Professor James Bacchus
Oh, that’s right, we don’t need a chair for Carla.
Creon Butler
We should see Hezekiah shortly, if everything goes to plan. Excellent.
Okay, well, my name is Creon Butler, and I’m the Director of the Global Economy and Finance Programme at Chatham House, and it’s my really great pleasure to welcome you all today to this hybrid event, where we’re going to be discussing the challenges of the World – faced by the World Trade Organization and how they should be addressed. And we are in a situation where, in a way, you could not imagine a more, kind of, cumulative set of crises facing the world economy as we are now.
We have Russia’s unprovoked aggression in Ukraine, which has called into question the post – entire post-war security architecture, and the West has responded with an unprecedented set of economic sanctions, essentially on the basis of if not now, when would you deploy a certain measure? And these include financial sanctions including the unprecedented step for a country the size of Russia of freezing the Central Bank’s assets, also a very substantial stepping-up in sanctions against Russian kleptocrats, and then a whole series of trade measures restricting Russia’s ability to buy certain kinds of goods in Western markets, but also Russia’s ability to sell its own hydrocarbon products into the West.
And as a consequence of Russia’s actions, we now have multilateralism under an enormous economic strain, enormous strain, the international – all the different aspects of our multilateral system, including the economic aspects. At the same time, the Ukraine shock comes on top of pressures that have already been created by the pandemic, the global pandemic, by the climate emergency, the new aspects brought into international trade by the very rapid pace of technological development, by the geopolitical tensions, the rising geopolitical tensions, between China and the West, and also the continuing legacy, and although it’s ten years ago there still is a continuing legacy, from the global financial crisis. And all of these developments are putting pressures on the WTO, but equally it’s very hard to imagine a global economy without rules to govern international trade, and so the real question is, “What is to be done in relation to all these pressures and the way in which they impact on the WTO and our multilateral trading system?”
And to help us address this question, we are very fortunate to have an extremely distinguished panel of experts, and we first of all have – we’re going to have three speakers, each of whom is going to speak for five minutes. And first of all, on my left, will be Professor James Bacchus, who is the distinguished University Professor of Global Affairs and Director of the Center for Global Economic and Environmental Opportunity at the University of Central Florida. And prior to becoming a full-time academic, James was the founding Judge and was also twice the chair of the Appellate Body of the World Trade Organization which, as many of you know, is the top world trade court. He’s also a prolific Author and recently published a new book, Trade Links, New Worlds – New Rules for a New World, and I think there’re some flyers regarding that book available if you want to pick up the details of it. I’m sure that we’re going to get into many of the issues in your book during this discussion.
And then next to speak and online in this hybrid event, we have Ambassador Carla Hills, who served as the United States Trade Representative from 1989 to 1993, serving President George HW Bush. Ambassador Hills also negotiated and concluded the original North America Free Trade Agreement. She has a wealth of experience on the boards of top US companies and is also, and I just picked this one out because I suspect it’s an issue we will get into, she’s the Chair of the National Committee on US/China relations.
And third, but by no means at all least, Dr Emily Lydgate, on my far left. Emily is Deputy Director of the UK Trade Policy Observatory, the University of Sussex, and this is a partnership between Sussex University and Chatham House. She specialises in the intersection between environmental regulation and measures to promote economic integration. And she’s also part – and I say this ‘cause I want to congratulate Sussex University on this, she’s part of the leadership for a new UK Research Council-funded Centre for Inclusive Trade Policy, which has been established in Sussex University and I think is just about to launch. So, congratulations on getting that centre, ‘cause I know it’s not at all easy to get money out of the UK research funding establishment.
So, I will shortly ask each of our speakers to make some introductory comments and I will then ask them some questions myself before moving to the audience, both online and here in the au – in Chatham House. Just a quick reminder before we get to that stage, firstly, this is an on-the-record discussion. If you have an online question, I think you can post it actually at any time using the Q&A function on Zoom. If you’re in the audience, you’ll need to wait until we get to that stage, when there will be a process for bringing a mic to you.
We will have a hard stop at 7 o’clock and there will be a drinks reception after that for those of us – those of you who are here in Chatham House, and we very much welcome you to join us for that reception. So, with that, James, if I could turn to you for your opening comments.
Professor James Bacchus
Well, thank you very much, Creon, it’s great to be back at Chatham House, thank you for inviting me back. I will spare the audience all 400-and-plus pages of my latest book, but the book is about what we’re talking about today, and I want to first of all say that I very much agree with your summary of our situation in the world, especially as it relates to trade. Recent events only underscore, to my mind, the necessity for saving the multilateral rule-based trading system under the auspices of the WTO by modernising it.
You know, many of the rules are still fit for purpose, but we live in a world that is not exactly the world in which we lived when I, along with many others, helped negotiate the Uruguay Round trade agreements that established the WTO in 1995. We have utterly failed so far in all our efforts to modernise the WTO, and we have done so over the course of nearly three decades, so it’s not a pretty picture for those who are looking, as I am, for reasons for optimism.
Here, lately, we have of course witnessed the economic sanctions that, in my view, have quite rightly been imposed on Vladimir Putin’s Russia, and of course we’re still in the midst of a global pandemic that has wreaked havoc up and down for world trade, and one of our failures in the WTO, and the one I would address first if I had my say, is trying to eliminate the barriers to trade in medical products of all kinds, including badly-needed pharmaceuticals. My own country, the United States, has refused to join the so-called Ottawa Group of a handful of countries that are trying to conclude a trade and health agreement, and I can’t understand why.
I think there is need, especially now, given the whole panoply of sanctions we’re seeing and the increasing proliferation of justifications for measures being, you know, said to be for national security reasons, for a line to be drawn on national security. For seven decades, we had a provision in the GATT, still there, never changed it so no need to change it, it wasn’t used. Now it’s being used far and wide in dozens of disputes and as excuses for all kinds of things. When Donald Trump wants to ban imports of Mercedes-Benz cars from Germany, it’s pretty clear that’s not really a national security issue, however these economic sanctions now are. Where do we draw the line?
In a speech earlier this week, the Treasury Secretary of the United States, Janet Yellen, said that we need to look anew at the Bretton Woods institutions, and in trade we need to have free trade with security. What does that mean? She didn’t say. Does the United – it mean the United States is now going to trade and engage in, you know, trade agr – negotiations and agreements only with its allies and other like-minded trading partners? Or does it mean the United States is going to lead a charge within the WTO to broaden the kinds of values that can be excuses for not complying with what would otherwise be WTO obligations? We don’t know.
In the book, I talk about the agenda that must be followed in order to modernise the WTO, and there I want to mention three things before concluding. First, we have the inherited trade agenda, on which we’ve failed again and again, especially in the Doha Development Round, you know, lowering the remaining barriers to trade in agriculture, in manufacturing, in services, but we have not done that. It must be done, it must not be overlooked.
And then also there is what might be called the new trade agenda of the 21st century, and here is where we either do not have WTO rules at all or we have inadequate rules. Here I’m speaking of competition, investment, intellectual property, and especially digital trade. We – how can the WTO be relevant to the 21st century if there are no WTO rules on digital trade? Yet that is the case.
And then lastly, I want to underscore what is the main theme of my book, which is that trade in every way must be seen as occurring within, you know, what’s happening to our environment. The economy is within the environment and issues such as climate change, biodiversity loss, species loss, deforestation, and all these other environmental issues are also trade issues, and we must address them in ways that not only prevent trade rules from standing in the way of what we need to do to achieve the objectives of sustainable development, including addressing climate change, we must make those rules affirmative agents for achieving those aims in climate change and sustainable development.
I will defer to Emily for talk about how we might begin to approach this. I think we need more plurilateral agreements for a start, and I would be remiss if I did not say in conclusion that we also need to repair the dispute settlement system that my own country has broken under President Trump, and that so far the Biden administration has shown absolutely no interest in repairing, and that is the demise of the Appellate Body.
It will do us no good to have rules for trade if those rules cannot be upheld in a fair and impartial way, but we’re at risk of losing our dispute settlement system and thus undermining the credibility and legitimacy of the system as a whole. I’ll stop there, but thank you very much, and I’ll be happy later to answer any questions you may have, after my friend, Carla Hills, corrects me.
Creon Butler
Thank you, James, thank you very much. Ambassador Hills, over to you.
Ambassador Carla A. Hills
Always a great pleasure to join you, this distinguished group, and a great friend, to see Jim Bacchus. I would say that we do have problems, notwithstanding that global GDP has tripled from $30 trillion in 95, when the World Trade Organization was launched, to $94 trillion currently, and economists see trade as one of the great drivers of global growth and those who study policy see it as a contributor to global peace and stability. But trade is not enthusiastically applauded by people globally.
According to the Pew poll, their polls show that a majority of people in both advanced and developing economies do not see the benefits of trade. To achieve sound policies is important to have public support and groups like the Chatham House, Chamber of Commerce, Council on Foreign Relations and Universities all have a role to play in explaining why trade matters and how the World Trade Organization has facilitated its expansion.
Having said that, to enable the WTO to continue to facilitate trade, it will need to be modernised to deal with today’s challenges, and the WTO has three basic missions, first, to facilitate negotiations of strong and enforceable trade rules among member nations to keep global markets open and predictable. Second, to create and manage an effective system of compliance with the trade rules, and third, to provide a dispute settlement mechanism to resolve differences between members.
With respect to negotiations, it has faltered in recent years. It has been challenged by the fact that new multilateral rules require a consensus of all 164 members. Since it was founded in 1995, it has been unable to reach any major trade agreement other than the trade facilitation agreement, and as a result there has been a trend toward plurilateral agreements, both those open to all WTO members and those that apply exclusively to the Agreement’s signatories.
An example of an open plurilateral agreement is the Information Technology Agreement that was negotiated by 82 members, representing 97% of global IT trade. It reduced tariffs on some computers, telecommunications and IT products, and its provisions are applicable to all WTO members. Those representing the 3% of the market who chose not to join the agreement are simply free riders but their impact is de minimis.
The Global Procurement Agreement is an example of an exclusive plurilateral agreement, which currently has 48 members who are signatories and 12 who are seeking to join. The obligations and benefits are exclusive to the signatories. Those who choose not to join the agreement are not affected. The WTO has a long list of plurilateral negotiations currently pending, covering environmental goods, e-commerce, investment facilitation and many others. This past December, Canada, along with 66 WTO members, endorsed a declaration announcing the conclusions of a negotiation for a Joint Statement Initiative on Services Domestic Regulations.
Now, that joint statement outlines concrete trade rules to provide regulatory transparency for services and includes a binding provision of non-discrimination as to women. Any member could join the negotiation of this joint statement, and the statement remains open, allowing members to join subsequently or later.
With respect to the WTO’s second function, to monitor compliance with trade rules, it has been woefully lax. Just one example, complaints have long been directed at rules that permit member countries to designate themselves as a developing country, enabling them to escape certain obligations. In 2019, there was considerable talk, debate, regarding the fact that several G20 members and nearly two-thirds of WTO members have been able to obtain preferential treatment in this way.
Rather than to rely upon self-designation, the WTO should work with UNCTAD, the United Nations Conference on Trade and Development, whose mission is to develop opportunities for trade and investment in developing countries. It keeps current data on levels of development.
Finally, with respect to the WTO responsibilities for dispute settlement that Jim Bacchus referred to, the unwillingness of the US to permit appointments to the Appellate Board has decapitated the WTO dispute settlement system. Unless that is fixed, members will be less diligent about complying with their existing commitments or agreeing to any new commitments, fearing that the rules simply won’t be enforced. Recognising this fact, 22 WTO members led by the EU have negotiated and agreed to use an arbitration process for conducting appeals called the Multiparty Interim Appeal Arbitration Arrangement. Other members are invited to join.
This arrangement is intended to stay in place only until a reformed WTO Appellate Body becomes fully operational, and New Zealand’s Ambassador to the WTO, David Walker, developed a set of six principles called the Walker Principles to deal with US complaints about the Appellate Body. First, the Appellate Body must take – make decisions in 90 days. Second, the Appellate Body members must leave at the end of the second four-year term. Third, the Appellate Body must accept the panel’s rulings on the facts. Fourth, the Appellate Body must only address issues raised by the parties to the extent necessary to resolve the dispute. Fifth, the Appellate Body should not take its prior decisions into account, no stare decisis. And lastly, the Appellate Body shall not add or subtract to the parties’ WTO rights.
In addition, he recommends that members of the Appellate Body serve no more than eight years and that an oversight committee be created to review annually, to ensure that it complies with his six principles. We have a great deal to do to ensure that the WTO succeeds over the coming decades, but the costs both in time and resources are well worth the effort. Thank you.
Creon Butler
Thank you very much, Ambassador Hills, and for our final introductory comments, Emily, over to you.
Dr Emily Lydgate
Thanks, Creon. It’s a great honour for me to be here, and I think we have a lot of agreement in the room that there are tremendous pressures facing, you know, what we often hear described as the rules-based system, so the idea that, you know, countries govern trade based on legal rules and principles that support openness and with the WTO being the – sort of, the global contract that sets out these rules. So, if we adopt a high-level perspective, it seems to me that there’s, sort of, four potential release valves for this pressure. The first one is to change the rules of the WTO, the second is to reinterpret the rules of the WTO, the third is to ignore the rules of the WTO, and the fourth is divide and conquer, what Janet Yellen described somewhat more positively as friend-shoring, in other words, trade and regulatory co-operation on a plurilateral basis.
So, I thought as a – kind of, a thought experiment, I would say something about each of these very briefly in the area of climate regulation, looking specifically at subsidies, and I think subsidies are a good example because green subsidies are a pretty integral part of how most countries are trying to decarbonise their economies. But, if we look at the WTO rulebook in this area, there’s no carve-out, there’s no recognition that we need to allow green subsidies, so there seems to be the potential for a clash there between, on the one hand, countries need to incentivise the development of low-carbon goods, low-carbon technologies, and on the other hand, the fear that these will be met with tariff retaliation form of trade remedies.
So, can we change the rules in this area? Well, we’re very far from multilateral consensus on this issue, so subsidies is a big area of contention and seems to be pretty inextricable from the larger geopolitical tensions between the US, China, the EU, Japan and others, so this is, kind of, the optimal option but it seems to be quite elusive. So, can we reinterpret the existing rules to provide more policy space for green subsidies?
Well, there’s really only one neutral entity that can do that, and that’s the dispute settlement bodies, and I would argue effectively this is what the Appellate Body tried to do when it was confronted with this issue in a dispute between Canada and Japan. They said – and EU, they said, “Well, we’ll just – we’ll tweak the legal test a little bit to create a bit more shelter for renewables.” But of course, the Appellate Body has gotten into considerable trouble for this sort of thing, so this doesn’t seem like – well, to the extent that we are where we are now, which is that it’s no longer operational, so this doesn’t seem like a reform path that is that open. Countries can try to reinterpret the rules themselves, so, for example, the US can say, “Well, we think that if a country doesn’t regulate its environment properly, that’s a subsidy.” But the problem is, this is seen as unilateral so doesn’t necessarily contribute to upholding a rules-based system.
So, this brings us to ignore the rules, so this is a very pertinent area for subsidies and other areas, so, you know, if we look at one area of subsidies, it’s notification, so countries are supposed to say when they subsidise, including for renewables or fossil fuel subsidies. Most of them aren’t doing it. So, you know, it doesn’t seem to me that ignoring the rules is necessarily very helpful for climate action, so, even if we think about something like transparency, you know, we’re operating in somewhat of an informational vacuum, right? So if there were more transparency, if countries notified their subsidies, this could help more specific discussion about what they’re doing, what type of subsidies are happening and what are the legal issues, including for fossil fuel subsidies, right, so, you know, it’s a bit like Alcoholics Anonymous, the first step is admitting that you have a problem.
So, this brings us to divide and conquer, and what I mean by this is plurilateral co-operation through the form of WTO plurilaterals, which I think we’ll probably talk more about, or FTA co-operation or bilateral – other types of bilateral co-operation, so – and I think these can serve to, you know, support real regulatory co-operation and real advancement in international co-operation, so, for example, we have this WTO Ministerial statement on fossil fuel subsidies, we have the UK/New Zealand FTA, which has some very strong language on this area. We could use F – you know, these to give more space for countries to have green subsidies, although, of course, the WTO still pertains here.
So, more broadly speaking, the hope is that if you are able to have plurilateral dialogue and plurilateral commitments, this will influence and eventually, sort of, seep into the multilateral space, both through modelling particular types of commitments, but also through consolidating market power. So, none of these release – pressure release valves are mutually exclusive, and I think all of them are happening, with the exception of changing WTO rules. But if we ask, sort of, which of these is the most promising in terms of bringing about co-operation, it seems to me that the plurilateral option is the most meaningful, but of course it raises plenty of other problems, which I think we’ll come to in due course, so I’ll stop there.
Creon Butler
Emily, thank you very much, and I think certainly the plurilateral approach, seems to be quite a lot of consensus among the panellists around that, which we’ll come back to, but I first want to pick up on one of the first points that James made, which is around the national security exemption, particularly in the context of what’s been happening in Ukraine, but more broadly than that. And many of us, I think, as I – certainly I feel that the actions that were taken are proportionate to what has happened in terms of Russia’s attack on Ukraine.
But you could well imagine other situations which are not as extreme and therefore the question will arise, “Well, what is appropriate in this context, should one use the same responses or not?” And that gets you in the question of whether there is – whether one should attempt to create rules for how that – for more detail around how that national security exemption would apply, and also whether it’s remotely possible to imagine doing that in the present circumstance. So, I would be grateful for your views on that specific point. I mean, obviously the – Ukraine is one context, but you’ve mentioned that it’s been used in otherwise far less justifiable ways. Maybe, James, I could come back to you for that, and then the – yeah.
Professor James Bacchus
Yes, I think that’s a central question in what we’re facing. We do have a rule, it’s called Article XXI of the GATT and there are comparable rules in the services agreement for example that say much the same thing. I alluded to it earlier in my initial remarks. We went 70 years without knowing what this rule meant. The intent of those who wrote the rule was that it would never be used and that there would be mutual restraint among the participants in the system so they would not need to be used.
But that has now changed, and we do have some jurisprudence. Technically speaking, these are not interpretations of the rules, only the members themselves under Article IX(1) of the WTO Agreement can interpret the rules, and they’ve never done so, which I think is a mistake.
What the Appellate Body and what panels try to do is clarify the rules using the customary rules of interpretation of public international law. This is a fine legal point but it’s important in the context of the current disputes. The – we have two cases now that are both panel reports, neither appealed, there’s no-one to appeal them to. The first was a dispute ironically between Ukraine and Russia, which is called Russia Traffic and Transit, and a more recent one which follows the ruling in the Russian dispute is a case involving a Saudi Arabian as the respondent for some intellectual property violations.
And these panels have established several principles. The first is, yes, national security is justiciable, the – this Article exists for a reason, and a country that wants to claim a national security defence must have the shelter of this Article or it won’t be consistent with its WTO obligations. The panels have given broad sway, as I think Article XXI insists, with the countries in deciding for themselves what’s in their essential national security interests.
However, the panels have also said that it’s – that such an interest must be asserted in a time when there is a national emergency, and it’s completely justiciable as to whether such an emergency exists. It did in the Russian case, and it did in the Saudi case.
And lastly, the panel has taken a pretty – these two panels have taken a pretty broad view of the nature of an emergency, and that is, they say that it has to be, you know, a traditional military kind of crisis, whereas the United States and others have argued that, “No, it can be an economic dispute,” and I think that’s where we are now. We have to make that decision as to whether this exception is available only in times of shooting wars or the threats of shooting wars, or whether it’s more generally available for a lot of the economic competition we’re seeing that has national security dimensions.
And I don’t think it’s ideal for jurists in a dispute settlement to resolve that issue, I think it has to be resolved by negotiation. I hope that’s what Secretary Yellen is talking about, I respect her immensely. To my knowledge she’s the only member of the Biden administration who’s been bold enough to utter the phrase, “free trade,” thus far, and I give her credit for that. She understands free trade much better than I do, being one of the leading international economists on the planet.
But what is the Biden administration now going to do as relates to the WTO? I worry that they’re too much inclined to circumvent the WTO and, as Emily said, you know, ignore WTO rules when it’s convenient. That was certainly the case with the Trump administration. With the Biden administration, I think we just have a little more polite form of protectionism, at least based on what we’ve seen so far.
Creon Butler
Maybe I could, Emily, come to you, and then Ambassador Hills. I mean, do you think that – I mean, there’s a judicial process, as James has described. Do you think there needs to be a political process alongside that, and if so, is that something that you do in a, kind of, plurilateral way? Because it’s very hard to imagine the full WTO membership, in a way, signing up to a – defining exactly what this national security exemption means. So, is this one of the things you would put in your plurilateral basket in a political – and would you have political dimension? How would you do it?
Dr Emily Lydgate
So, you’re asking, if we were looking to reform Article XXI of the WTO or…?
Creon Butler
Well, I mean, it’s understanding what – trying to understand what it means basically, because he said it was never intended to be used.
Dr Emily Lydgate
Yeah.
Creon Butler
It now has been used…
Dr Emily Lydgate
Yeah.
Creon Butler
…in some ways, I think, some justifiable, some not justifiable. So, at least among a group of countries, is this something one should start looking at and trying to give more shape to?
Dr Emily Lydgate
Well, I think there’s various ways of responding to that, and I don’t know if you can really separate the political from the legal in this realm, but I think there are – this issue in the WTO has been quite a dogged issue about, sort of, judicial discretion and how do you interpret a contract, so I very much appreciate, you know, Professor Bacchus’ clarification. Well, you know, the Appellate Body isn’t actually reinterpreting the rules, they’re simply clarifying the rules, but I think…
Professor James Bacchus
It was a rather esoteric point.
Dr Emily Lydgate
Not to us, maybe to these guys, if they’re lucky, but I think it came up in that issue of the Walker Principles, as well, and I actually think it’s quite relevant to your question, Creon, because I think in a sense what you’re asking of us is can we make a contract that’s clearer and that, sort of, takes the politics out? And it seems to me that, you know, if you look at the WTO as an example, there – it’s a very high level, you know, the whole agreement is quite high-level so, you know, that’s like thinking about the most favoured nation principle, “any advantage, favour, privilege or immunity granted to any contracting party, etc, etc.”
Well, what’s an advantage, favour, privilege or immunity? You know, someone has to interpret that, so who interprets that, and can you come up with an interpretation that is faithful to the con – I mean, it’s very similar to the issues of judicial interpretation in – you know, in the US Supreme Courts also. So there’s this, kind of, concern about, it’s a member-driven organisation, or that the governments want to be in charge, and not a third party, and I think that is an obstacle to having a really – you could achieve more clarity than what we have in the WTO, but I think there is a deeper issue there.
Creon Butler
Thank you. Ambassador Hills, perhaps I could ask you your perspective on the national security issues raised by Ukraine, but also by President Trump’s actions and so on. What’s your view on that? I’m not sure if we’ve lost the Ambassador.
Ambassador Carla A. Hills
My own view is…
Creon Butler
Are you there? Yeah, you’re there.
Ambassador Carla A. Hills
…is that the decision by the last administration to use national security to impose tariffs on our allies was inappropriate, and it has spread so that it is being used very commonly, he used it very commonly. I’ve been hopeful that the new President, President Biden, who has experience serving in the Senate on the Foreign Relations Committee and has appointed people who have experience in trade, will take a less protectionist view, but that hasn’t come to the fore as yet.
I mean, we are more than a year-and-a-quarter into the administration, and I defy anyone to define what our trade policy is other than it’s worker-centric and it’s going to be climate-sensitive, and – but how do you do those two things? So, we really need to get off our chair and come up with a plan and then a strategy to implement that plan, and that has not been forthcoming. And I’ll quickly say that I forgive the President to a certain extent, because his inbox is overflowing with pandemic, the economic repercussions, the problems politically, and now the Ukraine war, which is brutal and ugly, and so, to turn and look at trade, which actually could have some positive effects, but we will see, as they say.
Creon Butler
What I’d like to do now is see if there are any questions in the audience here. I certainly have a few more, but I want to give everybody the chance to. So, the lady at the back there, would you like to ask a question? Yes, and, indeed, it’s Marianne, so, please go ahead, if you could say who you are for other members.
Marianne Petsinger
I am Marianne Petsinger, Senior Research Fellow here at Chatham House. I am struck really by the emphasis on rules that all of you have put, at the same time highlighting certainly the concerns from the United States, but also with regards to India for example, that has critical questions around the plurilateral arrangements. So, I would be really curious to hear your reactions towards whether we’re not actually seeing a new era of tools. So the emphasis shifting from trade rules to trade tools, in particular with regards to export controls in this new context of Russia-Ukraine, but also with regards to, for example, the EU’s anti-creation instruments.
And then perhaps if I can sneak in a second question, we are facing the next Ministerial Conference in June of the WTO members. What do you see as perhaps meaningful progress that can be achieved, or is again the emphasis really being in the short term on Russia/Ukraine?
Creon Butler
So, very good. That was two questions. It’s nice to take three, so is there another question that some – yeah, Harold, if we…
Harold Freeman
Hi, Harold Freeman.
Creon Butler
No, wait for the mic. If you stay seated, the mic will come to you.
Harold Freeman
Hi, Harold Freeman, Chatham House Member and former UK official. My question is about climate change, which you’ve all mentioned. Given the overwhelming challenge of climate change for the future of the world, can you be a bit more specific about what the WTO needs to do to actually become an agent for affirmative change and avoid irrelevance, which I think is a risk now?
And, Emily, you mentioned carve-outs for renewables, which seems important but perhaps quite small. What about dealing with border adjustment mechanisms, and what about energy security more broadly, which increasingly seems to be becoming a national security issue in the current climate? So, what needs to change, and is the institution capable of the radical institutional changes needed to take that on board?
Creon Butler
So, I think, if we could start with Emily, I – there’s, kind of, three questions. One is the tools versus rules and I think, Marian, your question really is, the switch to tools, what does that mean, in practice?
There’s then, I think, which is a really key question around, you know, if you’re going to do – you’ve got the Ministerial coming up, you’ve got limited political capacity, where do you start in this enormous, kind of, complex situation?
And then the climate change question that Harold put, particularly, I think, be interested to get your views on where we go with border carbon adjustment mechanisms and in particular climate clubs, given that we’ve got the German G7 coming up very shortly. So, Emily, if you could kick off with that, then I’ll come to you, James, and then Ambassador Hills.
Professor James Bacchus
I’d like to answer his last question.
Creon Butler
Okay.
Dr Emily Lydgate
I think we should start…
Creon Butler
Okay, alright, so…
Dr Emily Lydgate
I mean, this is the world’s leading expert, so…
Creon Butler
Okay, so, if you go ahead first with the last question, and then we’ll…
Professor James Bacchus
You asked the right question, sir, which is, “What specifically should the members of the WTO do?” Two years ago, in the early stages of the pandemic, I appeared virtually at Chatham House, in which I laid out – during which I laid out my proposal for a WTO climate waiver, which I think should be negotiated and should exempt an agreed assortment of climate-related measures that have trade-restrictive impacts.
Part of the problem now in the rules as they currently are is that if a country takes a measure – this is jargon, if a country enacts a law or a regulation or something else that falls within the jurisdiction of the WTO because it affects trade, then it can be excused if it has environmental objectives of a sort, and is not applied with arbitrary, unjustifiable discrimination or as a disguised restriction on trade.
But if that measure is enacted with mixed motives, both with environmental and economic motives, then it probably won’t qualify for the environmental exceptions that are in the WTO agreement. What I propose is that we have an agreed carve-out that would legitimise legally certain of the measures that have a mix of economic and climate motives, as many climate-related measures increasingly do, where they have trade restrictions. Think of the concern about carbon leakage.
Now, I’ve published several papers that are readily online in which I explain this in detail and I have an entire chapter on this issue in my new book, and then I have several other chapters with specific ideas. For example, in terms of subsidies, as Emily rightly raised, I think we should prohibit fossil fuel subsidies, make them prohibited subsidies under the current agreement.
We also have a situation in which environmental harms are no justification for – you know, for countering subsidies, see, injury does not include environmental injury. Well, I think that should be changed, and there is much more I won’t go into now, but I have filled an entire book with specific proposals for how the WTO rules should be changed and, in many cases, supplemented through plurilateral and other agreements.
Creon Butler
Thanks very much. Emily, do you want to comment on Jim’s proposal in relation to climate clubs and so on, but also, if there are either of the other questions you can pick up on?
Professor James Bacchus
I’m in favour of the climate clubs too.
Creon Butler
Right.
Dr Emily Lydgate
Yeah, I mean, and climate clubs are here, they’re happening, but they’re messy, and actually I have a quote from your climate waiver paper, which I can’t remember exactly what it is, but I’ll paraphrase as something like, you know, the political struggle for carbon border adjustment is going to be messy, and there’s going to be a lot of compromises along the way as countries try to get this thing through their domestic legislatures. And that, to me, seems to be the problem, is when you’re thinking about climate co-operation you’ve got, you know, two – you’ve got the angel and the devil on your shoulder. On the one hand, you have all of your internal, you know, domestic pressures; on the other hand, you want to try to design this thing in a way that is, you know, relatively fair and even-handed to exporters, and I think it’s hard to achieve that individually and it’s hard to achieve that in a group.
And I think that’s why I’m a cynic, so, you know, I sort of, you know, out of hand addressed the mult – sorry, dismissed the multilateral reform option, so I think it’s very useful to clarify what reforms need to be made, but I think that it’s very difficult to achieve those reforms multilateral – multilaterally. And then when we move to the plurilateral space we’re likely to get something that looks, you know, like what the US and the EU have cooked up, which is this, kind of, messy amalgam of, you know, anti-industrial subsidies and anti – you know, high-carbon-steel, kind of, rolled up into one without a –very much clarity about, sort of, how this is going to be in any way compatible with WTO rules.
So I think that, you know, I guess the underlying question is, well, do we need to, kind of, move quickly and break things with respect to climate action, do we need to just do stuff and not worry so much about this WTO rulebook? And there’s a temptation to say, “Well, this is secondary,” but actually, you know, I don’t think it’s ideal to be operating in that space because what the Appellate Body promises to do is, you know, evaluate a measure, do a really good regulatory review, write a 600-page report about it and come up with some, you know, boring, in the best sense, design modifications, so – and we don’t have that, so it’s a more volatile environment, so that’s a – somewhat of a discursive answer.
Creon Butler
In a world where there’s, kind of, seven – let’s say, ten years to deal with – if you take it as a climate emergency, ten years…
Dr Emily Lydgate
Yeah.
Creon Butler
…may be all we’ve got. Shouldn’t we be breaking things in that context basically, to try and resolve the problem if necessary, or do you think, actually no, this will do more harm than good?
Dr Emily Lydgate
So, I think that we do – we should have climate clubs, I 100% support climate clubs, but I think that there are better ways of – I think that we can – even though we don’t have an Appellate Body, we’ve studied – you know, we know that there are design principles to make measures more fair on developing countries, and to make measures more fair with respect to even-handed treatment of domestic and imported products. And I think that the – what we have on the table, for one thing, it conflates – it says – so, if China, for example, produces low-carbon steel, it doesn’t seem that it – it seems that it would still receive the same level of tariff, because it’s lumped in as a – sort of, a low-carbon – so I’m just saying that you c – I think we could do better.
Creon Butler
Okay. Ambassador Hills, perhaps I could just come to you on one of the questions that – which is, you know, where – the WTO Ministerial that’s coming up, limited amount of political capacity, enormous problems. Where do you begin, what would be your priority for the Ministerial? You’re still on mute, I think, Ambassador.
Ambassador Carla A. Hills
I think it desperately needs to have an agenda that deals with the lack of commonality that we have fallen into. Keep in mind, this is a highly political year, for many countries there are elections, and when we mention that we’re going to have rules to deal with low-carbon steel or any single product, the question is, “Who are the winners and who are the losers, and who are the losers going to vote for?” And you see that, and it isn’t just in the United States, but it’s in Europe and in China with Xi Jinping, and many feel that some of our people – the states that we deal with that are less friendly are also going to face political problems. So, I think we have to get out and sell why we want to do that, why – what is our plan, and we need to talk to people about it.
You know, I suspect that most people, if you walk outside the Chatham House, don’t have a clue of what we are discussing today, not a clue. They don’t understand how – they know when climate hits and it washes out the streets and creates problems for roofs and that kind of thing, they know when there’s a tornado, and they are concerned about neighbours that are hurt, but they really don’t understand why there is a concern about climate. So, education is key and we have to get it down to a level where people who are not in the field can understand it, and so that we counteract the political resistance.
Creon Butler
Thank you very much. So, I’d like to take a couple more questions from the audience here, and we’ve also got some questions online that I will feed in, so further questions from the audience. Yes, sir, in the front.
Hugo Barker
Hi, Hugo Barker, Imperial College, London. We’ve, kind of, seen over the past two years quite a lot of fragility in the trade system; COVID, even the blocking of the Suez Canal, even the situation in the Ukraine now. Do you think we should be prioritising resilience in our trade systems now, even at the cost of economic growth, and if so, how would you do that?
Creon Butler
Yeah, that’s a really important question. Any other questions from the audience here? So, we have – sorry, couldn’t see you over there. Yes, please go ahead, sir.
David Glass
I’m David Glass, Chatham House member. I just wondered what you thought was the importance of technology in influencing the debate because if you make countries self-sufficient through the use of technology, are the free trade rules, world free trade rules, as important as they were?
Creon Butler
Okay, thank you, and then I’ll feed in two questions from the online, first from Alistair King. I mean, he talks about the temporary multiparty interim appeal and arbitration arrangement, which I think is basically what’s been put in place to try and deal with the fact there isn’t the Appellate Body, if I’m right. And he says that the fact that this hasn’t had great support so far, does this represent essentially unhappiness with the underlying WTO principles, the underlying structure of the – I mean, principles of the WTO, or is it, in a way, the current political tensions that just makes it impossible to progress?
And then another question I’d like to put in, as well, which, kind of, links to that in a way, which is around the question of grey warfare and whether or not this – you may understand better than I what grey warfare means but that’s – the question is how is grey warfare of, say, Russia a factor in emergency trade exemptions? So, I guess the question is, you know, certain kinds of things that are not formal, outright war, but to what extent should they be – I mean, this goes back to the national security question of to what extent should you have an ability to deal with those through trade exemptions?
So, I wonder, perhaps, Ambassador Hills, if I could come to you first on this, the resilience question, first of all. Should we be prioritising resilience within the world trade system even if it is at the cost of economic efficiency, and if so, how would you go about doing that?
Ambassador Carla A. Hills
I’m not sure why resilience necessarily means that we collapse our efficiency, and maybe that’s the definition of the term resilience. Are we talking about taking steps that boost the economy but hurt the trade or discriminate? But maybe t – maybe Jim has an answer to that question.
Creon Butler
I think it would mean, for example, rather than having a supply chain that worked at, sort of, maximum efficiency in the sense that you – whether it means several or one single supplier, you go with the efficiency that that creates in a normal peacetime environment, you actually add some extra suppliers in or you change the location of a supplier in order to deal with the fact that in a time of extreme tension, the most efficient route may not be available. So, I mean, do you want to go?
Professor James Bacchus
I’m happy to address that. I think some adjustments are necessary and are being made, and will be made irrespective of what happens in terms of governments and being made in the private sector. I think there’s going to be less just-in-time and more just-in-case in terms of keeping the more supplies on hand against unexpected situations.
I think you’re going to see a movement away from sole suppliers, sole sources, and toward a mix of potential suppliers, with some of them closer to home. I think you’re going to see some shortening of supply chains in some instances. It’s a more varied product based on the individual circumstances in that sector of the economy, you know, and all this makes sense.
However, it makes no sense to do what a lot of political leaders in my own country are suggesting, which is to move away from global supply chains altogether. That makes no economic sense, it’s not necessary. I would argue that it undermines the economy and the potential for economic growth and therefore undermines our national security of our country at a time where we’re trying to spend more of our resources on national defence, and of course the European Union is trying to do the same thing, as is Japan and others, and I support those build-ups of defence. But ultimately, you have to have an economy to support a defence build-up, so, I worry about the trend toward autarchy. It’s never worked and it won’t work now.
Creon Butler
Do you want to just take the appellate question, so is the reason we can’t make progress because of…?
Professor James Bacchus
The reason we can’t make progress is simply because of the United States of America.
Creon Butler
Right.
Professor James Bacchus
And it doesn’t relate to most of what the United States has been talking about, doesn’t relate to how long it takes the Appellate Body to rule on disputes, or whether an Appellate Body member stays a little too long to complete a case after their term is ended.
It relates to trade remedies, it relates to the fact that the United States of America, under President Bush, the second one, under President Obama, under President Trump, and now under President Biden, simply wants to do whatever it wants to do with respect to applying anti-dumping measures, countervailing duties, safeguards, trade remedies of all these kinds, and their problem is that there are WTO rules that indeed we helped write as Americans and to which we agreed, and you have to comply with those rules under the WTO Agreement. And the United States has often not done that, the Appellate Body has told them no, and they don’t like that. They want really to be the judge and jury in their own cases, and that’s wrong, that undermines the rule of law, and I have repeatedly criticised my fellow Americans who are in positions of power for doing this, because it undermines what we’re supposed to be about as Americans in terms of building and upholding the international rule of law in the world.
It simply relates to trade remedies. Why are trade remedies important? As Carla well knows, and some of you may know, it has to do with the outcomes of Presidential elections and Congressional elections in terms of who’s President and who controls the Congress. It has to do with Pennsylvania, Ohio, Michigan, Wisconsin, and one or two other states that are pivotal in the outcomes of elections, where there are smokestack industries and other trade-exposed industries that want protection and seek it though trade remedies. And the United States simply wants not to have to answer internationally for whatever it does in the application of trade remedies. That is all it is about. There is not one other member of the WTO that thinks that the Appellate Body is guilty of all the various sins that the United States has accused it of.
Creon Butler
Thank you. Maybe, Emily, I could come in on the technology question. I know that TPI’s done quite a lot of work on technology generally, but what’s your view, does…?
Dr Emily Lydgate
Are you asking me about grey warfare?
Creon Butler
Well, I think it’s up to us to define what grey warfare is, ‘cause I’m not entirely sure myself, but why not – either of the two questions, technology and grey warfare, so technology first.
Dr Emily Lydgate
I think I’ll take technology.
Creon Butler
Right.
Dr Emily Lydgate
So, I mean, in a sense, I think we can, kind of, approach this almost, if I understand the question correctly, from the other side and say, you know, we’re very concerned about, sort of, building resilience, but in a way the lack of resilience is a measure of the failure of – to maintain the degree of interdependence that we’ve achieved. So, we have so much, sort of, concern about the state of globalisation but, you know, if we just, like, look around the room and think about, you know, where the clothes that we’re wearing come from and the chairs that we’re sitting on and the table, you know, in front of us, you know, globalisation is doing quite well and supply chains are incredibly well-integrated.
And the WTO has been very successful in helping to facilitate that, so – and actually something like the crisis with Russia, I think, reveals the extent of our independence and the amount that it hurts to isolate one member of the global community, how much it hurts economically, I mean, we’re really feeling that in Europe, it really underscores the importance of the global economy. So, I think the problems that we’re looking at now are problems of interdependence, and I don’t see the – sort of, the, you know – if we think about the US and China, you know, there’s so much friction there but it’s very difficult to imagine a world in which those countries weren’t also incredibly symbiotic.
Creon Butler
The technology’s not going – technological development is not going to take interdependence away. If anything it may go the opposite direction in this, yeah.
Dr Emily Lydgate
Yes, exactly, yeah, I mean, look at TikTok, you know. They have the American adolescents in their pocket, so – you know, so I think it’s important for us to see, sort of, how much the WTO has accomplished as well as criticising it.
Creon Butler
Great. Ambassador Hills, I come to you for your final comment, I mean, really on any of the questions we had, but if you, if you’re willing to attempt the grey warfare question, which I think is essentially – so, grey warfare, as I understand it, is basically actions that are part of warfare but not outright military action and things of that kind, and whether as a response to that there should be, sort of, provisions within the WTO that enable one to response to that without conflicting with WTO rules. I think that’s the way I’d interpret that. If you want to tackle that question, please do, but equally you may want to comment on any of the other questions.
Ambassador Carla A. Hills
Yeah, I think that – on the resilience question, that it makes sense for us to look at what is an essential pipeline and – supply line is what I mean, and to be sure that you’re not going to be caught flat-footed, and – but that doesn’t mean onshoring, it means – it’s just a different way of making your purchases. You do the same thing in your kitchen. If you thought that at a given time you couldn’t buy any more eggs, you buy a few more. If you knew that you could buy someplace else, you’d go to that someplace else, so it’s just – you know, it’s driven.
I’m hopeful that we can handle our relationship with China. Again, I wish that we could bring back the diplomacy of President Bush Senior, who handled the problem in Tiananmen Square brilliantly, but it does present a lot of problems, and I don’t think that name-calling helps. I think that more frequent, small-level, high-level meetings are helpful. When you stop to think about it, the first in-face virtual meeting that President Biden had was in November, after he’d been elected. That’s a long time to wait with the second-largest economy in the world, and that we haven’t made it a priority.
Again, I say his inbox is overflowing with problems, but some of these things that you don’t address can turn from problems into tragedies. Let’s hope that we don’t do that this go-around.
Creon Butler
Well, thank you very much. Well, I’m afraid we’re out of time, and firstly, I would like to thank our three panellists for some tremendous comments and responses to some very difficult questions. So thank you very much for being with us, and for helping us get insights into the enormous challenges facing the WTO.
I’d also like to thank our online audience, and also our audience here in Chatham House, and invite you all who are here in Chatham House to come and join us for a drink, which is the great thing about, you know, the end of the pandemic and the lockdown, and so on, that we can do that. Unfortunately, Ambassador Hills, you can’t join us, but hopefully you’ll be with us at some point in the future. And with that, thank you very much, everyone. Thank you.
