The article is written by Aditya Singh of Symbiosis Law School, Noida. This article deals with the origin, present situation and the need for the Multilateral trade rules. The article also addresses the advantages and drawbacks of these rules and its fate in the post COVID period.

Introduction

Multilateral trade agreements are trade agreements between three countries or more. The negotiations lower the tariffs and make import and export simpler for companies. These are difficult to negotiate because they are among several nations. When all the parties sign, the same broad reach of these agreements makes them even more robust and reliable compared to other forms of trade agreements. It is easier to negotiate and sign bilateral agreements because these are only between the two countries. These do not have as great an impact on economic development as the multilateral agreements would.

Multilateral agreements, once negotiated, are very effective and powerful. They cover a wider geographical region that gives the signatories a significant competitive advantage. All nations generally give one another the position of the most-favoured-nation, offering favourable deals and even the minimum possible tariffs for mutually beneficial trade. Through making developing nations more competitive the multilateral trade agreements are improving and supporting the global economy. These agreements regulate the import and export procedures to conform to set standards which benefit all the member states economically. The intricacy of such agreements supports those nations who are able to take advantage of globalization, the countries who are unable to so, often face hardships.

Background

Throughout history, trade and foreign policy remained interwoven, with foreign policy mostly structured to support commercial interests. For instance, China used its military superiority in the initial days to protect and retain the Silk Road for its trade significance. The need for safety and worldwide peace has motivated the nations towards the development of the global economic structure of today. The international rules governing our multilateral economic structure was a direct response to World War II, and a willingness to never experience it again.

The GATT presented the guidelines for most of the international trade from 1948 to 1994. They governed over periods that have seen some of the maximum rates of growth in world trade. This did appear quite well-established, but it was a tentative arrangement throughout these 46 years. The GATT’s first Executive Director was Eric Wyndham White, who held the office from 1948 to 1968. The establishment of the WTO on 1 January 1995 was labelled as the largest international trade reform ever since the end of World War II. While the GATT was mainly concerned with trade in goods, the WTO and its negotiations have also regulated trade in Intellectual Property and services. The WTO ‘s birth also brought additional dispute-settlement mechanisms.

In 2001, the Doha Round was introduced to bring significant changes to the world trading system by implementing lower trade barriers and revising trade laws. A fundamental goal of the Doha Development Agenda was to strengthen the trade prospects of developing nations.

WTO leaders have collaborated to bring substantial changes to the WTO rulebook, in the past 20 years, to enhance the process of international trade. The membership of the WTO has grown to 164 countries, reflecting more than 98 percent of global trade. The WTO hit a significant landmark in 2015 with its receiving of the 500th settlement regarding trade disputes. The WTO’s main decision making entity is the Ministerial Conference which generally gathers every two years. In December 1996 the WTO conducted its first ministerial conference in Singapore. The most recent which was the 11th Ministerial Conference was conducted in December 2017 in Buenos Aires. The present WTO Director-General is Roberto Azevêdo, who in September 2017 started his second four-year tenure. The World Trade Organization celebrated its 25th anniversary in 2020.

International trade at present

Regional trading, as per the WTO statistics grew from approximately $290 billion in 1993 over the first two decades to more than $1.1 trillion by 2016. Overall international trade stood at $39.7 trillion in 2018, which includes trade of about 20.8 trillion dollars in exports and 18.9 trillion dollars in imports. Approximately 46% of the $86 trillion world economy is driven by trade. Of the goods traded, more than one-fourth are machinery and electronics, such as computers, boilers, and scientific instruments. Nearly 12 percent were automobiles and several other means of transport. Then follows oil as well as other fuels, which contribute about 11%. Chemicals inclusive of pharmaceuticals furthermore add 10% to the total economy.

In terms of percentage, global trade accounts for about 50% of international economic activities. World trade unlocks new market opportunities and is exposing nations to products and services which are in short supply in their domestic economies. Nations that export usually grow companies that understand how and when to gain a strategic advantage in the global market. Trade deals can improve exports and economic development, but the increased competition is also harmful to micro, small and domestic businesses.

The world’s largest multilateral agreement is the U.S.-Mexico-Canada Agreement (USMCA, previously known as the North American Free Trade Agreement or NAFTA), which is between the United States, Canada, and Mexico and which presently encompasses the world’s largest free-trade region. It removes all barriers and tariffs between the three nations, allowing the trade to triple to $1.2 trillion.

U.S. exports in 2019 amounted to $2.5 trillion, contributing 11.7 percent to gross domestic product. The majority of the manufactured goods produced by the United States economy are mainly for domestic consumption and are not exported.  A major part of the economy also includes services, although they are harder to export. Irrespective of what the US produces, it imports much more than it exports. Imports were at $3.1 trillion in 2019 and led the United States towards having a significant trade deficit. In 2019 global trade deducted $616 billion from its GDP. Statistics on the U.S.A.’s import and export of products reveal that the country’s amount of imported goods and services surpass what it is exporting in the global market.

Owing to the trade war launched by President Donald Trump in March 2018, the trade deficit has reduced. Trade policies introduced by Trump contain a tariff of 25 percent on import of steel products and a tariff of 10 percent on aluminium. China, the European Union, Mexico, and Canada all proposed retaliatory tariffs that affected U.S. exports, and an agreement eliminating the tariffs was signed in May 2019.  Analysts were concerned that Trump might have started a trade war that could have harmed the global trade and market.

Need for multilateral trade Rules

With the passing of the Second World War generations, the awareness about why peace and trade were seen as mutually beneficial gradually disappeared. International peace is no longer a commonly acknowledged basis for the maintenance of the multilateral system of trade. The evidence cited for the assertion:

• that the prevailing geopolitical status is collapsing takes into account the growth in populism, 
• the movement in a substantial number of nations towards increased authoritarian regimes, 
• the considerable number of local armed conflicts and rising border disputes, 
• the difficulties encountered because of non-state actors, and 
• the major changes in the relative positions of competing centres of power and possible splits in prevailing alliances between nations.

The multilateral system is claimed to be:

• weakened because of the conflicting economic structures of major trading countries,
• weakened by an increase in unilateral trade policies,
• weakened by disagreements about what is required to encourage global economic growth,
• weakened by an increase in populism, imperialism, wage disparity, nationalism and a lack of political will to further liberalize trade by new trade deals,
• weakened by a decline in confidence,
• weakened by rising anxiety that prevailing trade agreements are not mutually advantageous,
• weakened by the lack of unanimity among all WTO members in terms of the path ahead, along with an overarching perception that the duration when it was possible to achieve multilateral agreements has come to an end with one outcome being the continued growth of bilateral and regional agreements.

The fate of multilateral trade rules

There are several strong grounds for hope that the multilateral system of trade will endure and the WTO with it:

1. By far the majority of international trade shall continue to be carried out in conformity with WTO agreements made by its members. The repressive trading practices taken up are irregularities that are unlikely to be sustaining.
2. International trade is increasing and not decreasing. The multilateral trading system managed to survive a far more major threat, the economic slowdown of 2008 at the time of the global financial meltdown.
3. None of the 164 member nations have opted out of the WTO. On the opposite, there are twenty-two countries in the line desiring to gain entry. The trend for many nations who are inactive WTO membership, is the consistent adoption and incorporation of market-based reforms, without any exception.
4. The WTO committee’s consistent day-to-day work continues to grow rapidly, trying to serve a multitude of important tasks massively depended upon by its member nations.
5. The key focus of the WTO member states is to strengthen the WTO  more rather than making it weaker, reforming the WTO to enhance its response towards both the long-standing and new technical issues that influence a rapidly developing international trade system.
6. Though the WTO dispute settlement framework is going towards a dead end, no member nation has expressed a desire for the end of the system, and rather intense research has started to identify practical solutions towards the questions raised by its opposition.
7. Perhaps the greatest source of hope is that the conflicting states still recognize in the World Trade Organisation, what the architects of the multilateral trade system believed during its establishment in 1947. They consider it an effective method for economic development, a greater opportunity to maintain and preserve harmony and contributing to improved domestic stability and prosperity.
8. WTO membership better represents the interests of the countries. They need trade rules that have adequate stability that encourages international trade to prosper. The operation of the multilateral trading system is focused on voluntary compliance with regulations rather than enforcement through legal compulsions arising from dispute settlement proceedings.

Pros and cons of multilateral trade

Advantages

Multilateral agreements ensure equal treatment of all signatories. No nation could offer one nation better trade deals as compared to what it offered to other nations and this helps level the playing field.

• It is particularly critical for the developing economies as most businesses are small in scale which makes them less competitive in nature. The status of the most favoured country provides a nation with the best trade terms from a trading partner. This trade status is most beneficial for developing countries.
• The second advantage is that each participant will enjoy an increase in trade. They have low tariffs for their businesses that reduce the cost of their exports. 
• The third advantage is that all trading partners are regulated by common export regulations. Companies save legal expenses because, for each nation, they adhere to the same laws.
• The fourth advantage would be that nations can negotiate trade agreements at a time with more than just one nation. A detailed approval process is undertaken for trade agreements. 
• The fifth advantage refers to the developing markets. The nation with the strongest economy is continuing to benefit from bilateral trade agreements which generally proves to be a drawback for the countries with developing economies. But by strengthening the growing markets it will help the developed economies in the future.

Drawbacks

• The most considerable drawback of Multilateral trade agreements is that they are complex and complicated in nature, which makes them harder to negotiate and thus are time-consuming. The duration of the talks also means it won’t happen at all. 
• The second drawback is that the negotiation details concern business and trade activities in particular and these are often misunderstood by the public. As a consequence of which they attract lots of media coverage, debate controversies, and protests. 
• The third drawback of almost any trade agreement is common, some industries and regions of the nation have to struggle from the lack of trade boundaries.
• The fourth drawback is for the smaller businesses of a country. A multilateral deal provides giant multinationals with a competitive advantage as these corporations already know how to operate in a global environment. 

As a result, small companies are unable to compete and are forced to lay off workers in order to cut costs. Other businesses may relocate their plants to nations with lower living standards, and if such an area was dependent on these industries, then they would encounter higher rates of unemployment. As a consequence of which the multilateral trade agreements are generally considered as unpopular or controversial.

Multilateral trade in post COVID era

COVID-19’s impact on the health of the population of the world and on the global economy has been significant. As a consequence of which production in factories have been stalled, restaurants are vacant, and numerous lives have ceased to be efficient and constructive. Still, no complete recovery has been achieved yet. It is not the first pandemic and with almost surety, it could also be expected that it would not be the last. A modern world is about to emerge and we do not yet know as to how it will look like. Multilateralism in itself is under very severe danger. In the post-COVID international system, the world will have to give impetus to multilateralism and the WTO would be required to be governed by strong and effective leadership.

The society that will emerge from this pandemic would certainly be very different than the one which preceded it.  Global supply chains would be reconsidered. In any case, in which it could be implemented, the digital economy will become more integrated.  For quite a long period of time job opportunities may be reduced. The economies of the world will have been switched from surpluses to deficits.

From free trade, the highlighting ideology of various nations’ trade policies is now becoming protectionism. Major interventions are expected in all industries, and which would ultimately distort the economy due to the growth in competition.  Sharp growth in preventive measures is also anticipated which will further have a negative effect on cross-border trade. In short, we are going to see a more decentralized system of trading. A positive thing, however, is that trade will continue to be digitized and India will be able to take full benefit of it.

The crisis amplifies the requirement for an assessment of the WTO’s fundamental principles and beliefs and identifies the extent to which the WTO is of adequate continued relevance as it is now or does it needs to be amended. The organization is and has been under evident pressure, due to the emergence of populism, trade-related wars, a failure to prove that the international trade negotiation body in the world can still achieve negotiated outcomes, and a failure to preserve the much-praised dispute resolution mechanism of the WTO.

In response to the prevailing worldwide health and economic crisis, there is presently a need for urgent action to control the damage that could be caused by trade restrictions, and also to assist the economic recovery which must follow. Numerous members have experienced a loss in their exports since the outbreak of COVID-19, and the developing nations with limited resources have been most impacted by the crisis, particularly those whose exports are centred to a narrow range of goods. They also said that the shift to the digital economy has worsened the digital divide.

There is also the possibility for further regional restrictions on the supply of vaccines and pharmaceutical medications outside of their development and/or manufacturing country. More now than ever, the principles of the multilateral trading system will be required, reducing the disruption of the required means to satisfy the health and financial challenges of the future. Maintaining open trade in the light of the continuously growing pandemic crisis has been the result of commercial initiatives headed by Switzerland, New Zealand, Canada, and Singapore. Such measures have also been shared with the 164 WTO member nations and have acquired additional followers.

Conclusion

Trade deals do have pros and cons. By eliminating tariffs, they drive down import prices and help the customers.  Some domestic companies do, however, suffer. They can not compete with nations that have lower living standards. They could go out of business, and their workers may suffer as a result. On the contrary, some domestic industries do profit from this as they eventually find new tariff-free markets for their goods.

As major economies, including India, are undertaking steps against the Values of the WTO, the world is becoming more and more protectionist, which implies that the WTO, itself is experiencing an existential crisis. Physical obstruction to trade can now be witnessed as against the policy-induced distortions to trade. Which requires a new international effort for remembering the origins of the General Agreement on Tariffs and Trade. This initiative will have to be taken up by the western powers and nations such as India will have to participate in it with full energy and enthusiasm.

Member nations are now acknowledging the advantages of the rules-based multilateral trading framework and stressed on the need for mutual participation in identifying the best multilateral responses. WTO rules help in providing prompt access to reasonably expensive medical goods, promote manufacturing-led development, and ensure that even the most underprivileged are supported in developing trade and production capacity. The pandemic has proved to be a harsh reminder of the interconnectedness and interdependence of the world.

References

• https://www.wto.org/english/docs_e/legal_e/gatt47.pdf
• https://www.wto.org/
• https://www.inc.com/encyclopedia/north-american-free-trade-agreement-nafta.html

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