Year Ahead: A Rather Speculative Year In Global Trade 01/02/2017 by Monika Ermert for Intellectual Property Watch 1 Comment Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window)An interesting year lies ahead for trade policymakers. With US President Donald Trump sticking to his “America First” announcement pulling back from the Trans-Pacific Partnership right away, a new trade (world) order might be in the making. In every crisis, there is opportunity, Argentinian Trade Minister Susana Malcora said in Davos during the January World Economic Forum (WEF) where the business elite otherwise traded concerns at the beginning of an unpredictable year 2017. For years, the United States had been a shaper of new-style mega-regionals, from the much-fought over, now abandoned Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) to the Trade in Services Agreement (TISA) effort which might still go ahead between the former “very good friends” who had originally kicked it off. America First The withdrawal from the TPP and the recent confirmation by US Commerce Secretary-designate Wilbur Ross that a reform of the North American Free Trade Agreement (NAFTA) will be one of the first topics the new administration will table with partners. The former US banker during his nomination hearing also said there was nothing inherently wrong with the mega-regional trade deals or multilateral agreements. But bilateral agreements in his opinion were easier and quicker to conclude. Quick to step in was the European Union-departing United Kingdom, whose Prime Minister Theresa May announced UK-US trade negotiations would start on a high level immediately. To prepare for the new bilateral negotiation era under Trump, Ross also announced what he called a model agreement that would ease the work of the US Trade Representative (USTR), whose designee still has to appear before the Senate Commerce Committee in a hearing. Ross also made clear that the model agreement would include those policies the US was not prepared to give up in a negotiation. Republican Trump already received some support from trade critics from the Democratic side when Sen. Tammy Baldwin (D-Wisconsin) offered to cooperate with the new Republican administration on reversing what she called “bad trade deals,” and for example, abolish the ban on Buy American in the NAFTA procurement regulations. How Trump will present his new trade agenda to the G7 meeting in Sicily in May and G20 meeting in November in Berlin, is very open. The Organisation for Economic Cooperation and Development (OECD), asked for a brief comment on developments in trade in 2017 after the changes in the US, declined, arguing that it would require speculation at this point. The World Trade Organization also has been shy to comment on what it sees as speculation. “The trade policy team of the Trump administration still has to be completed,” said Manfred Elsig, deputy managing director of the World Trade Institute of the University of Bern. The confirmation for Robert Lighthizer, US Trade Representative was delayed due to Lighthizer’s former lobbying positions. But Elsig thinks the major trend for the new US administration is taking shape: “US trade policy according to what we know will be based on the single goal to fight the trade deficit and the export of jobs by menacing to influence investment decisions of international companies through higher import tariffs”, he said. Additionally, global trade law was undermined by rhetorical attacks and a signal was sent to China that new import protection mechanisms would be introduced, the Swiss expert observed. The call for “America First,” Elsig said, “seems to come with a vision of a mercantilist trade policy.” Elsig, as with other people, has not been convinced that the hints given by Trump’s trade team will be beneficial in the long run. Commenting on Ross’s statements that the weakening of the Mexican peso and the Canadian dollar would be signals that partners have to make concessions in coming negotiations with the US, Elsig argued that Ross should rather hope for strong currencies in NAFTA partner countries. “If the NAFTA partners are weak, their export products will become more competitive and the US trade deficit grows,” he said, warning: “With their statements, the Trump administration is playing with fire, but the markets are not reacting like they expect. The lack of economic competency is amazing, I think we have sorcerer’s apprentice at work here.” Picking Up the Pieces – Looking to China and other Asian Countries The strongest reaction to the rumbling announcements came from China. Attending the World Economic Forum as the first Chinese president in history, Xi Jinping gave a speech that one US journalist said he could, when reading the text, have mixed up with one former US President Obama might have given. Xi Jinping was all for global trade and shot back at the US administration that “no one will emerge as a winner in a trade war.” The Chinese president received applause for comparing protectionism to “locking oneself in a dark room where wind and rain and rain are kept out, but so are light and air.” The fight over China’s status of market economy will continue well into 2017 and beyond, with China having called for an official consultation procedure with the EU, and the US as well over the determination of normal value for non-market economies in anti-dumping proceedings. In mid-January, the EU imposed anti-dumping measures on two more steel products originating in China and Taiwan, bringing the number of protective measures in steel production to the record number of 17 from China alone. Still with the potential withdrawal of the US from the global trading parquet, deals with China might look more attractive. WEF Chair Charles Schwab expressed the sentiment of a disturbed business community when commenting on Xi’s speech and commitment to global trade in Davos by saying, it “brought us some sunshine into our discussion.” Elsig sees the possibility that China will make the attempt to push the Asian-region Regional Comprehensive Economic Partnership (RCEP) project and even a TPP-minus-one could still happen. Slow Progress for Multilateral Agreements 2017 Junji Nakagawa, professor of international economic law at the Institute of Social Science, University of Tokyo, is not convinced that RCEP will take off now as the new major Pacific trade deal, saying, “The level of ambition in RCEP is too low.” China and India would not accept a high level of trade and investment liberalisation, and a wide range of trade and investment rules that are contained in the “now pending TPP,” he said. The negotiation of RCEP, he added, so far does “not seem to be accelerated as a result of the US withdrawal from TPP.” His conclusion from the situation is that “for the time being, there’ll be slow progress in the mega-FTA negotiations in the Asia Pacific region, TPP or RCEP.” On a “TPP minus” one he observes: “There are arguments on contingency plans, such as [to] negotiate ‘TPP eleven’ (without US) or negotiate a bilateral FTA with US, but the Japanese government does not think these are better than the TPP twelve (with US).” Japan’s policy stance toward the US withdrawal in his opinion will be that the country will for now continue to persuade the US that it is in the US interest to join the TPP. Japan could and should, Nakagawa considers, take on a leadership role in global trade, “by trying to persuade US to join the TPP, by persuading China and India to agree to high-standard RCEP, and by concluding the negotiation of Economic Partnership Agreement (EPA) with the EU.” For Japan, there is “a big chance for strengthening its soft power,” he said. The Dilemma of Trade Critics A trade agreement protest in Munich A call to push even more decisively for an open trade agenda was also made by EU Trade Commissioner Cecilia Malmstroem in the wake of the first announcements from the United States. The adoption of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU has become a first cornerstone of the post-Trump EU trade agenda. Malmstroem in her first speech at the International Trade Committee of the European Parliament warned: “We live in uncertain and difficult times. We have one important partner who seems to be partly disengaging from the international scene.” Therefore, she said, it would “rest to us” to drive an open trade agenda and “stick to together with like-minded partners.” There is no better partner than Canada, as the country shares many EU values. CETA would also be the first trade agreement of the new, highly comprehensive and very ambitious nature. Speaking at the WEF, Malmstroem acknowledged that in the new style trade agreements, tariffs are only a very small part. Instead, harmonisation in regulating environmental, labour and other non-tariff barrier issues are part of the package. Intermediary liability for network providers, too, has risen over the years to a standard topic. Malmstroem said trade negotiations are a way to shape globalisation. For trade critics, Trump’s agenda causes a dilemma for the coming months. While still opposed to the new big trade deals, they do not want to be seen as nationalistic or even protectionist. Anne-Marie Mineur, member of the Left Party group in the European Parliament, and one of the supporters of a coalition pushing for a no-vote on CETA, tried to put as much distance between the CETA opponents and Donald Trump. The sentiment of a “weird victory” over the much-fought over trade agreements, the TPP and the also frozen Trans-Atlantic Trade and Investment Partnership (TTIP) between the EU and the US is shared between trade critics in Europe, Latin America and Asia. Pablo Viollier from Derechos Digitales said: “The end of the TPP is a victory. But we feel it is a win for the wrong reasons.” Derechos Digitales, a Chile based NGO promoting human rights in the digital world, had fought the agreement because of the secrecy of the process and because of material points from enlarged IP rights to investor-state dispute settlement. Chile’s trade policymakers, too, Viollier reported, after the US withdrawal expressed interest to stretch toward China and Korea as potential new partners, either in a new multilateral or just in bilateral treaties. Back to Bilateral Trade Negotiations Malmstroem and the conservative, liberal and most of social democratic members in the EU Parliament clearly see an ambitious trade agenda as the right answer to Trumpism. With the “US EU negotiations in the freezer,” the US remains “an important partner, and a necessary one,” Malmstroem said when presenting her 2017 agenda. “But the world is bigger than one country.” Progress had been made with Japan and with the Mercosur (South American Common Market) countries. More deals are being negotiated with Mexico, the Philippines and Indonesia and new talks were in the making with Australia, New Zealand, and Chile. Plus work is ongoing according to the always energetic EU trade commissioner, for an investment agreement with China, “now that the Chinese companies are becoming big investors in the EU.” Asked if a finalised CETA deal on which the EU Parliament will vote in its plenary on 15 February could be a model for negotiations with the EU refugee UK, Malmstroem said “why not”. Reform Promises by a Shocked Elite Apart from the optimism expressed by the officials in many trade departments, politicians and multinational companies seem to be shocked enough by the US election, the Brexit and the high poll ratings of populist parties in Europe to call reform a high interest topic for 2017. Unequal distribution of wealth made it to the top of the WEF agenda, in a display of the development. “Rising income inequality and societal polarization triggered political change in 2016 and could exacerbate global risks in 2017 if urgent action is not taken,” the WEF Global Risks Report 2017 warned, and all panels at the elite meeting duly pointed to the problem. To calm the huge public outcries against big trade agreements like CETA, TTIP and the Trade in Services Agreement (TISA), the EU Trade directorate and Canada’s Minister of Trade are promoting a multilateral Investment Court System to replace the unbeloved investor-state dispute settlement procedures. With it there is also an idea to establish an “advisory centre that would help developing countries in litigation,” a Commission official explained in Brussels recently. According to the Commission, it will move on the investment court initiative before the end of the summer break with a view to have an EU directive by early 2018. More sustainable and fair trade, Malmstroem underlines, is now rooted at least in the EU trade policies, with a “Trade for All” approach. Better transparency also is one of the promises. Digital Trade and TISA Better transparency might on the other hand not be an issue with the last standing plurilateral agreement, TISA. TISA, which according to WTI expert Elsig could remain on the US trade agenda because of the US trade surplus from services, has been one of the most secretive negotiation processes so far. “We are very concerned about TISA, especially since we saw the leaked proposals for the telecommunications and e-commerce chapters,” said Viollier from Derechos Digitales. One big concern, he said, is the inclusion of obligations for service providers to remove content without judicial oversight. Together with activists in other parts of the world, TISA would be one major work item for his organisation. And here is the opportunity the failure of TPP offers, said Viollier. “Every time they want to do such agreements behind closed doors, without academia, citizens and civil society organizations, there is this looming shadow of that failure and the problems that, in the end were acknowledged with regard to TPP,” he said. Digital Trade and the WTO With the dust not fully settled after the US departure from a number of negotiating tables, could the multilateral system be one that countries return to for more stability? That could happen, if countries realise that the WTO arbitration system is overburdened and needs new rules, Elsig considers. But he especially thinks that 2017 could become a year for “plurilateral negotiations within the framework of the WTO.” WTO Secretary General Roberto Azevêdo in fact welcomed plurilateral talks. “They are helping with what we do in Geneva,” Azevêdo said in Davos. One big “emerging issue,” according to Azevêdo, is services, with much on the WTO agenda for the upcoming year. “In addition to the Doha Development Agenda issues, which include services, there is interest from members on issues like e-commerce, services facilitation and investment facilitation,” Azevedo said at a book launch. At the WTO Ministerial in Buenos Aires 11-14 December 2017, the friends of e-commerce for development are expected to put that topic well up on the agenda. It will be interesting to see parallel developments with TISA and a potential digital trade negotiation at the WTO level. For the Argentinian host for the ministerial, Susana Malcora said in Geneva that she sees interest and willingness from countries to enter into a new dialogue. With China’s support for trade integration, “that offers the opportunity for a new dialogue, for all of us,” she said. “You know, when one part of our system moves – and the US is a big part of the system – that in itself changes the dynamics.” Answering journalist questions, she took a stand for multilateralism. There are “many things that could be done differently and could be done better,” she said, “but the question is are we better off with our without the system in a world where we see that tensions are there and arise every single day?” Image Credits: Monika Ermert Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window) Related Monika Ermert may be reached at firstname.lastname@example.org."Year Ahead: A Rather Speculative Year In Global Trade" by Intellectual Property Watch is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.