The World in Trade

Mega trade negotiations are of interest to every open economy, with countries rallying together to declare commitments for long term trade liberalisation with mutual concessions and compromises.

 

The recent round of the G20 Finance Ministers Meeting on 17 – 18 March 2017 in Baden-Baden, Germany added yet another interesting turn to the world in trade. Plenty of issues were put to the test, of which to an extreme end of the outcome spectrum, the G20 economies risked dropping pledges on trade liberalisation altogether. To a milder degree, the communiqué released puts anti-protectionist trade measures on hold indefinitely.

In Baden-Baden, U.S. Treasury Secretary Steve Mnuchin was adamant that the United States continues to shake its hegemonic role in leading multilateral trade negotiations. The U.S. withdrawal from the Trans-Pacific Partnership (TPP) was expected to trigger blows to the prospects of other international trade agreements, particularly as President Donald Trump champions his “America First” policy that favours trade protectionism.

In January 2017 at the World Economic Forum in Davos, despite not being a stakeholder in the TPP, President Xi Jinping and China’s richest man, Wang Jianlin warned against a more protectionist United States. It has since cultivated some cautionary tales among pundits.

 

The Best of Both Worlds

Pundits often explore the gains and pains of globalisation either as proponents or opponents of free trade.

Strict opponents of free trade would commonly tout protectionism and unilateralism whilst advocating for more tariffs and non-tariff trade barriers to be enacted as national legislation. A trade proponent, on the other hand, tends to be more nuanced in their views as trade accounting naturally requires continuous checks and balances on current account surpluses and deficits. An imbalanced account will ring the alarm for trade framework adjustment, but not to the extent of negating the importance of trading.

Hence, it is more than widely acknowledged that mega trade negotiations are of interest to every open economy. Countries rally together to declare commitments for long term trade liberalisation with mutual concessions and compromises, considering the different sizes of individual economies and the comparative advantages that each economy seeks to scale for growth.

Recent activism against free and open mega trade deals has left a vacuum for the convergence of regional trade agreements. One such example is ASEAN’s Regional Comprehensive Economic Partnership (RCEP). The RCEP will be led strategically by China as it is effectively a member of the 16-country trade agreement with the highest Gross Domestic Product (GDP). For geopolitical reasons, China and ASEAN would be keen to push RCEP to early conclusion in an effort to demonstrate to the rest of the world how a successful regional trade integration can be carried out at a time when free trade is in trouble.

By withdrawing from the TPP and forcing the G20 to drop their long-standing pledge to free trade, the United States seems to be secluding itself from more trade integration with protectionist actions. However, being one of the biggest exporters of advanced technology would see the U.S. persists as an actor of the globalised world. Simultaneously, trading countries will continue to look for preferred access to major regional and international markets for economic cooperation.

 

Smell Not Just the Roses

Nevertheless, we should not smell only the roses. What about the vulnerable lilies that are struggling to grow out of the thorny bushes?

The recent 17th round of RCEP negotiation that was held in Kobe, Japan on 27 February 2017 saw the more economically developed RCEP members such as Japan, South Korea, New Zealand and Australia pushing for more detailed agreements than what many of the less economically developed members of the 10-nation ASEAN want. On top of that, there has been reduced transparency to the RCEP negotiation process. Current process is stipulated to exclude some of the most crucial issues on labour standards, state-owned enterprises (SOEs) and environmental protection.

Mass street protests against the TPP on the elements of transparency, labour and environmental protection had led to some rigorous roundtables and media coverage for more policy alignments and the moral cause that no country should avoid basic labour rights and environmental protection in international trade integration. Therefore, in hindsight, a quick conclusion of the RCEP without addressing labour and environmental laws and one that lacks consultation with various parties could undermine the quality of the agreement as argued in early disapproval of the TPP.

While any trade agreement should justify its economics of trade with creation of jobs and inclusive growth, achieving consensus on trade liberalisation remains a challenge for all trade negotiations. Beyond the moral question of raising living standards through trade, the general rule of thumb in devising trade agreements is the notion where there is not a leader of a country who will not put the interests of his or her state first. The question lies in determining how one achieves that goal while staying committed to reducing trade barriers and to ensure that a world with frictionless trade truly does benefit all.

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