Protectionism on the rise as trade growth slows

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This article was first published in The Australian on 11 July 2016.


Fragmentation appears to be the order of the day. New ways of distributing goods and services thanks to the internet and the smart phone era have been a great opportunity for many. They are also unleashing a new form of debate and that has its challenges.

As Australia grapples with the outcome of this weekend’s Federal election, it is worth considering how we continue to advocate for multilateral trade agreements and counter arguments against trade that threaten to take some ascendancy in our polity.

There had been some optimism among Australian business leaders about the recent spate of free trade agreements that the Australian Government had negotiated. But the shock Brexit vote in the UK and now our recent elections have highlighted the difficulties facing those who have championed, on the left and right, an open economy and a reformist economic narrative.

The bilateral agreements concluded between Australia and China, Japan and Korea and Australia’s leading role in forging the Trans-Pacific Partnership Agreement in October last year are on one hand good news. But it is also evidence of global trade and investment fragmentation:  Global trend towards bilateral and regional trade arrangements, from the China-sponsored Shanghai Cooperation Organisation to Russia’s Eurasian Economic Union.

At the recent inaugural summit of the International Chamber of Commerce and the World Trade Organisation there was a clear warning about confusing the number of trade agreements reached and the actual health of global trade.

Because growth in global trade is going backwards.

From an average of five per cent growth in global trade since 1990, global trade growth has slumped to below three per cent for the past five years.

By one estimate, 2015 saw a 40% rise in protectionist activity, the worst result since the global financial crisis.

That’s why business leaders met with the WTO in Geneva, to ensure these emerging regional trade arrangements do not lead to a new era of business complexity or worse, new spheres of economic protectionism.

Business called on the WTO to renew its efforts to drive global free trade by a new round of modern, simple and predictable multilateral trade rules. This is a key point in ensuring the sustainability of common trade platforms and international arrangements. No doubt, the debate about the reasons for the the Brexit outcome will continue for years but when viewed in the context of trading between nations, Brexit, and the rise of populism of nativism generally, is another sign that we as a global community are not getting this right.

The emphasis around trade must be on clear, simple rules and universality. The WTO was encouraged to put more effort into practical sector-by-sector liberalisation efforts, in addition to the challenging work of all-in global agreements.

It was asked to expand its support for micro and small and medium sized companies (MISMEs) through consistent rules and end-to-end standards that would lower cost and complexity as MISMEs integrate into global supply chains. And business called on the WTO to recognise the risk of nationalist and protectionist moves by governments to fracture the global digital economy and stymie further investments.

The WTO must step up to play a key role in averting this risk and driving uniform e-commerce standards in areas such as customs duties, electronic signatures and data protection.

As a nation dependent on an open economy, Australia has long played an important role in supporting global trade and investment liberalisation. Now world trade growth is slowing, and protectionist pressures are rising it’s time for a thoughtful renewed push for further trade liberalisation and a conversation with citizens about ‘what’s in it’ for them. History shows it’s the best way to lift people out of poverty and nothing in the Brexit vote changes that truism.

In recent years Australia has played an important role in connecting global business to global political and economic discussions. As one of the founding members of the G20 group of countries, for example, Australia established the Business 20 (B20), a forum through which the private sector produces policy recommendations for the annual meeting of the G20 leaders.

This month’s WTO and International Chamber of Commerce meeting in Geneva was the beginning of a process to involve business representatives in setting WTO priorities and helping to drive results.

Business will undoubtedly welcome greater opportunities to participate in inter-governmental reform processes. But we must also accept the responsibility that comes with this enhanced influence. Serious contributions in the form of realistic policy reform proposals require far more work than merely commenting from the sidelines. Business must be prepared to devote time and resources to the task: identifying the trade and investment obstructions it is most worth fighting to remove; finding the benefits of standardising processes on a global basis; and working with the Australian government and international bodies to achieve practical outcomes.

Perhaps most importantly, we must continue to be vigorous advocates for an open economy free trade in the public debate, because if the voices of protectionism and discrimination speak loudest, we can expect governments to weaken their resolve. And if that happens, all of us stand to lose.

John Denton, is the CEO of Corrs Chambers Westgarth, and was the only Australian CEO to participate in the inaugural WTO dialogue with business in Geneva recently.




The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


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