WTO needs reform, but first it has to survive against US
Many of us will associate Davos 2020 with the clashing public views on climate change personified by Donald Trump and Greta Thunberg. In some of the back rooms, however, attendees were engaging each other on the state of the global trading system.
In late 2019 one of the most important pillars of the multilateral trading system collapsed. The World Trade Organisation (WTO) appellate body was left without the required complement of judges after the US had blocked new appointments.
Without a court of final appeal, the WTO dispute settlement mechanism is no longer functional and there is no global platform anymore to deal with conflict between countries in the realm of trade. This could not have come at a worse time for SA, a country that strongly believes in a rules-based multilateral trading system.
The chemicals industry, like many others in manufacturing, is looking towards international markets to help boost growth and employment creation.
SA’s exports and imports account for more than half of GDP by value — and global trade uncertainties have been a significant contributor to the country’s dismal economic performance in 2019.
The tumble in exports was the number one reason for the contraction in the economy in the first quarter of last year, according to the Industrial Development Corporation (IDC).
SA relies heavily on export markets in those countries that are at the heart of the current trade uncertainties, including the challenges in the WTO. These include the EU, US and China.
Since its establishment in 1995, the WTO has faced its fair share of controversy, from protest action at the ministerial conference in Seattle in 1999 to the collapse of the Doha round of negotiations in 2006.
During this time, however, work has continued behind the scenes to ensure that global trade functions in a relatively seamless fashion. The rules were clear — they may not all have been fair but at least there was legal certainty. The dispute settlement process was an important part of both enforcing the rules and deepening understanding of the functioning of the global trading system.
One of the reasons given by the US for its stance on the appellate body was that it is in desperate need of reform: changes need to be made to ensure that it functions efficiently and effectively. This argument has merit. As the membership of the WTO has grown in size, it has become increasingly difficult to get agreement on new issues as well as reform existing rules and structures.
It is difficult to disagree that the WTO could do with an overhaul, now more than ever, but losing the institution altogether is no sustainable alternative.
SA needs to join forces with other like-minded countries to save the WTO and restore faith in the multilateral trading system. This may not seem like a priority given pressing domestic issues, but trade is vital for our economy.
President Cyril Ramaphosa has highlighted the potential of the African Continental Free Trade Area (AfCFTA) for the SA economy. Trade commencing under this landmark agreement is one of the key deliverables expected during SA’s chairing of the AU in 2020.
GLOBAL TRADE UNCERTAINTIES HAVE BEEN A SIGNIFICANT CONTRIBUTOR TO THE COUNTRY’S DISMAL ECONOMIC PERFORMANCE
The AfCFTA legal texts are mainly based on those of the WTO, also in the area of dispute resolution. This is not unusual as the rules of the WTO, and the General Agreement on Tariffs and Trade (Gatt) before it, have informed most of the free trade agreements in recent years.
For traders, such as our members in the chemicals industry, this has been useful as it has further enhanced certainty and predictability in the global trading environment.
Playing an active part in the reform debates at the WTO will not only be useful for that institution but is crucial for African economic integration.
Trade wars and Brexit, as well as the rise of artificial intelligence and e-commerce, among others, have all created the need for new regulation and a multilateral rules-based system.
The SA position on WTO reform and the emerging challenges for global trade cannot be formulated by government officials alone. The Chemicals and Allied Industries’ Association is a committed partner and we stand ready to participate in stakeholder engagement processes that will enable SA to protect and advance the interests of its traders.