The Multilateral Crisis in Trade:

Renee Moorjani

The 2018 G20 Buenos Aires summit saw the Director-General of the WTO lament the multilateral crisis, stating that it is the worst crisis “not only for the WTO but for the whole multilateral trading system since the GATT in 1947”.

No doubt, the foundations of trade in the WTO were laid in an economy that no longer exists- the exponential growth of the service industry, e-commerce and the rise of emerging economies pose a fatal threat to the operating modalities of the WTO. Trade tensions are amplified by a lack of periodic performance evaluations, failure of the Doha Round in 2001, pursuit of strategic interests by China and others, aggressive unilateralism by USA and the consequent engagement in trade negotiations outside the auspices of WTO.

Why are these trade tensions of such pertinence to us as the youth of New Zealand?

Large and small countries have stakes in the WTO and benefit from the multilateral trading regime.

This is because most global trade concerns require cooperation between a wide range of trading partners in a globalized economy. Bilateral agreements are less likely to endure pressures from the market; and plurilateral agreements risk fragmenting the global value chain and offer only partial solutions to companies seeking disciplines on trade-distorting policies.

The failure of cooperation between WTO members coupled with the uncertainties that accompany our generation (the biggest one being the Climate Crisis and others including the digitization of production) exacerbate the issues brought about by protectionist measures being adopted by many WTO members. Trade distorting actions such as non-tariff policies, agricultural support policies, tariff escalation that constrain developing countries from moving up the value chain, tax incentives to attract foreign investment and the use of subsidies to support local production are increasingly used to bypass WTO obligations. Digitization of the economy has negative trade spillovers that have implications for all countries. All these, together with the extent of Chinese regional engagement and USA unilateralism call for reform of the trading system at the very least, if not for a completely new course of action.

The way forward in today’s climate is anyone’s guess. Reform of the system would require certain urgent actions. These include cooperation between members first and foremost, fleshing out new methods to address trade that are relevant to this ever-evolving economy and resolving the deadlock in the WTO dispute settlement mechanism, the Appellate Body (AB). For any of this to occur, it is essential that the key players (US, China, Japan and the EU) open a discussion on the future of the WTO, negotiate with the aim to come to an agreement and apply whatever is agreed to on a most-favoured nation (MFN) basis. Members must deliberate whether certain interpretations of WTO provisions carry the intent of WTO membership I.e; is consensus being used the way it was originally intended? Additionally, if there are no re-appointments or agreement with the USA, the AB will cease to function at the end of this year (2019!!). If this dispute resolution mechanism is not saved, or a new one not implemented, trade tensions with the USA can only get more severe.

Unfortunately, there is a sense of fear associated with reform. Many fear that while several discussions have and will continue to take place, for as long as powerful nations hold the stage, they will have strong influence of the agenda during the talks and broader criticisms of the system, and the plight of the developing world will be ignored. Academics state that the talks often result in “old wine in new wineskins”.  Calls for a new trading system, however, are also plagued with questions. Trade liberalization is hailed as a promise for welfare while poverty-stricken nations suffer in the economy. While Critical Mass Agreements (CMA) are proposed as a viable way forward for negotiating important agreements, current international projects focus on the stability of operating environments and meeting legitimate expectations in a system that needs rethinking.

This is understood by the WTO, evident from their first ever youth-centered Public Forum on 8 October in New York which saw Millennials and GenZers provide their perspective on the way forward for the trading system to the Director-General of the WTO. The forum highlighted the failure of traditional trading practices in the current environment where businesses are geared towards inclusivity, highly varying employment patterns, new skillsets not covered by previous agreements and goals that couple profit with purpose. Panelists discussed the need for a trading system that considers the diverse needs of developing and least developing countries, environmental concerns and the continuing imperative of poverty reduction. Millennials expressed that traditional trade favours those with financial muscle and political power which they lack. They challenged the traditional nation-state model and asserted that they thrive in an unregulated economy- unfettered by taxes and capital restrictions.

So, it is upon us to press on and ask the important questions:

– What is the way forward for the WTO? How can the WTO facilitate cross-border service, trade and finance while protecting privacy and preventing reckless, unlawful behaviour?

– Should the WTO create rules for cross-border data flow or should a new system be conceived for a digitized economy?

– What can WTO members do to create a level playing field in a world with developed, developing and emerging economies?

– And most importantly, how can the WTO foster a positive trading environment for Millennials and the generations to come?

Over to you.

Renee Moorjani is a law student at University of Auckland, and Secretary of the NZ Centre for Global Studies.

Author: Joanna Tao

Renee Moorjani is Secretary for the NZ Centre for Global Studies, maintaining administrative functions and helping to manage the Centre’s projects.

October 10, 2019

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