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Coping with Implicit Barriers in New Global Trade Rules

Jun 20 , 2016
  • Zhang Monan

    Senior Fellow, China Int'l Economic Exchanges Center

At present, the “dispute over rules” of international trade has gone beyond “market dispute” and is becoming the focal point of a new round of global contest. On the one hand, global trade grows more slowly. According to the WTO world trade growth forecast, global trade was expected to grow 3.1% and 4% for 2014 and 2015 respectively, far lower than the average annual growth of 6.7% during the decade before the financial crisis in 2008.

On the other hand, the world trade order is in a period of unprecedented adjustment. New world trade rules tend to gradually become new multilateral trade rules based on the establishment of regional trade rules, supported by regulating the development of plurilateral trade rules within one area and through integrating the rules of commodity trade, investment and service trade. Global trade protection will become more intense and more implicit, and free trade will turn into rules-based trade.

Since the financial crisis, the competition over global regional free trade agreements has become tense. The United States and other developed countries have tried to promote high-standard trade rules that represent the interest of the developed countries by dominating the negotiations of the Trans-Pacific Partnership (TPP) agreement, the Transatlantic Trade and Investment Partnership (TTIP) free trade agreement and the plurilateral Trade in Services Agreement (TISA), etc. The dispute over the future rules has been more than a market dispute, and has become a main issue of the new global contest.

In particular, with the fast development of the global value chain, all countries around the world are starting explicit and implicit trade friction measures such as technical standards and intellectual property protection for greater national interests and added value.  These measures are much preferred. For example, the number of technical trade barriers is growing, as proved by the increasing notifications about Technical Barriers to Trade Agreement (TBT) and the sanitary and phytosanitory (SPS) agreement within the WTO.  Data show that the number of TBT notifications was 606 and the number of SPS notifications was 270 in 2000. But TBT and SPS notifications rose to 2,185 and 1,214 respectively in 2012, growth of 2.6 times for TBT and 3.5 times for SPS. The total notifications of TBT and SPS increased from 876 to 3,399, a 2.9 times growth since 2000.

The new world trade system shows a strong tendency to highlight the integration of trade rules in goods, investment and services. In the investment area, an emphasis is placed on protecting the investor’s interests; in the service area, the measure of negative list is taken and services trade will be liberalized comprehensively and at a high standard level. The most important multilateral agreements that are being negotiated now are the Plurilateral Services Agreement (PSA), Information Technology Agreement 2(ITA2), the Government Procurement Agreement (GPA),and the Environmental Goods Agreement (EGA). They will strongly push forward the bilateral and multilateral trade negotiations.

First, the PSA. The US, Europe and Japan generate two-thirds of the global service output, absolutely having the big market and the discourse power. The future PSA negotiations will mainly cover all the service areas such as finance, express delivery, transmission, telecom, E-commerce, transportation, sightseeing, internet of Things, mobile communication network and internet. The TPP, TTIP and PSA all involve service issues in the areas of the fair competition among countries and economies, digital trade, internet of things, environment, etc. Thus, a service trade agreement can be taken as the core of the world trade rules that the US is to rebuild.

The ITA2 is dedicated to reducing or eliminating the tariff on the advanced information technology products, involving 80 countries. The first information technology agreement took effect in 1997. The new agreement is to expand the product coverage so as to reach the goal of covering 97% of the world’s IT products. China promised to expand the IT product coverage of trade liberalization. However, because China and South Korea failed to reach an agreement on the important tariff items about organic light-emitting diode (OLED) technology and products, the second information technology agreement was not reached. Only when the disputes over some high-value tariff items are settled can they cooperate and finish the talks.

In addition, joining the GPA is rather difficult. Eliminating the government procurement restriction can both help governments more effectively reallocate resources and reduce the corruption risk in the bidding cooperation with governments. According to its protocol for accession the WTO in 2001, China agreed to participate in the government procurement agreement “as quickly as possible”. China has negotiated for many years on the issue of joining the government procurement agreement. Although China recently suggested extending the restrictive coverage of the international rules to the provincial-level governments, still other GPA members were not satisfied, so the negotiation is still under way.

The EGA aims at eliminating a series of tariffs on those products that help alleviate environmental pollution. This agreement was first initiated in 2014 and now consists of China, the US, EU and other 14 countries. Negotiators of the EGA are now making a list of goods for the tariff reform and thereafter will discuss the time span of gradually abolishing tariffs and the limited exceptions of possible exempting from liberalization promise. A huge amount of work may need to be done, because the second stage of negotiation aims to extend the reform to those areas outside the tariff liberalization, appeal for reducing non-tariff barriers and advocate environment-related services.

Faced with the US and other developed countries’ “advantage of setting rules”, China does not rule out the possibility of joining the TPP in the future. In addition to the bilateral free trade agreement signed between China and Australia, in recent years China has actively promoted a new frame of regional cooperation, including ASEAN-China, Japan and South Korea (10+3), China-Japan-Korea FTA, the Regional Comprehensive Economic Partnership (RECP), the Free Trade Area of the Asia-Pacific (FTAAP) and One Belt One Road.

In the long-term, a series of regional free trade agreements like the TPP, PSA, GPA and the new world rules also conform to China’s own economic restructuring and reform direction. China must quickly reinforce the network establishment of the global free trade areas, actively adapt to the challenge of the new rules set by the US and other countries, appropriately enhance its level of liberalization in such areas as goods trade, service trade and investment, force itself to break through market barriers and get rid of institutional barriers. Only by making use of an open competition mechanism can the country successfully promote its upgrading in the global value chain and the labor division system of industrial chain.

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