- Intro – write occurrences that challenge the global trade regime.
- Mention the divergences in trade recoveries.
- Mention the causes that challenge multilateralism at WTO.
- Mention the consequent uncertain global trade order.
The international trade order, principally spearheaded by the WTO since 1995, was severely damaged by the Trade War b/w US-China. After the pandemic erupted by the end of 2019, the already dented international trade started experiencing more complex problems as lockdowns disrupted the global supply chain periodically. Both merchandise and trade volumes showed a more resilient recovery in 2021, in comparison to the period after the 2008-09 Global Financial crisis. However, the revival is mainly driven by merchandise trade, whilst services continue to remain subdued.
Perceived divergences in trade recoveries: Overall trade recovery demonstrates divergence in different regions of the world. Whilst Asia leads the rebound growth in both exports and imports, West Asia, South America, and Africa have the weakest recoveries in exports. On the import side, West Asia, Africa are likely to have the slowest recoveries. South America’s comparatively better import recovery is partly the result of a low base effect.
Whilst China’s trade surplus increased in 2021, the US trade deficit widened. Most of the least developed countries (LDCs) and developing countries also experienced a worsening trade deficit in 2021.
Challenges to multilateralism at WTO: Unilateral tariff imposition and other trade restrictions before the pandemic not only gave rise to trade tensions but also undermined the multilateral trade order nurtured by the WTO. The organisation played an important role in facilitating tariff reduction and ease of trading across countries.
A prime example would be the gradual dismantling of the trade dispute settlement mechanism at the WTO. Years of US pressure have brought the international trade appeals system to a breaking point. In 2016, US had decided to block the reappointment of a South Korean judge to the WTO’s appellate body. The succeeding government continued and intensified the blocking of appointment of judges in the body. As a result, the appellate body became defunct. The Joe Biden administration continues to block the new appointments, and the appellate body remains paralysed.
Though big economies, including the US, have reiterated their commitment to the WTO, trade wars and unilateral decisions on tariff and non-tariff restrictive measures have undermined the role of the WTO in recent times. This was preceded by the stalemate in the Doha Round of negotiations due to a lack of consensus on issues related to agricultural subsidies and information technology products. The WTO is also aware of emerging trends in bilateral and plurilateral trade agreements. All these can jeopardise the multilateral character ingrained within the WTO.
Uncertain global trade order: The withdrawal of the USA from Trans Pacific Partnership in 2017 and India from RCEP in 2019 drastically reduced the combined market size of both these FTAs. Therefore, the focus largely shifted toward bilateral trade and investment treaties. Meanwhile, there have been drastic geopolitical and subsequent economic shifts.
Worldwide inflation raised the fear of a probable recession, the ongoing Russia-Ukraine war spurred new political and economic implications, China’s zero-tolerance policy towards COVID-19 already wreaked havoc on global supply chains. Repercussions of these major international phenomena will be extremely uncertain and fluid. So, the immediate focus of developing countries and emerging economies, including India, should be to remain vigilant and flexible whilst at the same time protecting their individual trade interests.