Strengthening the WTO: On the Strategic and Welfare Necessity of Addressing “New” and “Traditional” Issues
Ahead of the WTO’s Eleventh Ministerial Conference in Buenos Aires, some WTO members have expressed interest in including aspects of the so-called “new economy,” in particular investment facilitation and e-commerce, in multilateral trade talks. Why should African countries engage on those topics?
With a membership totalling 164, the WTO is grappling with the ever-present reality of the diversity of its economies. The wide spectrum of development levels, in a rules-based multilateral trading system, is not new. It has always presented a challenge. In the past, however, solutions to trade negotiating conundrums were found within the technical paradigm of “one size largely fits all” template for developed, developing, and least developed countries. However, this time the negotiating environment is very different. There are ongoing and uncertain transformations in geopolitics, real-time spillovers from the domestic politics of members, a more robust advocacy of commercial interests from a wider range of the membership, and uncertain effects from regional integration processes. These have affected the context of trade negotiations. Trade negotiations are much harder. One size will not fit all. Consensus has become more elusive, although international cooperation is more desperately needed than ever before. Neither the status quo nor business as usual are an option.
Yet opportunities for cooperation are abundant. To modernise and strengthen the WTO, its negotiating agenda and work programme must include so-called “new economy” topics such as e-commerce and investment facilitation; the provision of a global trading platform for micro, small, and medium-sized enterprises (MSMEs); and the integration of women into the formal trading system. These will need to be combined with the resolution of the standing agenda in agriculture, notably food security for the poor and the elimination of harmful subsidies that lead to human poverty and impoverish the environment, such as in the fishery sector. Modernising the organisation thus entails resolving welfare-based aspects of the “traditional economy” that are significant for many, while at the same time updating the work programme by including aspects related to the “new economy.” In doing so, trade multilateralism in the WTO should reform, or reorganise, structurally to meet the test of elasticity – responsiveness to the range of negotiating interests of its members, in a variety of formats and configurations. It is our duty as negotiators to find compromises, under win-win scenarios. If we allow the rules-based system to break, we may not be able to put it together again. All will suffer, but the weaker, will suffer more.
In December, WTO members will meet in Buenos Aires at the organisation’s Eleventh Ministerial Conference (MC11). There is everything to play for in strengthening the WTO, the global economy and, in the rules-based multilateral trading system, better supporting domestic structural reforms for growth. We have to call for new ways of doing things at the WTO that are not set-pieces, but more like a dynamic running game, in which the range of economic and trade policy issues of economic value and the configuration of commercial interests in the membership are handled simultaneously.
Even as there is urgency to modernise the WTO with “new economy” issues, agriculture matters. It remains a gateway issue not only at the WTO, but also in the wider global economy. On average, over 30 percent of the world’s population is dependent on agriculture for their livelihood; this proportion climbs to more than 50 percent in Africa, and over 55 percent in sub-Saharan Africa. In the special session of the WTO’s Committee on Agriculture, there is a technically solid set of proposals that encompass public stockholding for food security purposes, domestic support, cotton, export prohibitions and restrictions, and sanitary and phytosanitary measures. These issues should be addressed and resolved. This is core business for the WTO. To build confidence, keep the promises of the system, and clear the path for moving forward, members must now confirm a permanent solution for public stockholding for food security purposes for adoption at MC11. A rules-based system must be predictable in the implementation of its undertakings. Related to that, technical solutions should and can be found in the area of domestic support provided for traditional staple food crops in pursuance of public stockholding programmes for food security purposes. The solutions will not be big-bang, but incremental, steady, and cumulative to resolve longstanding imbalances in agriculture.
While dealing with the significant issues of the so-called “traditional economy” is essential, the “new economy” issues are of equal importance. If the WTO is to remain relevant, if it is to be counted as one of the key global institutions for economic governance and trade cooperation, then it must modernise by establishing a negotiating agenda for the “new economy.” If it does not, other institutions and negotiating fora, including regional free trade agreements, will take its place and usurp its functions. This should not happen. At this time, the principal items related to the “new economy” are investment facilitation, e-commerce and the digital economy, and the establishment of a global trading platform for MSMEs. This is a partial list and does not foreclose other “new economy” issues. Let me focus, in part, on the two issues of investment facilitation and e-commerce.
The example of trade facilitation
Facilitation of trade and investment for development is critical. It strengthens the development dimensions of the trading system. The Trade Facilitation Agreement (TFA) is squarely within the remit of the WTO. In February this year, the WTO TFA entered into force, providing for the simplification, modernisation, and harmonisation of export and import processes. The agreement contains provisions for expediting the movement, release, and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. It further contains provisions for technical assistance and capacity-building in this area. The TFA is not only important for the global economy, but carries even greater weight in supporting the domestic structural reforms of developing countries like Nigeria for example. Estimates indicate that if fully implemented, the TFA could reduce trade costs by an average of 14.3 percent and boost global trade by up to US$1 trillion per year. Developing countries would gain most.
When the TFA came into force in February this year, Nigeria was among the WTO members that had already ratified the agreement. Its ongoing implementation is complementary to the initiative of Nigeria’s President Buhari aimed at fostering an enabling business environment and improving the country’s Ease of Doing Business. The objectives are targeted on the reduction of red tape; improvements in registration of businesses; transparency; expedited exit and entry into Nigeria; the promotion of inter-agency collaboration, as in the “One Government” directive, etc. The rewards are being reaped. In the 2017 “Doing Business” rankings just released by the World Bank, Nigeria dramatically ascended by 24 places compared to last year, and is listed among the top 10 global reformers. These results are historic and indeed dramatic: economies and countries that do the right thing reap a bountiful harvest in the reputational rewards associated with improved rankings, faster growth, and expansion in job opportunities. The markets punish economies that pursue unsound policies.
Investment facilitation is also squarely within the remit of the WTO. In fact, the WTO General Agreement on Trade in Services (GATS) already serves as the largest investment treaty in the world, and has even greater potential if we work to “facilitate” its use as a development tool. Investment in services trade through Mode 3, or commercial presence, can be facilitated under the GATS, which is nothing less than a framework for foreign direct investment (FDI).
Investment is an enabler for trade and development. Without investment, trade flows would be paltry and development financing would be inconsequential. Research shows that FDI remains by far the leading source of external funding for development, at 60 percent on average globally. Moreover, in comparison to developing countries in Asia, Europe, North America, and Latin America, Africa still hosts the lowest amount of FDI. It is difficult to foresee how the Sustainable Development Goals (SDGs) and the African Union’s Agenda 2063 can be achieved in the absence of investment facilitation. Investment facilitation is and will be one of the foundational pillars of the development dimension of the rules-based multilateral trading system. In fact, UNCTAD forecasts that developing countries will need an additional US$2.5 trillion annually in foreign and domestic investment to meet the SDGs. Related to this, the World Bank has estimated Africa's total infrastructure investment requirements at approximately US$120 billion to US$150 billion per annum. The gap between infrastructure investment requirements and available financial resources is estimated at about US$60 billion to US$80 billion per year.
Investment facilitation entails creating a more investment-friendly business climate as a counterpart to the WTO Trade Facilitation Agreement. It would make it easier for both domestic and foreign investors to invest, conduct their day-to-day business, expand their existing investments, and work cooperatively and in mutually beneficial ways without discrimination to domestic and foreign investors. This is a good thing.
The WTO has a role to play, including by clarifying, improving, and applying existing rules, although this role is not exclusive. There are huge gains to be reaped through coordinated work with UNCTAD and the OECD. Nigeria believes that further discussions are necessary to explore how the WTO could contribute to encouraging cross-border investment, with the ultimate objective of promoting more inclusive trade and growth for all its members, especially developing and least developed members. This role of the multilateral trading system should be in cooperation with regional institutions like the Economic Community of West African States (ECOWAS). This is why Nigeria, in partnership with the ECOWAS Commission and the WTO Friends of Investment Facilitation for Development, co-hosted the High-Level Policy and Private Sector Forum on Trade and Investment Facilitation for Development, in Abuja on 2–3 November. The High-Level Forum adopted the “Abuja Statement – Deepening Africa’s Integration in the Global Economy through Trade and Investment Facilitation for Development.” This statement indicated how Nigeria and its partners see forward movement in this sphere.
There is good business logic to creating a common set of multilateral principles and approaches for investment facilitation, for consistent standards, reduction of regulatory uncertainty, and minimisation of transaction costs for all investors. These principles should be mutually supportive with regional integration processes and approaches. If we anchor investment facilitation reforms in a shared multilateral framework, it will bolster our collective commitment to encouraging investment and increasing policy certainty. This will send an unmistakably powerful signal to investors. Technical assistance and capacity-building support will be required to benefit from these reforms.
Investment and trade policies are complementary, companion policies and inseparable from each other. They are mutually supportive engines for growth and development. To a large extent, trade and investment facilitation provide the fulcrum to leverage the gains from structural reforms. In their mutually reinforcing roles, they support domestic structural reforms, promote inclusive growth, and foster global development.
We require a WTO work programme and associated negotiations in this area because the rewards are considerable. They include, but are not limited to: support for domestic structural reforms; contributions to good governance; growth and job creation; trade and investment policy coherence; regulatory transparency for reliability and predictability; international cooperation that contributes to locking in domestic reforms and levelling the playing field on domestic incentive structures and packages; and international cooperation that provides a platform for efficiently scaling up technical assistance.
The twenty-first century is defined by the digital revolution. Even though technological developments will always race ahead of policy and regulatory development, the least we should do is to try to stay in lockstep. The worst possible reaction is to give up on keeping pace. Rules are inevitable, either formally negotiated or arising from practice and patterns of behaviour that are eventually codified. Negotiated rules are better than those that emerge with built-in imbalances. Negotiated rules improve, correct, and structure relationships to ensure they are equitable.
The challenge and opportunity of e-commerce in Africa should be set in the broader context of the digital economy. E-commerce and the digital economy can produce huge net gains for Africa in growth, job creation, and access to global markets. Engagement in the digital economy is about economic modernisation, transparency, and good corporate governance. The emergence of e-commerce is the product of fast-paced changes in technology that have presented Africa with the gift of opportunity. Maximising its potential will depend on how the continent responds. Not engaging would be a mistake. It would further set the continent back, delaying development and widening the digital divide.
There are real challenges in the reality of the digital divide. The hurdles impeding e-commerce and the digital economy in Africa are largely offline, not online. These principally include low levels of digital infrastructure (hard and soft), involving energy deficits, digital payment systems, financial inclusion, and complex regulatory networks. There are technical challenges in the regulatory domain such as “right of way” problems; data management, privacy, and cybersecurity in general; and the management of the radio spectrum. These are areas where there is scope for more work and capacity-building from our partners, including the sharing of experience.
How should WTO members react to these challenges and handicaps? Nigeria believes that engaging would be better than refusing to engage or seeking technological parity before policy and negotiating engagement. Refusal to engage is not a strategy. Engagement should be accompanied with international cooperation that supports significant capacity-building. Very usefully, the WTO African Group has identified a range of areas where capacity-building would be needed to overcome supply-side constraints. Relevant multilateral institutions have a huge role to play in shoring up capacity weaknesses through dedicated programmes and funding. UNCTAD’s eTrade for All initiative is significant and positive, but we need to use this resource in a positive way. Technical assistance cannot be an end in itself. Rather, we need to apply technical assistance to develop our economies and improve the lives of our citizens.
At the same time, the lesson learned is that capacity-building works best when it is delivered within the framework of a coherent package of domestic policy and structural reforms. The objective of these reforms and associated capacity-building in the digital economy is to enable the integration of domestic firms into global trading platforms and into regional and global supply chains. This is why investment facilitation to build “connectivity infrastructure” is desperately needed, particularly for roads, ports, and fibre optic cabling for broadband coverage. Liberalisation of the telecommunications sector assists this process of capacity-building for the digital economy, and e-commerce in particular. Again, the existing GATS under the WTO provides a framework to advance these objectives – but such trade and investment needs to be facilitated.
The digital economy is the next major opportunity for development. Africa should not miss this opportunity. We, as Africans, need to trump timidity and tentativeness and act with audacity. Nigeria’s ongoing experience in this area offers a number of good examples. For instance, digital economy strategies and action plans should be integral to domestic structural reforms for diversification, modernisation, and growth. They require mainstreaming into domestic development plans. Africa needs to be offensive in this area, acting innovatively, purposefully, and expeditiously.
Estimates from industry indicate that approximately US$1 billion could be invested by venture capital funds into the African technology sector by 2018 (particularly start-ups), largely in the area of e-commerce. E-commerce is an area of huge market potential for growth, diversification, empowerment of MSMEs, and as an impetus for Africa’s continued integration into global value chains.
What next? Nigeria is part of the group of Friends of E-commerce for Development (FED). We are operating on the basis of a work programme. The work of the FED provides a roadmap endorsed by FED ministers on how the WTO could proceed. More WTO members should join the increasing number in the group. The e-commerce work programme has been in existence for 19 years. For Buenos Aires, members should extend the moratorium on e-commerce. And it is now also time to move to the next stage. This should rationally include establishing a restructured work programme, which fosters coherence and disciplined focus and that includes a comprehensive capacity-building programme for developing and least developed countries, in a dedicated working group. Post-MC11, further engagement should deepen on the basis of this restructured work programme, eventually leading to the negotiation of new “rules”.
It is important to be clear that the substance of new “rules” to be negotiated has not been decided and could not have been. There is an expanding set of proposals. This is a good thing. But, as some proposals suggest, before we jump into negotiations, we need to take stock of the current WTO framework of rules in order to identify the need for new rules and disciplines in the e-commerce and digital environment. Discussions on these themes will broaden the landscape for exchanges, engagement, analysis, and for eventual negotiations. As Africa moves forward, it will continue to require the assistance of UNCTAD training and capacity-building. Domestically, national e-commerce strategies and action plans should be developed as a framework for engaging in this exciting dimension of the “new economy.”
A moment for modernisation
There is a global and regional economic and trade policy context that is in dynamic transformation, and offers unprecedented opportunities for African trade and investment. We are working hard in Africa to construct the continent’s first-ever single market for trade in goods and services. Our timeline for concluding the negotiations is the end of 2017. When we conclude the African Continental Free Trade Area (CFTA), it will be the largest free trade area in the global economy. The CFTA is a priority for Nigeria, as is the WTO, which Nigeria considers an indispensable global public good. Regional institutions and economic communities are and should be mutually supportive with trade multilateralism anchored in the WTO.
There is a collective multilateral duty to modernise the WTO by establishing structured work programmes and an associated negotiating agenda for “new economy” issues, of which the first step is a work programme. Our decision to negotiate is not a gift to others, but in reality an act of enlightened self-interest. Negotiations are the mechanisms we use to settle differences, resolve conflicts, gather information, build knowledge, develop expertise, create opportunities, resolve imbalances, and seek fairness. In fact, negotiations are rights of membership, pursuant to the functions of the WTO, which are integral to the rule of trade law and governance. The mandate to negotiate is embedded throughout the principles, rules, and practice of the trading system.
MC11 must not be a lost moment for the modernisation of the WTO. We must use Buenos Aires to launch work programmes in areas of our own self-interest leading to negotiations on “new economy” topics of investment facilitation and e-commerce.
Author: Chiedu Osakwe, Chief Trade Negotiator for Nigeria, Director-General of the Nigerian Office for Trade Negotiations (NOTN), and Chairman of the Negotiating Forum (NF) for the Continental Free Trade Area (CFTA).
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 The process of regulating the use of radio frequencies to promote efficient use and gain a net social benefit.
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