Even before the Covid 19 outbreak blighted the global economy, the trading system was slowing down. Throughout 2019, WTO forecasts for global trade growth were downgraded from 2.6% in April to 1.2% in October. In fact merchandise trade volume actually fell by 0.1% in 2019, weighed down by trade tensions, particularly between China and the USA, and slowing economic growth.
The WTO now expects that 2020 is likely to see world merchandise trade plummet by between 13% and 32% as a result of the pandemic. It is predicted that almost all regions will see double digit declines in trade volumes throughout this year with sectors that have complex value chains – such as electronics and automotive products – most affected, with exports from North America and Asia hardest hit. Service economies are also likely to be heavily affected as a result of transport and travel restrictions.
It is a reminder of how interconnected and interdependent the world economy has become in the era of globalisation. Contagion, whether as a result of economic, security or natural events, in one part of the globe quickly ricochets around the rest.
While the concept of “over there” has become increasingly redundant, political systems have failed to adapt.
Rather than developing the necessary tools for dealing with unavoidably global problems, governments have taken refuge in either regional or national responses which have become increasingly inward looking. Even the biggest economies or trading blocs have found themselves incapable of dealing with these huge global events as their relative importance has diminished in a world where the economic centre of gravity has shifted to the Pacific.
It is essential that we reverse the recent trends towards protectionism if we are to pull out of the steep dive in the trading system that the Covid outbreak has launched us into. It is worth pointing out that after the financial crisis the G20 countries, in 2010, were operating around 300 non-tariff barriers to trade, while by 2015 this number had almost quadrupled. A little bit of consumer protection here, a little bit of environmental regulation there and the little pandering to domestic producer sentiment on top has led to a silting up of the global trading system which, though almost imperceptible at any one time, has had a damaging cumulative effect.
We need to reassert our basic belief in free, fair and open trade and back it up with action, including effective WTO reform. Failure to do so risks a reversal of the historic reduction in global poverty that has been achieved over the past generation. Such a failure would also put pressure on global security, with increased internal political disruption and greater external displacement of migrants and refugees.
How should the United Kingdom and our allies, who share common goals, values and perspectives react to the situation? How do we turn the massive challenge of getting the global economy moving out of the pandemic into an opportunity to open up the trading system to the benefit of both developed and developing countries alike?
Clearly, a successful conclusion to the EU/UK trade discussions would be a boost to confidence at a time when it is much needed to underpin demand and would send positive global signals. It is time for the EU to end the game-playing over a Canada-style trade agreement, which it once touted as an alternative model for the UK, but now says is off the table.
Beyond the EU, an immediate priority for the UK should be potential membership of CPTPP, the transpacific alliance. Given that the UK already has begun its preparations for trade agreements with Australia and New Zealand and that it will need to have a new trade agreement with Japan (as the current Japan – EU EPA will not roll over at the end of the implementation period) this would make sense because much of the preparations for the bilateral agreements would be much the same for the larger one. There is also the advantage that negotiating membership of an existing agreement is much easier and quicker than negotiating agreements from scratch.
Obviously, a UK/US trade agreement is already under negotiation and both sides are extremely keen to make progress. The clock is ticking with the November election looming and even if something could be agreed quickly a Democratic House of Representatives would be unlikely to want to “reward” the Trump administration with a new free trade agreement so close to polling day. This is not, however, a reason not to try to make as much headway as possible.
A second obstacle , this time from the UK side, comes from potential amendments to the Agriculture Bill, which, under the cover of animal welfare issues, would effectively scupper Britain’s new found freedom on trade policy.
The other priority for the UK should be to give a lead on the issue of WTO reform. A fully functioning rules-based system founded on genuine free, open and fair trade is more essential now than ever. Britain shares many of the US reservations about China’s abuses of the trading system and the failures of the appellate body with an extension of its remit beyond the original jurisdiction.
Together with the considerable reputation, and subsequent goodwill, that DfID has achieved amongst developing countries and Britain’s financial support for smaller countries at the WTO, we should be able to build a coalition to achieve a viable outcome.
The Covid crisis understandably commands our attention at the moment but there are very big issues waiting just around the corner.
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