China-led RCEP provides starting point for reducing tensions and building new global trade rules
- World commerce badly needs a confidence boost amid increasing protectionism and deteriorating relations between trade partners
- Bilateral approaches are insufficient with high trade tensions while multilateral institutions like the WTO struggle to adapt to new challenges
There is no winner in trade tensions. Trade tensions could negatively affect exporting countries and, in the long term, damage confidence in trading with importing countries. Trade tensions are leading to increased protectionism and fractured state relations, bringing serious uncertainties in commerce.
How can we address trade tensions? There are three possible approaches: bilateral, regional and multilateral. Bilateral agreements cannot be relied on to fully address trade tensions. Third-party adjudication under bilateral trade agreements is rare given asymmetries in parties’ negotiating positions.
The multilateral system, meanwhile, faces a serious crisis. Not only is the WTO’s Appellate Body dysfunctional, but also its rules have not been significantly upgraded since its establishment in 1995 and so struggle to address new issues.
There is a need to develop new rules. Such negotiations are, however, difficult among 164 members, as evidenced by WTO negotiations since 1995.
Larger agreements can better withstand geopolitical turbulence. They lead to market access of a much larger scale than bilateral agreements and can address new issues easier than the WTO.
Crucially, larger agreements provide third-party dispute resolution mechanisms that are much more likely to be used than in bilateral agreements. This was the case with Nafta, particularly in its early stages. The larger number of parties defuse tension, and more parties desire to avoid a power-based order.
RCEP negotiations face a precious window of opportunity to develop new rules and impartial dispute settlement processes to address certain, although not all, issues behind trade tensions. To illustrate, Australia-China trade tensions over the imposition of anti-dumping and countervailing duties on barley will benefit from a binational panel arrangement like that proposed for the USMCA.
The USMCA picks up the Nafta rules on reviewing a party’s determinations on dumping and countervailing duties, which can ask domestic agencies to redetermine these issues. This works to curb the possible weaponisation of trade.
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Not all trade tensions can be addressed in the short term, including US-China tensions. It is difficult, perhaps impossible, to reach agreement on sensitive rules such as national security. However, we should not miss the opportunities provided by larger trade agreement negotiations and build a rules-based system.
RCEP is the starting point for such efforts. If a critical mass of countries pushes for new rules and dispute settlement systems as public goods to address trade tensions, trade agreements can help ensure commerce withstands tensions.
Only when trade is separated from geopolitical factors as much as possible can confidence and predictability in trade, which are invaluable in a global economic slowdown, be maintained. Unprecedented trade tensions provide unprecedented incentives to seek long-term solutions.
Heng Wang is professor and co-director of the Herbert Smith Freehills China International Business and Economic Law (CIBEL) Centre at the University of New South Wales, Sydney, Australia
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