6 ways China and the United States could jumpstart trade reforms

President Xi 2018 China

Mr Xi JINPING, President of the People’s Republic of China. Copyright: European Union Event: EU-China Summit 2018

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

Author: Ricardo Meléndez-Ortiz, Co‐founding Chief Executive, International Centre for Trade and Sustainable Development & Shuaihua Cheng, Managing Director, ICTSD China, International Centre for Trade and Sustainable Development (ICTSD)


Whether they’re new best friends or estranged fellows, President Donald Trump and President Xi Jinping have confirmed their bilateral meeting at the November G20 in Buenos Aires, Argentina. This will be a high-stakes encounter, as the future of US-China relations has not been so uncertain since President Nixon’s visit to China in 1972.

If this meeting is not to be wasted, it is crucial that President Trump and President Xi focus not on skirmishes to seek reciprocal concessions, but rather offer political support for a durable resolution of their differences. The review and refreshment of multilateral and plurilateral rules and covenants, through World Trade Organization (WTO) reforms, would enable this. The Presidents would not only help each other’s economies, but more importantly, spare the globalized economy from the perils of fragmentation and a return to the law of the jungle.

China’s difficulties

In spite of pressure from Washington, President Xi is unlikely to swallow any bilateral concessions at the G20 meeting, for two reasons.

Firstly, President Xi understands that bilateral deals with this US Administration are politically vulnerable. In May, Xi’s envoy Vice Premier Liu brought home a joint statement in which both sides agreed to continue high-level dialogue and seek to resolve disputes in a “proactive manner”, not imposing tariffs during ongoing negotiations. But Trump threw away that truce in the blink of an eye and imposed 25% tariffs on 250 billion Chinese products. High-pitched China-bashing rhetoric during the US midterm elections may have exacerbated China’s worries about further embarrassment.

Secondly, from a legal perspective, China is not allowed to offer bilateral concessions exclusively in favour of US exporters. If it does so, it would violate the WTO’s principle of non-discrimination. When China lowers its tariffs or liberalizes the services sector, or strengthens regulations on intellectual property protection, it must do so universally for all other 163 WTO members, including the US.

Why WTO reforms?

The clock is ticking. While much US business is holding its breath in the wake of Washington-Beijing tariff races, other countries are sparing no effort in tapping into the Chinese market. The popularity of the China International Import Expo in Shanghai in November proved this.

As for President Trump, he has the tiger of tariff war by the tail. He can neither hold it, nor safely let go. If he continues these tariffs, they are sure to backfire. It is only a matter of how many more quarters he can wait before his re-election campaign. Economists widely believe that tariff wars may cause inflation of consumer product prices in the US, impact efficiency and cut off the profits of American firms involved in cross-border value chains, making the US less attractive to foreign investors.

How to let the tiger go

The WTO provides a space for the US and China to resolve their dispute in a “non-politicized” way, as suggested by its Director-General Roberto Azevedo. This is what the WTO is designed for: to address trade-related differences between members within an international law architecture that balances rights and obligations, and serves as a “safety valve” to keep politics at bay as much as possible. The WTO is both a permanent platform to negotiate new rules and market liberalization, and a system to resolve disputes.

Already, the rest of the world has started preparations to persuade their US and Chinese counterparts to take part in discussion of WTO reforms, as shown in the Ottawa ministerial communiqué in October. Canada, the EU, Japan and 10 other WTO members at diverse levels of development joined this important exercise.

The G20 trade and investment ministerial meeting in September also paved the way for President Xi and President Trump’s discussion about reinvigorating the international trade system. In their statement, ministers “recommend our leaders consider these important topics”, including how “to improve the WTO to face current and future challenges”; what the G20 can do to address the current situation “in a collaborative manner”; and how to come forward with ideas to “ensure that the WTO continues to be relevant”.

6 approaches to consider

To balance the interests of the US, China and other members, President Trump and President Xi might consider the following six actions key to WTO reforms.

  1. Revisit the rules of subsidies

These should be clearer and stricter about all forms of industrial subsidies. Attention should be paid to: the insufficiencies of the current agreement in levelling the playing field for state-owned enterprises (SOEs); stricter rules on fishery subsidies that contribute to overcapacity and overfishing; and distorted subsidies provided to farming.

  1. Enhance monitoring and transparency

A rules-based system can hardly be effective when it operates in the dark. Furthermore, the legitimacy of 21st-century governance will be increasingly dependent on breaking asymmetries to information. Every possible way to provide full transparency about measures and policies affecting trade rules and enabling better negotiations must be explored.

The US and China would do well to involve new information technologies and critical stakeholders in trade policy review processes; put their weight behind a real overhaul of the relevant provisions and means to ensure compliance with notification obligations; and encourage counter-notification.

  1. Trigger real, evidence-based and deeper discussion about technology transfer and the role of intellectual property right devices

In particular, review 20th-century governance to fit the new context of global innovation networks and practices driving technology advancement and transfer. Clear rules should be made with respect to the extent that governments will or will not be involved in technology exporting and importing.

  1. Foster establishment of new or adapted rules for digitally-enabled trade

About half the WTO membership has been engaged since December 2017 in exploratory work towards future negotiations on trade-related aspects of electronic commerce. Imperative now is to articulate new cross-cutting provisions that enable economic actors to use digitization to get the most out of existing rules on goods, services and intellectual property. Similarly pressing is to craft new frameworks to address growing unilateral protectionist inclinations in the absence of adequate competition, and draft taxation and facilitation regulations that ensure more predictable and inclusive market conditions in the era of the Fourth Industrial Revolution.

  1. Shed new light on development, including greater responsibilities for emerging economies

It has become an urgent matter to move away from inadequate GDP comparisons that define a country’s eligibility to special treatment, and to design smart and dynamic rules based on sector-specific, purpose-defined thresholds. Legacy issues need resolution, such as crippling tariff peaks in developed economies and the update of rules governing trade in services. The US and China could also share ideas on how to re-engineer domestic policies and social contracts to help those disadvantaged by globalization.

  1. Agree on an effective dispute settlement mechanism

This is imperative for good governance on terms of engagement for the global economy. Fundamental disagreements on the functioning of the WTO Appellate Body cannot leave its members without recourse to justice.

Alternatively, a new bifurcated system with two parallel tracks could be developed – one track for trade remedy and rules cases, and the other for all other issues. Remedy cases require additional legal and accounting expertise. At the heart of the US pushback to the existing system is a 20-year-old disagreement about the WTO’s rulings related to anti-dumping investigations. The US and China could pioneer a substantive discussion on the use of remedies in the new economy.

In a time of hardliners getting headlines, the G20 rendezvous offers President Xi and President Trump a precious opportunity to have a fireside talk. They ought to be reminded of the responsibilities of their respective superpowers to their peoples, to the struggling global economy and to the Agenda 2030.

Rules, not concessions, are crucial to solving their feuds in a sustainable way. The WTO reforms provide a timely platform for both sides to get out of the woods without being bitten by the tariff tiger.

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

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

European banking stress tests 2014: A more adverse approach for a shorter banking sector

The Japanese idea of ‘chowa’ – and how Asia can thrive in the future

We need to talk about how we define responsibility online – and how we enforce it

Big impact vs big exit: the social side of the start-up game presented at the WSA Global Congress in Vienna

What you need to know about the Sustainable Development Impact Summit

EU and China to do more in common if the global scene gets worse

Why Eurozone’s problems may end in a few months

Modern society has reached its limits. Society 5.0 will liberate us

Artificial Intelligence has a gender problem. Here’s what to do about it

The Commission tries to stop the ‘party’ with the structural funds

EU-Western Balkans summit in Sofia

This new way of understanding disease is changing medicine

7 amazing ways artificial intelligence is used in healthcare

“The Sea is vast as it admits all rivers”, Ambassador Yang Yanyi of the Chinese Mission to EU gives her farewell address in Brussels

Online radio and news broadcasts: Parliament and Council reach deal

Fragile countries risk being ‘stuck in a cycle of conflict and climate disaster,’ Security Council told

US-China trade war: Washington now wants control of the renminbi-yuan

Climate change and health: public health awareness in an international framework

Climate Change : An Already Health Emergency

In Gaza, UN envoy urges Israel, Palestinian factions to step back from brink of a war that ‘everybody will lose’

Will Eurozone be able to repay its debts? Is a bubble forming there?

EU readies for eventual annulment of the Turkish agreement on immigrants-refugees

EU Top Jobs summit ended with no agreement: welcome to Europe’s quicksand!

2016 crisis update: the year of the Red Fire Monkey burns the world’s markets down

2030 development agenda: Major breakthrough for world of work

Youth unemployment: No light at the end of the tunnel

Somalia has ‘once in a generation’ gender equality opportunity – UN Women chief

A Valentine’s Special: we can never overdose on love

EU Leaders’ meeting in Sofia: Completing a trusted Digital Single Market for the benefit of all

Merkel, Mercedes and Volkswagen to abolish European democracy

EU Commission: Banking and energy conglomerates don’t threaten competition!

THE ROAD TO GANESHA

Italy can stand the US rating agencies’ meaningless degrading

Cyprus banks under scrutiny

Fed, ECB take positions to face the next global financial crisis; the Brits uncovered

These charts show where the world’s refugees came from in 2017 – and where they’re heading

EU to spend €6 billion on youth employment and training futile schemes

Eurozone: There is a remedy for regional convergence

To win combat against HIV worldwide, ‘knowledge is power’, says UNAIDS report

Energy Union: EU invests a further €800 million in priority energy infrastructure

Measuring consumer confidence isn’t useful anymore. Here’s what we should do instead

COP21 Breaking News_10 December: UN Climate Chief Calls for Final Push to Meet Adaptation Fund Goal Very Close to Target

While EU Open Days 2013 discuss the 2020 strategy, Microsoft shares a glimpse of EU 2060

How can we build a workforce for our digital future?

Environment Committee MEPs vote to upgrade EU civil protection capacity

A Sting Exclusive: “Junior Enterprises themselves carry out projects focusing on the environment”, JADE President Daniela Runchi highlights from Brussels

Economy on a steady rise in Latin America and Caribbean region ‘despite international turbulence’ – UN report

Dramatic funding shortages a ‘severe catastrophe’ for people of Gaza: UN Coordinator

Frontline workers vaccinated in Uganda over Ebola fears, as top UN officials visit outbreak epicentre in DR Congo

Millions more migrant workers, means countries lose ‘most productive part’ of workforce

Girls groomed for suicide missions fight back against the extremists of Lake Chad

India’s economy is an ‘elephant that is starting to run’, according to the IMF

The right approach to addressing overcapacity problem from a Chinese perspective

Berlin favours economic and social disintegration in certain Eurozone countries

EU Commission spends billions without achieving targets

“Prevention is better than cure”: the main goal of modern medicine

More than 90% of the world’s children are breathing toxic air

Infrastructure around the world is failing. Here’s how to make it more resilient

Commission launches new tool to support digital teaching and learning in schools

Big world banks to pay $ 4.95bn for cheating customers; Is it a punishment or a gentle caress?

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