Global trade rules must be updated to better meet the needs of the modern economy, says John Denton AO, Secretary-General of the International Chamber of Commerce.
It’s arguably too early for meaningful predictions of the overall impact of COVID-19 on lives and livelihoods across the world, but there are two things we know for sure. The first is that choices made today will not only determine the speed at which the pandemic can be brought under control, but also the shape of any future recovery. Second, no nation — regardless of economic might or geographic location — can afford to respond to the pandemic by going it alone.
It’s not clear these fundamentals are well understood by today’s global leaders. While the natural response of any government to the threat of COVID-19 is to protect the immediate wellbeing of its citizens, this does not obviate the need for forward-looking international cooperation in the face of a virus that knows no borders. That enlightened leadership has been largely lacking in recent months does not bode well for prospects of limiting the human and economic toll of the pandemic.
A course correct will not be easy given America’s wholesale retreat from its historic global leadership role — arguably the real “black swan” of 2020 — but what can Australia do to fill the void?
First and foremost, it’s time for the government to change the narrative and commit to leading by example, by ensuring that cooperative solutions are foundational to its response to each and every aspect of the crisis. The move to invite New Zealand PM Jacinda Arden to attend a cabinet-level meeting on normalising the flow of travel between both countries is a welcome first step. Why not broaden this approach to engage other governments in the co-creation of viable solutions to shared problems?
The second step is to get ahead of the curve in addressing emerging fissures in global economic governance. Nowhere is this more immediately apparent than in relation to the international trading system — with the pandemic having turned back the clocks and created a widespread re-emergence of protectionist pressures not seen since the early 20th century. The most visible sign of this was the swathe of export restrictions placed on essential medical supplies by more than 80 governments, which, regrettably, stymied initial efforts to contain the virus.
The woes of the WTO
The Australian government should use its seat at the G20 to make the cogent argument for a coordinated and orderly unwinding of these asinine restrictions without delay. But this is arguably just one symptom of a broader risk that the pandemic will encourage a 1930s spiral of protectionism, which, as history shows, will only deepen and prolong the economic misery for business, workers and families. To this end, Australia and its trading partners must proactively work together to preserve and strengthen the World Trade Organization (WTO). Despite calls from populist US lawmakers to abolish the body, the WTO has a vital role to play in keeping protectionist pressures in check through the crisis and setting firm foundations for a future recovery. A strategic renewal of the WTO — starting with the selection of a suitably dynamic and experienced candidate to take over the leadership of the organisation this September — has the potential to pay high dividends. It is also an area where Australia has strong credentials to lead an informed and rational debate.
Australia is a member of the Multiparty Interim Appeal-Arbitration Arrangement, a temporary arbitration arrangement to resolve trade disputes between countries in the absence of a functioning WTO appeals court system. Moreover, Australia has signalled its intention to elevate an appeal to the WTO against China for imposing 80 per cent tariffs on Australian barley. In an age where retaliatory tariffs have become fashionable, Australian leadership — in staying true to a rules-based approach to resolving trade frictions — gives it a position of (almost) unique authority to lead discussions to secure a renewal of the WTO system.
If the short-term objective vis-à-vis trade is to avoid a damaging protectionist cycle, the mid-term goal must be to modernise global trade rules to better meet the needs of the modern economy. This should start with an effort to accelerate ongoing negotiations — chaired, as it happens, by Australian diplomats — to establish new rules for digital trade no later than the end of 2021. An ambitious WTO deal of this kind would be a particular boon for the many small businesses struggling to survive, making cross-border e-commerce transactions simpler and cheaper.
Laudable fiscal interventions by the Morrison government to help small businesses weather the immediate crisis would also benefit from further upstream cooperation with other governments. An estimated US$5 trillion in credit will be needed to enable trade to rebound anywhere close to its pre-pandemic trend. There are significant questions as to whether commercial banks and insurers will be able to service this demand — and small businesses risk being cut off from credit lines if concerns about insolvencies continue to grow. The scale of the possible interventions needed to backstop the market calls for a major coordinated effort, not just localised schemes to help domestic exporters.
The government can be proud of many of its interventions to protect lives and livelihoods, but it would be missing a trick if Australia’s capacity to forge a coordinated global response to the pandemic isn’t exploited. We’ll only fully emerge from the crisis when we have solutions that work for everyone, everywhere. This is not the time for Australia to retreat. For the sake of its own citizens as much as anything else, it must be prepared to lead from the front.
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