A McKinsey Report Paves the Way for an Internal Shake-Up at the World Trade Organisation

The full report has not been shared with the WTO members until now for inexplicable reasons. There are also doubts whether the disclosure of the full report to members could withstand a scrutiny by members.

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Who are the World Trade Organisation’s (WTO) competitors?

Apparently, this question was posed by the McKinsey and Company (M&C) to the WTO’s staff. The M&C was commissioned to carry out the structural review and reform of the WTO’s Secretariat.

If the questions are any indication, it may be safe to assume that the company has no clue about the WTO and its operations. Clearly, such questions also reveal the company’s ignorance of the long institutional history from the formation of GATT (General Agreement on Tariffs and Trade) in 1948 and later the WTO that replaced the GATT in 1995.

Consultancy firms like McKinsey are hired to help organisations like companies, governmental bodies and non-profit organisations. They are known to ask difficult questions for providing guidance to organisations, says a former McKinsey employee Paul Mainwood. 

Invariably, reports of private consultancy firms seem to have resulted in privatisation as well as fundamental changes in non-governmental organisations ostensibly to bring about efficiency. An elusive concept like efficiency has become the benchmark for maximising profits for the shareholders with drastic labour retrenchment. Perhaps, it may be the intended goal at the WTO.

However, the moot issue remains whether a member-driven, rules-based, multilateral trade organisation’s Secretariat can be subjected to a structural reform for unknown efficiency and other gains. That too by private consultants who seem to possess little or no knowledge about the WTOAlso, it raises questions whether the audit by M&C complies fully with the WTO’s procurement rules.

A senior WTO official informed the recommendations of the McKinsey report towards the end of 2021. However, the full report has not been shared with the WTO members until now for inexplicable reasons. There are also doubts whether the disclosure of the full report to members could withstand scrutiny by members.  Questions are also asked to whether the commissioning of the report violated the WTO’s procurement rules.

Apparently, some major developed countries, who are members of the WTO’s Committee on Budget, Finance and Administration, are considering to ask for the full disclosure of the report.

But the Director-General (DG), Ngozi Okonjo-Iweala, appears unfazed by the growing concerns of the members. Addressing a Town Hall meeting with the staff on February 1, the DG reiterated that she had shared the recommendation of the McKinsey report several times with members and the staff.

Ngozi Okonjo-Iweala poses outside a Nigerian diplomatic residence in Chambesy, near Geneva, Switzerland, September 29, 2020. Photo: Reuters/Emma Farge

For the past several days, the WTO appears to be in a turmoil over growing disquiet on autocratic functioning by the leadership. Several directors have resigned about the prevailing conditions in the WTOThe longstanding spokesperson Keith Rockwell also resigned due to health and family considerations.

In a letter sent to members on February 3, Okonjo-Iweala writes, “We have kicked off the implementation of the various recommendations arising out of the transformation process/structural review.”

The letter, seen by this writer, argues that “the world is changing and so is the multilateral trading system.” “The organisation must bring in fresh perspectives, new skills, and incentivise our excellent staff so that they can serve and support the members better.”

It points out that “there will be residual “noise in the system” by those who feel more comfortable with the status quo.” This (residual noise in the system and who are comfortable with the status quo) may manifest in counterproductive behaviour that targets the change process itself of those implementing it,” it says.

We are seeing some evidence of this but it will not distract us from implementing those changes to strengthen the Secretariat,” it asserted.

The so-called “excellent staff” seem to feel that attempts are underway to deny the space for professional and impartial work by the staff. A spectre of fear-psychosis among the staff is palpably evident. 

Also read: Why Is There a Need to Delink International Trading Rules From Climate Goals?

Secretariat’s role

Part of the problem stems from refusal to accept that the WTO is a member-driven organisation and the DG is only there to assist members but not lead them. According to the Article VI.4 of the Marrakesh treaty, the “responsibilities of the Director-General and of the staff of the Secretariat shall be exclusively international in character.”  

It states that “in the discharge of their duties, the Director-General and the staff of the Secretariat shall not seek or accept instructions from any government or any other authority external to the WTO. They shall refrain from any action which might adversely reflect on their position as international officials,” the Marrakesh Agreement has stated.

In short, the governance of the WTO is based on rules as well as on members, unlike the World Bank or the International Monetary Fund, where the heads of those organisations play a major role in the decision-making process.

Okonjo-Iweala has had successful innings as the managing director of the World Bank and later at the chair of the boards of directors of the Geneva-based Global Alliance for Vaccines and Influenza (GAVI), including the reforms she carried out in these bodies. But, as the DG of the 164-member driven, inter-governmental organisation, her tasks are clearly laid out. And, they are not the same as compared to the World Bank or GAVI.

Sadly, the treaty-bound requirements of the Marrakesh Agreement are often times bypassed by the current administration. A case in point is the way the WTO promoted the controversial Joint Statement Initiatives (JSIs) to advance the interests of the United States, the European Union, and several other developed and some developing countries regardless of the rules.

The JSIs dealing with electronic commerce, investment facilitation, disciplines for micro, small and medium enterprises (MSMEs), domestic regulation in services, and trade and gender have become the new mantras of major developed countries for the 21st century. They seem determined to erase the Doha Development Negotiations that were mandated by the trade ministers at the WTO’s fourth trade ministerial meeting in the Qatari capital Doha, in 2001.

More importantly, the JSIs were rejected by trade ministers at the at the WTO’s 11th ministerial conference in Buenos Aires, in December 2017. Subsequently, they were called informal initiatives, implying that these issues have no multilateral mandate.

Yet, there is not a moment when these initiatives are pushed on one ground or the other. Even though the DG is the chairperson of the Trade Negotiations Committee that was established in 2002 under the Doha work programme, her constant pronouncements in the support of JSIs appear to have violated the rules during the last one year.

Also read: The Case for Ocean Optimism

Carbon border tax arrangements

Recently, fresh attempts are made to champion the controversial climate-change related initiatives that were largely promoted by the European Union and other major developed countries. And, in tune with the European Union’s plans to impose a carbon border tax arrangement including the imposition of a carbon tax, Okonjo-Iweala, in a signed article published in the Financial Times on October 14, had said that “adopting a global carbon price is essential”, and acknowledged that the “poor regions of the world see this (carbon border tax) measure as unfair.” “This is no argument against carbon pricing,” she insisted in the article.

In short, the DG has not lost an opportunity to campaign for the “carbon border tax arrangements” that have been pushed by the European Union and the United States.

Interestingly, the concerted push for climate-change related initiatives amounted to pursuing non-trade issues. In a policy brief commissioned by the European Union, it was pointed out that the EU and other countries should not pursue climate-change related trade initiatives at the WTO on grounds that the WTO is not the forum to deal with these issues. Attempts to elevate non-mandated as well as  non-trade issues in a rule-based multilateral trade organisation appears to be a serious violation of rules. There are also allegations of twisting facts and being economical with truth.

Little wonder that the WTO appears to be mired in an existential crises both on the systemic front as well as in the role of the Secretariat front. Unfortunately, these systemic crises appear to be hollowing out the consensus based decision-making process.

Growing recourse to negotiating small group meeting of selected countries to negotiate outcomes in the agriculture, the TRIPS waiver, the WTO’s response to the pandemic, the fisheries subsidies negotiations, and WTO reforms, are a cause for concern because a large majority of members are kept out the loop. That such a process enhances the opacity of these negotiations further reinforces the general perception that issues are resolved in a non-transparent manner by a set of important countries.

Calls for negotiating in small groups of countries on grounds that major issues cannot be resolved in a larger setting could further erode the consensus-based decision process at the WTO. “Let us just get the Ministers we need. I have seen the possibility that with three or four Ministers, we have seen it in action. They can actually negotiate with each other. But when it is a large group, it is more difficult. But by Zoom, if it is just a small group, they can be able to break whatever impasse that we are encountering.” 

Of course, there are countries like the US, the EU, and their allies want to do away with the consensus principle because issues of their interests can not be decided according to the current rules.

Interestingly, it is rare to hear a paragraph from a report prepared by the a predecessor of the CIA (Central Intelligence Agency) called Office of Strategic Services (OSS) on how to carry out sabotage in an enemy territory to bolster above arguments in an informal General Council meeting last month. The OSS manual was written by one John Donavan in 1944, and titled “Sample Sabotage Field Manual.”

Negotiations on major deliverables for the 12th ministerial meeting, as and when it is convened – like the WTO’s response to the pandemic, disciplines for fisheries subsidies, the permanent solution for public stockholding programmes for food security, and WTO reforms – seem to be in a chill because of fundamental divergences.

Clearly, these are not healthy trends and they point towards a growing descent into the abyss of lawlessness. The developing countries are likely to be adversely affected by the statements and actions of the WTO’s leadership.

Ravi Kanth Devarakonda is a senior journalist.