Creon Butler
Well, welcome, everybody. I’m Creon Butler, Director of the Global Economy and Finance Programme at Chatham House, and it’s really a great pleasure to welcome you to the discussion on the implications of COVID-19 and the future of global trade systems. COVID-19 has led to an unprecedented economic shock. Just to look at the most recent IMF forecast, $10 trillion has been spent so far, and global GDP is forecast to drop by nearly 5% in 2020. This, in turn, is having a profound effect on world trade and on the world trading system overseen by the WTO, and it comes at a time when the latter is particularly vulnerable, given ongoing US-China tensions and other pressures from technology and climate change.
We’re also in the process of selecting a new leader for the WTO, with nominations due to close next Wednesday, so it is a very good time to look at this question, and we have excellent panellists to help us do so. First of all, we have Shawn Donnan, who is a Senior Writer for Bloomberg News where he covers world trade and globalisation. He joined Bloomberg in 2018 from the Financial Times, where he served most recently as World Trade Editor. And we also have Marianne Schneider-Petsinger, who is a Senior Research Fellow in the US and Americas Programme at Chatham House. She focuses on the nexus of political and economic issues, and has masterminded the Chatham House Global Trade Forum, and, prior to joining Chatham House, she has extensive experience working on transatlantic issues, in a range of think tanks, and has also worked in daily government.
Now, each speaker is going to kick off with a intervention for five to seven minutes, with Marianne going first, and then we’ll move to Q&A, and if I make a few housekeeping points first. The event is on the record, it’s being recorded, and a recording will be available subsequently. For the Q&A, please submit your questions throughout the event using the Q&A function, and don’t please use the chat function or the raised hands function. I will then be able to monitor on the Q&A the questions that you’ll be putting, and we will have a hard stop at 2 o’clock. So, with that, Marianne, it’s over to you for our first set of introductory comments. Thank you very much.
Marianne Schneider-Petsinger
Well, thanks for having me, and I think there is so much to cover that perhaps, in my opening remarks, I want to focus a bit more on, first of all, what the impact of COVID-19 on global trade flows has been, and, second, turning to the immediate trade policy responses, and then, thirdly, kind of, providing an outlook for what the key challenges are ahead. So, with the first point, you know, COVID-19 really has presented an unprecedented collapse in global trade. The World Trade Organization, in April, estimated that global trade would collapse by between 13% and 32% in 2020. Obviously, that’s a huge range between the more positive and the more negative scenario, but the most recent figures luckily show that we are probably able to avoid the worst-case scenario.
Nonetheless, we are facing, again, an unprecedented trading collapse, much worse than the trade collapse that was dubbed The Great Trade Collapse of 2008 to 2009 when trade fell by about 15%. And, again, a key difference between now and 2008/2009, was back then it was predominantly on the demand side, whereas now we’re seeing a shock on the demand and the supply side. I think, you know, key difference is also that we’ve now seen supply chains being disrupted and that contagion spread throughout that really wasn’t one of the key factors about a decade ago.
In terms of the immediate trade policy responses and global co-ordination, I think the verdict is very, very mixed. Trade restrictive measures have been put in place by a number of countries such as, you know, imposing export bans on personal protective equipment or on ventilators or medicines, as well, and, broadly speaking, the WTO permits certain amounts of flexibility for countries to deal with health crises, for example, or other national security issues. But there’s still a requirement, so those measures, you know, have to be transparent, they have to not unnecessarily restrict trade, and they also have to be temporary, so the key question going forward is to what extent those measures will be phased out.
Again, as a positive sign, we’ve just seen the recent data that about a third of those restrictions that have been put in place in the, kind of, immediate reactionary phase to the crisis are being now phased out. Another positive sign is that countries haven’t just put in place trade restrictive measures, they’ve also actually taken steps to liberalise trade, for example, by eliminating or reducing tariffs on critical goods to fight COVID-19. Countries have also taken efforts to speed up transport and customs controls, so, again, those have been quite positive steps.
Global co-ordination, again, here it’s very, very mixed. The G20 has issued statements and the WTO, as well, but it’s been predominantly just consisting of declarations of a common purpose rather than really taking action. So, WTO does have, to its credit, in the Secretariat here in particular, stepped up the monitoring and the transparency information-sharing around those trade measures that countries have put in place.
But, you know, the natural fit for really taking more collective action would be the WTO, but, because the WTO and its 164 members are really facing a make or break moment and are under pressure, most of the action has actually happened at the level of coalitions of the willing and prolateral initiatives. I think, in particular, it’s noteworthy that medium-sized countries have taken leading efforts on that front, for example, Singapore, and New Zealand, that drove forward an initiative for a new plurilateral agreement on medical goods. Canada also stands out with its leadership of the [inaudible – 09:30] Group and setting out initiative to deal with agricultural trade and keeping that open.
Now, in terms of the challenges ahead, I think what will be critical is to really take a staggered approach. In the short-term, that should consist of monitoring those trade restrictions that countries have put in place and the impact that COVID-19 continues to have on trade, but it will also very much be centred on appointing a new Director-General in the short-term. Now, over the medium-term, with the leadership of a new Director-General, I think stabilising the system should be a key priority. Here, you know, it will remain focused on encouraging countries to remove those export restrictions, building those coalitions to drive forward new initiatives around an agreement for medical goods, for example, but I think it will also very much focus on increasing the resilience of supply chains, and I think here, again, we’re increasingly seeing calls for reshoring or at least the nearshoring.
Other efforts really much could also centre on increased diversification of supply chains and stockpiling, and I think, as we’re entering this era of also industrial policy, that will very much be a question for the long-term steps, as well. So it will be, in the long-term, picking up the WTO reform agenda again, in dealing with issues such as digital trade, creating really new rules for 21st century trade, making sure that trade and the environment are more aligned, but then also really dealing with this new element of subsidies that we have seen being introduced in the wake of COVID-19. I’ll leave it there. Thank you.
Creon Butler
Marianne, thank you very much. I think that sets out very clearly how, you know, there’s a big set of challenges the WTO was already facing, and then, on top of this, we have a new set coming from COVID-19 and the real challenge in the future that’s going to be addressing both of these together. So, Shawn, over to you for your introductory comments.
Shawn Donnan
Yeah, I’m most excited that I just remembered to unmute before starting to speak, which is, I guess, the great lesson I’ve derived from three months of lockdown so far. I – look, I think we are at this really awkward time in global trade, there’s no doubt. We’ve had this, kind of, unprecedented paroxysm, we’ve – you know, the global economy has, kind of, switched off, I – and I think the best way of thinking about where we are now is that there was a kind of intentional flicking off of the light switch, or at least a turning down of the dimmer switch and in terms of globalisation, we’ve seen that in terms of travel. Astonishing number that’s come out just in the last few weeks, there’s prediction from UNCTAD in Geneva of a 40% decline in foreign direct investment this year, which takes us back to levels that we haven’t seen in a decade or more.
I – so, I think there’s no doubt that we are seeing all of these, kind of, measures of globalisation, you know, being challenged, and the global economy is really at a difficult time, we know that. The question I face every day in writing about this stuff, and, actually, what I’m doing increasingly is not writing about it because I feel so uncertain about some of what’s – what I’m saying, is how do you distinguish between a – kind of, the public health response, if you will, a very rational policy response, in terms of locking down economies to address a pandemic, and the actual economic signals that we’re going to take out of this, you know, there’s a – we’ve seen a lot written on the death of globalisation.
But how much of that now is really – of what we’re seeing now is a factor of, or a result of, really a public health response, a very rational public health response? And once that public health crisis has passed, what are we going to see? How’s the global economy going to emerge? How will globalisation emerge? I think that’s a really hard thing to predict, and one of the reasons it’s really hard to predict is because there’s so much uncertainty over big policy questions. I think the biggest one out there right now is exactly what is going to happen, in terms of the US election. I think there’s too – you know, it’s hard to see an election in recent history, in terms of the global economy, or a US election, that will have – that really offer such diverging paths, in terms of policy for the global economy.
Well, let’s set aside the US-China relationship for a bit, but if you just look at, in terms of engagement with the rest of the global economy, you know, and, to be slightly cartoonish about it, you know, if you’re talking about Donald Trump, you’re looking at a – really a doubling down on this, kind of, protectionist path that he has taken the US down, a disengagement with the international system, and that continuing, perhaps even accelerating. And, on the Biden side, you know, if Biden wins, you talk about a reengagement, potentially, certainly with the international system.
Yes, it’s hard to escape the fact that there are going to be tensions between the US and China whoever wins, and that that will have an effect on economic relationships, and those are two – that’s a very big and important economic relationship. But, you know, you can see two very different paths there, and, really, you know, Biden’s leading in the polls right now, but those of us here in Washington know, and really the lesson we took away from 2016 is do not believe the polls in June or July when you’re predicting the results of an election.
So, there’s that source of uncertainty, and then, of course, you know, when I’m engaging with Chatham House, I have to mention Brexit. That, clearly, we – they still don’t know what the UK’s trading relationship is going to be like with the EU. That’s important, the UK is a G7 economy. The EU is an enormous trading block and an enormous part of – you know, an enormous hub, in terms of globalisation. So, you know, we have these two things that, in the next few months, could change quite dramatically.
And then there’s really a – the other question that I think about increasingly is whether, when we talk about globalisation, really, what we’re often talking about is the question of global economic governance rather than the question of globalisation. Who heads the WTO is a question of governance, it’s a – it’s important, and so on, but, actually, you know, let’s remember that globalisation in many ways is a result, or – in almost all ways, is a result of personal decisions made by consumers, it’s a result of investment decisions and supply chain decisions made by companies. And those are largely based on, kind of, some very simple and crude economics, and that is, you know, where can I sell more? Where can I buy – where can I get – and, you know, if you’re talking about the Donnan family today, where can I get that pool to put in the backyard right now? And that is Amazon, and Amazon may be sourcing it from China, and we are hoping desperately that that pool will arrive today, so that the kids can cool down today. That’s a – you know, that’s a consumer choice, in terms of globalisation.
So, you know, we then have this – you know, there’s this big conversation over efficiency versus resilience, in terms of supply chains that we’ve all engaged in as a result of the fears overprotective equipment and the access to things like masks and ventilators. One of the, you know, astonishing things that isn’t talked about as much is how quickly a lot of companies have been – and a lot of countries have been able to address those fears. In the US, to ramp up domestic production, for example, to the point where Donald Trump now boasts that the US has excess ventilators that he can export to the world. That’s a very quick turnaround inside of two or three months, which is remarkable.
We talk about reshoring, we talk about the rebirth of industrial policy, and yet we haven’t really seen a rollout of those industrial policies yet, and, you know, when will we? That’s a question that’s partly driven by the – you know, that uncertainty that I was talking about there beforehand. The – you know, and then there’s the whole question that I’ve been thinking about for years, and that is what do we mean when we talk about globalisation and trade? I think, you know, we often get caught in this, kind of, 19th Century vision of trade as a trade and commodities and goods that are produced in a single country. And, yes, you know, we’ve got more sophisticated, in terms of talking about that, when it comes to talking about global supply chains, and so on. But, really, you know, the measures of trade, the data that we use to measure trade, still is not good enough, in terms of actually offering us a picture of where the value is really added.
I mean, for years, we’ve been talking about the iPhone as an example of, you know, where the value really is, and what would happen if you apportioned it properly to the US China trade deficit, for example. But then, you know, there’s digital trade. I mean, we are engaging in a – you know, me here in Washington, you there in London, are engaging in an active globalisation that just wasn’t possible, even a few years ago. My kids today will spend way too much time playing Fortnite and looking at TikTok videos, those are acts of globalisation, as well.
And then just finally on – kind of, as we think about this, and the dynamics that are playing out, you know, one of the ironies of this crisis is that, actually, you know, recessions here in the United States have been the best way to reduce the US trade deficit in the past. We’re seeing something similar around deficit countries in other parts of the global economy. I was just looking at a note from Robin Brooks, the Chief Economist of the Institute of International Finance, too, who makes the point that, in the EM – in EM economy – sorry, in emerging economies, we may very well see, you know, a compression of trade deficits. That takes us – that whole picture of imbalances may be changing as we’re talking about this.
And then I – you know, I come back to the WTO, and there is no doubt that there is a crisis of relevance right now at the WTO, and that that crisis will endure, you know, past the Trump administration, I think, or past the first term of the Trump administration, obviously it depends on what happens in the US election. But I think we need to remember also that, really, we are – you know, it has been a decade or more of existential crises at the WTO. We need to remember that Roberto Azevêdo’s appointment was actually a reaction to a crisis at the time, which was a refusal to accept or to move on from the Doha agenda that was attributed, in part, to Pascal Lamy, at least that’s the case here in Washington. You know, the feeling was that he was just sticking this thing out for too long, and the Obama administration at the time was pushing this move to plurilaterals and regional agreements as the way to unlock the negotiating agenda.
Now, I tend to think of the WTO as an awkward teenager, and teenagers tend to have existential crises, that’s part of being a teenager, and discovering your place in the world, and I think the WTO is still doing that. I’m just going to throw this out there, in terms of the race for Director-General, and, yes, there is a big question over who will lead. There’s some imminent candidates who are out there, and so on, but I think we should also get ready for the possibility that we don’t get a consensus on a new Director-General, and that that kind of limbo, that teenage angst period, that transition to a new leadership at the WTO, may last well into 2021. So, I’m just going to leave it there for now, there’s lots more to say, but hopefully that gets us started.
Creon Butler
Shawn, thank you very much, and thanks to both of you for setting out the agenda for today so well. I’d just like to encourage everybody who has a question to post it through the Q&A button, and then I’ll be able to pick them up. But while you’re thinking through your questions, I’d just like to come back to the Director-General question, and particularly around this question of the kind of individual that, you know, is going to make most sense in the present situation. And, you know, people have spoken about, you know, somebody who is a – you know, a real expert on trade policy, and, you know, has that kind of background. Alternatively, you could go for somebody who has much more of an international political profile and so on, or, you know, in the ideal world, you may have combination between the two. But, Marianne, would you like to say a little bit from your perspective about this key question that’s coming up? I mean, we have, I think, the nominations, as I mentioned, closing next week, and then there is quite a lengthy period for this election process, so it’d be good to get your view on that.
Marianne Schneider-Petsinger
Sure. I mean, I think you’ve alluded to it already, that big question of do we need somebody that’s more technocrat or somebody that’s really a political heavyweight? And I think, in this environment that we’re in, going for somebody that’s a political heavyweight is the wiser choice because we need – what will require not only finding a consensus to, first of all, you know, come up with who will be the next Director-General. But then, beyond that, to tackle those issues that have been on the WTO reform agenda for a while, such as, you know, overcoming the appellate body stalemate, but also other issues around, you know, fishery subsidies, and really driving forward also some prolateral issues will require somebody that has quite diplomatic skills, in particular, as we’re in this environment between the US-China trade and technology competition. So, somebody that can really, you know, kind of, balance between the sides.
I think there’s other issues as well, you know, not just in terms of, you know, the key, kind of, qualifications, but there is always, to some extent, the question of where the candidate comes from. There is no formal requirement for a geography. But we’ve never had a candidate from Africa, for example, be successful. That will be a key consideration, even though, in the past, there has generally been a, kind of, back and forth between somebody from a developed country and somebody from a developing country. So, some voices in the United States and the European Union also say it’s time again for somebody from a developed country, so that, again, will be a consideration, as well.
Creon Butler
Thanks very much, and Shawn, your view on this key question. And I think, in particular, you know, if you were sitting in one of the – you know, the trade ministries of key players, you know, what, in particular, would you be looking for, both in terms of characteristics but also policy outlook, in relation to this key role? Thank you very much.
Shawn Donnan
Yeah, look, I think there’s no doubt that a strong political player, someone who’s high profile and is astute, would be wonderful, in terms of leading the WTO. I think the power of individual leadership, if you want to understand it, just look at what happened to the IMF when Christine Lagarde took over. She immediately turned the IMF into a much more high profile and politically savvy and responsive institution, and that was a really – it’s hard to overstate the power of Christine Lagarde and the personality of Christine Lagarde, in terms of that. It would be wonderful if Christine Lagarde, herself a former Trade Minister, left the ECB and went to Head the WTO. That would be great for the WTO, but we’re at a moment now where the question isn’t what is the rational choice or what is the right choice for the WTO? The question really is, what are the members going to accept?
And the US – you know, Bob Lighthizer has a very different conception of what he wants to see and who he wants to see at the WTO than Phil Hogan in Brussels, or the Chinese, or the Japanese, and, I mean – or even the South Koreans. So, I think the – you know, really, when we look at this race, it’s – I can’t see yet the consensus candidate. That may emerge, in the next few days, but that takes me to a place where I think you never get to a consensus over the next few months. We get the appointment of an acting DG, perhaps one of the current Deputies, and that, kind of, shepherds us into 2021, and a longer attempt to fill the spot. But it’s hard to see Bob Lighthizer and Phil Hogan getting on the phone and saying, “Okay, let’s go for X,” you know, and right now.
Creon Butler
Thank you. Yes, I think it’s going to be a fascinating process. So, we’ve got a number of questions coming in. One question which I think is, you know, a valid response to us – our introduction is saying, well, okay, fair enough, this is an unprecedented situation, but there are – we have had enormous crises in the past, I mean, 2010, you can go back to the 1930s. Surely that is telling us something about the world we’re in today and what is needed and what isn’t needed, in terms of policy response, either by individual countries or by the system as a whole. So, is there anything you would like to draw from, you know, past experiences that you think is a really important lesson for people in the trade policy space today? You know, whether in broad sense or more a technical ques – sense. So, Shawn, would you like to have a go at that one first?
Shawn Donnan
Look, I mean, the obvious and ominous comparison is to 1918, and the pandemic then, and if you look at, you know, the 1920s, the roaring 20s, that come after it, but then are followed by the 30s, that’s pretty depressing and will let us – will lead us all to, kind of, go back to bed and put our head under our sheets and just, kind of, cry a little bit. The – but I think there’s another comparison and this is more broadly – and, sort of, taking the pandemic out of this, to a certain extent, and that is looking at the 1980s, in terms of US trade policy and a much more aggressive trade policy, with regard to Japan.
In fact, it’s what Bob Lighthizer has in mind, or had in mind, when he took the job of USGR, he wanted to go back to a – what he saw as a more pragmatic and a focused approach to trade policy in the 1980s and the use of voluntary export restraints, although he won’t acknowledge that, the use of 301 cases to impose tariffs and, kind of, try and force negotiations, and so on. But we all know that the reaction to the 1980s, there came the 1990s, and a great era of trade liberalisation, the creation of the WTO, you know, the culmination of the Uruguay Round, NAFTA, eventually China’s access into – or accession to the WTO. I – so, I look at the 1980s as a closer analogue to where we are now, and you can see it in the polls here in the United States.
Strangely, NAFTA, which, you know, came to an end yesterday when it was replaced by the USMCA, which is 95% NAFTA really, and just, kind of, perpetuates this North American trading block that we’ve had before it. But NAFTA is more popular than it’s ever been in polls here in the United States. Free trade is more popular than it’s ever been in the United States. And it’s more popular among Democrats who, in the past, have been the key sceptics in the conversation – the political conversation here in the United States. So, the politics of trade have evolved over the last four years in a way that we haven’t really gotten our hands around, and it’s the same thing – you know, we’re seeing the same thing in Europe. We’ve already seen it in terms of the reaction to the export controls that were imposed on the pandemic. Very quickly, we saw people, kind of, pulling back on that.
We’re now also starting to see, when it comes to the discussion of supply chains, people go, “Well, actually, you know what? It was good to be able to get a lot of masks quickly from other places, even if we have had some kind of quality constraints,” and so on, and we need to be careful about relying too much on domestic production. So, you know, I think this – everything is evolving quickly, and I st – I really still feel like we haven’t – don’t have a great handle on it.
Creon Butler
Thank you, and Marianne, did you want to have a crack at that question?
Marianne Schneider-Petsinger
Sure, perhaps not focusing so much on, kind of, you know, the historical precedence or a similar experience because I do think it’s unprecedented, but perhaps drawing a bit more on some of the pre-existing trends of trade and also particularly for supply chain stresses that COVID-19, in my opinion, is really accelerating. So, if you’re looking, for example, at some of the geoeconomic and geopolitical tensions of the US-China trade and technology competition, for example, I think, you know, we’ve had that for the last two years where companies already will be configuring their supply chains now that COVID-19 and the, kind of, blame game between the United States and China is adding additional stresses on that. I think that increases again the geopolitical risks that we are facing on supply chains.
Technological developments, again, predate COVID and the trends that are really shaping the future of supply chains. If you’re looking at 3D printing, for example, or blockchain, all of those forces were already, you know, kind of, making companies think to nearshore and to produce closer to the final consumer. And then, finally, also, environmental considerations are key, consumerists are much more conscious and aware of where their goods are being produced and have a preference for greening supply chains. So, again, that was predating COVID-19, but, again, now that we’re in this space of really rethinking supply chains, that will be coming to the fore again.
Creon Butler
Thank you very much. One key feature of the past 20 years or so has been the growing demand for consultation around trade policies and, indeed, the WTO itself has, you know, been a focus of unhappiness, several occasions. I mean, you go back to Seattle, as has been mentioned, and so on, about, you know, a perception that it’s not inclusive and yet, in some ways, the WTO, and since it’s a consensus-based organisation, is more inclusive than some of the other international organisations that we have. But when you look at this challenge now, and it’s a growing challenge, and there’s extra elements coming from the experience with COVID-19, I mean, what do you think, in terms of the future evolution of the WTO and the world trading systems? What do you think are the really important steps that need to be taken, in order to respond to this desire for a greater inclusivity, and is it something that is, kind of, at the global level, or is it more what individual countries do, in terms of how they interact with that kind of global system? Marianne, would you like to go first?
Marianne Schneider-Petsinger
Well, I think the key role with the WTO can make and has already made a key contribution is really on that question of monitoring and providing transparency of the measures that countries are introducing. I think that question is also very closely linked to, you know, development issues, and I think here, there has been, as part of the WTO reform efforts, an increased emphasis on developing country status, for example, so that, I think, is a key area again for a broader WTO reform. But I think it’s not just, kind of, at the multilateral level. Increasingly, those issues are also coming up in bilateral free trade agreements, for example, you know, just looking back at my experience covering TTIP negotiations to US-EU, trade negotiations that really didn’t go anywhere, as Trump was elected, but was in trouble even before then, with the key issue really being about stakeholder engagement and who has access to documents and can comment on those. But also, other issues very much linked to investor-state dispute settlement and, again, questions of litigation. So, I think there is lots of lessons to be learnt on those fronts.
Creon Butler
Thank you. Thank you very much, and, Shawn, how would you define, if you like, the inclusivity challenge and how – you know, how should we respond to it in, terms of the future evolution of the world trading systems?
Shawn Donnan
Look, I think the – you know, the biggest challenge that advocates for the global trading system have is still one of explaining and transparency. It is still too opaque, it is still too acronym-laced, it is still too turgid in a way. We – you know, the case for trade for consumers just hasn’t been made in a successful way, and that trade-off between consumers and those who suffer from competition from trade still hasn’t been resolved. Here in the United States, you know, we still don’t – it doesn’t feel like there have been real policies to address those people who have been left behind, and this is, you know, four year – after almost four years of an administration by a President who put that at the centre of his re-election, or his election bid there. And, you know, I think he will talk about USMCA on the stump as one of his great accomplishments and a – and the death of NAFTA, but it is – it’s really the same thing all over again, with a few tweaks, that really aren’t going to fundamentally change the dynamics in places like Youngstown, Ohio, or, you know, these famous manufacturing communities that have been hit hard by globalisation, and a loss of manufacturing jobs here in the United States.
So, I – you know, I think, you know, if you go to the public forum in WTO, or if you had been going there for – over the last decade, you would have always seen these panels on inclusivity and trade and sustainable development. You see the same things at the IMF and the World Bank spring and fall meetings here in Washington, Davos every year, we’ll have that same conversation, but we really haven’t moved beyond that conversation to actual policies that address the people who have been left behind, and so anything else, to me, is great, in terms of the debate and the rhetoric, but you need more action to prove the case.
Creon Butler
Thanks very much. Yeah, I think that’s clearly the case. Marianne, I think you were going to come back on this point, as well.
Marianne Schneider-Petsinger
Yeah, because I think that whole debate about the winners and losers is critical. I think, you know, in the past, when the case for trade has been made, it was predominantly only focusing on the winners rather than also acknowledging that there are, you know, losers from trade that tend to be quite focused in certain industries or in certain regions, and I think, you know, that debate has caught up but not necessarily then translated into concrete action. In the United States, we have trade adjustment assistance, for example, but it’s, you know, deemed highly ineffective.
There is also a question to what extent the kind of, you know, compensation should be focused on trade, and I think, to some extent, you know, those trade dimensions are very closely linked to issues of automation, for example, and if you look at certain studies, actually, most of the job displacements or the lost income has been as a result of automation and not necessarily trade. So, to some extent, trade has also been the boogeyman. And then, finally, I think, in terms of making the case for trade again, there is, I think, an increased emphasis on, you know, saying, well, exports are good, but imports are bad, when in face – in case, you know, there is also a strong case to be made for why imports are good as well, and I think getting that balance right is critical going forward.
Creon Butler
Thank you very much. One of the issues we’re seeing today is, if you like, alongside the challenges of global trade, you have other major global public good challenges. So, you know, climate change, global public health, clearly, the impact of new technologies and, to some extent, these are – these can be dealt with through other for a. But, even when that’s the case, there is an interaction with the role of the WTO, and, to some extent, their choices, how much you do in the WTO, how much you try and do in other fora. There’s also choices around do you try and take the universal approach or do you start with a smaller group, a plurilateral group, whether in the WTO or not, and, sort of, build out from that. So, these are, kind of, architectural points, and, to some extent, I guess you could say, it depends from issue-to-issue. But, Shawn, in terms of a generic approach to this, you know, really complex challenge of dealing with the interactions between trade and these other big global challenges, I mean, what do you think the approach should be? Put more into WTO or try and keep WTO as narrowly focused as possible on some of the things it can tackle?
Shawn Donnan
I think the trade world would always benefit from a bit of humility. I think we tend to overstate the role of trade policy in things, and this gets back to my opening point in terms of, you know, the real actors, in terms of globalisation are companies and consumers, but it’s not governments. That’s a governance question, that’s very different from globalisation and what’s actually happening in the global economy. The collapse in global trade that we’ve seen this year is a result of company decisions, and, yes, there’s a government public health decision there, but, again, that’s not a trade policy decision, that’s a public health decision, and that’s a great example of what’s there.
I think that, you know, if you’d sit down with Roberto Azevêdo, or if you had over the last few years, he would have told you that his great goal is to make the WTO effective but boring. In other words, it is – you know, the first – you know, the whole Doha idea of the great single undertaking of the multilateral trade round that solves everything, you know, it was called the development agenda, is – needs to be set aside and, instead, you need to treat, I think, trade with some humility and say, “Okay, we need to do something very targeted here on eCommerce.” Have in mind all of those bigger questions, in terms of climate change and the context that’s there, but focus it on these, kind of, plurilateral, sectoral negotiations, which has always been the push, or has been for a few years now, this is started under the Obama administration, the push for the US. People within the WTO – others within the WTO have recognised the need for that, and so focus on something very, kind of, limited, targeted, fairly dull and, kind of, procedural, but keep those going, and keep delivering them, and updating the rules in that way.
The trade and environmental goods plurilateral, you know, was one that was started. Now, trade and environmental goods, if you look at the, kind of, list of products, that includes bicycles, which is – you know, that’s good, and so on, but it’s also slightly disingenuous, right? I mean, it’s – you know, bicycles are not solar panels, right? There’s something we need to recognise there. So – but, again, the trade and environmental goods negotiation hasn’t delivered yet, and it needs to. So, it’s – I would argue, you know, again, humility, kind of, scaling back of ambitions, and a recognition of your lane and the context in which that lane is there, but the WTO is not going to solve climate change.
Creon Butler
Yeah, I think – I mean, drawing from your questions, it’s a really, sort of, interesting picture one gets, because, on the one hand, we need a, sort of, heavy-hitting, in a political sense, Director-General of the WTO, but one who is willing to focus on, you know, realistic, boring achievements, and, you know, this is a – you know, a combination that is made in heaven, to some extent, but, you know, I think it makes a lot of sense. Marianne, did you want to come in on that question, as well?
Marianne Schneider-Petsinger
Sure, because I think there’s two elements, really, to that question. One is the kind of bilateral versus multilateral or plurilateral world, and I think there’s always been debate about whether those bilateral and plurilateral initiatives can really – sort of, as a building block, or a more stumbling block for any multilateral efforts. And I think what we’ve seen recently, and, well, I guess, over the last decade, really, is that really there is only movement at the plurilateral level, so building those coalitions of willing to advance efforts for certain sectors.
So, I’m very much with Shawn on that, that, kind of, the plurilateral agreements are the way forward, but, at the same time, you know, just to throw out a word of warning, they’re not a cure-all. They still require trade-offs, and they still require the kind of key players to be at the table. So, for the eCommerce negotiations, for example, if India really isn’t part of it, then, you know, what are we doing this for? And even for the EU and the United States, I mean, coming to an actual agreement on eCommerce, it’s going to be quite challenging, given the different approaches and, kind of, views on privacy, for example. So, again, yes, plurilaterals are great, I think, you know, that’s the way forward, but it will not be easy.
And then, secondly, kind of, you know, what issues should the WTO cover? And I think, well, broadening it out to really remain relevant to cover environmental issues, for example, is critical, but, you know, as Shawn mentioned already, that actually delivering on some of the key initiatives that were set out already is the starting point. So, getting an agreement on environmental goods, delivering on fishery subsidies, for example, would be important. At the same time, you know, if you overburden the WTO with all of those issues that are trade-related, you could risk that you overwhelm the trade body that’s already facing multiple burdens. So, it’s going to be striking that balance between broadening it out to stay relevant, but not overburdening it too much that will be a very important challenge for the WTO going forward.
Creon Butler
Thank you. We have got two interesting questions that I’d like to put together ‘cause I think they’re, sort of, related, and the, sort of, first part of the question is, you know, what do the big countries really want? I guess US and China in this sense. I mean, do they want free trade or – you know, or something else, managed trade or something of that kind? Because, you know, if you – if we don’t understand that properly, then, you know, this rest of this discussion, you know, becomes much, you know, less informative, in a way. And I guess that bears specifically on this question of the US election, so, you know, in a world where there’s a change in administration, you know, is a new US administration going to be serious about trade in a way that the current one isn’t? And then linked to that is, well, what does that mean for the key issue of the dispute settlement appellate body, which is, if you like, the focal point of the crisis in the WTO at the present time? So maybe you could, sort of, look at first the, kind of, what do the big countries want, and then how that could translate into possible scenarios for the appellate body. Shawn, do you want to have a crack first?
Shawn Donnan
Okay, I’ll do that 20 in seconds. The – look, I don’t know what China wants. I – if – in terms of the global economy. I really have a hard time figuring out what Donald Trump wants, you know, just read his tweets every day. They’re not necessarily – you know, there isn’t necessarily a straight and – line of analysis that you can have, that we’ve had him oscillate back and forth, in terms of the relationship with China. You know, he has intervened at points just in the last few months to say to his advisers, “No, actually, I want to sell to China, I want to sell more to China. So, this whole idea of national security and export controls, I need you to reign that in,” and then, you know, shortly thereafter, his advisers, rollout more export controls.
So, I – you know, it’s really hard to figure out what the big economies want there, but I think what you – but you can look at the very simple question of their interests, and that, in both the US and China, there is a common interest right now in boosting the domestic economy and restoring jobs, you know. We’ve just – while we’ve been on screen here, we’ve had the jobs figures come out in the United States, slightly better than expected, but still, you know, there’s a lot of jobs that still need to be recovered in the United States, and how do you do that? And there is always, in an election year, a push for more protectionist policies and for, kind of, buy America spree, and so on. And then you get into the first and second years of an administration and, inevitably, it, kind of, normalises back to a more engaged path, and we did even see that with Donald Trump. You know, he did not kill NAFTA, he, kind of, renamed NAFTA, and I think that’s important.
The appellate body gets at something else, which is, you know, the other thing we need to disentangle is the, kind of, US policies that are Trump-specific, and the tactics that are Trump-specific, and those that are going to last beyond. So, I think, for example, right now, US-EU relations on trade are dominated by two things. One is the digital services tax dispute and the US reaction to that, the push to eventually get some tariffs in place to try and force a capitulation in Europe when – on their own tax policy. I’m not sure that’s going to work, but I am also not sure that that tension is going to go away if Joe Biden is in the White House. You know, that is a US administration going to bat for some of its corporate champions, the Amazons, the Googles, the Facebooks of the world. That’s not going to change.
Secondly, the Airbus-Boeing saga, which has now, kind of, gone through three different administrations. Bob Lighthizer right now is doing what the WTO said he could, which is impose tariffs on the EU as, you know, he’s acting under the rules. This is restitution for wrongdoing in the past by the EU for illegal subsidies, and that’s not going to change. There is no administration, there’s no President who’s going to come in power in the United States who is going to – who is not going to go to bat for Boeing, an enormous employer here in the United States. And the appellate body – you know, Bob Lighthizer has a different view of the appellate body than some of his predecessors, but no-one in Washington likes what the appellate body had become, and of – you know, there’s a pretty clear bipartisan consensus that the appellate body was, kind of, played by overreach there.
Now, you are more likely, I would have thought, to get an engagement from a Biden administration than a Trump administration, than a possible reappointment of the seven Judges. But anyone who thinks that that is suddenly going to happen in January 2021 needs to pause for a second because it’s very likely, for example, that a new US trade representative may not be in place until May or June of 2021. It’s very likely that this isn’t necessarily the top item on the agenda for that US trade representative. There’s a big issue with China to deal with that’s going to consume a lot of brain space. So, I think, you know, you need to be ready for the appellate body to be dormant for a number of years, and, at some point, you know, there will be a renegotiation of its role, and a series of reimport – reappointments, but, you know, to say that that is going to happen before 2022/2023, is, I think, overly optimistic.
Creon Butler
Thanks very much. Excellent. Marianne, did you want to say more in that area, or…?
Marianne Schneider-Petsinger
Sure, perhaps starting with, you know, what does the Trump administration want? I think, you know, free and fair trade is the buzzword used, even though it’s not quite clear what exactly that means. But I think, ultimately, the steps that Trump administration has taken on the trade front has been with the aim of getting jobs back to the United States, which has not been successful, and it’s doubtful if it’ll ever be successful because, even if, you know, manufacturing is brought back, it’s not going to be essentially in those sectors. Again, automation will be the key factor.
In terms of the actual, kind of, priorities, priority obviously in getting a deal with China, we now do have a decent paper, a US-China Phase I deal, which is, you know, facing a number of challenges, even before COVID hit, to actually deliver on the key challenges that China poses to the US. So, I think, even within the Trump administration, there is those that focus on what the real issues are, which are concerns about intellectual property rights, forced technology transfer, for example, industrial subsidies, versus those that focus more on the trade deficit and the managed trades of emphasising getting a deal over soybean exports, for example.
Another element was always renegotiating NAFTA. As we know, that has happened. It is 95% NAFTA, but in effect now as the United States-Mexico-Canada Agreement, and so, in a sense, I think that frees up some space to focus on some of the other priorities. A deal with Japan was struck, but it’s not really a deal, a comprehensive deal, so there will be more on that front. But I think, for Europe in particular, that means that, for better or worse, I think a Trump administration will focus on progress there, whether that means, you know, really hitting down on the questions of – and of a digital services tax, I think, is quite critical.
Now, with regards to the appellate body, again, a lot of the concerns that the current administration has raised predated Trump administration. Actually, the Obama administration was the first one to block the appointment of a US member. The key question is, you know, how do you translate that actually into action? And I think here, again, it will be quite critical of, you know, what other parties are doing, as well, in response to the continued blocking by the US to the appellate body, and here, the European Union has taken great steps, and, you know, launched those initiative of the multiparty interim appeal mechanism.
But it raises other questions, to what extent, you know, this interim, even though it’s interim, mechanism will stay in place permanently, because, just like Shawn is concerned about the appellate body, kind of, being – not functioning, I also think that it’s not going to be revived anytime soon, and, again, future administrations, you know, might be more amenable to perhaps making an appointment. But the concerns aren’t going away, and many of the concerns that a Trump administration has raised are legitimate. It’s just that there is a lot of, you know, questions around to what extent the steps that have been taking are really the right ones. And building a coalition to actually also address those concerns regarding China will be critical, and I think here, the United States really should work with the EU and other cities, Japan, for example, to build on steps that have already been taken to address industrial subsidies, for example.
Creon Butler
Marianne, thanks. Well, unfortunately, we – we’re almost out of time, but I wanted to conclude with one, sort of, mega question, if you like. So, you imagine ten years forward from now, and we’re here again, hopefully, the three of us, and we’re talking about the world trade system in 2030, and do you think we’ll be looking back at the past ten years and saying, “My goodness, you know, we have a much stronger, much better, much, you know, more effective global trade system, you know, that grew out of the crisis of 2020,” or do you think we will be saying, “Well, you know, where is the WTO, where is the world trade system?” I mean, which way – if you have to choose between the two, not in the middle, which would you go for? Shawn.
Shawn Donnan
Well, you know, this gets back to that question of uncertainty I raised at the very beginning. Tell me who wins the US election in November, and I’ll tell you where we are in ten years with a pretty high degree of confidence. But I think there’s – you know, in terms of the WTO, there’s a clear path towards reform and, you know, kind of, reenergising the negotiating function that could come out of this crisis, and a move towards an acceleration of plurilateral negotiations and sectoral negotiations, so that, ten years from now, you know, we don’t think of – you know, we’re not talking about an existential crisis at the WTO, we’re just thinking of it is as a, kind of, really – that dull functioning member of – or institution, in terms of global governance.
I think the alternate path is that the WTO becomes a – kind of, a, sort of, semi-dormant UN agency staffed by well-meaning technocrats that is, you know, really ineffective, in terms of doing anything other than issuing reports, and I think that is a – you know, that’s a more daunting proposition. I think either way, though, we are – you know, get back, just finish with that divide between the governance question and the real path of globalisation question, and I don’t see a US company today, you know, that is saying, “I do not want to sell in China.” And, until you see that fundamental economic proposition change, and I don’t see any signs that it is, then I think – or India, for that matter, I don’t think globalisation is going to die. It will morph, it’ll change, it’ll continue to evolve, which is exactly what it’s done for 2,000 years, and that’s – it’s there, it’s a force, it’s not changing. So, ten years from now, I think we will – we may have another discussion about the death of globalisation, and it will be another discussion, which I’ll argue that discussion is premature, or that argument’s premature.
Creon Butler
Shawn, thanks very much, and Marianne, the final word from you.
Marianne Schneider-Petsinger
Well, I guess I’m optimistic, though cautiously optimistic, I guess, that this can be a moment to really, you know, reform, but also drive forward some of the initiatives that go to the heart of the questions that we’ve addressed, which is really, you know, updating the system, making it fit for purpose. Because I think, you know, the Trump administration in particular has raised some very valid concerns, so this could be an opportunity to make the system reflect those concerns and the challenges we’re faced with, so that, you know, also in light of COVID-19, some of the pre-existing challenges can actually now be dealt with. So, in this sense, also the case that Ministerial Conference of the WTO was cancelled this year and, you know, usually, that is a, kind of, moment to force action, even though it wasn’t meant to be, or wasn’t really thought to bring any breakthrough. I think now that’s pushed back, again, there is an opportunity to consolidate some of the reform efforts already underway and to make sure that we deliver by the time of the next Ministerial Conference.
Creon Butler
Thank you. Well, unfortunately, we’re out of time now, but I’d really like to thank our two panellists, Shawn and Marianne, for some really excellent insights and for spending your time with us today. I do hope that we’ll meet again, perhaps not in ten years’ time, maybe a little bit shorter than that, but – and possibly even physically, that could be possible. I’d like to thank the Chatham House Team for the arrangements in putting on this webinar, and also, to our audience for their questions and for joining us today in this discussion, and we look forward to seeing you again at a members’ event in the not too distant future. So, thanks to everybody, and see you again soon. Cheers.
Shawn Donnan
Thank you. Bye, then.
Marianne Schneider-Petsinger
Thank you, all. Bye.
