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Challenges ahead for the next WTO DG

The WTO is going through a leadership transition as after 8 years, the incumbent Director-General steps down on September 1, 2013. What are the challenges ahead for Pascal Lamy’s successor? The next DG will certainly have to take the Doha loss and move toward an updated multilateral trading system.
By Sébastien Jean
 Post, May 2, 2013

Leading an institution like the WTO is an extremely challenging job. In the present context of enduring gridlock, with the prospect of taking office just before a potentially crucial Ministerial Conference in Bali, the task becomes utterly daunting, to say the least. Claiming the Doha Round to be alive has not been credible for some time. After twelve years of make-or-break meetings, last-chance conferences, and missed deadlines, the value of this claim has shrunk dramatically. One of the jobs of an investment advisor is to help their clients to decide when to accept stock market losses. The first challenge for the next DG is to help the members accept that this moment may have come for the Doha Round negotiations. The best outcome would of course be to find a deal, even one that is far more limited in scope and ambition than what has been discussed so far. Even a modest agreement would be invaluable in helping consolidate a rule-based system which remains unparalleled in international arenas. Calling it an early harvest, a development package, or whatever is not important. What is important is that such an agreement would clear the ground and allow progress to be made on updating the trading system. A lot has been invested in the Doha negotiations, and members seemed to have close to agreeing on the contours of a deal in 2008. But these negotiations are only an asset for the multilateral trading system to the extent that an agreement is possible. If this is not the case anymore, they will become a millstone, preventing members from focusing on a badly needed update of the WTO software. This is a second major challenge the next DG will face.
 Such update will require boldness and open-mindedness, because several long-standing features of the WTO now appear out of date. One is the single undertaking principle, which may have been useful in the past to avoid free-rider strategies, but increasingly hamstrings negotiations by setting objectives that are impossible to reach. Another is special and differential treatment: duly taking into account the fragility of poor countries is more important than ever, but the traditional approach is outdated. It no longer makes sense to distinguish only between developed, least developed and other developing countries. Not taking into account the widening differences across developing countries is a sure recipe for failure, as illustrated by recent history.
 The substance of the WTO agenda also needs to be rethought. In manufacturing, it should take into account the new status of emerging countries and the central importance of global and regional supply chains. In agriculture, the multilateral trading system will only be considered legitimate if it contributes significantly to food security. Efforts to address the risks of large-scale excess supply and low prices cannot remain the main – some would say the exclusive — focus of disciplines and rule-making, even though prices cannot be assumed to stay high forever. The only consistent approach here is to limit distortions to market-based adjustment mechanisms, whatever their direction. Finding a suitable way to translate this general approach into updated disciplines should be a priority, no matter that it is difficult.
 Another challenge is to create a more favorable intellectual climate, and this requires support for – and relying more heavily on – sound analysis and accurate information. Despite some caveats, the virtues of trade liberalization have been widely documented by economic analyses. But the corresponding facts and mechanisms have become increasingly complex. It is well known that the gains from trade are diffuse, while the costs of greater international competition are more concentrated and therefore more easily visible. Sound policy making requires refined analyses to understand better what is at stake and how to make the best out of available policy options. This requires relying upon detailed analyses of trade policies and their consequences. Facilitating such analyses and bridging the gap between research and policy is an important task for the new DG. Export restrictions are an example: several studies have shown that such tools, initially presented as aiming at price stabilization, may actually entail significant destabilizing effects at the world level – even though their use should not necessarily be completely ruled out for the poorest countries. Non-tariff measures are another interesting case in point: their nature and objectives are so diverse that much work is needed to characterize accurately their economic consequences, and to strike the right balance between their costs and benefits. More broadly, research is critical in thinking consistently about the legitimacy of trade disciplines, by making it possible to go beyond a simplistic focus on trade impacts. Increased reliance upon scientific analyses when settling disputes has arguably been among the important achievements of the WTO so far. When agreement needs to reached on complex issues, between numerous and diverse partners, promoting a culture of evidence-based decision-making may prove to be a key ingredient in making advances possible.

This post is also available here.
Trade & Globalization 
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