Weakening “Insurance” Provided by Old Global Trade Rules and Commitments

Rules like the WTO and FTAs should perhaps be regarded as an “insurance policy.”  But, like an insurance policy, they matter an awful lot when things go wrong.  The fine print is critically important in the event of a catastrophe. It is at that moment that firms and governments might be shocked to discover how little is actually covered by the WTO or by various member states in their country-specific schedules.  These schedules are hard to find, harder to decipher, and tricky to navigate.  Launching a trade dispute over older and older rules is hard.  More and more of the global economy is simply not covered by the WTO. Members are currently planning the agenda for the next gathering of trade ministers to take place in Argentina in December.  So far, the proposed content involves discussions (and maybe not rules yet) on e-commerce and fish.  While perhaps important and welcome, neither may resolve the increasingly critical problems of older rules and thin commitments by member states.  The global trade "insurance" policies are looking rather threadbare.

TPP: Not Dead Yet

Far easier for officials gathering in Chile next week may be to consider a provisional entry into force adjustment for a set period, perhaps 3-4 years.  This would alter the TPP just enough to fix the problematic sentence, allow the TPP to move ahead with at least 6 members and, hopefully, all 11 members.  It would give members time to decide how much alteration might be needed in the longer term, as some flexibility could be granted to adjustments as necessary in the provisional period.  For example, the rules of origin for textiles that currently require yarn-forward could be relaxed during the provisional timeline.  Everything that applies to members that are not moving ahead with the TPP during the provisional period remains dormant. The meeting next week in Chile is critically important. Ministers have to decide whether they want to defend and promote a gold standard agreement, watch it die, or wither and freeze on the vine.

RCEP: Designing an Agreement for the Future

Officials have clearly got a focus on helping the smallest firms in RCEP benefit from the final agreement.  This is a welcome development, since every country in the grouping is dominated by smaller size companies. The one area of sustained focus in RCEP that will be most promising for SMEs is e-commerce and digital trade.  E-commerce and digital trade represent the fastest and easiest way for smaller firms to connect to suppliers, consumers and lead firms.  Given the relatively higher levels of connectivity in Asia compared to other regions, this pathway can be developed further quickly with the right policies in place and help lead to new growth opportunities. Even getting this chapter right is difficult, since it requires that officials think hard about the rules that should structure the business environment today and still remain relevant tomorrow.  The rules need to provide adequate protections for consumers, deal effectively with security concerns but not unduly hamper business plans now or in the future. 

Back to Aggressive Unilateralism in Washington

From the mid 1970s through the early 1990s, the United States pursued a trade strategy that was dubbed by Jagdish Bhagwati as “aggressive unilateralism.”  Under this set of policies, the United States was accused of acting as judge, jury and executioner.  We are going back to the future with the publication of the National Trade Policy Agenda for 2017.  The US crafted a set of policies with built-in retaliation grouped under section 301, special 301 and, especially, super 301, of US trade law.  Under these rules, the United States decided on its own whether trade partners were practicing “fair” trade.  If not, the US could require unilateral liberalization without any concessions from the United States.

Finally--Faster, Cheaper Movement of Goods

Finally-some very good news on the trade front! The long-stuck World Trade Agreement (WTO) arrangements on trade facilitation have been approved by just enough members to enter into force. The Trade Facilitation Agreement (TFA) was struck in Bali in December 2013.  It is an unusual deal in the WTO that provides more flexibilities to members than we normally see.  But the overall objective is to move goods faster and cheaper across borders.  The bottom line benefits for growth could be larger than tariff cuts. Trade facilitation is not the sexiest sounding topic.  Eyes tend to glaze over whenever it gets mentioned.  But the ability to move cargo across borders faster and cheaper is extremely important.  Obstacles at the border are unpleasant for bigger firms and can be catastrophic for smaller companies. Consumers pay more for products than necessary.