The tariff crisis is exactly the right time to reform the World Trade Organization

Digest opened free editor

Rola Khaleda, FT editor, chooses her favorite stories in this weekly newsletter.

The writer is an older colleague at the International Innovation Center for Governance, the former CEO of the International Monetary Fund and the former Consultant of the World Trade Organization

“Liberation Day”, as US President Donald Trump described his introductory announcement last week, could deal with a fatal blow to the international trade system that is already governed by the World Trade Organization.

It was built on two basic principles – “national treatment” and “the most preferred nation” (MFN) – The World Trade Organization was designed to provide the ability to predict trade and thus invest. National treatment guarantees that once clear customs import, they receive the same locally produced treatment “like products.” The MFN base, with exceptions for free trade areas, requires members of the World Trade Organization to expand equal trading conditions for all others.

Trump’s move threatens to detect this already and old framework, which turns a bases -based system into a chaotic network of bilateral deals. However, chaos lies an opportunity: the opportunity to finally move to long reforms from reforms that can update and revitalize global trade governance.

The famous proverb attributed to Winston Churchill comes to mind: “Do not let a good crisis is lost.” In this spirit, we must take advantage of the moment and try to rebuild confidence by rethinking some of the outdated work practices of the World Trade Organization – starting with the base of its unique consensus so far.

While the World Trade Organization may make decisions by voting, this practice is to reach them with consensus instead. However, commercial negotiators tend to see others’ proposals an opportunity to extract concessions and progress in their own interests. Their instinct is to oppose the initiatives to obtain the influence of bargaining.

In addition to this deviant logic, the practice of requesting consensus on all decisions, especially for new trade negotiations, paralyzes progress in the World Trade Organization, for two main reasons.

First, it depends on a legal assumption – that all members of the World Trade Organization are equal in rights and obligations – which do not reflect different levels of participation in global trade. Second, the increasing geopolitical tensions make it increasingly difficult, which turns it into an obstacle instead of a tool for cooperation.

If we are serious about stimulating the World Trade Organization, we must have the courage to re -imagine the base of consensus according to the facts of global trade. One of the possibilities is to create a dual major base, with decisions that require the approval of at least 65 percent of voting members who represent 75 percent of global trade.

If we move in this direction, it will also be fair to enhance the so -called special and differential treatment, which aims to give special rights to developing countries.

The launch of reforms is difficult when confidence among the World Trade Organization members at such a low decline. However, we can start rebuilding confidence by determining the ways to change.

Another option is to create an independent evaluation office in the World Trade Organization – a standard feature of the Bretton Woods institutions and all regional development banks. While this will not guarantee the approval of safe reforms, at least it ensures that critical problems are not ignored.

The idea is not new, and the cost should not be a large barrier. In the International Monetary Fund, for example, the independent evaluation office works only 0.5 percent of the operational budget of the fund, however it is very effective. If the World Trade Organization wants to remain relevant and fast, it is time to consider it a similar approach.

The path forward should not be one of the escalation of revenge and chaos. Ras head policy makers must face “liberation” of Trump by reaffirming the trade cooperation on confrontation. The launch of a process of reforming and modernizing the World Trade Organization would reassure the markets that stability, not unrest, is waiting for us.