The World Trade Organization (WTO) General Council just voted to nominate Dr Ngozi Okonjo-Iweala as its new Director-General. The international organisation upholds global trade rules, offers a dispute resolution platform and provides an arena to negotiate trade matters.
These mandates affect countries’ social, economic and political trajectories and can have big effects, whether intended or not. So, the influence of the new Director-General can reverberate further than immediate trade concerns. But given that member states are the ultimate decision-makers, it also has limits. Here, three of our experts give their take on what this nomination means for the climate, trade and development, and institutional politics.
Dr Ngozi Okonjo-Iweala is not new to the climate change agenda. Among many other appointments, she was the co-chair of the Global Commission on the Economy and Climate along with Lord Nicholas Stern. As someone who promised disruption to ‘business as usual’, the challenge of aligning trade to climate goals seems to be just the one. Climate change is driven in part by trade-enabled and fossil fuel reliant consumption, production and transport, especially in high-income countries. But trade can also be an engine for economic development in low-income countries and be key in unlocking decarbonisation for economies.
As the Director-General, Dr Ngozi Okonjo-Iweala must work towards instilling a sense of shared purpose between the climate and trade communities. The global trade and climate change regimes – embodied by the WTO and the UN Framework Convention on Climate Change (UNFCCC), respectively – must work more closely and more effectively together. The two international agendas need to mesh to achieve a low-carbon and resilient global economy. Effective and operational governance frameworks can deliver both on trade for development and on the Paris Agreement goals.
In mainstreaming climate change action into trade matters, the Director-General would be staying true to the agreement which established the WTO in 1994. The preamble to the agreement stated that the WTO should ‘allow for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment’.
Around 15% of the world’s population now reside in least developed countries (LDCs), most of which are in sub-Saharan Africa. But they account for just 2% of global trade. We know that the physical effects of climate change will be most acute for those who have contributed the least to the problem, including those in LDCs and other low-income countries.
Climate change heightens the need for economic diversification. Through transmitting ideas, technology and ingenuity, trade is an invaluable engine for this. The WTO must work hard to ensure that international trade can continue to play its unique role in the reduction of extreme poverty and deprivation. But we also know that industrialisation paths in the future face an unprecedented development challenge and must take shape within a global carbon budget and planetary boundaries.
Unilateral measures that seek to level the playing field such as border carbon adjustments – a tax on imported goods based on their carbon content – could have knock-on effects on LDCs. For example, Mozambique supplies the raw commodity inputs to aluminium processors and could be adversely affected by the increased trade costs.
The multilateral framework of trade cooperation must adapt. We’ve seen African export interests harmed by food miles in the past, and so we need a common carbon accounting framework. We know that mechanisms like Aid for Trade can provide invaluable support to building productive capacity. However, we need something climate smart to bridge the financing gaps identified within Nationally Determined Contributions and the diagnoses of trade-related capacity constraints. Such a mechanism could also help to prioritise the competitiveness of low carbon trade, as well as assist countries to develop and tap into carbon markets.
The new Director-General faces an organisation submerged in a crisis which is challenging its core principles. This crisis started long before Donald Trump became an aggravating factor and an impediment for a solution. The WTO has failed to eliminate the remaining pockets of protectionism in agriculture in ’developed countries’ and manufactures in ’developing countries’.
Its members have been undermining the institution by adopting a wide range of obscure trade restrictions including licenses, restrictions in accessing the foreign exchange and other murky measures. Its members have also failed in keeping the WTO rule book updated to account for the technological, cultural and institutional changes that have affected trade in the last 30 years. Consequently, the WTO has struggled to deliver its original objectives, and it has failed to transform into a useful institution to address today’s challenges.
With renewed support from all its members, the new Director-General must quickly look to regain confidence in the institution and its framework of rules, as we approach the next WTO Ministerial Conference.
Dr Ngozi Okonjo-Iweala must immediately operationalise the Dispute Settlement Body. She must then critically engage the most important members of the WTO with the aim to roll back existing protective measures. Eventually, the Director-General must convene members in the reform of the institution by focusing on the increasing relevance of investment, the digital economy, the definition of an acceptable space for government policy for industrial development and the climate impact of trade.