Comment

Going back to basics on trade

David Henig / Jul 2020

Image: Shutterstock

 

Global trade has responded as would have hoped to the covid-19 pandemic. Essential supplies have held up and specialist supplies have ramped up. This despite numerous countries imposing specific export bans or attempting to manipulate global markets in various ways. Clearly it hasn’t been without difficulties, for example airfreight affected by reduced number of passenger services or container ships stuck at sea, but trade has definitely been a success story.

This success has unfortunately been ignored because it really doesn’t fit into the political narrative. A US administration that has spent three years denigrating global trade as uniquely unfair to the country was never going to miss the opportunity to go further, and likewise in the UK those supporting greater barriers to trade with the EU are generally now also supporting greater barriers to China. Ironically they also claim to be supporters of free trade because they support an agreement with the US. Meanwhile in the EU we have a trade policy review seeking “Open Strategic Autonomy” which sounds like it was generated by combining buzzwords at random, and which seems to mean trying to gain the benefits of trade while simultaneously intervening where that suits better.

Global trade policy then, as opposed to global trade, is in a mess. Some countries, usually with New Zealand in the vanguard, are making valiant efforts to stress the importance of open trade and modern rules. But the chances of breaking the logjam at the World Trade Organisation are so low Director General Azevedo brought his term to a premature end. Finding a replacement that all members can agree will not be an easy task, indeed even thinking about an EU candidate has brought problems resulting from the interest of Trade Commissioner Phil Hogan. A second term of President Trump could well see a choice between a WTO without the US and none at all, but a President Biden doesn’t suddenly remove all the problems.

What feels most lacking in the world of trade, particularly in Europe, is a vision of something more than a diplomatic version of Trump where countries theoretically approve of trade but in practice find more popularity in placing obstructions. The way we’re going there will be increasing trade barriers and an overall economic cost that might only be noticed in a few years time, perhaps in the next pandemic. We need to do better, and that means restating, revising and promoting global trade rules that carry widespread support.

The core international trade rules were written in the 1940s, updated in the 1990s, show their age in some respects, but in terms of core principles they work. These are the most favoured nation, of treating all WTO members equally in terms of market access, non-discrimination, in not putting forward rules and regulations obviously unfairly targeted at one or more other members, and national treatment, of treating companies from other countries equal to your own. These are as valuable today as they were 75 years ago and need rather more restatement.

More than that, these principles should also be at the heart of unlocking many of the issues that have caused long-running trade disputes. It is ridiculous that the US and the EU continue a low level trade conflict on safe food because they choose to run their systems and regulations in different ways. It is even more absurd that some in the UK want the country to move from the ‘EU model’ to the ‘US model’ of food regulation to deepen the conflict. For in the modern world WTO rules are rendered farcical if they don’t allow societal preferences on regulations, as long as these are not imposed in an obviously discriminatory way.

This right to regulate should apply most obviously to climate change, environment, food labelling, and animal welfare, the last of which is currently causing pained debate in the UK as to whether it is compatible with WTO rules. However that shouldn’t be the limit, as we have to recognise the importance of maintaining confidence that the system can cope with new challenges. The quid pro quo though is that those measures that are genuinely discriminatory, which probably for example includes the EU’s conformity assessment process, have to be recognised as such.

The issue of state subsidies is more difficult since these are a fact of life in so many countries, but there’s a tendency to see rule-breaking of others as causing economic harm. Clearly there is now a widespread perception in Europe and the US that China cheat more than any other. Yet we have mechanisms to deal with this, such as anti-dumping duties, and have frequently used them. There are also sensible proposals which the US, EU and Japan have agreed, which would stand more chance of adoption if those countries could put aside their other differences. Ultimately solving this problem has to come down to talking, rather than trying to cut China out of the system.

That does however speak to what seems a fundamental global problem, which is how to agree to changes which have majority but not unanimous support. Previous solutions, of retreating to smaller bilateral or plurilateral agreements, leave the main problem intact. We have also seen the power of one actor, the US, to remove a key part of the system, the appellate body. Gradually, cumulatively, we then see a loss of faith in global trading rules even though global trade still continues. If this continues the WTO is in trouble change of US President or not.

Open Strategic Autonomy, or UK trade deals with EU or US, may have value, but ultimately are distractions from the serious thinking we need to do about global trade rules and the institutions supporting them. Global trade helped tackle the pandemic. But on our current pathway it might not be able to help next time. We need to restate our principles, then tackle the toughest issues.

 

David Henig

David Henig

July 2020

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