WTO member countries must align their domestic policies with their trade policy if the benefits of globalisation are to be fully realised – and accepted by the population.
This was the core message from academic and former senior trade official Arancha González in a wide-ranging interview with Borderlex at the global trade organisation’s annual Public Forum held this week in Geneva.
The former Spanish foreign minister, who released a new book entitled The Trade Handbook: Making Trade Work for Prosperity, People and Planet criticised a “lazy approach to globalisation” that has been in evidence until recently. Trade agreements were forged – but the accompanying internal measures needed to facilitate trade and make a success of these agreements were not put in place.
“Trade is not a solar system, trade is a planet – and it needs to have its place in a policy ‘solar system’”, said González.
González also urged the EU to seek a multilateral approach to addressing carbon leakage, rather than pursue its unilateral carbon border adjustment mechanism, or CBAM.
She also said the WTO needed to accept the geopolitical realities of the times and become an organisation dedicated to “the peaceful co-existence of members that have different views and aspirations”, rather than seeking the elusive goal of international policy convergence.
Borderlex: To quote the title of your book, how exactly do you make trade work for people, prosperity and planet?
González: International trade has generally tended to be viewed as a one-step process – it was all about signing a trade agreement or treaty.
But it has to be a three-step process.
You have to make trade possible, which is what you do when you make a trade agreement. But this is not enough, because often you create opportunities which don’t materialise because there is a myriad of other things that need to happen – but don’t.
So the second step – you need to make trade happen. That requires being much clearer about how you support everyone involved in international trade – including small businesses and women entrepreneurs – by investing in trade infrastructure and by making sure that trade credit is available.
The third step is just as important as the other two, and that is the ‘domestic coherence’ agenda.
In countries which have taken the coherence agenda seriously, the legitimacy for international trade opening is greater. That involves having solid social safety-nets, an appropriate programme of skills building, fair taxation and decent work conditions.
What examples would you point to of countries that have taken the domestic coherence agenda seriously?
My book draws a lot of inspiration from the EU. I try to look at things that have worked in the EU, as well as things that have not worked.
The OECD agreement that was reached last year to tax multinationals sends a signal that big actors in international trade will be subject to fairer tax conditions. This is essential if you are trying to build a more legitimate bedrock on which to build your trade agreements.
We know that the part of international trade that keeps growing is trade in services, and especially intermediary services. In this sector, your comparative advantage is built on the skills of your people and your digital connectivity.
The countries that have invested in this new economy have an advantage.
Take the example of Colombia. It is becoming a big player in the space of intermediate services like accountancy, medical services, engineering and architecture services. These have become tradeable as a result of technological progress.
There is no trickle-down economics, or ‘trickle-down trade’. You will only be a player in this space if your people have the skills, and if you have the necessary digital infrastructure.
There is a perception in some countries that trade only ever seems to benefit other countries. What is the strategy to combat that?
If you look at the parts of the world where extreme poverty has been reduced the fastest, these are the parts that have relied on international trade and open markets, and the transformations that these have generated to help to exit people out of poverty.
Demand for goods and services by foreign markets has been a big pull factor to reduce extreme poverty.
Asia is a good example. If you look at the ‘Asian miracle’ of the last 25 years, it has a lot to do with open markets and open trade policies, as well as domestic reforms that these open markets bring. When you open up your markets, you generate a competitiveness factor that obliges your actors to up their game, and that results in millions of people exiting extreme poverty.
Your phrase ‘making trade work for people’ sounds rather like US President Joe Biden’s focus on a ‘worker-centric’ approach to trade policy. Was this a conscious echo?
I don’t think you can have a worker-centric trade policy – but you can have a trade policy with domestic polices that are worker-centric.
For example, policies that look at decent working conditions, social benefits, minimum income, or maternity and paternity leave. That’s what makes for jobs that are solid and can compete internationally.
It’s not just about putting the onus on your trade policy. It’s about synergising your trade policy with a set of other domestic agendas that you need to make work for your economy to be more inclusive.
This is what we are seeing in the US, and I applaud it. But the question is, to what extent are these tools within trade policy, and to what extent within other policies?
This is a very ideological question. There are those who are fanatics of trickle-down economics and trickle-down trade who used to say: ‘All I have to do is open my markets and sign trade agreements, and the rest will just happen’.
Now they are tending to say: ‘I just need to close my markets and stop doing trade agreements for all of this to work’.
And the truth is, it’s neither one nor the other.
How do we make trade popular? Can we ever get ordinary people to understand that open markets can serve their interests?
Trade is not a solar system, trade is a planet – and it needs to have its place in a policy ‘solar system’.
Of course, Planet Trade has to work. You have to make sure that you open up opportunities, and that they are open to all stakeholders.
But it is part of a solar system. Other planets need to be aligned with that of international trade if trade is to work. And if this solar system does not work – if Planet Trade ends up being the only planet in town – then it’s not going to work.
We also have to be very clear that trade protectionism does not protect. It does not protect jobs, it does not protect workers. It creates the illusion that you are protecting, but it is the lazy way of protecting.
So I think we need to abandon this lazy approach to globalisation. If you really want to protect your workers – pay them well. Make sure they have a proper social safety net. Make sure that you have the mechanisms to help all those that will be affected by the enormous changes in the labour market that technology will bring about – which no-one is yet talking about.
Now, all this is much more complicated. You have to get the approval of your government, you have to make sure that it passes through your parliament, you have to have the necessary budget. It’s easier to just shout for trade protectionism. But that’s lazy and ineffective.
A big issue for MC13 is WTO reform. What do you see as being the most important elements of an effective WTO reform package?
Without getting into all of the details, I think there is a broader question here. Philosophically, what sort of organisation should the WTO be in the coming period?
The original idea of the WTO was to foster convergence in the policies of the members. But moving forward, I think it’s going to be less about convergence and more about managing co-existence.
In my view, the reform of the WTO should be about giving it the ability to prevent trade conflicts from turning into trade wars, and to prevent geopolitical differences from fragmenting the trade landscape.
Arancha González is Dean of the Paris School of International Affairs (PSIA) at Sciences Po. She served as Spain’s minister of foreign affairs between 2020-2021, and was previously Assistant-Secretary-General of the United Nations and Executive Director of the International Trade Centre (2013-2020). Between 2005 and 2013 she served as Chief of Staff to the Director-General of the World Trade Organization. Before that she held senior positions at the European Commission in the areas of international trade and development.
The Trade Handbook: Making Trade Work for Prosperity, People and Planet by Arancha González and Yanis Bourgeois was published this week by the Foundation for European Progressive Studies. The book will soon be released on the FEPS Europe website.