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Reforming the WTO is a Long and Complicated Process

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Since early autumn 2018, the issue of reforming the World Trade Organization (WTO) has become an increasingly visible item on the global economic agenda. It was one of the central questions posited in the final communique of the G20 Summit that took place in Buenos Aires on November 30 – December 1, and the parties intend to tackle it again at the next meeting in Tokyo.

The WTO is traditionally considered the third institution of the Bretton Woods system. However, while the first two – the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) – started functioning shortly after the end of World War II, it took 47 years of excruciating negotiations to create the third part, a universal trade organization. The establishment of the WTO in April 1994 following the Uruguay Round of negotiations (1986–1993) should rightly be considered the greatest event in economic relations in the 20th century. However, the tremendous success had a certain reverse side: contradictions and issues between member countries remained. This predetermined the future need to reform the WTO.

Trade Wars are a Signal for Action

The problem of the institutional reform of the WTO has been discussed at the level of experts for at least the last 15 years. However, it has never gone beyond the scope of an academic discussion, and for serious reasons too. The older generation of trade diplomats and experts remembers all too well the excruciating negotiations at the Uruguay Round, which were accompanied by crippling crises and contradictions between the parties. Hammering out compromises was a Herculean task, and the agreement on establishing the WTO crowned those compromises.

It is precisely because of these features of the WTO’s protracted birth that representatives of various countries, recognizing the need to reform the organization, were fully cognizant of how difficult and risky such a reform will be in practice. That is why each and every time discussions ended the same way: the GATT/WTO system has been functioning for 70 years, and even though it has its problems, no one can guarantee that a reform will not make things worse. Nowadays, the situation has been noticeably radicalized due to the new U.S. protectionist policies and the trade wars it started “with the entire world.”

The Administration of the 45th US President has embarked upon a course of open criticism and attacks on universal trade rules. In late February 2017, the United States Trade Representative (USTR) delivered the Trade Policy Agenda and Annual Report to Congress. The document emphasized that given the “unfair trade practices” of other countries, the United States can disregard the WTO rules and conduct a more “aggressive” trade policy in protecting its national interests.

On June 1, 2018, Washington imposed increased import tariffs on metals from the European Union, Canada and some other countries to 25 per cent for steel and 10 per cent for aluminium. The current U.S. administration believes that domestic steel production has fallen sharply in the recent years, and this threatens national security. However, Europe and Canada see the legal justification for Washington to increase tariffs as being completely unacceptable.

Partners Reject U.S. Protectionist Measures

Within the WTO, each country has its commitments based on the rules developed during the Uruguay Round. These rules allow import restrictions in three very specific situations: in cases of dumping; the use of illegal subsidies; and if there is a threat to national industries due to a sharp increase in imports. In each case, the damage from the above-stated actions of a supplier country must be substantiated. The damage is assessed in the course of an appropriate transparent investigation that involves all the parties. The current U.S. measures do not fit into any of these scenarios, and instead it is being justified by “reasons of national security.” This, however, gives the matter an entirely different legal twist.

The WTO legal framework does stipulate restricting market access for reasons of national security: appropriate measures are possible in cases of illegal trade in weapons and nuclear materials, the danger of armed conflicts, a terrorist threat, etc. Therefore, in such cases, every state itself determines the measures for restricting access to its market under Article XXI of GATT, which is devoted entirely to “reasons of national security.” The difficulty with applying Article XXI of GATT is that its application mechanism is still not quite specific; a state that introduces restrictions under this article acts as the ultimate judge in the dispute.

The United States offers a very subjective formulation of “reasons of national security” that is clearly detached from the current international rules. Washington sees a threat to national security in the sharp drop in domestic metal production, even though such a situation is essentially a consequence of regular international competition.

European countries and Canada were shocked by the fact that the United States imposes tariffs against them out of “reasons of national security.” As the President of the European Commission Jean-Claude Juncker emphasized, “these unilateral U.S. tariffs are unjustified and at odds with World Trade Organization rules. This is protectionism, pure and simple.” President of France Emmanuel Macron called the U.S. administration’s decision illegal and mistaken. Prime Minister of Canada Justin Trudeau spoke rather sharply at the June 2018 G7 Summit in Quebec calling Washington’s measures “punitive,” “unacceptable” and “insulting.”

Following repeated attempts to convince Washington that its protectionist measures were unfounded, in late November 2018, the European Union, along with China, Canada, Norway, Mexico, Russia and Turkey, and then India and Switzerland filed a complaint against the United States with the WTO’s Appellate Body concerning the illegality of the steel and aluminium tariffs imposed by the United States. In the complaint, the plaintiffs intend to challenge the U.S. tariffs as protective and simultaneously prove that the United States cannot invoke reasons of national security. This demarche against the United States by nine countries at once is a rather convincing proof that the WTO’s leading members are resisting Washington’s attempts to revise the existing rules of international trade.

Thus, the U.S. administration believes that it can protect its domestic market and ensure its foreign trade interests on the basis of its domestic trade legislation. Over the course of 2018, Washington primarily invoked two legislative acts. Under the Trade Act of 1974, the United States can impose penalty tariffs on countries that discriminate against American goods. The second is the 1962 Trade Expansion Act that allows the United States to restrict import of goods that would “threaten to impair the national security.” This act served as a legal justification for Washington to increase import tariffs on steel and aluminium starting June 1, 2018.

Europe, Canada and Japan believe that using legal acts that are over 50 years old is odd at the very least, since in the intervening decades, international economic regulations have changed drastically, the principal change being the emergence of a full-fledged multilateral regulation institution, i.e. the WTO, which was to a great degree promoted by the United States. Strictly speaking, the moment the WTO became operative in January 1995, the United States did not invoke the provisions of those domestic acts since it believed itself to be bound, like other WTO members, by the WTO’s commitments.

Every Side has its Arguments on Reforming the WTO

In March 2018, the United States Trade Representative Robert Lighthizer presented the latest version of the U.S. administration’s annual agenda in trade policies. The agenda concerns such issues as reforming the WTO, trade agreements with other countries and the application of U.S trade laws. The document is critical of the trade policies of previous administrations and simultaneously claims to reach a qualitatively new level in trade policies under the Trump administration.

Lighthizer’s report states that the U.S. administration is dissatisfied with the existing rules and their application in such areas as labour conditions, competition policies and the medical equipment market. It notes the investigations of U.S. officials into China’s violations of U.S. intellectual property rights. In essence, the report justifies instances of applying U.S. trade laws from the 1960s–1970s in order to protect national security interests, which cannot but cause concerns, since these laws are applied separately from the WTO rules and the commitments that the United States has undertaken as part of the organization.

As for the current multilateral negotiations at the Doha Round, Washington has specific grievances in that area, which may be considered justified to a certain extent. For instance, the United States is not satisfied with their highly stilted character, the impossibility of achieving new agreements other than at the biennial WTO ministerial conferences, and what the United States views as the outdated agenda of the Doha Round.

What is more, in recent years, the United States has not hidden its displeasure with the position of a large group of countries within the WTO which, having joined the organization as developing countries, continue to see themselves as such today, despite the fact that they have made significant progress in a number of economic sectors and even outstripped certain developed countries. In addition to this, many developing countries have non-transparent trade policies. Consequently, those WTO members de facto use privileges that Washington deems to be unjustified, which blocks progress in developing new WTO rules and also impedes further liberalization. This is the essence of Washington’s approach to reforming the WTO: eliminate unjustified and unfair privileges held by a group of developing countries that today essentially paralyse the multilateral trade system.

As for the other major player in international trade – the European Union – it has assumed a highly proactive stance on the issue of reforming the WTO. The European Union was the first to publish a list of specific proposals (a concept) on reforming the WTO. Analysing the entire list is rather a task for trade policy experts. It would therefore be appropriate to single out the key points. Even though the European Union’s stance was originally a direct consequence of the wrongfully protectionist measures of the United States towards European manufacturers, the document contains no direct or indirect complaints against Washington, which is largely reasonable, since reforming one of the key institutions of global economic management is too grave an issue to start it by settling scores with an old trade partner.

Essentially, Brussels shares Washington’s position on the matter, as well as its grievances against that group of developing countries that has reached a rather high level of economic development, but has no wish to part with their previously gained privileges

The EU proposals also note that today’s discussions are frequently dominated by the opinion that global trade rules somehow impede trade and, therefore, developing countries need to be exempted from both current and future rules. In fact, today, the differences between developed and many developing countries are not quite as pronounced as they were 25 years ago, when the WTO was established, meaning that the above-mentioned opinion is fundamentally wrong. Obviously, some flexibility in enforcing the compliance of developing countries with the WTO rules should be preserved, but only in those cases where it is necessary. The proposals put forward by Brussels contain specific mechanisms for tackling this task.

The EU concept focuses heavily on modernizing the WTO’s Appellate Body, a crucial organ in the mechanism of resolving disputes within the WTO. The European Union’s stance on the matter was supported in November by Canada, India, Norway, New Zealand, Switzerland, Australia, South Korea, Iceland, Singapore, Mexico and China.

In its proposals on the Appellate Body, Brussels largely takes Washington’s grievances against its current functioning into account. In particular, the European Union proposes limiting the appeals term to 90 days, which had been stipulated earlier, yet the parties often failed to comply with the requirement.

The EU concept also contains a series of initiatives on bolstering the multilateral trade system and improving the efficiency of the WTO.

China, which has been striving to form a united front with other countries that condemn Washington’s protectionism, has also called for a reform of the WTO.

While supporting WTO reform, China has thus far limited its actions to fairly general statements, stressing that the importance and inviolability of the WTO’s basic principles and rules. It would seem that Beijing is unlikely to be unconditionally receptive of Washington’s demands that current privileges for developing countries in the WTO be abolished. In contrast, China will rather put forward the need to fight protectionism, which is a threat to free trade.

As for Russia, it wholeheartedly supports the idea of reforming the WTO. President Vladimir Putin and Minister of Economic Development Maxim Oreshkin recently declared this stance. Russia’s trade diplomacy has quite good positions to take an active part in the process.

In conclusion, we need to emphasize that the nascent process of reforming of the WTO cannot be simple and quick, since the list of problems is too variegated. Above, we have outlined only some of these problems. At a certain stage, the most difficult problem will likely be that of transforming the decision-making system. The consensus mechanism that has been in effect in the GATT/WTO for over 70 years clearly hampers decision-making today, as the organization boasts 164 member countries. However, abolishing this mechanism will not be easy either. This is probably the main challenge to the incipient WTO reform.

First published in our partner RIAC

Professor of World Economy and International Affairs Department at Higher School of Economics, Leading Researcher at RAS Institute of World Economy and International Relations (IMEMO)

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Afreximbank Meets Ahead of Russia-Africa Summit

Kester Kenn Klomegah

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The African Export-Import Bank (Afreximbank) plans to hold its 26th annual meeting in Moscow on 18-22 June. A series of closed sessions will be held as part of the event including the meeting of Board of Directors of Afreximbank and a meeting of Shareholders of Afreximbank, as well as the open Russia-Africa Economic Conference.

The African Export-Import Bank, the Roscongress Foundation, the Ministry of Finance of the Russian Federation, and the Russian Export Centre are the key organizers of this event. The Afreximbank Annual Meetings is a high-level event, bringing together political and business leaders from across Africa to discuss the issues of trade, industrialization, export, and financial stability and efficacy.

Key themes planned for the economic conference are: State of Russia-Africa Relations: An Overview; Mining Industry: An Integrated Approach to the Fields Development; Prospects for Multilateralism in an Era of Protectionism; Railways Infrastructure as the Key Element for Development in Africa; South-South Trade: Path for Africa Integration into the Global Economy.

The other topics are Emerging Trends in Sovereign Reserves Management; Reflections on the Transformative Power of South-South Trade; Launch Afreximbank ETC Strategy; Cyber Solutions and Cyber Security for Solving Governmental and Municipals Tasks; Financing South-South Trade in Difficult Global Financing Conditions; The Future of South-South Trade and Infrastructure Financing.

Over 1,500 delegates are expected to attend the economic conference, including shareholders and bank partners, government representatives, members of the business community and media representatives. The conference will be a crucial stage in preparation for the full-scale Russia-Africa political summit and the accompanying economic forum, scheduled for October 2019 in Sochi.

“Russian and African countries are basically on the track of bilateral strategic partnership and alliance based on openness and trust. The fact that the Afreximbank Annual Meeting is to be held in our country gives a positive momentum for the mutually beneficial cooperation of the parties ahead of the full-scale Russia-Africa Political Summit that will take place in Sochi in October, and will add to the inclusive nature of the events,” emphasized Anton Kobyakov, Advisor to the President of Russian Federation.

Following the setup of the Organizing Committee for the Russia – Africa summit and other Russia–Africa events in Russia in 2019, Russian officials have described that this year truly as a year of Africa for Russia.

“We witness the clear growing interests from the both sides to establish the new level of relationships, which means a perfect timing to boost the economic agenda. All economic events planned for this year will become a platform to vocalize these ideas and draw a strong roadmap for the future,” Russian Export Center’s CEO, Andrei Slepnev, argued in an emailed interview with Buziness Africa.

In December 2017, Russian Export Center became a shareholder of Afreximbank. Russian Export Center is a specialized state development institution, created to provide any assistance, both financial and non-financial, for Russian exporters looking for widening their business abroad.

On March 19, the Organizing Committee on Russia-Africa held its first meeting in Moscow. President Vladimir Putin put forward the Russia-Africa initiative at the BRICS summit (Russia, Brazil, India, China, and South Africa) in Johannesburg in July 2018.

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The silent revolution

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Jamaica is well known for its beautiful beaches, Bob Marley, and reggae music. But what is less known is that the Caribbean island started a silent revolution after being one of the most indebted developing countries in the world. Jamaica has shown a macroeconomic turnaround that is quite extraordinary.

As Bob Marley said, “It takes a revolution to make a solution”. After decades of high debt and low growth Jamaica has changed its growth trajectory, with positive economic growth for 16 consecutive quarters and growth getting closer to two per cent.

During that period, the Jamaica Stock Exchange went up more than 380 per cent.The credit agency Fitch upgraded the island’s debt to B+ rating with a stable fiscal outlook, and unemployment hit eight per cent in January, the lowest in decades.

The Government had a wake-up call when its debt overhang peaked at almost 150 per cent of GDP in 2013. With the support of the International Monetary Fund, the World Bank and the Inter-American Development Bank, the country embarked on an ambitious reform programme. These efforts have paid off. Jamaica is now one of the few countries that has successfully cut public debt by the equivalent of half its gross domestic product in a short time frame.

The fiscal turnaround and economic transformation were possible because of the strong commitment across political parties over two competing administrations and electoral cycles. The country also critically benefited from a sustained social consensus for change and the strong backing of the private sector.

The country has generated primary fiscal surpluses of at least seven per cent of GDP for the last six years, and remains steadfast in its commitment to fiscal discipline. These fiscal results make Jamaica a top performer internationally.

For this silent revolution to continue and bring greater prosperity to all its people, Jamaica will need to further boost the investment climate, strengthen economic and climate resilience and invest more in its people to build human capital. These are necessary complements to the maintenance of a strong macroeconomic framework and would help boost economic growth and job creation. There are encouraging signs that Jamaica is taking action in these areas.

With regard to the business climate, the National Competitiveness Council has adopted a road map to fast-track reforms to improve the business environment. Jamaica features in the top 20 countries in the world for its comprehensive credit reporting systems and ranks among the best globally in the area of starting a business, according to the World Bank’s 2019 Doing Business report. It only takes two procedures and three days for an entrepreneur to start and formally operate a business.

There have been advancements on public-private partnership investments. For instance, the Norman Manley International Airport public-private partnership was recently completed with advisory support from the International Finance Corporation — the private sector arm of the World Bank Group.

Jamaica is also a front-runner among Caribbean countries in promoting climate and financial resilience in the face of natural disasters. The economic cost of these disasters for the Caribbean is substantial, exceeding US$22 billion between 1950 and 2016, compared with US$58 billion for similar disasters globally. One serious storm or natural disaster could set back the country’s growth prospects and development achievements of recent years. To tackle this, the Government has adopted a Public Financial Management Policy Framework for Natural Disaster Risk Financing to facilitate the availability of dedicated resources for recovery in the face of disaster risks.

In order to further support Jamaica in its efforts to strengthen the economy, build resilience, and support human capital development, the World Bank will expand its financing by US$140 million. This financing package will be for a series of two operations to help Jamaica be better prepared to mitigate the financial impact of natural disasters and build stronger infrastructure, and an additional project to strengthen social protection.

Despite unemployment at a new low, still too many young people are struggling to find a job. For Jamaica to continue to grow and prosper, it also needs to develop the skills for the workforce of tomorrow, especially in the areas of technology and digitalisation. This requires a sharp focus on creating the conditions for youths to strive and succeed in the modern business world and close cooperation with the private sector in this respect.

Today, more than ever before, young Jamaicans can dream of a brighter future where “every little thing is gonna be alright”. This is the generation that must aim higher and can write a new chapter for its country.

As we celebrate the 55th anniversary of the World Bank-Jamaica partnership, we look forward to working together to build on the success of the past few years and promote growth, jobs and resilience for Jamaica.

World Bank

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With or without sanctions, Iran needs to say goodbye to oil money

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Except Norway, almost all oil producing countries have made themselves more or less reliant on oil money.

Only oil producing countries with a small population, such as Kuwait and Qatar which is also a great gas exporter, have so been safe from fluctuations in the oil market. But, countries with large population, such as Iran, are prone to volatility in the oil market, let alone the mad sanctions introduced against the country.

There is no doubt that oil money has affected politics, economy, management system, culture, spending and consumption habits and many other issues in oil rich countries.

For example, Iran now has one of the cheapest energy prices in the world. This has led to an extravagant use of energy, especially an excessive use of private car, in the country.

Let’s make an example to clarify that oil money is not the road to progress and a vibrant economy. In the 1970s, Iran was more developed than South Korea, but now South Korea is much more successful than Iran in terms of economy and technology. South Korea does not have oil, but it has provided an opportunity for a competitive economy and capitalized on its talents.

It is true that the war imposed on Iran in the 1980s hindered Iran’s progress and inflicted about 1 trillion dollar in damages on the country, yet officials failed to take serious steps toward creating a competitive economic atmosphere with a focus on research and technology. The oil money has been the main blame for such an economic approach.

According to the successive five-year development plans which end on 2021, Iran had to reduce dependence on oil to a great extent, however, successive administrations, with varying degrees, did not fully act based on the development plan.

Iran is now subject to the toughest ever illegal sanctions by the Trump administration. Just on April 22, the United States ended sanctions waivers on Iran’s exports and announced it wants to zero out Iran’s oil exports by May 1.

Whether the Trump administration succeeds or not to implement its oil threats is an issue that we should wait and see, but it is necessary that Iran take a departure from oil export how much painful it will be.

Sorena Sattari, a graduate of Sharif University of Technology who serves as vice president for scientific affairs, told a meeting in Hamedan on Tuesday that sanctions have provided an opportunity that knowledge-based companies to intensify their efforts. Sattari also said plans have been drawn up to manufacture equipment and machinery that are subject to sanctions. 

Also, whether we like it or not, fossil fuels, especially crude oil, are losing their importance as renewable energy resources are gradually taking the center stage.

Saying goodbye to easily-gained oil revenues is a bitter pill that Iran should swallow. To do so, though very difficult under tough sanctions, officials need to find other sources of income.

They can invest on tourism as Iran is among the top countries in hosting touristic sites, establish an environment for a transparent competitive economy, close loopholes of corruption, involve competent persons in managerial posts, introduce a sound and workable tax system, end unnecessary subsidies, and more importantly prioritize research and development (R&D).

First published in our partner Tehran Times

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