In the latest issue of Insights, Asia House’s thought leadership publication, Yi Xiaozhun, Deputy Director-General, World Trade Organization, calls for greater Asian leadership in global trade.
Asia is rapidly moving to the centre of global trade. This seismic shift represents a challenge, but also an opportunity, for the world trading system. As the region now most dependent on open and secure global trade, Asia has clear interests — as well as a key role to play — in steering the system out of its present difficulties and in leading efforts to reform it.
It’s often forgotten that the World Trade Organization (WTO)’s current problems stem largely from its past success. Created after the Second World War, the multilateral trading system
was rooted in a core idea — that the answer to global peace lay in spreading global prosperity. The aim was to create an open, stable, and interdependent global economy that would allow all regions — not just the advanced West — to grow, develop, and prosper. Instead of a zero-sum world of great power conflict, they wanted to build a positive-sum world of global cooperation.
“Next year, Asian economies will become larger than
the rest of the world’s economies combined.”
This system has succeeded far beyond expectations. The last 70 years have witnessed the greatest period of global growth and development in history – underpinned by an ever more open
and integrated world trading system. While almost all regions have benefited from trade-led growth, Asia’s rise has been the most striking. Asia’s share of world trade has risen from 35 per
cent to almost 45 per cent in less than two decades. Next year, Asian economies will become larger than the rest of the world’s economies combined.
But success has created new challenges. Leadership has become more complicated as new powers have risen. The US and the EU remain key players, but they are no longer dominant. Fast emerging economies now play a role in the system that was unimaginable just 20 years ago — while even smaller countries want a greater say in a system in which they have a greater stake.
Today’s multipolar global economy is more “democratic” than the post-war one. But multipolar can be messier. And for those countries accustomed to calling the shots, it can also be unsettling.
Cooperation has also become more complex — and friction has increased — as economies have become more intertwined. Subjects that were once domestic, like health standards or fish
subsidies, now have global spill-overs. Issues that were never considered when the system was first created, like data privacy or climate change, have moved to the top of the agenda and demand solutions. The paradox is that the trading system has become more complicated to manage as it has become more important.
How to overcome these challenges? The first step is to recognise that they represent not just risks, but opportunities — to reexamine the status quo and to ask where the system can be
improved. In some respects, the current trade conflict is the wrong answer to the right question: how to adapt a 20th century trading system to a 21st century global economy?
In today’s digitalised world, economic change is measured in days and weeks, not the years or decades it took to negotiate trade agreements in the past. Much of the WTO rule book dates back to the Uruguay Round — a quarter of a century ago — before the explosion of the internet, the spread of global value chains, or China’s accession to the WTO. Updating the system’s rules to keep up with the dynamic global economy it helped create would go some way towards easing the tensions surrounding trade.
The positive news is that WTO members are finding more flexible ways to advance. Where possible, they are working pragmatically to harvest multilateral agreements, such as the 2013 accord on trade facilitation, and the ongoing talks on curbing fish subsidies. And since 2017, groups of like-minded members have come together to explore potential new rules on issues such as electronic commerce, investment facilitation, and making it easier for small businesses to trade. These ‘joint initiatives’ allow countries who want to move forward — and those who want to wait — to do so, without coercion or quid pro quos.
“Disagreements involving a handful of members cannot
be allowed to paralyse the system.”
But only members can bridge the gap between new processes and new rules. Harnessing new forms of leadership will be necessary. Disagreements involving a handful of members cannot
be allowed to paralyse the system. Members of all sizes will have to find new ways forward. Asian countries, in particular, have a vital role to play. Asia increasingly finds itself at the epicentre of global trade, investment, and technology flows. Asia’s trade with Europe, for example, has now reached a staggering US$1.7 trillion a year — half of all global trade — and double Europe-North America trade.
As the emerging key engine of global trade, benefitting enormously from an open and stable world economy, Asia has a clear interest in strengthening the WTO, the cornerstone of its
trade relations. Indeed, the strongest argument for reforming the WTO is to imagine a world without it. The alternative to an open, cooperative, and rules-based global economic system is a more closed, divided, and power-based one: where trade relations are determined by threats and coercion; where regions turn inward; and where businesses face uncertainty and disorder.
Such a world would be marked by declining investment and growth, fewer jobs, less innovation, stalled development for many countries around the world. It would be more unstable, less secure, and less capable of responding to shared problems, like climate change, that demand collective action.
Asia’s leadership in strengthening the global trading order — and avoiding its fragmentation — has never been more important.
This article is featured in Insights, Issue 3 (November 2019). DOWNLOAD the latest edition now [PDF]