Friday,24 May, 2019
Current issue | Issue 1375, (4-10 January 2018)
Friday,24 May, 2019
Issue 1375, (4-10 January 2018)

Ahram Weekly

The future of multilateral trade

The present multilateral trading system underwritten by the World Trade Organisation is not perfect, but it is the best we have, writes Sayed Moawad

In Al-Ahram Weekly for 7-13 December, Magda Shahine wrote an interesting article called “World trade at a crossroads” raising a range of questions including whether Trumpism has been affecting the World Trade Organisation (WTO). Is the WTO still relevant as a negotiating forum on international trade rules and regulations? Can developing countries maintain their stakes in the WTO? And is the WTO losing steam? 

 The core issue of the article was the Trump administration’s trade policies, or more strictly speaking, its protectionist tendencies. The trade policies of US President Donald Trump during his electoral campaign and thereafter took many by surprise. He threatened to withdraw the US from the North America Free Trade Agreement (NAFTA) that includes the US, Mexico and Canada, the Trans-Pacific Partnership (TPP) that the US negotiated with other countries under the Obama administration, and the WTO. Trump threatened to withdraw from all these on the pretext that all of them were not in the interests of the US.

In fact, protectionism has been a long-standing feature of US trade policy, and the first act passed in the history of the country in 1789 was on tariffs. The common position of successive administrations was similar and tended to adopt a protectionist approach. There is always some confusion on foreign policy with every new US administration; however, the Trump administration has gone beyond the normal in this regard even though no harsh measures have yet been taken except the country’s withdrawal from the Trans-Pacific Partnership (TPP) in January 2017. 

In order to put Trump’s trade policy in its proper context we need to examine the history of previous administrations from the Great Depression until today. In fact, there is no significant difference between the current administration and previous ones in this regard. In the textile and clothing sector, for example, the common feature of previous US administrations was to resort to protectionist policies. In 1961, president Kennedy promised to support the textile sector, and a Short-Term Arrangement (STA) on this was concluded to continue for one year and later on was replaced by a Long-Term Arrangement (LTA) in1962 lasting until 1973. 

When the Nixon administration later negotiated with the “big four” of Japan, Hong Kong, South Korea and Taiwan to limit imports from these countries of man-made fibres after the US had imposed restrictions on imports of cotton fibres, a Multi-Fibre Arrangement (MFA) was concluded in 1974. In 1980, during Ronald Reagan’s presidential campaign, he promised to protect the textile sector, and later the MFA was extended many times.

  What will happen if the Trump administration adopts a harsh protectionist approach? The answer to this question is clear: history will repeat itself. Two historical situations can help to clarify this.  

 The first of these in 1932 saw a system of preferential tariffs among the British Commonwealth nations, whereby trade within the Commonwealth was subject to lower tariffs than trade between the Commonwealth nations and the rest of the world. Both the UK and Canada were members of the Commonwealth and the two largest trading partners with the US. Both the UK and other Commonwealth officials were in favour of keeping the preferences at least until the US agreed to reduce its high tariffs established in 1930. 

This situation invited some US officials to oppose the Commonwealth imperial preference scheme on both ideological and practical grounds. Such opposition led to difficulties in achieving agreement on international trade and prevented the establishment of the International Trade Organisation (ITO) in 1948 because of strong opposition from the US Congress. The ITO was supposed to be the third pillar of the global economic system along with the International Monetary Fund (IMF) and the World Bank (WB).

The second situation was after 1929 when the Great Depression seriously impacted the global economy. As a result of the economic contraction there was a chorus of calls requesting the protection of domestic industries facing competition from imported products. A tariff bill to substantially raise protection worked its way through the US legislature with the objective of increasing the cost of imported products. The idea was that US consumers would spend their money on domestic products instead. Many economists at the time disagreed with raising tariffs, thinking that these would make the overall situation worse. 

 

T

HE PRESENT SITUATION: The US is now the world’s first importer and second exporter, and as a result it would not be wise for it to jeopardise these positions by taking restrictive measures.  

The World Trade Statistical Review for 2016 shows that the US was the second-largest exporter in the world in this year, after China, and that total exports of the US represented nine per cent of all world exports. The US was also the world’s leading importer, with its imports representing 14 per cent of the world total. If protectionist measures are taken, these will raise the cost of imports and thus the price of both inputs for production and consumable goods. US exports may also be subject to retaliation from other countries if it imposes duties inconsistent with WTO rules. 

The US is no longer the world’s major commercial power as it was in the early stages of the multilateral trading system. Today, there are others that are alternatives to the US, such as China, India and Brazil. The US is also suffering from increasing international isolation. The recent position of its staunchest allies on the UN Security Council, which voted for a Resolution demanding that the Trump administration rescind its decision to recognise Jerusalem as Israel’s capital, is clear evidence of this. 

Some former and current US officials are fully aware of the declining role of the US. Former secretary of state under president Bill Clinton Madeleine Albright recently expressed her concerns about the US role in the world. “I am scared,” she said. “I often called the United States the indispensable nation, and we are becoming the dispensable nation. Others are deciding they can do without us. The shrinkage of the US’ active role and its increasingly hesitant presence around the world have their consequences and risks in the near and far future.”

 In the same vein, Trump’s national security advisor has said that “in many ways, we vacated a lot of competitive space in recent years and created opportunities for other powers,” referring to China and Russia. 

It should be clear that circumstances have changed since the early stages of the current multilateral trading system in which the US was to a great extent the sole power leading and directing negotiations whether by agreement or by compromise with other parties such as the European Union (EU) and Canada. Although successive US administrations participated in building the system, the US has lost a lot of its influence because of the emergence of new players that cannot agree with it in certain situations, such as China and India. 

Can the developing countries maintain their stakes in the WTO? The answer is yes. The developing countries should insist on taking the WTO in a direction that serves their development aspirations. In order to achieve these, there must be two core conditions. First, they must skillfully select their negotiators such that these are highly qualified and understand the rules of the game. Second, they must develop a suitable domestic business environment and diversified competitive and exportable manufactured goods. Trade plays a central role in the economic development of countries, and therefore the developing countries should expand their share of international trade. 

Regarding the question of whether the WTO is losing steam, the answer is that it is not. On the margins of the Eleventh Ministerial Conference (MC11) of the WTO held in Buenos Aires in December, not only the developing countries, but also the developed ones, expressed their support for the centrality of the rules-based multilateral trading system. 

These countries consider that the WTO through its monitoring and other work contributes to enhancing the transparency of the trade policies and practices of member states, securing the effective functioning of the multilateral trading system. Furthermore, they are convinced that trade plays a major role in development and poverty eradication. The least developed countries in particular benefit from the opportunities generated by the open, rules-based multilateral trading system embodied in the WTO.  

The WTO helps countries to develop, encourages good governance, cuts living costs and raises standards of living. The WTO will continue to be the avenue developing countries can take to gain more from the multilateral trading system. The entrance into force of the WTO Trade Facilitation Agreement on 22 February last year will also help to facilitate trade flows globally and promote customs cooperation and the integration of developing countries into global value chains. 

The WTO has facilitated trade between countries since its inception in January 1995. However, at the close of the Buenos Aires conference in December, the organisation’s director-general, Roberto Azevedo, expressed his wish that support for the WTO should be translated into greater action. He said that if member states really supported the WTO, they should bear in mind that multilateralism does not mean that we always get what we want. It means that we get what is possible. 

Azevedo thus courageously acknowledged that the multilateral trading system is not perfect, but that it is the best we have. We will all have every reason to regret it should it ever cease to function.       


 The writer is manager of anti-dumping policy at the Ministry of Trade and Industry. He writes in a personal capacity.

add comment

  
 
 
  • follow us on