Never since its inception in 1948 has the global rules-based trading system been in so much trouble. If Donald Trump wins the presidency on 5 November, it will be dealt another heavy blow. We need to be thinking now of practical ways of keeping it alive for better days.
The US and the EU have imposed high tariffs on Chinese electric vehicles, purportedly on the basis that the Chinese government subsidises their production. It isn’t the first instance of a government providing financial support to a decarbonising industry and it won’t be the last.
The legality or otherwise of these tariffs cannot be tested under the dispute-settling procedures of the World Trade Organization, because the US refused to appoint new judges to the Appellate Body as the terms of the presiding judges expired.
The Trump tariffs imposed against China in his first presidential term are clearly illegal under WTO rules. They have been retained by the Biden Administration. Trump has promised he will, if re-elected, increase them even further.
As a flimsy justification for the Trump tariffs against China and other countries, the US has invoked the national security clause of the WTO agreement. Its origins are in the WTO’s predecessor, the General Agreement on Tariffs and Trade (GATT) of 1948. At that time, shortly after the end of World War II, it was generally understood among members that the national security clause could be invoked only in the most exceptional of circumstances, such as the threat of being invaded by another country.
But now, the national security clause is ruse for the US to continue building its tariff walls.
The rules-based global trading system is under threat of extinction. The tariff-hiking practices of western countries, including the US, that contributed to the preconditions of World War II, are back in vogue.
If Trump is elected president again, he has promised further increases in tariffs against China and more generally. The Democrats, keen to win the industrial swing states, and with them, the presidency, will at least keep the original Trump tariffs against China.
In discussions I have held with China’s foreign minister, Wang Yi, he has emphasised to me China’s support for rules-based system.
Those who might consider this empty rhetoric should note China’s membership of a dispute-settling system, the Multi-Party Interim Appeal Arbitration Arrangement (MPIA).
Comprising 27 WTO members, the MPIA is an alternative to the paralysed Appellate Body and has been established under the WTO as a plurilateral agreement.
So, there you go. Staring us in the face is the solution to the US withdrawal from the global rules-based trading system – a greatly expanded MPIA established under the auspices of the WTO by 27 members.
What role could Australia play in saving and rebuilding the rules-based trading system?
The answer lies in an examination of the MPIA’s membership. In addition to China, the EU and Australia, members include Canada, Brazil, Chile, Colombia, Mexico, Peru Japan, Philippines, Singapore and New Zealand. That’s a pretty good geographic coverage of important or reputable trading countries.
As the Doha Round of multilateral trade negotiations was collapsing in 2012, Australia stepped up and led successful negotiations for a WTO trade facilitation agreement.
Similarly, in 2012, when an APEC agreement on tariff reductions on environmental goods was close to collapse, Australia salvaged an agreement that remains in place.
This year, Australia is leading APEC negotiations for a move to paperless trade through the digitisation of trade documentation.
The point is, Australia has a reputation and track record in trade forums as an honest broker capable of bringing parties together.
Expanding the membership of the MPIA would be a valuable step in reviving the global trading system.
When an international body is in trouble the first imperative is to keep it alive. Thereafter, the task is to revitalise it. Australia already is a member of informal groupings of friendly like-minded WTO members, just as we established the Cairns Group of Fair Trading Nations in 1986, which is still functioning to this day.
With its solid reputation in leadership, Australia can again step up and persuade more WTO members to join the WTO’s plurilateral, alternative dispute-settling body in a vitally important initiative to help the global trading system survive.
The US was founder and for a long time the most important support of the rules-based global trading system. We can only hope that in time the interest and values in the US will bring it back. By keeping the system alive, we would be making it possible for the US to return when the circumstances are right – and in the meantime, providing high value for those who remain in the system.
Craig Emerson is director of the APEC Study Centre at RMIT University and is a former Australian trade minister. He is a visiting fellow at the ANU and adjunct professor at Victoria University’s Centre of Policy Study.