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. 

The Ignorant Wise Man

American companies were assured that because of its size and the diversity of its resources, the American economy could satisfy consumer wants and national needs with a minimal reliance on foreign trade. The availability of a large U.S. domestic consumption power and the relative distance to foreign markets resulted in many U.S. manufacturers simply not feeling a compelling need to seek business beyond national borders. Subsequently, the perception emerged within the private sector that exporting and international marketing were simply too risky, complicated, and not worth it. 
This perception also resulted in increasing gaps in international marketing knowledge between managers in the U.S. and those abroad. This gap shaped different incentives to innovation. The Late-developing Advantage Theory can illustrate those differences, not only at a national, but also at a firm specific level. A less favorable position can always be an opportunity and motivation. While business executives who deal with small market sizes are willing to learn about cultural sensitivity and market differences, many U.S. managers remain blissfully ignorant of the global economy. Given such lack of global interest, inadequacy of information, ignorance of where and how to market internationally, unfamiliarity with foreign market conditions, and complicated trade regulations, the U.S. private sector became uninterested and fearful of conducting international business activities. 
However, conditions have changed. Traditional education institutions are becoming more attuned to the international dimension. Universities and particularly business programs are emphasizing responsibilities and obligations at the international level both in theory and in practice. Meanwhile, some government agencies are paying closer attention to the international needs of the U.S. business community. The U.S. Department of State offers training and instruction in business-government relations to domestic firms.
Newly emerging economies also accelerate the process of rising public attention. For instance, electronic commerce has made it more feasible to reach out to the global business community, whether a firm is large or small. International events can lend a new focus to business. In 2018, Alibaba generated US$30.69 billion in sales on Double Eleven or November 11th, which is known as a day of special promotions, and now includes a large share of international sales. Related industries and supply chains, such as transportation and logistics, are prospering with the growing volume of international trade as well.
In effect, U.S. corporate interests given to international markets both as an opportunity find both customers and suppliers to be growing. How can the U.S. maintain a sustainable competitive position? How can the managers further learn from what used to be former students? The need and demand for international marketing expertise can be expected to rise substantially. Overall, avoiding ignorance is the first step to becoming wiser.
Professor Czinkota (czinkotm@georgetown.edu) teaches international marketing and trade at the University of Kent in Canterbury and Georgetown University. His latest book is “In Search For The Soul of International Business”, (businessexpertpress.com) 2019 Shiying Wang (sw1115@georgetown.edu) of McCourt School of Public Policy, Georgetown University contributed to this commentary.

http://www.srilankaguardian.org/2019/01/the-ignorant-wise-man.html

No Hostilities Yet

When nations declare adversity onto each other, there is a lapse of time between the declaration of intention and commencement of hostilities. Implementation can take anywhere from months to years. The Brexit discussions are a major example of such conditions.  Code yellow conditions are now in place between Europe and Britain. My wife and I visited England to explore the current and future status.

Evensong in Canterbury Cathedral, seat of the archbishop, is very British, well attended, firm, strong and uplifting. There are definite advantages to singing one’s prayers. The British production of Jersey Boys was another listening adventure, packed house, lots of fun, energetic singing done well. In London no signs of fear or concern.  St. Martins in the Field did not disappoint with renditions of Mozart at candlelight by a Russian pianist. Trafalgar square was humming and buzzing late into the night as usual. Sticking together while exercising simple precautions is the watch-word.

High tea at Harrods was a pleasant experience- but with a twist! Queen Victoria era tea strainers still capture leaves and uplift the taste. The servers in the tea room are sons and daughters of EU nationality, hailing from Hungary, Romania, Estonia, Albania, and Bulgaria. The clientele is mostly Asian.

Vast sums from abroad are being spent at the store- often supported by personal shoppers so that the customer can rapidly move from Hermes to Gucci. That many prices doubled in the past three years seems not to matter. Newspapers report that some of the more intense shoppers purchase more than $2 million of goods per month in one department store alone, supported by the appropriate credit cards Bank Al-Ahly from Egypt, or Union Pay from China. Support also offers inside Mosques for prayer services.

All local spenders can forget about the doorman calling a taxi for them! The crowds are massive, all walking on the right- which is the wrong- side, indicating that hardly anyone is British. Multilingual store staff tells us that China is the main country of origin. Russians are left in the wake. Maybe the sanctions are working!

The diversity of restaurants has greatly increased. No longer are there just simple choices between British kidney pies and Indian basmati rice. Still, a shame that the Chinese chain HaiDiLao, with all its hype on quality and service, has yet to open in the UK.

Uber is very active so one is no longer dependent on the famous and often not appearing taxi.

Drivers are not happy because their income decreased. Still they do not go to places where customers might naturally congregate, like evening performance conclusions at the Royal Albert Hall. Their argument: what if there are no customers? Hard to argue!

Universities, particularly the mid-grade ones, experience enrollment declines. Costs for non– EU students have skyrocketed. The many students from abroad are mostly bonding and banding among their own nationalities and encounter limited social linkages with Britons. Though internationally oriented it is quite difficult at many institutions to study or write dissertations in a non-English language.

News and discussions have become less interested in the US or Europe. On October 3rd there was more highlight of the Day of the Open Mosque, than of German reunification day.

There are many changes, some subtle, some not so much. The English gardens hidden from the street are still beautifully tended and restful. And when eating, there are still vast pots of delicious clotted cream. Faucets, newly installed, still separate hot and cold water, no mixing allowed!

So much for flexibility, adjustment, and stability. Conditions are not grim. Historically one may think of Hannibal’s closing onto Italy, with Roman defeat highly likely. But it did not happen in 216 B,C. and may well not happen in 2019. In spite of signed documents and grim postulations, there is no commencement of hostilities yet. One could label the current conditions as that of the head burying ostrich, but for now, the feeling is good and the living is easy.

Michael Czinkota (czinkotm@georgetown.edu) teaches International Business at Georgetown University in Washington D.”C. and the University of Kent in Canterbury. His latest book “Searching for the Soul of International Business (BEP) appeared this October.
Ilona Czinkota (iczinkota@gmail.com) is an architect and president of Czinkota AIA LLC

Helping Hungary helps us all

Hungary is a frequent sacrificial  lamb on the altar of international conflict. Hungarians  well remember the occupation by the Ottomans and Islam. Those 150 years brought de-population, destruction of land and buildings, uncontrolled migration and major displacement of resources, but kept Western Europe safe from the Ottoman empire.

On many other occasions, Hungary has taken risks, invested its youth and subjugated its own political ambitions for the sake of Western security. The gratitude for such dedication and depletion of resources has been scant. Occasions where the West shares resources, offers equal treatment or a partnership, remain mostly absent. Hungary continues to suffer from being too close to the East and too far from the West, while being damaged by any conflict between the two.

After centuries of suffering, one would expect today a new era for a united Europe. Since its founding, the European Union was to be driven by cooperation and cohesiveness. Not an easy task since joint undertakings with a large diversity of regions and people require adjustment and flexibility. In a  U.S. comparison, our century and half absence of any break-up is no coincidence. Rather, the fact that overall we stick together is the result of accommodation, restraint , and, in case of conflict, not to insist on a ‘winner takes all’ outcome.

The European Union would do well to learn from the United States and avoid internal separation. Right now, this large group of states is taking punitive measures against some of its own members, particularly those from Central Europe. Sanctions are to demonstrate displeasure with immigration restrictions, judicial appointments, retirement policies and the regulation of  foreign universities. Hungary and Poland are most exposed to EU attacks, particularly for restrictions of immigration.

Three years ago,  migrants started to stream into the EU by the hundreds of thousands from Libya, Syria and Lebanon . Most entered via the first open southern border which was in Hungary. When that country did not receive any outside help or relief,  Hungarian prime minister Orban sharply reduced and controlled the flow of humanity by applying EU rules on registration, documentation, and restriction. He believed that a small country with very limited resources needs to understand, plan and structure for massive population displacements. For his actions, he was thoroughly scolded by many fellow EU members.

It turns out that even large nations with ample resources cannot disregard the consequences  of unplanned for massive migration. Years after complaining about the ‘Hungarian Way’ the EU  imitates what by now have turned out to be  the sound policies of Hungary.  Germany now learns to recognize how fallacious its migration missteps are and will continue to be.

One might assume that Chancellor Merkel would express her gratitude for Hungary’s leadership in policy and implementation. Alas – the contrary is the case. EU debates concerning Hungary are typically rich with displeased looks, invisible barriers and ignominious ignorance. No matter the country’s strong democratic elections and popular support, things in Hungary are seen as ‘just not right’.

The EU’s negative politics towards Hungary are wrong. Many of the loudly pronounced disappointments are nothing but envious efforts to retain local votes in upcoming elections. Some of the EU steps might even reflect an unwillingness to develop and tolerate new approaches and change. The U.S. government should not accept such overpowering opposition to homegrown priorities. It should recognize Hungary as an important ally when it comes to innovation, immigration and intellectual property. Hungary’s government represents, similar to the United States, a country of adjustment with creative directions and a new emphasis.  We should support Hungary in light of the overwhelming and unjustified pressures to which the country is exposed. It is not automatically wrong for a nation’s democratically elected government to move beyond traditional policy boundaries. “No bullying” also applies to the smaller members of the EU. Hungary has the right to pursue its happiness. To Europe we can offer insights from a successful cohesive policy outcome. To Hungary, we should smilingly help when it takes steps which have made America so successful.

Professor Czinkota (Czinkotm@Georgetown.edu) teaches International Business and Trade at Georgetown University and the University of Kent in Canterbury. His forthcoming book in October  is “In Search For The Soul of International Business.