ECB’s Hernandez de Cos Says WTO Needs Makeover to Stay Relevant

(Bloomberg) --

Multilateral institutions such as the World Trade Organization need an urgent revamp in order to remain relevant, European Central Bank policy maker Pablo Hernandez de Cos said.

European Union officials, he said, are the best placed to undertake that rethink.

“One of the biggest challenges confronting the WTO and, in general, the system of international institutions, is how to transform themselves to be able to incorporate the big, global actors, which are tempted on the one hand by bilateralism (United States) and, on the other, to remain in a model of state capitalism (China),” Hernandez de Cos said during a speech in Madrid on Tuesday evening.

“The European Union, so used to ensuring that the heterogeneity of its economies does not impede the progress that comes with economic integration, must take on a key leadership role in this task,” he added.

The WTO and its system for resolving trade disputes among countries fell afoul of U.S. President Donald Trump and now the organization’s appellate body can’t rule on new cases, a major setback for supporters of multilateralism.

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Hernandez de Cos, who is also the governor of Spain’s central bank, said on Tuesday that the WTO’s appellate body has been “key for the effective functioning and predictability” of dispute settlements. “Therefore, it’s urgent to find a solution to the current paralysis in appointments to the appellate body,” he said.

When examining how the WTO and other multilateral organizations can be more effective to respond to the splintering global trade landscape, Hernandez de Cos said it’s important for policy makers to be self-critical.

“There’s no doubt that the hope of progress may have led us to be somewhat naive when it came to assessing the potential adverse implications of globalization and, above all, the effect that the rapid and parallel process of technical change would have on some segments of the population,” he said.

Policy makers probably also underestimated the risks associated with the opening up of China and its emergence on the global stage.

Hernandez de Cos made the remarks Tuesday in a speech to present the book “Excesses: Threats To Global Prosperity,” by Spanish economist Emilio Ontiveros.

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