Expert Speak Raisina Debates
Published on May 17, 2021
Pandemic-induced economic challenges and trade uncertainties are not a threat but an opportunity to ‘multilateralise’ new and deeper trade integration in future WTO agreements.
Why the trading system needs even more multilateralism today This article is part of GP-ORF series — From Alpha Century to Viral World: The Raisina Young Fellows Speak.
The multilateral trading system was built on the rubble of the Second World War. The early architects of the international economic system envisioned a world where business and commerce intertwined across nations such that countries would refrain from entering conflicts. The creation of the world trading system came at a time of uncertainty. As the Second World War was still raging, global leaders convened at Bretton Woods, US, in 1944 and negotiated plans to establish an International Trade Organization (ITO). Although the ITO never came into fruition, in its place came the General Agreement on Tariffs and Trade (GATT), which was limited in scope and was designed solely for trade in goods. In the years since, the world trading system has grown from a provisional ‘gentlemen’s agreement’ among 23 contracting parties to one that deals with trade rules and settles trade disputes.

At the heart of the agreement is the principle that countries cannot discriminate goods and services from members of the agreement (the most-favoured-nations principle) or discriminate between domestic players and foreign imports (national treatment).

Today, the multilateral trading system comprises 164 member governments covering 98 percent of international trade. At the heart of the agreement is the principle that countries cannot discriminate goods and services from members of the agreement (the most-favoured-nations principle) or discriminate between domestic players and foreign imports (national treatment). The important principles have gradually expanded into a comprehensive rulebook over the past seven decades, covering trade in goods, trade in services and trade-related intellectual property rights. Accompanying more comprehensive trade policies is an unprecedented expansion in international trade. According to data from the World Trade Organisation (WTO), world trade in 2018 in volume terms was about 40 times greater than in 1950. The share of trade as a percentage of world GDP grew from about 5 percent in 1950 to 23 percent in 2018. Although a plethora of new trade agreements emerged at the turn of the twenty-first century, over 80 percent of international trade still takes place under the most-favoured-nation terms<1>. This is especially true for less developed countries and small enterprises that could not afford to deal with the complexity of regional trade rules. A set of simple, fair and multilateral trade rules shields the small and poor members of global society from the law of the jungle.

Manufacturing and service activities are now increasingly organised across countries, enabling companies to take cost advantages of different countries and allowing economies to join the supply chain without having to develop the full capacity of production.

A distinct aspect of the current economic context is that it occurs amid greater interconnectedness through global value chains (GVCs), which features “production networks that assemble products using parts from around the world (known as intermediate goods). Today, 80 percent of world trade is driven by supply chains run by multinational corporations. Trade in intermediate goods is now nearly twice as large as trade in final goods and is especially important in advanced manufacturing”<2>. Manufacturing and service activities are now increasingly organised across countries, enabling companies to take cost advantages of different countries and allowing economies to join the supply chain without having to develop the full capacity of production. Globalisation has offered enormous opportunities for producers and consumers, allowing suppliers in developing countries to join the value chain and thus contributing to improved living standards for billions of people around the world. But, at the same time, the international trading system has also faced great challenges. In many parts of the world, automation and technological advances have resulted in improved manufacturing output even as large parts of the workforce have been left without jobs. Without a safety net and programmes to equip workers with new skills, those who may have lost out on jobs to technological advancement and globalisation may grow discontent. Future advancements in digital technologies could also lead to a loss of white-collar jobs in advanced economies. It has been argued that the wide adoption of digital communication technologies during the COVID-19 pandemic could accelerate the trend towards more services sector jobs in competition with employees teleworking from abroad or software robots replacing particular office tasks<3>. Crucial to addressing these challenges are domestic policies to enhance social protection, ease worker mobility, and ensure that the benefits of technological progress and globalisation are more widely shared<4>.

Without a safety net and programmes to equip workers with new skills, those who may have lost out on jobs to technological advancement and globalisation may grow discontent.

The interconnections from global supply chains have given companies, organisations and individuals more opportunities, but they also pose potential risks in a context of high global uncertainty. As the COVID-19 pandemic clearly demonstrates, one shock in a region can transmit to another country within hours or days. No country is self-sufficient in the face of a global crisis, and trade provides an important and cost-effective way to ensure that the critical supplies reach those in need. Germany, the US and Switzerland supply 35 percent of medical products to the world, and four countries — Singapore, the US, Netherlands and China — export more than half of the world's respirators and ventilators<5>. The flow of vital medical supplies, critical agricultural products and other goods and services across borders are key to support the health and wellbeing of all people. As the world's largest producer of generic drugs, India's decision in early 2020 to end a ban on the export of antimalarial drugs that may help treat victims of the coronavirus demonstrates a commitment to address the global pandemic<6>. More recently, India has been a driving force in the global efforts to manufacture and distribute lifesaving COVID-19 vaccines. Globalisation has made the world more connected than ever. The fragmentation of production and the new manufacturing bases in developing countries over the past 20 years have increased — not diminished — the ability of countries to respond to the unexpected spikes in demand experienced during the pandemic<7>. International trade and cross-border supply chains not only lead to higher efficiency and lower costs of medical products, but also enable large scale research and development to develop new medicines and medical technology<8>. The key to addressing the challenges of the twenty-first century is not less multilateralism but more multilateral cooperation. Contingency plans and coordinated efforts to build a stockpile of critical goods, more diversification of production locations and suppliers, and prompt government action to ease strict regulatory requirements are crucial to bridge the gaps in medical supplies and ensure speedy recovery of the health, economic and social systems<9>. Implementing these policies require decisive, robust and coordinated efforts internationally.

The key to addressing the challenges of the twenty-first century is not less multilateralism but more multilateral cooperation.

The need for more international cooperation extends to other global challenges as well. Efforts by WTO members to curb subsidies that contribute to the depletion of global fish stocks illustrates the transboundary nature of environmental challenges, and that only by cooperation can nations overcome free-rider problems<10>. The emerging digital economy requires more concerted efforts to address policy challenges and countries are working to harmonise digital trade policies, reform tax systems, tackle income inequalities through the WTO and other international fora. Pandemic-induced economic challenges and trade uncertainties are not a threat but an opportunity to ‘multilateralise’ new and deeper trade integration in future WTO agreements<11>. Globalisation has made the world a better place in many aspects. People growing up in a globalised world are more mobile, open-minded and cosmopolitan than previous generations. The solution to the challenges of globalisation does not come from building walls and barriers or isolating, but rather from working together to address global issues.

Endnotes

<1> Theresa Carpenter and Andreas Lendle, How preferential is world trade? (Geneva: Graduate Institute of International and Development Studies, 2010). <2>What Is Globalization? And How Has the Global Economy Shaped the United States?Pearson Institute for International for International Economics. <3> Richard Baldwin, The Globotics Upheaval: Globalization, Robotics, and the Future of Work, (Oxford University Press, 2019). <4> “Making Trade an Engine of Growth for All: The Case for Trade and for Policies to Facilitate Adjustment,” Policy Paper, WTO, IMF and World Bank (2017). <5>Trade in Medical Goods in the Context of Tackling COVID-19,Information note, WTO (2020). <6> Rajesh Roy, “India Again Allows Export of Antimalarial Drug Touted for Coronavirus,The Washington Post, 7 April 2020. <7> Penny Bamber, Karina Fernandez-Stark and Daria Taglioni, "Why global value chains remain essential for COVID-19 supplies,VoxEU 27 (2020). <8> Anna Stellinger, Ingrid Berglund and Henrik Isakson, “How trade can fight the pandemic and contribute to global health,” in COVID-19 and Trade Policy: Why Turning Inward Won’t Work, eds R. E. Baldwin and S. J. Evenett (Geneva: CEPR, 2020), pp. 21-31. <9> Marc Bacchetta et al., "Covid-19 and Global Value Chains: A Discussion of Arguments on Value Chain Organization and the Role of the WTO," WTO Staff Working Paper ERSD-2021-3 (2021). <10> WTO, "Factsheet: Negotiations on fisheries subsidies," WTO. <11> Nicolás Albertoni, "The New Dynamics of the International Trading System," Global Policy 9, no. 1 (2018): 156-158.
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Contributors

Ankai Xu

Ankai Xu

Ankai Xu is a research economist at the World Trade Organization. In this capacity she conducts economic analyses to inform policymakers on issues related to ...

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Nicolas Albertoni

Nicolas Albertoni

Nicolas Albertoni is a professor at the Catholic University of Uruguay where he conducts researcher on international political economy and trade policy. He is a ...

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