End of the Golden Weather could cloud world trade

End of the Golden Weather could cloud world trade

But India has the opportunity to lead the way

Supplied Content

Ministry of Foreign Affairs & Trade Deputy Secretary Vangelis Vitalis (Picture Supplied)

Year 2019 could see the end of the ‘Golden Weather’ in international trade affecting the fortunes of countries but India could be a major beneficiary and emerge as the leader, a top government official has said.

According to Vangelis Vitalis, Deputy Secretary (Trade and Economic Group) at the Ministry of Foreign Affairs and Trade, New Zealand has experienced ‘Golden Weather’ in global trade for 23 years (from 1995-2008).

Contributing factors

“The establishment of the World Trade Organisation (WTO), the legal enforceability of trade disciplines from 1995, and a reduction of global protectionism over this period, have  facilitated in part by a burgeoning network of Free Trade Agreements (FTAs), delivering a significant benefits for our economy,” he said.

Mr Vitalis was speaking at a Seminar organised by the New Zealand India Trade Alliance (NZITA) in Auckland on April 4, 2019.

Stating that the ‘salubrious trade climate’ would cease to exist, he cited two reasons of this eventuality- the rise of global protectionism, with the last two years seeing the sharpest increase in trade restrictive measures since the establishment of the WTO and the assumption that enforceable WTO rules would widen and deepen is also in trouble.

Significance of WTO

“Enforceability hinges on a functioning WTO Appellate Body (AB). Assuming that the US does not change its position (to block the appointment of new AB members)  by mid-December, this body will no longer have a quorum, thereby threatening the viability of the wider system,” Mr Vitalis said.

He said this functioning international rules-based system, currently administered through the WTO, is important to New Zealand.

“This body houses the world’s only legally enforceable set of rules that bind all of the world’s economies large and small. and remains our first best option for international trade rules, providing a set of mechanisms, particularly its dispute settlement function through which major economic powers like the EU, China, the US, India, Indonesia and others, can be held to account,” he said.

Erosion of rules

The risk, according to Mr Vitalis, is “WTO members will (again) fail to agree a reform pathway this year, leading to the gradual erosion of existing rules and the WTO itself.  That will signal the beginning of the end of the current world trading order – with the foundation blocks for a new one only coming into view more slowly.”

According to him, one of the more likely results of this path would be a return to a Hobbesian ‘might makes right’ world order (already the revealed preference of several major players). 

“This is a world dominated by large countries dictating trade terms to smaller players. It is not the ideal situation for New Zealand, with our obvious disadvantage in international trade, a consequence of our (small economic) scale and distance from markets, both of which are compounded by our continued, albeit diversifying, reliance on agricultural exports,” he said.

Complacency no good

Mr Vitalis said that New Zealand cannot be complacent but must align itself to help create and sustain regional structures and instruments as a way of maximising our influence, and defending its interests: 

“APEC, the CPTPP, and indeed RCEP can be seen in this light, as one of the ways in which New Zealand is investing in such processes as a way of protecting itself from suffering collateral damage in turbulent and changing times. Our priorities need to be numerous and across a range of fronts. Effectively implementing CPTPP is key to ensure the maximum benefit to our exporters and through them as a feedback loop into the New Zealand economy. We also need to work to conclude the Pacific Alliance negotiations; push for the conclusion of or at least a significant breakthrough in the mega-plurilateral Regional Comprehensive Economic Partnership (RCEP – which crucially includes India). Alongside this we need to continue and intensify our negotiations with the European Union and be prepared to take full advantage of emerging opportunities such as with the UK and Mercosur, as well as through non-traditional trade policy forums like the Commonwealth – a new and important focus for our work,” he said.

India’s barriers to trade

Mr Vitalis said that despite its growing economic clout (and sheer scale at 1.3 billion people), and its increasingly outward-looking foreign policy, there are few indications that India intends to open its borders to trade.

“An export-led growth model is not currently favoured by India. More broadly, India’s approach to WTO negotiations has been challenging depending on the issues under discussion and it has been rather more defensive than one might expect of such a global player, including across both our bilateral negotiations – now nearly a decade old – and those well underway in RCEP,” he said.

Mr Vitalis said that New Zealand should welcome India playing a greater role in the region, as one of the re-emerging major players in international trade and indeed in the global order itself.  He said Prime Minister Modi’s stated preference for a rules-based order; “is both welcome and significant.”

 

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