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May 18 2018
Implications of the CIIE
By Zhang Haibing

Global trade governance faces unprecedented challenges. The World Trade Organization (WTO) has made limited progress in rulemaking for global trade, while regional free trade agreements (FTAs),bilateral FTAs, and national legislators of major trading powers have become more influential. The fragmented and unequal nature of global trade governance has become clearer. In the decade after the global financial crisis, trade protectionism has been rising. For several years now, global trade has been growing less than global economic growth. Current global trade governance efforts are unable to advance global trade growth, reduce gaps in trade capacity, and promote trade liberalization process. On May 14, 2017, Chinese President Xi Jinping declared at the Belt and Road Forum for International Cooperation that his country would host the first China International Import Expo (CIIE) in 2018. In a time of rising trade protectionism, China’s voluntary measures to open its market and increase imports will improve global trade liberalization processes and global trade governance.

Challenges Facing Global Trade Governance

Despite some progress since the 2016 Group of Twenty (G20) Hangzhou Summit, global trade governance faces many challenges. The adoption of the G20 Strategy for Global Trade Growth and theG20 Guiding Principles for Global Investment at the summit indicates basic consensus among the world’s major economies against trade and investment protectionism. In February 2017, the Trade Facilitation Agreement came into effect, marking a major push for global trade liberalization. However, the stalling Doha Round talks have made the WTO lag behind global economic developments, making the forum less attractive for global trade governance efforts and contributing to the rising trend of trade protectionism and anti-globalization. Global trade governance faces the following four major challenges.

First, debates on efficiency andfairness have trapped the multilateral trading system, represented by the WTO, and little progress has been achieved. Since World War II, the multilateral trading system based on the General Agreement on Tariffs and Trade and WTO have contributedto world economic growth and poverty reduction, while setting up an international trading system based on openness and nondiscrimination. However,defects in global trade governance have also become more obvious in the past seventy years. Consensus-oriented multilateral trade talks have been plagued by low efficiency and great difficulties in consensus-building. Although “green room”meetings among major trading partners had been conducive to reaching consensus, by making other members follow suit, the approach itself has deviated from the WTO principles of rules-based and transparent governance. Developed countries dominate global trade governance rulemaking and benefit the most from the current global trade system. They actively push for trade liberalization in their preferred trade sectors, such as trade in services, intellectual property rights, and the digital economy. Yet they have been reluctant to allow free trade in sectors such as agriculture, textiles, and clothing, in which developing countries have the comparative advantage. Preferential treatment for developing countries in the global trade system results from voluntary and discretionary decisions by developed countries. And occasionally, developed countries refuse to grant preferential treatment.

Second, global trade governance is experiencing a leadership vacuum because the United States has gone from supporting to resisting multilateral trading. Both the Trans-Pacific Partnership(TPP) advocated by the Barack Obama administration and the America First policy of the Donald J. Trump administration show U.S. abandonment of the multilateral trading system. This trend has also spread to the European Union and other developed countries and is reflected in the emergence of bilateral and regional trade agreements. Such a change is a major problem for global trade governance. On March 8, 2018, Trump invoked Section 232 of the 1962 Trade Expansion Act to take actions against steel and aluminum imports by asserting that they threaten U.S. national security. He imposed additional tariffs on imported steel and aluminum, an action that threatened to trigger a trade war. The actions of the United States have further impaired the sluggish global trade growth and the still recovering global economy. The mutual loss incurred by a trade war has impeded the global trade governance.

Third, the incompetence of the G20 as an informal consultation mechanism in dealing with trade issues has reduced policy recommendations against protectionism to mere symbolic effects. Since the global financial crisis, global trade has significantly decelerated. According to WTO, global trade growth declined from an average annual rate of 7 percent for the 1990–2008 period to 3 percent in the period from 2009 to 2015. In 2016, global trade only grew at 1.3 percent, less than half the growth rate in 2015. The comparison between global trade growth and economic growth rates since the global financial crisis has been staggering around 1:1, which deviates greatly from the historical records at the end of World War II, when the global trade growth rate was 1.5 times the global economic growth rate. The entry into force of the Trade Facilitation Agreement in 2017 contributed to the increase in the global trade growth rate. But the rising trend of global protectionism has not been contained. As the premium forum for global economic governance, the G20 summit in Hamburg produced a declaration in favor of the rules-based fair trading system. Yet great differences regarding the meaning of fair trade existamong the countries around the world. Constrained by its consensus decision-making process, the G20 lacks political will and enforcement capacity in advancing trade liberalization. What’s more, with the rising importance of social and development issues, trade issues become even more marginalized.

Fourth, emerging market economies have been restrained in their ability to advance trade liberalization, despite the common interests in shaping discourse in global trade governance. Accordingto the Bo’ao Forum for Asia Development of Emerging Economies’ 2018 annual report, the average GDP growth for the eleven emerging economies (E11) in 2017 was 5.1 percent, the first increase since 2011, which is also 0.5 percent higher than the 2016 rate and 1.4 percent higher than the global economic growth rate. In terms of trade growth, the aggregate trade growth of the E11 rose rapidly in 2017 after a decline in 2016. Yet it is still uncertain whether the recovery in trade growth will be sustainable. Because of the U.S. tax cut legislation, the emerging economies are facing new challenges of capital flight and decreasing foreign investment, which could restrain the potential for trade growth. Considering that the emerging BRICS countries (Brazil, Russia, India, China,South Africa) are restrained by domestic discontent in their economic and political transformation, it is difficult for them to take collective action in pushing forward the global trade liberalization process.

The Potential Role of China’s International Import Expo 

in Improving Global Trade Governance

As a beneficiary of global trade, China has been a firm supporter of the trade liberalization process. The four-decade experiences of reform and opening-up have formed strong political will to advance the liberalization agenda in the Chinese government. It is said that China’s accession to the WTO in 2001 marked a tipping point in the integration of the Chinese economy into the global economy. The launch of the Belt and Road Initiative (BRI) in 2013 became the new starting point for China to promote global economic growth and trade liberalization. In order to uphold the BRI’s commitment to joint deliberation, joint efforts, and shared benefits, China initiated and sponsored the Asian Infrastructure Investment Bank and New Development Bank, and set up other development financing support agencies such as the Silk Road Fund and the South-South Cooperation Fund. The initiative to host the China International Import Expo (CIIE) was another measure in the BRI joint efforts, with the aim of setting up an international trade platform to access the great Chinese market. On the one hand, it will inject new momentum into global trade and economic growth; on the other hand, it serves as China’s response to the criticism that it uses BRI to export excessive industrial capacity. The CIIE is also a new attempt by China to improve global trade governance, with the following three potential roles.

First, it will demonstrate Chinese leadership in pushing forward trade liberalization. With the United States now resisting global trade liberalization, globalization in general faces a leadership vacuum. The deteriorating trade environment and declining trade growth harm the world economy and developing countries in particular. As the second largest economy and major trading power, China needs to accept its international responsibility and present its own agenda on improving global trade governance. The CIIE is just the opportunity for China to make a specific contribution to advance the development of global trade . In the recently held 2018 Bo’ao Forum for Asia, Xi announced further market opening policies in four areas:

     · Scaling market access, in the services and more specifically in the financial sector, including by easing restriction on shareholding ratio in banking, securities, and insurance sectors by foreign companies, and accelerating the market opening process in insurance industry

     · Fostering a more attractive investment climate, which is a major concern for the U.S. and European chambers of commerce

     · Committing to enhance intellectual property rights protection

     · Voluntarily increasing imports, with the aim of promoting balanced current account and not deliberately pursuing trade surplus

In general, China’s voluntary market opening measures will set an example.

Second, CIIE will provide new cooperative platforms for global trade governance. As the leading organizationin multilateral trade negotiations, the WTO has made little progress in advancing development rounds due to its many members and the variety of issue areas.By comparison, China’s creative action in combining the import expo and trade forum as well as the physical trade and policy discussions are a new attempt in pushing for trade policy consultation and coordination. While it hosts the CIIE in November 2018, China will also hold the Hongqiao International Trade Forumto focus on global trade policy debates in cooperation with the WTO, UN Conferenceon Trade and Development, and UN Industrial Development Organization. The trade forum includes an opening ceremony and three parallel sub-forums, on trade and openness,trade and innovation, and trade and investment. Discussions will also take place on trade and investment liberalization and facilitation, building an open world economy, promoting trade innovation, and on trade and investment sustainable development. The Hongqiao International Trade Forum will be held annually with the CIIE. This way of regularly debating global trade and related areas will complement WTO multilateral trade talks.

Third, CIIE will facilitate the transformation of global trade governance to one more development-oriented. The relation between global trade and developing countries is important to address. International trade is crucial to meet the 2030 Sustainable Development Goals and materializing progress in developing countries, home to over 80 percent of the world’s population. As the largest developing country, China will, through voluntary market opening, promote the core concern for building trade capacity of other developing countries. The CIIE has provided a direct and fast track for products from developing countries to enter the Chinese market. With a combination of country expo and business expo, the CIIE provides a global interactive forum for developing countries to showcase both their trade policies and development polices. The accommodation of business exhibition and official expo has provided new opportunity for focusing on trade and development of developing countries.

China’s Policy on Improving Global Trade Governance

With its firm support of the multilateral trading system, China has been involved in the reform of global trade governance. However, China’s efforts can only have limited effects without the joint efforts of the United States, Japan, and European Union. First, at the global level, China stresses more responsible governmental decision-making processes, with major economic powers placing more weight on spill over effects while making trade and investment policies. The world’s major economies should enhance their policy consultation and coordination in multilateral forums, such as the WTO and G20 trade ministers meeting, in order to increase policy transparency. Second, at regional level, serious attentionneeds to be paid to developing countries’ demand for development and trade capacity building. Third, countries should, at individual levels, contribute to world economic stability and trade sustainability based on their own capacity and comparative advantages. The CIIE is a brave, innovative experiment, which needs the involvement and support of global partners. China hopes to enhance the policy consultation and coordination process with other major economies in pushing forward global trade liberalization. The CIIE is one of the many platforms and mechanisms. China expects more substantive progress in the more important WTO and G20 framework.

Source of documents:Shanghai Institutes for International Studies