Uncertainty in global trade ties is here to stay
More cement and steel will certainly build walls and infrastructure projects. But will it mend fences and lead to a new era of harmony and trade? That remains moot. Indeed, developments in the international trade relations seem somewhat befuddling over the past fortnight. President Donald Trump has claimed his first major success for striking a “smart” trade deal: China will allow the US to sell beef and other major products in the ever expanding Chinese market. His administration also notified the Congress about renegotiating the North America Free Trade Agreement (Nafta).
Trump’s new trade representative ambassador Robert Lightizer, according to The Economist magazine of 20 May, is “the forensic version of Mr Trump’s economic nationalism, which sees China as a mercantilist military threat, enabled by America’s free trade policies.” Ambassador Lightizer “combines an encyclopedic knowledge of global trade rules with a willingness to flout them, if they do not serve America’s interests,” it says. Further, Lightizer is also well known for his caustic remark in 2010: “an unthinking, simplistic and slavish dedication to the mantra of ‘WTO-consistency…. makes very little sense’.”
On a different front, China’s President Xi Jinping has claimed that his gigantic “One Belt One Road” project at a cost of $900 billion will “add splendour to human civilization”. The OBOR is an ambitious venture for building roads, rails, ports, pipelines and other infrastructure joining China to Central Asia, Europe and Africa by land and sea. It is expected to cover 65 countries, representing 60% of the world population and around a third of global gross domestic product. A variety of Chinese or China-backed banks and credit funds are expected to fund the project.
Beijing has claimed that the OBOR would provide stimulus for trade with lower trade barriers and regulatory harmonization. At a time when “economic growth is not on solid ground (and) economic globalization is encountering headwinds... no country can tackle all the challenges or solve the world’s problems on its own”, President Xi has said in a grand speech on 14 May, claiming the OBOR to be the “project of the (21st) century.” It is not clear how a gigantic infrastructure project even if it is completed on time with assistance from China could mend fences by reducing trade barriers.
A third development worthy of note is how an outgoing lady ambassador of India has forced the World Trade Organization (WTO) General Council not to perpetuate inconsistent practices. That the WTO, which is also known as Whose Trade Body it is according to the Seattle protesters of 1999, revels in the art of diabolical/questionable practices is well known. “Our ministers were relegated to coffee cup bearers instead of negotiating their trade rights” is a telling comment made by Uganda’s trade envoy ambassador Christopher Onyanga Aparr on what happened at the WTO’s 10th ministerial conference in December 2015.
The Indian ambassador blocked the proceedings because an issue called trade and investment was inserted in the agenda for discussing several proposals on investment facilitation. Those proposals were introduced by China along with other countries. Trade and investment was one of the main demands of the European Union (EU), Japan, and Korea among others in 2001. But it was subsequently dropped from the Doha Development Agenda mandate in 2004. The WTO Secretariat failed to ensure that an issue which has been formally dropped from the Doha Work Program was included in the General Council agenda.
India’s action, as expected, has stirred a hornet’s nest. The EU said the Indian action would lead to a “systemic” tsunami. Some others suggested whether the consensus principle for arriving at decisions has to be changed. It is an open secret that issues of interest to the global trade hegemons are quietly rammed through at the WTO even if a majority of countries remain opposed.
Finally, the fourth major trade development of importance is a bold attempt to salvage the Trans-Pacific Partnership (TPP) free trade deal that was almost torpedoed by President Trump in one of his first major executive decisions. Trade ministers of eleven countries—Japan, Australia, New Zealand, Singapore, Malaysia, Brunei Darussalam, Vietnam, Canada, Mexico, Chile, and Peru—of TPP launched a process to see if they could all bring the deal into force by the end of this year while keeping the door open for the US. That the TPP-11 “are committed to finding a way forward to deliver” could prove to be a game changer in the global trade. That would depend how seriously the eleven press ahead with a final agreement by the end of the year. So far, only two countries —New Zealand and Japan—have ratified the TPP agreement.
Out of the four developments, the last one—i.e., a desperate attempt to salvage the TPP—could create a new trade dynamic in the Pacific region, says a former western trade envoy and an international authority on global trade issues. “It would be a very significant development that would send a message that they (the eleven members) want to do business even if the US doesn’t,” the envoy said. “Such a deal would be less commercially significant without the US, but in strategic terms it would be a strong political message of making things clear to the US that they mean business and China would be happy if such a deal takes place without the US,” the envoy suggested, preferring anonymity.
As regards China’s ability to provide an alternative for encountering the headwinds in the economic globalization, it remains to be seen whether there is going to be any material change in the Chinese positions in the multilateral trade and economic bodies. Until President Xi consolidates his power in the new Politbureau later this year, there is little chance for concrete action by China on any front. The OBOR is not a free trade liberalization agenda. The Middle Kingdom is still guided by its defensive interests stemming from lot of state-owned enterprises. Therefore, a prolonged phase of uncertainty is here to stay, particularly in the multilateral trade relations, despite China’s grand pronouncements.