Let Us Organize World Trade

There is broad historic agreement that the World Trade Organization (WTO) has been one the most successful international institutions; its membership accounts for more than 98 percent of world trade. However, today’s global economic landscape is changing rapidly, coupled with retrenchment and distancing from multilateral agreements. Combined, these factors impact the discernible value and role of the WTO going forward.

Changed Patterns of Trade and Investment

The expansion and development of IT infrastructure, telecommunications, and computing made the global revolution of the last few decades possible. New technologies, nonexistent when the WTO was established in 1995, have become crucial for growth and development in this decade. The outsourcing revolution has affected the developing world in a major way: global manufacturing and new services have dramatically changed supply chains; corporate espionage and intellectual property infringements supported many corporate changes in developing countries; and WTO negotiations and augmented enforcement procedures have not been able to slow that trend.

Moreover, one of the most critical issues in global trade is the aspect of unprecedented imbalances. Today, China is the new top global merchandise exporter with a total of $2.263 trillion, or 16.25 percent of world exports, according to WTO reports. It is the largest global exporter of goods, 17 percent of world exports, and the third largest importer, 12 percent of global imports.

The United States is the main goods importer with 13.4 percent of the global imports, totaling $2.4 trillion. In 1994, the United States was running an annual merchandise trade deficit of about $120 billion; by 2017, the U.S. annual trade deficit with China alone has ballooned to over $375 billion.

Stalemate at the WTO: Too Big to Be Effective?

The last successful WTO negotiation — the Uruguay Round — was a result of a strengthened, single market in Europe, the creation of NAFTA, and several plurilateral agreements, such as the Information Technology Agreement (ITA).

The Doha Round of negotiations, beginning in November 2001, aimed to achieve major reforms in the international trading system, with an explicit focus on developing nations. Nevertheless, this premise failed; disagreements concerning the agricultural sector, free trade of services, and intellectual property rights have stalled negotiations.

Twenty years ago, the principal WTO concerns were pollution, global warming, disease, and structural unemployment — none of these agenda items, arguably, have been addressed effectively, much less solved.

Size is also an issue. The WTO is comprised of 164 members, with widely diverse perspectives, levels of development, linkages, and ambitions. The WTO system has become unwieldy because of the unanimity requirement of its voting process. The result: progress with new agreements is at a standstill. Case in point is the reduction of trade tariffs, which, at a global 3 percent of Most Favored Nations status, is at the same level as in 2000.

China: A “Rule Shaker” or a “Rule Maker”?

The West’s open invitation for China to join the WTO in 2001 paved the way for its rise to a global economic power. Since then, the balance of power at the WTO has changed dramatically. Chinese outward investment in the global economy has increased thirtyfold, from $7 billion (making up only one percent of the global FDI) to almost $200 billion (13 percent of the global FDI).

China entered the WTO as a “rule taker,” evolved into a “rule shaker,” and now aims to become a “rule maker.”

In fact, economic relations between China, the United States, and the EU define many of the agreements and disputes at the WTO. Xi Jinping’s “China Dream” of national rejuvenation could be seen as a way to reshape the international economic system, putting China at the center.

China has not been an easy partner for the West. Initial optimism that China would turn toward a free market economy has yet to come to fruition. Moreover, with its “capitalism with Chinese characteristics,” the country has taken the main benefits of the open trade system by creating major distortions and causing disputes that the WTO lacked the capacity to handle. Controversial issues include intellectual property rights (IPR), free market revisions through government subsidies and state-owned enterprises (SOEs), unequal conditions for market access with major restrictions to market entry in China, and unfair technology transfer. Foreign firms operating in China struggle against restrictive regulations — the government often requires them to hand over their intellectual property as a condition of market access. Asymmetrical market access and lack of reciprocity are magnified further at political levels.

With the existing WTO rule book, it is difficult to hold China accountable. Implications of Chinese “market distortion” and “unfair competitive conditions” consume global trade relations rhetoric; these opinions, voiced loudly by the current U.S. administration, are also shared broadly by other players, such as the EU and Japan. Due to high trade deficits, the United States is pushing for WTO reforms, increasing tariffs, and blocking the nominations of seats on the WTO’s appellate body (where the U.S. is a major player in the dispute resolution process) as leverage. Desired reforms aim to regulate market distortions caused by government interventions, simplifying the process of gathering information on unfair trade and investment practices, broadening the scope of banned subsidies, and setting boundaries to proportionate retaliations. But, at the end of the day, why would China agree on reforms that jeopardize its state-run economic model?

The WTO as a Reflection of a “New World”

The WTO does not operate in isolation from changes and new developments impacting trade. In the last two decades, the world’s macroeconomic environment was shaken by at least two significant events: the spread of terrorism, and the financial crisis of 2008. Terrorism has enhanced the inward focus of the political and economic aspects of national security; the global recession has caused an inward retraction of production and services. International economic issues were largely ignored as attention shifted to domestic job creation, the security and protection of domestic credit markets, and enhancing liquidity. Further, financial and political conflicts seem to foster greater polarization among legislators in many countries around the world.

As a result of continued stalemates and disagreements at the WTO, external actors are adopting a new “do-it-yourself” approach defined by preferential plurilateral trade negotiations — handmade for and benefitting only a limited number of players.

In addition, there is the issue of China’s growth in influence. In September 2018, the United States together with  the EU and Japan signed a brief statement voicing shared concerns regarding the future of the WTO, questioning its validity as a primary platform for multilateral trade. As an immediate result of difficult trade relations between the United States and China, and tremendous  pressure applied by the current U.S. administration, China afforded European companies access to some sectors, while pledging to cooperate with the EU on WTO reforms — a decision taken in July 2018 during the EU-China Summit.

Since the appearance of President Xi Jinping at the World Economic Forum two years ago, Beijing has been signaling that it is willing and prepared to assume the role of a new custodian of globalization. However, it seems obvious that China would not accept any reforms at the WTO, or any level, that would jeopardize its own economic model and welfare. At the same time, China wants to preserve the existing global trade order, as the outside world is more crucial than ever for its economic development.

Today’s global economic realities are not only introducing a new set of concerns and means of doing business, they are also challenging the very effectiveness of the WTO’s historical role as an arbiter of world trade.

Valbona Zeneli is the Chair of the Strategic Initiatives Department at the George C. Marshall European Center for Security Studies. The views presented are those of the author(s) and do not necessarily represent views and opinions of the Department of Defense or the George C. Marshall European Center for Security Studies. 

Michael R. Czinkota is a professor at the University of Kent in Canterbury and at the McDonough School of Business at Georgetown University, He is a former Deputy Assistant Secretary of Commerce in the United States Department of Commerce. 

Making the World & Ourselves Better

In this video I speak a little bit about my new book.

It’s available now at Amazon. https://www.amazon.com/?fbclid=IwAR0IIHpntZ-p3Q8C9XbkIaW_BaUKv9U7j3cz2MiVgBtMrImI5iarvBfbH3M

Visit From Dr. Michaela Weber and Mr. John Diamond at the Seminar

Students heard from Mr. John Diamond, the Senior Communications Officer of the World Bank, and Dr. Michaela Weber, the Private Sector Specialist of the Bank. Mr. Diamond covered the mission and approaches of the World Bank, while Dr. Weber explained how to enhance small firm growth. Both provided an in-depth analysis of improving long term economic conditions in the world. What a great pleasure to have them visit!

All photos in Fall 2018 seminar credit by Bayley Wivell

For Want of a Plane

Michael R. Czinkota

High hopes were placed into the G20 meeting in Buenos Aires. After all, many policy leaders with different voices were present. In particular, German Chancellor Merkel’s role as a seeker of compromise was fully scripted. She was to assure low tariff levels for cars with President Trump, broach new approaches for debt management with Argentina and discuss issues on Ukraine with President Putin. Alas, the expected discussions were disrupted. The Chancellor’s ride did not get there.

When Mrs. Merkel departed Germany, all plans seemed to be on track. Cabinet members, the German Foreign Service team and a gaggle of journalists had moderately filled the Chancellor’s official airplane. But after only one of thirteen hours of flight time the machine had to turn around for an unplanned landing. Communication was on the fritz, gas could not be ditched and the subsequent landing back in Cologne/Bonn was heavy. Harsh as it sounds, parked planes don’t fly.

Minor the inconvenience say you. In an era when the CEO of a declining U.S. multinational firm like GE’s Jeff Immelt always had a back-up plane accompany him, surely all the German Air Force had to do was roll out the spare and fly on. Perish the thought! There was a back-up plane. But it had taken off homeward bound for budget reasons once the main trip seemed on track. Also, the spare crew could not perform within regulation time limits.

The German airline Lufthansa was all out of planes for trips to Argentina. Only the Spanish airline Iberia had a direct hop out of Madrid. Not all passengers were excited when their quite empty cabin was suddenly filled up by bureaucrats and guards. Yet others reported that Mrs. Merkel was quiet, focused and smiling at Selfies.

Wagging tongues have suggested that, in light of the harsh electoral decline of her party, Mrs. Merkel wanted to get re-acquainted with more popular forms of transportation. Others wonder what Germany’s founding Chancellor Bismarck or, worse yet, what President Trump would have said to this failure. Perhaps the lack of a plane tosses Germany, or even the entire European Union into political turmoil.

The problem is not the short-term direct effects, but rather the long-term repercussion which paints reality. How effective are international marketing slogans and expectation emphasizing progress and technology, when the country leader’s plane won’t fly and airports won’t operate? What happens to the brand value of time when a key leader arrives half a day late? How can one be a useful arbiter while not on location? And all this happened just when CEBIT, one of Germany’s largest trade fairs for technology and communication had to close down. Is all this witness to a transition away from leadership struts to execution missteps?

The German aircraft debacle is of major import and impact. Mrs. Merkel may have become more forgiving to her staff. But even though she nods and smiles more, her partners in international discussions take delays very seriously. For them, late is late, which greatly undermines efficiency.

As to President Trump’s perspective on these events, he may worry less than expected. First, the problems reaffirm his demand for a substantial increase in European spending on defense. Of equal importance: why should he care about the quality of German planes – he has his own and they fly.

Professor Czinkota (czinkotm@georgetown.edu) teaches international marketing and trade at Georgetown University and the University of Kent in Canterbury. His latest book is In Search For The Soul of International Business, (Businessexpertptress.com) 2019

Trumps Wirtschaftspolitik in den USA / ZIB 2 vom 02.11.2018 um 22.00 Uhr

Trumps Wirtschaftspolitik in den USA / ZIB 2 vom 02.11.2018 um 22.00 Uhr