William Krist's Blog, page 14

Designing a US-EU Industrial and Trade Policy

Washington and Brussels under the Joe Biden–Ursula von der Leyen presidencies have developed a strong working relationship on trade and industrial policy issues. However, Russia’s invasion of Ukraine; growing consciousness on both sides of the Atlantic of the risks of economic dependencies, especially for high-tech and green industries, on countries like China; and fears about maintaining their industrial competitiveness have also jolted the European Union (EU) and United States into adopting more proactive industrial policies.

Policymakers should take heed that their efforts on both sides of the Atlantic do not pose challenges for transatlantic cooperation. The US Inflation Reduction Act (IRA), as the most potent case, fueled a sense that the United States and the EU might become competitors rather than partners in the green transition. More recently, the EU’s anti-subsidy investigation into Chinese electric vehicles could bring collateral damage to US companies, like Tesla, that manufacture in China.

With the EU and United States still searching for solutions to improve their economic security and resilience, this raises a number of critical questions: What does a values-based industrial and trade policy look like? How should the United States and EU develop mechanisms to address policy differences, avoid or at least manage disputes, and craft real forms of cooperation? How can the United States and EU extend cooperation to other likeminded partners such as the Group of Seven (G7)?

Action will not doom cooperation. The French subsidy scheme on electric vehicles designed squarely with China in mind serves as a basis for a flexible subsidy design, that remains outwardly compatible with the World Trade Organization (WTO), but actually closely aligns with the US approach while not violating the EU’s own trade red lines.

Ahead of the upcoming summit between the United States and the EU in October, the Atlantic Council’s Europe Center launched a working group to examine these questions and propose potential solutions to strengthen and grow the transatlantic economy. The working group conducted interviews with current and former EU and US officials from various offices, agencies, and cabinets to understand attitudes in Washington and Brussels.

 

Background
The view from Washington

The IRA was a key first step as the United States finds its footing on economic strategy in the Biden administration. The Biden team, as outlined by US National Security Advisor Jake Sullivan, wants to find a way “to build capacity, to build resilience, to build inclusiveness, at home and with partners abroad” that shapes US strategy on everything from green energy subsidies to critical raw materials.

So far, the US strategy has a number of competing aims: constraining the rise of China and its ability to compete with the United States, reindustrializing the United States to bring back jobs, and delivering the green transition. These competing goals influence how the United States views industrial policy and trade vis-à-vis Europe—and mean that transatlantic cooperation is not always the highest priority, and Europe’s interests are not always appreciated and understood by law- and policymakers.

The United States was surprised by how strongly US partners—not just Europe, but Japan, South Korea, and others—have reacted to the IRA. While some partners clearly signaled their concerns early and secured substantial concessions, the EU was initially slower to engage with the United States, especially with Congress before the IRA passed, and has not been able to obtain all of the same concessions offered to others, such as free trade agreement (FTA) partner countries.

The EU’s unilateral environment, social, and governance (ESG) and digital policymaking rules will adversely impact its trading partners including the United States. The United States is concerned that these initiatives could require significant changes to global supply chains. Many of these instruments would force American firms to change how they do business, even outside Europe, due to their extraterritorial effect. The initiatives equally pose concerns for third countries, introducing the risk that these countries will ultimately see China as easier to do business with than the West—as illustrated in the EU’s difficulties finalizing its proposed FTA with the Mercosur countries.

The United States and EU are not doomed to have disputes on every aspect of industrial policy. On issues such as semiconductors, the United States and EU have a transatlantic consensus fueled by a determination to diversify chip manufacturing away from Asia, and they have coordinated closely on their respective approaches to semiconductor subsidies. A key reason for this consensus is that the initiatives did not come as a surprise to either side. Furthermore, the EU and United States are in similar positions, with a declining share of global production and fears about the security of future chip supplies.

More broadly, the United States and EU are working through the question of who makes the rules in response to emerging international challenges. While the United States may be the more natural rule-maker of the two as the bigger economy, it has largely ceded its position to the EU, demonstrated by the EU’s leadership on topics such as digital policy and sustainability. Through the IRA, a broader conversation is playing out on how the transatlantic partners should create trade and industrial policy. The United States seems more prepared to leave behind current international norms and bypass WTO rules, while the EU is more protective of the existing legal frameworks for international trade.

The view from Brussels

Industrial policy as such is not the problem for Brussels. The EU was more comfortable with the CHIPS and Science Act (CHIPS Act) than the IRA, for example, because the CHIPS Act does not directly harm Europe’s economic strengths or actively constrain its ambitions. However, the EU views the IRA’s local content requirements as discriminatory and as directly targeting the EU’s ambitions for global leadership in green industries—having developed regulations and policies designed to foster green industries in Europe early.

US local content requirements do not distinguish between damage to China and collateral damage to partners without an FTA with the United States, such as the EU. The United States has shown a degree of flexibility and willingness to course correct to ease the EU’s concerns, including on commercial leasing and critical minerals content, but there is still frustration in the EU that the United States appears unwilling to offer Europe the same flexibility it has given to other countries. For example, the Biden administration agreed to a mini FTA with Japan without congressional approval, but as a result of domestic political concerns, is now unwilling to offer a similar type of deal with the EU, instead requiring a more substantial deal that will take longer for both sides to agree on and ratify.

The EU feels forced to respond to the IRA, but the form of response has split Europe, namely through loosening a restriction on member states’ state aid for green energy projects and reusing EU funds from other places to drive investment in sectors that could be impacted by the IRA. The EU cannot replicate the nature of the IRA’s generous subsidies (such as unlimited and automatic tax rebates for production activities) because the EU lacks the same fiscal muscle and the EU treaties generally prohibit the use of state subsidies, except in defined circumstances. These rules are essential to limiting competitive distortions and promoting a level playing field among EU member states. Loosening these requirements allows some member states with a large fiscal capacity (such as France and Germany) to grant subsidies, which other member states could not afford to do. But the alternative EU-level subsidies would effectively require richer member states to contribute to supporting industry in poorer member states, whether directly or through joint borrowing. Given countries’ existing stretched budgets, there is little enthusiasm for this approach. Other members have not had the visceral reaction to the IRA that larger EU economies have had, further limiting the appetite for action. Moreover, the EU’s views of the IRA have gradually become more relaxed as there is growing understanding that the bulk of the bill has to do with subsidies which are far less discriminatory than the EV tax credits.

More generally, however, and despite the positive noises being made in public, stakeholders in the EU are getting frustrated by the lack of progress on transatlantic industrial and trade initiatives such as the “green steel club,” the Critical Minerals Agreement, and the Trade and Technology Council. In private, many European leaders see the Biden administration as having adopted a similarly protectionist trade policy as the Trump administration, albeit with a less heavy focus on imposing unilateral tariffs and with far more cordial diplomatic relations.

A lack of progress in transatlantic discussions has not prevented unilateral EU policymaking from continuing. The EU has pressed ahead with its own instruments to incentivize trade and investment partners to better protect human rights and the environment and to ensure that the EU’s own high domestic standards do not undermine its international competitiveness. These instruments include the carbon border adjustment mechanism (CBAM); the Corporate Sustainability Due Diligence Directive; the deforestation initiative; and the EU’s efforts to secure more enforceable ESG rules in its trade deals with Mercosur countries. The European Commission has also just launched an investigation into Chinese subsidies for electric vehicles. Many of these instruments pose challenges for the United States, even if most will have a much larger potential impact on China.

 

The case for cooperation

There are three drivers that make cooperation and compromise necessary: the geopolitical imperative to enhance US and European resilience and counteract the growing threat from China; the need for transatlantic cooperation on climate change; and the desire to secure manufacturing jobs in Europe and the United States.

First, China remains the greatest long-term strategic threat to both sides of the Atlantic. China’s well-practiced model of copious and opaque state aid, its regulatory support for national champions, its global dominance in markets for critical raw materials, its willingness to weaponize trade dependencies, and its production capacity mean that it poses far more of an industrial threat to the EU and the United States than they do to each other. Both Europe and the United States also remain concerned by China’s growing technological capabilities, including in artificial intelligence. A trade or subsidy war between Europe and the United States would only serve Chinese interests by fragmenting Western markets and supply chains, making it harder for Western companies to counter the advantages enjoyed by certain Chinese firms such as their ability to achieve economies of scale.

Second, the persistent and growing threat of climate change serves as another simultaneous, perhaps conflicting, pressure that requires action now from all of the world’s largest economies. Industrial policy is climate policy and vice versa. A tit-for-tat US-EU trade dispute will not help deliver the green transition as quickly as a coordinated approach would. Conversely, a coordinated joint transatlantic approach to industrial policy, green tech, and carbon emissions could serve as an important catalyst to convince other major players around the world to follow suit.

Third, the IRA seems to be part of a broader trend in both the United States and the EU toward more proactive and dirigiste industrial policies to secure manufacturing jobs. In the near to medium term, the transatlantic partnership will be increasingly similar to the economic partnership model of the 1960s to 1980s where both sides were engaged in assertive industrial policies, including supporting national champions, and the United States was anxious about losing its technological leadership to Japan. However, there are new elements in the story. Policymakers must take into account sustainability targets, along with digital and technology policy and the green transition, and not just satisfy manufacturing goals. And China represents a far more profound geopolitical, economic, and technological threat than Japan did in the 1970s and 1980s.

Going forward, US industrial policymaking will also be as much if not more constrained by domestic politics, which will limit Washington’s ability to regulate industries or implement internationally agreed approaches in areas like climate change. Just as the passage of the IRA required money to support and assuage industry, labor unions, China hawks, and climate activists, the politically easiest way to shape industrial policy will be through the checkbook.

In Europe, industrial policy, subsidies, and state aid are similarly becoming more the norm than the exception, although the EU’s regulatory agenda also remains relentless. Continued extensions of the (originally temporary) loosening of state aid, first in response to the pandemic, then to Russia’s war in Ukraine, and now to the IRA, may prove to have strong staying power. The framework may be difficult politically to phase out again.

Different approaches to industrial and trade policy will continue to hamper the transatlantic partnership. The United States, while officially maintaining its commitment to the WTO and its reform, will likely continue to violate the WTO’s rules in pursuit of its industrial policy goals. The EU will try to at least plausibly comply with international trade rules and is reluctant to set rules that explicitly single out China (though it is prepared to use its traditional trade defense instruments against China, as it did recently in commencing its anti-subsidy investigation for Chinese-made electric vehicles). European officials expressed their frustration that the technical guidance from the US government for US firms on how to benefit from subsidies in the IRA, for example, continues to emphasize local content requirements and does little to quell lingering European frustrations. Several stakeholders told us that the US-EU Trade and Technology Council (TTC), which could function as a forum to resolve or mitigate these issues, remains mostly a talk shop and that many key EU-US discussions on trade and industrial still occur outside of this platform.

The clock on resolving a number of important EU-US disputes and charting a better course forward is ticking. US and EU policymakers must imminently resolve the steel and aluminum tariffs that have haunted US and EU trade negotiators since the Biden administration put the Donald Trump–era transatlantic trade war on ice. US and EU leaders have publicly committed to resolving the dispute by this fall’s summit which corresponds with the deadline for reaching an agreement before the suspended tariffs kick back in, but time is of the essence to make progress on this tricky issue. This will require creativity and compromise from both sides on CBAM given that the United States is unlikely to have a national emissions trading system in place anytime soon.

Finally, the 2024 elections impose a tight timeline on both the EU and United States to find a potential path toward stronger industrial and trade relations. The US presidential election remains top of mind for policymakers on both sides of the Atlantic. Europeans have a reasonable concern that if an isolationist mood returns to the White House, the United States will be even less willing to take Europe’s concerns and interests into account, which in turn will make the EU even more determined to pursue unilateral strategies to protect its interests in the name of “strategic autonomy.” As campaigning makes politics more partisan, even limited results are better than none, and they are needed sooner rather than later.

Europe will choose a new European Parliament and Commission college in 2024. While Ursula von der Leyen’s reappointment currently remains probable and would help maintain good US-EU relations, it is not guaranteed. Internal EU horseracing could incentivize lavish spending promises to support domestic industry. Political trends in European member states will also come into account. The upcoming Polish and Hungarian presidencies of the Council of the EU are likely to prove polarizing and controversial, adding an additional layer of difficulty to EU policymaking. A potential further shift to the populist right in Europe, following recent wins in Finland, Slovakia, and elsewhere, may also impact the EU agenda and challenge support for trade and climate action. Together, these trends mean the EU may soon find it more difficult to build consensus around policies that would strengthen the transatlantic relationship.

 

Areas of convergence

While differences remain on each side of the Atlantic in both motivations that inform actions and the actions themselves, there are still strong areas of convergence. The United States and the EU are increasingly aligned on their respective determination to combat deindustrialization and build local green industries.

For Europe, much of the focus is about maintaining its competitiveness and trying to get third countries to adopt the EU’s ESG standards, so that the EU’s high standards do not lead to firms moving their businesses offshore where standards are lower. The EU’s goal is to become a leader in green technologies of the future. In that vein, it is a good thing, many Europeans stressed to this working group, that the Americans are taking climate financing seriously, and this can offer opportunities for European firms such as new subsidies for scaling up production.

For the United States, the focus is on a foreign policy for a middle class: an idea that foreign policy must fit into a domestic lens—in this instance, job creation. Jake Sullivan made the most articulate case for this approach: The United States will prioritize its own industry, “unapologetically” even, as well as partnerships with like-minded partners. His reference to Europe in this effort is a recognition of the importance Europe plays to this fundamentally domestic strategy.

Merely agreeing on the need for industrial policy will not be enough. Uncoordinated industrial policy can undermine the effectiveness of said policies if two economies compete for global leadership of the same industries. But there is space for convergence when the aim of industrial policy is to de-risk from problematic third countries or to diversify supply chains, for example. Where both the United States and Europe start with a low base and neither is likely to quickly achieve global dominance, industrial policy can be treated as a positive-sum game.

Some EU member states are developing subsidy programs that, while smaller in scale, achieve a similar effect as US efforts while being more justifiable under international trade law. French President Emmanuel Macron, for example, recently announced changes to French subsidies for vehicles that qualify as “green.” The assessment of whether a vehicles is green would take into account factors like the emissions involved in transporting it from its place of manufacture and whether the production facilities were powered by coal or more climate-friendly sources of electricity. These changes are expected to exclude most electric vehicles made in China while still rewarding countries for greening their means of production. Such subsidy schemes illustrate that there is space for European and US subsidy programs to be better aligned without requiring the EU or United States to breach their red lines.

Europe and the United States are also increasingly speaking the same language on China. While country agnostic, the Commission’s Economic Security Strategy provides little doubt that the Commission wants to see the EU reduce its dependencies on China. Important to note, however, is that the Commission’s approach, led by the transatlanticist von den Leyen, is not necessarily adopted by all of its member states. German Chancellor Olaf Scholz has stressed that de-risking is the responsibility of companies, not governments. Macron has also signaled the importance of Paris’s continued commercial relationship with Beijing. Even if the Commission’s latest proposals on Foreign Direct Investment screening and export controls on sensitive technologies require member state buy-in, a process that can be cumbersome with Berlin and other capitals being hesitant, it is clear that current EU and US approaches toward economic security are converging far more than they are diverging.

US policymakers should recognize the limits of Europe’s hawkishness on China, and see a partner that is, if not entirely in sync, moving closer to the US approach. At the same time, the United States has also aligned with Europe by emphasizing that its strategy is aimed at a few narrow strategic sectors, rather than trying to achieve a broader decoupling. Joint statements from the TTC, US-EU Dialogue on China, and the US-EU High-Level Consultations on the Indo-Pacific, for example, provide an example of communiqués written with China in mind and illustrating a degree of convergence.

Industrial policy is not a monolith, and certain areas will be harder to get agreement on. The attempt to resolve the oversupply of steel and aluminum, for example, will prove difficult without negative repercussions for US or European manufacturers. But cooperation in certain areas remains feasible. The clean energy investment dialogue, now folded into the TTC and created in response to the IRA, is proof that cooperation is possible. Other related issues like the CBAM or a proposed critical raw material club provide the opportunity for discussions to avoid competition or establish greater cooperation. The EU’s ESG initiatives, such as its forced labor law, which along with its stated focus on upholding human rights was also designed to keep certain Chinese products out of the EU market, was a welcome sign in Washington which has taken similar steps itself in recent years.

 

Recommendations

There are short- and long-term policies that decision-makers in Brussels and Washington can agree on. And there are both modest successes and moonshot opportunities possible for each side of the Atlantic.

With an upcoming EU-US summit, immediate action is needed, and policymakers should consider the following for October:

Find a creative solution to steel and aluminum tariffs: A return of transatlantic tariffs would be a political disaster for both the Biden administration and the von der Leyen Commission. Failure to resolve the issue, or develop a stopgap, would put further transatlantic trade and industrial policy on a much weaker footing politically. The EU has been hard pressed to accept Washington’s proposal to resolve the dispute by creating a global green steel club (with membership premised on countries agreeing to reduce their industries’ carbon intensities, to avoid overproduction and limit the role of state-owned enterprises). Brussels believed the proposal could breach WTO rules by imposing discriminatory tariffs against imports from countries that are not members of the club. The EU has already enacted a CBAM, which would levy tariffs on imports based on the carbon intensity of their production without overtly discriminating among countries, and which has pushed as the model for a transatlantic deal. But the EU does not believe it can give the United States its requested blanket exemption from CBAM without breaching WTO rules, and the parties have not found a way to comprehensively tackle problems like perceived overproduction. Despite these problems, news reports suggest there is convergence at least on the threat posed by Chinese steel and aluminum exports. The EU is poised to launch anti-subsidy investigations which could result in the EU imposing higher tariffs on China’s exports of these products to the EU – mirroring Washington’s approach. While this would not solve all the problems the EU and US had hoped, it would at least give the US a rationale for extending the suspension of tariffs on EU products, buying time for both sides to work on a more comprehensive approach.
Identify areas of industrial policy where US and EU subsidies will not be perceived as a zero-sum game and prioritize work in these areas: In line with their cooperative approach on semiconductor subsidies, the EU and United States could focus their industrial policies on other sectors where the biggest threat to their local industries is China rather than each other. This is true in electric vehicles: The EU is now starting to realize its industry is more threatened by Chinese vehicle exports to Europe than by constraints on Europe’s ability to export vehicles to the United States. But it is also true in other sectors, such as extraction of critical minerals, as noted in the communiqué from the last TTC. The EU and United States should focus on identifying and prioritizing other sectors where they both have a low share of global production and their ambitions are to reduce their reliance on China rather than dominate the global market at the expense of the other.
Establish a WTO-compliant club: Without a US-EU FTA and while WTO compliance is a first-order priority of the EU, the United States and EU should concentrate instead on a club model with a focus on coordinating subsidies and the use of trade defense instruments. Any club must stay within WTO rules, while still remaining beneficial for Washington and Brussels, avoiding active discrimination of third countries. For example, building on the clean energy incentives dialogue, the club could work on designing subsidies that are WTO-compliant while bringing EU and US policies into closer alignment on China. The club could take inspiration from recently announced changes to French electric vehicle subsidies, which take into account factors like China’s heavy reliance on coal for powering its manufacturing industry. The club could also coordinate on the use of trade defense instruments to ensure that the other jurisdiction’s businesses will not become unexpected collateral damage in any trade dispute with China. For instance, there are concerns that the EU’s current anti-subsidy investigation into Chinese electric vehicles could also result in tariffs against US carmakers that manufacture in China.
Take US concerns about the EU’s ESG agenda into account: The EU seems likely to slow down its barrage of ESG initiatives. French President Macron has called for a “regulatory break,” with a period focused on implementing existing rules rather than making new ones. The conservative European People’s Party has similarly proposed a pause on new initiatives. And the European commissioner responsible for many of these initiatives, Frans Timmermans, recently stepped down to return to national politics, with his successor, Maroš Šefčovič, promising more consultation with industry. The EU should take the opportunity to consult with the United States and third countries about how the EU’s recent ESG laws will be implemented, and the shape of potential future initiatives. This dialogue would have three benefits. First, it would help assuage American concerns that the EU’s agenda is inflexible and does not adequately take Washington’s concerns into account. Second, it could help ensure that EU initiatives do not create unnecessary barriers to a single transatlantic marketplace. Third, it could help the EU ensure that its initiatives better reflect the EU and United States’ joint ambition to foster closer economic ties with countries that China is trying to attract—rather than making the EU look like a difficult and demanding trading partner.
Commit to implementing the IRA without causing further harm to EU industries: EU policymakers should be clear-eyed that the EU will not receive a Japan-style mini FTA as it has become politically unfeasible. Instead, the Biden administration could commit to a “do-no-further-harm” policy in the implementation of the IRA, specifically through its technical requirements where some EU policymakers are concerned that the administration is taking an unnecessarily protectionist and “America first” approach when allocating IRA funding. The executive branch has significant discretion over how the IRA is interpreted and applied, so it is somewhat unconstrained by Congress. The United States must be clearer on things such as permitting and what “local content” means—does that translate to the whole supply chain needing to be included in the United States or just the final assembly? Another relevant issue is the role of hydrogen subsidies under the IRA. The US and the EU should coordinate closely on how to define clean hydrogen as this is a promising area of transatlantic cooperation as the US is considering doubling down on subsidies for hydrogen while the EU is already leading on the technology and know-how that is essential for deploying hydrogen.

Policymakers should also start working now on the longer-term issues that industrial policy will ultimately require:

Make the case for US-EU third-party engagement: Both the United States and EU need third countries. But for many countries, engagement with China is not just politically necessary, it is more attractive. Yet China’s largely condition-free investments—compared with ESG requirements, for example—still come with strings attached, catching countries in a debt spiral. China also frequently fails to deliver on its infrastructure investments, or those investments fail to deliver long-term economic benefits. The US-EU relationship has an opportunity to gain the advantage. US and EU policymakers should map out a joint initiative to promote an engagement strategy with other likeminded democracies, especially within the context of initiatives such as the G7 or Organisation for Economic Co-operation and Development, and build on the success of projects including those in the TTC to sell the benefits of sustainable investments.
Double down on the TTC: Many of the irritants in the transatlantic relationship have come from the lack of a unified, collaborative approach, driven by the fact that the United States did not have a position on key issues that mattered to the EU (like tackling anti-competitive activity in tech), and so the EU therefore adopted its own unilateral approaches. The TTC is still important to help address this dynamic. It can help tease out where the United States has a position. Although it cannot solve US domestic political gridlock, it can therefore help the EU design its initiatives so that, if the United States is later able to move (like it has on climate), EU-US cooperation does not face unnecessary hurdles. Similarly, it can give the United States more predictability about the direction of travel for the EU. Dismissal of the TTC as a “talking shop” consequently seems unnecessarily negative: Many of the TTC’s successes will be from avoiding disputes before they arise. In particular, discussions on standards of emerging technologies such as AI and quantum, supply chain issues, and economic security are all promising areas where the TTC can make a distinctive contribution. Before the elections, Presidents Biden and von der Leyen should commit to continuing the TTC as central for transatlantic coordination on trade and tech issues while tasking a group of advisors to review the effectiveness of the format and put forward a set of ideas for how to enhance its effectiveness over the next four years such as streamlining the ten different working groups.

Erik Brattberg is a nonresident senior fellow at the Atlantic Council’s Europe Center.

Frances G. Burwell is a distinguished fellow at the Atlantic Council and a senior director at McLarty Associates.

Jörn Fleck serves as senior director with the Europe Center at the Atlantic Council with primary responsibility for the Center’s EU efforts, programming related to Western Europe, Brexit, and US-EU relations.

Charles Lichfield is the deputy director and C. Boyden Gray senior fellow of the Atlantic Council’s GeoEconomics Center.

Zach Meyers is a research fellow at the Centre for European Reform (CER) where he works on EU competition policy, particularly in the digital sector.

James Batchik is an assistant director at the Atlantic Council’s Europe Center, where he supports programming on the European Union, the United Kingdom, Germany, the Three Seas Initiative, and the center’s transatlantic digital and tech portfolio.

Emma Nix is a program assistant with the Atlantic Council’s Europe Center where she supports the Europe Center’s programming on the Three Seas Initiative and Central and Eastern Europe.

To read the full issue brief, please click here.

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Harm From ‘De-Risking’ Strategies Would Reverberate Beyond China

The negative impact of ‘de-risking’ strategies by major economies would be felt beyond China, while comprehensive reforms in China could generate s ignificant positive spillovers

China’s importance in the global economy has increased dramatically in recent decades, and it has been a particularly crucial driver of trade integration in Asia.

China’s medium-term growth prospects, like that of other countries, will be determined in part by major forces such as convergence to advanced economies’ income levels and demographics. Yet key structural policy drivers, including domestic reform momentum, and external factors, including geoeconomic fragmentation, also significantly affect this path.

What would be the potential implications for Asia and beyond from these different growth paths? In our latest Regional Economic Outlook for Asia and the Pacific, we assess the potential effects of a downside scenario from ‘de-risking’ between China and Organisation for Economic Co-operation and Development economies.

While reshoring would be particularly painful to everyone, it is notable that friend-shoring does not generate net benefits for third countries in the long term. That’s because the benefits from trade diversion are offset by the effects of the contractions in both China and the OECD.

For the region, the results suggest that third countries should not expect to passively benefit from friend-shoring policies, but rather actively pursue reforms that can help them further integrate into global supply chains. For systemic economies around the world, there is an urgent need for constructive dialogue to resolve underlying sources of tensions and resist costly fragmentation outcomes.

In China, the risks that fragmentation poses on medium-term growth underscore the need for comprehensive structural reforms that would help income levels converge more rapidly with those in advanced economies—such as closing productivity gaps between state-owned and private firms and further opening up sectors to competition. Our research shows that achieving this would also have significant positive spillovers for other economies in Asia.

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To read the full article, click here.

To read the latest Regional Economic Outlook for Asia and the Pacific by the International Monetary Fund, referenced above, click here.

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Multilateral and Regional Cooperation on Digital Trade Rules and Agreements in Asia-Pacific

Rules on digital trade are rapidly taking shape as countries in Asia-Pacific and beyond strive to secure the benefits associated with e-commerce and the digitalization of trade in goods and services. At the multilateral level, the WTO holds promise to reach a plurilateral agreement on core e-commerce issues by the end of 2023. Although far-reaching outcome seems unlikely, e-commerce rules agreed in the WTO will potentially serve as baseline commitments on cooperation in digital trade. At the regional level, different approaches have emerged, and many preferential trade agreements (PTAs) already include increasingly comprehensive and advanced digital trade provisions (DTPs) and the number of Digital Economy Agreements (DEAs) is growing. Asia-Pacific economies are unevenly engaged in cooperation in digital trade rulemaking – East and South-East Asia economies have welcomed DTPs in their agreements and are taking the lead in developing DEAs, while Central Asia and South Asia economies are lagging especially in intra-regional cooperation within the subregions. The proliferation of DTPs reflects the expanding and deepening cooperation, it may, however, undermine the benefits of digital trade if the rules are not harmonized. The landscape is getting clearer as there is an emerging coherence in the coverage of DTPs across agreements. Nevertheless, further reducing regulatory heterogeneity will be important in enabling the effective participation of smaller firms and less developed countries in cross-border digital trade.

 
Conclusion

Although a large group of WTO members are actively having conversations on digital trade under the JSI, a far-reaching multilateral agreement on e-commerce appears to be unlikely. Therefore, regional and preferential agreements remain the main channel for the formulation of digital trade rules, especially for emerging issues. DTPs are increasingly being mainstreamed in PTAs. The more recent PTAs tend to have a broader coverage and more comprehensive DTPs, and a dedicated chapter on digital trade (or e-commerce) may become a standard feature in upcoming PTAs. The bigger players such as the US, EU, China, and Singapore have taken different approaches and are actively replicating their own templates across PTAs. At the same time, low and lower middle-income economies have been slow in incorporating DTPs in their trade agreements. In the Asia-Pacific region, East and South-East Asia countries are prominent in incorporating DTPs in their trade agreements, while Central Asia and South Asia countries lag.

The most common DTPs found in PTAs are those enabling and facilitating trade digitalization. The protection of consumers and personal information is also widely covered by PTAs, which reflects common regulatory needs. Common commitments across PTAs include: no customs duties on electronic transactions, paperless trading, reducing restrictions on cross-border transfer of data, and the protection of personal information. However, despite the emerging overlap in coverage, countries use different legal languages to adjust the level of binding in different areas. Nonetheless, the most common commitments across agreements have the potential to shape some universally applicable disciplines.

The more advanced Asia-Pacific economies, especially Singapore, are taking the lead in signing DEAs. The recent surge in signing dedicated DEAs provides a novel, useful and flexible approach to negotiations on digital trade. DEAs include a wider range of DTPs addressing key and emerging issues of digital trade and the development of digital economy, and in many DEAs these DTPs are structured in modules which could allow parties to choose different levels of commitment. Creating a new “noodle bowl” of inconsistent agreements should be avoided. However, creating a new “noodle bowl” of inconsistent agreements should be avoided. The growing number of bilateral DEAs may make the digital trade environment unnecessarily complex, in particular for smaller firms in developing economies. Interoperable standards and mutual recognition mechanisms may be needed to address the existing digital regulatory heterogeneity and prevent further fragmentation in digital trade rules.

Looking ahead, given the growing importance of digital trade as an engine of growth and development, less developed countries need to keep abreast of the existing DTPs and develop a clearer understanding of their own needs and situation. Participation in multilateral level efforts may be particularly important for them given that they may be de facto excluded from preferential trade negotiations. Smaller and less developed countries may stress the inclusion of MSMEs in digital trade, capacity building, transfer of digital technologies and other means of reducing the digital divide. Further, progressive commitments may be a good strategy to promote for them when negotiating DTPs, particularly since they will often need time and to enhance domestic legislation on digitaleconomy-related issues, such as online consumer protection, personal information protection, and internal electronic transactions.

For deeper cooperation and closer integration in digital trade, legal and technical interoperability need to be promoted. To enhance interoperability, countries should refer to and build upon existing international standards and instruments when developing their domestic regulatory environment. For example, countries are encouraged to adopt the existing UNCITRAL model laws related to electronic commerce, including the model law on electronics transferable records, as well as relevant UN/CEFACT technical standards for electronic business. Similarly, at the multilateral and regional level, countries should also actively participate in existing multilateral or regional cooperation frameworks and agreements, before considering creating new ones. For instance, the UN treaty called the Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia and the Pacific (CPTA) already provides an inclusive and neutral platform for the pilot testing of cross-border paperless trade solutions among over 50 member states, enabling harmonization of electronic trade data and document exchange rules and systems currently being developed only at the bilateral or subregional levels.38 Such agreements and frameworks may be directly referred to in relevant DTPs. At the global level, active participation in the on-going WTO JSI discussions on e-commerce, as well as initiatives such as the UNCTAD-led E-trade For All capacity building initiative should be positively considered, with the ultimate goal of achieving an inclusive digital trade environment supportive of the sustainable development goals.

Multilateral and Regional Cooperation

 

To read the full paper, click here.

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The New Geopolitics of Trade in Asia

The era of Western-led globalization has been replaced by a developing struggle between the United States and China. From a Western point of view, the major challenge emerges from a competition between nations that support liberal values and proponents of authoritarianism, with profound implications for the global economy.

Mixing international trade with geopolitical rivalries is going to be the new norm. This is a regrettable development, even more so because most Asian economies – and particularly the success stories of China, South Korea and Japan – were able to grow thanks to access to global markets and expanding trade.

The Chinese economic miracle would have been impossible without these opportunities. Had the West not built the post-World War II structure of international trade and finance, China could have never emerged from the poverty it suffered after the death of former Chinese leader Mao Zedong. In a sense, one might think that China should today be paying back this debt, taking on responsibility for supporting a functioning world economy. Instead, trade in Asia is regressing. (This is not to overlook the role of American policy, during both the Trump and Biden administrations, in politicizing trade in Asia.)

The major uncertainty lies in the Global South. While not as prominent as the Non-Aligned Movement of the Cold War, the Global South is now one of the major geopolitical challenges facing the West, particularly on issues around trade.

Three rival structures

The Far East today lacks a comprehensive security architecture. There are bilateral treaties like those between the U.S. and Japan and the U.S. and South Korea. The Association of Southeast Asian Nations (ASEAN) serves as an established multilateral organization, providing a framework along the lines of other continental bodies such as Mercosur, the South American trade bloc.

In economic and trade issues, there are three organizations – Asia-Pacific Economic Cooperation (APEC), the Regional Comprehensive Economic Partnership (RCEP) and the Indo-Pacific Economic Framework (IPEF) – which must be seen as geopolitical rivals.

All three organizations have made lofty declarations in favor of economic cooperation, trade and development. Their true intentions are revealed in their membership. APEC is the most established of the three and the most diverse, counting rivals like the U.S., China and Russia. Notably, for the forthcoming annual meeting, set to be held in the U.S., Washington has banned Hong Kong Chief Executive John Lee but confirmed that there is no bar on Russia’s participation.

The RCEP is a Chinese initiative, and its membership suggests that Beijing aims to create a following of economically relevant states to support its own international trade agenda. India and the U.S. are outside of the group. Instead, it includes countries that are strongly dependent on China and whose regimes are on the outs with Washington, such as Myanmar, Laos and Cambodia.

The IPEF is the most recently launched forum, aimed at furthering American geopolitical interests in the Indo-Pacific region. This is evident in its composition, which includes Australia, Japan and India – countries playing a key role in the U.S. strategy to contain a rising China.

Australia, despite some trade disputes with China, belongs to all three organizations. Similarly, Japan – which long kept a low profile in multilateral initiatives beyond its security treaty with the U.S. and its presence in the G7 – is also a member of each grouping.

Threat to free trade

Trade issues have always been part of politics, and organizations like the World Trade Organization and the European Union were designed in part to tear down restrictions on free trade. But the present times are especially fraught with risks around trade. During the Cold War, the West had to deal with powerful military threats posed by the Soviet Union and its allies. However, the USSR was of little relevance to the world economy. The West could establish a world economic order that was largely built on a market economy and free trade values. Even beyond the Western alliance, like members of the “nonaligned” countries, there was no other option but to deal with the West on its own terms.

This fundamentally changed with China’s emergence as one of the world’s largest economies. The roots of this new challenge lie in the historic reforms launched by former Chinese leader Deng Xiaoping. Pragmatically, China maintained its one-party system while at the same time opening up major elements of its economy – if not to a full-fledged market economy, then one that allowed Western investors, technology and businesses to enter.

Beijing opened the economy to its own version of private enterprise, meaning that non-state actors were allowed to operate wherever they did not infringe on the general, party-dominated economic framework. With the Western world keen on economic interaction, China sought to make its economy more competitive in world markets.

In the global economic picture that has developed over the past three decades, China competes in Western markets through existing frameworks – for example, in capital markets and by acquiring Western companies to gain access to technology and intellectual property – while maintaining its own unique economic model. Despite talk of free markets, the Chinese economy remains one fully controlled by the Party.

For some time, the West overlooked the challenge presented by this dynamic, presuming that it could deal with China like an ordinary market economy. Now that Western governments have woken up – particularly the U.S., with Europe following haphazardly – they face another challenge. Washington has decided that this is the moment to address the risks posed by Beijing, with politicians from both sides of the aisle declaring China as the country’s main adversary. Besides the highly dangerous possibility of an open war, there are rising prospects of long-term economic conflict.

The historic rivalry between the U.S. and China is, for now, being fought on economic terrain. Washington has moved from the so-called “pivot to Asia” under the Obama administration to a policy of containing China’s rise. The main goals are the reindustrialization of America and preventing advanced technologies from reaching Chinese companies, particularly in the field of information technology.

This is unfortunate for countries (such as Switzerland) that depend on open markets and on trade policies based on economic, rather than geopolitical, criteria. There is considerable collateral damage when ostensibly free-market nations like the U.S. turn to economic populism, alongside more mercantilist states like China and India.

Urs Schöttli is an independent advisor on Asian Affairs.

 

To read the full report, click here

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Yeutter Institute Offers Insights on Boosting Ag Biotech Innovation

Agricultural biotechnology can play a key role in meeting growing global food demand if a series of regulatory, policy and public education challenges are strategically addressed, says a new report from a roundtable of experts convened by the Clayton Yeutter Institute of International Trade and Finance.

The report recommends streamlining redundant U.S. regulatory protocols, as well as emphasizing clarity and uniformity in countries’ regulations on sanitary and phytosanitary trade issues. International trade agreements should include agricultural biotech provisions, and science-based outreach is needed to boost public understanding of safe technologies such as gene-edited crops.

Participants in the Yeutter Institute project included high-level government officials from the current and previous presidential administrations, farmers, plus academics and practitioners in plant genetics, agricultural sciences, economics and law. The Yeutter Institute is part of the University of Nebraska–Lincoln’s Institute of Agriculture and Natural Resources.

Global population is on course to reach 9.3 billion by 2050, up from the current 8.1 billion, and ag biotech innovation is crucial to increase crop yields. But, the report says, “the U.S. regulatory process threatens to hold up innovation” because the “cumbersome regulatory structure can result in duplicative reviews and is a costly burden on innovators.”

U.S. officials can help, the report recommends, by streamlining and coordinating the redundant regulatory processes for ag biotech conducted separately by the U.S. Department of Agriculture, Food and Drug Administration, and Environmental Protection Agency.

The Yeutter Institute has begun preliminary briefings with Capitol Hill staff in Washington, D.C., about the group’s findings and will share with trade professionals and other interested groups, as well.

“Convening people who bring a variety of experiences and perspectives to trade policy discussions is core to the Yeutter Institute mission, and that is what we did with this project,” said Jill O’Donnell, Haggart-Work Director of the Yeutter Institute. “It’s important for policymakers to hear from a broad spectrum of voices as they make decisions, and that includes voices representing various aspects of the agriculture industry, as well as those from the Midwest.”

The document also underscores the need to remove trade impediments to be competitive globally. China has launched an initiative to dominate agricultural seed technology and innovation, and the Chinese government has put up roadblocks to approving U.S.-developed seeds in favor of domestic seed development, the report says.

Countries can use the World Trade Organization’s international agreement on sanitary and phytosanitary issues as a baseline to set uniform, science-based standards. Such a step, the report notes, would reduce complexity and complication in global agricultural trade, especially helping developing nations as they work to expand their ag export opportunities.

“The days of (free trade agreements) are not necessarily over forever, but in agriculture, we need transparency and science-based regulatory approaches as much as we need traditional market access,” the report says. Such an approach “is especially advantageous for developing countries that face a more acute need to improve their own productivity to feed their people.”

The report explains that gene editing for crops is an extension, at an accelerated pace, of trait-focused crop breeding used for millennia. “Gene-editing techniques can be a shortcut to a breeding process that occurs naturally,” the report says. “It’s a scientific way to introduce genetic variability, which farmers have been doing for decades. In fact, plant breeding dates back thousands of years to when people first domesticated wild plants.”

In the mid-20th century, Iowa agronomist Norman Borlaug devoted hundreds of hours to the meticulous breeding of wheat varieties and won international plaudits, including a Nobel Prize, for the resulting landmark improvements in crop yields. Modern gene editing for crops uses the same basic scientific method but at a far more efficient pace, the report notes. Such innovation is vital, the report says, to boost crop yields adequate to meet the world’s growing food demand.

Outreach efforts that explain the safety and importance of these scientific techniques are needed to enable further innovation, the report notes.

Future of Agricltural Biotechnology RT Report FINAL 10.9.23

To read the news release covering the report, click here.

To read the full report summarizing the roundtable discussion held by the Clayton Yeutter Institute of International Trade and Finance at the University of Nebraska-Lincoln, click here.

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The Rapid Response Labor Mechanism of the US-Mexico-Canada Agreement

The US-Mexico-Canada Agreement (USMCA) introduced a new compliance institution for labor rights in trade agreements: the facility-specific Rapid Response Labor Mechanism (RRM). The RRM was developed to tackle one particular thorn in the side of North American integration—labor rights for Mexican workers—which had had detrimental, long-term political-economic consequences for the two countries’ trade relationship. This paper reviews the unique political-economic moment in the United States and Mexico that prompted the creation of this tool. It describes how the RRM works and the considerable financial and human resources the two governments have brought to bear to operationalize it. The paper then reports a number of stylized facts on how governments used the RRM during its first three years, largely in the auto sector. It proposes paths of potentially fruitful political-economic research to understand the full implications of the RRM and concludes with preliminary lessons as well as a discussion of the potential for policymakers to transpose facility-specific mechanisms for labor or other issues, such as the environment, into future economic agreements.

Introduction

In 2019, Congressional Democrats announced the creation of a new tool—the facility-specific Rapid Response Labor Mechanism (RRM)—in the revised North American Free Trade Agreement (NAFTA), known in the United States as the US-Mexico-Canada Agreement (USMCA). The tool allows a government to take action against a worksite in the territory of another if it believes that workers are being denied their right to organize and bargain collectively. Proponents saw its inclusion as the primary reason for the broad bipartisan support the USMCA garnered. They proclaimed the commencement of a new era for trade and an important step forward for progressives—who had been increasingly critical of US trade agreements—as even organized labor in the United States supported the USMCA.

This paper investigates the RRM and is organized as follows. Section 2 begins with the perfect storm of political-economic events in the United States and Mexico that allowed the countries to agree to this unique tool. It describes the importance of the North American automotive supply chain, a sector that largely drove the Trump administration’s renegotiation of the NAFTA—over the sector’s protests—and that became the target for almost all early uses of the RRM.

Section 3 reviews the underlying problem the RRM is purportedly designed to tackle: the inability of Mexican workers to unionize and bargain collectively to overcome monopsony power. It explains the importance of Mexico’s labor reform to the renegotiation of the NAFTA and to the first few years of the USMCA, a reform process that policymakers could ultimately use the RRM to support.

Section 4 describes how the RRM works and analyzes the penalties the RRM sets out that may incentivize actors in Mexico that otherwise may be reluctant to go along with the labor reforms. It also documents the considerable financial and human resources the US and Mexican governments have deployed to operationalize the RRM and complement the Mexican government’s own efforts on labor reform. To the extent that the RRM improves political support for open trade between the two countries, the tool and these expenditures share some similarities with policies of trade facilitation.

Section 5 presents some stylized facts on the RRM during its first three years. The RRM started slowly, with the US government investigating situations at just 10 different facilities in Mexico in this period. Unsurprisingly, most of these investigations were of the automotive sector. Nevertheless, there were some interesting and important differences across the situations.

The last two sections look to the future. Section 6 turns to the political-economic literature on trade agreements and issue linkages and proposes additional research needed to understand the implications of the RRM, including the need to assess its impact on workers and Mexican suppliers at facilities affected and unaffected by RRM situations. Section 7 draws lessons learned so far and examines the potential for transposing facility-specific RRM– like structures for labor or other areas, such as the environment, into future economic agreements.

Chad P. Bown is Reginald Jones Senior Fellow at the Peterson Institute for International Economics.

Kathleen Claussen is Professor of Law at Georgetown University Law Center.

USMCA RRM

 

To read the full summary as it was published by the Peterson Institute for International Economics, click here.

To read the full paper, click here. 

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The Art of the Mini-Deals: The Invisible Part of EU Trade Policy

In a book that spent several weeks on the New York Times bestseller list, a former US president said: “I like thinking big. I always have. To me it’s very simple: If you’re going to be thinking anyway, you might as well think big.”

Despite this inspirational quote, most of the trade deals pursued by the Trump Administration were not “big deals”. In contrast, most free trade agreements (FTAs) signed by countries around the world – the kind of trade agreements that nowadays capture people’s interest and political attention – are quite big. First, FTAs are big for they cover trade flows worth billions, and “essentially all products”, to use a well-known expression. The best proof for this assertion is that EU bilateral FTAs cover 52% of extra-EU exports. Hence, almost by default, FTAs are seen as important trade policy instruments as they eliminate tariffs affecting billions of euro worth of commercial interests. FTAs are a “big deal” also for other reasons beyond tariffs: for instance, if and when they open up new market access for services. Furthermore, FTAs cover many important areas such as sanitary and phytosanitary (SPS) measures, technical barriers to trade (TBTs), intellectual property rights (IPR) and public procurement. The red thread linking all these areas in an FTA is the overarching objective of trade facilitation and reduction in trade costs. Hence, FTAs are central to the widely accepted view of current global trade relations, governed essentially by multilateral rules established at the WTO and complemented by a large (and growing) number of FTAs.

This paper goes beyond the conventional wisdom and sheds light on other trade agreements (trade mini-deals), which so far were less in the focus of EU trade experts and academics. The paper offers a first, preliminary assessment and a taxonomy of these mini-deals. The main takeaway is that there is a lot more going on than what meets the eye when it comes to EU trade policy. In reality, FTAs are just the tip of the trade policy iceberg. When taking a systematic look, it becomes apparent that FTAs are only one of the many trade policy instruments. Beyond FTAs, the EU has signed a much larger number of trade mini-deals that have, potentially, a significant impact on EU trade. A corollary of this proposition is that, over time, the cumulative impact of these mini-deals may be very significant. The paper concludes with a short assessment of the role such mini-deals could play in the future, given the evolving nature of trade policy objectives and the growing complexity of international trade negotiations.

ECI_23_PolicyBrief_11-2023_LY03 (1)

To read the summary, please click here.

To read the full policy brief from the European Centre For International Political Economy, please click here.

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How Can African Countries Participate in U.S. Clean Energy Supply Chains?

Building out new clean energy industries and securing the necessary supply chains to sustain them are major priorities for the United States. Recent landmark legislation—including the Inflation Reduction Act of 2022, the Infrastructure Investment and Jobs Act, and the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS and Science Act)—has codified this priority into discrete objectives. The push for new clean energy ecosystems is driven by the desire to meet climate change goals as well as new geopolitical realities of great power competition, and both major legislation and ancillary policy documents reflect this duality.

Concurrently, the United States is revamping its relationship with Africa, as demonstrated most saliently by the recently unveiled strategy document focusing on the continent, as well as commitments made during the U.S.-Africa Leaders Summit in December 2022. These commitments aim to facilitate two-way trade and investment, and, crucially, seek to reorient the relationship between the United States and Africa away from the historical aid donor-recipient paradigm.

There are significant areas of synergy between these twin objectives of developing new clean energy supply chains and reorienting the U.S. economic and strategic relationship with Africa. Many African countries are endowed with the natural resources that the United States needs to produce clean energy technologies, and in certain cases they boast some of the largest reserves of these minerals in the world. This combination of key mineral endowments in African countries and U.S. objectives to reorient supply chains away from competitors like China can serve as the foundation for a new economic and strategic relationship. Importantly, this new partnership can be markedly different from African countries’ historic relationships with foreign powers, in which these powers merely regarded Africa as a source from which to extract unprocessed raw materials. Many African countries have long made it a priority to ensure value addition for their natural resources, and honoring this intent will be key to realizing the second major U.S. objective: revamping its relationship with the continent.

Zainab Usman is a senior fellow and director of the Africa Program at the Carnegie Endowment for International Peace in Washington, D.C. Her fields of expertise include institutions, economic policy, energy policy, and emerging economies in Africa.

 

Usman_Csanadi_Clean_Energy_Supply_Chains_final1

 

To read the full paper as it was originally published by Carnegie Endowment for International Peace, click here.

To read the full paper, click here.

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Trade for Peace: Can Trade be an Effective Tool to Support Peace? Lessons from History

The notion that international trade can foster peace lost currency as the two world wars of the last century faded from memory, and whatever remained of the theory’s credibility was largely extinguished when, in 2022, for the first time one WTO Member invaded another on the European continent. Apparently debunked was the policy of Wandel durch Handel (WdH, German for “change through trade”)? Also known as Wandel durch Annäherung, it refers to a central political and economic element of German foreign policy that the European Union had also largely adopted, of increasing trade with authoritarian regimes in an effort to induce political change in the direction of creating a safer global environment.

Now, the issue is in sharper relief once again, as the Russia-Ukraine war has blocked shipping through the Black Sea, cutting off wheat, sunflower oil and fertilizer shipments, driving up food costs and curtailing physical supplies of these commodities. The intimate relationship between trade and peace is being demonstrated once again with the importance of moving food from areas of surplus to world markets and to those in need. During the 2008 financial crisis, spikes in food prices led to political unrest and violence in northern Africa among other places. Land transportation is at risk – trains and trucks may be interdicted. Some of the warehouses of the World Food Programme (WFP) are empty, with the result that those who were hungry before may be left starving. Even were war to end sooner rather than later, wheat fields are mined, crops are not planted in the war zone, and the logistics of moving grain from other safe sources are not completely flexible. Transportation for Canada’s export crops is aimed westward across the Pacific and not eastward toward Europe and Africa.

There is nothing more basic to the human condition than food. Constraints on food supplies and unaffordable prices drive political unrest and can sow the seeds of war.

Trade can produce greater harmony or greater friction. Where there is big-power geopolitical rivalry, the rivalry itself is likely to dominate the challenge of maintaining peace. This is true with respect to Russia and the West, and it can become the case between China and the West. Trading relations will be uneasy, used to coerce, used to limit goods in the name of national security, and used to build a closer alignment of interests.

There is, however, also an area where there is more conviction and less doubt about whether trade can serve a predominantly positive outcome for peace-related objectives. This is to be found with respect to fragile and conflict-affected countries. For these countries, trade can serve as an enabler for peace. To assure that this is the case, the trade and peace communities must bring the trade-peace connection to the attention of both trade negotiators and peace negotiators. This collaboration has historically been difficult to achieve. 

 

2023-09-27wolff

 

To read the summary, click here.

To read the full lecture as it was presented at The Graduate Institute and the University of St. Gallen Geneva, Switzerland, click here.

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Whither (not Wither) Multilateralism: Priorities for G7 Trade Ministers

Is the high point in multilateral trade relations already 30 years in the past? Are notions of international cooperation and mutual benefit relics of an earlier time? Hopefully not, there is still much more to play for. Amidst the visible geopolitical tensions, and what often looks like a blurring of trade, economic, climate, and security interests, there are some encouraging signs recently.

This brief considers prior developments that helped shape the nature of the trade policy debate today, offers an admittedly optimistic assessment of a renewed interest by G7 members in international cooperation, and highlights immediate priorities for action by G7 Trade Ministers.

The Trade Policy Challenge: Looking Beyond Trade and the Economy

The Uruguay Round of multilateral trade negotiations (1986-1994) was the eighth trade round since 1947. It successfully reduced trade barriers, established enforceable trade rules, and created the World Trade Organization (WTO).

Its importance to a well-functioning multilateral trading system, global income and job growth, and global poverty reduction would be hard to over-state. Yet, less than five years later the planned launch of the ninth trade round stalled in Seattle, and while it was revived in late-2001 in Doha, twenty-two years have since passed, and WTO members have still not delivered a much-needed comprehensive modernization of global trade rules.The 2007-08 financial crisis quickly became a global economic crisis, leading to a virtual collapse of trade flows and a sharp rise in global unemployment. Worldwide, millions of people lost their jobs and their homes – as well as their trust in public institutions.

While inequalities across countries were reduced significantly, subsequently lower global growth added to increasing inequalities of household wealth, income, and opportunity within many countries. Regional productivity levels within countries were also diverging, with lagging regions unable to offer good jobs, wages, and community well-being. More people were growing frustrated with globalization – driven at least as much by technological progress as by trade flows – and with an overall economic system that was not working for them and their families.

ua30938-policy-brief-22-002

Ken Ash, Visiting Fellow, Institute for International Trade and formerly Director of Trade and Agriculture at the OECD.

To read the full summary, click here.

To read the full policy brief, click here.

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