Selection of WTO Director-General

Continued Stress in U.S.-China relations — Reduced Cooperation in Multilateral Fora

The two largest economies in the world view each other as competitors and potential adversaries. With significantly different political and economic systems and ideologies, the United States and China have had different perspectives on commitments and obligations undertaken in the economic sphere.

U.S. concerns

Specifically, the United States has viewed its bilateral trade negotiations with China and the later conclusion of China’s accession to the World Trade Organization (“WTO”) as having created a commitment by China to continue on market-based reforms with the eventual conversion of the Chinese economy into a market-economy consistent with the basic rules of the WTO. There have been high level dialogues between the two countries for years with a feeling in the U.S. that repeated commitments by China to fulfill commitments have not been honored and that the bilateral relationship had growing serious problems.

China concerns

China has had a different view of the world and its obligations to other countries through its joining the WTO. Reforms continued for a while but were replaced with a growing focus on state direction, state investment and heavy subsidization of a widespread number of sectors. China has viewed the United States as attempting to prevent its economic growth and global role and as not respecting its “right” to view itself as a developing country within the WTO and hence to have fewer obligations than a developed country.

Trump Administration changes approach

Under the Trump Administration, the United States has taken a more aggressive approach to dealing with what it perceives as distortions in economic competition and lack of meaningful reciprocity in the bilateral trade relationship. The U.S. has also looked at bilateral and multilateral approaches to address the problems it perceives China has created and is creating with the functioning of the global trading system.

Bilaterally, the U.S. has conducted its 301 investigation on a host of longstanding concerns of the U.S. business community on Chinese policies and practices. The adverse findings from the USTR investigation has led to the U.S. imposing additional tariffs on Chinese goods when resolution of the underlying issues was not achieved followed by retaliation by China and a series of additional rounds of more tariffs and more retaliation. The U.S. and China did engage in negotiations to see if they could resolve the underlying concerns of the United States. A phase 1 agreement was signed in January 2020, with a phase 2 process supposed to have commenced by May.

At the same time, the United States has pursued reform at the WTO (1) to address longstanding and bipartisan concerns with the WTO dispute settlement system, (2) to address rule changes to address some of the distortions that flow from China’s nonmarket economy, (3) to modify the self-selection nature of which Members are “developing” and (4) to improve transparency.

On transparency, many countries are not current on the various notification requirements, but major concerns have existed with China and India in terms of the number and dollar value of subsidy programs that are not being reported in their notifications to the WTO.

Some of the reforms of interest to the United States are being pursued as well by others, such as the EU and Japan on state-invested companies and industrial subsidies and various other countries on transparency.

But the WTO has been struggling to achieve forward movement on many issues of importance to different Members in part due to lack of consensus on issues and a lack of leadership/coordination among major players.

COVID-19 Complicates the Bilateral Relationship

The COVID-19 pandemic has complicated the situation for the WTO and for U.S.-China relations both because of the global reach of the health problem resulting in reduced functionality of the Missions in Geneva and the current inability to hold face-to-face meetings and the widespread use of export restraints on medical goods (including personal protection equipment like masks, gloves, shields, gowns, etc.) as demand in nations with significant number of infections has grossly exceeded existing inventories and production capabilities both in country and globally.

In terms of U.S.-China relations, the lack of complete transparency by the Chinese in the early months of the COVID-19 outbreak, some slowness of action by the World Health Organization, and both missteps on testing and slowness of initial action within the United States (and resulting massive unemployment, costs to the economy and multiple trillion dollar government response) has added finger pointing on the pandemic to the already tense bilateral relations. It has also resulted in the U.S. distrusting the WHO and temporarily suspending U.S. funding for the organization.

With the collapse in global trade, the pandemic has also made it far less likely that China will honor its increased import commitments from the U.S. in 2020 as contained in the Phase 1 Agreement. See U.S.-China Phase I Agreement – some progress on structural changes; far behind on trade in goods and services, https://currentthoughtsontrade.com/2020/05/12/u-s-china-phase-i-agreement-some-progress-on-structural-changes-far-behind-on-trade-in-goods-and-services/. That said, the U.S. continues to identify important advances being made at least in agriculture with China. See https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/may/usda-and-ustr-announce-continued-progress-implementation-us-china-phase-one-agreement.

On trade, the pandemic has crippled the economies of many countries with the resulting declines in imports and exports in the March-April time frame and likely going forward for some period, though China as the first country through the outbreak and a major producer of medical goods actually saw increased overall exports to the world in April.

United States Strategic Approach to The People’s Republic of China

Earlier this week, the White House forwarded to Congress a document required by the 2019 National Defense Authorization Act, United States Strategic Approach to The People’s Republic of China. On the trade/economic front, the paper repeats the concerns that the Administration has laid out in other documents most of which are summarized above (not including the COVID-19 issues). The U.S. views challenges from China to three broad areas — (1) economic challenges (largely failure to continue reforms to become a market economy, failure to honor commitments made to the US, use of predatory practices, insistence on being a developing country, etc.); (2) challenges to U.S. values; and (3) security challenges. The link to the document is here and the text is embedded below. https://www.whitehouse.gov/wp-content/uploads/2020/05/U.S.-Strategic-Approach-to-The-Peoples-Republic-of-China-Report-5.20.20.pdf.

U.S.-Strategic-Approach-to-The-Peoples-Republic-of-China-Report-5.20.20

Challenges for the WTO

The WTO remains able to move forward where issues are limited to a subset (the “willing”) as progress on e-commerce talks would support. But in a consensus based system, distrust between major players will paralyze large parts of any agenda. Indeed, with the large number of WTO Members (164) at various stages of economic development, there will almost always be a wide divergence of views on any issue. In such a situation, leadership and cooperation among major economies become important to develop a consensus. So it is hard to see how the WTO advances a reform agenda without improved relations between the organization’s two largest Members.

With the recently added challenge for the WTO of selecting a new Director-General, the sour relationship the U.S. and China will likely make finding a candidate who would be supported by a consensus of the Membership that much harder, suggesting at a minimum a process that takes the full six-month time for selection (versus any hoped for expeditious resolution in light of DG Azevedo’s departure at the end of August) and perhaps extended time lines. If the selection process breaks down into highly polarized camps (the existing procedures were developed to try to prevent such an outcome), the ability to move forward the WTO’s reform and existing negotiating agenda will be delayed by certainly months and perhaps longer.

Conclusion

At a time when the world is struggling with a global pandemic which continues to cause huge health challenges to many countries in the world and has devastated the global economy at least temporarily, costing tens of millions of workers jobs, and likely closing hundreds of thousand of businesses around the world while requiring government financial support that will likely exceed ten trillion dollars, there is an unfortunate lack of global cooperation between the major economic players and distrust at least from the U.S. of multilateral institutions viewed as either ineffective to deal with China’s economic system or not operating in an unbiased manner.

A major part of the challenge flows from the distrust that exists between the world’s two largest economies that precedes the pandemic but that has been worsened by the pandemic’s development and handling. The two countries have different economic systems which are essentially non-compatible, have different political systems and different ideologies and view each other as competitors and potential adversaries.

In a change of approach, the United States has decided to take a more aggressive approach to achieve reciprocity in fact with China and not merely on paper or from spoken promises. The change in approach has resulted in the U.S. acting unilaterally in certain situations. China has appeared unable to understand or agree with the concerns raised by the U.S. (and others) and harbors a belief that the real motive behind U.S. actions is “to keep China down”. This mutual distrust has resulted in both hard feelings and an inability to achieve cooperation on a large number of trade, economic and other issues.

The current U.S.-China relationship increases the problems for many multilateral organizations, but certainly for the WTO both in terms of selecting a new Director-General and in developing WTO reforms and moving ongoing negotiations forward.

Look for a challenging second half of 2020.

WTO selection of a new Director-General — One Individual from a Developed Country Previously Reviewed Could Shorten the Process

In my post from May 15, I reviewed the procedures the General Council uses for selecting a new Director-General (“DG”). May 15, 2020:  World Trade Organization – Search for a new Director-General, https://currentthoughtsontrade.com/2020/05/15/world-trade-organization-search-for-a-new-director-general/. With the current DG Roberto Azevedo having announced his intention to depart at the end of August this year, the WTO’s Chairman of the General Council, Amb. David Walker (NZ) is exploring with the Members whether the nine month normal selection process can be expedited to reduce or eliminate any gap period between DG Azevedo and the next DG. It is expected that with DG Azevedo having been from a developing country (Brazil), the next DG will be from a developed country. If true and if few or no developing countries put forward candidates, the WTO may face a smaller number of candidates put forward during the one month nominating process than was true in 2012-2013.

Amb. Walker today via email to the Members has suggested May 25th as the start date for the selection of a new DG. After that date, candidates can be put forward by their Member governments with a one month deadline (June 25). [UPDATE from May 20, start date will be June 8 will all candidates to be put forward by July 8. https://www.wto.org/english/news_e/news20_e/dgsel_20may20_e.htm].

As noted in my prior post on the subject, there was one developed country candidate who was put forward in 2012/2013. If that individual, former New Zealand Minister of Trade, Minister for Climate Change Issues and Associate Minister of Foreign Affairs and former New Zealand Ambassador to the WTO Tim Groser is put forward by New Zealand when the nominating process commences, Members could decide on expedited procedures because of their familiarity with the Honorable Tim Groser, his proven strengths, his knowledge of the WTO and his ability to work with all governments and the review of him by the Members that took place in 2013. While such an approach will likely not be followed by the WTO Membership, if followed, there could be a relatively seamless transition with a very strong candidate taking over from the current DG at the end of August. For an organization facing the challenges the WTO is at the present time, such a smooth transition should be viewed as highly desirable.

The Hon. Tim Groser’s Curriculum Vitae in 2012 and later developments

When New Zealand put Groser forward as a candidate in 2012, he was in the middle of his service as New Zealand’s Minister of Trade, Minister for Climate Change Issues and Associate Minister of Foreign Affairs. He also had extended service in Geneva both during the Uruguay Round and in early years of the Doha Development Agenda negotiations. While in Geneva he served as Chair of the Rules negotiations for a period of time and later served as the Chair for the Agriculture negotiations. https://www.wto.org/english/news_e/news12_e/biography_timgroser_newzealand_e.pdf .

biography_timgroser_newzealand_e

He continued in his capacity as New Zealand’s Minister of Trade and Minister for Climate Change Issues and Associate Minister of Foreign Affairs through 2015. From 2016 through 2018, Groser was New Zealand’s Ambassador to the United States and also served as a Special Envoy to the Pacific Alliance. Since 2019 he has headed up Groser & Associates, a trade consultancy. So the Honorable Tim Groser has a lifetime of commitment to trade expansion and the multilateral trading system.

January 30, 2013 Statement to the General Council

In early 2013, the problems facing the global trading system started with the inability of the WTO Members to conclude negotiations, a situation which has continued and, with few but important exceptions, worsened to the present time. The concerns that candidate Groser reviewed in his statement to the General Council on January 30, 2013 as part of the selection process included challenges to the dispute settlement system in terms of timeliness of decisions and the fundamental challenge of the breakdown in the negotiating function. The threat to the WTO at the time was perceived by candidate Groser to be to the continued relevance of the organization. He also believed that while there is an important political element to negotiations, the key is for progress at the technical and Geneva level before turning to senior trade officials for resolution of remaining issues.

The opening statement of candidate Groser from 2013 has continued relevance in 2020, although the challenges facing the WTO and its Members have gotten more complicated since 2012 with the impasse on the Appellate Body, the need to update the WTO rule book to make it relevant to technological developments, the changing makeup of membership with differing economic systems, and the changing economic capabilities of Members — all issues subsumed under the term “WTO reform”. Moreover, the COVID-19 pandemic has understandably occupied the energies of many countries and the work of much of the WTO to help the global economy keep markets open and support economic recovery.

The 2012 statement of the Honorable Tim Groser is embedded below.

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WTO Members were also able to raise questions to the candidates, though the time limitations meant that during the General Council meeting only selected countries could raise questions to a given candidate. The Q&A session for candidate Groser is included in the minutes of the General Council meeting held on January 29-31, 2013. See, e.g., WT/GC/M/142 at Annex D, Questions and Answers, pages 46-55. During the 75 minutes of questioning, twenty-four WTO Members were able to ask candidate Groser questions — Singapore, Czech Republic, Italy, Canada, Trinidad & Tobago, Dominica, Chile, the United States, Uruguay, Croatia, China, Spain, Nepal, Thailand, the Netherlands, Paraguay, Haiti, Malaysia, Saint Lucia, Brunei Darussalem, Ecuador, Argentina, Dominican Republic, Japan.

Finally, all candidates were given the opportunity to have a press conference following their meeting with the General Council. The link to candidate Groser’s press conference is here. His comments to the media summarized his main points from his direct presentation and then responded to media questions. https://www.wto.org/audio/2013_01_30_dg_sel_groser.mp3.

Personal observation

Over the last thirty years, I have spent a great deal of time in Geneva meeting with government officials from many Members and with many GATT and now WTO Secretariat staff. I have been privileged to know many of the Ambassadors and other Mission staff over that thirty year time period, including Amb. Groser. I know of no one that I met with who did not have a very high opinion of the capabilities of Amb. Groser when he was in Geneva. The Secretariat staff who worked with Amb. Groser on the Rules negotiations or the Agriculture negotiations are similarly personally familiar with his leadership ability and ability to find paths forward on seemingly impossible issues.

As one friend from Geneva recently said to me, “I have seen literally thousands of officials, Trade Ministers and experts pass through the GATT and WTO in the decades I worked for the system. If I had to pick one person who I think has the capacity and integrity to address these systemic issues it would be the Honourable Tim Groser – New Zealand’s Trade Minister for seven years and prior to that a legendary official in Geneva from the moment he arrived in the mid-1980s as his country’s senior negotiator at the start of the Uruguay Round.”

Conclusion

As DG Azevedo has made clear, the WTO faces enormous challenges going forward. With his departure in a little over three months, the WTO needs a new Director-General who will oversee the member-driven effort to address the challenges. Specifically, the new Director-General will need to help the Membership approach the postponed 12th Ministerial Conference sometime in 2021, hopefully conclude ongoing multilateral negotiations on fisheries subsidies and plurilateral talks on e-commerce. The new Director-Gernal will also need to help the Membership deal with the complex issues of WTO dispute settlement reform and the restart of the Appellate Body, the pressing need to modernize the WTO’s rule book to cover new technologies and current issues, revitalize the negotiating function, and reflect the changing makeup of the Membership and the relevance of existing rules to different economic systems of Members.

While there are likely many potential candidates who would be “well qualified”, the normal selection process could take to the end of the year with implementation possibly delayed until sometime in 2021, requiring use of an acting Director-General. That process could be significantly reduced if (1) New Zealand chose to renominate the Honorable Tim Groser and (2) the major Members of the WTO viewed his strong credentials as a basis for reducing the number of candidates to permit expedited selection of a new Director-General. One can always hope.

World Trade Organization — Search for a new Director-General

On May 14, 2020, the WTO’s Director-General Roberto Azevedo announced during a virtual meeting of all WTO Members that he would be stepping down from his position on August 31st, one year ahead of the end of his second four year term which ends August 31, 2021. His message to the membership was that the decision was personal and was intended to permit the WTO to choose a new Director-General hopefully before his departure and to avoid a dilution of effort needed for the next Ministerial Conference which has been postponed from June 2020 to either summer or winter of 2021. The current Chair of the WTO General Council, Ambassador David Walker of New Zealand, indicated that he would be notifying Members shortly of the start of the selection process and would be consulting to see if the process could be expedited in light of DG Azevedo’s departure in three and a half months. Both statements are linked here and reproduced below. https://www.wto.org/english/news_e/news20_e/dgra_14may20_e.htm.

WTO-_-2020-News-items-DG-Azevêdo-announces-he-will-step-down-on-31-August

Procedures for the Appointment of Directors-General

Since 2003, there have been procedures for the appointment of directors-general adopted by the General Council of the WTO (10 December 2002), The procedures are included in WT/L/509.

The timeline laid out in the procedures calls for the process to start nine months prior to the “expiry of the term of an incumbent Director-General.” WT/L/509, para. 7. So the current situation will either run over beyond DG Azevedo’s departure (indeed potentially to as late as sometime in February 2021) or will have to be seriously expedited (as potentially permitted under para. 23).

While expediting the process is possible, the various steps required by the process suggest that it is highly unlikely a new WTO Director-General will have been agreed to by the time DG Azevedo steps down. Thus, the WTO will likely face a vacancy for some period of time. Para. 23 of the procedures agreed to would then require the General Council to designate one of the four Deputy Directors-General to serve as Acting Director-General until the selection process for a new Director-General is completed. Thus, if there is a vacancy beginning September 1st, the General Council will be selecting an Acting Director-General from among these individuals — Yonov Frederick Agah (Nigeria), Karl Brauner (Germany), Alan Wolff (US) and Yi Xiaozhun (China).

Timing of Steps Absent Expedition

The procedures (WT/L/509) provide for the following timeline if a selection process occurs within the nine months outlined:

  1. “Members shall have one month after the start of the appointment process to nominate candidates. Nominations shall be submitted by Members only, and in respect of their own nationals.” Para. 8.
  2. Chair of the General Council has materials distributed to members as received and sends a consolidated list of candidates after the close of the one month period. Para. 10.
  3. “The candidates nominated shall then have three months to make themselves known to Members and to engage in discussions on the pertinent issues facing the Organization.” Para. 8.
  4. “As early as possible after the close of the one-month nomination period, candidates shall be invited to meet with Members at a formal General Council meeting. Candidates will be invited to make a brief presentation, including their vision for the WTO, to be followed by a question- and-answer period.” Para. 14.
  5. Months 5 and 6 after initiation, “the General Council shall proceed, through a process of consultations, to narrow the field of candidates and ultimately to arrive at its choice for appointment.” Para. 15.
  6. The process which is led by the Chair of the General Council and several facilitators, looks to find the candidate “around whom consensus can be built.” Para. 17. Depending on the number of candidates, there can be successive rounds to find candidates least likely to attract consensus who are then expected to withdraw. Para. 18.
  7. If successful, the Chair of the General Council with the support of the facilitators will “submit the name of the candidate most likely to attract consensus and recommend his or her appointment by the General Council.” Para. 19.
  8. “The process shall conclude with a meeting of the General Council convened not later than three months prior to the expiry of an incumbent’s term, at which a decision to appoint a new Director-General shall be taken.” Para. 7
  9. If General Council can’t take a decision by consensus, Members can “consider the possibility of recourse to a vote as a last resort.” Para. 20.

The full list of procedures is embedded below (WT/L/509).

WTL509

Assuming Amb. Walker sends out a notification in the next day or so, a normal process would result in a General Council decision in the second half of November. If there is a vacancy, the new Director-General should be able to assume responsibilities as soon thereafter as his/her schedule permits, even if not three months after the decision.

Process in 2012-2013

The selection process in 2012 started in December with nine applications received by December 31. The WTO press release showing the candidates and linking to their statements, CVs and other materials is linked here. https://www.wto.org/english/news_e/news13_e/dgsel_03jan13_e.htm. There was interest by many developing countries in seeing that the selection process kept in mind paragraph 13 of the procedures dealing with representativeness of candidates which states,

“13. In order to ensure that the best possible candidate is selected to head the WTO at any given time, candidatures representing the diversity of Members across all regions shall be invited in the nominations process. Where Members are faced in the final selection with equally meritorious candidates, they shall take into consideration as one of the factors the desirability of reflecting the diversity of the WTO’s membership in successive appointments to the post of Director-General.”

Because the DG slot at the WTO had been filled by three Europeans, one New Zealander and one from Thailand (with Pascal Lamy of France the last DG), many developing countries sought a developing country candidate assuming there were well qualified candidates from many countries. See WT/GC/M/139 at 13-15 (paras. 50 – 60).

Of the nine candidates, eight were from countries that classify themselves as developing countries within the WTO (Ghana, Costa Rica, Indonesia, Kenya, Jordan, Mexico, the Republic of Korea and Brazil). The sole developed country candidate was from New Zealand. All candidates had solid credentials.

Meetings with the candidates by the General Council occurred in late January (29-31) where each candidate was given 15 minutes for an opening statement and then participated in a question and answer session of an hour and fifteen minutes. See, e.g., WT/GC/M/142 (minutes of meeting held on Jan. 29-31) posted 16 May 2013.

Three rounds of consultations were held beginning in early April, with the result that at a General Council meeting on May 14, the Chair of the General Council put forward Roberto Azevedo from Brazil as the candidate most likely to achieve consensus and the General Council agreed. WT/GC/M/144 (minutes of meeting held on May 14) posted 4 July 2013.

Mr. Azevedo then assumed the role of Director-General as of September 1, 2013 and was reappointed for a second four years in 2017.

Prognosis for 2020

One would expect that there will be a number of developed country Members who put forward candidates in the next thirty days on the assumption that the pattern will be developed, developing, developed, developing and Brazil has just completed seven years with their candidate as DG.

Canada, Australia, New Zealand, Japan, Switzerland, Norway, the United Kingdom and one or more member countries from the EU would seem to be possibilities. The U.S. is not included in the list simply because of its prior lack of putting forward candidates and current Administration and Congressional concerns with the WTO, although the U.S. concern with the need for reforms could result in a surprise. The Republic of Korea is not included as it has considered itself a developing country, though it may still put forward a candidate and note that it is not seeking special and differential treatment on current or future negotiations in light of its development. I would be surprised if the United Kingdom puts forward a candidate just based on the serious trade negotiations that the U.K. is engaged in with the EU and the United States and their recent resumption of trade policy responsibilities following Brexit.

Developing countries are not prevented from putting forward candidates, and I assume that there will be some candidates put forward. Singapore would fit a profile similar to Korea in that it has indicated it will not seek special and differential treatment on current or future negotiations. Africa has not had a Director-General selected from among its candidates, and there has been only one Asian candidate selected previously.

What isn’t known is the willingness of the Members to streamline the nomination and selection process to permit a resolution while DG Azevedo is still active. If there are very few candidates, it may be easier for Members to agree to expedited procedures.

With the serious issues facing the world economy and the global trading system, maximum cooperation in selecting a new Director-General would be very important to helping focus a global response and updating of the WTO. Let’s hope that this is an issue on which the membership can agree to act quickly.