Multilateral trade is under stress

Ashish Kundra | Updated on July 18, 2018 Published on July 18, 2018

WTO impasse Successful conclusion of the Doha Round would have given a boost to developing economies   -  istocksdaily

With the biggest proponents of free trade like the US looking inward, regionalism is gaining ground

The global trade landscape is witnessing strong cross-currents. Trade sentiments are oscillating between sheer despair and scattered hope. The US has triggered a virtual trade war, against its own allies, to give a fillip to domestic manufacturing. High tariffs on steel and aluminium imports imposed by the US have been countered by retaliatory tariff hikes by the European Union on American whiskey.

A few days ago, China imposed similar duties on American imports. President Trump tweeted: “Trade Wars are Good and Easy to Win”. The current scenario is reminiscent of ‘Beggar Thy Neighbour’ policies ushered in by the Smoot-Hawley legislation of 1930, which saw an abnormal increase in agricultural import tariffs in the US.

It escalated domestic food prices and exacerbated the conditions of Great Depression. With large prevalence of global value chains in modern manufacturing, the consequences could be far worse this time around.

Multilateral trade is in dire straits. Negotiations for concluding the Doha Round of WTO have reached an impasse, even after 17 years of protracted negotiations. A “development round”, which had sought to correct distortions of history, became prisoner to a decision-making architecture which hinged on unanimity.

One hundred and sixty-four human beings sitting in a room would find it well-nigh impossible to arrive at a consensus even on a mundane matter.

Expecting 164 nations to agree unanimously on complex trade rules is surely far-fetched. Intransigence of developed countries to reduce agricultural subsidies, including on cotton, have led to a stalemate.

There are now reports of a draft American legislation which would effectively jettison the sanctity of rule-based trading of the WTO. Successful conclusion of the round would have given a boost to developing economies, including India.

Regionalism on the rise

On the other hand, we see signs of growing regionalism. In spite of the US pulling out of the Trans-Pacific Partnership, 11 diverse countries, including Canada, Japan, Australia, Mexico, New Zealand and Vietnam, signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in March.

All together, these economies contribute to 13 per cent of the global economy, with a combined GDP of $10 trillion.

The African Union has led the process of African economic integration and 44 countries signed an agreement in March to form the African Continental Free Trade Area, to eliminate tariffs on 90 per cent of goods. This subsumes 1.2 billion people in its embrace. Though Nigeria, which is one of the largest economies, is yet to join, this presents a huge opportunity for enhanced intra-African trade flows.

The Regional Comprehensive Economic Partnership (RCEP), which promises to be the biggest global trading block, is entering its final lap of negotiations. The ministerial meeting in March this year urged for intensification of efforts to conclude the negotiations.

RCEP nations account for a combined population of 3.5 billion contributing to 40 per cent of global GDP and 30 per cent of global trade. Apart from the 10 ASEAN countries, it includes six countries — India, China, Japan, South Korea, Australia and New Zealand. RCEP will form an overarching pie over a pre-existing “noodle bowl” of agreements.

India has signed an FTA with ASEAN, Japan and South Korea, but had so far steered clear of an intense bilateral engagement with China, given the current imbalance. Clearly, the negotiating teams would have a tough balancing act in trying to strike a balance between the imperative of promoting domestic manufacturing while seeking greater market access. The fact that ASEAN has a deep manufacturing value chain embedded in the Chinese economy would make the task more complicated.

It is indeed ironic that the biggest proponent of free trade is now looking inward while emerging and developing economies are seeking greater trade liberalisation. Developed countries are trying to maintain their global market dominance even as other nations register considerable gains in technology-led manufacturing.

Protectionism in services trade has also increased with greater restriction on visa regimes and tighter immigration laws. The fact that the largest consumer markets in the world lie in the Eastern hemisphere cannot be ignored by developed nations. Protracted belligerence on trade protectionism will perhaps force the hand of Asian economies towards greater regional economic integration.

Integrating South Asia

It is perhaps also an opportune time to make a serious effort towards economic integration of South Asia. India could well serve as the regional hub of manufacturing through development of South Asian value chains. Politics and a shared burden of history have trumped trade in the region for far too long. BIMSTEC could be provide the institutional springboard for galvanising economic integration in South Asia.

Even as we strive to engage in regional negotiations, the importance of multilateralism must not be undermined. The WTO has served well as the global body for setting the rules of the game, minimising unpredictability and whimsical action. It lends hope of a level-playing field for developing nations.

It also remains the sole arbiter for global dispute settlements. Perhaps revisiting the decision-making architecture of the WTO for negotiations would be helpful in restoring the pre-eminence of the WTO. Consensus may well serve the purpose in the absence of unanimity.

The author is an IAS officer currently working with Government of Mizoram. Views are personal.

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Published on July 18, 2018
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