World trade - looking ahead

25 Oct 2017

When the Facts Change, I Change My Mind¹

John Maynard Keynes who spoke the words 'when the facts change, I change my mind' was one of the driving forces behind the post-War creation of the 'Bretton Woods' institutions: the World Bank and the International Monetary Fund. 

What is less well-known is that Keynes also envisaged the creation of an 'International Trade Organisation' (ITO), which would be the source of the rules governing trade between nations.  Taken together, these three institutions would promote and safeguard global economic interaction, which he and the Bretton Woods 'founding fathers' believed was necessary to maintain international peace and security. 

Although the ITO never came into being, many of its functions were undertaken through the General Agreement on Tariffs and Trade (GATT).  The GATT system continued on a 'provisional' basis from 1948 to 1996, when Keynes' vision was finally realised in the form of the new World Trade Organisation (WTO).

It is interesting to reflect on the issues that were foreseen for the ITO.  As well as trade in goods, it was also to address issues such as trade in services, investment and employment.  While those ideas were overly ambitious at the time, the WTO does now cover services.  There is also renewed interest in a multilateral agreement on investment, which would sit within the WTO system.  Although the 'Singapore Issues', discussed in the WTO Ministerial in Singapore in 1996², were at that time seen as too sensitive to bring into the WTO, both trade facilitation and government procurement (on a 'plurilateral' basis) are covered now.

If one takes a long-term view, sometimes ideas about global economic governance emerge that are ahead of their time.  The ability of the system and of politicians to see the light can lag the need for action. 

A good current example is digital trade.  As disruptive technology advances, the trade policy community recognises that global rules are needed to govern this new form of trade.  But the well-known difficulties of the WTO's negotiating function, where nothing is agreed until everything is agreed, has meant that progress in creating the rule book has been slow.

Brexit comes at a time when the WTO system is evolving.  Most accept that the all-encompassing Doha Round will never be concluded.  We are now starting to see the WTO becoming what it was originally designed to be - an institution within which separate negotiations on discrete topics take place on a rolling basis.  Some cover all WTO Members, such as the Trade Facilitation Agreement; others involve coalitions of the willing, such as the Government Procurement Agreement, which is subject to WTO dispute settlement, but applies only to those Members that have agreed to be bound.  This trend will continue.

Equally, in the 1990s, the QUAD countries (Canada, EU, Japan and the United States) were the principal drivers of negotiations.  The massive global economic shifts since then have multiplied the number of key players, whether they be major economies, such as Brazil, China and India, or groupings of countries with similar interests, such as the Cairns Group of agricultural exporters and the G33, one of a number of coalitions of developing countries. 

Many WTO Members expect the UK to become an influential, principled supporter of trade liberalisation and the WTO system.  There is an opportunity for the UK, working with like-minded members, such as the EU, to drive the further liberalisation through the WTO that will create increased prosperity, growth and jobs. 

That is important because, behind the headlines, the low profile mechanisms of the WTO are doing exactly what Keynes envisaged the ITO would do.  WTO rules govern international trade, ensuring that governments have space to regulate while providing industry with the stability and certainty necessary to trade and grow.

So the SWA was pleased earlier this month to host a delegation from the WTO Secretariat in Edinburgh for a day long seminar with trade associations, businesses and others in the Scottish food and drink sector.  The objective was to explain how the system works, the benefits it brings and how they can engage with it when they encounter trade barriers in export markets. 

The WTO has worked for the Scotch Whisky industry; we believe that it can work equally well for other Scottish exporters.

Martin Bell is SWA deputy director of global affairs

¹ Attributed to John Maynard Keynes, but also to Paul Samuelson                                                                                                         ² Transparency in government procurement, trade facilitation (customs issues), trade and investment, and trade and competition