The head of the World Trade Organisation has warned the world's great powers may be 'sleepwalking' into an unnecessary fracturing of the global trading system. Dr Ngozi Okonjo-Iweala speaks to Newsroom about finding a middle ground between decoupling and globalisation and the health of the WTO
In her 18 months as director-general of the World Trade Organisation, Dr Ngozi Okonjo-Iweala has had to contend with the ongoing Covid-19 pandemic, Russia’s invasion of Ukraine, skyrocketing inflation and an economic slowdown.
That global “polycrisis”, as Okonjo-Iweala put it in a speech to the Lowy Institute in Sydney, has come on top of longstanding questions about the WTO’s effectiveness and its ability to tackle the growing array of threats to the international trading system.
It’s little wonder then that it feels as if she has been in the job much longer. “It seems like 18 years instead of 18 months,” the director-general quips to Newsroom during an interview at Parliament as part of a two-day visit to New Zealand.
One of Okonjo-Iweala’s greatest concerns is growing talk of a decoupling of global trade, provoked by geopolitical tensions between the United States and China as well as the war in Ukraine and supply chain vulnerabilities which emerged during the pandemic.
There are genuine shortcomings which need to be addressed, she acknowledges. “For semiconductors, having 90-plus percent manufactured in one country … of such an essential good may not be the way to build resilience. With pharmaceutical products, we’ve seen that 10 countries export 80 percent of all vaccines, and that led to issues.”
But Okonjo-Iweala says suggestions that countries should “re-shore” their manufacturing and trade only with their allies doesn’t fit with the current reality – trade between China and the US has remained largely unchanged in the last three years – while it also ignores the potential downsides of such an approach.
“You say, let’s bring it home and re-shore everything: what if you have a climate event and then the supply chains get into trouble? Look at what happened to Thailand['s automotive industry] when Thailand got flooded ... look at what happened to baby formula in the United States, when they had to fly in planes.”
"You are bringing in countries that were at the margins of the global system in the first instance, who missed out on the globalisation story…can we use re-globalisation to bring them in so we kill two birds with one stone, build resilience and be inclusive?” – Dr Ngozi Okonjo-Iweala, WTO
A fragmentation of the trading system would also have disastrous effects for the global economy. According to simulations carried out by WTO economists, a world broken into two trading blocs would hit global GDP by as much as five percent in the longer term.
“That’s huge if you look at it: maybe the whole economy of Japan, or more than the OECD lost during the great recession,” Okonjo-Iweala says. Further work carried out by the International Monetary Fund has suggested it is developing countries who would suffer the most, with double-digit losses a possible outcome.
Instead of turning away from global trade in favour of protectionism, or even maintaining globalisation’s pre-pandemic status quo, the director-general has promoted the idea of “re-globalisation”: a greater diversification of supply chains, looking beyond trusted friends to emerging markets in regions like Latin America, South Asia and Africa.
“In doing that, you are bringing in countries that were at the margins of the global system in the first instance, who missed out on the globalisation story…can we use re-globalisation to bring them in so we kill two birds with one stone, build resilience and be inclusive?”
It’s a message which has resonated with countries in Europe, while Okonjo-Iweala says she also received a positive reception in her meetings with New Zealand politicians. But the US and China remain a different story, with a fear they may be “sleepwalking” into an avoidable crisis.
The WTO itself has had to shake itself out of a sense of doziness in recent years. A series of ministerial meetings ended in stalemates due to a lack of consensus, while the organisation’s dispute settlement system becoming defunct due to an American veto on new appointments to its appellate body.
There were fears June’s ministerial conference in Geneva could go the same way, but the WTO snatched victory from the jaws of defeat, reaching a compromise on agreements to tackle damaging fisheries subsidies and loosen intellectual property restrictions on Covid-19 vaccines.
“It was amazing to me. Nobody thought we could do it, given the fact that things had been a bit stuck, negotiating fisheries for more than two decades - that’s not the way to go,” Okonjo-Iweala says.
"I'm very impatient: I do not understand why we need to take two decades to negotiate any agreement if it's for people, so that has been a surprise and that's one of the things we're trying to break." – Dr Ngozi Okonjo-Iweala
She is under no illusions about the amount of work that must still be done to make the institution fit for the 21st century, but believes the success in Geneva has helped to build the trust that is necessary for reforms to take place.
The WTO needs to develop a long-overdue agreement on e-commerce, while the second wave of fisheries subsidies talks and finding a breakthrough on agriculture - of great importance to New Zealand, Okonjo-Iweala acknowledges - are also among her priorities.
Work is also underway to return the dispute settlement system to full health, with Americans now consulting at a technical level with other members to get their views on the potential solutions.
“There's clarity about the things they don't like, I think where there is not yet clarity is what type of reform they'd like to see.”
But some criticisms have merit, the director-general says. There is the fact it can take up to several years to reach a ruling, instead of the WTO’s self-imposed 90-day timeframe, along with concerns about the appellate body reaching beyond its agreed remit to create its own ‘laws’.
Okonjo-Iweala says the summary of outcomes from the Geneva conference included a recommendation that the dispute reforms be completed by 2024, helping to put a timeline on progress.
Despite all the challenges of the director-general’s job, she still sees the role as a privilege. “Trade is really about people,” she says - a message she hopes can help to clear gridlock at the organisation.
“The surprise to me is just how long it takes to get things done. I'm very impatient: I do not understand why we need to take two decades to negotiate any agreement if it's for people, so that has been a surprise and that's one of the things we're trying to break.”
