The future of trade: is the world open for business?

January 2017  |  FEATURE  |  GLOBAL TRADE

Financier Worldwide Magazine

January 2017 Issue

January 2017 Issue


The future of trade has been a regular headline maker in recent times, with new US president-elect Donald Trump’s pledge to pull out of existing trade deals and place future ones on hold a significant, if unsettling, addition to the debate.

Mr Trump’s protestations aside, the outlook for global trade at present is subdued. Indeed, in its most recent six-monthly trade outlook report, the World Trade Organisation (WTO) cut its forecast for growth to 1.7 percent, down from 2.8 percent, a move which it attributed in the main to the economic slowdown in China and falling levels of US imports.

Stating that governments should consider the downgraded forecast as a “wake-up call”, WTO director-general Roberto Azevedo also expressed hope that the growth figure “does not translate into misguided policies that could make the situation much worse, not only from the perspective of trade but also for job creation and economic growth and development which are so closely linked to an open trading system”.

Concurrent with the WTO outlook is an array of major trade agreements – the Free Trade Area of the Americas (FTAA), Central America Free Trade Agreement (CAFTA), Trans-Pacific Partnership (TPP), Transatlantic Trade and Investment Partnership (TTIP), the North American Free Trade Agreement (NAFTA) and the Comprehensive Economic and Trade Agreement (CETA) among them – designed to open trading borders, help industries access new markets, lower trade barriers and ultimately benefit customers.

However, formal trade agreements such as these – ranging from the biggest and most ambitious (the TTP/TTIP) to the smaller in scope CETA free trade agreement between the EU and Canada – do tend to have a fairly tortuous route to national ratification. For the most part they are heavily criticised and constantly under scrutiny.

For Dr Arne Klau, a visiting WTO fellow at the University of Adelaide’s Institute for International Trade, the appearance of large regional trade agreements, as well as growing populist scepticism about trade across the globe, are important developments. Like many commentators, he believes that further liberalisation is needed, particularly in and for developing countries.

Many bodies, such as the Global Policy Forum (GPF), are exceedingly critical of the agreements and what they believe they represent. “These bilateral, multilateral and regional accords strongly affect people at all levels of the economy – from growers and workers, to processors and consumers – by regulating pricing, tariffs, export levels and methods of production”, states the GPF. “Though supporters claim that trade agreements bring sustainable development and economic integration, this is not the case”.

The GPF also opines that such trade agreements allow rich countries to maintain protections of their own exports, while competitors in poor countries agree to open their markets. “Beneficial norms, such as human rights or environmental standards, are set aside”, the watchdog argues. “This leads to a ‘race to the bottom’ in which the only priority is cost effective production, at the expense of workers, resources, and sustainability. Due to these failings, the agreements tend to harm development and pull poor countries deeper into poverty”.

Given the number of trade agreements currently floating around and awaiting ratification, the future of trade may very well be determined by the decisions made in the here and now.

According to independent expert Alfred de Zayas, many of the difficulties stem from the reluctance of the elites in most developed countries to listen to public concerns – continuing, as they do, to persevere with a ‘business as usual’ mentality which leads to a crisis of democratic governance, growing discontent and an anti-globalisation mood. “This is not really new, as it goes back at least to the 1999 WTO ministerial conference in Seattle,” says Mr de Zayas. “Although globalisation is here to stay, it must be made to work for everybody, not just for the elites. Globalisation with a conscience, globalisation with human rights, health and environmental impact assessments is what we need.”

Jean Blaylock, a trade researcher at Global Justice Now, believes there is presently an opportunity to take advantage of the shake-up of the established order to find constructive and progressive international approaches to trade that would support the creation of jobs and allow people to live life in dignity. “Part of this needs to recognise that trade does not provide the answer to all policy issues and often needs to get out of the way so that it is not blocking public policy,” she says.

Opinion varies, then, as to how uniform the benefits of trade agreements actually are and who the ultimate beneficiaries are likely to be.

Liberalisation

The future of trade is clearly a topic which divides opinion, with a raft of challenges currently impacting the global trade system. One of these is the issue of multilateral trade liberalisation and whether it could or should be introduced into the trade mix to a greater degree.

“The economic benefits of trade liberalisation are well-known and supported by decades, if not more, of historical and empirical evidence, and by public opinion polls, at least in the US,” says Linda Lim, professor of strategy at the University of Michigan’s Ross School of Business. “Thus, following the virtual stalemate over further multilateral trade liberalisation through the WTO since 1999, nations understandably have been seeking to obtain the benefits of trade for themselves through a slew of bilateral and regional trade deals, with the European Union (EU) being far and away the leader in this.

“Trade liberalisation, whether by means of multilateral, regional or bilateral agreements or unilateral liberalisation like many developing countries have undertaken in the past several decades, benefits poor or developing countries more than the rich in general. Both benefit, but the former benefits more because their economies are ‘further behind’, so they benefit more from the boost to growth and incomes provided by trade. Thus, in the case of the TPP, the economic consensus is that the biggest beneficiary would be the poorest member of the group, Vietnam.”

According to Aaron Cosbey, a senior associate at the International Institute for Sustainable Development (IISD), there is normally a less-than-adequate job done to cushion the blow of adjustment from trade liberalisation. “It may be that at the end of the day all the winners could compensate the losers and we would all be better off. That is a standard tenet of trade economics. But that possibility gets completely lost between theory and reality. Our repeated failure to deal with the ‘losers’, and our repeated over-selling of the benefits of trade agreements, has brought developed country citizens to the same place their developing country fellows have been for years: questioning the benefits of globalisation, fearing the scales are tipped in favour of the powerful,” he says.

Despite strong opposition to the concept of trade liberalisation, Dr Klau believes that further liberalisation makes sense, particularly at the multilateral level. “Trade liberalisation should be better communicated,” he suggests.

Protectionist measures

Given that global trade continues to slow, many commentators suggest this is likely to lead to a rise in protectionist measures by global economies.

“The International Monetary Fund (IMF) and the WTO have documented rising protectionism, and the measurable decline in world trade growth, despite a long albeit weak recovery from the global financial crisis, confirms it,” says Ms Lim. “This slowing of world trade – and the slowing of world and thus national economic growth which it both reflects and portends – actually gives more impetus to concluding new trade deals and agreements, since without them this trend is unlikely to be reversed.”

Others, however, take a different view. “There has been no global rise in protectionist measures during the past six months,” declares Dr Klau. “In fact, the most recent WTO trade monitoring report found that there has even been a slight decrease. The current slowdown in trade growth has been caused by slower growth rather than protectionism. It also seems that certain factors that have contributed to strong trade growth in past years, such as outsourcing of labour-intensive activities – are now declining in importance.”

Too much power?

Critics of global trade agreements, such as anti-globalisation activists, often make the accusation that trade deals essentially result in too much power being given to multinationals and rich countries. A prime example, according to Ms Lim, is the ability of the EU agricultural lobby to “kill” the WTO Doha Development Round.

Another perceived problem is that the results of trade agreements exacerbate inequality within and among nations. “This happens through provisions like more powerful intellectual property rights (IPRs), which amount to a direct transfer from consumers of patented property to the owners of the patents,” says Mr Cosbey. “There is little evidence that the new provisions in IPRs actually foster more innovation, which might be a reasonable trade-off.”

Recalling his experience with NAFTA and other multilateral agreements, Mr de Zayas believes that billionaire investors and multinational corporations disproportionately benefit. “Through NAFTA alone, the US lost an estimated one million jobs to Mexico’s manufacturing sector. Most problematic has been the abuse of the so-called investor-state dispute settlement mechanism (ISDS), which establishes a parallel system of dispute settlement.

“There is no need for such privileged one-way jurisdiction in which investors can sue states and not vice versa. The Associations of German judges and Spanish judges have already rejected such schemes and the proposed Investment Court System as unnecessary. I would go further – I see an attack on state sovereignty and the state’s responsibility to act in the public interest. ISDS engenders a regulatory chill, which in the light of state obligations under COP21 and the SDG’s must be rejected. ISDS cannot be reformed, it must be abolished,” he says.

Trade and Trump

Given the number of trade agreements currently floating around and awaiting ratification, the future of trade may very well be determined by the decisions made in the here and now. “TTP and TTIP will be important developments if they enter into force or are adopted,” states Dr Klau. “It will be interesting to observe the interaction between mega-regionals and the multilateral scene. Personally, I hope for stronger progress in multilateral negotiations at the WTO. In the longer term, I would also hope for a revitalisation of talks on a multilateral investment agreement.”

Without doubt, the world is in a state of flux. A volatile economic and geopolitical landscape underlined by the election of Donald Trump – an appointment which has the potential to undermine global trade negotiations and agreements as they stand.

“Trump’s rise has been made possible by the refusal of many in government to accept there is a problem with trade,” insists Ms Blaylock. “Wages have stagnated, inequality has grown and people believe their children’s lives will be worse than their own. Yet the mantra is repeated that the same trade policies are needed to make things better, even though these policies put us in this situation. In the absence of constructive, progressive alternative policy approaches to trade, the vacuum has been filled by the empty economic rhetoric of a demagogue – Trump – who views trade as an act of aggression.”

Though Mr Trump’s triumph has clearly upset the political status quo in the US and elsewhere, its impact on the future of global trade is as yet unclear. What can be said is that following his pledge to ditch the TPP trade deal on his first day as president, there is certainly the possibility for discord over trade deals to follow, and for agreements to be dismantled before the ink is dry.

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BY

Fraser Tennant


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