries, in their turn, must make an essential contribution to strengthen the trading system at a time when its ideals are being questioned amidst rising populism around the world. The power of trade has been central to lifting several millions of people out of poverty, particularly in China and India. Why should it not be Africa’s turn next?

The Participation of African Countries at the WTO

Thirty-three out of 54 countries in Africa are officially classified as least developed countries (LDCs) by the United Nations. The development challenges that this implies will not be met overnight, but steady progress in raising living standards, diversifying production structures and engaging in the global economy will be greatly facilitated by the progressive embrace of the disciplines enshrined in the WTO. Individual WTO members, based on need, can benefit from certain flexibilities in respect of disciplines and commitments. But that is not the heart of the matter. Adherence to the rules and disciplines should be the objective. For this capacity building is essential. But so is market-opening. A closed economy stunts the growth of the country that follows that policy, especially in this digital age. Development needs to be enabled through tailored arrangements not exemptions, and through appropriate domestic policies. They are intended to empower developing economies and render them more capable of reaping the benefits of specialization through trade. Preferential margins are eroding. African countries, and those of other regions need to concentrate on how to make the trading system better for all.

The future economic potential of WTO membership lies in living up to the best practices and the evolving enhanced requirements of the WTO. It also is to be found in actively considering making positive contributions to leading edge issues, such as E-Commerce and Investment Facilitation. The potential contribution of E-Commerce to African economies is very great. It offers African exporters the opportunity to gain access to new markets and increase the sales of their products without incurring significant costs. With respect to investment facilitation, it is beyond argument that African countries need a substantial inflow of foreign direct investment if they are to use international trade as a tool for economic growth and sustainable development. Issues of critical importance to African countries are being addressed by many WTO members. These efforts must be carefully and constructively considered by all WTO members, by no means excluding the nations of Africa.

WTO Technical Assistance and Capacity Building Programs

African countries are significant beneficiaries of WTO technical assistance programmers. These activities aim at building and strengthening the capacity of African countries to take advantage of current WTO Agreements and also to negotiate more actively to promote and defend their legitimate interests. They are also aimed at enabling African countries to use effectively WTO dispute settlement procedures to protect their interests. Furthermore, the WTO Secretariat has been providing targeted assistance to the nine African countries engaged in accession negotiations to join the WTO. The WTO is supported by and works closely with other development partners, both international agencies and governments.

Beyond regular technical assistance programs, there are a number of dedicated mechanisms such as the Standards and Trade Development Facility (the STDF) and an Aid for Trade initiative – the Enhanced Integrated Framework (EIF). These bring together partners and resources to support least developed countries in harnessing trade for poverty reduction, inclusive growth and sustainable development.

(i) The STDF

Standards can either open or close a market to African exports. While tariffs may slow trade, inability to meet standards can stop trade entirely. To help developing countries meet international standards, the Standards and Trade Development Facility was formed. It is a joint venture of the WTO, UNCTAD, the World Health Organization, the OIE and the WTO, and is administered by the WTO. I serve on the steering committee of the STDF.

The assistance begins with grants for the preparation of projects. Africa is the largest beneficiary region of these grants. Examples include: reducing aflatoxin contamination in maize (Burkina Faso), improving the safety and quality of pepper (Cameroon), improving capacity to meet market requirements for sesame (Sudan), improving sanitary capacity for livestock exports (Ethiopia), the possibility of creating a foot and mouth disease free zone (Tanzania), fresh meat production (Zimbabwe), strengthening plant health capacity (Zambia, Guinea), improving the safety of fruits and vegetables (Uganda), addressing fruit fly challenges (Mozambique, South Africa), digitalizing pest surveillance (Nigeria), prioritizing sanitary and phytosanitary investments (Madagascar), and developing a national SPS strategy (Togo).

(ii) EIF and Aid for Trade

The Aid for Trade program aims to help developing countries, overcome supply-side and trade-related infrastructural obstacles which constrain their ability to fully engage in international trade. In adopting the Aid for Trade initiative at the Hong Kong Ministerial Conference in 2005, the WTO membership recognized that investments from both the private and public sector are vitally important to complement access to international markets secured through the multilateral trading system.

A new Aid for Trade work program for 2018-2019 adopted in May 2018 seeks to further develop analyses of how Aid for Trade can contribute to economic diversification and empowerment, with a focus on eliminating extreme poverty, particularly through the effective participation of women and young people in the economy. It will include issues of relevance to African countries such as addressing supply-side capacity and trade-related infrastructure constraints for micro, small and medium-sized enterprises (MSMEs), particularly in rural areas. Industrialization and structural transformation, digital connectivity and skills development, as well as sustainable development and access to energy, are all components of these activities.

The WTO houses a programme specifically dedicated to Aid for Trade, owned and implemented in LDCs. This programme, the Enhanced Integrated Framework, or EIF, channels more than a quarter of a billion dollars into these countries, the majority of which are in Africa. The predominant focus of the program is supporting agribusiness, with over two-thirds of projects being implemented here. For instance, Zambia, one of Africa’s largest exporters of honey to the EU, has increased exports of honey by 700% in the last five years. A key ingredient in this success has been the implementation of a project dedicated to training and equipping around six thousand beekeepers and connecting them to processors and markets. In Malawi, effectively connecting agricultural producers to markets increased sales by more than $47 million last year. At the same time, investments in small-scale soya and groundnut producers has resulted in a doubling of farmers’ incomes.

Recent WTO Agreements and Negotiations of Importance to African Countries

The WTO has delivered significant outcomes of critical importance to African countries in recent years. With respect to agriculture, an agreement was reached in December 2015 in Nairobi to ban agricultural export subsidies and discipline export measures with equivalent effect, including international food aid. (This makes a substantial and early contribution to United Nations Sustainable Development Goal 2 – ending hunger, food insecurity and malnutrition).

The Trade Facilitation Agreement, which was signed in December 2013 and entered into force in February 2017, when fully implemented, could reduce trade costs by around 15% and boost global trade by up to $1 trillion per year. The biggest gains will accrue to developing countries, including those in Africa. Streamlining, simplifying and standardizing customs procedures and reducing red tape alleviate administrative burdens and the duplication of functions. This will, in turn, increase trade flows, ultimately creating jobs and making a positive contribution to growth.

Cotton. There have also been some notable achievements on the trade front for cotton at the WTO since the Cotton 4 (Benin, Burkina Faso, Chad and Mali) Sectoral Initiative on Cotton launched in 2003. Under the December 2015 Nairobi Ministerial Decision on Cotton, developed countries and developing countries in a position to do so have committed to grant duty-free and quota-free market access for exports of cotton and cotton-related products from least-developed countries (LDCs). They also agreed on an accelerated timetable for the elimination of export subsidies for cotton. While WTO Members continue to negotiate the critical issue of limiting trade-distorting support to cotton, Ministers have also agreed to enhance transparency on all policy developments affecting cotton through biannual dedicated discussions. Funds are being raised for cotton-producing African countries to develop the cotton sector by, inter alia, improving local processing capacity and expanding cotton-to-textile value chains at the regional level.

Fisheries subsidies. WTO Members have recommitted themselves to reach before the next ministerial meeting in 2020 an agreement to limit fishery subsidies. This has particular importance for the coastal countries of Africa, whose fishermen rely on the ocean for their livelihoods. With good management policies, Africa could be a leading exporter of fish. This effort also is related to the core benefit of the WTO, the creation of peace and stability, in that depriving fishermen in some parts of Africa of their livelihoods is seen as one motivation for some turning to piracy. Where there is a uniform African position it must fully take into account the need of these coastal states.

Recent developments in the International Trading System and their Impact on African Countries

Crises can be an engine for positive change. The history of trade over the last century is often portrayed as an unbroken and immutable march of progress. In reality, there are cycles, periods of great stress followed by outpourings of energy, that in the end have led to positive outcomes. The greatest improvements in international economic governance appear to be born in upheaval.

Modern trade history begins with the building of high tariff walls in the early 1930s. This was followed by a burst of negotiating dynamism to sharply reduce tariffs on a reciprocal basis. The Second World War was followed by creation of the international economic institutions that fostered economic recovery and laid the foundations for remarkable world growth.

A quarter century later, in 1971, there was another economic crisis. The international monetary system proved to be unsustainable. The crisis ultimately led to the creation of the current floating exchange rate system, and for trade, the Tokyo Round of Multilateral Trade Negotiations which yielded the first successful non-tariff barrier agreements in the GATT. In 1993, the then GATT Director General, Arthur Dunkel, concluded that the perceived need for strengthening the world trading system, which resulted in the creation of the WTO, should be attributed to the aggressive use of unilateral measures by the United States in the 1980s.

That brings us to the present. The world trading system is experiencing yet another upheaval. It can be attributed to reactions to a series of causes – rising income inequality, changes in trade patterns, the movement of peoples, and above all technological change – all forces giving rise to populism and nationalism. Whatever the causes, it is clear that this is a time of systemic flux. The results again are unforeseeable. The open question is whether this generation of leadership can find and exploit whatever opportunities may exist for positive ends.

There is reason for optimism that the present challenges to international trade can be overcome. However, a positive result cannot be achieved through drift and indecision. It will take an enormous conscious effort on the part of all WTO Members, including African countries, to assure a positive outcome.

The Need for Engagement

The current circumstances must be met by WTO Members and other stakeholders with agility, intelligence and adaptability. It is not quite the case that whoever does not help set the menu ends up being on the menu, but those WTO Members failing to make a positive contribution to the attempt to shape change will be unlikely to derive benefit to the extent they would have from any changes made in existing trading arrangements had they made a positive contribution to the effort. African countries should support a strengthened multilateral trading system to facilitate world economic growth and be responsive to their needs.

The post-1945 international order, characterized largely by market economies, the rule of law, and rules-based global trade, is of great and continuing value. There is growing recognition among WTO Members of the necessity to update the system in terms of 21st century realities. Even the strongest critics of the current system conclude that if the WTO did not exist it would have to be created. A recent article by two analysts – Robert Kagan and Ivo Daalder – sets out a conclusion that many, but perhaps not all Members, have reached. “The strategies to sustain the present international order are much the same as the strategies that created it. But they need to be adapted and updated to meet new challenges and take advantage of new opportunities”.

What are the present challenges (and opportunities):

  • The rise of a major new economic power creates trade friction. In the last quarter of the last century, this was Japan. This time it is an even larger nation, China, that has rapidly become a major factor in world trade.
  • The discontent with, and consequent threatened disruption, of the WTO dispute settlement system by a major trading country, the United States.
  • The growing recognition of the need for an updating of the existing rules by the four largest trading entities – the EU, the US, Japan and China – and a number of mid-sized and smaller economies.
  • The dissatisfaction of many developing countries, particularly African countries, with the progress that has been made to spur development through trade.

There will be intensive discussions among WTO Members in the coming months of appropriate responses to current challenges. The world will not wait for change that unfolds at what has become the norm in international negotiations, measured in decades rather than a few intense years. And even that may be too long.

The GATT was, at least from this vantage point, characterized by pragmatism, a willingness at key moments of participants to understand the needs of others, and by a good deal of creativity. Each member must decide for itself what course it will support. What is certain is that greater contributions will be needed from all countries for the good of the trading system, contributions that go beyond the swapping of product and services concessions on a reciprocal basis.

Nelson Mandela and Kofi Annan, in separate speeches delivered at WTO meetings, emphasized above all that trade is needed to assist economic development in Africa. In 1998, Nelson Mandela spoke at the WTO, a relatively new organization, then in its fourth year. In his speech President Mandela stressed the importance of countries working together to ensure benefits for all. The occasion was the WTO’s celebration of the 50th anniversary of the founding of the GATT. His clear-eyed narrative was sober. Trade was not a panacea. He said, “trade does not of itself and in itself bring a better world.” Trade enables it.

In his speech to the WTO Members at the WTO’s 2005 Hong Kong Ministerial Conference, Kofi Annan noted that “the development case for open, equitable trade is not yet won”.

If either of these two remarkable leaders were standing here today, talking to you about the international trading system, I suspect that each would acknowledge the importance of the system and still be dissatisfied. In fact, all WTO Members should to some extent be dissatisfied. Constructive discontent can be an agent of positive change.

The hallmark of great leadership is never to abandon one’s aspirations. Nelson Mandela is perhaps best known for the fact that he never gave up, never gave in. African countries have a lot to gain from the multilateral trading system and they should not give up their aspiration to use international trade to address their numerous development challenges.

Trade is not a zero-sum game. It can make a positive difference for the economic betterment of all peoples. It can create the conditions for peace. That should not only be an aspiration, it must be a work plan. African countries should have the opportunity to take advantage of the rules-based multilateral trading system to achieve robust economic growth and sustainable development. This would not only be equitable but would also greatly benefit the world at large. British Prime Minister, Theresa May, before embarking on a recent trip to Africa, said that “Africa stands right on the cusp of playing a transformative role in the global economy” and that “a more prosperous, growing and trading Africa is in all of our interests”. I agree.

The potential for Africa to become a leading participant in world trade has long been recognised. Now is the time to work hard to make this a reality. African countries need to deepen their reforms to improve transparency, reduce trade costs, enhance competitiveness and make the continent attractive to foreign investors, particularly in the non-extractive sectors. The international community will welcome a stable and prosperous Africa and the WTO stands ready to do its part to ensure the full integration of African countries into the rules-based multilateral trading system.

In the present, those of us who are engaged in working with the international trading system have to make it function as well as we can. It is then our job to hand over to the next generation, the generation being trained here, in at least as good a condition as how we received it. Then the future will be in your hands, whether in business, civil society or in public policy in government or in international organizations. You can carry the multilateral trading system to levels that we can only imagine.

I will close with the words of Nelson Mandela,

“In commemorating the 50th Anniversary of the GATT…, South Africa chooses to look forward rather than deal with the imperfections of the past.

The extent to which all countries benefit will depend on how we, the Member States act in concert to shape the processes....

We are firmly of the belief that the existence of the GATT, and now the World Trade Organization, as a rules-based system, provides the foundation on which our deliberations can build in order to improve”.

I cannot improve upon that sentiment.

Thank you.