Trade
How COVID-19 is undermining international trade law
Author: Bryan Mercurio, CUHK
The COVID-19 pandemic will have a lasting effect on many areas of international lawmaking. In recent years, members of the World Trade Organization (WTO) have struggled to progress the trade agenda or even keep the multilateral system functioning as designed. The pandemic may accelerate the trend of increased protectionism and movement away from liberalism and towards managed trade.
At the domestic level, the pandemic will likely result in legislation from the most important trading nations that attempts to domesticate production. Sometimes the language used is more obscure — such as the US emphasis on ‘supply chain resilience’ — but the practical effect is the same.
The pandemic provides a convenient excuse for those looking to diversify supply chains away from China. There have been efforts to label some goods as having critical ‘national security’ importance or being ‘essential interests’. This began when the demand for medical personal protective equipment (PPE) and ventilators suddenly spiked in early 2020. Pandemic-related supply chain disruption is still leading to periodic shortages of critical components and inputs for industrial manufacturing.
The market rapidly adjusted to the increased demand for PPE and hygiene items such as hand sanitizer, with shortages quickly turning into gluts. With increased supply, price spikes and gouging soon became discount sales. Yet governments still seek to fracture global supply chains by encouraging domestic production, especially for medical products and pharmaceuticals. The forced localisation of production facilities is a particularly reckless initiative.
Most worrying is that governments are targeting a problem that does not exist. Despite issues of equitable distribution, the existing market structure for producing vaccines has worked. Before COVID-19, the world produced approximately 2 billion doses a year and it was estimated that an additional 11 billion would be needed in 2021.
Within the space of a year, multiple vaccines have been developed and over 6 billion doses have been produced. The target of 11 billion will be met. This target may prove incorrect, with children in some countries now receiving vaccines and booster shots potentially being necessary — but the market is responding.
The pandemic could make governments less likely to engage in international lawmaking as uncertainty leads to stronger notions of sovereignty and an accompanying hesitance by governments to further liberalise trade. Trade can be a force for good during pandemics and such hesitation threatens economic recovery and growth.
Before COVID-19, there was already a trend towards increased protectionism and managed trade, with prominent examples being the failure of the WTO’s Doha Round of trade negotiations and US President Donald Trump’s approach to counter China’s rise.
The uncertainty brought about by COVID-19 has led to even less trust in the global system and calls for increased ‘homegrown’ reliance. It has not helped that several countries have initiated a host of trade-restrictive measures, including actual or de facto export bans on PPE and vaccines. While the crisis should lead to increased liberalisation to avoid supply issues, there is no indication this will be the case.
Liberalisation in e-health services, including investment and mutual recognition of qualifications, could help in the fight against the next virus, yet no efforts have been made as countries retreat into a protectionist stance.
A potential caveat is the WTO negotiations on fisheries subsidies. If members can agree to a deal within the next few months, there might be hope for lawmaking at the WTO. If members cannot even pick the low-hanging fruit, the WTO’s future looks grim.
COVID-19 has exacerbated a trend of countries eschewing large multilateral agreements in favour of negotiating niche bilateral and regional ones that offer less growth potential. While there are exceptions, we have entered a phase of consolidation rather than expansion of trade agreements. This period will remain at least until the United States elects to re-engage and show leadership for the WTO and broader trade initiatives.
Niche agreements are less than ideal, as they often contain substantial policy space and carve-outs that detract from ambition and open the potential for abuse. A prominent example is digital trade, which has become a separate chapter in many free trade agreements and even the subject of a stand-alone agreement between New Zealand, Singapore and…
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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