World Trade Organization (WTO) Director-General Ngozi Okonjo-Iweala discusses the future of global trade and the WTO's role in the rules-based international system.  The C. Peter McColough Series on International Economics brings the world’s foremost economic policymakers and scholars to address members on current topics in international economics. This meeting series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies. This meeting is presented by RealEcon: Reimagining American Economic Leadership, a CFR initiative of the Maurice R. Greenberg Center for Geoeconomic Studies.   FROMAN: All right. Good morning, everybody. Thank you all for joining us on this very, very busy week. And welcome to this morning’s event, which is part of our C. Peter McColough Series on International Economics. We are honored and delighted, and I’m personally very delighted, to have our World Trade Organization director-general, Ngozi Okonjo-Iweala, with us. In addition to the people here in the room we have over 200, Ngozi, attending virtually. OKONJO-IWEALA: OK. FROMAN: So you are—you’re very popular. I wonder what’s going on? Is there something going on in trade that makes you very popular? OKONJO-IWEALA: No, yeah—(inaudible)—Michael. I don’t—I don’t know what’s going on. FROMAN: I wonder what’s going on? We’ll talk for about thirty minutes, and we’ll open it up for questions from people here in the room and virtually for another thirty minutes. And just to remind you, this morning’s conversation is on the record. OKONJO-IWEALA: OK. FROMAN: All right. So, Ngozi, welcome. OKONJO-IWEALA: Thank you. FROMAN: You’re an old—a good—I won’t say an old friend, but a long-standing friend—(laughter)—of mine, of the trade world, and of the Council. Let me start with a provocative question. How does it feel to potentially be the last director-general of the WTO? (Laughter.) OKONJO-IWEALA: It feels absolutely great, because I know I’m not. (Laughs.) And I think, you know, the demise of the WTO, Michael, you should know, has oftentimes been mooted at various points in its life, whenever a crisis comes. But I want you to know—this will give me a chance to actually say something that is very important. That the WTO is beyond tariffs. I have a very favorite term I use called BT. What do I mean by that? So everybody’s focused on tariffs, but the agreements at the WTO that actually—that show the predictability and stability of trade beyond the issue of tariffs. I’ll just mention a couple, just to share with you. One is called the customs valuation agreement. And you know it, Michael. Which the U.S. actually had been the one that insisted, decades ago, that it should be negotiated. Before your tariffs are applied on your goods they have to be valued somehow, right? So the private sector trades. It’s not government bureaucrats or people like us who trade. Private sector trades. They learn their goods. If you don’t know how your goods will be valued before tariffs are applied, what happens is chaotic because you don’t even know if you’re going to make any profits off of what you’re selling, et cetera. So an agreement to put down a common methodology and approach to valuing goods has assured the private sector of predictability in how they will trade and what they will get. And this is—so this agreement resides with the WTO, along with the World Customs Organization. If you remove it and it’s not there—the WTO is not there, chaos. Another agreement, the intellectual property, the TRIPS, Trade-Related Intellectual Property Agreement, which many criticize and don’t like—and we’ll come back to that—but protecting intellectual property, no matter how imperfectly, shows the U.S. private sector earns $144 billion a year in payments for patent protection, and all that. The most of any country in the world. The agreements that assure product safety and product standards, the Sanitary and Phytosanitary Agreement, human health and hygiene, and product safety, and prevents countries from using that as a barrier to trade, we are also the home for these agreements. So imperfect as they may be, they assure some predictability in trade. So when you say what you said, which I will not repeat—(laughter)—because it’s so not there, I just don’t see it. You know, I just don’t see it. And I think that the U.S. appreciates these agreements. Everyone does. And, you know, that’s that. Second, I think that one of the things that has come out of this crisis—because, yes, we are in a crisis, and in every crisis lies an opportunity—is that other WTO members, they’ve come for the first time saying how much they value the system, how much they find the predictability and stability provided by the multilateral trading system and the WTO rules valuable, and how they realize that 87 percent of trade is going on amongst themselves. Yes, the U.S. is very important. It’s 13 percent of world trade, if we treat the European Union as one block. But 87 percent is going on. And they suddenly realize, we want to shore this up. We want to protect the rules-based system. And this is a silver lining coming. So that’s where we are. FROMAN: I want to get to that, that issue, perhaps at the end, when we think about where this whole thing is going. But first, we’re here, you’re here this week. It’s the IMF/World Bank meetings. You’ve been coming for years, as a former finance minister. We were just joking in the green room that finance ministers are quickly having to retool themselves as trade ministers and learn all about—all about tariffs. But tell us your perspective on—for a long while, trade was driving global growth. Growth will be at the top of the agenda, I assume, this week for the IMF/World Bank. It was driving global growth. And then it sort of flattened out, as China and Eastern Europe became integrated. Now is it going to be a drag on global growth going forward? And how concerned are you about what that means, particularly for developing countries and the progress that’s been made on poverty alleviation? OKONJO-IWEALA: Yeah. I think, you know, we do have a coherence mandate with the Fund and the Bank. And they will tell you that trade is a strong driver of global growth. And, as you said, at one point it was growing twice as twice as fast as global growth, and then it was a one to one, and kind of flattened out. But that does not mean that trade—you know, we had the COVID period and so on. But trade’s potential to drive global growth is there. And that is what is being impacted. I mean, you saw that. We did our most recent forecasts, and we were projecting that global goods trade, prior to the tariffs, would grow at about 2.7 percent, almost 3 percent. But with the recent activity on tariffs, we shared this, so this is—I won’t go into too much detail, because the information is public. When we look at the present situation, that is the pause on the reciprocal tariffs and layering in the automobile tariffs, the steel and all the others, and we model it, we see that merchandise trade will contract by about 0.2 percent, as compared to the 2.7 percent growth we had projected for this year. FROMAN: Does that include retaliation? OKONJO-IWEALA: I’m coming to that. You know, and then, yeah, the first scenario includes whatever retardation there was, but with the pause. So you see the three percentage point drop. We are now seeing global merchandise trade contracting. If you lay onto it—onto that the reciprocal tariffs, along with uncertainty spilling beyond U.S. trade to the rest of the world, we get a contraction of 1.5 percent, which is quite sharp. So the situation is, yes, as we said in our release of our forecast, that global goods trade growth is being impacted, and therefore that will spill onto global growth, GDP growth itself. So that is the story that we see. FROMAN: Let’s talk about the U.S.-China piece of this in particular. I was thinking about your role and the role of the WTO in this context. Is it you see, like, two parents fighting, and your job is to protect the children and make sure not too much crockery is broken? OKONJO-IWEALA: (Laughs.) Two parents fighting. Hmm. Two children? OK, I don’t know which analogy to use. No, but the greatest concern we have—and I’ve said this openly—is the potential decoupling of U.S.-China trade. With the level of tariffs that we are seeing between the two—so today was a little bit of a breather, and good news that there’s light at the end of the tunnel with respect to, you know, not decoupling. But decoupling is a serious concern to us. And the creation of two potential trading blocs, one aligned with the U.S. and one maybe with China, maybe a few in the middle. But two trading blocs is very, very fraught for us. Because we’ve modeled that. And we actually sounded the alarm on trade fragmentation earlier on, a year ago, when we looked at our world trade report. And we found that if the world breaks into two geopolitical trading blocs, we are going to lose 7 percent of global GDP in the longer term. This is huge. And there will be double-digit losses for developing countries, welfare losses. So this is even worse. So this is why, when I’m asked what was the, or has been, or is the biggest worry, it is the decoupling of China. China-U.S. trade is 3 percent of world trade. So when you look at that, it’s small. But the potential of these two big trading partner splitting, and then being able to persuade and create these blocs, has such negative impact on world trade, and therefore on world growth as well. So this is what we are worried about. And hearing the new noises and the new statements today that there’s room for China and the U.S. to still negotiate, and also that, you know, potentially decoupling is not in the best interest—you know, I also had a session with Ambassador Greer yesterday. So that was also a little bit comforting that, you know, there may be ways for the two to talk to each other and to avoid this situation. That would be very good for the world. FROMAN: But again, to play devil’s advocate here—and I’m not going to ask you to necessarily assess the Trump administration’s trade policy—but the WTO—the Doha Round came to a halt. We haven’t had a lot of progress at the WTO in terms of tariff reductions. We now have, I don’t know, down the street ninety negotiations going on between the United States and its trading partners, or some—or some number of countries that are willing to negotiate. At the end of the day, if the Trump administration is successful in getting other countries to reduce their tariffs on a reciprocal basis, isn’t that a good thing ultimately for the global trading system? And do you expect these countries then to offer that lower tariff rate on an MFN basis? OKONJO-IWEALA: Yes. So this will lead me to say, you know, we have Article 28 at the WTO, at the GATT, that allows members, if they want to renegotiate their tariffs, to be able to do that in some ways, and to amend their schedules. This could have been a cooperative way to approach the situation. But I think that it is very clear—stated very clearly by the administration that, you know, this is beyond tariffs. There are nontariff barriers, which we can tariff-y and assess, but there are other issues that are linked to the negotiations that make it difficult for these to take place at the WTO. So if we are going to go into the issues of VAT, digital taxes, energy purchases, perhaps some military expenditures that might come into it—and there are other issues that are just beyond the ambit of the WTO. So this is why, bilaterally these negotiations are taking place, because I don’t think it is something. Now, with respect to tariffs during this negotiation, should they agree on lower tariffs with the U.S.? Yes. That would be good for the system. And all our members understand, who are negotiating, that they have said they want to support the multilateral trading system and strengthen the rules. So they understand that this should be MFN—I mean, made available. So that’s one of the pleasing things where members call me and, you know, you were asking me before I said I was exhausted, my staff is exhausted, because we are working around the clock, you know, trying to model the impact. When they call—members call, we don’t call, and then they say, we want to—because the U.S. is a member, is still a staunch member. We have to balance everything and be fair to everyone, but if you call and say what’s the impact of this on my—on me, as a member, we were able to do some of that work and share it with you. It’s up to you what you make of it and what decisions you make. It’s member to member. But you know that your obligation is MFN. So, yes. Yes. Members, this is what they are talking about. Unless you have a substantial FTA with the United States, a free trade agreement that covers substantially all your trade, then you don’t have to do that. But if you don’t do that, if you don’t have that then, yes, you should extend that to others. And it could well result—and if it does, it’s good. You know, I think if the U.S. achieves that as a member, we’re able to MFN to other members, that is a good thing. FROMAN: We can call it the Trump round. OKONJO-IWEALA: I don’t know what name. But, you know, we’ll—if it’s MFN, then every member will benefit. FROMAN: All right. I mean, I was quite surprised to read reports that India and the U.S. were making progress towards a significant—a zero for zero, potentially, in tariffs, since that’s been a huge issue with India traditionally with other trading partners. OKONJO-IWEALA: Well, one of the things we discussed with the U.S., and I think a very productive discussion, is where do the unilateral objectives they have, and the multilateral objectives we have, and they have as WTO members that are still members, cross? And where can one support the other, and work with it? And we are looking at that intersection. And we’ve seen that there are quite a few places where they intersect, including what you said. And so in every crisis there’s an opportunity. And so we should seize all these opportunities that come from the intersection that we see between multilateral objectives and unilateral objectives. FROMAN: When you look—you’ve been in a pretty outspoken proponent of WTO reform, before you were there and since you’ve been there. But when you look back at the Uruguay Round establishing the WTO, what issues do you feel were not sufficiently addressed, in retrospect? Can’t put ourselves in the shoes of those who were there at the time. But in retrospect, particularly anticipating China being integrated into the WTO, what issues should have been dealt with or dealt with in greater depth than are there now? OKONJO-IWEALA: Well—(laughs)—that is a stronger leading question. Sometimes I joke that I don’t know—at the creation of the WTO, so many things were left undone. And I think it was because at that time a small group of creators came together. And they knew each other. And, you know, it was all very nice and friendly. And the anticipation that you’d have hundreds of other members joining later with different configurations wasn’t there. And so, you know, several of the agreements that were made were made before China joined. And, of course, you don’t blame anyone. I think there was the anticipation that the Chinese economy would change to a fully market economy. But it’s—China joined in 2001, for example. And the subsidies—ASCM agreement was, by 1995, in place. So it was before China joined. So my question is, seeing these years—if you saw that, OK, there were issues and it was not evolving—he renegotiation of this agreement is one of the reform—and I don’t like the word “reform” anymore. I want to ask to reposition the WTO, not to—reform is a word that is overused now. But it is one of the things you need to do, because I feel it’s not fit for purpose. So you need to renegotiate it, to take account of what you’re actually dealing with. Even on subsidies like green subsidies, that were not foreseen, you know, China’s approach and so on. So, yes, I think that the WTO agreements and the WTO itself was allowed to become static. And I do agree with the administration now that when they say that there needs to be dynamism in the system, I share that. Some of the criticisms they make I agree with, because I’ve said the same. We need to get more results. We need to re-dynamize the system. We don’t need to have things cast in cement that may not be relevant to twenty-first century issues anymore. So, yes, that should have been foreseen then, how do you re-dynamize? And I know there were—there are some agreements that have a clause to relook at them, but that was—has never really been done on some of them. So that’s one loophole. I think another is that I was quite fascinated when I joined the WTO to find that this is an organization in which members can describe themselves whichever way they want, in terms of whether you’re a developed country or developing. So I was saying, how can this be? Because we have well-defined, you know, criteria for what is a low-middle-income country, upper-middle income country, high income, whatever. But at the WTO, if you join and you want to say you’re developing, that’s fine, even if your per capita income clearly places you as an upper-middle income or high-income country. If you want to say you are developed, that’s fine. How did that happen? Of course, then that becomes an issue because calling yourself “developing” at the WTO confers on you certain benefits. So it’s not so much the label. I don’t have any problem—it’s the benefits conferred, which is special and differential treatment. In layman’s terms, you can have—you may be carved out of implementing some of the disciplines in the agreements because you’re a developing country. You may have longer to implement, et cetera, et cetera. You know, so that becomes a problem. So when you did not have strict criteria and you now have an issue where, for instance, China is a developing country. And I don’t think anyone should have an issue with their calling themselves a developing country. But the issue is access to the special and differential treatment. Just say you won’t have access to it, because I think that’s intended for really poor countries like Mali, Burkina Faso, Lesotho, and so on and so forth. So that’s another loophole, just to name two that was created at the time or not done. Our consensus system of decision making, which we treasure very much and I’m very proud of because it means the smallest country has the biggest—smallest member, sorry, has the same voice as the largest. But it should have been thought through in a way that it would not lead to blocking decision making completely. We are not the only organization that does everything by consensus, but there are ways and means. And the voting was added to but never used, for reasons you can imagine. But there are other ways of layering consensus so you can still move your agenda and not get stuck. So just to name three little— FROMAN: Little ones. (Laughter.) OKONJO-IWEALA: Just little things that— FROMAN: Well, let’s just pick up— OKONJO-IWEALA: —those who created the organization forgot to tidy up, if you will. FROMAN: (Laughs.) Let’s pick up that last one in particular, I mean, just given where we are. How do you, I’ll use the word, reposition the WTO, given the fact that it’s very difficult to reach consensus among China, the United States, India, several others on those precise issues? On special differentiated treatment, on the application of MFN, on all sorts of issues. OKONJO-IWEALA: Well, that is why I think we need to have a look at a reform or repositioning approach that is a little different. It has to be member-driven. At the WTO, the word “member-driven” is the most precious. You know, if you try to do anything yourself, and it’s not from members, you get into trouble. So member-driven, meaning, first, members have to come up with the big questions of what is it needs to be repositioned in the organization? And I’ll just mentioned just a little tiny two or three. You know, we have three main functions—transparency and monitoring, negotiations, and dispute settlement. So within those functions—and, of course, we have the governance structure that I just spoke about, the mode of decision making. In all those areas, there are issues for reform and repositioning. And I think, first, members need to sort out what are the key issues impeding progress, how do we get faster results in the organization, and how do we safeguard the good things we have? Because in trying to reposition, you must recognize the good things, that I just mentioned some of them at the beginning, that work. Then what is the process to get there? So it’s not that the issue of reform hasn’t been a topic at the WTO. Ambassadors have been working on reform. And they’ve done some good work, especially on making committees work better, et cetera, et cetera. But now we have these big issues where, as you said, I think, if left at the level of ambassadors, will get stuck. So you have to think of a process, a mechanism that ministers can create that will enable good advice and good recommendations to come forward. Which, if they create it, they should be able to look at those, adopt, and implement. So a member-driven process, but a process that doesn’t stay in Geneva because I believe it will get stuck. It needs to be lifted up to a political level where real decisions can be taken. FROMAN: You can see the G-20 leaders, or some group like that taking it up? OKONJO-IWEALA: Well, support from the G-20 would be good, but not every WTO member is a G-20 member. So it cannot be just a G-20 process. They can support. But we need a mechanism that all members will feel that they are owners of the process and that they are—and I can—I can think of one. Actually, we are going to start by having members themselves in Geneva work on the questions that should be answered to reposition the organization, because we are having our fourteenth ministerial in Cameroon, March next year. And if we work hard, we should be able to have those critical questions on the table. Ambassadors should be able to come up with those and then think of a good process. And then ministers can bless this and give it the political heft that it needs. FROMAN: Let me ask one last question before opening it up to the audience. And it’s a small one, just for you to predict the future. It strikes me there are a few potential scenarios here. One is the WTO continues to exist in much the same way that it is, but with the U.S. effectively doing its own thing in a formal way and China, we would say, is sort of—in fact, sort of violating the spirit if not the letter of several of the provisions. So you have the two largest economies in the world not really living by the WTO, and the rest of the world continues to live by it. A second would be we go back to sort of a pre-WTO, pre-GATT world, where it’s all bilateral. It’s all individual. Law of the jungle. And the third is that there’s some new mechanism for coming up with a new set of rules—probably more plurilateral, like-minded countries willing to set standards together. It could lead to decoupling. Could lead to what you warned about at the beginning, of two separate blocs. What do you think the outcome is here? And how do you avoid the—how do you mitigate the risks of the downside options? OKONJO-IWEALA: Well, I think, if I listen to what members are saying, that the latter outcome that you mentioned seems to me to be what they want. OK, so it’s not what I want. It’s very interesting that both of the two largest members are still there. So people need to ask themselves, why are they still there? You know, there must be value to the system. I think the second thing you need to ask yourself is, why are members still joining? That’s the first thing I should actually have said to you when you said the last DG of WTO. If it is, why are big countries—Maika is here, who is the head of accessions. We have Ethiopia. I’m not talking of little countries, Uzbekistan, Azerbaijan, Turkmenistan, I can go on. We have twenty-two countries waiting to join. And joining the WTO is such an arduous process. And what has amazed me—I was with the chief negotiator of Uzbekistan recently, and even Turkmenistan—is that in spite of all this they are as eager as ever. We have a session here which they insisted, you know, so that they can get, also support from Bank, and Fund, and all of us working to help them. There must be value there. So that scenario is the one we should think about, where other members are—other countries that are not members are scrambling to join. So the issue is, what should happen? And that’s where the repositioning happens. So the repositioning means that, you know, China—and we’ve been very clear to give to China, at least from my standpoint, the feedback on the things that it’s not doing so well and need to change, if we are going to reposition. Issues of more transparency, issues of the way subsidies and level playing field is handled, that’s linked to transparency. And reporting issues of the developing countries status, which I say don’t focus on what China can call itself a developing country. On purchasing power parity basis, its per capita income is $20,000 compared to the U.S. at 82,000 (dollars). So if he wants to say, look, I’m still on my way, but don’t have access to the special things. You know, so if China looks at these issues where it needs to take action, and it’s willing to work on those issues—and we’ve been very clear on that. And the United States—some of the criticisms made by the U.S. I share. Like I said, we need to learn some lessons from what is happening. And, you know, this is out in the press. I said it. Have we looked at the system? I’ll just give you two or three examples where we also need to take into account. The system was built for interdependence, not overdependence. And you’re an expert, Mike. Have we become overdependent in some ways? Is there overdependence on the U.S. market? Do they have a point, that members need to diversify their markets and work harder to search for other markets and not just depend on the U.S.? I think that’s a good point that they are making. FROMAN: Or their own markets, their own domestic demand. OKONJO-IWEALA: They’re coming back to that, develop their own domestic demand. That is also a point that has been made to China. The trade issues that are being talked about here are not purely the fault of trade policy. Between the U.S. and China we have macroeconomic imbalances. And this is why we have to work with the Fund. Meaning there’s too little domestic consumption in China. China has one of the highest, or the highest, savings to GDP ratio in the world, at about 49. Off the charts. Should they be working on domestic demand? The answer is yes. And I think they agree with that now, and they’re trying to do a stimulus. Should the U.S. be looking at its own issues internally—a fiscal deficit of 6.9 percent of GDP—at its own consumption, and more—doing more saving? There are macroeconomic imbalances that are also being blamed on trade. So this also needs to be looked at. So there’s some clear issues. The overdependence issue, not just of markets but an overconcentration in supplies in certain sectors. I’ve said very clearly that it does not build global resilience to have 95 percent of semiconductors made in one place. It does not. It does not build global resilience to have ten countries export 80 percent of the vaccines used in in the world when you have a pandemic. It just doesn’t work. You need to decentralize. And we actually have a—(inaudible)—at the WTO we coined called re-globalization. Let’s re-globalize the rest of the world by deconcentrating certain supply chains. Rare earths and critical minerals. It does not work that 70 percent of this is processed in one place. You know, you can have Africa with a lot of critical minerals. Why can’t we exploit and add value there, and process it there? Then we create jobs, you know, we keep people working on the continent. I’m just giving an example. So there are some U.S. criticisms that we need to look at. Maybe it’s the manner in which it is put that makes people, you know, shy away. But I do think they have a point. And these are lessons we need to learn. So if you look at all of this, and China is able to do some of the things, you know, and the U.S. is able to do some of the things. And, by the way, China is very sensitive to being able to help other developing countries. So I would come at these criticisms by pointing out that there’ll be negative spillovers if it doesn’t work on them, not just for developed countries but for the other poorer countries. And I think China will look at that. If we work on all this, we are going to reposition and have a WTO that is exciting. And, by the way, there are exciting things happening in trade. Digital trade is growing—is the fastest-growing part of global—of services trade, growing at 8 or 9 percent per year. For small and medium enterprises, for women, for youth, digital trade is it. $4.25 trillion and growing at that rate. It’s going to be the future. Services trade, where the U.S. excels—and I did an op-ed to point out that the U.S. is ahead in services—and it has a positive trade balances—it does a trillion dollars or more in services trade with $260 billion surplus. This is an exciting area. So there’s so much going on in trade that is exciting. So when you say this, Michael, I’m, like, people ask me, why do you wake up in the morning? I wake up because I’m excited to go to my job, notwithstanding the stress. (Laughs.) FROMAN: Terrific. Let’s open it up. Just a reminder, this is on the record. Please, if I call on you, stand up, identify yourself, make it a question. The young woman in the middle, otherwise known as Mimi Alemayehou. Q: Good morning. Mimi Alemayehou. It’s great to see you. Given the growing push for industrialization and regional integration across Africa, how can the WTO better support African countries in moving up the global value chain and achieving more equitable trade outcomes? And you talked about, you know, critical minerals, which obviously Africa holds significant in DRC and other places. Be great to hear your views. OKONJO-IWEALA: Should I answer? FROMAN: Sure. OKONJO-IWEALA: Yeah. Thanks, Mimi. Great to see you. I really think that this is a time—it’s a time of crisis, but also out of crisis is opportunity. And I think the opportunity is for Africa to seize at the moment. As the world tries to diversify and decentralize, and as members recognize they have to do this, the continent is one of those places where we actually want this re-globalization, bringing in those at the margins into world trade. Africa’s trade had—world trade has stagnated at about 3 percent. That’s not good enough, because they are still exporting the same things. So I think it is time to attract more value addition on the continent. And the potential is there. And it’s so critical now because aid is drying up, OK? So Africa has to raise more of its own domestic resources. And it has to attract more investment. We have at least three value chains where I see potential. And it has to trade more with itself. I’ll give you an example. We must trade more. Intra-Africa trade has to go from 16 to 20 percent, and much more. Lesotho was hit with 50 percent reciprocal tariffs. It exports $200 million worth of textiles to the U.S., 10 percent of its GDP, right? And we modeled that if this goes into effect, it could take a half percentage point off its growth, which is already low. Now, $200 million worth of textiles. But Africa imports $7 billion worth of textiles. Why can’t Lesotho sell its jeans and the other things within the continent? Why are we worrying about exporting to the U.S.? So Africa needs to look at itself. And we need to do our homework. So we have potential in pharmaceuticals to add value and create a value chain on the continent. We have potential in critical minerals. You just said it, almost every country has such valuable critical minerals and rare earths. This time around, it is not for people to come and dig it up and take it away. It is to add value right there, process right there, and create the supply and value chain. Maybe not in one country, but regionally across. You have Zambia, DRC. You have some neighboring countries to each other where you could see a subregional value chain, or even in West Africa. Agro processing. Oo many of our goods that we could process instead of exporting, and sell to ourselves but also export. And that’s where we need, within the WTO, to look at issues of escalating tariffs. So when we add value to products and try to export, you sometimes get additional tariffs, you know, stopping the value added. These have to be done away with. So I’ll end by saying, Mimi, to do all of this, we need to lower trade costs. And Michael was a great architect of the Trade Facilitation Agreement at the WTO in 2013 that, you know, if you implement, brings down many of the barriers, you know, the trade costs on lack of infrastructure, bureaucratic measures. And then we need something to help attract investment. And at the WTO, we have an exciting new instrument called Investment Facilitation for Development Agreement. It is a plurilateral negotiated by 127 countries, ninety of them developing, thirty-something of them from Africa. And once this instrument is in place, this is a way to say to investors, we are open for business. And we have signed an agreement to do so. FROMAN: Great. Yes, Bruce Stokes. Q: Bruce Stokes, the German Marshall Fund. Ngozi, many of your predecessors after they’ve left the WTO have acknowledged that one of the things they wish they could have had is power of initiative and a strengthening of the ability of the staff at the WTO to actually take initiatives. Powers that the head of the IMF and the World Bank have that you don’t have. Now you mentioned that it’s a member-driven organization, but is there any appetite in Geneva to give DGs and the staff more power of initiation? And also, if you could talk about reform of the dispute settlement mechanism. OKONJO-IWEALA: Reform of the? Q: Reform of the dispute mechanism. OKONJO-IWEALA: Oh, OK. Yes. Reform of the—yes. You’re absolutely right about the different way the WTO is configured, in that the secretariat—the DG doesn’t have an independent power. But you do have some. I don’t think that—right now, you know, the members feel, and the U.S. also is very clear, don’t do this, don’t do that. You only should do what members want, et cetera. But I think that if you’re doing the right thing that benefits the organization—I don’t want to say we are taking powers or anything, I don’t want them to give me any more powers. I think I have enough. I think there’s enough to do what members want. The secretariat is never going out trying to do—except in creating knowledge, and sometimes we do studies, but it’s also within the ambit. Now, you always find some members coming and asking for this, others saying, no, we don’t want that. So we have to serve members. So if a group of members comes and says, we want X, we have to work with them; but another group may say, we don’t want X, we want Y; so we have to find our way. But I—you know, I don’t find that I’m so limited that we cannot get initiatives that members want going. And I think that enough of them want to do the right thing that we’re not—we’re not looking. Let me leave it at that. (Laughs.) And you get an organization and you have to find your way through. And so far I’ve been extremely fortunate to be able to get the support we need at the secretariat to do a lot of the things. There has been criticism, of course, of some of the things we are doing. And, you know, asking question, why are you using the budget this way? Were you asked to do that? And why are you using—so you’re right in that. But once some members see the utility of some of the things that other members are asking for, then we are able to find our way. Youk now, so I think we are OK. The dispute settlement—it’s good you asked about this. The criticism leveled by the U.S., that the system had become too litigious, I share. The dispute settlement understanding was put there so you could—you know, you had a last result of going to the panel and the Appellate Body. But you were supposed to try different means of resolving the disputes. And the WTO provides a very interesting platform for that, whether it’s arbitration, whether it’s through dialog, whether it’s mediation, whether it’s so many other means—you know, consultations, which is the beginning process for all that. And what happened over time, I think, is that many of these approaches were not used as much as they should have been. And there was a resort to a more litigious system. Now we can argue whether—you know, what judgments were made by the Appellate Body, et cetera. But just that criticism. Why am I saying all this? We are finding people who say the dispute settlement system is paralyzed. No, it’s not. We have forty-seven ongoing disputes. It’s the Appellate Body that is paralyzed. And we found members settling these disputes and using all those mechanisms that had been criticized they are not using. They are now using them. I think we’ve got about thirteen, I don’t have all the numbers, of such disputes that have been settled through arbitration, mediation, and these other means. Twice the number that was being done before. So some new approaches. Not new. Some—should I call it, some dynamism in using the approaches that were there before has entered the system. So when people say the dispute settlement system is paralyzed, I often smile because it’s actually working. And it’s working in the way that the United States has said it was supposed to work. Now, does that mean the Appellate Body—99 or 95 percent of our members still want to see the Appellate Body restored. But I think many of them are willing to look at is it going to be restored exactly the way it was? Maybe not. But they want to see a system. So I think what we need to look at in the reform is how do we encapsulate and make sure this new—this new dynamism in the use of the dispute addresses is not lost, whilst we are trying to see what we do about the rest of the system. So that’s what’s going on. Quite a lot. FROMAN: Yes. Right here. Q: Thank you, Mike. Director-General, thank you for your frank comments today. Vijay Vaitheeswaran, I’m with the Economist. I had the pleasure of seeing you at a number of the recent United Nations COP summits, the climate summits, making the case for trade and globalization as advancing climate action. But in the spirit of the new Climate Realism Initiative that’s been launched here at CFR, an important initiative, can you give us your frank assessment of how the fracturing of global trade, the disruption of supply chains, the industrial policy push we see in different countries, is likely to affect the pace of global decarbonization and the movement of climate innovation of energy goods? What’s your frank assessment, please? OKONJO-IWEALA: Well, I think that if we look at what is happening with the private sector, for instance, you see a very mixed response. There are several who have pulled back on their commitments to green, and to climate. And this has an impact on whatever green goods they were producing or supplying. There are others who have maintained their approach, maybe more quietly. So I see a mixed reaction. Green trade was one of the exciting new areas of trade, about $1.9 trillion worth of green trade, almost 2 trillion (dollars), and growing. And I still think that the potential for that is huge, especially when you pair it with critical minerals. Africa has the potential not only for critical minerals, but for clean energy, you know, to try to process them. So why should we—why should that be given up? So I think we should not miss those opportunities. And so maintaining the supply chains that deal with green energy I think will be important, cleaner energy is another source. And I hope that that will continue to be the case. But now you have a very mixed reaction with what is happening, and what is happening to supply chains in that area. FROMAN: I saw a question here, yeah. And then we’ll go in the back. Q: Thank you so much for the wonderful presentation today. My name is Reba Carruth. I’m with the University of Maryland and I’m a member of the Council. So next year is the 250th anniversary of the creation of the United States. And one of the areas that I think probably would be beneficial for all of us is to revisit the original plan for the creation of a new nation and the American system. George Washington says you can’t rely on what’s going on on the other side of the world. We were not allowed to have value-added manufacturing here. Essentially, we were just extracting. And then when everything collapses, you’re left. So I think this is probably a good moment to see how we can go forward and really see how we can look at commonwealth in the twenty-first century. Which would, again, bring us back to this realization of what the limits are on overreliance on trade, what the requirements are for the reintegration and focus on having cooperation within countries and across regions, and also sustainability, renewability. Thank you. OKONJO-IWEALA: Well, that’s a very good comment. I think that my thinking on this is the U.S. needs to think of where has it become—you know, where does it think—you know, it really needs to carve out manufacturing. Where has it become too overdependent? And it makes sense. I mentioned semiconductors, for instance. Maybe for security reasons there are one or two sectors. But the U.S. should also think, because trade is about interdependence. And really, if there were no trade I think many countries—if you say, I’m going to just do everything by myself, that won’t work either. Remember the eggs? You had an egg crisis. And what happened? The egg crisis has been solved because you were able to fly in eggs from Türkiye, right, and from other places when you had the avian flu. If you didn’t have trade, you couldn’t do that. Remember when—was it diapers, baby diapers? FROMAN: It was baby formula. OKONJO-IWEALA: No, baby milk. Baby formula. FROMAN: Baby formula, yeah. OKONJO-IWEALA: When you had a shortage of baby formula, for one reason or the other, so what would have happened if you are not able to send a plane to go and bring, you know, cartons, loads of baby formula here from somewhere? There is no country that can exist completely by itself, in and of itself, in this day and age. Because you have things called pandemics. You have other things. You have climate change. You have so many global public bad things happening that you cannot control. So trade is important because it gives you an outlet. And that’s what the interdependence is about. So the U.S. will have to decide where are the areas where we can be interdependent safely? And there are many. Where are the areas where we need to maintain some kind of capacity? And it could be even if we are not so competitive, but because we want to have semiconductors we will—you know, there are few sectors you can carve out. I think that’s where the reflection comes, not in saying that we will not trade. And I don’t actually hear that. I hear that we will trade, but it is to map out what are the weaknesses and where do we want to grow capacity, and other areas where we can rely on the global community. That’s what needs to be decided. FROMAN: But let me push you a little bit on that, because I think—I think this administration would argue we want to see a wholesale reindustrialization of America. We want more manufacturing jobs. Yes, some are for security or supply chain purposes, but there’s a broader agenda here of creating what are viewed as better jobs that support a community, that create more possibility for workers to succeed than just services jobs. You’re one of the leading development experts in the world. This is not new. This is import substitution. What’s the experience that you’ve seen from other countries? And we’re—you know, oftentimes Argentina is put up as the archetypal example of where it didn’t work out very well. But the United States is not Argentina. Where do you think that that theory could play out? How much more manufacturing do you think we could do here, if we put up a wall of tariffs? And what do you think the limits of import substitution are, based on the development a country experiences? OKONJO-IWEALA: Well, I think we need to learn from history. Brazil is a country that tried import substitution, you know, earlier on in its history. There were those who went for export-led growth, the ASEAN countries in East Asia, and China followed suit. There were those who went for import substitution. And their story didn’t go so well. In my country we also tried import substitution. And it didn’t go as well. So history can let you know. You know, you can learn from experience. And the U.S. has to look not just at trade, but at technology. What is happening with technology? Sometimes trade is unfairly blamed for things that are due to technology. There are just certain manufacturing jobs where labor is being substituted by technology. So it’s not because trade has suddenly taken this away, but because you have new approaches and new techniques for doing things. And they involve machines. And I think there will be more of that. You know, so you then—that means you need to retrain the people who are working in those, like, coal mining in Virginia is a good example, where it’s more about machines. It’s not about trade. And then you retrain and you bring other industries in. And you just say, “just services jobs.” I don’t like that expression. FROMAN: Well, they use that with quotation—air quotes around that. OKONJO-IWEALA: Yeah, because somehow the U.S. economy is 80 percent services. And there are excellent services jobs that pay more than manufacturing jobs. I actually did an op-ed on that. So we should—and the U.S. is leading by far in innovation, in thought, in creativity. Other countries are looking, how do we emulate the U.S.? And this is something you need to safeguard, not destroy, because that’s the future. So I would say, focus—and there’s a lot of services in manufacturing. Don’t forget that. So I would say, focus on—I can understand, for security reasons, where some types of manufacturing, like I said before, you would want to maintain an edge. You can look at one or another areas, but a whole-scale reindustrialization and import substitution, I think you have so many smart economists in the U.S., you don’t—and I think they can tell you more, on both the right and the left, about how that will go, and which direction the U.S. should go. But the U.S. has a lot going for it. It really does, in innovation. And it would really hurt to see all of that, where the U.S. is clearly in the lead, kind of shoved aside and not paid attention to, when services is the area that is growing actually in trade. So pay attention to that. Look at some manufacturing where you need critical this. And then the rest, learn the lessons of history. FROMAN: Great. We have time for one more question. Young man, Fred Hochberg. Q: How are you, Ngozi? Fred Hochberg. What’s the role of individual countries’ tax systems on these trade issues? You know, we have VAT in Europe, we don’t have a VAT here. There’s a lot of discussion about taxes. How do you see the impact of that on trade in WTO? FROMAN: As a former finance minister as well. OKONJO-IWEALA: Well, there are different theories and different beliefs. There’s a belief that the VAT is a sort of tariff also that impedes or penalizes U.S. goods. I think you would get arguments from many members that have a VAT system that this applies to both, you know, goods made at home as well as imports equally. And it’s not the same as a tariff. And I think most economists would also go in that direction. And so, you know, that is what informed opinion says. But the U.S. sees this as some kind of—as some kind of an additional kind of—is it a non-tariff or a tariff barrier? I don’t know how you want to term it. The rest of the members who have these systems do not. So we will see how, in their negotiations, they prevail. But objective opinion does not see this as equivalent to tariffs. So let’s see how that will all pan out as the bilateral negotiations go on. You have that. You have the digital taxes issue. And yeah, so I’ll leave it at that. FROMAN: Terrific. We are so fortunate to have you at the helm of the World Trade Organization. You are the fourth DG? Third, fourth? OKONJO-IWEALA: I don’t even know what number I am. FROMAN: Was it Pascal, Roberto—are we missing one? OKONJO-IWEALA: Yeah. I think it’s more than that. I’m the seventh, or the tenth, or whatever. Who knows? FROMAN: But you’re definitely—but you’re definitely not the last. (Laughter.) OKONJO-IWEALA: Seventh. FROMAN: The seventh. OKONJO-IWEALA: I’m the seventh. DG, and the first woman. (Laughs.) FROMAN: The seventh DG, but not the last. Thank you for sharing your perspective with us. And thank you for being a good friend of the Council and of the United States. OKONJO-IWEALA: Thank you for having me. And thank you to—(inaudible). (Applause.) (END) This is an uncorrected transcript.