Can we expect a WTO 2.0?

Can we expect a WTO 2.0?

2015 was not a bad year for global governance. The Paris Climate Accord was signed, giving us hope for the future balance of the environment. The Iran nuclear deal, also inked that year, was a relief for our good old Middle East. It was also the year Turkey was leading the G20, and world leaders met on the beaches of Antalya. The optimism of 2015 is now totally replaced by something else. It seems like a long time ago when the world could seriously talk about big things like climate change and global economic governance in a constructive way. Should we be totally pessimistic? I don’t think so. I think even more than 2015, this is the kind of environment when big changes can take place. And trade is one area where that looks likely.

Consider the words of a fellow Mediterranean, Niccolo Macchievelli, “It must be considered that there is nothing more difficult to carry out nor more doubtful of success nor more dangerous to handle than to initiate a new order of things; for the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order; this lukewarmness arising partly from the incredulity of mankind who does not truly believe in anything new until they actually have experience of it.”

Sometimes, good intentions and incremental action is not enough. Sometimes, you just need a big fat wrecking ball to sort things out.

Most of us tend to assume that Trump is bad for the international order, including the World Trade Organization (WTO.) But if we look the facts in the face, a different reality emerges. Forgive me for being blunt about it, but the WTO has been a defunct organization for a long time. It was a continuation of the General Agreement of Trade and Tariffs (GATT) process that commenced in 1948, when all we had to think about was goods crossing borders.

By the time the WTO was firmly established in the second half of the 1990s, international commerce was quickly changing in character. With the development of global value chains (GVCS), trade had become factories crossing borders rather than goods crossing borders. Trade started not to follow the flag but investments. The WTO came to its own right in the middle of this transformation. Perhaps it could have represented the new order, but it doesn’t. It simply hasn’t been able to accommodate this transformation in global trade.

And what a transformation it is. The share of G7 countries in global manufacturing has declined from 70 percent in the early 1990s to less than 40 percent in 2016. The G7’s collective GDP has declined from around 65 percent of the world in the early 1990s to around 45 percent in 2016. Besides China, the big winners are South Korea, India, Indonesia, Turkey and Thailand. The share of the latter in international trade has increased most rapidly and in that order. Why? It is all thanks to Western investments and GVCs passing through our countries. Looking for a reason why Turkey did well in the last couple of years? It’s all about European, mostly German, FDI in the country. President Recep Tayyip Erdoğan definitely knew that when he was in Berlin last week.

I see Trump’s trade war as an attempt to get a better bargaining position for the United States and its investments. It definitely reflects the frustration of the leader of the global system to make the international trade regime more compatible with the reality on the ground. It was always a bit naïve to assume that the United States would happily watch as power was being diffused throughout the world. But in the end, they will be at the table to make a deal. When the nature of the game changes, the legal framework needs to adjust to that change.

Look at it from the bright side. This is not about dismantling the WTO and breaking globalization into pieces, it is about building a WTO 2.0. It is a time when leaders should reevaluate what’s most important for the future, and make adjustments accordingly.