Monday, 23rd May 2022
Breaking News:

Africa and developing economies: the case for WTO leadership and reform

By Bello Shehu & Zayyad Abdullahi
25 November 2020   |   9:49 am
One of the problems associated with the General Agreement on Tariffs and Trade (GATT) of 1947 was its insensitivities to the inequalities between rich and poor countries. The replacement of GATT with the World Trade Organization (WTO) in 1995 was meant to address the imbalance in international trade. However, despite tremendous growth recorded, the gap…

One of the problems associated with the General Agreement on Tariffs and Trade (GATT) of 1947 was its insensitivities to the inequalities between rich and poor countries.

The replacement of GATT with the World Trade Organization (WTO) in 1995 was meant to address the imbalance in international trade.

However, despite tremendous growth recorded, the gap between the rich and poor countries continues to grow. Poverty has increased in Africa and Latin America while development goals have become a goldmine for corrupt NGOs. This is because the rules that guide international trade are based on the unfairness that began with what was known as GATT.

When WTO replaced GATT, it also inherited its unbalanced structure, outdated and ineffective policies – especially among African and Latin American countries – as well as its inability to confront countries that flout international trade rules.

Negotiations focused on agreements for products in which major exporting countries had interests, with emphasis on reducing import barriers in countries they were targeting for export.

Less attention was dedicated to small countries whose economies were based on the extraction of raw materials, and many of whom were under colonialism or imperialism. Little was asked of powerful countries in terms of trade liberalization or promoted small countries in terms of what they can export like raw materials or labour.

The new trade watchdog incorporated many of the agreements from GATT which countries of the global south were obligated to accept due to colonialism or the influence of imperialism.

One of the unfairness from the onset was the Agriculture Agreement, which brought domestic support known as subsidies under international control. When negotiated, the Agriculture Agreement had three pillars to guide its goal of reducing agriculture protection and the liberalization of the sector among WTO members; domestic support, market access, and export competition.

This rule prevented members from directly supporting farmers with finance or policies while allowing free access to markets among member states by replacing all protection and restrictions with tariffs. The AgricultureAgreement disrupted the development of the agro-economy in small countries and made it difficult for them to compete with industrialized economies at the time.

Although the commitments set out by the agreement were to be implemented by WTO members within six years (ten years for developing countries), a decade has proven inadequate for most third-world countries whose economies were traditional and coming out of colonialism, to catch up with industrialized economies in Europe and North America.

In the end, the WTO rules opened many countries in the global south to unfair competition and supply of finished goods from major exporting countries leading to product dumping, trade deficits and increased debts.

One of the challenges facing the WTO today is the delay in solving trade disputes among members by the Dispute Settlement Body (DSB). In recent years, the DSB has failed to settle a significant number of trade disputes among members who now question the effectiveness of the WTO.

The General Council, which convenes as the DSB, has been politicized by members, therefore, undermining the effectiveness of the body and giving room for ensuing conflict.

The success of international trade is dependent on the predictability of trade, however, since 1995 there are over 300 cases with about 130 reaching full panel processes, leaving more than half of the remaining cases either settled by members out-of-court or still in the prolonged consultation phase.

The body lacks the swiftness needed to handle complex international disputes and there is growing disbelief in the system’s ability to deliver fair and timely resolutions. The average timeframe for WTO panel proceedings is ten months excluding the time it takes to translate reports and set up a panel. Such a timeframe should be cut down to enable the delivery of quick resolutions and restoration of confidence among members.

While comparing WTO’s Dispute Settlement Body puts it ahead of other IGOs, the goal is to be efficient and to deliver on its mandate and not to compete with underperforming IGOs.

How can arbitrations be more binding on powerful countries if they do not comply? Whose responsibility will it be to make sure rulings are binding on members? These questions must be answered to reform and restructure the WTO to a more effective and result-driven IGO today.

Many countries contravene the rules and are not held accountable due to the inability of the WTO to confront them. Such challenges are responsible for dissatisfaction among members. The right to retaliation provides another inadequate solution to solving disputes among members.

When such a strategy is deployed against powerful countries, it hurts the domestic market and economic development of the poor deploying countries, because these countries depend on trade with rich countries to bring in much-needed technologies and FDI.

The pressure, therefore, lies solely with developing economies; they cannot withstand economic losses like their developed counterparts who can afford bailouts and other interventions.

Therefore, the retaliation rule also undermines the effectiveness of the DSB by placing the responsibility entirely on members. Without an effective DSB, the security and predictability of international trade will be compromised.

Another challenge the WTO faces is the criticism and distrust of its partnership with the World Bank and International Monetary Fund (IMF).

The politics of these international financial institutions are not harmonious with the politics of African and other developing countries in Latin America. The World Bank and IMF do not have good records of accomplishment with developing countries who over the decades have accused both institutions of sabotaging their economies and development processes.

In Latin America and sub-Saharan Africa, the World Bank and IMF have overseen the mismanagement of economies by its continuous insistence on one-size-fits-all structural adjustment programs that disregard the peculiarities of individual countries and economies.

When the World Bank rolled out its plans for the world, Masaki Shiratori who was Japan’s executive director at the World Bank at the time expressed concerns over the plans’ overreliance on America’s experience and preference for free trade and capitalism while disregarding the role of the state in economic growth and development.

It will be inequitable to say the Bretton Woods Institutions are solely responsible for the failing economies in Africa and Latin America without mentioning the challenges of leadership and corruption. Thus, it is clear that the WTO cannot merely oversee international trade but also actively promote the culture of good governance and leadership among members.

While the miracle of the Asian Tigers is the Bretton Woods Institutions’ favourite success story, their achievements are largely due to political and business interests that facilitated the flow of capital and technology leading to economic prosperity for the few.

Africa on the other hand did not enjoy such intervention and support as the gains of international trade are unfairly distributed at the expense of the continent. Nothing confirms this more than the cocoa and chocolate industries.

While the cocoa industry with its biggest producers in Ivory Coast, Nigeria, and Ghana is worth $43b, the chocolate industry it services with raw materials is worth a whopping $103b. It gets worse; in 2019 Fairtrade discovered that the total income of a Fairtrade certified farmer is $0.93 per person/day and an average farmer household income was $2,707 per year in Ivory Coast, which is the largest producer of cocoa.

Since the 2016 U.S. general elections that brought President Trump to power, international alliance and multilateral agreements have been criticized by the President, who has withdrawn support from several multilateral agreements. Rejection of arbitrations and anti-IGO sentiments have increased due to their inability to confront the challenges of international trade and globalization.

The rise of populism and nationalism in Europe and other parts of the world have led to withdrawal in multilateral agreements as seen with Brexit and Trans-Pacific Partnership. WTO must strengthen its DSB to restore the confidence and predictability of international trade.

If President-elect Joe Biden is true to his commitment to return the a leadership role in multilateralism, he must support the African candidature of Ngozi Okonjo-Iweala to champion the cause of redistributing the gains of globalization and to erase the dividing line that separates globalization based on a developed core and an underdeveloped periphery.

Okonjo-Iweala must be allowed to spearhead the reform of the WTO to bring into speed developing countries and to build trust in IGOs and IFIs among developing countries once again. The WTO needs structural reforms and fresh ideas to be able to confront the challenges of international trade today.