Trade in trouble: Asia must act

Over the past year, the US-China trade dispute has overshadowed most other trade developments in the Asia-Pacific region. The tariffs have disrupted trade and investment flows and caused uncertainty at a time when the global economy is already facing headwinds.

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The negative impacts of the dispute - which began to manifest in late 2018 and grew more acute in the first half of this year - will likely worsen following the announcement of new tariffs in May 2019.

"The WTO would ideally help reduce friction between the US and China, but it is not up to the task given its outdated rules and governance challenges.”

The conflict has left many countries in the Asia-Pacific region feeling caught in the US-China crossfire, given the importance of their trade and investment ties with the world’s two largest economies. As a result, they have sought to manage these critical relationships without alienating either country.

The World Trade Organization (WTO) would ideally help reduce friction between the US and China but it is not up to the task given its outdated rules and governance challenges. The crisis in the WTO’s Appellate Body points to this deeper problem of failing to keep up with developments in the trading and investment landscape.

An equally pressing issue is the WTO’s slowness to respond to technological advancements, particularly the digital economy. Simply put, the trade regime is in trouble and in urgent need of reform.

The US has put forward some constructive proposals for WTO reform but it has largely retreated from its leadership role in driving agreements on new trade rules and initiatives since the organisation’s creation nearly 25 years ago.

No part of the world has benefited more from the rules-based trading system than the Asia-Pacific region where trade has exploded since the creation of the WTO.

Policy matters

A new paper by the Asia Society Policy Institute, authored by a commission of senior trade experts from the Asia-Pacific region, reflects on the developments in the Asia-Pacific trade landscape since 2018. The paper offers recommendations to policymakers across the region on how they can continue to benefit from the economic gains and high-paying jobs created by trade, such as:

  • The countries of the Asia-Pacific region should lead efforts to reshape the WTO by updating rules and existing agreements, pursuing new pluri-lateral agreements on urgent matters, and improving the dispute settlement system.
  • The US and China should conclude a meaningful trade deal that addresses fundamental issues of concern. Following the conclusion of the agreement, the two countries should continue to work with each other and with other countries in the Asia-Pacific region to set international rules in areas such as digital trade and advanced technologies, the role of the government in the economy, and investment and competition.
  • The countries of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership should conclude ratification and expand membership to economies that are ready to meet its standards. The participants in the Regional Comprehensive Economic Partnership should conclude negotiations by the end of 2019 and consider practical alternatives, if necessary, to facilitate agreement.
  • The Asia-Pacific region should anticipate the disruptions that new technologies and digital business models will pose to trade rules. An independent group of senior experts from across the Asia Pacific should be convened to assess which existing trade rules and principles need to be updated and to propose a path forward on trade as well as on issues generally beyond its scope such as consumer privacy, data protection, international taxation, competition, and cybersecurity.

In light of the US retreat, it is time for the countries of the Asia Pacific, particularly those that are “middle powers” and trade-dependent economies, to step up and lead reform efforts in the WTO and elsewhere.

This article is based on a paper co-authored by Wendy Cutler, Vice President of the Asia Society Policy Institute and former Acting Deputy US Trade Representative; Kim Jong-hoon, former Korean trade minister; Peter Grey, former Australian trade negotiator; Mari Pangestu, former Indonesian trade minister; Yoichi Suzuki, former Japanese ambassador and trade negotiator; and Tu Xinquan, Dean of the University of International Business and Economics in Beijing.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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