18.12.2023The WTO is at a crossroads

In this interview, Ralph Ossa speaks frankly about the plight of the WTO, defends globalisation and reveals why he sits at his desk in ski underwear.

FAZ: Mr Ossa, how badly is the World Trade Organization (WTO) doing at a time of war and trade conflicts?

Ralph Ossa: The WTO is at a crossroads – also in terms of globalisation as a whole. We must be careful not to destroy what we have built up over decades.

FAZ: What do you mean?

RO: The narrative has shifted 180 degrees. Until recently, everyone more or less agreed that economic interdependence was a good thing. It is important for prosperity and security. We Germans in particular know that. The whole idea of European integration was that Germany, France and other countries would intertwine with each other precisely because there were geopolitical tensions. This philosophy has endured for a long time. China’s accession to the WTO also took place in this spirit. But then came the financial crisis, the COVID-19 pandemic and the war in Ukraine. These crises have created the impression that we are exposed to too much globalisation, that globalisation is too risky for us and that we need to turn the clock back a little. The prevailing philosophy is no longer economic interdependence but economic independence.

FAZ: Isn’t it a wise insight that we shouldn’t make ourselves over-reliant – that we shouldn’t surrender our independence? Or are we exaggerating here?

RO: During the COVID-19 pandemic we realised that we were partly dependent on other countries for supplies of protective masks and ventilators, while the war in Ukraine exposed our reliance on Russian gas, to give just two examples. Many people concluded from this that things would have been better without globalisation. But this conclusion is wrong. We only got through the pandemic reasonably well thanks to trade. There was a boom because people suddenly started to work from home. Global supply chains were needed to manufacture and distribute the vaccines. Trade was therefore a source of resilience.

FAZ: And that is not recognised by the public?

RO: There is a prevailing attitude among some sections of the public that we should not have to deal with any crises. This fuels a desire for isolation – which would, however, be counterproductive.

FAZ: Populists often rail against globalisation. Are they getting more support?

RO: Yes, unfortunately. Globalisation is a kind of scapegoat. It’s always politically easier to blame others for adversity rather than yourself.

FAZ: Does globalisation scepticism influence trade policy?

RO: Yes, we are already seeing clear tensions here. The trade conflict between China and the United States is the most obvious example of this. A large proportion of the bilateral trade between these two countries is subject to tariffs. However, there are many further measures that other countries perceive as protectionist. All of this ultimately slows down global trade.

FAZ: The subsidy race that the US and the EU have entered also has strong protectionist traits. What do you think about this?

RO: Many of these subsidies are aimed at protecting the climate and making the economy greener. This is initially a good thing. However, the consequences of these measures for the rules-based multilateral trading system are often not considered. The mere impression that WTO rules are being broken is already a major problem for us. After all, our rules are only effective if the economic players involved are convinced that these rules actually apply.

FAZ: Won’t climate protection become much more expensive if international competition is slowed down by domestic subsidies?

RO: Yes, that is precisely the problem. Climate change can only be tackled properly if markets remain open. Trade helps to spread green technologies around the world and increase their effectiveness. There are more than just economic trade gains that result from countries producing in areas in which they are relatively strong. There is also a comparative advantage in environmental issues because some countries produce certain things causing higher emissions than others. It would be foolish to eliminate this factor.

FAZ: But isn’t it understandable that the EU Commission is pushing to reduce its dependence on China so as not to make itself vulnerable to blackmail?

RO: Yes, but the question is how far we should take de-risking. The world is facing three major challenges: we need to create a sustainable economy, reduce poverty and inequality, and maintain peace and security. It is important to see trade as part of the solution to all three of these challenges. China has experienced incredible economic growth since joining the WTO in 2001. This has caused problems in the American labour market, and I don’t wish to downplay these. But, ultimately, hundreds of millions of people have escaped poverty. China’s success has had a motivating effect on other developing countries, which have realised that there are ways out of the poverty trap. Even inequality between countries around the world has recently decreased. This would not have happened without trade.

FAZ: But hopes that China would become more democratic and market-orientated after joining the WTO have been dashed.

RO: Bringing about political change within a country is not the remit of the WTO. But, of course, I understand many WTO members’ desire to adapt the organisation’s rules in such a way that they combat protectionism in state-run economies. We need to discuss the role of the state in the economy.

FAZ:  What are the consequences of the increasing formation of Eastern and Western blocs?

RO: If geopolitically motivated fragmentation were to occur and the global economy were to split into Eastern and Western blocs, this would reduce average real incomes by 5.4 per cent, with the loss in developing countries being significantly higher. Without a multilateral, rules-based trading system, the law of the jungle would prevail. Although the US, China and the EU could perhaps still live with such an arrangement, it would pose a major problem for small countries, including Switzerland.

FAZ: What does this mean for the future of the WTO?

RO: If the new mantra is “against each other instead of with each other” and rules are no longer respected, then the WTO’s very existence is at risk.

FAZ: Isn’t the organisation under acute threat simply because the Americans continue to block the replacement of judges on the WTO’s Appellate Body, thereby paralysing the mechanism for settling trade disputes?

RO: I admit: from the outside it doesn’t look good that our crown jewel, as the dispute resolution mechanism is called, isn’t working properly. However, the situation is not as bad as it is often portrayed. The first dispute resolution body is still functioning. And not all disputes are referred to the appeal instance. In addition, a number of countries have agreed on a different type of appeal procedure. The WTO Ministerial Conference held just over a year ago agreed that this problem should be resolved by 2024. Serious discussions are now taking place.

This is an abridged version of the interview published in our .inspired magazine (in German).

Ralph Ossa is Professor at the Department of Economics where he holds the Kühne endowed Professorship at Kühne Center for Sustainable Trade and Logistics. He is currently on leave to serve as the Chief Economist of the World Trade Organization.

"Die WTO steht am Scheideweg" (Frankfurter Allgemeine Zeitung, 01.09.2023, No. 203, p. 18, Johannes Ritter). All rights reserved. Frankfurter Allgemeine Zeitung GmbH, Frankfurt. Provided by the Frankfurter Allgemeine Archiv. The article was translated and edited for layout purposes by the Department of Economics.