Friday,15 December, 2017
Current issue | Issue 1372, (7 - 13 December 2017)
Friday,15 December, 2017
Issue 1372, (7 - 13 December 2017)

Ahram Weekly

World trade at a crossroads

Who will save the World Trade Organisation if US President Donald Trump continues to challenge the international trading system his own country has nurtured over the years, asks Magda Shahin

world trade
world trade

Is Trumpism affecting the World Trade Organisation (WTO)? Is the WTO, a negotiating forum on international trade rules and regulations, still relevant? Can developing countries maintain their stakes in the WTO? Is the WTO losing steam? What is the future of the WTO if some new administrations in the developed countries appear to be working against its very raison d’être: the dual objectives of globalisation and trade liberalisation? Is Trumpism synonymous with protectionist populism?

These and other questions are supposed to be dealt with by the 11th WTO Ministerial Meeting, which will be held between 11 and 13 December in Buenos Aires, Argentina. Since its establishment in 1995, the WTO has gone through rough times. But at no time has it had to face a coup from its own creator. Not only did the United States lead the establishment of the General Agreement on Tariffs and Trade (GATT), the WTO’s predecessor in a post-World War II arrangement, but it has arguably been the biggest proponent and most important dynamic force behind revamping the WTO’s multilateral trading system by adding services, intellectual property rights, and investment as trade-related issues and expanding the multilateral trade rules framework well beyond the narrow confines of the original GATT.

This has made the WTO the caretaker of globalisation, a concept that Trumpism seems to be working against today. The WTO will have one of two options: either to stand up to this challenge, or to bend to it, hoping this momentary turbulence will go away. Either way, it is no doubt in a peculiar situation, as the US, the ultimate dealmaker in any trade round of negotiations, now appears to be the one that has guillotined the Doha Development Round and is tightening the noose around globalisation. Maybe it is drafting an obituary for the multilateral trading system as we once knew it.

However, the WTO’s difficulties predate the presidency of Donald Trump, and perhaps Trumpism is in any case misunderstood. Seeing the WTO providing opportunities to the developing countries to become better integrated into the global system and to participate in policy-and decision-making as new members of global governance, the former US Obama administration, in an attempt to recover its control over the multilateral trading system, opted to negotiate so-called mega-regional trade agreements outside the framework of the WTO.

This was not without harm to the WTO. It meant that the WTO was no longer necessarily seized of negotiating international rules and regulations, as these were to be set between like-minded countries in mega-regional trade deals, incapacitating the developing countries from taking part in the negotiations. 

By undertaking unprecedented commitments that were equal to those of the developed countries in the framework of the Uruguay Round of trade negotiations, except for some already expired grace periods, countries such as Egypt, India, Brazil and China refused to abide by the newly proposed rules set out by the traditional powers since these did not necessarily serve their interests or development goals. It was because of such resistance that the US explored a parallel trajectory to the WTO in the mega-regional deals, aiming to negotiate rules and standards separately and then impose them on other countries through the back door. 

Instead of negotiating trade rules and regulations within the multilateral framework of the WTO in order to serve all countries on a just and equitable basis, the Obama administration sought to sideline the WTO by seeking to conclude two grand partnerships, the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP), in the absence of major economies such as China, Brazil, Russia, India and all the countries of the African continent. 

In stark contrast to the policies of his predecessor, Trump has not hesitated to withdraw from these agreements and to direct his administration to strike bilateral deals away from regional and multilateral cooperation in order to serve the American worker and the American middle class. These have genuine and legitimate concerns, notwithstanding the question of how their interests might best be served. 

As a result, the question arises of whether we are now entering a phase of confusion at the international level, with the US creating havoc in international trade rules and the US president firm in his belief that in pursuing such narrow tendencies he is putting America first. 

 

MEDIA NEGLIGENCE: Thus far, the media has not given due attention to the new position of the US regarding the international trading system and the conflicting remarks of its president. But this is soon to change, as the topic will now occupy centre-stage on the international scene, especially at the 11th WTO Ministerial Meeting. 

Trump’s clear shift from the previous well-known pro-globalisation policies of the US reflects a radical change in the US position, which will have its repercussions on the international trading system. The Trump administration is trying to revive the “social clause” and the “labour” issues as the centre of interest in the trading system. This will be an uphill battle for the developing countries, which, since the Clinton administration in the US in the 1990s have rejected any attempts to integrate the social clause as a trade-related issue. It would simply mean sanctioning the developing countries if they failed to implement relevant labour laws by closing the markets of developed countries to their goods. Needless to say, international frameworks for labour laws are already negotiated in a different forum, the International Labour Organisation (ILO). 

Many politicians and scholars alike are confused by the extreme message Trump is effectively transmitting to the multilateral trading system with his withdrawal from hard-fought partnership agreements and what appears to be an antagonistic attitude towards the WTO. Trump did not back down from describing the Geneva-based organisation as a “catastrophe,” threatening that the United States could withdraw from the WTO if its rules prove to be an obstacle to his administration’s plans to protect US manufacturing and restore US jobs. 

This are precedents for such US actions, as it already withdrew from the United Nations Industrial Development Organisation (UNIDO) in 1996 and the United Nations Educational, Scientific and Cultural Organisation (UNESCO) this year. To Trump, jobs have been shamelessly plundered from his country by Mexico and China, and he has also gone so far as to demand that American companies transferring their jobs to Mexico be punished and that a 45 per cent tariff be placed on China’s imports to the US in an attempt to reduce its trade deficit with China, both of which contravene US commitments in the WTO. 

Should the US go ahead with such actions, it would be backtracking from commitments for which it wrote the rules and then negotiated to uphold them. 

Is the US administration thus giving up its leadership role? And if so, who will replace it, China or the European Union? While we recognise that both of the latter are huge trading powers, each has its own weaknesses preventing it from carrying out a leadership role that cannot be adequately dealt with here. The WTO at its next meeting will have to deal with signs of subversion and lack of clarity coming from the US administration. Its members will also have to stand up against such confusion and defuse it. 

Yet, all is not lost. One can envisage that US unilateralism and its rejection of mega-regional agreements may have a positive twist. First, it could eventually mean a return to the WTO and the multilateral system. Second, there is a new opportunity for developing countries to participate in multilateral negotiations after the Obama administration virtually disarmed the WTO and paralysed its negotiating processes. Trump’s anti-grand bargain position could ironically restore the WTO’s role, something that it is hoped will be consolidated at the 11th Ministerial Meeting. 

Third, there seems to be no harm in curbing the influence of transnational corporations, which Trump has set as one of his goals by pronouncing himself to be against globalisation. This stance is all the more effective when it comes from the US president. Developing countries have often expressed their fears about the growing influence of these corporations, which have become the driving forces of international trade. These corporations serve only their own interests, and they have little concern for the rights of states and the well-being of citizens. 

Nevertheless, if Trump’s remarks give rise to action, they could foreshadow an even fiercer trade war than the one that took place in the 1930s. This contributed to the prolongation and exacerbation of the Great Depression, in which the US was the main culprit. With its initial tariff increases and the devaluation of its currency, the US thought it could extricate itself from the recession it had brought upon itself as a result of bad credit policies and the collapse of the stock market. These policies could have functioned well, had not all the other trading countries emulated the same actions at the time, leading to the well-known policy of beggar-thy-neighbour. 

Similar mistakes were also made during the 2007/2008 financial crisis, which first emerged as a real-estate credit crisis in the United States and then spread to Europe and Asia. Only those countries that were on the margins of the international financial system survived the worst of it. So who will save the world if president Trump insists on challenging the system his own country established and has nurtured over the years?

None of these concerns are new. It is well known that when the United States sneezes, the world catches a cold. The policies of the United States inevitably have repercussions and international influence. The task of the international community within the framework of the 11th WTO Ministerial Meeting is an arduous and complex one. Either the organisation’s member states will succeed in addressing Trump’s rebellious policies, or they will suffer a popular blow the dire consequences of which no one will escape. 

Or perhaps we have all been fooled by the populist veneer of Trumpism and should not jump to conclusions. After all, no one can deny that the current US president is quite possibly the greatest dealmaker of our time.


The writer is a professor of practice and director of the Prince Al-Waleed bin Talal Centre for American Studies and Research at the School of Global Affairs and Public Policy at the American University in Cairo.

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