The international trading order is confronting its deepest crisis to date. The threat of a global trade war has been looming over us. Some now believe it is time to pull the plug on 70 years of trade diplomacy and pursue trade goals by other means. There is no doubt that if this happens, it will be the public that takes the hit.
Hard facts cannot be wished away. It does not matter how powerful a nation is. Trade wars encourage predatory state behaviour. They lead to higher taxes, reduce consumer choice and hamper economic freedom, and they are not easy to win. The result is trade controlled by governments, instead of companies and consumers making decisions in their own interests.
Since its creation, the World Trade Organization, as well as enabling open, rules-based trade, has helped bring millions of people out of poverty. Open trade creates jobs. It spurs growth and the free exchange of ideas between nations and cements peace.
Despite a positive, forward-looking discussion on trade between the EU and the US at the White House on Wednesday, much hands-on work needs to be done in the area of WTO reform.
Countries basically have two options. They can go back to a time before the WTO existed, when global trade was neither predictable nor fair, and not based on rules. This would be a destructive path to follow and in no one’s interest. Alternatively they can face up to the underlying problems and resolve them.
Trading nations face many problems. The development of trade rules has not kept up with economic and technological changes around the world over the past few decades. The arm of the WTO that resolves disputes between countries is now on the verge of being completely paralysed, because the US is blocking nominations of new arbitrators. And the WTO’s role as a monitoring body is threatened by a lack of transparency from many countries regarding their trade policies.
These problems stem from issues that have remained unresolved for years — in particular, growing state involvement in trade, market-distorting subsidies and other uncompetitive behaviour. A fundamental question, for instance, is this: how do we reconcile the economic model that China has adopted, in which state-owned enterprises dominate in many sectors, with an open global trading system based on a level playing field for all its participants?
The WTO has been unable to discuss these problems, let alone deliver solutions to them. It has been paralysed by conflicting interests and stiff procedures. This situation has to change — remaining silent and passive is not an option.