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The current director-general of the World Trade Organization
(WTO), Ricardo Azevêdo, will leave his post on 31 August, one year
before his mandate officially expires. Eight candidates have been
nominated to be his successor. The 164 members of the WTO's General
Council must select a shortlist of five candidates over 7-16
September, before coming to a consensus on the appointment of a new
director-general before 7 November 2020 or otherwise conduct a vote
as a last resort.
The Trump administration will almost certainly back a
candidate for director-general who supports reforms to the WTO that
create a more level playing field (given US claims that China
undertakes unfair trade practices) and that limits the remit of the
Appellate Body (AB); these reforms will remain priorities
regardless of the US election outcome. President Donald
Trump's administration has advanced numerous grievances regarding
the WTO's role and function. The independence and remit of the AB
was criticised during the term of former president Barack Obama,
resulting in his administration opposing the appointment of two
judges to the AB in 2011 and 2016 respectively. Since 2017, the
Trump administration has escalated the US's push for reforms to the
WTO by blocking all appointments to the WTO's AB, which has
prevented it from hearing new appeals through the WTO's dispute
settlement system. US Trade Representative Robert Lighthizer on 21
August 2020 in TheWall Street Journal outlined a five-point plan
for reforming the WTO. Notably, he reiterated that new rules should
be established that "stop the economic distortions that flow from
China's state capitalism", better enforcement of the
most-favoured-nation principle, mandating "baseline tariff rates
that apply to all", and that WTO dispute resolution should be "akin
to commercial arbitration" by establishing "ad hoc tribunals". The
WTO is viewed by the Trump administration as facilitating weaker
domestic industry and employment offshoring in contradiction to
President Trump's "America First" programme. Regardless of the
outcome of the US presidential election in November, the US
probably will continue seeking reforms to the WTO in multiple
areas, most immediately the dispute settlement process, use of
industrial subsidies, and anti-dumping rules.
The Chinese government would most likely favour as WTO
director-general candidates less exposed to US influence, favouring
neutral candidates from Egypt, Kenya, or Nigeria over
others. The Chinese leadership has yet to provide a clear
indication on its preferred candidate. However, the content of any
candidate's reform agenda is likely to be less important than
whether the candidate maintains friendly ties amid an increasingly
competitive US-China relationship and is less exposed to political
influence from the US. Favourable candidates are, therefore, likely
to include ones from Egypt, Kenya, and Nigeria. This rationale is
reflected in China having achieved greater representation in
multilateral affairs with support from African countries, such as
the election of Qu Dongyu as the head of the UN Food and
Agricultural Organization (FAO), which Foreign Minister Wang Yi
attributed to "staunch support" from Africa. China will likely
follow the African Union's decision if it announces support for a
candidate. So far, the AU has not publicly stated its
preference.
The European Union has similar trade and investment
objectives to those of the US, likely aligning with Washington on
intellectual property rights, state subsidies, and human rights and
labour rights issues. The EU is a WTO member but it has
not fielded a candidate, after European Trade Commissioner Phil
Hogan dropped out of the race in June 2020 because of insufficient
support from EU member states. For the EU, which has exclusive
competence over its member states in trade matters, holding the
director-general's position is likely less important than
unblocking the AB's ability to deliver dispute resolutions. The EU
supports reforms that strengthen monitoring and compliance rules,
also in the context of China's insufficient compliance with the
rules, and potentially incorporate environmental and labour rights
considerations into WTO standards.
A pathway for achieving a consensus under any new WTO
director-general is indicated by the EU, Japan, and the US having
already in January 2020 proposed the application of stricter
regulations on heavily subsidising countries. The EU,
Japan, and the US agreed in January 2020 to limit industrial
subsidies among WTO members and discussed ways to address forced
technology transfers. The three countries also agreed that WTO
members using excessively large subsidies will need to demonstrate
that they have no adverse impact on trade and that the subsidies
applied are transparent. The proposals are more likely to satisfy
US concerns over the EU not distinguishing between market and
non-market economies when calculating dumping margins, which it
perceives to benefit Chinese trade. Crucially, China is likely to
support these proposals because this would help it continue to
build alliances within the WTO.
Posted 03 September 2020 by Chris Suckling, Ph.D., Principal Analyst, Economics & Country Risk, IHS Markit