Okonjo-Iweala and the burden of leadership

The appointment on 15 February of Ngozi Okonjo-Iweala as director-general, World Trade Organisation (WTO), could be good news for India’s attempts to become a global manufacturing hub. But she faces a challenging four-year term because the WTO has been severely weakened by deep divisions among members on all major trade issues. The divisions have festered for over two decades among the European Union (EU), US, China, India and African developing countries, although they are often blamed on the previous US administration’s antipathy for multilateral trade agreements.

Okonjo-Iweala’s appointment had to await the new Joe Biden administration’s arrival in Washington. Biden is working quickly to rebuild bridges and the WTO’s judicial system including its top-level appeals panel should be restored in coming weeks after nearly two years of dysfunction provoked by the previous Donald Trump administration.  

She has already made history twice as the first woman and the first African head of WTO. She may have to work harder than her predecessors to establish her independence and make her mark in a global economy and trade system sharply disrupted by Covid-19 and rising antagonism of Western powers against China’s increasing economic and trade influence around the world. The US and European powers like France, Germany and Britain have long been used to using the WTO as a tool for regulating trade flows in their favour and opening world markets for their exports of both goods and services.

The rise of China and, to a lesser extent, India have begun to erode that dominance, causing consternation in Western capitals and stoking the strongest protectionist tendencies since the 1970s, which neither Biden nor the Europeans have disavowed. For the moment, this discomfort with the rise of China and India, and the potential rise of Africa, is being folded into ever more insistent Western calls for deep reforms to WTO.

The nature of the reforms is not yet clear, but early signals do not look favourable for developing countries, because their focus is likely to be on Internet cloud-based trading involving services, intellectual property (IP), big data and high-tech. A switch in these directions is unavoidable, because they are the new creators of wealth. But they are potentially disruptive because global trade has so far been understood as manufactures, raw materials, advisory and banking services, and some IP and environmental issues. All of these will continue, but the new areas are the next level foundations of global trade profoundly permeated by information technologies. They will involve a steep learning curve for the WTO and negotiators from most of its member countries.

These are early days, but Okonjo-Iweala’s leadership will be sorely tested as the EU and US unite again in WTO meetings to jointly press their viewpoints, as they did for decades. The Trump administration’s arrival in Washington split the western bloc and sent the WTO’s agenda of open markets and freer trade into a slump.

Okonjo-Iweala has wide support among WTO members but her main advocate was a former WTO director-general Pascal Lamy of France who was also an EU trade commissioner. Many now see her as beholden to the EU for her job, causing wariness in Beijing, Delhi, Moscow and elsewhere.

She has to find ways to rebuild an organisation that has not concluded a major trade negotiation since 1994 and whose admirable judicial and dispute settlement system has been broken and distrusted for over a decade. WTO has a useful but outdated trade rulebook unsuited to dealing with the changing nature of globalisation. It has almost nothing relevant to a state capitalist economy like China and other developing countries that might wish to emulate the Chinese success.

Against this backdrop, India is in an uncomfortable position because a part of its economy is at the global leading edge, while major parts are at dismal third world depths and poverty is rampant especially in the context of Covid-19. India desperately needs to use world trade as a lever to pull out of its problems and deliver higher living standards to all people.

Facilitating India and other similar countries should be the WTO’s central mission as the global economy marches into a future amid repeated health pandemics and upheavals caused by climate change. These are early days but it remains unclear whether Okonjo-Iweala will be able to stand up to the West to fight for the weak and improve equity in world trade. A good start would be a quick agreement on fairer trade in Covid-19 vaccines.