'No EU-UK deal? It is not the end of the world', says WTO chief26 November 2017 | 05:01 | The Telegraph
Azevedo, though, is a major figure on the global political stage – by far and away the most important trade diplomat on earth. As such, he’s been taking a keen interest in, and has some interesting thoughts on, the UK’s Article 50 negotiations with the EU.
Before getting to Brexit, though, does he feel the world economy is in danger of lurching into protectionism? There has been much fiery rhetoric regarding new tariffs and quotas of late, not least since Donald Trump entered the White House.
“There is a danger, yes, but if you look at the numbers, they don’t show we are in a protectionist phase,” says Azevedo, speaking at the WTO’s headquarters in Geneva. “Trade was extremely affected after the 2008 crisis, we had a big dip, but we have rebounded quite strongly.”
Certainly, after slumping in 2009, global merchandise trade has grown on average by 2.8pc a year since 2010. As growth has lately accelerated in the US and China, the WTO recently upgraded its 2017 forecast, and now expects a 3.6pc trade expansion this year. That’s still below the 4.7pc average since 1980, but would amount to the best performance since the global financial crisis.
“Trade growth is now picking up and coming back to normal,” says Azevedo. “Less than 5pc of global trade is affected by restrictive measures introduced since 2008 – so protectionism is part of the picture, but not a major part.” The world has learnt its lesson since the Thirties, he argues, when “around two thirds of the global trade disappeared”, leading to the Great Depression.
Azevedo insists the global system of multilateral trade negotiations – with the WTO’s 164 member states permanently arbitrating on trade disputes, under a system of agreed international rules – has played a major role. “This multilateral system is fundamental – it is the main core that holds the global trading system together,” he says. “Bilateral and regional agreements are important, and we want them, but they are not by themselves sufficient.”
But is the WTO now in danger? Under Trump, the US has been blocking new appointments of judges at what is effectively the world’s supreme court for trade – hoping to tilt the system to America’s advantage. With litigation piling up, the system is reportedly nearing breaking point. Earlier this month, Pascal Lamy – Azevedo’s predecessor at the WTO – said Trump now poses “a systemic threat” to the body.
“To the extent we compromise the dispute settlement system, this is indeed a systemic threat,” says Azevedo. “The US feels the trading system embodied in the WTO is insufficient to deal with some realities of today’s world – not least the rise of China.” But then Azevedo issues a warning to the US president, highlighting the importance of multilateral rules.
“After 2008, the expectation was the protectionism was going to bring us back to the Thirties – but it didn’t,” he says. Azevedo credits the WTO for that. “Without multilateral rules, the temptation for politicians to act alone, and introduce protectionism, would be too great to resist – and once one country went down that road, others would follow and it would be a spiral down, a race to the bottom.”
In 1950, international trade accounted for just 8pc of global GDP. This figure has since more than tripled. The value of trade flows, in real terms, has increased 26-fold over that same period, in large part due to the relatively open global trading environment created by the WTO and the multilateral system of trade liberalisation and dispute resolution.
Isn’t Azevedo concerned, though, that WTO members haven’t managed over recent years to agree a new “trade round” – that is, signing an over-arching agreement comprising a series of highly complex, mutually dependent deals, lowering trade barriers across various sectors?
Achieving this requires agreeing thousands of cross-sector trade-offs, with WTO rules requiring unanimous agreement among all member states.
Azevedo cites the WTO’s Trade Facilitation Agreement, which entered force earlier this year, designed to smooth customs clearance across the world. “This agreement should generate around one trillion dollars of benefits, in terms of trade liberalisation,” he says. “But it has a completely different structure to our previous agreements.” Explaining that various nations can implement it at their own pace, Azevedo argues this more adaptable multilateral deal “can act as a blueprint for future undertakings at the WTO”.
So what of the UK? If Britain fails to strike a free trade agreement (FTA) with the EU ahead of March 2019, when we’re scheduled to leave, then UK-EU trade reverts to WTO rules. While some claim this would be a disaster, not least parliamentarians determined to frustrate Brexit, Azevedo disagrees.
“About half of the UK’s trade is already on WTO terms – with the US, China and several large emerging nations where the EU doesn’t have trade agreements,” he says. “So it’s not the end of the world if the UK trades under WTO rules with the EU.”
Acknowledging that an FTA would be best, with WTO rules involving reciprocal UK-EU tariffs, Azevedo still gainsays the gloom-mongers. “If you don’t have a fully functioning FTA with the EU, there could be rigidities and costs – but it’s not like trade between the UK and EU is going to stop. There will be an impact, but I suppose it is perfectly manageable.”
He points out that to maintain current levels of access in nations where the EU has already struck FTAs, the UK will need to negotiate new agreements with such countries after Brexit. But won’t the fact that EU agreements already exist with such countries help the UK to reach such deals? “Trade deals are always complex,” says Azevedo. “But it may be helpful as some of the trade harmonisation is already there – that could act as a shortcut.”
While the EU has cut around 50 FTAs, most are with very small countries. Despite 60 years of trying, Brussels has failed to strike deals with the US, China, Brazil, India and almost all other large economies. Why is this? “Trade deals are difficult but there is an additional complicating factor for the EU, which is agriculture,” says Azevedo. “Once you start negotiating with a big agricultural exporter, they want market access – and, for the EU, that’s a sensitive sector, both politically and economically, a sector that makes itself heard.”
As the global centre of economic gravity shifts east, multilateral institutions are having to adapt. While Azevedo’s own appointment, in 2013, reflected this shifting balance of power, does he feel there’s further to go? “The WTO was updated with the entry of China in 2001, and Russia in 2012 – two very large and important economies,” he said. “That represents an update – and these members are very active, so the WTO is changing.”
And what difference will the UK make at the WTO, acting as an independent trading nation for the first time since 1973? “I hope Britain will help co-operation among nations – which has always been your traditional approach,” says Azevedo. “The UK has many qualified professionals – and generally liberal views on trade.”
After Brexit, Britain can be “more flexible in its approach and quicker to react within the WTO, as you don’t have to coordinate with all the other members of the EU”, observes Azevedo. “You will lose the weight of the EU as a market, but the UK is by no standards a minor economy or a minor player in the multilateral system.”
As our conversation draws to a close, Azevedo smiles for the first time, revealing a big toothy grin. “I think Britain has an opportunity,” he says, “a chance to contribute in a way that is consistent with the quality of your professionals and the size and importance of your economy.”
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