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The Director of the World Trade Organization warns that bilateral tariff transactions between the United States and other countries could damage core principles of trade equality.
In an interview with the Financial Times at the end of this week’s visit to Tokyo, WTO Nogozi Okonjo-Iweala said that global trade is in a “crisis” despite the recent break-up of the tariff war between the US and China.
Japanese officials have personally expressed concern that the rushedly negotiated US-UK trade agreement sealed this month could encourage consideration of convenience-driven bilateral transactions that challenge the “most preferred nation” equality principles that underpin the WTO system.
When asked whether such a pattern of transactions would damage the principle, Okonjo Iwila said there was such a risk.
“That’s why I told WTO members that these negotiations should be held on both sides and that the WTO should aim to be as contradictory as possible,” she said, adding that despite recent tensions, 74% of global commodity trade is still happening on MFN terms.
Under the concept of MFN, countries must provide the same tariff rates for all countries unless they are reduced by bilateral trade contracts covering “virtually all trade.”
Oconho Ywiela said tensions between the US and China appeared to have eased since Beijing and Washington agreed to a tariff ceasefire over the weekend, but the sight before the two biggest economies, where the world’s two biggest economies impose tariffs more than 100 percent, would echo across the world’s economy.
“If we see this separation and the country starts to adapt to one or the other, it’s fragmentation. And we’ve shown that it could lead to a 7% drop in actual global GDP in the long run.
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The WTO should accept that a massive, destructive force has hit global trade and consider why the US had it and what aspects of the trading system need to change, Oconjoe Iwila said.
“We should not waste this crisis,” she said.
“One of the silver linings of this whole crisis is that (WTO) members have repeatedly said how much they value the system. “I know sometimes like air that breathes. I go to the store and find what you want, but now I’m valuing the system.”
