Recent events have not been kind to fans of global trade. Growing discontent with the status quo, particularly by major powers in the system like the United States, has led to a range of policy actions that would have been unthinkable just a decade ago. The disruptions caused by the Covid-19 pandemic further shattered consensus over what constitutes acceptable actions by governments. National security concerns are increasingly dominating economic decisions.
In this rapidly evolving landscape, the global trade system is facing at least three major challenges. First, global leadership has been in short supply with significantly less enthusiasm from a range of governments for supporting past trade practices and solutions. Second, the proliferation of new trade arrangements comes with a growing risk of further trade splintering. Finally, if past practices are increasingly seen as inadequate, there is limited agreement on what sort of alternative arrangements might be better fit for purpose.
Asia plays a pivotal role in designing outcomes for the future. This highly trade-dependent region has relied on the bedrock created by the World Trade Organization (WTO) and it’s predecessor, the General Agreement on Tariffs and Trade (GATT) to keep trade lanes open and use broadly consistent rules to help govern trade. Connecting to others via trade does not solve all problems, but it remains a critical tool for driving growth and economic development.
Now the WTO is stuck, with the consensus-based organization largely unable to move ahead on most of its agenda. Other than an agreement on trade facilitation, the WTO has not managed to get any new trade rules or market liberalization in place since 1995. Even the so-called “crown jewel” of the WTO, the dispute settlement system, has been broken for several years.
Restoring the multilateral system is an urgent priority, however, there is limited agreement on how to make it happen. With the United States largely abandoning its previous support of the WTO, it is not so obvious who else might provide the kind of deft leadership needed to guide the institution through the current turbulence. The options each come with challenges such as getting the European Union (EU) to overcome its own internal disagreements over the appropriate path forward on trade. China certainly would not be universally welcomed in a leadership role. Japan, currently the third largest economy, could be an interesting option, although it would require taking bold steps that Japan has traditionally shunned.
Most therefore suggest that a coalition of countries might be most effective. The list of potential candidates often includes a range of so-called “middle powers” to include places like Australia, Singapore, Canada, or New Zealand. Note, however, that other middle powers like India and South Africa often have contrary desires, leading to perhaps a battle by middle powers over the best options going forward.
If the possible pathways to better outcomes at the global level are difficult, is there an alternate route to getting cooperation? Countries are increasingly coming together in larger groupings and these could form the basis for an eventual return to global cooperation.
However, the option of building a new system from the “ground up” also comes with difficulties. Consider the efforts of members in the Regional Comprehensive Economic Partnership (RCEP) which was originally conceived as a way to get ground up integration in Asia. It would start with five existing free trade agreements (FTAs) between the Association of Southeast Asian Nations (ASEAN) and key dialogue partners in the region. These five deals could be quickly bundled together to create a more seamless trade arrangement for Asia.
While it makes sense in theory, in practice it took eight years of negotiations to get a deal done in RCEP. One member dropped out along the way and the final agreement is only loosely based on the underlying FTAs. The RCEP experience suggests that agreements crafted for one set of members at a certain point in time may not be such a good integration model for a different set of members at a later date.
Adding members to an existing agreement is also harder than it might first appear. It has taken two years to get to substantial conclusion for the United Kingdom’s attempt to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). Accession did not involve changing any existing rules or commitments for current members and was still a fraught process.
Even once an agreement is reached or a new member added, there is the complication of getting effective implementation. This is particularly true for many of the newest trade deals on the block, such as those for digital trade or those provisions aimed at improving trade for women or focused on sustainability. Figuring out how to take practical steps to deliver on commitments is hard, especially for these forward-leaning types of provisions where there are no “best practices” readily available.
It is possible that the very models used for managing trade are increasingly out of date. This is the argument made by the United States in designing the Indo-Pacific Economic Framework (IPEF). IPEF is supposed to be a new type of trade deal with a broader range of commitments. This includes new types of pledges, including some which are more cooperative in nature and others that could be legally binding. It also includes new topics like supply chains or infrastructure.
As many of these topics and approaches are literally being developed now, it’s too soon to say whether they will be more or less successful than past activities. But it is probably fair to say that the proliferation of trade arrangements is likely to make the world a more complicated place, particularly for companies.
Hence the increasing importance of effectively managing these agreements. The bigger trade agreements, like RCEP and CPTPP, will need to have competent and effective Secretariats to help ensure implementation and coordinate future expansion of membership, rules, or responsibilities. RCEP is due to have a decision on the Secretariat location shortly and CPTPP needs to urgently create one (here’s looking at you Tokyo, or perhaps Wellington, or even London?).
This list of challenges can make for rather depressing reading. It is clear that, while the global system remains in a perilous state, the options for shoring up trade arrangements also come with difficulties. Given the overwhelming importance of trade to nearly all of Asia, it is critically urgent to keep working on solutions at all levels and in a variety of contexts.
***This Talking Trade is based on a presentation made on April 19, 2023, to Japan’s REITI by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore***