After a much-hailed ministerial meeting in 2022, the world trade body is gearing up for crucial negotiations in Abu Dhabi. Its chief economist talks to Geneva Solutions about the need for reform and dispels alarmist calls to scrap the whole organisation altogether.
As the countdown begins for the 13th Ministerial Conference in Abu Dhabi next month, the halls of the World Trade Organization (WTO) in Geneva are abuzz with activity.
The WTO’s 164 member states are making a final, frenetic push to reach consensus on key issues at their highest decision-making meeting, convened every two years. These include the reforms of the dispute settlement system, the landmark fisheries subsidies agreement and reforms regarding agricultural subsidies, a divisive topic among member nations.
The extension of the intellectual property rights waiver for Covid-19 vaccines to include diagnostics and treatments adds to the mix as well as the lifting of a longstanding moratorium on customs duties on data transfer.
Addressing the WTO’s Trade Negotiations Committee in December, director general Ngozi Okonjo-Iweala underscored the dire state of the global economy and urged members to finalise as much of the ongoing negotiations in Geneva as possible before the critical February conference.
At this stage, the outcome of these talks, which are set to shape the future of global trade policies, is shrouded in uncertainty.
At the upcoming conference, Ralph Ossa will make his debut after serving for a year as the organisation’s chief economist and head of the statistical division. In his role, Ossa is responsible for guiding the research agenda and supporting negotiations with reports and insights produced by his team of 60 people.
He received Geneva Solutions at his office nestled on the second floor of the WTO’s headquarters overlooking the lake. Without venturing into rash predictions, he said he didn’t want MC12 to be a “one-time miracle that happened at Lake Geneva, where 164 countries demonstrated that multilateralism is effective”.
The “miracle” Ossa refers to is the so-called Geneva package, hashed out at the WTO’s 12th Ministerial Conference (MC12) in 2022 after five and a half days of marathon talks. It included the historic deal on fisheries subsidies – only the second multilateral agreement to be reached by the WTO since its establishment in 1995.
Ossa said that MC13 should “send a clear signal indicating a serious commitment of member states to the WTO”.
From insight to impact
The German-born economist has been critical of the WTO in the past. In 2015, he wrote in a blog post that the WTO had failed to deliver any significant multilateral trade liberalisation while showing only minimal progress towards its Doha Development Agenda to reduce trade barriers and aid developing countries. He also recognised that the “WTO’s success at preventing trade wars far outweighs its failure to promote trade talks”.
Asked about how the WTO has changed since he wrote that post, Ossa said the trade body has made important progress since then, both on the multilateral and plurilateral fronts.
“Seventy-five per cent of trade is conducted under most-favoured-nation terms (a policy requiring WTO member states to offer the same trade concessions to all other members), and the WTO is playing a crucial role not just about managing tariffs, but also providing market participants confidence that tariffs and trade costs will remain low,” he said.
He acknowledged that the trade environment has become more challenging since he wrote his PhD dissertation that won him the inaugural WTO Essay Award for Young Economists fourteen years ago. At that time, his simulations of the costs of a trade war were dismissed by some as an academic exercise far from a realistic scenario. A few years later, the US-China trade war of a volley of tariffs and retaliatory measures turned Ossa’s simulation into almost a prediction.
Ossa chaired the department of economics at the University of Zurich, where he will continue to teach part-time while he works at the WTO.
Even though he admits he would have never imagined ending up as WTO chief economist, he finds his new role exciting and multifaceted.
“Academia is all about insights, but here, we are all about impact,” he says.
Principled change
In Ossa’s tidy office, images of bustling ports contrast with serene forest landscapes facing his desk, echoing memories of family hikes in the mountains. A book, A World Trading System for the Twenty-First Century by Robert Staiger, is proudly displayed on his desk. For Ossa, it is both an academic resource and a guiding light for understanding and teaching the complexities of modern trade and the WTO.
Staiger’s work, which advocates for measured reform of the WTO, aligns with Ossa’s belief in principled rather than radical change. This perspective was evident at the recent WTO open forum, where Ossa stressed the text’s role in shaping current trade discussions.
As the world faces a “polycrisis” of pandemics, geopolitical conflicts and economic instability, the WTO is under increasing pressure to reform. Since its inception in 1995, the WTO has often faced criticism for issues like favouring wealthier nations and lacking transparency, with some critics and political figures going as far as to suggest shutting it down over its deep-rooted systemic problems.
The Appellate Body, essential for resolving trade disputes, has been inactive since late 2019 due to the US blocking new judge appointments, resulting in a backlog of 29 cases. This move effectively crippled the organisation’s ability to adjudicate international trade disagreements, further fueling debates about its effectiveness and relevance in the modern global economy.
Addressing these criticisms, Ossa defended the WTO’s crucial role in fostering a rules-based, multilateral trading system. He cautioned against the detrimental effects of a power-based alternative, which he believes would disproportionately affect weaker members, particularly developing countries.
Ossa praised the WTO’s consensus-based decision-making process, noting its distinctiveness in allowing every member, regardless of their economic stature, to have an equal voice and the power to veto decisions.
He also argued international trade is a powerful tool for development, as shown by the findings from the WTO’s latest flagship World Trade Report: between 1981 and 2019, lower and middle-income economies increased their share of global exports from 19 per cent to 29 per cent and reduced the share of people subsisting on less than $2.15 per day from 55 per cent to 10 per cent.
However, he acknowledged that some of the weakest countries and individuals have not benefited as much as they could from international trade.
“We don’t want to be the PR team that says trade is good and we need more of it,” he said, “but also to look at some of the problems that either come with trade or that perhaps trade is not addressing as effectively as it could, and really try to find solutions.”
Addressing disappointments, he expressed frustration over budgetary constraints. However, he views the recent consensus among member nations to approve a 3.6 per cent increase in the operational budget — a rise from CHF 197.2 million to CHF 204.9 million for 2024-2025 — for the 620-staff organisation as a “commitment to multilateralism”.
On the MC13 agenda
One of the most controversial and polarising discussions leading to the conference in Abu Dhabi is around the renewal of a 1998 moratorium of customs duties on electronic transmissions.
In the ever-evolving global trade landscape, digitally delivered or ordered services, such as video streaming platforms like Netflix or mobility apps like Uber, are becoming a driving force. According to a recent WTO report, since 2005, their value has been increasing by 8.1 per cent on average per year, outpacing goods (5.6 per cent) and other services exports (4.2 per cent). This has opened new doors for market players, notably micro, small and medium-sized enterprises (MSMEs).
Developed economies are the leading exporters in this sector, with the US being a dominant player in software, semiconductors and internet technologies and Chinese companies becoming larger tech exporters.
Still, developing nations are struggling to carve out their space in the digital sector. For example, Africa’s contribution to globally exported digitally delivered services is less than one per cent. Least-developed countries (LDCs) are lagging even more in this digital leap with a contribution of 0.2 per cent.
Developing countries such as South Africa want to end the contentious moratorium, arguing it favours major tech firms at their expense. They believe lifting it could bolster local digital industries and increase tax revenue. Conversely, the European Union, Canada and other advanced economies advocate for its continuation, citing its role in promoting duty-free digital trade.
A joint report by the WTO and other financial and economic institutions found that the end of the moratorium would impact government revenue at less than 0.33 per cent. It suggests that imposing customs duties on electronic transmissions might reduce digital trade, thus lowering its benefits, especially for MSMEs and women-owned firms.
So how can LDCs finance their digital industrialisation without significant tax revenue?
“Customs duties are not the most efficient way to raise revenue from an economic standpoint, and a more effective approach could be implementing other taxes, like a value-added tax (VAT), which can also be applied to digital goods,” said Ossa.
“In contrast, customs duties make imports more expensive than domestic goods, distorting consumption and production choices, leading to less efficient outcomes.”
Contention also surrounds the expansion of the Covid-19 vaccine waiver to diagnostics and treatments. The initiative is backed by civil society groups, while the pharma industry argues it could hinder medical innovation.
For Ossa, the waiver “didn’t introduce many new flexibilities but rather re-emphasised existing ones”.
“This reaffirmation, though seemingly lacking novelty, is vital, especially for developing countries facing political pressure,” he said.
Another hoped outcome is the entry into force of 2022’s agreement to reduce harmful fishing subsidies, which is crucial to combat global fish stock decline. As of last month, 55 WTO members had ratified the agreement, but two thirds of all member states are needed for the agreement to come into effect.
To read the full analysis, click here.