The mul­ti­lat­eral trade sys­tem must be pro­tected

China Daily European Weekly - - Cover Story - Wang Huiyao The author is founder and pres­i­dent of the Beijing-based Cen­ter for China and Glob­al­iza­tion. The views do not nec­es­sar­ily re­flect those of China Daily.

In re­sponse to po­ten­tial rise of in­dus­tri­al­ized trad­ing bloc, China should strengthen re­gional ties, im­prove mu­tual un­der­stand­ing

While the United States and China re­main dead­locked in an es­ca­lat­ing trade dis­pute, re­cent signs in­di­cate that the ad­min­is­tra­tion of US Pres­i­dent Don­ald Trump is mov­ing to re­solve dif­fer­ences and draw up new agree­ments with other ma­jor trad­ing part­ners. This raises un­cer­tainty over the fu­ture of the World Trade Or­ga­ni­za­tion-based mul­ti­lat­eral trad­ing sys­tem and points to the pos­si­ble emer­gence of a zero-tar­iff club of select de­vel­oped nations.

Fol­low­ing this path could frag­ment the in­ter­na­tional trad­ing sys­tem and harm the long-term in­ter­ests of de­vel­oped and de­vel­op­ing nations alike. At this cross­roads, it is im­por­tant that world lead­ers work to pro­tect and rein­vig­o­rate the mul­ti­lat­eral trad­ing sys­tem that has un­der­pinned global growth and de­vel­op­ment over the past few decades.

It is no se­cret that Trump is dis­sat­is­fied with the cur­rent mul­ti­lat­eral trad­ing sys­tem. He wants to re­con­fig­ure in­ter­na­tional trade ar­chi­tec­ture to put the US in a stronger po­si­tion and is im­pa­tient with the WTO, which he sees as un­wieldy and in­ef­fi­cient. In­deed, in a re­cent in­ter­view, Trump threat­ened to with­draw un­less the or­ga­ni­za­tion treats the US bet­ter.

Rather than work through the WTO, Trump shows a pref­er­ence for pur­su­ing free trade agree­ments with de­vel­oped coun­tries. This is seen as a way to achieve faster re­sults and take ad­van­tage of Amer­ica’s con­sid­er­able lever­age in bi­lat­eral ne­go­ti­a­tions.

This sum­mer has seen ten­ta­tive steps to­ward a free trade agree­ment be­tween the US and the Euro­pean Union. When Euro­pean Com­mis­sion Pres­i­dent Jean-Claude Juncker vis­ited Wash­ing­ton in late July, the US and EU agreed to step back from the brink of a trade war and work to­ward “zero tar­iffs, zero non­tar­iff bar­ri­ers, and zero sub­si­dies on nonauto in­dus­trial goods”. With this joint state­ment, Trump de­clared “a new phase in the re­la­tion­ship be­tween the US and the EU”.

The Trump ad­min­is­tra­tion is also push­ing for an FTA with Ja­pan. Tokyo would pre­fer that the US re­turn to the Trans-Pa­cific Part­ner- ship, from which Trump with­drew on his first day in of­fice. How­ever, the chances of this seem re­mote, and with Wash­ing­ton wield­ing the threat of slap­ping tar­iffs on im­ports of Ja­panese au­tos, some kind of com­pro­mise be­tween the US and Ja­pan is even­tu­ally likely.

While moves to­ward a zero-tar­iff area of in­dus­tri­al­ized nations would face sig­nif­i­cant op­po­si­tion in par­tic­i­pat­ing coun­tries, not least from in­flu­en­tial in­dus­tries, some of the pre­lim­i­nary build­ing blocks are al­ready fall­ing into place. The EU has an FTA with Canada and re­cently signed an eco­nomic part­ner­ship agree­ment with Ja­pan. Other de­vel­oped nations such as Aus­tralia and New Zealand would also likely be drawn to the prospect of zero-tar­iff trade with such a large com­bined mar­ket. A zero-tar­iff area cov­er­ing the US, EU and Ja­pan would rep­re­sent more than 60 per­cent of global GDP.

If such a trad­ing bloc of de­vel­oped coun­tries was to emerge, it could leave bil­lions of peo­ple in de­vel­op­ing coun­tries locked out of ma­jor mar­kets and stymie the de­vel­op­ment of mu­tu­ally ben­e­fi­cial trade ties across the world.

How should China re­spond to the po­ten­tial rise of an in­dus­tri­al­ized trad­ing bloc? I believe it is im­por­tant to fo­cus on the three ob­jec­tives out­lined be­low, namely pro­tect­ing the mul­ti­lat­eral sys­tem, strength­en­ing ties with key re­gions and im­prov­ing mu­tual un­der­stand­ing by telling China’s story to the world.

First, it is im­por­tant that China con­tin­ues to play an ac­tive role in re­vi­tal­iz­ing the mul­ti­lat­eral trad­ing sys­tem. De­spite op­pos­ing cur­rents that have emerged in some coun­tries, most still see glob­al­iza­tion as a pos­i­tive force. Joint ef­forts by China and all con­cerned economies should be made to trans­form glob­al­iza­tion1.0 to glob­al­iza­tion 2.0.

The cur­rent WTO-based sys­tem needs to be up­dated to serve the in­ter­ests of all coun­tries and re­flect struc­tural shifts in the global econ­omy. Mul­ti­lat­eral ne­go­ti­a­tions should fo­cus on con­crete is­sues and be open and trans­par­ent to en­able the full and fair par­tic­i­pa­tion of all coun­tries. While up­hold­ing the prin­ci­ple of con­sen­sus de­ci­sion-mak­ing, the WTO should also con­sider in­creas­ing use of pluri­lat­eral agree­ments (those be­tween more than two, but not a large num­ber of, coun­tries) or in­tro­duc­ing an ex­ec­u­tive com­mit­tee to make de­ci­sion-mak­ing more ef­fi­cient.

WTO mem­bers should also be mind­ful of a creep­ing trend of in­vok­ing na­tional se­cu­rity ex­cep­tions to jus­tify uni­lat­eral im­po­si­tion of tar­iffs. Mis­us­ing the na­tional se­cu­rity ex­cep­tion, such as when ap­plied to nor­mal prod­ucts, threat­ens the in­tegrity of the WTO reg­i­men and could be­come in­creas­ingly mis­used as a pre­text for un­re­lated pro­tec­tion­ist ob­jec­tives, if not checked.

There is also a need to re­form the dis­pute res­o­lu­tion mech­a­nism to en­sure that cases are re­solved in a timely man­ner. The present sit­u­a­tion of cer­tain WTO mem­bers ve­to­ing the ap­point­ment of ap­peals judges also threat­ens the mech­a­nism’s abil­ity to con­tinue op­er­at­ing in its cur­rent form. In ad­di­tion, un­der the WTO frame­work, China could help to build new plat­forms for in­ter­na­tional co­op­er­a­tion in key ar­eas such as e-com­merce, cy­berspace and global tal­ent.

As well as work­ing with WTO mem­bers, we should also co­op­er­ate with other par­ties that share in­ter­ests in pro­tect­ing an open trad­ing sys­tem, such as multi­na­tional cor­po­ra­tions. These en­ti­ties rely on global value chains and smooth cross-bor­der trade and have sig­nif­i­cant in­ter­ests in China in par­tic­u­lar. Each year, US com­pa­nies take in to­tal rev­enues of $200 bil­lion (171 bil­lion euros; £152 bil­lion) to $300 bil­lion in China. We should in­crease dialogue with these com­pa­nies and help them to play ef­fec­tive roles as ad­vo­cates for free trade in their home coun­try.

Se­cond, to sup­ple­ment ef­forts to pro­tect the mul­ti­lat­eral sys­tem, China should work to strengthen re­la­tions with coun­tries in key re­gions.

This should start with deep­en­ing ties with our neigh­bors. Asian coun­tries are al­ready among China’s big­gest trad­ing part­ners, with im­por­tant shared geo­graph­i­cal, his­tor­i­cal and cul­tural links. Emerg­ing economies such as In­dia and In­done­sia have bur­geon­ing young pop­u­la­tions, promis­ing growth po­ten­tial and a high de­gree of com­ple­men­tar­ity with China.

Build­ing in­sti­tu­tions to fa­cil­i­tate closer in­te­gra­tion, as has been done in the EU, would con­trib­ute much to re­gional sta­bil­ity and pros­per­ity. China should strive to com­plete talks on the Re­gional Com­pre­hen­sive Eco­nomic Part­ner­ship promptly and also con­sider join­ing the new Trans-Pa­cific Part­ner­ship. Both of these agree­ments rep­re­sent po­ten­tial path­ways to­ward form­ing a Free Trade Area of the Asi­aPa­cific, a long-term goal to link Pa­cific Rim economies.

Look­ing be­yond Asia, China should build on its friendly ties with African coun­tries to en­hance eco­nomic co­op­er­a­tion with Africa. China has forged friendly links with African cit­i­zens and lead­ers, and Sino-African trade has grown rapidly from just over $10 bil­lion in 2000 to $170 bil­lion in 2017, ac­cord­ing to the Min­istry of Com­merce. There are enor­mous po­ten­tial syn­er­gies be­tween China, with its cap­i­tal and rel­e­vant ex­per­tise such as in­fra­struc­ture de­vel­op­ment, and Africa, which has great prom­ise with a young, grow­ing la­bor force, large con­sumer mar­kets and ea­ger­ness for in­vest­ment to over­come in­fra­struc­ture gaps and un­lock growth po­ten­tial. The ini­tia­tives out­lined in the ac­tion plan ap­proved at the re­cently con­cluded Fo­rum on China-Africa Co­op­er­a­tion sum­mit in Beijing re­flect the broad range of ar­eas in which China and Africa can work to­gether, from en­ergy and in­dus­tri­al­iza­tion to trans­porta­tion and tourism.

Third, at present, in­ter­na­tional re­la­tions are be­set by wide­spread mis­giv­ings and mis­un­der­stand­ings to­ward the in­ten­tions of other coun­tries. This sit­u­a­tion can easily cause a slide to­ward zero-sum think­ing at a time when global co­op­er­a­tion is more im­por­tant than ever be­fore.

In this en­vi­ron­ment, it is im­por­tant that we en­gage in ef­fec­tive dialogue with other coun­tries, lis­ten­ing to concerns and speak­ing with a clear voice to ex­plain China’s plans and en­sure that they are not mis­con­strued. Think tanks such as the Cen­ter for China and Glob­al­iza­tion have a valu­able role to play in these ef­forts by pro­vid­ing chan­nels for in­for­mal com­mu­ni­ca­tion and by gen­er­at­ing ideas for cross-bor­der co­op­er­a­tion. In this way, China can work with other coun­tries to build a com­mu­nity of shared fu­ture for all hu­mankind based on shared prin­ci­ples and mu­tual un­der­stand­ing.

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