We Lose More Than We Gain In Moving Away From Multilateral Trade

from The Conversation

— this post authored by Susan Harris Rimmer, Griffith University

If you struggle to understand the domestic impact of current trade negotiations such as the Trans-Pacific Partnership (TPP) and China Free Trade Agreement (ChAFTA), it is not you; it is them.

The multilateral system is under challenge from a surge of bilateral and regional trade deals that are raising concerns about transparency, efficacy, national interest, development pathways and human rights.

This is why many in the Australian policy commentators and academics have urged the Turnbull Government to release a formal trade policy.

All nations, including Australia, claim they want an open, predictable, non-discriminatory, and rule-based multilateral trading system centred on the World Trade Organization (WTO). Yet the universal consensus is that the trade system is in deep trouble. Important global trade negotiations stall while regional preferential trade agreements proliferate, often likened to noodle bowls or spaghetti. The WTO website lists 276 Regional Trade Agreements currently in force, and the figure is rising.

The DNA of trade is changing, with most trade experts urging reforms to the WTO to adapt to the new world of global value chains, integrated global standards, and transnational investment flows. With global manufacturing, goods are now “made in the world” rather than in a single country.

Economists are urging liberalisation of trade in services – but as we enter into a service and knowledge-driven economy, these negotiations has proven particularly slow and difficult.

One reason is the economic fundamentals of trade are changing. While trade growth grew by 3.1% in 2014 and 4% in 2015, it grew more slowly than global production and remains significantly lower than long-term average growth rates. Many economists are conflicted about the economic benefit derived from FTAs in particular.

Another reason is that the geo-politics of trade is changing. As the WTO reaches its 20th anniversary, many member countries are worried about a clash among blocs – such as the BRICS (Brazil, Russia, India, China, South Africa) versus the OECD (Organisation of Economic Cooperation and Development) nations. The TPP leaves out China by design, which is why so many foreign policy experts are wary.