A series of tweets prompted by the empty argument and specious results of the December, 2017, WTO Ministerial meeting. Eventually, this must end. With what? Not, I hope, with radical change: I suggest Chesterton’s Fence is the right approach to system redesign.
I argue for more humility, parsimony and durability in the system of government-restraining trade tules. back to something simpler, more applicable and justiciable, as the multilateral framework. Leave everything else to plurllateral, reciprocal agreements.
- Despite much disappointment with WTO & MCM11, it’s not clear that USA, CHN, EU are ready, able to redesign the trading system. The recovery in trade volumes will weaken their incentive. Still, change is needed.
- The system we have is outdated, over-complicated and weak where it should be strong. It needs not re-inforcement but re-construction, probably using some of the same materials but with a simpler design.
- The lesson of three failed systems since 1945 (ITO, GATT, WTO) is that to be effective and to endure changes that innovation, prosperity, demographics will bring, a global system must have a clear assignment and uncomplicated rules.
- The sole assignment should be: cut international trade costs due to regulation. Targets could be any action or allowance that weakens, distorts competition. But comity/peace demand some deference to autonomy. This limits the scope (mostly) to border/establishment regulations.
- Diverse geographies, histories, institutions, demographics impose a trade-off between the scope and scale of feasible trade agreements. Global scale means narrower scope i.e. more regulatory autonomy for Members (and vice versa). Still, it’s a trade system, not the Ten Commandments.
- Narrow scope with broad scale works (ITA agreement). Smaller scale (contiguity) and more ambitious scope is a known-good combination: NAFTA, EU-15, ANZCERTA. But there is no good example of ‘multilateralizing’ ambitious small scale deals.
- Only one ambitious plurilateral (GATT 1948) swelled to multilateral scale. It codified big steps in (mostly autonomous) liberalisation & expanded its rule-set but at the cost of sham commitments obscured by diplomatic deals. Discredit, uncertainty followed.
- Plurilateral and regional trade agreements (P&RTA) are not the problem. Some have delivered net gains (although that’s a weak argument for more). The problem of the trading system is not there, but in the stymied global framework of WTO.
- A trading system serves but cannot complete the opening of borders. A borderless world might be more productive (migration) but it is incompatible with established state welfare systems, security arrangements, other insitutions. So, infeasible.
- Extensive private (MNE) networks of trade, technology & finance account for two-thirds+ of international exchange. They traverse, but don’t erase, multiple borders: the assets they exploit even depend on borders. But border costs multiply along the chain, cutting global welfare.
- Although border/establishment regulations should be the primary target, regulation of a firm’s continuing operations also adds to trade costs. But multilateral action here can only be high-level (eg. national treatment) or trip-up on complexity, exceptions, data problems.
- Trade transmits most market interventions across borders. It would be best to ban any that distorts competition (subsidies, weak IP controls). Unlikely. Still, the second-best response is not ‘remedies’ that compound the damage but a dispute or nothing.
- Neither GATT nor WTO eliminated the scourge of anti-dumping (tailored protectionism). Private pricing decisions that are not collusive should never be the target of joint action by governments. But cartels should be.
- One way forward on system design is to work back from the common parts of successful P&RTAs to a compatible universal framework. An enforceable kernel that may look a lot like Parts I & II of GATT + goods, services, IP schedules to the MFN/NT commitments + a DSU.
- What about all those Annex 1 agreements of WTO? Merge essential GATS, Govt Procurement (SOE?), TRIPS obligations into the kernel (with schedules). Anything else not out-of-date becomes plurilateral (opt-in), renegotiable & ambitious.
- Hard question: should plurilaterals exist only where their scale is sufficient to extend benefits on an MFN basis (as in ITA)? I say no. Where ‘reciprocity’ becomes ‘discrimination’, I guess the reciprocal incentive may be more productive than ‘fairness’.
- Of course, it’s not a “trading system”. Governments don’t account for trade any more than they account for economic growth; altho they shamelessly claim credit for both. It’s an agreement on the limits to anti-trade regulation. So, expect action to be late self-interested.
On reflection, a few weeks after I posted this, I think that the biggest barrier to system redesign at present is the unwillingness of the USA and China to engage with each other on trade system reform. The challenges posed for both China and the USA by China’s rise (and the dynamics of the DPRK nuclear problem) mean neither has much current interest in what used to be called (in the Nineties) the “liberal international economic order”.