UK and Australia can unite to recast world trade
Even before the pandemic outbreak blighted the global economy, the trading system was slowing down. Last year, World Trade Organisation forecasts for global trade growth were downgraded from 2.6 per cent in April to 1.2 per cent in October. Indeed, merchandise trade volume fell by 0.1 per cent last year, weighed down by trade tensions, particularly between China and the US, and slowing economic growth.
The WTO expects this year will see world merchandise trade fall between 13 and 32 per cent. Almost all regions are expected to see double-digit declines in trade volumes throughout the year with sectors that have complex value chains, such as electronics and automotive products, most affected, and with exports from North America and Asia hardest hit. Service economies are also likely to be heavily affected as a result of transport and travel restrictions.
It is a reminder of how interconnected and interdependent the world economy has become in the era of globalisation.
Contagion in one part of the globe, whether as a result of economic, security or natural events, quickly ricochets around the rest. While the concept of “over there” has become increasingly redundant, political systems have failed to adapt. Rather than developing the necessary tools for dealing with unavoidably global problems, governments have taken refuge in either regional or national responses that have become increasingly inward-looking. Even the biggest economies or trading blocs have found themselves incapable of dealing with these huge global events as their relative importance has diminished in a world where the economic centre of gravity has shifted to the Pacific.
It is essential that we reverse the recent trends towards protectionism if we are to pull out of the steep dive in the trading system that the COVID-19 outbreak has launched us into.
It is worth pointing out that after the financial crisis the G20 countries in 2010 were operating about 300 non-tariff barriers to trade while by 2015 this number had almost quadrupled.
A little bit of consumer protection here, a little bit of environmental regulation there and the little pandering to domestic producer sentiment on top has led to a silting up of the global trading system that, almost imperceptible at any one time, has had a damaging cumulative effect.
We need to reassert our basic belief in free, fair and open trade and back it up with action, including effective WTO reform.
Failure to do so risks a reversal of the historic reduction in global poverty achieved over the past generation – such a failure would put pressure on global security with increased internal political disruption and greater external displacement of migrants and refugees. How should the UK and our allies who share common goals, values and perspectives react? How do we turn the massive challenge of getting the global economy moving during this pandemic into an opportunity to open up the trading system to the benefit of both developed and developing countries alike?
The UK is one of Australia’s largest trading partners with a bilateral trading relationship worth £16.6bn ($31.3bn) a year. About 15,000 UK businesses export their goods to Australia and a new trade agreement should allow Australia greater access to the UK markets than during Britain’s membership of the European Union, in the eyes of many of us, redressing a political wrong.
As well as having 28 consecutive years of economic growth, Australia’s exports have grown to $430.1bn and it is experiencing foreign investment at record levels.
When the agreements Australia is now pursuing are finalised, they will cover 88 per cent of Australian trade, up from about 70 per cent now and a huge increase on the levels inherited by the present government. There is a strong overlap in our respective trade agendas, with the UK highly supportive of Australia’s leadership in the WTO discussions on e-commerce and both countries keen to see liberalisation in global services. There is also a strategic underpinning to this joint agenda that goes beyond narrow bilateral trading interests. With tensions growing in relations with China it is in everyone’s interests to diversify trade and if Britain were to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership it would create a preferential trading group roughly equivalent in size to the EU27 and provide a more global counterbalance to China’s trading strength.
This brings us to another area of common interest, that of WTO reform. A fully functioning rules-based system founded on genuine free, open and fair trade is more essential now than ever.
Both countries share concerns about China’s abuses of the trading system and the failures of the appellate body with an extension of its remit beyond the original jurisdiction. Both want to see reform rather than walking away from the organisation.
There is a gap in leadership on this reform agenda that both countries could fill. Time is of the essence. The coronavirus crisis understandably commands our attention at the moment but there are big issues waiting just around the corner.
Liam Fox has served in three UK governments under three prime ministers. He is a former International Trade secretary (under Theresa May), Defence secretary (under David Cameron) and Foreign Office minister (under Sir John Major). He has been a member of parliament since 1992.