The new Director-General of the World Trade Organization could learn from history as he or she plans for the future
The Covid-19 pandemic has brought global trade under closer scrutiny. From news outlets tracking supplies of essential personal protective equipment from country to country to companies being exposed for not honouring commitments for supply chain orders — a pandemic in globalised economies is forcing a reset of years of political orthodoxy.
People and their politicians will increasingly call for greater transparency in trade arrangements and demand a more balanced approach to trade policy. Leaders can no longer ignore the need for reforms to ensure fair and inclusive global trade. And people, nationally and internationally, must have the democratic rights and freedoms to be involved in the consideration of political decisions concerning recovery and resilience. This includes reforms to ensure fair and inclusive global trade.
Trade has evolved through history, and the question is not whether trade will continue to be a major component of the provision of goods, but rather what needs to change to ensure national security with new areas of industrial development and the millions of jobs necessary for recovery and resilience in the face of future crises.
Will world leaders understand that this is the opportunity to reset policies? They have a responsibility to ensure that global trade does not depend on exploitative supply chains; that investment isn’t driven by a unilateral priority for shareholder profit; that industry policy is vital for jobs; and that there is development and climate action across all sectors of economic activity.
Governments are already taking their own decisions when 80 countries and separate customs territories have introduced export prohibitions or restrictions as a result of the Covid-19 pandemic, including 46 WTO members (72 if EU member states are counted individually). These export restrictions and retentions have affected some essential products, including medical supplies and food.
In the US, re-localisation of manufacturing, of food production and of services has been a significant political debate. Now we see many others enacting significant plans for just that. Canada made an early call around the supply of essential personal protective equipment. Japan has announced $2.2 billion to bring production back from China. The EU is moving in that direction for some areas of essential production, and border adjustment policy is on the table regarding investment in cleaner industry. Circular production processes, so essential for reducing climate emissions, will also increase this trend. And the EU is committed to responsible business conduct, with a commitment to mandatory human rights, due diligence, and increasing investment policy controls with investment screens to mitigate aggressive corporate buyouts from foreign investment. These examples all point to the possibility of developing a more balanced approach to trade.
Trade history tells us how we have been pushed into a trade model that benefits dominant countries and companies but has constrained development for too many countries. What was challenged as protectionism is now seen as important relocation of industry and supply chains for the protection of a nation’s people by the very same nations. Trade can work for everyone if there is space for different development pathways.
Before the WTO was conceived, there was global consensus around the Havana Charter which addressed many of the same issues. It could provide some inspiration as we consider the optimal goals of trade reform:
The Havana Charter sought to avoid aggressive export-led growth policies. Article 3 (Maintenance of Domestic Employment) says that each Member shall take action to achieve and maintain full and productive employment and large and steadily growing demand within its own territory through measures appropriate to its political, economic and social institutions. Members will seek to avoid measures creating balance of payments difficulties for other countries. Also,
Article 7 (Fair Labour Standards) calls on Members to do whatever is appropriate and feasible to eliminate sub-standard conditions of labour and refers in this connection to co-operation with the International Labour Organization.
An analysis of today’s trade rules against these principles can show us where the system has been pushed too far in the interest of some and created the inequality that in turn undermines the trust of people in globalisation.
However, while the principles of the Havana Charter were not to become the basis of the WTO, early discussions of a global set of rules were based around a world where massive investment in social protection and national industrial development was the dominant policy response of governments in the industrially developed nations to the 1929 Great Depression.
And in the post-WWII period, the international solidarity of the Marshall Plan was used largely to rebuild industries in those nations devastated by warfare. International institutions also flourished with the commitment to coordination and a global rule of law.
The dangerous orthodoxy of today’s governance of trade is the lack of political will to question strengths and weaknesses. The mantra of trade liberalisation has become an all or nothing demagoguery despite its creating imbalance, constraining development and allowing massive inequality.
The reality is that trade liberalisation has been delivered at the cost of rights, equality and wages.
Leaders claim global trade has lifted millions of people out of poverty, but in reality more people than these numbers reflect go to bed hungry today.
Trade in agriculture involves food crisscrossing the oceans, yet 45 per cent of produce is wasted in the process and some nations still battle malnutrition and starvation.
Trade has grown global GDP many times over, yet inequality is at historical levels and global income share has slumped for three decades. The majority of the world’s workers do not enjoy even a minimum living wage while collective bargaining is increasingly denied by global corporations. And social protection floors have been denied to up to 70 per cent of the world’s people.
Advocates say trade lifts all boats, yet African nations are too often seen as primary resources baskets for the world as industry policy is constrained and illicit transfer of funds from poorer countries is too often overlooked in the desperate quest for foreign direct investment.
Today’s global trade system has seen competition policy all but abandoned in the face of global monopoly power and intellectual property rules that become protectionist for too many dominant countries and their companies.
And there is opposition from the WTO to even establish a fair competition floor with human and labour rights and environmental standards.
In the face of this reality and the constraints of supply, Covid-19 has exposed that there is no option but to rebalance global trade.
With the demand for climate action and the need for national confidence in the supply of essential products and future jobs, industrial policy measures will be more prominent in the foreseeable future.
We need a global governance framework, but the WTO in its current form is not fit for purpose.
We need new global architecture. Eighty-five per cent of people want the rules of the global economy rewritten. This is not a denial of the significance of global trade but rather a demand for fairer rules and transparency. Why not social partners’ involvement? Why not coherence with the ILO to ensure a fair competition floor of labour rights? Why not a dispute settlement mechanism that we can access to hold governments and corporations to account for due diligence, including grievance procedures for remedy against violation of human and labour rights, along with environmental standards?
The separation of trade from human and labour rights, and from environmental standards, must end. And if the WTO refuses to change, then it cannot be allowed to manage global trade.
Then there is the threat of the global monopolies, such as Amazon, that exposes the failure of competition policy and the absence of regulation of digital or platform businesses. The theft of data; the surveillance; the denial of workers’ rights, living wages and secure work; and the avoidance of taxation by these giants, who simultaneously threaten the viability of business on Main Street — none of this is acceptable, and no company should be considered too big to touch.
Recovery and resilience from the Covid-19 pandemic demands a more balanced, rights-based and inclusive approach to global trade. Let’s put the principles of the Havana Charter on the desk of the new Director-General of the WTO and update them for the world we want.