Shift towards regional trade deals as WTO predicts big slump
Updated
The World Trade Organisation now expects a massive nine per cent slump in global trade this year, which is a much bigger slump than earlier predictions. But it's not enough to revive the defunct Doha Round aimed at a new global free trade deal, which Australia says is vital to help drag the world out of its financial and economic malaise. Many believe the WTO is impotent and more and more countries are turning to regional trade deals.
Presenter: Linda Mottram, Canberra correspondent
Speaker: Simon Crean, Australian Trade Minister; Professor Richard Baldwin, International Economics, Graduate Institute, Geneva;
Associate Professor Shandre Thangavelu, Faculty of Arts and Social Sciences, National University of Singapore
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MOTTRAM: Australia's trade minister Simon Crean has a mantra, that trade is a multiplier, growing in the recent past at three times the rate of world output and therefore a vital element as governments the world over try to stimulate their economies out of crisis. It was an important step, in Mr Crean's view, when the G20 meeting last November ordered trade officials to get moving on revitalising the failed Doha Round of global trade liberalisation talks. The latter hasn't happened and the latest World Trade Organisation data shows trade will fall by nine per cent by volume this year. Simon Crean says it puts the situation into stark focus.
CREAN: The multiplier is working in reverse. So, if we want to generate economic activity and sustain economic growth, we've got to use the domestic stimulus packages and enhance them to liberalise trade markets, to open the markets up, to conclude the Doha round. I think the G20 is firmly apprised of that. The question now is the political will to conclude the round.
MOTTRAM: Trade is the only area of international life where there is a global set of norms adhered to by virtually all nations. But predictions for the future of those norms are mixed at best. Observers say the changing world power balance and the widespread success of regional trade deals are a threat to the WTO and the trade system itself. Some are even harsher in their assessment of the WTO's capacity. A symposium of trade experts and professionals at the Australian National University in Canberra heard from Professor of International Economics at the Graduate Institute in Geneva, Richard Baldwin, who predicted a further turning inward on trade by key nations in the current environment.
BALDWIN: Global trade is experiencing a synchronised sudden and severe collapse but it is especially regional. It is focussed to a good extent on the supply networks which are regional. And I think that regionalism will be reinforced by this because in fact we've had more effective regional responses to this than we have so far at the global level and I think there will be a bit of a turning in, in East Asia, in Europe and in the Western hemisphere, in the sense that protection may be biased to favour regional trading partners.
MOTTRAM: In the absence of much hope for the ideal a purely multilateral free trade system, Professor Baldwin's answer is to work with the reality of regional trade deals, having the WTO take on the role of making such agreements transparent and friendly to new entrants - in effect, multilateralising them. Professor Baldwin says that while the current crisis is not a good time to put new issues on the agenda, failure to act risks a further erosion of the WTO's relevance.
BALDWIN: Because as we let this thing slide, regionalism is taking over from multilateralism as the way of liberalising trade and as I said its got a worrying tendency that the big old guys are starting to like it and the big new guys are starting to like it and if this goes on too long the WTO can lose its relevance.
MOTTRAM: As for the impact of the current trade slump, the ASEAN block is an example of the regional impact of which Professor Baldwin spoke. Intra ASEAN trade is largely in parts and components, intermediate goods rather than finished product. Also at the ANU symposium was Associate Professor Shandre Thangavelu from the National University of Singapore.
THANGAVELU: When the regional trade goes down very fast, the trade in parts and components falls even faster. And when you look at the region itself countries like Singapore is very exposed to the fall in the global trade.
MOTTRAM: Associate Professor Thangavelu says its prompted ASEAN - already quite dynamic in its regional trade thinking - to consider how the current collapse in global investment will change global production and how, following on from that, the region can use foreign direct investment and trade to improve its position.
But while Associate Professor Thangavelu says ASEAN is multilateralising its arrangements, others might differ. And those with the harshest views of the state of the WTO say the tide is against it. Advocates of maintaining international rules of trade, like Australia, though say its vital to keep the global trade ideal alive by advocating stronger rules on regional agreements through the WTO.
