US economy

The World Trade Organization lives on


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The World Trade Organization may well be on its last legs, but on the snowy slopes of Davos last week it received a welcome lifeline.

More than 70 members locked arms on the margins of the World Economic Forum to launch negotiations on new rules to govern digital trade after an effort led mainly by Australia and Japan.

The move was significant because the lack of a global regime on ecommerce had become increasingly divorced from its growing importance to the world economy. The decision to press ahead also showed that the WTO is still seen as a viable forum for global trade talks despite failures of the past, including the collapse of the Doha round of negotiations more than a decade ago.

But, most importantly, both the US and China, which made a late entry, agreed to participate despite the bitter trade war between Washington and Beijing in recent months.

At the end of the week, Roberto Azevêdo, the WTO’s director-general, was about as upbeat as he could be. The discussions were “very productive” and there was “real progress” on digital trade, Mr Azevedo said.

“It is a sign of the strong and very widely shared commitment to the global trading system. This is particularly vital now, as we face a number of significant challenges.”

There are still plenty of reasons to be pessimistic about the WTO’s future. The digital governance talks may well falter to begin with.

In his reaction to the start of the negotiations, Robert Lighthizer, the US trade representative, was quick to draw America’s red lines. The US, he suggested, would not support a deal that did not limit “restrictions on cross-border data flows and data localisation requirements” — Chinese policies that are often the target of criticism from US technology companies.

Mr Lighthizer also called on the deal to be “enforceable”, ensuring that commitments from different countries were met or there would be punishment.

But that is more easily said than done, especially when dealing with a US administration that does not like third-party international arbitration schemes.

Meanwhile, it remains far from clear that concrete advances have been made towards broader reform of the WTO. At the G20 summit in Buenos Aires in December last year, world leaders committed to pursue an overhaul of the WTO, but it is still unclear how much momentum lies behind that. WTO champions led by Canada are trying to forge a path towards a deal, but it is uncertain whether they will manage to bring everyone else on board, especially the US.

The deadline is the end of the year when the WTO’s dispute settlement mechanism’s appellate body will cease to function as a result of resistance by US president Donald Trump’s administration to nominating new judges to the panel.

But there is still no evidence that a compromise is being worked out and the US has not been clear on what it may be prepared to accept. While this week was a relatively good one for the ailing Geneva-based institution at the heart of world trade, it still has a long way to go before it is out of the woods.

March deadline looms for US and China

When Liu He sets foot in Washington this week for a new round of trade talks with US officials, he will be more cautious than ever of making any big concessions.

Mr Liu, China’s vice-premier, probably still has haunting memories of previous attempts to strike deals with the Trump administration. With both Wilbur Ross, commerce secretary, and Steven Mnuchin, Treasury secretary, Mr Liu thought he had an agreement in hand, only for it to be undercut and rejected by hawks in the White House.

Nevertheless, there is little more than a month to go before the March 2 deadline for the US and China to reach an agreement — or at least decide to give themselves more time. Otherwise, US tariffs on a vast amount of Chinese goods will rise from 10 to 25 per cent, and Beijing will inevitably retaliate.

Neither side wants that outcome: economic, market and political pressure to stop the confrontation has risen sharply over the past six months. This week could be crucial mainly because it should tell US negotiators how far Mr Liu is prepared to go to meet their demands.

With crunch time approaching, any bluffing will fade and both sides will have to show their cards. For the Chinese, it is how much they are willing to give the US on structural reforms — from curbs to technology transfers, to increasing market access for US companies, to rolling back subsidies and the role of state-owned enterprises.

For the US, the question is what it is willing to settle for, and how far it is willing to go in rolling back existing tariffs to reward Beijing.

But even after those positions become clearer, it will not be cabinet ministers or trade negotiators making the call on whether a deal is acceptable — that will be up to Mr Trump and his Chinese counterpart Xi Jinping.

Figure of the week — $750m

The cost of tariffs to Ford Motor, the company said last week, highlighting how the US president’s levies are damaging parts of the US manufacturing base.

Chart of the week

The EU trade deal with Japan is set to come into force this week. This shows the growth of EU exports to Japan over the past decade. Will they keep growing?

Further reading and listening

● Slowbalisation — The Economist takes a look at the shifts, and the downshift, in global trade in the era of populism. And if you want more, tune into the Trade Talks podcast by Soumaya Keynes of The Economist and Chad Bown of the Peterson Institute for International Economics.

● Huawei and the new arms race — US-China tensions through the lens of the giant Chinese telecoms network company. (New York Times)

● State-owned enterprises are in the spotlight as Liu He comes to DC (Wall Street Journal)

● The Venezuela crisis and oil exports (Financial Times)



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