Decades of growth in trade and foreign investment have made the economies of the world more interdependent than ever before. This trend has been reinforced by the steady liberalisation of international trade and investment at the bilateral, plurilateral and multilateral levels. National economic specialisations, and regional economic and political integration, have broadly proceeded in a single direction since the 1980s. On aggregate, emerging markets have become the main drivers of growth around the world.
Limitations
Despite the apparent progress of trade and investment liberalisation, multilateral negotiations aiming for further openness have had limited success in the 21st century. Launched in late 2001, the Doha Round of talks at the World Trade Organisation (WTO) ended in 2015 due to a lack of sufficient progress.
In the intervening years trade negotiators shifted focus to bilateral and plurilateral deals, while efforts at the multilateral level targeted more limited goals, such as the trade facilitation package agreed by the WTO in 2013, as well as the phasing out of agriculture subsidies in 2015. Fisheries subsidies and e-commerce were front and centre when the WTO last met at the ministerial level in Buenos Aires in December 2017.
Meanwhile, 46 members of the near-universal WTO began working towards an Environmental Goods Agreement (EGA) in 2014. A smaller group of 23 WTO members has been negotiating a Trade in Services Agreement (TiSA) since early 2013. Although talks on both the EGA and the TiSA stalled in late 2016, there are hopes in some quarters of new-found political impetus arising from the December 2017 WTO ministerial meeting.
Political Fallout
Globalisation has always had its critics, but the global financial crisis of 2007-08 and the widespread political backlash in advanced economies has caused many to call its central tenets into question. While Donald Trump’s election as US president was rooted in many factors, economic discontent among swathes of the population was prominent among them and helps explain the success of his protectionist rhetoric. Upon entering office, President Trump announced the US would withdraw from efforts to finalise the Trans-Pacific Partnership (TPP) with 11 other countries in the Pacific basin. Although negotiations on the Transatlantic Trade and Investment Partnership between the US and the EU had not advanced to the same extent as the TPP by the time President Trump entered office in early 2017, prospects for a deal remain weak.
In November 2018 representatives from three countries signed the US-Mexico-Canada Agreement (USMCA) to replace the North American Free Trade Agreement (NAFTA). The USMCA largely preserves NAFTA’s structure while tweaking rules regarding, among others, the origins of automobile parts and labour and intellectual property standards. Pending legislative ratification, the USMCA will go into force in 2020. In Europe, such discontent has fuelled the rise of radical, right-wing political groups and the UK’s 2016 Brexit vote. Centrifugal forces have manifested themselves in the drive for independence in Catalonia. While the UK and Catalonian political classes have professed commitment to free trade and open investment regimes, the spectre of Brexit and Catalonian independence should be interpreted as de facto protectionist, as both countries would be leaving the world’s largest free trade zone.
A gradual deglobalisation phenomenon is not entirely confined to the most advanced economies. First established in 1981, the Gulf Cooperation Council (GCC) consists of six countries in the Middle East. Although the GCC Customs Union had been fully operational since early 2015 and efforts have continued to integrate the region’s common market, this process was interrupted in June 2017 by the imposition of an economic embargo on Qatar, and the cutting of diplomatic relations by Saudi Arabia, Bahrain, the UAE and Egypt. The South American trade bloc, Mercosur, which was founded 1991 by Argentina, Brazil, Paraguay and Uruguay, has seen similar internal discord. While Venezuela was admitted as a fifth, full member in 2012, it was temporarily suspended in December 2016 and indefinitely suspended in August 2017 for violating the common market’s democratic principles.
Perhaps more importantly, emerging economies are frequently characterised by greater trade tariffs and investment restrictions than their advanced counterparts. A slowdown, or even a reversal, in liberalisation may be more of an issue for some emerging markets, with negative implications for their further integration into global value chains. Backsliding by countries that are traditionally the chief proponents of globalisation, moreover, may give political cover to leaders in emerging markets to adopt more protectionist stances.
Cause for Optimism
Even if the media is dominated by high-profile threats to free trade and investment, there have been some encouraging developments. Despite the challenges to NAFTA, business players in Mexico have remained pragmatic. Nuno Matos, CEO of HSBC México, told OBG, “Undoubtedly, NAFTA will bring about a marked increase in market volatility over the course of 2018.” While the shift towards protectionism threatens to stress the Mexican economy, the country’s prospects remain positive, as the change is also creating opportunities to establish linkages with other regions. “With increased capital flows from Asia, Mexico is not short of other trade partners that have growth rates far superior to those of the US,” he added. During the Asia-Pacific Economic Cooperation (APEC) leaders’ summit in Da Nang, Vietnam in November 2017, the TPP was revived without the US as the Comprehensive and Progressive Agreement for TPP (CPTPP). At the summit, Vietnam’s deputy minister of foreign affairs, Bui Thanh Son, told OBG, “Efforts must be made to enhance greater regional integration and connectivity. As global trade loses momentum, revitalising trade and investment is crucial to regional economic growth.” Son emphasised tapping into the opportunities presented by existing and developing regional agreements, including the Association of South-east Asian Nations (ASEAN), the Regional Comprehensive Economic Partnership (RCEP) and the Free Trade Area of the Asia Pacific. Indeed, the CPTPP itself entered into force in December 2018 for its first six ratifiers and will apply to Vietnam beginning in January 2019.
Since 2012 ASEAN’s 10 member states and the six countries with which ASEAN already has free trade agreements (FTAs) – Australia, China, India, Japan, South Korea and New Zealand – have been drafting the framework for the RCEP. While negotiations have repeatedly missed deadlines, the November 2018 summit culminated in a joint statement from its participants that seven of 18 chapters had been concluded, as well as a resolution – amid escalating trade tensions between the US and China – to finish the deal in 2019.
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