Foreword Co-Authored By Andrew Chilvers And Bob Brewer
Global Trade: Combating protectionism and the pandemic
The past 18 months were a huge shock to international trade as increasing protectionism and Covid-19 wrought havoc with all previous forecasts and economic roadmaps.
Many business analysts predicted that the double whammy of protectionism and pandemic would spell an end to globalised trade.
Indeed, if we roll back a few years many economists were already warning that international trade was tapering off even before President Trump, Brexit and the coronavirus. As older, more established economies converted to the new digital economy, less goods were being shifted around the world. This coincided with the rise of China as an economic superpower, the proliferation of international laws, regimes and treaties governing trade and the increasing interconnectedness of supply chains.
But this complex global trading pattern was also the architect of its own undoing, creating financial instability, a trade imbalance, climate change, a rise in cyberattacks and the spread of the pandemic through trade networks. These crises then reverberated across the globe, appearing in different jurisdictions and spreading across local borders.
The Trump administration’s moves to address the trade imbalance with other trading partners was a catalyst for the resulting rise in protectionism – overnight he was using tariffs as a tool. This was particularly the case with China, where supply chains were impacted as businesses had to work around the tariffs, causing supply chain diversification and huge issues around the rules of origin.
This imposition of tariffs has now forced US businesses to take on higher costs at exactly the wrong moment, ie during a global pandemic. This has also had a knock-on effect with other US trading partners such as Canada, Mexico and the EU, which are all re-evaluating their trading relations with China, particularly around the rules of origin to ensure products are not using mainly Chinese components.
What are the opportunities and challenges that face global and regional trade in your jurisdiction?
As I’m an EU member state I’ll answer from that perspective. In the EU, trade policy generally falls under the exclusive competence of the Union. This means that the European Commission takes care of the trade talks based on mandates by Council of the EU, and trade agreements are then approved by the Council and the European Parliament, the latter having co-decision powers in important matters as spelled out in the Treaty on the Functioning of the European Union.
Covid-19 has not been any principal source of turmoil in trade policy in the first place. The year 2016 did far worse; first the Brexit referendum in the UK and then the election of Donald Trump as the President of the United States. However, despite the chills caused in the relations, the EU has managed to extend its network of Free Trade Agreements throughout Asia.
Although overtaken by China in 2021 as the largest EU import source for goods, the US remains the EU’s largest trade and investment partner by far. The transatlantic relationship defines the world economy. Either the EU or the US is the largest trade and investment partner of almost every other country in the global economy. Taken together, the economies of both territories amount to more than 40% of world GDP and more than 40% of global trade in goods and services. The Transatlantic Trade and Investment Partnership (TTIP) negotiations between the EU and US were launched in 2013 but ended without conclusion at the end of 2016. Nevertheless, transatlantic trade continues to enjoy one of the lowest average tariffs (under 3%) in the world, governed by World Trade Organization (WTO) rules.
One field, where trade could further be liberalised, would be public procurement. This becomes more essential when both the EU and the US pour substantial amounts of stimulus money into their economies for improving infrastructure and in furtherance of transition to sustainable energy and digitization. The EU also seeks reciprocity in its relations with China and wants to have access to the Chinese markets, equalling the Chinese access to the EU markets. So far, this legislation has not advanced in the EU legislative bodies as more liberal countries such as Finland have been opposed to it.
What is the impact of non-preferential rules of origin in the post-pandemic trading environment in your jurisdiction?
It is politically difficult to introduce protective or discriminatory trade barriers openly as this may lead to retaliatory measures by your trading partners. Therefore, such barriers are frequently set in disguise applying legally national rules, the effect of which is impeding imports one way or another.
Non-Preferential Rules of Origin can be used as an important trade and commercial policy measure. They do not make up a trade instrument by themselves but may be used in non-preferential commercial policy instruments relating to, inter alia, most-favoured-nation treatment, antidumping duty, safeguard measures, origin marking, tariff quotas, government procurement, trade statistics.
Harmonised Rules of Origin mean coherent rules concerning origin determination. These rules are expected to be set out by co-operative efforts among WTO member countries for non-preferential commercial policy instruments. When the rules are completed, they will become an integral part of the World Trade Organization (WTO) Agreement on Rules of Origin.
As set in the Agreement on Rules of Origin, the Harmonized Rules of Origin should:
• be applied equally for all the above-mentioned non-preferential purposes
• be objective, understandable, and predictable
• not to be used as instruments to pursue trade objectives directly or indirectly
• be administrable in a consistent, uniform, impartial and reasonable manner
• be coherent and based on a positive standard.
The harmonisation work is carried out jointly between the WTO and World Customs Organization (WCO), in the latter of which the work is done in the Technical Committee on Rules of Origin (TCRO) that allows non-WTO members and international organizations as observers.
The significance for the EU of the harmonisation of non-preferential rules of origin is not paramount due to the increasing number of free trade agreements with substantial trading partners. In this way, much of the trade is done based on Preferential Rules of Origin.
Predictions: what do you think global and regional trade integration will look like in your jurisdiction in five years?
The spread of vaccines will be important for the recovery of economies worldwide. Generosity in this respect will pay its dividend but may require an intervention on the IPR rights of the medical companies. Some sort of a compromise might be useful for all as economic growth will boost demand and trade in general. The post-pandemic recovery will benefit from the measures of stimulating economies, which will create opportunities and competition for example in public procurement.
The role of digitisation will increase further due to the increased working at a distance. At the same time, logistics may change because of increased e-commerce on the one hand, and the readjustment of supply chains on the other. There are difficult problems to be resolved as digitization will benefit disproportionately those which already have an upper hand, the technology giants. Perhaps we may see something like what happened in the US during the first decade of the 20th century, when President Theodore Roosevelt introduced trust legislation.
There are hopes that the multilateral trading system will be maintained and strengthened, e.g., by safeguarding the appointment of judges to the WTO Dispute Panel.
A reinvigorated WTO would probably gain authority to curtail pressures made up by the growth of China with its trading partners. This creates opportunities for countries like Finland that are very much dependent on foreign trade for the maintenance of their GDP. It is hoped that political tensions between the EU and Russia would be reduced, and sanctions could be lifted. Should the Russian economy recover, this would create many opportunities for Finnish and other EU exporters.
