Analysis: The global trading system is threatened with total collapse

[yota691]

Analysis: The global trading system is threatened with total collapse

 

 21 October 2018 07:58 PM
Editing - سالي إسماعيل:

Mubasher: Ten years after the collapse of Lehman Brothers, we know that multilateral action has been crucial in preventing the so-called Great Depression from getting worse.

At that time, the global financial system was "bent" but the global trading system was in danger, according to an analytical view published by Project Syndicate.

Over the past 70 years, multilateralism has served the world well, much to the credit of the United States, which avoided reprisals and compensation after World War II.

Instead, Washington led the way to launch the three main economic institutions, the International Monetary Fund, the World Bank and the World Trade Organization (formerly known as the General Agreement on Tariffs and Trade or GATT), which form the basis of the international economic system that still exists today.

Each of these institutions has contributed immensely to the growth of the world economy, but neither has contributed more than the WTO.

Because of the expansion of an open multilateral trading system under the umbrella of the GATT and then the WTO, trade since World War II has grown 1.5 times faster than global GDP growth.

Although multilateralism is no less important today than in the post-World War II era, threats against the World Trade Organization (WTO) are on the rise, topped by constant attacks by the administration of President Donald Trump, who are trying to undermine the spirit and the letter of the institution.

At the beginning of the financial crisis a decade ago, many fear that countries may establish new trade barriers because that is what happened in the 1930s and during other periods of post-war economic recession.

But trade restrictions were largely avoided, as the World Trade Organization (WTO) and the Group of 20 (G20) intervened to facilitate multilateral cooperation.

World trade has not shrunk to the extent that it is likely to decline, and by 2011 it has managed to recover to pre-crisis levels.

The WTO's 164 member economies have committed themselves to supporting an open multilateral system as well as common rules and procedures designed to help the system grow.

These rules of international trade have done what local trade laws do for contracts and transactions between parties within a judicial scope.

Under WTO rules, international trade companies are subject to the same national regulations as domestic firms and traders have the same rights as their domestic counterparts before the courts.

Governments are unlikely to discriminate against other members of the World Trade Organization (meaning that the benefits of a single trading partner must extend to all).

Tariffs are permitted only under certain circumstances, and the violation of the above rules is referred to the WTO Dispute Settlement Body.

Ensuring the fair and equitable treatment of commercial companies by the governments of Member States is essential, and the principle of non-discrimination has been the doctrine adopted by the global trading system since its inception.

Under the WTO framework, the MFN principle allows for multilateral trade negotiations.

Through these negotiations, the average tariff on manufactured goods between developed economies was reduced from more than 40 percent in the late 1940s to about 4 percent today, which benefits all members of the organization.

The WTO dispute settlement mechanism is also vital for world trade. When a state's authorities believe that a trading partner violates mutually agreed rules, it can present its case to the WTO.

The WTO Arbitration Commissions are then to consider the evidence provided by each side and to impose sanctions when they find it appropriate.

For its part, the United States has won over 90% of its dispute settlement cases.

The World Trade Organization (WTO) functions within the world trade system just as the hourglass does, although it is invisible but very necessary to maintain the work of that machine.

So far, despite the vitally important importance of the World Trade Organization (WTO), it has been weakened, and the most pressing threat now concerns the dispute settlement body.

At least three judges are required to hear any appeal, but the Bush administration has been preventing the replacement of candidates by those whose term ends.

Once the quorum of the arbitral tribunal has not been completed, no appeals cases can be heard and some States may begin to violate the rules of the World Trade Organization with impunity.

Another threat to the WTO framework is the use of Trump's national security awareness system to justify its discriminatory tariffs on steel and aluminum imports.

It is clear that the United States is not facing a real threat to the national security of allies such as Canada or Japan which means that their tariffs are only a violation of the spirit of WTO rules and perhaps also to the text of their rules.

Indeed, US tariffs have undermined world economic growth and weakened the WTO.

In the world of cross-border supply chains, the unnecessary disruption of the iron and steel trade will result in less production, not only in the exporting countries but also in the United States.

And the possibility that other countries will retaliate against those tariffs makes the situation more dangerous.

In any case, discriminatory tariffs will certainly fail to achieve the declared Trump goal: reducing the bilateral trade imbalances of the United States.

The current account balance of any country represents the difference between its domestic savings (public and private) and domestic investment. If the savings rate is not increased while the investment is reduced, the current account gap can not be narrowed.

It is imperative that any effort to undermine international trade, which has been the main driver of global economic growth since the end of the Second World War, will impose heavy costs on everyone, including members of the working class at the Trump political base.

Outside the United States, the international community must address and reassert the principles of an open multilateral system before it is too late.