Australia on the brink as global trade rules collapse
The rules of world trade are unravelling, and Australia is at risk of losing out if the process continues.
The World Trade Organisation has called for significant reform in its annual report, saying “the multilateral trading system is at a critical juncture” as countries abandon the decades-old international framework of free trade.
Australia stands to lose if the global trading system is disrupted. BeyondImages
At the same time, the body acknowledged that the existing system has not benefited everybody equally, either according to nation or economic status.
WTO chief economist Robert Staiger said Australia nonetheless had a major stake in the rules-based order.
“If reforms are not successful, we see problems on the horizon,” he told the Australian Financial Review.
“Australia is a medium-sized nation, and ... Australia would have quite a bit to lose under the scenarios in which the core principles of the world trading system are abandoned and countries or nations pursue their own interests, either geopolitically or through free trade agreements without an overarching rules-based system.”
The WTO’s authority over trade is under threat, with the first Trump administration in the US blocking the appointment of new members to its judicial body in 2019.
The report also found that countries were increasingly pursuing trade agreements that did not adhere to WTO rules.
“Shifts in economic power, differences in economic systems, growing government interventions, the ubiquity of global value chains, the rising importance of digitalisation and artificial intelligence, environmental challenges and geopolitical tensions are testing rules designed in an earlier era,” the WTO said in its report.
“The principle of non-discrimination among trading partners, reciprocity, tariff commitments, transparency about trade measures, dispute settlement and flexibilities for developing economies remain central to trade cooperation, but they are increasingly under strain.”
According to the report, the global economy would shrink by 5 per cent if the trading system further fractured along geopolitical lines, and by almost 7 per cent if the WTO ceased to exist.
The first Trump administration blocked the appointment of new members to the WTO’s judicial body in 2019. AP Photo/Jacquelyn Martin
Director-General Dr Ngozi Okonjo-Iweala said there were four central challenges to the original global trade framework.
“Economic power has become more dispersed, which is fuelling friction over bargains that date back to the 1990s, but is also creating opportunities to strike new bargains, including through negotiations among developing economies,” she wrote.
“The growing diversity in how governments intervene in their economies has raised ‘interface’ and level-playing-field concerns with other economies, which existing disciplines and remedies do not always resolve.
“The changing nature of trade itself, shaped by global value chains (GVCs), digitalisation, AI and the environmental transition, is generating new kinds of cross-border spillovers that the WTO framework was not originally designed toaddress.
“And rising geopolitical tensions are straining the balance between the benefits of interdependence and concerns about security and resilience.”
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