William Krist's Blog, page 23

WTO Annual Report 2022

This annual report on the WTO’s work in 2021 and early 2022 comes a bit later than its usual release in early June. With our Twelfth Ministerial Conference scheduled for the middle of the month, following multiple pandemic-related postponements, it did not make sense to publish this report – much of which deals with efforts to lay the groundwork for ministers to deliver results – only days before the gathering was set to begin.

As we now know, WTO members, supported as always by the Secretariat, made MC12 a resounding success. After nearly six days of negotiations – culminating in a marathon 48 hours of non-stop talks – ministers and delegates adopted a package of multilateral deals that will deliver for people, businesses, and the planet. The scale and scope of the so-called “Geneva Package” of agreements has not been seen at the WTO since the mid-1990s.

I came to the WTO because I was firmly convinced that trade was part of the solution to the global commons problems, from pandemic disease to climate change, that represent some of the biggest threats to our future prosperity. Speaking to members on my first day in office in March of last year, I recalled the fundamental goals of the WTO, as set out in the preamble to our founding Marrakesh Agreement: using trade as a means to improve living standards, create better jobs and promote sustainable development. These goals are fundamentally about people. But one more reason I came here was that I felt the WTO had the potential to do much more to improve the lives of people around the world.

MC12 is proof that the WTO can deliver results. Members have shown they are capable of reaching multilateral compromises and finding solutions to contemporary challenges – provided they have the political will to do so.

The results achieved at MC12 will enhance the role trade has been playing in helping people cope with the multiple problems we currently confront – economic, environmental, and of course, the COVID-19 pandemic and the more recent food security crisis.

The deal on fisheries subsidies – concluded after nearly 21 years of negotiations – is only the second new agreement WTO members have reached since 1995, and the very first WTO agreement to put environmental sustainability at its core. By banning subsidies that contribute to illegal, unreported and unregulated fishing, as well as fishing in the high seas and in overfished stocks, the pact represents a major step forward in protecting ocean health and biodiversity. Importantly, it also means that WTO members have delivered on the mandate given to them in Sustainable Development Goal 14.6.

WTO Annual Report 2022

To read the full report from the WTO, please click here.

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Aid for Trade Global Review: Empowering connected sustainable trade

Trade objectives feature prominently in the development strategies of developing countries. Despite the COVID-19 pandemic, trade remains a development priority. This is the strong message that emerges from the 2022 Aid for Trade monitoring and evaluation (M&E) exercise, conducted jointly with the Organisation for Economic Co-operation and Development (OECD).

Developing countries and their financing partners are looking to the multilateral trading system to deliver development outcomes. Of the 53 developing countries which responded to the questionnaire accompanying the M&E exercise, 50 (94 per cent) include trade priorities in their development strategies, including 25 least-developed countries (LDCs) (93 per cent). Responses also indicate that 31 donors (86 per cent) include trade priorities in their development strategies. 

Aid for Trade Global Review- Empowering connected sustainable trade

To read the full report from the WTO. please click here.

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China’s manufacturing dominance and the potential for the weaponization of trade

It might seem odd to talk of China as the world’s economic hegemon when it is not even the largest economy in the world, at least not at market exchange rates. In purchasing power parity (PPP) terms, China overtook the United States in 2016. China’s economy is now 20% larger but the PPP measure has limited relevance when analysing the international dimensions of the economy. Nor is China’s population rich, with per capita GDP in line with global averages.

Due to China’s vast population, however, even a modicum of economic efficiency results in an economy that assumes great global significance. The structure of China’s economy yields more economic influence than its size, measured in GDP terms, might imply. The tight relationship between the party-state and economic actors in China means that economic activity can be co-opted to national purposes more easily than in liberal, market-orientated economies, where private actors pursue profit maximization as the primary objective of economic activity.

According to official data, China has accounted for about 40% of global GDP growth since 2009. This storyline has been helpful to China’s rise. Indeed, Beijing has perpetuated a narrative that China’s economic growth is fundamental to the global economy and that the future prosperity of other nations is intrinsically intertwined with China’s continued success.

This narrative has helped ensure both a general enthusiasm for closer economic engagement with China and a reluctance to jeopardize commercial relations should Beijing’s interests come into conflict with those of its trading partners. As a result, considerable influence over other countries has been accorded to China and has enabled the country to advance a Sino-centric trade order in the Indo-Pacific.

Chinas manufacturing dominance and the potential for the weaponization of trade - Hinrich Foundation - Stewart Paterson - July 2022 RV (1)

To read the full report from the Hinrich Foundation, please click here.

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China’s manufacturing dominance and the potential for weaponization of trade

The apparent success of China’s mercantilist economic policies is causing a crisis of confidence among market-orientated countries. China, it seems, has gamed the multilateral system to accrue national power and this influence is now leveraged to reorder global institutions in a fashion more suited to the country’s interests. As the world’s dependency on China in the economic sphere continues to grow, what is in store for the future of trade and globalization?

This paper by Research Fellow Stewart Paterson is the first in a series to examine the elements that drive the dynamics of trade dependency with the world’s second largest economy.

Organized into four parts, the essay begins with an examination of China’s economic rise in the past four decades and ascertains the degree of power the country has accrued through its economic success. Secondly, the paper briefly surveys this rise in a historic context, highlighting previous shifts in economic power that have impacted trade and its relationship with great power rivalry.

The third section looks at the reasons behind the existence of the current multilateral system and asks if those reasons remain valid. Finally, the conclusion poses: What are the chances of the current multilateral system surviving? How can the international community best prepare for its breakdown?

Chinas manufacturing dominance and the potential for the weaponization of trade - Hinrich Foundation - Stewart Paterson - July 2022 RV

To read the full research from the Hinrich Foundation. please click here. 

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Aid For Trade in Asia and the Pacific: Leveraging Trade and Digital Agreements for Sustainable Development

As the coronavirus disease (COVID-19) pandemic swept through Asia and the Pacific in 2020, it slashed economic growth and gave rise to new trade challenges that need addressing to ensure inclusive and sustainable recovery. The Aid for Trade initiative of the World Trade Organization (WTO) has an important role to play.

Recovery has begun, but it is fragile and uneven. AfT can help establish firmer, trade-led economic growth that reduces inequalities worsened by the pandemic, and it can help ensure that new digital technologies benefit everyone. However, aid for trade, particularly category 1, trade policy and regulations, requires reform and refocusing to be effective in these circumstances. More emphasis could be placed on adjustment assistance and digitalization.

This report explores the promise of aid for trade in economic recovery and the need for reorienting it for maximum benefit.

In 2017–2019, the Asia and Pacific region received 35% of average global aid for trade flows. In 2019, aid for trade inflows to the region totaled $16.4 billion. This made the Asia and the Pacific the second highest recipient of AfT disbursements in the world after Africa. Within the region, South Asia received 53%, the largest share; Southeast Asia 29.6%; and Central Asia 10.3%. The Pacific received about 4% of total inflows. Least developed countries (LDCs) in Asia and the Pacific accounted for 36.1% of total inflows in 2020 with substantial increases to Bangladesh, Myanmar, and Solomon Islands, and a substantial decrease to Afghanistan in the last 5 years.

Since 2009, regional support for aid for trade outpaced contributions by non-regional donors. In 2020, the Asian Development Bank, Germany, Japan, and the World Bank contributed about three-quarters of AfT disbursements to Asia and the Pacific. Contributions have been highly sector-specific. Between 2002 and 2019, the services sector grew fastest among all sectors, with strong growth in transport and storage. Energy investments made up the second-largest share of aid for trade. Agriculture ranked third, and banking and financial services fifth. Disbursements to the primary sector and industry declined; the two sectors grew much slower than other sectors.

aid-trade-asia-pacific-trade-digital-agreements

To read the full research from the Asian Development Bank. please click here.

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Improving International Regulatory Cooperation in an Age of Trade Skepticism

In the run-up to the 2016 election, an interesting shift in the political narrative took place. International trade, which had not been much of an issue for decades and had largely been embraced by both parties, suddenly become a major topic. Two of the leading presidential candidates, Donald Trump and Bernie Sanders, made opposition to new trade agreements a central part of their campaign platforms.

The Obama administration had followed in the steps of past Republican and Democratic administrations by embracing free trade. At the time of the 2016 election, the administration was simultaneously negotiating two of the largest trade agreements in history, one among a dozen Pacific Rim economies (the Trans-Pacific Partnership or “TPP”) and another among the U.S. and EU (the Trans-Atlantic Trade and Investment Partnership or “TTIP”).

When one of the trade skeptics (Donald Trump) ultimately won, he immediately pulled the plug on the TPP and put the TTIP negotiations on indefinite hold. His successor, Joe Biden, has done nothing to revive either agreement and, in many respects, has embraced the free trade skepticism of his predecessor.

This bipartisan surge in anti-trade sentiment, though fueled by the largely inaccurate notion that free trade kills jobs, seems unlikely to dissipate anytime soon. That the TPP and TTIP would fall victim to anti-trade backlash is both unfortunate and largely unjustified because, like many modern free trade agreements, their chief focus was largely on removing unnecessary trade barriers by promoting the alignment of regulations in participant countries rather than reducing tariffs. Regulatory alignment streamlines regulatory compliance by eliminating the need to adhere to a patchwork of different national regulatory approaches. An economic populist who argues for high tariffs to save American manufacturing jobs seems less likely to argue for maintaining divergent U.S. regulations, which is a highly inefficient approach to staving off foreign competition.

Nevertheless, these recent setbacks may yet create new opportunities for advocates of international regulatory cooperation. Achieving regulatory alignment through a trade agreement is the most ambitious and also likely the most challenging possible approach. There are, however, a number of far less controversial or burdensome approaches regulators might take to promote regulatory learning and, ultimately, regulatory alignment. This report explores what those options are and how they might help advocates of regulatory cooperation chart a more sustainable path forward.

Improving International Regulatory Cooperation in an Age of Trade Skepticism

To read the full report from Brookings, please click here.

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Six ways to improve global supply chains

It used to be a simple matter to outsource production to other countries, have them manufacture clothes, electronics, computer chips, and medicines, and ship the items back to the United States. America provided value through design capabilities and reliance upon domestically-produced components. But many businesses utilized inexpensive labor from abroad to assemble products, and global distributors then would deliver materials “just-in-time” for American firms.[1]

Now we are seeing the limits of this model. It is a time of tremendous disruptions in global supply chains with many problems ranging from shifts in consumer demand and off-shoring reliability to transportation jams, anti-competitive practices, and geopolitical complications.[2] As noted in a 2022 Council of Economic Advisers report, supply chains currently “are efficient but brittle – vulnerable to breaking down in the face of a pandemic, a war or a natural disaster. Because of outsourcing, off-shoring and insufficient investment in resilience, many supply chains have become complex and fragile.”[3]

In this paper, I outline six ways to improve global supply chains:

Boosting domestic production through on-shoring and near-shoring

Easing transportation jams

Prioritizing public health

Managing labor shortages

Fighting anti-competitive practices

Mitigating geopolitical tensions

Making progress in these areas would go a long way towards easing current global supply chain disruptions and putting global trade back on a firmer footing.

Six ways to improve global supply chains

To read the full report from the Brookings Institution, please click here.

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Why Agricultural Trade Is (or Can Be) a Life-and-Death Matter

Key Points

Nations engage in agricultural trade to reap the benefits of comparative advantage, providing quantity, quality, and diversity of foodstuffs for individual countries by giving access to products from widely different climate zones with varying availability of land, labor, and capital.
Price volatility in international markets may dissuade some countries from participating in global food markets, but most shocks to agricultural production are localized and generate far more production, price variation, and food insecurity risks for an isolated nation than in global markets as a whole.
When governments do insist on intervening in agricultural trade, those interventions should be simple and transparent, using price-related interventions such as tariffs and consumption taxes rather than quantitative restrictions such as import quotas and licenses.

Many arguments are offered against trade in agricultural products. Consuming only locally produced food is widely considered healthier, better for the environment, and generally desirable. It would undoubtedly be good to be able to rely on healthy, wholesome food produced by people we know and who depend on us directly for their incomes and way of life. However, there are also important reasons it makes sense not to rely solely on locally produced food and to reach out to other regions of the world for part of our food and nutrition.

It makes sense to take advantage of the opportunities created by access to agricultural trade for three main reasons. The first is the ability of food trade to raise incomes. The second is food trade’s important role in facilitating adjustments and population movements as economies grow. The third is that trade can reduce income volatility and vulnerability to food insecurity.

Food trade’s ability to sustainably raise a country’s income is particularly important. The gains from trade in food arise because of the many ways in which economies differ. Countries vary enormously, for instance, in the amount of agricultural land per person that they have available. They also differ in the productivity of different sectors. The ability to access a wider range of agricultural products than a country or region can produce by itself generates additional gains.

Trade is also hugely important for facilitating economic growth. As individual incomes grow, patterns of food consumption change enormously. Very poor people consume little other than starchy staple foods. As incomes rise, people diversify their diets, adding more fruits and vegetables, vegetable oils, and livestock products. These changes are frequently difficult to accommodate if the economy relies entirely on domestically sourced food and particularly if people rely on only locally sourced food. Trade can allow changes in diets and facilitate the movement of labor out of low-productivity agriculture.

Many skeptics imply that agricultural trade is an unwanted and unnecessary source of volatility in prices and food security—a source of volatility that can be reduced simply by becoming self-sufficient in food. But this perspective gets the story completely backward. The volatility of agricultural output is almost always greater in an individual country than it is for the world as a whole. Seasonal weather and growing conditions vary enormously across countries—and within them. Agricultural trade can greatly reduce the volatility of output, prices, and food availability, relative to relying on solely locally produced food.

To the extent that governments intervene in agricultural markets, policies should be carefully designed to achieve their goals at the lowest possible cost. Simple, transparent, price-based measures such as tariffs have enormous benefits relative to costly and destabilizing measures such as quotas and export bans. It is also important to choose policies that most directly influence policy targets—choosing, for example, consumption taxes rather than import barriers when the goal is to reduce consumption of foods perceived to be unhealthy.

Why-Agricultural-Trade-Is-or-Can-Be-a-Life-and-Death-Matter

To read the full report from American Enterprise Institute, please click here.

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Integrating Networks for Regional Trade Agreements

Manufacturers in East Asia now have the option to settle trade under three major trade frameworks: the Regional Comprehensive Economic Partnership (RCEP), the Comprehensive and Progressive Agreement for TransPacific Partnership (CPTPP) and the Indo-Pacific Economic Framework. Will they continue to use the US dollar as the de facto unit of account for financial settlements, or will they choose cryptocurrencies like Bitcoin, or Central Bank Digital Currencies (CBDCs) such as China’s e-CNY?

If life follows art, it is not hard to imagine a splintered world and political economy akin to George Orwell’s dystopia in 1984—a world divided into three global networks belonging to the states of Oceania, Eurasia and East Asia. In reality these could be divided by major CBDCs—a digital dollar, a digital euro and a digital yuan—with the digital ‘gold’ of Bitcoin perhaps serving as the currency for ‘disputed territories’. The Japanese art of joining broken bowls with gold, kintsugi, comes to mind.

In the early 2000s online and offline trade settlements were conducted using the US dollar, the world’s reserve currency, with online trade dependent on traditional financial settlement networks. Today however, there are different ways to settle online trade using units of account that are native to the internet. Since the invention of cryptocurrencies trade can be settled completely on-net—entirely on the internet—not via highly regulated offnet financial networks.

There are now over 19,000 cryptocurrencies. So far, these volatile and speculative units of account can be exchanged on over 500 digital exchanges. These exchanges enable conversion to other digital assets, such as non-fungible tokens—financial assets consisting of digital data stored in a blockchain—and stablecoin, less volatile units of account with prices linked to a commodity or fiat currency.

Integrating networks for regional trade agreements _ Read Article

To read the full report from the Hinrich Foundation. please click here.

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Trade for an Inclusive Circular Economy

Circular trade is a key enabler of a global circular economy, but inequities in power relations, digital trade capabilities, trade infrastructure, access to finance, and industrial and innovation capabilities mean that countries in the Global North are better positioned to reap the benefits than are those in the Global South.

Critically, too, countries in the Global South are often the final destination for internationally traded low-value or illegal waste. Lack of capacity in these countries to properly manage and treat such waste brings greater environmental risks and social burdens.

If an explicit goal to reduce inequality is not built into the global circular economy transition, the gains to be made from circular trade are likely to be highly unevenly distributed between developed and least developed countries.

This paper sets out a framework for inclusive circular trade, intended to enable a pathway in which circular trade helps to promote fair, inclusive and circular societies. The framework was developed through the work of an alliance of organizations spanning Africa, Southeast Asia, Latin America and the Caribbean, and Europe.

2022-06-15-inclusive-circular-trade-barrie-et-al

To read the full report from the Chatham House, please click here.

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