U.S., China are missing in mission to save WTO — but all is not lost
Bid to to fix system remarkable after years of complacency, Kevin Carmichael writes.
What will we call this odd collection of free traders who gathered in Ottawa this week to save the World Trade Organization from Donald Trump and Xi Jinping?
How about the Rideau Group, since Jim Carr, Canada’s trade minister, assembled his invitees at the National Arts Centre, which overlooks the Rideau Canal? Or the G13, because Carr’s collective includes 12 countries and the European Union? The Alliance of Middle Economic Powers could work too, as the world’s two economic superpowers — the U.S. and China — weren’t invited.
Ministers from the European Union, Japan, Brazil and every other corner of the globe promised at the end of their meeting Thursday to do it again in January, so this thing might have staying power.
They are going to need to come up with something better than the “group of like-minded World Trade Organization members,” which is how they described themselves as they pledged to “seek a fully operational WTO that benefits all.”
It would better for everyone if we could lump all this trade dickering under the WTO, the Geneva-based outfit that the world’s economic powers created in 1995 to oversee international rules on tariffs, subsidies and other policies that impede the free flow of goods and services.
This is the best kind of arrangement for a country such as Canada.
As fans of the recently completed NAFTA saga know, pipsqueaks are at a terrible disadvantage in bilateral negotiations with a behemoth. They do better when there are many others at the table, since it becomes harder for the dominant player to throw its weight around.
That’s why Canada for the past few decades has described the WTO and a strong, rules-based multilateral system as its No. 1 trade priority, even if its actions sometimes suggested it was more concerned with keeping Washington happy.
Alas, that’s no longer the world in which we live.
The system that came of age under outwardly focused presidents such as Ronald Reagan and Bill Clinton relied on the U.S. being a willing participant; the Trump administration is loaded with trade skeptics, starting at the top. Trump muses about quitting the WTO and he has crippled the dispute-resolution system by blocking the appointment of new jurists.
China has the size to take over as the magnet that holds everyone together, but Beijing ’s commitment to state-run capitalism is at least as problematic as Trump’s protectionism. In fact, it’s not clear that a global system of co-operation constructed after the Second World War is big enough for an America led by Trump and a China led by Xi.
Robert McDougall, a senior fellow at the Centre of International Governance Innovation (CIGI) and former federal government trade lawyer, observed in a recent paper that any attempt to overhaul the WTO will be complicated by the “growing strategic competition for economic dominance between the United States and China that might ultimately be too great for even the multilateral trading system to contain.” (Disclosure: I also am a senior fellow at CIGI.)
That would be bad: The Bank of Canada this week characterized the trade war between the two largest economies as one of the biggest threats to Canada’s economy. The central bank cut its economic growth outlook for both countries, and said Canada also will be hurt by weaker demand and lower commodity prices.
“Rising trade tensions between the United States and China could have a significant and lasting impact on the global economy,” the Bank of Canada said in its latest Monetary Policy Report.
Maybe leaders in Beijing and Washington will find a way to resolve their issues; that certainly would be the rational thing to do. But expecting rationality to prevail has been a poor strategy so far in the Trump era. That’s why leaders such as Christine Lagarde, the managing director of the International Monetary Fund, this year has been calling on the countries that still believe in globalism to take matters into their own hands.
Prime Minister Justin Trudeau might have been listening.
As Carr’s WTO meeting was ending, he got word that the legislation to implement the 11-country Trans-Pacific Partnership had received royal assent. Canada was fifth to ratify the agreement, and Australia is reportedly close, meaning the TPP is probably only months from taking effect. (The legislatures of six countries must endorse the agreement before the provisions become binding.)
The TPP — which former U.S. president Barack Obama largely shaped and Trump quit within days of taking office — could send an important signal that the cause of global free trade isn’t entirely at the mercy of the U.S.’s new protectionist agenda. Countries such as Japan, Canada and Australia showed they are capable of carving out a path that doesn’t involve manoeuvring for preferential access to markets of the U.S. or China.
Restoring the WTO’s effectiveness also will require middle powers to be less subservient to the obstructionists. Carr said his group was willing to address the Trump administration’s issues with dispute resolution, which the White House thinks puts too much power in the hands of unelected adjudicators. The ministers also said they must find ways to complete unfinished negotiations and strengthen monitoring of members’ trade policies, an allusion to China’s tendency to wield subsidies behind the guise of its state-run firms.
There were few specifics, but those can wait until January. After decades of complacency, it was remarkable to see a group of countries mount a concerted effort to fix a broken system.
“This is a continuing process,” Carr said. “It had to start somewhere.”