This week the new Director-General of the World Trade Organisation (WTO), Dr Ngozi Okonjo-Iweala, the former finance minister of Nigeria, takes up her post. I wish her every success in trying to rescue the WTO, a crucial cog in the global economy, from becoming an institutional failure.
It is clear that the horse trading that took place in the selection process may have left her with little room for manoeuvre. It is widely believed that the EU traded its support in return for the French being given one of the Deputy Director-General roles. This tells us both whose national interests are actually served by the EU and where the balance may lie between protectionist and free-market instincts for the future.
Protectionism has become an increasing problem in the global economy since the financial crash with the G20 countries (who represent 90 per cent of global GDP and over 80 per cent of global trade) putting up increasing barriers that make it difficult for developing countries to trade their way out of poverty.
The WTO has serious structural problems, too. It has failed to produce a meaningful multilateral agreement since 1995. Moreover, countries which joined the organisation after that date were able to self-define as to whether they were “developed” or “developing” with South Korea, Asia’s fourth-largest economy, keeping its “developing” country status, only recently promising to change this for future negotiations.
Perhaps most importantly, there are simply not the measures in place to deal with some of the deep anti-market practices of China. While China is seen as quite observant of existing WTO rules, the problem is that the rules themselves are simply unfit for purpose in the era of globalisation.
Outside the EU, the UK is well positioned to make a difference in global trade policy but the domestic debate is stifled by a lack of general understanding and the seeming obsession with “trade deals”, which usually means bilateral free trade agreements. These lie at the bottom of the hierarchy for trade liberalisation.
At the top, multilateral agreements are the gold standard providing liberalising measures across the whole of global trade, but they have stalled in recent times.
Next, plurilateral agreements (coalitions of the like-minded) can produce substantial gains and may lead in the longer term to multilateral agreements. The current negotiations around e-commerce are an example of this.
Regional trade groupings, such as the EU or CPTPP, can produce worthwhile gains internally but often lead to strong protectionist measures against those outside, such as the EU’s antimarket agricultural policies.
Bilateral free trade agreements have proliferated in recent years but offer the least amount of liberalisation, not least because they tend to be focused on issues such as finished manufactured goods which are already the most open area of trade following the Uruguay negotiating round and the creation of the WTO itself. This is not to say that they are not worth having (all liberalisation is welcome), but they are increasingly regarded as being overrated.
The big prize for Britain, and the real opportunity presented by an independent trade policy post-Brexit, is the opening up of global services. Liberalisation in services has lagged well behind that of goods since 1995 so economies that are heavily dependent on services exports such as the US, UK and Japan have been disadvantaged compared to industrial exporters such as Germany and China.
No country can afford, in the globalised era, to have an inefficient and expensive services infrastructure. Without access to efficient telecoms, transport, banking or insurance services, producers and exporters will not be internationally competitive. They are also key for development where sectors like health or education are crucial for a growing country's economic skills and capabilities as well as improving the quality of life for their citizens.
Those countries with open services markets have also seen greater product and process innovation and have made themselves more attractive to foreign direct investment, bringing opportunities for new skills and technology which can feed through to the wider economy.
With 50 per cent of the UK’s exports coming from the services sector, progress in opening up global services is clearly in our national interest and at the heart of our economic, trade and development policies.
We all must do everything we can to help Dr Ngozi. The alternative to an effective rules-based system will be a chaotic free for all, where all of us will suffer.