On August 2, 2021, as part of the 7th China and Globalization Forum, CCG hosted a dialogue on trade between CCG President Huiyao Wang, Wendy Cutler, Vice President of the Asia Society Policy Institute, and Pascal Lamy, President of the Paris Peace Forum.
On August 2, 2021, as part of the 7th China and Globalization Forum, CCG hosted a dialogue on trade between CCG President Huiyao Wang, Wendy Cutler, Vice President of the Asia Society Policy Institute, and Pascal Lamy, President of the Paris Peace Forum.
For this discussion on the multilateral trading system in a changing context, we were lucky to be joined by two good friends of CCG and leading authorities on international trade. Wendy Cutler spent nearly three decades as a diplomat and negotiator in the office of the US Trade Representative, where she served as Acting Deputy US Trade Representative. During this time, she worked on a range of bilateral, regional, and multilateral trade negotiations and initiatives, including the US–Korea Free Trade Agreement, the Trans-Pacific Partnership (TPP), US–China negotiations, and the WTO Financial Services Negotiations. She continues to be deeply involved in issues related to trade, innovation, and women’s empowerment in Asia through her work with the Asia Society Policy Institute (ASPI). Cutler previously came to speak at CCG headquarters in Beijing in September 2018, participated in a joint CCG–ASPI roundtable on Asia’s economic integration in March 2017, and also contributed an essay to the 2021 CCG book Consensus or Conflict titled “Did the United States Miss Its Chance to Benefit from Ongoing Asia–Pacific Trade Agreements?”.
Pascal Lamy was the longest-serving director-general of the World Trade Organization (WTO) so far from 2005 to 2013. Previously, he was EU Trade Commissioner, and before that, worked in a number of roles in the French government and as Chief of Staff to EU Commission President Jacques Delors. Pascal is now president of the Paris Peace Forum, which hosts an annual gathering of world leaders, experts, and individuals from around the globe to explore new forms of collective action. Lamy has visited CCG headquarters several times, including giving a talk on WTO reform in September 2019. I have also been fortunate to work with him through my involvement with the Paris Peace Forum.
In April 2021, a few months before this discussion took place, both Wendy Cutler and Pascal Lamy participated in a CCG webinar on the role of the WTO and the global response to the COVID-19 pandemic. Many things had changed by the time this dialogue took place, so we took the chance to review the impact of the pandemic and prospects for trade. This dialogue also took place in the run-up to the 12th WTO Ministerial Conference, which was later delayed, so the topic of WTO reform and related issues such as the dispute settlement mechanism, fisheries negotiations, and competitive neutrality were high on the agenda. We also covered vaccine inequality, the impact of China on the international trading system, regional economic integration, and global taxation. To start the conversation, Wendy began by giving us an overview of the Biden administration’s trade policy.
Huiyao Wang: Let’s begin our discussion today, and maybe I can start with Wendy. Since you are very familiar with the US government and a former US government official that worked on the WTO and multilateral trade for quite a long time, maybe you can start by commenting on the US priorities for WTO reform and the upcoming 12th WTO Ministerial Conference.Footnote 1
Wendy Cutler: Thank you very much. It’s my honor to be here in another CCG forum. Before I talk about how I think the Biden administration is viewing WTO reform, the first thing is just to highlight three cornerstones of the Biden administration’s trade policies, because I think that will help us understand their view on the multilateral approach, as well as on the upcoming WTO ministerial meeting.
First, the Biden administration’s trade policy is closely integrated with its domestic agenda, including on issues like COVID recovery, climate change, and “Build Back Better.” All these initiatives being pursued on the domestic front are also being pursued on an international basis. Second, when it comes to trade policy, the new phrase in Washington is a “worker-centric” trade policy. I get a lot of questions on what that actually means, so let me share some of my thoughts with you, but I would like to admit firstly, I think it’s a “work in progress” and that how exactly this policy translates into concrete trade initiatives is still being developed. The basis for this policy is rethinking US trade policy as one that needs to change in order to benefit the working class and the middle class; to be responsive to their concerns and priorities; and to use trade to really improve, not only the number of jobs for US workers, but also to improve the quality of jobs, and again, not just US workers, but workers around the world. The phrase that [US Trade Representative] Ambassador Tai uses a lot is “to use trade as a force of good”—to really uplift the livelihoods of workers, as well as to promote more equality among workers, the middle class, et cetera.
The third pillar of the Biden trade policy is to work with allies and partners. We just launched, for example, the Trade and Technology Council with the European Union, which, for the purposes of today’s discussion, includes a working group on global trade challenges. But it also is centered on being constructive and engaged in international organizations and multilateral institutions, including the WTO.
I think all three pillars are relevant to today’s discussion. When it comes to the WTO, we did see some early moves by the Biden Administration to show that they are supporting the WTO, including very quick endorsement of the new Director-General, not even waiting for the confirmation of Ambassador Tai. I’m sure we’ll be talking more about Dr. Ngozi. Second, the US has been constructively engaged in the WTO agenda. Just last week, for example, we joined the plurilateral talks on services domestic regulation. We have been active members of the fisheries subsidies negotiations. And of course, we’ve joined ranks with others in calling for a Trade-Related Aspects of Intellectual Property Rights [TRIPS] waiver for COVID purposes. So, I think that gives some indication of how engaged and committed we are. That said, we still have not nominated nor confirmed an Ambassador to the WTO and lots of our statements on WTO reform have yet to be translated into actual proposals, but I think that will happen with time. However, I also think it’s important that when we think about WTO reform and the upcoming WTO ministerial meeting, this can’t just be about the US. This is going to require contributions from all 164 members, as well as the major trading countries, including Europe, China, and the US.
With respect to China, I think that it’s going to be important for China to step up here and help move the WTO forward and update its rules. In particular, I want to highlight the WTO agenda with respect to non-market economies. This is an area, looking forward, where we will need to find a way to work together if the WTO is going to continue to be relevant. I think there will be a lot of interest in this agenda as we get closer to the 20th anniversary of China’s accession to the WTO which will take place later this year.
The US has been very cautious yet realistic about its objectives for the upcoming ministerial meeting, partially taking into account where we are with COVID now and the possibility of in-person meetings. I also think it’s important that we don’t set high expectations and then not meet them. It’s not in the WTO’s interest for any headline around this Ministerial to use the word “fail” or not to have lived up to expectations, and so that’s why the US has put forward what it calls a “targeted” approach, calling for a successful conclusion to the fishery subsidies negotiations, but also calling for some modest institutional reforms with respect to transparency, dealing with self-declaration developing country issues, and other institutional reforms.
Huiyao Wang: Great, I think you have highlighted the importance of the WTO. I’m very glad to see that the Biden administration is now backing the WTO. The new Director-General [Dr. Ngozi Okonjo-Iweala] has also appointed four deputy directors-general, one from the US, one from China, one from the EU, and one from Latin America. I agree that we should really focus on the future of the WTO because I think in light of this pandemic, we need world trade to reboot the global economy. In history, we have seen global trade boost stability and growth, such as after the Second World War and the financial crisis.
Pascal, you have been the longest-serving director-general of the WTO so far, you know the EU and China well, and you are a strong supporter of multilateralism. Biden has come back to multilateralism, the EU has always been there, and China is also a strong supporter of the multilateral system. So, what’s your assessment? Can all the major players play a role to shape the revival of the WTO and to build confidence? Since the failure of the Doha Round, not much has been achieved.
Pascal Lamy: Short term, I think the main issue for all of us is to exit this pandemic—health-wise, economy-wise, and policy-wise. [The pandemic] is not mostly a trade issue, although open trade can help boost the recovery. There are a few [trade-related] issues that have to do with vaccine production and intellectual property, but these are not central to the multilateral trading system.
If we take a broader view, why do we need a multilateral trading system? Why do we need a World Trade Organization? Basically, to reduce obstacles to trade. In so far as a lot of us believe that open trade is a good thing overall, we need to reduce obstacles to trade. That is the big principle, which necessitates some qualification. I totally agree with what Wendy said, that the trade policy of the US, EU, or China is very much a domestic issue. The reason is that opening trade works overall to create efficiencies. If the sum of wins and losses is positive globally, there is greater efficiency, hence growth is higher. But this is usually not true locally and so the question is, what is the real impact of any country’s trade opening on “x” profession, “y” group of workers, or “z” group of consumers. Well, this is something much more complex than the big picture.
In other words, while opening trade is a global issue and hence necessitates a multilateral trading system, a lot of attention has to be paid locally to how you manage distribution between winners and losers. There may be more winners than losers globally, but this may not be true locally. The reality is that in the West, for the last 10 or 15 years, there has been more debate about whether or not “we” will lose out in this equation, thus leading to more domestic political debates about trade.
That’s a general introduction and the reality is that we have a relatively open world trading system that has worked for the last few decades. Trade is more open today than it was 10 years ago, and 10 years ago it was more open than 20 years ago. Yet, there remain a number of issues in terms of leveling the playing field, such as ensuring fair competition between producers so that the benefits of trade opening and competition can flow to the benefit of consumers.
In my view, in today’s world, there are basically two substantive issues that need to be addressed multilaterally to level the playing field. One has to do with competition and another has to do with how you handle “precaution.” Competition is about ensuring that producers compete on fair grounds, i.e., without trade distortions, which classically are quantitative restrictions, tariffs and subsidies. In today’s world, quantitative restrictions and tariffs are not the major issues—they’ve largely been dealt with in the past—whereas subsidies remain a problem, notably because of China’s role in the world economy. I think the main issue for the multilateral trading system and for the WTO as far as leveling the playing field is concerned is what the Chinese leadership calls “competitive neutrality.”
The reality is that China has a different economic-political organization than the rest of the world, which is mostly organized in a form of global liberal market capitalism. China remains a communist country that believes that state control of 30 percent of the production system is the right way to go. This is very different from the rest of the world and it’s probably more different now, at least for the last 10 years, than it was in the 10 years after China first joined the WTO.
“Competitive neutrality,” how to compete in the Chinese domestic market and in international markets with state-owned enterprises (SOEs) that receive state support, is an issue that many other countries have to deal with. The EU and US probably are more outspoken than others in that they see this problem as one that necessitates further adjustment of WTO subsidy rules, but there are many other countries that have the same view. So, to ensure a level playing field and a fair system, I think issue number one is to strengthen WTO rules on state aid.
Another issue, which is more recent, has to do with what I call “precaution.” Precaution is when you protect your people from risks, whereas protection is when you protect your producers from foreign competition. Precaution is now on the rise. It’s about issues such as the environment, health, safety, security, and privacy. Precaution leads to more regulation and that regulation is more fragmented, because the way a state protects its people from risk is very often correlated with ideology, culture, religion, and history. This makes precaution a major, and tricky issue for the future.
There is another issue quite dear to my heart, but which unfortunately in my view does not get the level of attention that it should. It is that the WTO itself as a process, the way the organization works, needs a lot more attention and a lot of reform. As machinery to legislate and regulate globally, the WTO is not what it should be, for a number of reasons. I deeply believe that this machinery needs attention if we want the WTO to be up to its task in the future.
Huiyao Wang: Great, thank you Pascal. I think both you and Wendy have outlined your perspectives on the WTO and the future reshaping of the organization.
Pascal mentioned that SOEs play a large role in the Chinese economy, but they also have social responsibilities and play a frontline role in disaster relief and poverty alleviation. I think this hybrid system in China seems to be working, but you raised a good point about competitive neutrality, which is a concept being widely discussed in China. There is room for future improvement on this front.
I want to raise another question. Last year, both of you attended a CCG webinar on multilateral trading system reform, when we discussed the lack of leadership in the WTO at the time. Now, the US is back with the WTO under Biden, but we still need strong leadership to make progress, and cooperation between China, the EU, and the US. Wendy, you have recently suggested that we could have a US–EU–China forum on the multilateral trade system. Last time, we discussed that maybe the WTO Secretariat could play a more active role, like in the WHO and many other international organizations. In the WTO at present, with so many member states and rules, it’s hard to make decisions. It would also be good to deliver on some low-hanging fruit, such as the ongoing talks on fishery subsidies. The WTO could also do more on issues like marine plastic pollution, digital economy and trade, and investment facilitation. Wendy, maybe you can share your views?
Wendy Cutler: Thank you. Maybe before I get to your question, just a couple of comments. I couldn’t agree more with Pascal that we need to look at the WTO “machinery” and institutional issues because they are so interrelated in light of the inability of the WTO to produce successful negotiating outcomes. The approach that the WTO followed for its early years with respect to needing consensus to arrive at decisions, the focus on the most-favored-nation [MFN] principle under which all benefits from a negotiation should be applicable to all members, and the issue of LDC self-selection—are perhaps outdated now and they merit serious reconsideration.
You mentioned the fish subsidies negotiation. Well, one of the major stumbling blocks in that negotiation, from the US perspective at least, and of Europe and other countries, is that developing countries do not want to take on full obligations. I just want to make the link between these institutional issues, which sound very wonky, as they are so interrelated with where we see the WTO today. It’s important that we look at these issues and, in my view, the only way forward is to allow for subsets of WTO members to meet, to negotiate, to agree on outcomes, and to share the benefits just among those parties, but at the same time to invite other parties to join and to offer them the technical assistance that might be needed to get them to a place where they can participate.
With respect to China’s accession to the WTO, I am a firm believer that it was the right decision for the US at that time to be a supporter of China’s WTO accession. When I look at the important legal and regulatory changes that China made at that time, how it opened and reformed its economy, and as you mentioned, how it became a global trade force, it has brought benefits to the international trading environment. I don’t disagree with any of that. But I also feel strongly that here we are in 2021, and changes and updates need to be made if indeed this system can be credible and continue to function as a major force in the WTO rulemaking process. When China joined the WTO, the expectation was that rules would be updated, there would be new market access commitments, and that we would continue to update the rules on subsidies or introduce rules on state-owned enterprises, among other issues areas. In fact, a new WTO negotiating round was launched that year. But we all know the history; none of that has happened. So here we are, and the status quo on these issues just doesn’t work anymore. Looking ahead again, I think it’s critical that China join others that want to see some changes in these rules to better reflect and govern the types of trade practices that China and some others are pursuing in 2021.
Now, with respect to your question, where can China, the US, the EU, and other major countries cooperate when we look at this WTO agenda? Where do our interests align? There are some areas. I think number one, fish subsidies is an area where we should be working together. It’s critical that an agreement be reached on fish subsidies for the WTO’s credibility. This is going to almost be the litmus test for [Ministerial Conference 12]. If there’s no fishery subsidies outcome, the headline is going to be “the WTO can no longer produce negotiated agreements.” Moreover, we need to have an honest discussion about the special and differential exceptions [to the fishery subsidy rules], but we also need to make sure it’s a meaningful agreement, that it doesn’t just lock in the status quo. We should all be taking on obligations that actually address a real problem, and that is overfishing and over-subsidization, which have severe environmental impacts.
In the area of e-commerce we also have some shared interests. If we put aside some of the big issues where we have differences, like the free flow of data or data localization, there are areas with respect to trade facilitation and digital trade where we have shared interests, and maybe those are areas where we can work together.
On COVID recovery, I know there are differences between our governments, but I also think when you look at just the trade aspects, there are areas ripe for cooperation. The US now is in support of a TRIPS waiver for vaccines. I don’t think this will be the end-all-be-all issue for COVID, it’s just one part of the COVID response. But China supports this initiative as well, and I think we could work together with the authors of this initiative to try and limit it and make it workable, so we could have a meaningful outcome in this area.
Finally, I think it would be important for the multilateral trading system if the US and China could find a way to start taking baby steps toward lifting some of the tariffs that we have in place against each other’s imports. Whether we could limit [the lifting of tariffs] to the medical sector, pick out some environmental products, or just reciprocally lift a small group of tariffs, I think that could be a real shot in the arm for the WTO going forward. We both know the history here—these tariffs are not helpful for either country, and it undermines the relevance and the credibility of the WTO if the two largest economies have such substantial trade barriers in place on each other’s imports.
Huiyao Wang: Thank you, Wendy. I’m sure your last suggestion would be welcomed by the business community and would be a great move to show that both the US and China support the multilateral trading system and free trade.
Pascal, you spent so many years managing the WTO. What do you think about appellate body reforms, which have still not been fixed? Wendy also mentioned the TRIPS issue. To help overcome COVID-19, China and the US need to agree to relax patent and intellectual property protections. Also, the EU has some proposals related to carbon issues. Perhaps you could comment on these issues.
Pascal Lamy: I generally very much agree with the points which Wendy has made. First, on this issue of China joining the WTO and the 20th anniversary of this accession. As you know, there’s now a narrative in the West that suggests accepting China into the WTO was a mistake and that those who supported it, and I rank among them, were stupid enough to be cheated by China. This is absolutely wrong. I totally agree with what Henry said, you just have to look at the numbers. When China joined the WTO, its external trade surplus was around 10 percent of Gross National Product (GNP) and it’s now around zero or 1 percent. How does such a change happen? There’s only one way, which is to import more than you export, and this is what has happened. So, the answer is that China’s accession to the WTO has been a big contribution to the world’s economy.
Looking at the numbers, China’s WTO accession has worked—that’s not the problem. Where there is a problem we have to recognize is with the assumptions held 20 years ago when this deal was done. At the time, the assumption was that as time went by, over the long term, China would converge with the dominant global liberal market system. This did not happen, or more precisely, it did happen to a certain extent during roughly the first 10 years after China joined the WTO, and then in the next 10 years, China diverged from this path of convergence which started with Deng Xiaoping deciding China should rejoin the world economy.
I think the real problem with the WTO and China is that China professes exceptionalism as compared to global market capitalism, which then creates issues in terms of competition. This is why we need better, more precise rules on state aid. We Europeans know this problem—when the European common market was created in the 1950s, some of our economies were still more nationalized than others. Around 30 percent of France’s economy was nationalized but only around 5 percent of Germany’s. Under the deal done at the time, Germany said, I’m OK to open trade with France, but provided we have a system that regulates state aid, with a specific body which was the European Commission in charge of controlling whether or not state aid conferred an unfair competitive advantage. So, that’s where we have an issue. It’s not about China joining the WTO, it’s about the fact that 20 years after China joined, China is more of an exception vis-à-vis the rest of the world than it was at the time.
I totally agree that there is a leadership issue. The solution to this leadership issue lies in adapting a principle, which is that the WTO is member-driven. “Member-driven” is one reason for poor leadership. Not that the WTO should not be member-driven at all. In my view, what should happen is what happens in other normal international organizations, which is a better balance between the authority of the members and the authority of the director-general and the secretariat. The current member-driven system should be changed to a system of “co-driving” the organization. On the one side, the members decide—not the director-general, not the secretariat. But the director-general and secretariat must be given the authority to make proposals, to identify issues, to look into options, like in any other international organization. This rebalancing is necessary—I think that the WTO would be much more efficient if the member-driven system was partially transformed into being more driven by the director-general. But at the end of the day, the member states will remain the legislature.
Looking forward, I agree with what Wendy said about the digital economy and fishery subsidies. It’s now only a question of how to define exceptions—poor artisanal fishermen should not be subject to the rules. The question is, where is the line between artisanal and coastal fishing for poor fishermen, and large fisheries.
I see the environment as a major issue, in so far as climate change is now the number one issue on the international agenda. This necessitates urgent, bold action, which has to translate into an implicit or explicit carbon price rise. In the absence of a global agreement to set a global implicit or explicit carbon price at around €150, which is what economists say would be the right price to internalize the negative effects of production and CO2 emissions, there needs to be different ways to address this problem tailored to different countries and constituencies.
As you mentioned, the EU has now embarked on a Carbon Border Adjustment Mechanism (CBAM). This is not a new musical instrument, contrary to how it sounds, but a carbon-border adjustment mechanism so that a high price of carbon in the EU does not lead to carbon leakage, i.e., EU producers moving production out of the European Union in order to benefit from a lower carbon price elsewhere. This is a major issue and a series of briefs by a Brussels based think called Europe Jacques Delors I have co-authored propose allowing countries to adopt different ways to increase the carbon price, whether it’s through tax, emission permit exchanges, or regulations, and to compare the way they progress in order to smooth the inevitable trade frictions that differentiated carbon pricing in different countries will cause.
On TRIPS and COVID, I basically agree with what Wendy said. My own view is that there are already sanitary exceptions in the TRIPS agreement that provide for compulsory licensing in the case of a health emergency. We have a clear case of a health emergency, so what needs to be done is to make sure that the existing compulsory licensing systems work, as some think that they don’t work quickly enough. It’s not a question of overhauling the agreement, it’s a question of looking at how these waivers as structured in the TRIPS agreement can be more quickly implemented, whether for domestic production or for imports.
Finally, on your question about the appellate body, there is a structural problem and there is a problem that is easier to fix. The structural problem takes us back to the issue of whether the WTO is able to adjust, to reform, and to adopt newly updated rules. As long as the rules remain as they were in the 1990s, you will always have a growing gap between reality and the old rules. It is the judges’ job to adjust to this reality; old rules and new realities can only be reconciled within a dispute settlement system if judges interpret old rules so that they can match new realities. So, the real solution to fix the problem of whether or not the dispute settlement mechanism engages in judicial activism is to restart, reboot, and rework the rules-making system so that the gap between reality and rules is narrowed. That will leave much less room for judicial activism or “pretended” judicial activism.
The second part of the problem is probably not that difficult to fix. I believe the US is not always wrong when it criticizes the way that some WTO rules are sometimes interpreted. If the US would also raise this point about cases they win, it would be more convincing than the US only saying there’s a problem when it loses cases. If you only criticize a judge when you lose cases and never when you win, it looks a bit strange. But let’s leave that aside. There are, in my view, many ways to fix these problems if the US is willing to rejoin the dispute settlement system. By the way, the US is not the only country to believe that from time to time the judges may err in interpreting WTO rules.
This takes me to my final point, which I believe the three of us can agree on—that the key to fixing this problem is for the US, China, and the EU to work more closely together. The difference between the EU and China and the US is that it’s not a fully fledged sovereignty. The EU’s sovereignty depends on the topic, but trade is one area where the EU has authority, sovereignty, and size—like the US and China. I think this “G3” should work to fix a number of these problems—not that they should decide for others, but if there is a consensus between the US, China, and Europe, I would be surprised if it cannot translate into a WTO consensus.
Huiyao Wang: Thank you Pascal for your stimulating and forward-looking comments and recommendations. Now, I’d like to continue with Wendy if I may. You were the chief negotiator for TPP for many years, concluding talks a number of years before Trump pulled the US out of the agreement. There’s a prevailing theory that the TPP was designed by the US to contain China as part of the “pivot to Asia.” Now, China is interested in joining the CPTPP—not only China, but also the UK, Korea, and many other countries. What do you think about the CPTPP? There is also a trend toward regionalization, with RCEP, CPTPP, and other regional FTAs. How is that going to impact the WTO?
Wendy Cutler: If the WTO was actively engaged in rulemaking and delivering successful outcomes on important negotiating topics, the appetite for regional and bilateral trade agreements wouldn’t be as high as it is now. So, the two are interrelated. The theory is that if you do bilateral and regional free trade agreements, those should provide momentum and push the WTO in the direction to do more, and that should contribute to liberalization. But it’s not playing out that way. In my mind, if [over the next year] the WTO isn’t successful in delivering some meaningful outcomes and getting itself back on the map, then you’re going to see more and more trade move to regional and bilateral trade agreements.
With respect to TPP, all I can say is that when I worked on it, I would have never predicted we would be in the situation where we are now, where the US is out of TPP, Japan led other countries to conclude CPTPP, and now China seems to be more interested in joining CPTPP than the US. Sometimes my head spins when I think about all of this, but the story is not over either. It’s interesting that with respect to TPP and the US, the debate has not gone away. In fact, some prominent senators, other congressmen, some noted foreign policy types in the administration, and others have been pretty vocal about underscoring the merits of a TPP-like approach and questioning Trump’s decision for the US to exit the TPP. So, the debate continues, and if you carefully look at statements from the administration with respect to TPP, they are almost endorsing the approach of working with like-minded countries to set rules standards and norms, yet distancing themselves from the actual contents of what was in the TPP.
So, I don’t think the debates are over in the US, but I’m also pragmatic and I’m a realist. I don’t see a scenario in the near term where the Biden administration, given all that’s on its plate and the domestic toxic nature of TPP, announces one day that we’re going to rejoin. I don’t see that happening in the near term. I think what’s more likely is that the US works with other like-minded countries in the region to conclude a narrower sectoral type of deal, perhaps in the digital trade area, and perhaps that could build momentum for the US to participate in other negotiations in the region.
But I’m a firm believer that the US needs to get back in the trade space in the region, helping to shape the rules, the norms, and the standards. It’s happening without us and we’re not benefiting from it. When Trump left TPP, the feeling then was that the TPP would die a quiet death and that the RCEP would not proceed. But clearly, the opposite has happened; CPTPP is now in effect and the UK is formally in accession negotiations. RCEP will come into effect in early 2022, and it’s going to have a real impact on trade, supply chains, and economic integration in the region. It’s time for the US to get back into the trade game in the Asia–Pacific region, but this doesn’t preclude our ability also to engage and lead in the WTO. The Biden administration has a lot on its plate, particularly with respect to COVID economic recovery, infrastructure, and competitiveness. But if we lose the opportunity to engage on trade in the region, it’s something we might look back on as being a major mistake, and when we’re ready to come back, it will be such a different Asia, and our ability to be a real player and to influence the rules, norms, and standards may be diminished.
Huiyao Wang: Thank you, Wendy, for your comment on that. I agree that the US needs to be back participating in trade agreements or even digital agreements. It’s better than not coming back.
Pascal, you used to be the European Commissioner for Trade. At the end of 2020, China and the EU concluded in principle the negotiations on the Comprehensive Agreement on Investment, but progress has become bogged down again. Actually, European business is still very bullish on China. We have seen numbers coming from the EU Chamber of Commerce in China that European investment in China is increasing, with many European companies in the auto sector, pharmaceutical sector, or even aerospace now doing more business in China than in their own countries. How do you see prospects for China–EU business? Another question to you, as president of the Paris Peace Forum, which is a great multilateral global governance platform, to which you have dedicated much effort. How do you think the Paris Peace Forum can promote future globalization?
Pascal Lamy: Let me first come back to the point you made about China as a different system. I agree that those who thought 20 years ago that China would converge with the dominant system in the world, at least economically, were not right. The name of the game is not “convergence” anymore, it’s about “coexistence.” We have to better organize the coexistence of China with the rest of the system. It’s not about regime change, it’s not about the rest of the world telling China to change its doctrine or shrink its state-owned sector because a large state-owned sector would not be good for China, which I believe—that is for the Chinese to decide.
Whatever decision the Chinese leadership and people take on how they organize their economy, that is their business. But once the Chinese sovereignty decides that they want to have 30 percent of their economy under state control, because these companies are supported by the state, then you need to accept that others do not proceed in the same way, and that there has to be discipline on state aid to level the playing field. So, again, it’s not about telling China how to run its business. Once China decides to have a massive part of its economy under Party and state control, this is a competitive disadvantage for others, which needs to be fixed. It’s not a political issue, it’s an issue of your own economy and the way you want to run it, but this should not put the others at a comparative disadvantage—hence the importance of “competitive neutrality,” whether on the Chinese domestic market or when others compete with Chinese businesses in international markets.
On TPP, I very much agree that the TPP is the “best-in-class” for the moment. If you look at the most modern way to address both protectionism and “precautionism,” TPP is the best benchmark on the market. The paradox is that it was a creation of the US; the whole software of the TPP is American software that coincides with the way the US sees the world, with the way the US sees manufacturing, service sectors, and intellectual property. TPP is very oriented to the US mindset and Australia, New Zealand, Japan, and others have accepted that. The paradox is that the US is now not part of this very US-oriented agreement, which is something of a mystery of history on which historians will probably comment 50 or 60 years from now.
I think that the way forward is probably that we do with CPTPP what we are doing with the WTO, that is, move away from the single undertaking and accept that TPP has bits and pieces, and that some of these bits and pieces can be joined by countries like the US, China, or the UK. I think this is the pragmatic way to go. CPTPP remains a leading agreement, especially if you compare it to RCEP, which is very much an old-style agreement that deals mostly with manufacturers, tariffs, and quantitative restrictions. RCEP is a large agreement, and hence it’s important, but it’s much shallower than CPTPP in terms of disciplines on how you run your economy in order to benefit from open trade.
As for the EU–China investment agreement, you’re absolutely right that for the moment, this will not be ratified by the European Parliament because of sanctions and retaliations about changes in Hong Kong or tensions elsewhere in China. So, let’s be pragmatic on this. Nothing prevents China and the EU from effectively implementing this agreement without it being formally ratified, if we are serious about the fact that there are benefits for both sides. In this case it would not have been ratified, so it would not be legally binding as a treaty would be, but nothing prevents both sides from moving toward the content of this agreement in reality. I think this is the way to go.
On your last question about the Paris Peace Forum, it is not a trade forum and probably not fit to be a trade forum, because the Paris Peace Forum is about inventing new solutions, getting new projects done, about moving global cooperation into new areas with new stakeholders, whereas the multilateral trading system is much more about regulation. The Paris Peace Forum is about cooperation between non-state driven, non-sovereign partners like NGOs, businesses, big academic institutions, and big cities, and also with sovereigns, whereas trade is still regulated by sovereigns only.
What we can do is try to address the vaccine apartheid between North and South, which I personally believe is a dramatic problem that will slow our exit from this economic crisis, which stems from the sanitary crisis, by one or two more years. So, we are trying to work with the heads of the World Bank, IMF, WTO, and WHO through the Paris Peace Forum to promote cooperation, including trying to get through the next G20 commitments on more production and more distribution of existing non-used vaccines, which I believe is a major issue that we have to address quickly. I believe this new north–south fracture will divide this world and we will see the consequences of that in major negotiations, like talks on climate change for instance. So, I think this is a big problem. Not that trade issues are not important, but for the moment, there is something more important, which is vaccine production and distribution, which is a major economic and social issue.
Huiyao Wang: Thank you, Pascal, I congratulate you on your leadership of the Paris Peace Forum. I’m pleased that both Wendy and Pascal credit the CPTPP with setting higher standards for future global trade and maybe setting a good example for WTO reform. CCG has been advocating for China to join CPTPP, which is almost like a min-WTO. Since joining the WTO, China has abolished thousands of outdated rules and regulations, and that has helped to push China forward. We need some new targets to aim for and the CPPTPP could set a high standard for our future reforms as the WTO did in the past.
Pascal, the OECD recently proposed a global minimum corporation tax, which was also proposed by the G7 and G20. 130 countries have gone along with this initiative and China also agrees in principle. Then, there is the issue of digital tax and the EU asking big tech companies to pay tax. Maybe you can share the EU perspective.
Pascal Lamy: The issue of a global tax for multinational companies is one of the rare good news stories we’ve had in the last few years in terms of international cooperation. There are very, very few issues on which we can see progress in international cooperation. This is one and we owe it mostly to the Biden administration. Progress in this area simply stems from the importance and the growth of these multinational companies, including in the digital sector. They are making billions in profits without paying taxes and this has become unsustainable everywhere for political reasons. But to be frank, this breakthrough for international cooperation is an exception.
We need much more than this to reinvigorate international cooperation. I think the G20 is one forum to do that; not that it is a full-fledged institution, not that the G20 members have the legitimacy to speak for the rest of the world, but the G20 can be a place to forge much needed consensus on global public goods.
Huiyao Wang: Thank you. I really appreciate this discussion tonight, which was very stimulating, very constructive, and also full of ideas and suggestions. We have covered many issues: WTO reform, COVID-19, the future of multilateralism, even issues as concrete as TPP, fishery subsidies, and the Paris Peace Forum. So once again, I want to thank Wendy Cutler and Pascal Lamy, and our viewers. Thank you all very much and we hope to see you again sometime.
At the time of this discussion, this meeting was scheduled for November 2021, but was later postponed due to COVID-19.
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Wang, H., Cutler, W., Lamy, P. (2022). The Multilateral Trading System in a Changing Context. In: Wang, H., Miao, L. (eds) Understanding Globalization, Global Gaps, and Power Shifts in the 21st Century. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-19-3846-7_6
Publisher Name: Palgrave Macmillan, Singapore
Print ISBN: 978-981-19-3845-0
Online ISBN: 978-981-19-3846-7