Author: Andrew Elek, ANU
A confident, rules-based environment for international trade has made possible the remarkable improvements in East Asian living standards over the past 50 years. This environment — created by the General Agreement on Tariffs and Trade (GATT) and its successor in the World Trade Organization (WTO) — remains essential for the future. But its survival cannot be taken for granted.
Since the Doha Round of negotiations started faltering, governments have focussed on the weaknesses rather than the strengths of the WTO. Dissatisfaction with the organization has triggered a proliferation of preferential trade agreements, and it has become routine to ignore the fundamental principle of non-discrimination at the heart of the WTO.
Hundreds of discriminatory trade agreements have achieved little in terms of market access for sensitive products, but they have proved very useful for setting new rules — rules that have been designed largely by the world’s most powerful countries. This trend puts the WTO at risk. The GATT and the WTO may go down in history as an isolated 70 years in which world trade was based on the interests of all economies, rather than just a few.
Another risk to the WTO comes from US President Donald Trump, who rode a wave of xenophobia and fear for job security to become president. He is obsessed with trade deficits and resents any agreements that constrain him; therefore he threatens the future of the WTO.
In response, East Asian policymakers need to think globally and acknowledge that sustaining their rising prosperity depends on the survival of the WTO. They will need to set priorities and agree on next steps that help to fix some of the WTO’s weaknesses and to retain its vital benefits.
The core objective of the WTO has always been, and still is, to create a confident environment in which the world’s trade can take place according to agreed rules. The WTO also ensures that any departures from these rules can be challenged.
To sustain this environment, East Asia’s top priority should be to defend the WTO’s dispute settlement mechanism, which has worked well since the organization commenced operations in the mid-1990s. Trade practices that appear to be inconsistent with WTO rules can be tested objectively and reasonably quickly and, just as importantly, member states’ compliance with WTO rulings has been remarkably good.
Defending this dispute settlement mechanism should now take precedence over trade liberalisation. In the face of rising populism, expecting any progress on lowering residual border barriers to trade is unrealistic. Fortunately, trade liberalisation no longer needs to be the top priority for the WTO. Past rounds of WTO negotiations have helped to create an environment where only a few sensitive products face significant traditional border barriers and these products account for a rapidly falling share of international commerce. The performance of the WTO should no longer be judged by the progress of complex negotiating rounds held up by political resistance to trade liberalisation of these few products.
How can East Asia defend the WTO?
It could build on Chinese President Xi Jinping’s speech at Davos in January 2017, which confirmed China’s commitment to openness and to a rules-based multilateral economic order. All other East Asian governments can join China to make it clear that they will continue to act in line with their WTO commitments in their dealings with other members.
A joint declaration could state that the WTO has been and will continue to be vital for successful economic development around the world and that East Asian leaders will maintain their support for an open and rules-based environment. The statement could also affirm that East Asian countries will not only continue to adhere to WTO rules in their trade interactions, but that they are willing to improve these rules and to develop new ones which can be adopted by consensus of a critical mass of WTO members. A statement along such lines by East Asian leaders could be followed by an invitation to others, including G20 governments, to join in such a commitment.
Words alone are not enough. The United States’ refusal to endorse any new judges to the WTO’s dispute settlement panel needs a swift and clear response. Responsible WTO members should indicate that they will appoint judges by consensus among an overwhelming majority well before the panel falls short of the required minimum number.
The dispute settlement process cannot be expected to survive unless the WTO catches up with the rapid evolution of international commerce. WTO rules on intellectual property rights are out of date. There are no agreed multilateral disciplines on international investment or on labour and environmental standards. The WTO has not been able to agree on any framework or principles for e-commerce. Unless the WTO can begin to deal effectively with these matters, attention will continue to drift towards preferential trade agreements.
East Asia can lead an effort to broaden the coverage of WTO rules. Some new rules can be adapted from regional or bilateral agreements (potentially including the Regional Comprehensive Economic Partnership) if they are based on sound principles and take account of the interests of all economies. Given that APEC working groups have been helping to devise ways to cover new issues in trade agreements, they could also be encouraged to help design WTO principles and rules.
Andrew Elek is Research Associate at the Crawford School of Public Policy, The Australian National University. He was the inaugural Chair of APEC Senior Officials in 1989.