Global trade is broken. Here are five ways to rebuild it

Global trade 2018 UN

WTO
World Trade Organization (WTO) Director-General Roberto Azevêdo announcing the WTO’s trade growth projections at a press conference in Geneva.

This article is brought to you thanks to the strategic cooperation of The European Sting with the World Economic Forum.

Author: Wendy CutlerVice-president, Asia Society Policy Institute

Tension, angst and mistrust pervade today’s global trade landscape. The multilateral trading system that has governed the international flow of commerce over the past 70 years is being tested in ways that threaten its relevance and continued existence. Most striking of all, the United States, the traditional guardian of the system, is the one shaking things up. Through raising tariffs, blocking the appointment of new judges on the World Trade Organization’s (WTO) appellate body and asking countries to “manage” trade by buying more and exporting less, the Trump administration has made it clear it’s not business as usual.

Some say that we just need to get through this administration and then things will get back to normal. With a new White House, they contend, the US will get back in the trade game –and that the admittedly imperfect rules-based system as embodied in the WTO will continue to prevail. They are misreading the situation.

The system, created in the aftermath of the Second World War with the General Agreement on Tariffs and Trade (GATT) – which was succeeded by the WTO in 1995 – has done wonders in expanding worldwide economic prosperity and opportunity, lifting millions out of poverty and contributing to global stability.

But over time it has faced serious and growing challenges that are now reaching a head. In short, the rules haven’t kept up with important global developments, such as the emergence of new major trading countries, advances in technology and the proliferation of new types of trade barriers.

The last global round of trade negotiations concluded 25 years ago, and, since then the WTO has chalked up few negotiating successes. The bilateral and group deals that have followed have made some important inroads but haven’t successfully dealt with these challenges.

Moreover, a growing number of citizens around the world feel disenfranchised by this system, which they hold largely responsible for growing income inequality and the loss of well-paying jobs. While this sentiment is most acutely felt in parts of the US and Europe, it’s only a matter of time before it takes hold in other countries.

Traditionally, the US has been looked to for leadership in moments like this. The Trump administration, however, couldn’t be clearer that it is not interested in playing that role.

We are now at a juncture where a fresh look at the current trading system is warranted and overdue. Reforms are needed if the rules-based trading system is to remain viable and relevant. The magnitude of such change remains an open question. The Trump team advocates a fundamental overhaul and rebalancing of the system; others prefer adjustments on the margin, leaving the current system largely intact.

Is there a third path that can get the trading system back on track while putting trade wars on the back burner? And if so, what would that path look like?

Here are five suggestions for a third path, all offered in the spirit of capturing the benefits of trade and maintaining a rules-based system while addressing the plethora of concerns expressed on many sides of this debate.

1. Shape rules for state-led economies. The current US-China trade dispute has highlighted that rather than converging, the economic systems of the two largest economies in the world are growing further apart in many respects. It’s time to accept this reality and develop a co-existence pact. Instead of pushing for the dismantling of China’s state-led economic system, negotiations should focus on ensuring that the enterprises, products and services of state-led economies don’t distort international trade and don’t harm others in the system. This involves establishing more detailed disciplines in such areas as industrial subsidies and other financial assistance, the operation of state-owned enterprises and overcapacity. The EU, Japan and the US made a good start in identifying a way forward on these issues in their May Joint Statement. Their paper should serve as a basis for working with China and other key trading partners to urgently develop new rules in these areas.

2. Look to the future. Trade negotiators have an uncanny way of focusing on the sectors and industries of yesterday. As e-commerce was taking off in the early 2000s, WTO negotiators were busy working on reducing tariffs on manufactured goods and agricultural subsidies.

Bilateral and regional free-trade agreements have done a better job in keeping up with technological advancements. We are on the cusp of the Fourth Industrial Revolution with technological advancements moving quickly, bringing disruptions with them, and the trading system finds itself challenged to keep up this breathtaking pace. Now is the time for trade negotiators to shift the focus away from the more traditional sectors and grapple with the rules needed to govern trade for the Fourth Industrial Revolution.

Emerging technologies, such as additive manufacturing, robotics, new types of vehicles and artificial intelligence will call into question many of the basic tenets of the current rules-based system. These include the traditional distinction between goods and services found in most trade agreements, the rules for determining the origin of a product, and the emergence of competing standards. The WTO should task a group of senior trade experts to offer concrete recommendations on updating and rethinking trade rules so as to make them relevant to and effective for these new technologies. That could serve as a good start for negotiations in this critical area, before national policies are put into place, making international compromise more difficult.

3. Opt out of the most-favored nation (MFN) obligation. This is the rule that requires the outcomes of a trade negotiation to be applied to all economies regardless of their participation. MFN was agreed to in the post-war period, when countries wanted to promote maximum trade liberalization and prevent the world from retreating into separate trade blocs. The key exception to the MFN obligation are free-trade agreements that cover “substantially all trade.” It is not waived, however, for deals that focus on a single sector or part of one’s economy. While MFN may have made sense in the past, it’s hard to defend today and it actually hinders new market-opening “plurilateral” initiatives. Why agree to open one’s market and be obligated to extend the benefits to even those who keep their market closed? With the ability to opt out of MFN, sector-specific agreements in areas like the automotive industry, medical technology and environmental technologies may be given a shot in the arm, knowing that participants would not be expected to offer the benefits to “free riders”.

4. Reform the WTO’s dispute settlement system. An immediate challenge facing the WTO is the viability of its dispute settlement system, particularly in light of the US blocking the appointment of new appellate body judges. With caseloads for the appellate body skyrocketing and fewer judges to hear cases, we are approaching a perfect storm. The US’s main concern is that the appellate body has exceeded its mandate of reviewing the decisions of WTO panels by reinterpreting the pact’s actual obligations. But to the frustration of many, the US, while full of criticisms, has not offered alternative proposals to reform the system. It’s time for the US to do so, as well as for others to work constructively to reform these procedures. Without an effective dispute settlement system, countries will be increasingly encouraged to take matters into their own hands.

5. Convene joint meetings of the WTO and International Labor Organization (ILO). For the rules-based trading system to remain viable, it needs to do a better job of addressing the concerns of those who feel they are on the losing side. Dealing with workforce issues will become increasingly important to countries around the world, regardless of size and economic structure. It will help stave off calls for protectionism. An international conversation could be an important step in identifying promising initiatives for individual governments to consider. Regular meetings between the WTO and ILO would allow member countries to share their experiences on worker training, educating their workforce for the next generation of jobs, and effective social safety net programmes to help those left behind.

With tariff wars front and centre, the world’s attention is now focused on trade. The rules-based system is under attack. Walking away or making a few minor reforms on the margin is a tempting response. However, both responses would be short-sighted. The best course is for countries to work on impactful, relevant and inclusive initiatives that will fix these problems, reflect the realities of today rather the 1940s, and propel the system into the next century.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Here’s how we solve the global crisis of tribalism and democratic decay

CHINA UNLIMITED. PEOPLE UNLIMITED. RESTRICTIONS LIMITED

Trump to run America to the tune of his business affairs

The European Sting @ the European Business Summit 2014 – Where European Business and Politics shape the future

With potential to boost profits by up to 20 per cent, a woman’s place is at work, says UN labour agency

What do Europeans believe about the crisis and the possible way out?

Plastic Oceans: MEPs back EU ban on throwaway plastics by 2021

Eurozone: Retail sales and inflation point to recession

EU to pay a dear price if the next crisis catches Eurozone stagnant and deflationary; dire statistics from Eurostat

An alternative to the future of antimicrobial therapy

Female directors reached record highs in 2019 Hollywood

UN, Egypt help avert another Israel-Palestine war in Gaza that was ‘minutes away’, Security Council hears

Junker for Commission President: What were the stakes in this affair

Khashoggi case highlights ‘very worrying practice’ of overseas abductions, says UN expert

A day in the life of a refugee: why should we care?

European Commission requests that Italy presents a revised draft budgetary plan for 2019

US-North Korea summit in Singapore ‘a promising development’ says Guterres

Commission sets moderate greenhouse gas reduction targets for 2030

MEPs reject making EU regional funding dependent on economic targets

Crimea: The last bloodless secession of a Ukraine region?

European Labour Authority ready to start working in October as decision is taken on new seat

Secretary-General repeats call for support to Lake Chad countries after latest Boko Haram attack

From landlocked to land-linked: how the UN is helping some of the world’s poorest countries

Turkey’s foreign bribery enforcement framework needs to be urgently strengthened and corporate liability legislation reformed

FROM THE FIELD: Hardy seeds bear fruit to protect Colombia’s environment

On International Day, UN stands in solidarity with some 20 detained staff

UN will do ‘utmost to prevent and mitigate any risk of violence’ in DR Congo, pledges Mission chief

The Eurogroup offered a cold reception to IMF’s director for Europe

Siemens-Alstom merger: Will the EC succumb to Franco-German pressures for the sake of May’s EU Elections?

OECD, BSR and Danone launch 3-year initiative to strengthen inclusive growth through public-private collaboration

UN rights chief bemoans unilateral sanctions on Venezuela, fearing ‘far-reaching implications’

The Banking Union divides deeply the European Union

UN expert condemns new sentence for jailed Venezuelan judge as ‘another instance of reprisal’

Flying high: how India could lead the world in drones

Why press freedom should be at the top of everyone’s agenda

What cybersecurity professionals can learn from triathletes

Logo Mania: A call to action to our crisis of connection

Shifting Tides: Policy Challenges and Opportunities for the G-20

Revolutionary technologies will drive African prosperity – this is why

World Retail Congress announces Dubai 2016 Hall of Fame Inductees

Barriers to healthcare: are they real?

Will Brexit shatter the EU or is it still too early to predict?

Mergers: Commission opens in-depth investigation into proposed acquisition of Metallo by Aurubis

Is the world living up to its climate commitments?

What does a good digital ID look like?

The current devaluation of primary health care professionals

Why Europe is more competitive than the US

How trade wars pose a threat to the global economy

‘Protracted crisis’ in Venezuela leads to ‘alarming escalation of tensions’: UN political chief

Here’s how drone delivery will change the face of global logistics

JADE May Meeting last call for participants – join us in Zagreb

Diversity training doesn’t change people’s behaviour. We need to find out what does

New Zealand will have a new ‘well-being budget,’ says Jacinda Ardern

Christine Lagarde: the three priorities for the global economy

Weak growth of G20 international merchandise trade in third quarter of 2018

Strict alcohol laws which cut intake more than 40 per cent in Russia, linked to historically high life expectancy

China repels EU allegations of export subsidies

The EU Commission to fight unemployment tsunami with a…scoreboard

Antitrust: Commission fines Google €4.34 billion for illegal practices regarding Android mobile devices to strengthen dominance of Google’s search engine

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s