United States' President Donald Trump kept up the pressure on the global trading system in this week’s speech to the UN General Assembly, saying, “We believe that trade must be fair and reciprocal. The United States will not be taken advantage of any longer.” While these comments are not new, they reinforce just how fast things have changed since 2016 for international trade, and the paradoxes that now exist.
I discussed these changes with a panel at last week's 64th Pacific Rim Advisory Council (PRAC) International Conference in Calgary, hosted by Bennett Jones.
Here are the key takeaways:
Growth of Regional Trade Agreements (RTAs)
In 1973, there were nine RTAs around the world. In 2018, there are 287. Some RTAs cover massive regions, such as the Comprehensive Economic and Trade Agreement (CETA) and The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). It's paradoxical that the United States is withdrawing from these kind of agreements as others are moving forward. Leadership roles have changes quickly and dramatically—it seemed highly unlikely in 2016 that Japan would pick up the Trans-Pacific Partnership challenge and lead the effort to secure a new agreement among the 11 non-U.S. members.
The World Trade Organization (WTO) reported in July 2018, that new trade restrictions by G20 countries had doubled from October 2017 to May 2018 as compared with the previous reporting period. This is happening despite strong economic conditions (not a time usually associated with rising protectionism).
WTO In Distress, Or Not?
The United States was a leading force in establishing the WTO in 1995. The United States was also one of the first signatories to its predecessor—General Agreement on Tariffs and Trade—on January 1, 1948. The United Kingdom was another.
Today, the refusal of the United States to agree to replace members of the WTO Appellate Body risks bringing dispute settlement to a halt. The U.S. recourse to section 232 action (the threat to national security) on steel and aluminum also flouts WTO rules.
This current crisis may provoke a constructive rethink of what a 21st century WTO should be doing, however. Canada’s Minister of International Trade Diversification, Jim Carr, will host a small working meeting in October 2018, with other trade ministers to consider how the WTO can move forward.
How Fast Things Are Moving—and What Business Can Do
The 70-year old, American-led system of rules-based global trade is changing at a remarkable pace. So what can businesses do to respond?
- Businesses need to “audit” their trade environments and associated risks.
- Look at alternative strategies to address the damaging impacts of trade diversion, and particularly upcoming safeguard actions.
- Businesses reliant on imports must prepare to be spontaneous in their reactions to additional trade barriers (e.g., Canada’s $16.6 billion in countermeasures in response to U.S. tariffs on steel and aluminum).
- If the auto/auto parts industries are made subject to section 232 by the United States, Canada’s countermeasures could be tantamount to a tariff wall against a wide range of American products currently trading duty-free.
- Understand what a post-NAFTA world would look like. If the agreement is eliminated, regular customs duties could potentially be reinstated, which will hit certain sectors hard where most favoured nation rates are high (e.g., clothing, textiles, footwear, accessories, cosmetics).
- Businesses may want to urge their governments to address concerns internationally through trade agreement dispute procedures, or through negotiation of new trade agreements.