On Shift in Global Trade Policy

Source: The post on shift in global trade policy has been created on the article “Global trade policy: A year-end stocktaking” published in “Business Standard” on 28th December 2023.

UPSC Syllabus Topic: GS paper 2- International Relations-Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

News: The article discusses how recent trade policies, particularly in the US and EU, are moving away from global trade rules and becoming more protectionist. This shift is leading to a more fragmented and contentious global trade environment.

What is changing in global trade policy?

Unilateral Measures: The US and EU are adopting more unilateral trade policies, as evidenced by the US’s Inflation Reduction Act and the EU’s Carbon Border Adjustment Mechanism. These measures, like the US’s local content rules in electric vehicle manufacturing and the EU extending its Emission Trading System, are contrary to WTO rules and favor certain regions over others.

Rising Protectionist Actions: Nations are following the US and EU’s lead with their own protective measures. For instance, the Netherlands and Japan’s restrictions in the semiconductor industry are part of a broader trend of increasing trade restrictions aimed at protecting domestic industries.

Contradictory US Policies: The US has the highest number of trade and industrial policy interventions between 2017-23, contradicting its stated commitment to a rules-based order. This includes actions against China and its own protectionist measures, reflecting a larger trend of contradiction in its trade policies.

For more information on US’s Inflation Reduction Act read here

For more information on EU’s Carbon Border Adjustment Mechanism read here

What are the implications of these changes?

Undermining WTO Principles: Unilateral measures like the Inflation Reduction Act and the Carbon Border Adjustment Mechanism challenge WTO’s rules-based order, undermining principles of non-discrimination and fair competition.

Weakening of Multilateral Dispute Settlement: The US’s reluctance to engage with the WTO’s dispute resolution mechanisms signals a move towards more uncertain and bilateral dispute settlements. This move threatens the predictability and stability provided by the multilateral system.

What should be done?

Strengthen WTO Commitment: Reinforce adherence to World Trade Organization rules and principles to ensure a fair and stable global trading system.

Support Positive Trade Developments: Recognize and build upon the growth and resilience of global trade, as evidenced by the expansion of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the full effectuation of the Regional Comprehensive Economic Partnership (RCEP).

Encourage Multilateral Cooperation: Utilize the positive momentum from these regional blocks to foster a more inclusive and rules-based global trade environment.

Enhance Transparency: Developed countries should lead by example, ensuring that any new trade measures are transparent and in line with international norms.

For more information on CPTPP read here

For more information on RCEP read here

Question for practice:

Discuss the implications of recent changes in global trade policy, particularly the shift towards unilateral measures and protectionism.