WTO: Ngozi Okonjo-Iweala faces tall order to reform global trade body, Chinese experts say

The new director general of the World Trade Organization (WTO), Ngozi Okonjo-Iweala, faces an uphill battle to reform the global body, especially as China and the United States remain far apart on key issues like subsidies, Chinese economic experts say.

Okonjo-Iweala – the first woman and first African leader of the organisation – will take control of the WTO at one of the most difficult periods in its history, and faces a herculean task to restore the battered institution.

The 164-member WTO has been operating without its Appellate Body, which arbitrates global trade disputes, since December 2019 after the Trump administration blocked the appointment of new judges. The Trump government had also refused to back Okonjo-Iweala’s candidacy, leading to months of delay until the Biden administration withdrew US opposition.

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Speaking at a virtual press conference after her confirmation early this week, Okonjo-Iweala said reforming the dysfunctional appeals system was a priority.

The WTO is a member-driven organisation, which means all its major decisions are made by a consensus of 164 governments, not the director general
John Gong

Among other issues she will have to address are long-standing complaints from the US and Europe about subsidies enjoyed by Chinese state firms favoured by the government

John Gong, a professor of economics at the University of International Business and Economics in Beijing, said the Nigerian would struggle to change China’s industrial policies before implementing other reforms at the WTO.

“The WTO is a member-driven organisation, which means all its major decisions are made by a consensus of 164 governments, not the director general,” Gong said.

“The existing WTO agreement on procurement and state subsidy is quite loose ... and is not a rigorously implemented agreement either.”

Gong said the other way to settle disputes on subsidies was through the now-dysfunctional Appellate Body, which would not resume operating any time soon.

“Reducing subsidies can only happen when China is willing to do so, but that’s more between China and the US, not within the overall WTO,” he said.

Tackling trade distortions from subsidies, which are widespread in China, was essential for the WTO’s future, said Christine McDaniel, a senior research fellow at the Mercatus Centre at George Mason University.

“Most governments have been propping up more firms than they usually would thanks to Covid,” she said. “But once the pandemic subsides, WTO members should come to the table with an open mind and be willing to write a new subsidies chapter; we may not be able to save the WTO without it.”

In an interview with the South China Morning Post last year, Okonjo-Iweala said the issue of subsidies was “fraught” and one of the “most challenging” and “divisive” items of work. China’s industrial subsidies are high on the agenda for the US, European Union (EU) and Japan, while Europe’s agricultural subsidies anger many developing countries.

Kong Qingjiang, a professor of law at China University of Political Science and Law, said China might make concessions and changes if it aims to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), but he added this “takes time”.

Over the past month, both President Xi Jinping and the Biden administration have said they are ready to engage in reform of the WTO.

Last month, the European Commission’s director general for trade, Sabine Weyand, said the EU was looking to work with the US, Japan and other like-minded countries to agree on an update of the WTO rule book.

“We had made indeed good progress on the issue of industrial subsidies in the beginning of 2020, but what prevented further progress was that we did not agree in the trilateral on what to do with the outcome of our work,” she told the Trade Talks podcast.

“In the end, it boiled down to the question, do we believe that China can be disciplined through enforceable rules in the WTO or not?

Even if she takes sides and gets other members to reach a consensus to go against China, China can reject and declare that she is unfit for such a role
Shi Yinhong

“China will react when it is confronted with the unified position of a number of like-minded countries that put pressure on it to limit the subsidies that lead also to overcapacity.”

Shi Yinhong, a senior adviser to China’s cabinet-level State Council, said he does not think Okonjo-Iweala would choose sides between China and the West, especially when bilateral relations between the world’s two largest economies had deteriorated so severely over the past year, and Biden seemed likely to continue with policies that were tough on China.

“Even if she takes sides and gets other members to reach a consensus to go against China, China can reject and declare that she is unfit for such a role,” Shi said.

But Beijing would not totally reject requested changes to its state subsidy programme, only because the central government now had fewer resources to support state-owned enterprises, he said.

“The Chinese government has already stopped subsidising some companies that are not doing well,” he said. “The Europeans will be more easily satisfied with some compromise by China, but so far I don’t see the Americans letting China off the hook.” - South China Morning Post

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