Trade
Biden and fixing the global trading system
Author: Editorial Board, ANU
The end of 2020 cannot come soon enough. It’s been a tragic and difficult year but at its end there is hope as COVID-19 vaccines are starting to be rolled out. The new year also brings to an end the Trump administration in the United States.
The economic consequences of the pandemic have been devastating. Lessons from past crises, however, have meant that fiscal and monetary policy, as well as a modest degree of international cooperation, put a floor on the economic downturn. But a necessary condition for full economic recovery is to maintain open markets. The Great Depression of the 1930s showed that retreat to protectionism prolongs economic downturn.
That long stagnation of the 1930s led to the rise of nationalism, fascism and then world war. The Bretton Woods institutions were forged in the aftermath of the world war to avoid these mistakes and the breakdown in international cooperation that led to global disaster. The foundation of the post-war global order also saw the declining power — the United Kingdom — working with the rising power — the United States — and others to enmesh the United States in rules to protect Britain’s core interests in a new multilateral economic order.
In the face of a rising and more assertive China, the United States under Trump has been trying over the past four years to undo the existing rules and rewrite them unilaterally. The Bretton Woods institution that was most seriously threatened has been the multilateral trading regime.
This year was the World Trade Organization’s (WTO) 25th anniversary after it expanded in scope and scale from its predecessor, the General Agreement on Tariffs and Trade (GATT). There was little to celebrate on the WTO’s miserable 25th birthday. Its rules are out of date, its appellate body no longer has judges so rulings are no longer binding, and the world’s largest economy was undermining it, including by doing a deal with the world’s second-largest economy that violated the WTO’s core principles.
Many hope that President-elect Joe Biden will return the United States to a leadership role in the global economy. But will multilateralism return?
A Biden administration can have a prompt and positive impact by rolling back the Trump administration’s unilateral trade actions and ‘provide immediate oxygen to the WTO’, as Bernard Hoekman argues in the first of our two feature articles this week.
Removing all of the Section 232 ‘national security’ measures that Trump imposed and freeing up and facilitating trade in goods — including vaccines — that can help COVID-19 recovery, will make an immediate impact. ‘The Biden administration stands to gain immediate international goodwill’, Wendy Cutler argues in a recent piece, ‘by lifting the US reservation on Ngozi Okonjo-Iweala for director-general [of the WTO]’. The United States can lift its veto on the new judges for the WTO’s appellate body, as well as for the director-general.
It’s moving beyond the easy wins from ceasing to play spoiler that may be more difficult.
Hoekman explains that ‘consensus decision-making and member driven governance have diminished the WTO’s effectiveness’. The single undertaking where nothing is agreed until everything is agreed no longer delivers progress.
Progress on rules and new institutions may be more easily made in plurilateral agreements — groups of countries making progress in particular sectors. There have been some promising signs with investment facilitation, e-commerce and environmental goods.
Rules are being developed and trade liberalisation is advancing beyond the WTO as well, for example in mega regional agreements. Some large bilateral agreements have set standards and used to open up markets, but larger groupings hold more promise and make a clearer positive global impact.
One big question is whether a Biden administration is able to rejoin the Trans-Pacific Partnership, to the negotiation of which the United States was central until President Trump nixed participation during his first days in office. In a second feature this week, Phil Levy explains that ‘popular aversion to the TPP [in the United States] had more to do with its symbolic nature than its actual content’. Rejoining would seem unlikely, Levy suggests, given that Biden would ‘need to expend political capital on trade agreements at a critical, early stage of his presidency — exactly what he vowed not to do’.
Japan, with help from Australia, New Zealand, Vietnam and Singapore, saved the TPP after the…
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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