Tuesday, January 26, 2021

Biden and fixing the global trading system

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The end of 2020 cannot come soon enough. It’s been a tragic and difficult year but at its end there is hope as COVID-19 vaccines are starting to be rolled out. The new year also brings to an end the Trump administration in the United States.

The economic consequences of the pandemic have been devastating. Lessons from past crises, however, have meant that fiscal and monetary policy, as well as a modest degree of international cooperation, put a floor on the economic downturn. But a necessary condition for full economic recovery is to maintain open markets. The Great Depression of the 1930s showed that retreat to protectionism prolongs economic downturn.

That long stagnation of the 1930s led to the rise of nationalism, fascism and then world war. The Bretton Woods institutions were forged in the aftermath of the world war to avoid these mistakes and the breakdown in international cooperation that led to global disaster. The foundation of the post-war global order also saw the declining power — the United Kingdom — working with the rising power — the United States — and others to enmesh the United States in rules to protect Britain’s core interests in a new multilateral economic order.

In the face of a rising and more assertive China, the United States under Trump has been trying over the past four years to undo the existing rules and rewrite them unilaterally. The Bretton Woods institution that was most seriously threatened has been the multilateral trading regime.

This year was the World Trade Organization’s (WTO) 25th anniversary after it expanded in scope and scale from its predecessor, the General Agreement on Tariffs and Trade (GATT). There was little to celebrate on the WTO’s miserable 25th birthday. Its rules are out of date, its appellate body no longer has judges so rulings are no longer binding, and the world’s largest economy was undermining it, including by doing a deal with the world’s second-largest economy that violated the WTO’s core principles.

Many hope that President-elect Joe Biden will return the United States to a leadership role in the global economy. But will multilateralism return?

A Biden administration can have a prompt and positive impact by rolling back the Trump administration’s unilateral trade actions and ‘provide immediate oxygen to the WTO’, as Bernard Hoekman argues in the first of our two feature articles this week.

Removing all of the Section 232 ‘national security’ measures that Trump imposed and freeing up and facilitating trade in goods — including vaccines — that can help COVID-19 recovery, will make an immediate impact. ‘The Biden administration stands to gain immediate international goodwill’, Wendy Cutler argues in a recent piece, ‘by lifting the US reservation on Ngozi Okonjo-Iweala for director-general [of the WTO]’. The United States can lift its veto on the new judges for the WTO’s appellate body, as well as for the director-general.

It’s moving beyond the easy wins from ceasing to play spoiler that may be more difficult.

Hoekman explains that ‘consensus decision-making and member driven governance have diminished the WTO’s effectiveness’. The single undertaking where nothing is agreed until everything is agreed no longer delivers progress.

Progress on rules and new institutions may be more easily made in plurilateral agreements — groups of countries making progress in particular sectors. There have been some promising signs with investment facilitation, e-commerce and environmental goods.

Rules are being developed and trade liberalisation is advancing beyond the WTO as well, for example in mega regional agreements. Some large bilateral agreements have set standards and used to open up markets, but larger groupings hold more promise and make a clearer positive global impact.

One big question is whether a Biden administration is able to rejoin the Trans-Pacific Partnership, to the negotiation of which the United States was central until President Trump nixed participation during his first days in office. In a second feature this week, Phil Levy explains that ‘popular aversion to the TPP [in the United States] had more to do with its symbolic nature than its actual content’. Rejoining would seem unlikely, Levy suggests, given that Biden would ‘need to expend political capital on trade agreements at a critical, early stage of his presidency — exactly what he vowed not to do’.

Japan, with help from Australia, New Zealand, Vietnam and Singapore, saved the TPP after the…

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