By Victor K. Fung
As a key component of the global economy, international trade is a major source of economic revenue and a major source of employment for any country. The present financial crisis and a looming recession will undoubtedly have a negative impact on trade and severely curtail growth because of liquidity and deteriorating consumer sentiment.
To avert disaster, leaders of the industrialised world have reacted swiftly to restore trust and confidence in the banking system. Such a brave move is now required to ensure that the global trading system does not collapse under the burden of an unstable world. But it is vital that, at this crucial moment, we should reflect upon where we have come from, before taking potentially disastrous measures that may precipitate protectionist action.
The last 20 years have witnessed an unprecedented expansion of the global market and unprecedented global economic growth and welfare. During the last two halcyon decades, it perhaps hasn’t been surprising that people were not especially interested in the apparent complex intricacies of trade negotiations.
The stark paradox of the last decade is that while the global market boomed, the global trade policy process stalled. More and more countries joined the WTO — growing from about 90 in 1990 to 153 now — but they then proved incapable of moving the agenda forward.
The paralysis may, in part, be a consequence of the system’s success. The multiple reforms of the latter part of the 20th century in developing countries have resulted in many more actors, big and small, engaged in global trade. The trade regime is no longer the sole province of the OECD countries as it was throughout most of its existence until recently.
Not only the fast-growing economies of China and India, but many other countries, such as Pakistan, Bangladesh, Vietnam, Indonesia, Chile, Argentina, Mexico, Turkey, Morocco, Kenya, and Egypt, increasingly want to have a say in the trade-policy process, because their stakes in the trade regime have increased significantly.
Vietnam has probably experienced, in proportionate terms, a greater poverty reduction, within the shortest period of time, than any country in history; the growth that drove that poverty reduction in considerable part emanated from the trade regime that Vietnam joined in the mid-1990s.
One consequence of this feverish activity has been to question why one should bother with what appears remote and arcane trade negotiations, when in the real world, things were going so well.
Another rather different consequence has been that the increase and diversity of actors has made the process far more complex. The repeated failures of the Doha Agenda since its launch in 2001 can be ascribed to two forces: a lack of sustained public interest and support, including from the business community; and incapacity on the part of negotiators to bridge the cultural and economic divides.
In appealing for the application of global solutions to the present financial turmoil, British Prime Minister Gordon Brown stated: “Successful market economies need trust, which can only be built through shared values”. Given the immense benefits that trade has generally conferred upon the people of many nations, it follows that one of the potentially strongest foundations on which to build shared values is in a solid and fair rules-based multilateral trade system that reflects the new realities of this potentially exciting and dynamic new global age. In this context, it is encouraging to note that China has committed to strengthen multilateral trade and economic cooperation, as stated in the country’s 11th Five-Year Program and in the 17th National Party Congress.
The financial crisis has prompted urgent and unprecedented globally co-ordinated actions. Without doubt, the world economy requires emergency surgery. At the latest Asia-Europe Meeting Summit convened in Beijing, Chinese Premier Wen Jiabao called for enhanced efforts to prevent the financial crisis from evolving into trade protectionism. The host country also proposed to establish a mechanism for multilateral trade cooperation and facilitation.
What is being recognized is that at the very heart of a global and sustainable economic revival, the multilateral trading system must be strengthened. We still live in perilous times; we live in a global environment in which, as Cordell Hull, Franklin Roosevelt’s secretary of state and a subsequent Nobel Peace Prize winner, wrote “The welfare of nations is indissolubly connected with friendliness, fairness, equality and the maximum practicable degree of freedom in international trade.”
To escape from the abyss of protectionism, the world needs a revitalized global rules-based multilateral trading system that will provide a robust global framework and restore a sense of global trust.
The author is Chairman of the International Chamber of Commerce.