Harnessing Disruption: Working with China on Global Trade

Harnessing Disruption: Working with China on Global Trade
WTO headquarters in Geneva.

Patrick Leblond and Pascale Massot Ottawa provided welcome news with its recent announcement of a fall meeting with multiple nations to discuss the future of the World Trade Organization (WTO). It confirmed that the Trudeau government is not shifting its policy focus to trade promotion and bilateral free-trade agreements at the expense of promoting the

Patrick Leblond and Pascale Massot

Ottawa provided welcome news with its recent announcement of a fall meeting with multiple nations to discuss the future of the World Trade Organization (WTO).

It confirmed that the Trudeau government is not shifting its policy focus to trade promotion and bilateral free-trade agreements at the expense of promoting the system of global trade governance underpinned by the WTO.

The announcement from Canada’s new Minister of International Trade Diversification, Jim Carr, also shows this country is taking a leadership role in defending the WTO, which is facing its biggest existential challenges yet. A global, fair, and open trade system supported by effective multilateral governance is fundamental to Canada’s economic interests.

What should be on the meeting’s agenda? Since the WTO’s inception in 1995, the world has changed but the WTO has not. The organization is lagging on three key issues.

First, emerging economies perceive a lack of fairness within the WTO. Second, there is a general feeling that the organization is not concerned enough with the broader public good, what the federal government has called the “progressive trade agenda.” Finally, the WTO’s rules need to be adapted to the 21st century’s economic reality, which is increasingly driven by data, algorithms, and robots.

Why should Canada take on a leadership role? A world in flux, disrupted by extraordinary US behaviour, offers opportunities for policy innovation for middle powers such as Canada. Canada must not only be at the table — it can be a leader, providing transformative ideas and rallying others toward workable solutions.

The meeting will include Australia, Brazil, Chile, the European Union, Japan, Kenya, Mexico, New Zealand, Norway, Singapore, South Korea, and Switzerland.

Who should be there?

China and the United States account for more than one-third of the world economy. Yet neither is invited to the discussion.

Constructive US participation is unlikely at this time. Given the fact Ottawa is walking a fine line between defending its long-term interests regarding the multilateral trading system and our critical relationship with the United States, a meeting that includes China but not the United States has its own drawbacks, despite the potential for breakthroughs.

The October meeting may well be a first step, but a reform of the WTO is possible only if the world’s two largest economies sit at the table. A discussion that acknowledges American and Chinese demands would be most productive. Canada and others should leverage China’s interest in modernizing the WTO. They should also support China’s public stance against trade protectionism and in favour of a multilateral rules-based trading system.

On the other hand, the United States’ demands revolving around reciprocity and fair competition — better market access for foreign enterprises in China, intellectual property rights, subsidies, rules governing state-owned enterprises and non-tariff measures that cause trade frictions — are also aligned with Canada’s interests and that of the countries it has invited to the October meeting.

It takes two to tango, but for now only China is willing to dance. We have to work with what we have. It would be worse if China were not willing to work toward a better functioning global trading system.

There are potential silver linings to this period of instability. The current situation creates a global, shared feeling of urgency — the handmaiden of policy change. Moreover, hostile US behaviour has unsettled China’s leadership and positioned it as a defender of the global rules-based order and as more likely to compromise on key disputes.

This unlikely combination offers Canada and the world an opportunity to work with China to accomplish two key objectives: 1) defend the fundamental institutions underpinning our trading economies by tackling the reform of the WTO, and 2) develop a coordinated approach on shaping the second phase of China’s integration within the world economy.

This article was first published by the Globe and Mail on 2 August 2018.

Patrick Leblond is senior fellow at the Centre for International Governance Innovation and holds the CN – Paul M. Tellier Chair on Business and Public Policy in the Graduate School of Public and International Affairs at the University of Ottawa.

Pascale Massot is assistant professor in the School of Political Studies at the University of Ottawa and a former senior policy adviser to the Canadian Minister of International Trade.

 

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