Asia’s Response to the Collapsing Consensus on Trade

Asia’s Response to the Collapsing Consensus on Trade

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 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) to ensure trade lanes remain open and the use of 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 now been broken for several years. Restoring the multilateral system is an urgent priority, however, there is limited agreement on how to make it happen. 

CPTPP: Back to a Dozen Members!

CPTPP: Back to a Dozen Members!

The Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) agreement is gaining its first new member with the announcement this morning of substantial conclusion of accession talks for the United Kingdom. While the Ministerial statement containing the good news amounted to just four paragraphs, regular Talking Trade readers will know that getting this far in accession talks is an important milestone.  The process has taken nearly two years, driven partly by Covid-19 pandemic travel disruptions which meant early talks were held online.  This was not the only challenge.  During the Working Party discussions, the CPTPP’s own active membership increased by three, with the ratification of Peru, Chile, and Malaysia.   (Just Brunei remains an original signatory, but not yet an active member of the group.)  Covid was not the only disruption during the past two years either.  The UK itself went through substantial domestic upheavals.  The country was also wrapped up in complex talks to help sort out its own trade strategy and engagements across the globe.  As trade experts are keenly aware, there can be a lag between the announcement of “substantial conclusion” and the actual closure of a trade deal.  Often this gap is described as allowing sufficient time for “legal scrubbing” to take place.  However, international trade lawyers will argue that a good legal eagle should be able to review any final changes that arise from a last marathon sprint in negotiations very quickly and, certainly, good lawyers should not need weeks or months to get their jobs done. 

Managing Disputes Over Trade: Part I

Managing Disputes Over Trade: Part I

Trade policy, like many other arenas, has developed a complicated language that can be impenetrable or, at best, opaque to outsiders.  Some aspects, especially those touching on law, have extra layers of jargon. While trade dispute settlement systems can be quite important and have been frequently in the news over the past few years, it can be hard to follow the arguments.  Talking Trade will be running a multi-part set of blog posts to help unravel the situation and make it easier for you to follow evolving developments.  Let’s dive in with some background to help set the context…The international trading system has had to overcome multiple challenges to function and remain effective.  Governments have strong incentives to cheat or, as they would put it, to strongly prioritize their own economy and companies over the affairs of others.  But if everyone is busy protecting their own, the net result is much worse for everyone. This basic tension between keeping markets open despite individual incentives for closure has been a key element of the system for decades.  Now, the long-standing the consensus in favor of freer trade has started to fray with far more serious trade disputes ahead.

The Year Ahead: 2023 for Asian Trade

The Year Ahead: 2023 for Asian Trade

It’s that time of year again—ready to gaze into a crystal ball and guess the 2023 future of trade in Asia?  The overall picture looks mixed, with continuing disruptions which may be offset by new opportunities. 

Continuing Covid impact: while much of the world (and probably all Talking Trade readers) seem eager to put the Covid-19 pandemic in the rear-view mirror, the virus is likely to continue to affect trade in Asia for much of 2023.  Disruptions will be caused by individuals that are continuing to get sick and are unable to report for work.  Fluctuating staffing levels can make it difficult for companies to deliver goods and services on time as intended.  These delays will continue to reverberate across the region and create continuing headaches for supply chain managers, particularly in the first half of the year.  As with the earlier waves of Covid, government reactions and responses to potentially rising infection levels are also important.  While complete border shutdowns may be a thing of the past, governments have shown a new willingness to make rapid adjustments to policies that can catch firms by surprise.  

Inflation and recession worries:  The jury remains out on whether inflationary pressures are going to sharply or modestly moderate in the near term, but there is a growing consensus that several major economies are still poised for recession.  Given the importance of key markets in the US and Europe to most Asian economies, even a mild recession in either can be quite damaging.  Inflation and rising interest rates are also posing new challenges to domestic firms and consumers. 

Uncertain supply and demand:  Firms in Asia are also grappling with continuing uncertainty about the supply and demand for goods and services in the near term.  Many of the economic patterns developed during covid, such as working from home or extensive shopping online, will change in 2023.  But the “new normal” is also unlikely to snap back to pre-covid times.  This leaves firms and supply chain managers facing a set of forecasts that are probably obsolete and few clear answers on what sorts of supply and demand pressures might be most relevant now.  High levels of uncertainty make it all too easy for firms to over or undershoot expectations, leading to mountains of unsold inventory, staffing levels which are not right sized, or an inability to deliver at volumes.

Missing in Action: Trade Secretariats

Missing in Action: Trade Secretariats

Secretariats, or a permanent management structure, play a critical role in the delivery and implementation of international agreements including trade deals. They provide the backbone to administer the day-to-day functions of keeping such pacts alive and ensuring that parties stick to their obligations. Secretariats come in all shapes, sizes and levels of formality. Running an institution by informal committees alone can be a recipe for allowing members to shirk their implementation commitments. It is highly likely that many of the benefits of trade agreements will go unrealized. Countries in the region are signing on to a host of often overlapping free trade agreements (FTAs), creating a so-called “noodle bowl” effect in trade parlance; but a number of them have no permanent structures in place to monitor the agreements. Almost a year after entering into force, the Regional Comprehensive Economic Partnership (RCEP), despite having provisions requiring the creation of a Secretariat as the very first order of business, has yet to set up one.