Info Service on WTO and Trade Issues (Nov18/16)
Liberalization of global trade may have hit a wall
Liberal trade policy framework is putting pressure on internal policies
by D. Ravi Kanth
First Published: Wed, Nov 21 2018. 10 40 PM IST
Can the global trading system survive the grave challenges it is facing now? If developments of the last one week are any indication, the writing is on the wall. Uninterrupted trade liberalization seems to have hit a roadblock. Otherwise, it would be difficult to explain the almost identical outcomes of the three unrelated developments of the past seven days.
To start with, the meeting of Asean (Association of Southeast Asian Nations) leaders in Singapore, comprising the US, China, Japan, India, South Korea, Australia and New Zealand, witnessed an ugly spat between the world’s two largest economies over how to keep the trading system open without protectionism. While China sought a united front of countries present at the Singapore meeting to fight protectionism, the US insisted on fighting non-market economic policies followed by China. “The circumstances may come where Asean will have to choose one or the other,” implying the US or China, said Singapore’s Prime Minister Lee Hsien on 15 November.
Close on the heels of the fiasco at the Asean summit, leaders of countries pursuing the Regional Comprehensive Economic Partnership (RCEP) agreement failed to agree on the conclusion of the ongoing negotiations. RCEP, which includes 10 Asean countries, besides six major trading giants, including China, India, Japan, South Korea, Australia and New Zealand, failed to resolve their differences due to respective national concerns.
Sharp differences emerged on several issues, including the binding rules on sensitive issues such as trade and investment, enhanced intellectual property laws and policies, and controversial e-commerce proposals like prohibiting data localization policies, among others.
“We can’t just accept something that sounds reasonable for other countries but does not sound reasonable for many people in our country(and) we want to avoid conflicts in our country resulting from our acceding to foreign ideas,” said Malaysia’s Prime Minister Mahathir Mohamad on 15 November.
Consequently, the Asean-plus-six countries set a new deadline for concluding the RCEP next year. “It would have been easier if trade agreements were only about trade, as they used to be, before powerful countries opportunistically injected other issues that are to their benefit,” said Martin Khor, the former executive director of the Geneva-based South Centre, in his column “Global Trends” in Malaysia’s The Star on 19 November.
The second major development with far-reaching implications for global trade liberalization relates to the failure to issue a statement at the Asia-Pacific Economic Cooperation (APEC) in Port Moresby, Papua New Guinea. China and the US bitterly sparred over the proposed language on issues concerning multilateral trade liberalization, protectionism and the alleged unfair trade practices.
For the first time in nearly three decades of the APEC, the 21 leaders from member countries failed to issue a communiqué because “two big giants in the room” could not agree on the proposed language, said Papua New Guinea’s Prime Minister Peter O’Neill on 18 November. The US, during the meeting, fiercely opposed any language on the need to strengthening multilateralism. However, Washington insisted on having language on “unfair trade practices”, which was not acceptable to China.
The third make-or-break development that has a bearing on the global trading system occurred on 14 November, after the European Union (EU) and Britain unveiled a 585-page “draft withdrawal agreement and a political declaration”. The chances of an orderly exit for Britain from the EU seem grim because of the many imponderables in the draft agreement. The terms in the draft divorce agreement are anything but acceptable to both Leave and Remain campaigners of Brexit.
The EU has managed to load the draft deal in its favour on crucial aspects. While Britain can claim the right to limit migration from Europe, it has to allow all existing European citizens without any restriction.
In short, the three developments suggest that unimpeded globalization based on liberal trade rules since the 1990s, could come to a halt. The fundamental issue seems to be a heavy insistence on harmonization of various internal policies rather than tariff liberalization, which was the genesis of multilateral collaboration on trade issues. Further, the liberal trade policy framework is putting pressure on many internal policies such as industrial policy.
Clearly, things have gone in the wrong direction of regulatory harmonization. Unless, the US and China, scheduled to meet in Buenos Aires next week on the sidelines of the G20 meet, find common minimum ground, the prospects for a world free of trade wars seem bleak.