WTO

Revoking Normal Trade Status

Revoking Normal Trade Status

In short, there are at least three ominous implications of revoking PNTR.  First, the United States would be reversing a bedrock principle of the global trading system—to avoid discrimination.  While regular readers certainly know that the system has been under tremendous pressure, it has continued to function as a brake on all kinds of otherwise possible unilateral actions by all World Trade Organization (WTO) members.  This brake will be gone if the US explicitly opts for discrimination. Second, while some supporters of revoking PNTR seem to suggest that this action will be limited to China, once the brake is gone, it is gone for all.  There is little reason to think that others will not opt to do something similar, including against the United States.  Hence, businesses should be extremely concerned that their “foreign” products and services in markets around the world will suddenly be targets for all sorts of actions, starting with unilateral adjustments in tariff levels and moving towards outright discrimination in treatment over foreign products in markets.  Some could argue that firms already face a range of discriminatory actions in different markets, particularly with inconsistent application of non-tariff measures, unequal licensing requirements, or generally unfair trade treatment.  However, these measures are actually quite restrained compared to what will happen in the total absence of MFN. Third, as always, the worst damage is likely to be felt by firms and communities that are already at the margins.  Poor developing countries and small firms are going to be badly hit by adjustments to the global trading rules.  Without a strong network of trade agreements in place to help cushion the blows, sudden adjustments in tariff rates, differentiated customs treatment, denied access to services markets, rejections of licenses or qualifications, and restrictions on movement of business people will make trade increasingly difficult or even impossible across borders. 

Asia’s Response to the Collapsing Consensus on Trade

Asia’s Response to the Collapsing Consensus on Trade

Recent events have not been kind to fans of global trade.  Growing discontent with the status quo, particularly by major powers in the system like the United States, has led to a range of policy actions that would have been unthinkable just a decade ago.  The disruptions caused by the Covid-19 pandemic further shattered consensus over what constitutes acceptable actions by governments.  National security concerns are increasingly dominating economic decisions. In this rapidly evolving landscape, the global trade system is facing at least three major challenges.  First, global leadership has been in short supply with significantly less enthusiasm for supporting past trade practices and solutions.  Second, the proliferation of new trade arrangements comes with a growing risk of further trade splintering.  Finally, if past practices are increasingly seen as inadequate, there is limited agreement on what sort of alternative arrangements might be better fit for purpose. Asia plays a pivotal role in designing outcomes for the future.  This highly trade-dependent region has relied on the bedrock created by the World Trade Organization (WTO) to ensure trade lanes remain open and the use of broadly consistent rules to help govern trade.  Connecting to others via trade does not solve all problems, but it remains a critical tool for driving growth and economic development.  Now the WTO is stuck, with the consensus-based organization largely unable to move ahead on most of its agenda.  Other than an agreement on trade facilitation, the WTO has not managed to get any new trade rules or market liberalization in place since 1995.  Even the so-called “crown jewel” of the WTO, the dispute settlement system, has now been broken for several years. Restoring the multilateral system is an urgent priority, however, there is limited agreement on how to make it happen. 

Managing Disputes Over Trade: Part I

Managing Disputes Over Trade: Part I

Trade policy, like many other arenas, has developed a complicated language that can be impenetrable or, at best, opaque to outsiders.  Some aspects, especially those touching on law, have extra layers of jargon. While trade dispute settlement systems can be quite important and have been frequently in the news over the past few years, it can be hard to follow the arguments.  Talking Trade will be running a multi-part set of blog posts to help unravel the situation and make it easier for you to follow evolving developments.  Let’s dive in with some background to help set the context…The international trading system has had to overcome multiple challenges to function and remain effective.  Governments have strong incentives to cheat or, as they would put it, to strongly prioritize their own economy and companies over the affairs of others.  But if everyone is busy protecting their own, the net result is much worse for everyone. This basic tension between keeping markets open despite individual incentives for closure has been a key element of the system for decades.  Now, the long-standing the consensus in favor of freer trade has started to fray with far more serious trade disputes ahead.

The WTO: Less Than Half a Glass

The WTO: Less Than Half a Glass

Think about that again for a moment—the World Trade Organization, in 2022, continues to have no explicit rules related to the digital economy and no obvious path to getting something in place either. [The side discussions on electronic commerce did not yield any announcements from participating countries.] Members did agree to start talking about doing something to reform the organization. They have “reaffirmed” the foundational principles and agreed to work towards a solution to a specific challenge on dispute settlement in two more years. Given this dispiriting list of outcomes, why were trade watchers mostly glowingly optimistic? Two reasons come to mind. First, most trade watchers have spent a lifetime building up this institution in one way or another. It’s very hard to witness the slow extinguishment of a dream, passion project, and vocation. Second, because the WTO matters and watching it flounder is genuinely a problem. Given the importance of the global trade body to businesses and consumers, it can feel particularly wrong to kick the organization when it is down. After all, why continue to draw attention to limited outcomes and why not recast the latest outcomes as a historic achievement that highlights continued relevance? It is precisely because a functioning WTO matters so much that it is important to be honest about its pathway and prospects for the future. Sugarcoating a weak package of outcomes doesn’t help focus attention on why the institution has failed to make headway or why members cannot agree on doing important things. Let’s just review for a moment why a functioning WTO is so critical to all of us. It provides a common set of rules and principles that have allowed trade to flourish. It’s like oxygen for the trading system. Extinguish the air and everyone will start to suffer. Without the WTO in place, governments would be free to randomly reset their trade rules on a regular basis. Tariffs could go up or down without notice. Customs checks at the borders could suddenly focus on allowing goods from some locations to pass easily while blocking everything from other firms. It would drive up costs dramatically and the burden would fall most heavily, as always, on the smallest firms.

Repost: Impeding Collapse of a Key Digital Trade Rule

Repost: Impeding Collapse of a Key Digital Trade Rule

But what has not been noticed is that the WTO ministerial [now set to start on June 12, 2022] is likely to spell the end to a critically important digital trade rule. It goes by the innocuous name of the “customs moratorium on electronic transmissions.” It may be that the bland and unfamiliar phrasing has not captured imaginations. Or it may be that this provision has seemed to be under threat for so long that most have forgotten about it. Covid disruptions have not helped anyone focus on much. But now odds are high that the moratorium will actually fall at MC12. Companies and consumers will have an unexpected and potentially rude awakening to this apparently minor rule that did not ever get the support it needed. The WTO has famously few provisions that directly apply to digital trade. After all, the organization was launched in 1995 at the dawn of the internet era. Subsequent efforts to negotiate new rules for the institution have mostly foundered.