Slim chance of recovery
The author is president of Lee & Ko Global Commerce Institute and former Minister of Trade.
A few distinctive features have dominated global trade order recently. Firstly, the U.S.-China confrontation has stretched beyond commerce to security and tech. China is accused of forcing excess output and facility capacity through subsidies to undermine fair competition in the global market. The United States has been regulating technology-related exports to China after accusing Beijing’s support of high-tech fields of threatening America’s national security.
Secondly, major economies are rushing to establish a supply chain for semiconductors, electric vehicle batteries and other future-growth tech on their home turf since the global supply chain was shaken by the battle between the U.S. and China amid the Covid-19 pandemic. Under such circumstances, many companies can receive financial and tax incentives from their governments, but multinationals could see losses from their over-investment and rising in labor cost.
Thirdly, there is increased action to address climate change and migrate to digital commerce. As the European Union recently announced it will adopt the carbon border adjustment mechanism (CBAM), the U.S. is mulling a similar levy to address the risks of carbon leakage. Furthermore, major economies are creating new digital trade norms bilaterally, or through regional agreements.
But the problem is a lack of transparent and fair multinational regulatory frameworks to address such contentious issues, despite the radical changes on the global front.
The World Trade Organization (WTO) will be holding the 12th Ministerial Conference (MC12) in Geneva, Switzerland in November. The WTO faces its biggest crisis due to the failure of the Doha Round, dysfunction in the appellate body and a slow response to new trade issues. The world is paying attention to the upcoming meeting held under new leadership.
The forthcoming congregation will address new challenges, such as the waiver on intellectual property rights related to Covid-19 vaccines, e-commerce, investment promotions, domestic regulations on services, small and medium enterprises, women’s issues and the environment, on top of longstanding issues of subsides for fisheries, agricultural and industrial products and a dispute settlement body. However, despite an agreement on the broader framework, member countries differ greatly on the specifics.
Due to a lack of time until the meeting, a meaningful result is not likely. Trade experts anticipate an agreement can only be drawn up in the area of fisheries subsidies. As a result, the WTO-based multinational trade system won’t likely contribute much to the improvement in global trade order.
Despite his earlier promise to restore and strengthen the multinational trade system, President Joe Biden and his administration have been passive in MC12 participation. Washington instead has been endeavoring to strengthen the U.S-led networking among its allies in key tech areas such as chip and battery production. The EU is busy designing its own regulations on climate change and digital commerce. China, most vocal in WTO reform and the MC12 agenda, vowed to expand government support in high tech fields to help address growing U.S. trade curbs on China.
On Sept. 17, China filed for its membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free trade agreement among Canada, Mexico, Chile, Australia, New Zealand, Japan, Vietnam and Singapore. There have been many questions about China’s bid for the CPTPP that proposes greater liberalization in trade and stronger guidelines on state enterprises, digital trade and labor and environment issues than the Regional Comprehensive Economic Partnership (RCEP) led by China.
Korea must brace for protracted jitters in global trade order. With a high reliance on external trade, Korea must proactively engage in shaping the MC12 agenda and negotiations to restore and strengthen the multinational trade framework. It also must join regional and multilateral trade agreements. In particular, Korea must apply for CPTPP and seek high-level digital trade negotiations with key economies.
Korean enterprises must realign their supply chain in line with the changes in geopolitical risks, accelerated expansion in the digital economy, climate change, and the “servitization” of the manufacturing sector. China’s role could weaken. Companies with subsidiaries in China should adjust overseas investment targets. They must eagerly seek out various overseas partners to cooperate on high-tech fields to effectively respond to mounting protectionism.