Dr Ngozi Okonjo-Iweala, head of the WTO: What is going on in the Middle East will have a significant impact on trade

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1:13Visit schwab.com to learn more. Hello, I'm Ben Thompson, BBC Business Presenter, and this is The Interview from the BBC World Service. The best conversations coming out of the BBC. People shaping our world from all over the world. If you're not a little bit afraid, then you're not paying attention. We have never seen a people so united. Do not make that boat crossing. Do not make that journey. Being born in America, feeling American. Having people treat me like I'm not. We're more popular than populism. For this interview, I met Dr Ngozi Okonjo-Iweala of the World Trade Organization on the line from its headquarters overlooking the waters of Lake Geneva.

2:02The global trade system, embodied by the WTO, is supposed to bring countries together by setting and enforcing the rules for them to sell goods and services to each other, as well as to resolve trade disputes. But its powers have been challenged in recent years, and there are huge differences between nations on trade. The tariffs and bilateral deals pursued by the US administration have shaken the global economy and the structure of the trade body itself. China's huge trade surplus, exporting way more than it imports, and a rise in economic nationalism have led many to question the benefits of the organisation, whilst others want to see reform.

2:45The European Union is also often at odds with the US and China. These difficulties for global trade were causing enough problems before the latest war in the Middle East spread even more uncertainty through the global economy. Forecasts for the year are for slower growth. So as the WTO goes into a major gathering of the world's trade ministers in Cameroon this week, the stakes are high and the Director-General, Dr Ngozi Okonjo-Iweala, must try to find consensus. So the first thing is to remind everyone not to throw the baby out with the bathwater, to take the parts of the system that work and then to look at those that don't work.

3:25And I think it's very convincing when you show them that not having a tit-for-tat trade war with each other has resulted in almost three quarters of goods trade going on on the rules of the WTO. The next part is to convince them that status quo cannot be an option in global trade. We have to look at our rules and we all have to work at it together and how to solve it.

3:55Welcome to the interview from the BBC World Service with Dr Ngozi Ekonjo-Ewella. The global economy is full of uncertainty at this point in time. I think that's the biggest issue. And of course, there's disruption and turbulence given what is going on in the Middle East and with the rest of the world. So, yes, business doesn't do that well with uncertainty. So with respect to trade, we also think that what is going on in the Middle East will have a significant impact on trade. And it depends partly on how long it goes on. And there are so many different forecasts and expectations about what impact this war in the Middle East will have on global trade.

4:40It's hard to say, of course. We don't know how long this war will last. We don't know how long the Straddorf Hamas will remain closed. What is maybe the best case scenario here? The best case scenario, of course, is if the conflict could be over. But we just don't know. And that uncertainty is certainly feeding into the forecasts. And if you look everywhere, you will see that the levels of uncertainty really affect the forecasting of what's going to happen with the global economy. including trade. And of course, when you have these higher energy prices, they feed through the prices of other goods, they impact global demand.

5:18And therefore, you have sort of a pass through that impacts GDP growth and trade growth. And that partly explains what we said that if we factor in the impact of the war, we could shave 0.5 percentage points of our 1.9 % forecast for global goods trade this year. I also want to mention that services trade, we forecast also what happens to services trade. And there, we're expecting more robust growth at about 4.8%, almost 5%. And services trade serves as a sort of shock absorber. When goods trade is not doing so well, many countries do well in services, and that can help countries absorb some of the shock.

6:06And quite clearly, though, that will depend on the nature of those businesses and the economies that are able to support more service jobs maybe than goods trade jobs. I mean, there are so many repercussions of this. And one would assume we've not really felt the full impact of it because we talk about things like insurance rates going through the roof, all the knock on effects from disruptions to oil supply and all the associated products that go with that. We know, too, so many implications of things like longer shipping routes that will add not only cost, but time to how quickly things can get around the world.

6:37You're absolutely right, Ben. I just want to mention that we focus a lot on oil and gas. But, you know, there's also the impact on fertilizer. Yes. There are many countries that depend on the Gulf region for urea for their fertilizer. Thailand, I think, is about 70 % of the urea comes from that region. You have India, about 40%. Brazil, about 35%. If we can't get fertilizer through in time for the planting season, it could really impact agricultural yields and also then food availability and the price of food going down the line. Secondly, as you're talking about the impact, I just want to say that we should remember two things about the Gulf region.

7:24One, it's highly dependent on services. They've really worked out to diversify their economies. And so services trade is being impacted in that region. And the second point is that they are net food importers. They depend on food imports for about 75 % of their rice and up to 90 % of other things like oil, vegetable oil, maize and soybeans and so on. So really, we could end up, if this war is prolonged, with a very big impact on certain parts of the world. We know that economies can be resilient. What feels different, perhaps, about this time is that the global economy was already in a pretty difficult position.

8:08We look at things like tariffs announced by the White House. We've seen increasing protectionism. We've seen more restrictions put on trade over the last year. But what is the solution here? because this can't be taken in isolation, can it? I think this time feels different because already there was a lot of uncertainty in the global economy. As you mentioned, the tariffs situation caused uncertainty and then you layer onto that what is happening with different conflicts around the world and just that feeling of not knowing what's going to happen next. And of course, businesses need some certainty to plan.

8:50So I think that getting to a world where there's more room to plan ahead, that would really help. And how do you get there? The geopolitical and geostrategic tension in the world, I think, has to diminish. But let me mention one thing that is good. In the midst of all this, having some rules that give predictability and stability to businesses also helps. So that's part of the solution. And that's what the WTO does. And let's talk about that, because one of your remits is to grease the wheels of global trade, to make it easier, to reduce some of the friction, to reduce some of the tension, to set the rules that allow the global economy to operate.

9:36How difficult is it to do that right now? Well, it's been very difficult. I mean, you mentioned protectionism and undermining of the rules before. And it is true that global trade is facing the largest disruption it has faced in 80 years. So it's not been easy. But I think that one of the most interesting things we are discovering is that some of the basic rules for trade that guarantee, as I said before, predictability and stability of the trading system are holding up well. So in spite of the disruptions. Businesses have continued to be able to trade on the basis of these rules that may ensure that when they land their goods, the goods are valued in a transparent manner with a methodology that is well known, that has not changed.

10:27You know, the basic things that make the system work are still there at the WTO. And because members have not engaged in a tit-for-tat, But most of them have decided to continue trading with each other based on these rules so that their businesses can have more certainty. We have this resilience that you observe in the global trading system. But if we look at some of the restrictions that have been enacted this year, already this year, we're above the number of restrictions enforced last year. What has gone wrong? Why does it feel that counter to that idea of free trade and global economic growth, we're finding countries putting limits on some of that, protecting their own economy and not working in the best interest of the global economy?

11:18Well, Ben, I think that we have to also admit that much as the global trading system has been provided a very good basis and stability for the world economy to grow and has contributed to global growth, that the system has not been perfect. And this is where we need to really look at what is working. And I've said some of what is working and what's not working. So many of our members began to feel over time that maybe some aspects of the rules and the system is not working as well for them as they would like. Some of them are finding that they're losing competitive advantage in manufacturing, for instance, in certain sectors where they would like to keep, make sure they keep an edge.

12:06Others are finding that, look, they're not getting well integrated into the global trading system in the way they want. And this goes for many of the developing countries. And I can tell you, the least developed countries of the world only have a share of 1 % of global trade. And that has stagnated for a long time. Africa, Africa's share has stagnated around 3 % of global trade. So there are members who feel, look, this system needs to work better for me. both countries that are not so rich and those that are rich. So that's what is important to look at, to ask yourself the question, all right, some things work, but what does not work and how do we fix it?

12:51I think it's because of that that many of our members were beginning to take measures that were protectionists because they felt the system needs to improve to work better for them. And we know that in a trade war, there are few, if any, winners. But given what you've said, how do you convince governments, countries to not adopt protectionist policies when they feel that they are vulnerable to losing competitive advantage, to being taken advantage of by other countries? How do you convince them that actually free trade, open trade is in their interest still? Well, the first is to remind them that over 80 years, this system largely delivered.

13:34The system was created because of the disarray in trade prior to the to the first world war. And then nations were having a trade war with each other, tit for tat, raising tariffs and protectionist measures on each other. And they found it didn't work. That took everybody down. So the question was asked, what do we do now in order to avoid this? And the system was created that we have today, which has largely, and I say largely, worked because it has guaranteed that transparency, openness and predictability. So the first thing is to remind everyone not to throw the baby out with the bathwater, to take the parts of the system that work and then to look at those that don't work.

14:18And I think it's very convincing when you show them that not having a tit-for-tat trade war with each other has resulted in almost three quarters of goods trade going on on the rules of the WTO. The next part is to convince them that status quo cannot be an option in global trade. We have to look at our rules and we all have to work at it together and how to solve it.

14:48You're listening to The Interview from the BBC World Service. The best B2B marketing gets wasted on the wrong people. So when you want to reach the right professionals, use LinkedIn ads. LinkedIn has grown to a network of over 1 billion professionals, including 130 million decision makers. And that's where it stands apart from other ad buys. You can target your buyers by job title, industry, company, role, seniority, skills, company revenue, so you can stop wasting budget on the wrong audience. It's why LinkedIn ads generates the highest B2B return on ad spend of major ad networks. Spend$250 on your first campaign on LinkedIn ads and get$250 credit for the next one.

15:29Just go to linkedin.com slash broadcast. That's linkedin.com slash broadcast. Terms and conditions apply. You know when you're wrapping up a long day and that what's for dinner panic hits? Well, when you've got convenient everyday protein from Omaha Steaks waiting at home, that panic turns into your weeknight win. And now's the time to buy during Omaha Steaks Spring Savings Event. Save big on their exclusive lineup of mouthwatering steaks, gourmet burgers, air-chilled chicken, pork, seafood, and more. All delivered right to your door. Plus, get an extra$35 off with promo code AUDIO when you shop OmahaSteaks.com today.

16:06With over 100 years of unrivaled quality and variety, Omaha Steaks understands what you need to get dinner done. Plus, every bite is backed by their 100 % guarantee. Omaha Steaks is your weeknight win, so get the world's best everyday protein during their spring savings event. Go to omahasteaks.com for an extra$35 off when you use promo code AUDIO at checkout. That's omahasteaks.com, promo code A-U-D-I-O. Terms apply. See site for details. I spoke to Dr Okonjo-Iweyla on the line from Geneva in the run-up to the four-day gathering of WTO trade ministers in the Cameroon capital, Yaoundé. The WTO and its predecessor, the General Agreement on Tariffs and Trade, was launched after World War II to govern world trade after a period of extreme economic nationalism and protectionism.

17:01The world is arguably at another significant moment of change and turmoil. And multilateral organisations like the UN and WTO are facing an existential crisis. So as the Director General and government leaders meet in Cameroon, the stakes are high. Okay, let's return to my conversation with Dr. Nkondjo Iwela. But when you look at what's been enacted by the Trump White House, the world's biggest economy imposing restrictions, protectionism, putting America first in its global trade ambitions. When you've got a country the size and scale and power of the United States doing something like that, how do you convince smaller countries that, well, actually you shouldn't be doing the same?

17:46I think smaller countries can look at themselves and look at their trade to GDP ratio. And I don't mean to sound wonky, but it's just another word of saying they can look at just how important trading externally matters to their economy. And many countries find that trade matters so much. For the U.S., a lot of their economy runs on homegrown consumption, domestic consumption. So they are not as dependent on the external sector as many of the other members of the WTO are. So when they look, then they say, look, I really need this system. And that means I really have to look at what we can do to make it work better.

18:35I don't have to try and emulate what I've seen because my economy is not configured in the same way as the US. Do you think that message is being heard, though, when we have three of the biggest trading blocs, be it China, the European Union or the United States, loggerheads over trying to ratify trade deals, trying to approve the terms by which they will do business. When you've got those three with such tensions between East and West, what hope is there for everybody else caught in between? Ben, you're absolutely right. It's not easy when the three big trading blocks have tensions. But I tell you, there are even tensions with some of the smaller countries and members that I spoke about.

19:21So there's tension everywhere. And there are other big emerging markets that are also important. There's India, there's Brazil. So there's no shortage of tension. But what we are succeeding in doing is showing that everyone will be better off if we try to solve the problems in the system. If we deny they exist and we don't come together to try and find solutions, everyone will be worse off. So I think there's a mounting recognition of this. It hasn't come easily. It's not coming easily. Our members have been having very, very difficult discussions here in Geneva as to what is it that doesn't work and how do we go about solving it.

20:06And I think this will now culminate in a very good interaction, I hope, by ministers when we get to Cameroon for a ministerial meeting. But there's an emerging convergence, an emerging acceptance that if we want to be better off, we have to work at these problems. It strikes me too that what's happening right now is whilst there's all this tension around global trade, the nature of trade is changing too. You look at somewhere like China that previously was exporting so much to the rest of the world, now starting to look at its domestic consumption, providing for its own people. That is happening hand in hand with all of these changes in the nature of trade.

20:50And I wonder whether it's time to rewrite the rules of global trade, that the old rules no longer are fit for purpose. Well, Ben, you have a point. The nature of trade is changing. The direction of trade is changing as well. With the tariff situation, U.S. imports from China, for instance, have diminished or decreased by about 29 percent last year. And trade is being redirected from China to other parts of the world. Supply chains are reconfiguring because of the nature of the tariffs. Some of that, we have to look at the impact to make sure it's happening in a way that will allow the countries receiving this trade to also benefit and be competitive.

21:39But the one thing I want to point out, some of the reconfiguration of supply chains, particularly when it comes to producing goods, may not be a bad thing. We need diversification in our supply and value chains so that they can produce in those parts of the world where they have the resources, where they are competitive, but they've not been as well integrated into the trading system. Do you also think there's maybe too much focus on what the US is doing right now when it comes to tariffs and restrictions? Because if you look at maybe China, its restrictions on things like rare earth minerals, we look at India and its protectionism for its own domestic industry.

22:23Are you having conversations with those countries too, you know, given that the focus is often on what President Trump is doing and saying, well, you've got to play by the rules as well. Definitely. Our members talk to each other and we have conversations with them. You mentioned China, for instance. I think there's a recognition in China that they have to stimulate more domestic demand for their goods, that the strategy, export-led strategy that has driven the Chinese economy for the past 40 years may not be the one that can drive it for the next 40, simply because China is very large and absorbing the exported goods.

23:05They had a trade surplus of 1.2 trillion last year. That may not be so possible for all countries around the world. So China is certainly looking at how to stimulate domestic demand. Other countries are also looking at how to diversify their dependence on China for inputs and supplies. Similarly for the US, the US feels that other countries are too dependent on it for demand. And so it is important for other trading countries to look at other sources of demand. So some of that is happening and I think it's not a bad thing. The trading system was built for interdependence, not over-dependence on any one member or any one country or sector.

23:52We've talked about a lot of the problems and the challenges that you face as the WTO. What are the answers? What are the solutions here? To get at a solution for a renewed reposition trading system, first, we have to determine what works. And we talked about some of that. Next is to determine what doesn't work. And I've talked about some of that. I think the third aspect is to remember that not all is doom and gloom in trade. There are actually some aspects of trade that are pretty exciting, if I may say so. I mentioned to you services trade, which is growing at about 4.8 percent is our forecast this year.

24:30And last year it was just over 5 percent. So that's a good pointer. And I want to mention that within services trade, a very exciting development is the growth of what we call digitally delivered services trade. That is all trade via computer networks, financial services, business services. These are all growing at phenomenal rates. We also have entertainment services delivered over computer networks. Green trade is also growing. So I think the third part of the solution is to say, how do we make rules that will help countries benefit from the new exciting sources of growth? How do we look at our old rules to make sure they are fit for purpose to serve a new world where technology is moving very, very fast?

25:22Those are the questions we're asking ourselves at the WTO, and members are going to try to look for the answers to these.

25:35Thank you for listening to The Interview. You'll find more in-depth conversations on The Interview wherever you get your BBC podcasts, including episodes with Samantha Power, former US ambassador to the UN, and Dame Sarah Mullally, the Archbishop of Canterbury. Until next time, bye for now.

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