Trade
Restoring US trust in globalisation
Authors: Joshua P Meltzer, Brookings Institution and Neena Shenai, AEI
COVID-19 is fast-tracking the declining relevance and effectiveness of a rules-based global trading system — one already buckling under the stress of a myriad of factors including the rise of China and the turn inwards by the United States.
For the United States in particular, the pandemic is amplifying the sense that trade — especially with China — creates unacceptable dependencies and risk. Calls for the repatriation of supply chains and restrictions on investment in key industries are on the rise. China concerns also underlie calls by some to disregard global rules and leave or abolish the World Trade Organization (WTO).
For others, the pandemic underscores the need for cooperation to address a host of unprecedented global challenges. It has brought into focus the vacuum left in the absence of US leadership, and the critical need for the United States to play the role of reviving an international order, one that balances opportunities with assurance that gains are distributed fairly.
The COVID-19 pandemic could not have come at a worse time for an international trading system already at a crossroads. In fact, what happens next could lead to the renewal of globalisation or its unravelling. While the Trump administration’s all-out antagonism towards the WTO is the latest nail in the coffin, China’s long history of unfair trading practices has put the mere existence of the system at risk.
Globalisation — the interconnectedness of goods, services, people and ideas — is supported by international trade rules that provide consistency and predictability. These rules, embodied by the WTO, are not a system for global governance or hyper-globalisation. They encourage cooperation through non-discriminatory treatment for the cross-border movement of goods and services — $19 trillion of goods trade in 2019 alone — and support economic growth that has generated enormous benefits globally and for the United States. The trade rules do not infringe on US sovereignty in the ways critics decry — the United States remains free to do as it chooses. While there are costs for non-compliance with WTO commitments, such as trade retaliation, these costs figure into compliance with the rules.
WTO principles, including non-discrimination, the application of predictable tariff rates, and reliance on the rule of law to settle trade disputes, have become accepted norms. Despite political pressures, these norms have largely endured the 2008 global financial crisis and more recently the COVID-19 pandemic in that we haven’t yet seen a repeat of the beggar-thy-neighbour policies of the 1930s.
But large cracks in these longstanding norms, including recent export restrictions on healthcare products, are part of a bigger picture of rising trade barriers. The WTO has also been unable to address these challenges or keep pace with new areas of trade, and is hamstrung by its consensus-based decision-making, stalled negotiations and distrusted dispute settlement system.
More fundamentally, however, the failure of WTO rules to effectively constrain China’s trade practices has undermined confidence in the institution. Perceptions of WTO complicity in China’s rise at the expense of the United States are further heightening sentiments questioning it and the global system. Supply chain disruptions and shortages of key products like personal protective equipment during COVID-19 — China controls 50 per cent of the market — have highlighted the consequences of US economic interdependence with China and sown additional doubts over the virtues of the system.
US withdrawal from the WTO, however, will not fix the problem. The United States stepping away from its role as guarantor of the international trading regime is also not productive. Such a strategy only provides fewer mechanisms to address challenges, including those created by China.
A reconstituted system that meets the needs of global cooperation in the pandemic’s aftermath would be better realised under US direction. Rather than destroying what has taken US leadership 75 years to forge, the United States must continue building. Bolstering WTO norms, like non-discrimination, predictable tariffs, and the rule of law, that allow global commerce to flourish is a start. This will take bold ideas and strong US leadership.
First, a US-led ‘big bang’ reform of global trade rules is needed. The WTO needs to be overhauled and not through the limited incremental reform efforts underway. The times call…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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