A good week for world trade, especially in Asia, as the TFA accord comes into force
There are estimates the deal can cut trade costs globally by over 14pc, and will boost global trade by 2.7pc a year by 2030. It will in particular aid developing economies, lifting their exports by over 30pc.
In Bangkok this week for the year’s first meeting of regional business leaders in the APEC Business Advisory Council one modest sliver of good news brought smiles to a week better marked by anxiety and uncertainty over mainly bad developments that have marked the past six months.
Even the good news, in better times, would have warranted little attention: the World Trade Organisation announced that the Trade Facilitation Agreement (TFA) intended to simplify border procedures so as to boost trade, and reduce costs linked with moving goods around the world, has at last come into force.
The TFA is the only global deal negotiated and agreed in the WTO since it was founded 23 years ago. Pretty much everyone supporting global free trade was celebrating. Hoang Van Dung, the Vietnamese chairman of ABAC, spoke for all when he said: “The TFA will help small as well as large firms, and those from developing countries, to participate more successfully in global markets by reducing red tape, costs and technical barriers to trade.”
But realists in Bangkok and elsewhere acknowledged that the celebration was rather hollow.
The TFA was a crumb on the table of the now-defunct Doha round of global trade negotiations. It was proposed by WTO director General Roberto Azevedo – and endorsed by the world’s trade ministers – in Bali in late 2013 as a single salvageable initiative after more than a decade of fractious and ultimately fruitless efforts to bring global trade rules into the 21st century.
Despite endorsement in Bali, it has taken a further 39 months to persuade the necessary two thirds of the WTO’s 164 members to ratify the agreement, and so bring it into force. On February 22, Rwanda, Oman, Chad and Jordan squeezed the WTO over the line.
Having had so little to celebrate over the past quarter century, Roberto Azevedo can perhaps be forgiven for being effusive: “This is fantastic news. WTO members have shown their commitment to the multilateral trading system. They have followed through on the promises made when this deal was struck just over three years ago. By bringing the deal into force we can now begin the work of turning its benefits into reality.”
There are estimates that the deal can cut trade costs globally by over 14 per cent, and will boost global trade by 2.7 per cent a year by 2030. It will in particular aid developing economies, lifting their exports by over 30 per cent.
Of course, I can’t imagine this “fantastic” news will have excited many in Donald Trump’s White House. No champagne corks popping here, for sure.
Their “America first” mantra leaves little interest in benefits going to traders in the developing world. And in a West Wing where the word “multilateral” is a dirty word, one has to fear that the TFA will join the TPP and NAFTA as Trump targets for early extermination.
But the White House aside, businesses around the world have good reason to celebrate this first modest victory for multilateralism.
No country has developed successfully in modern times without opening its economy to international trade, investment, and the movement of people
In Bangkok, the 63 gathered members of the APEC Business Advisory Council grasped firmly at this encouraging straw: “The global economy has been through a tough period. Trade growth continues to slow,” said Mr Dung: “It is critical we take action wherever we can to remove the grit from the machinery of trade, keep markets open and competitive, and deepen connections. So this new agreement is extremely welcome.”
At a time when developments in the US and the UK have prompted many ordinary voters to question the benefits of free and open trade and investment, ABAC members spent much of the week in Bangkok scrutinising why the clear benefits of trade opening over the past three decades are being so fiercely challenged.
Globally, trade liberalisation has lifted more than a billion people out of poverty over this time. Cooperation in the APEC region over the last 20 years has raised more than 700 million out of poverty in Asia alone, with GDP per capita increasing over 5 times.
“No country has developed successfully in modern times without opening its economy to international trade, investment, and the movement of people,” one ABAC member commented: “But to continue globalisation, its benefits need to be more clearly explained, and broadly shared. The objective must be more socially inclusive growth and less extreme inequality.
“We in business have to do better to demonstrate not just the economic benefits, but also to work with our governments to establish policies that address dislocations and worker skill development.”
As alarming as the ferocity of the challenge to free and open trade has been, equally shocking has been the attack on multilateral and regional trade deals like the TPP and NAFTA, and the sudden love-affair with bilaterally-negotiated trade deals. Ask anyone involved in international business about bilateral trade deals and they will confirm they offer an extremely poor second best to regional or global deals: bilateral deals force businesses to trade by different rules and regulations in every market they enter. This “noodle bowl” muddle adds huge cost, complexity and uncertainty for every business considering international trade – with particularly tough impact on small companies.
Since it is clear that much of the political upswelling against international trade is linked with distress in communities that have been the victims of change, ABAC leaders also committed last week to work with APEC leaders to develop detailed proposals to identify more clearly the people in our economies that are adversely affected by trade-opening, and to develop programs to enable them to “re-skill” for 21st century careers.
However, the awkward reality here is that by far the majority of dislocation is arising not from trade, but from accelerating digital disruption and broader technological change. One high-tech entrepreneur in Bangkok estimated the digital revolution will by 2030 destroy more than 200 million jobs worldwide – but at the same time create 320 million new, higher-value-adding jobs. Perhaps Trump and other global leaders should be giving priority to this challenge in the coming for years. It would without question do more good than getting tough with a few migrant Mexican farm workers.
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view