The world needs an effective WTO more than ever

The director-general of the World Trade Organization, Roberto Azevedo, recently said he was stepping down early. Exasperation over the WTO’s diminished standing appears to have been a factor. That’s understandable. Step by step, governments have pushed an institution with an essential role in promoting global growth toward complete irrelevance.

Azevedo’s departure offers a moment to reflect. His replacement should certainly be a heavyweight, to affirm the WTO’s value. More crucial is that governments from now on allow and empower the body to do its job. The U.S., especially, should learn to see the WTO once again as a global asset and not a confounded nuisance.

The WTO has two main functions. It provides a way for governments to settle trade disputes in an orderly fashion, so that squabbles don’t escalate into tit-for-tat trade wars. And it serves as a forum for negotiating big new agreements to promote trade and hence growth.

In both respects, the body has been undermined. President Donald Trump and his advisers mistakenly think the dispute-settlement system puts the U.S. at a disadvantage. They’ve paralyzed this part of the WTO by blocking the appointment of judges to its appellate body. And governments everywhere have long conspired to block the trade-expansion mission, preferring smaller regional deals to a new global pact. The last big round of trade-reform talks fizzled out after years of getting nowhere.

Governments should revive both functions. Orderly settlement of disputes is better for all concerned than the worsening breakdown in trade relations that the Trump administration has engineered. Washington’s tactics haven’t just harmed the global trading system, they’ve directly backfired, leaving U.S. consumers and producers worse off. If unresolved trade disputes are left to proliferate in this way, everybody loses — all the more so amid the risks arising from the Covid-19 pandemic.

For now, the WTO’s other main purpose — lowering trade barriers — might seem less valuable, but it’s a mistake to think so. Existing trade accords need to be kept up to date, because technological change is driving new patterns of commerce and raising new issues. Other challenges arise as well. In particular, China has put the system under increasing stress because its non-market model is an awkward fit, and its government still relies heavily on trade-distorting subsidies. New approaches are needed to deal with this. And though previous rounds of talks cut most tariffs to very low levels, administrative and other impediments to trade persist. All these frictions serve, in the end, to curb living standards.

So there’s no lack of new trade-promoting work for the WTO to do. The method preferred of late — smaller pacts such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership — is second best, because it creates insiders and outsiders, with external economic borders that divert and distort trade. Wider multilateral accords are hard to do, admittedly, but that’s what the WTO was for and it’s still the right goal. The idea worked superbly for decades after 1950, and it could work again, given the political will.

For the moment, to be sure, that critical ingredient is missing, especially in the U.S. One can only hope this might change, and that discussions about Azevedo’s successor remind governments of what they risk losing if they let the WTO fade to nothing.