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THINK TANK: Trade policy’s paradigm shift sidelines WTO

War, a pandemic and the impending climate crisis have greatly impacted the global trade regime. ‘Multipurpose trade policy’ is the new game in town and the tight grip that international trade law once had over the international trading order is loosening. This paradigm shift is not without its challenges.

These are the key take-aways of a policy analysis by Nicolas Lamp, an associate professor in law at Queen’s University in Canada, recently published by the International Institute for Sustainable Development.

Globalisation 2.0

“A new approach to trade policy is taking shape: multipurpose trade policy,” writes Lamp.

“Inspired by competing narratives about globalisation that bring different values to the fore, this approach no longer just tries to achieve an efficient international division of labour through trade liberalisation,” the scholar explains.

Multipurpose trade policy attempts to achieve other meaningful policy objectives namely, labour rights, inequality, supply chain resilience, safeguarding national security and mitigating climate change.

Trade policy has always affected other policy objectives. But under the lens of trade liberalisation, officials tend to view the effects of trade as mere positive or negative ‘externalities’.

Some take the view that increased international interdependence leads to peaceful international relations and rising incomes and results in better working conditions and increased environmental protection.

On the other hand, some argue that resource exploitation and environmental degradation are examples of negative externalities produced by trade policies.

“Since the early 1990s, trade agreements have also often featured provisions regarding labour rights and the environment to ensure that greater international competition does not take place on “unfair” terms,” writes Lamp.

According to the author, “the key distinguishing feature of the more recent shift to multipurpose trade policy is that other policy objectives no longer come into the picture as externalities of trade liberalisation or as safeguards against unfair competition.”

“Instead, those other policy objectives have taken a place alongside, and in some cases the place of, trade liberalisation as the immediate objectives that trade policy is supposed to pursue.”

The established view that globalisation is “an inevitable force for good is increasingly being challenged by other narratives that bring a range of competing values to the fore” writes Lamp.

Damage caused by job losses may no longer outweigh the benefit of cheap goods, international economic agreements lined with investment and intellectual property protection may be contributing to inequality, international economic interdependence has security implications and production and consumption patterns have caused a climate crisis.

The European Union Director General for Trade, Sabine Weyand and the United States Trade Representative Katherine Tai have both recognised that efficiency is no longer the primary objective of trade.

The US initiative for an Indo-Pacific Economic Framework with 12 countries in the region, foregrounds the objectives of ‘resilience’, ‘inclusion’ and ‘sustainability’.

At the same time, ever more aspects of US trade policy are dominated by considerations of national security, especially in its relationship with China.

“Multipurpose trade policy also plays an increasingly prominent role in the World Trade Organization,” states Lamp.

The agreement on fisheries subsidies concluded in 2022 is the first WTO agreement that primarily pursues a sustainability objective. And in the wake of the global supply chain crisis and rising food and energy prices, food security has taken a much more prominent place on the WTO’s agenda, the author explains.

The challenge of managing competing objectives

The author outlines a range of domestic political challenges of implementing multipurpose trade policy.

Navigating the trade-offs of multipurpose policy is difficult. Because they operate along multiple axes, finding the balance between economic and non-economic objectives is hard.

Additionally, reducing objectives such as security and climate change to a single metric is not only difficult but risky, as it doesn’t fully capture what’s at stake.

“The challenge is to make this expertise accessible to trade negotiators—or to bring trade expertise to those parts of the government that are increasingly making decisions with profound trade implications,” writes Lamp.

Additionally, it is unclear if trade policy tools are in fact the most effective and efficient way at achieving other policy objectives, explains Lamp.

“In some contexts, implementing multipurpose trade policy may also require legal reforms to allow decision-makers to take into account a broader range of policy concerns: trade remedy systems are one area where the current rules are not designed to accommodate the broad range of objectives that trade policy is now pursuing,” writes Lamp.

The challenge to the WTO and existing international trade law

Internationally, multipurpose trade policy and international trade law have entered a complicated relationship.

“The tide seems to be turning against letting WTO rules trump what are perceived as political economy imperatives for marrying climate action with industrial policy. Even the European Union’s mild-mannered criticism of the Inflation Reduction Act was criticised as “losing the plot”—that is, not recognising that times have changed” says Lamp.

“Even staunch defenders of multilateralism such as the European Union appear willing to tolerate a greater degree of legal friction where doing so seems necessary to pursue objectives such as climate mitigation more decisively, as for example in the implementation of the Carbon Border Adjustment Mechanism, which poses a host of legal conundrums,” the author continues.

The future of the WTO is uncertain and this paradigm shift may compromise its role within the international trading system.

The WTO may be relevant in subjects such as sustainability, security and lawmaking by acting as a forum for coordination or debate. But when it comes to labour rights for example, “it is unlikely that the WTO will play a role in the foreseeable future”.

“WTO members will need to carve out a role for the organisation that varies depending on the scope for multilateral cooperation that each subject provides,” reckons Lamp.

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