..

The Conversation

  • Written by Giovanni Di Lieto, Lecturer of international trade law, Monash Business School, Monash University
Australia has to prepare for life after the World Trade Organisation

The Trump administration’s economic policy is rapidly breaking down the World Trade Organisation (WTO) system and shattering the rules-based international order. On top of imposing tariffs, the United States is blocking the appointment of new judges to the body that interprets and enforces WTO rules, decisions and agreements.

If this continues, the WTO will virtually cease to function by the end of 2019.

This will cause a gradual breakdown of the multilateral trading system and lead to a new international economic order that is no longer anchored in liberal democratic values, nor fully constrained by the rule of law.

Read more: America's allies will bear the brunt of Trump's trade protectionism

Australia must plan for a change in the globalised economy that has underpinned our 27 years without a recession.

In other words, Australia urgently needs a plan B should Donald Trump’s trade agenda lead to further protectionism.

This could include a so-called “border adjustment tax” – a flat tax on imports with a corresponding rebate on exports – or more emphasis on trade with noncompetitive economies such as India and Indonesia.

Breaking the World Trade Organisation

The US blocking of new judges to the WTO’s Appellate Body has caused a large backlog of disputes.

The Appellate Body is an international trade court of appeal typically composed of seven judges. They have the final say on the interpretation and enforcement of WTO rules, decisions and agreements.

The WTO is a member-driven, consensus-based organisation. Thus, the appointment of new Appellate Body judges can only occur “if no Member, present at the meeting when the decision is taken, formally objects”.

This is not exactly an equal veto power for all WTO members from mighty China to tiny Vanuatu. The larger economies can easily sway the minnows. The reverse is not true.

In practice, it takes the opposition of only one very powerful country to block any WTO process.

Read more: Why Trump's tariffs will have little impact on Australia and a trade war is unlikely

From October 2018 there will be only three Appellate Body judges left, the minimum required to form a valid dispute settlement panel. Crucially, two more judges will conclude their quadrennial term in office on December 10 2019, thus reducing the Appellate Body to only one member.

This effectively means the WTO rules can no longer be implemented and enforced. A paralysed Appellate Body is the death knell for the multilateral trading system.

This is what Trump really meant when he said that “trade wars are good and easy to win”. They are indeed for countries allowed to act unilaterally without the constraints of enforceable multilateral rules.

An anti-globalisation strategy

Diminishing the Appellate Body is just the latest in the smash-and-grab tactics used by the Trump administration to counter globalisation.

It appears to be a two-pronged plan. First, break the WTO system. Second, implement sweeping tax changes to rebalance America’s trade accounts, using measures prohibited by the WTO.

The WTO Appellate Body crisis is a canary in the coalmine. Australia must act without delay to limit any damage from disrupted trade flows and to chase opportunistic gains from trade diversions in emerging regional value chains.

For example, Australian beef producers will be much more competitive in exporting to China as their American competitors have to grapple with a 25% tariff on their beef.

On the other side, Japan recently struck a deal with the European Union to drop tariffs on food imports in exchange for concessions on car exports hit by the US-China trade war. Australian food exporters will face stiffer competition from the EU in the Japanese market.

Life after the WTO

With the United States planning adjusting border taxes post-WTO, Australia must consider similar measures to keep the economy stable and competitive.

Australia should refocus diplomatic efforts towards bilateral ties within the Indo-Pacific region rather than the developed economies that are further away.

A new generation of bilateral trade and investment partnerships is better suited than dwindling WTO instruments to maximise Australia’s economic and security outcomes in a less-than-liberal international order.

Read more: Rising imports make the case for Trump's border adjustment tax in Australia

Strengthening Australia’s bilateral ties in the Indo-Pacific is especially necessary in a securitised trade environment that is pivoting to shorter yet knottier supply chains within regional clusters.

We can already spot the initial signs that Australian policymakers are repositioning to navigate life after the WTO. During recent discussions in Buenos Aires between Group of 20 finance ministers, Treasurer Scott Morrison called for a revamp of the WTO system, as it “failed to deal with long-standing issues” and was “built for a different time”.

Morrison didn’t spell out what changes he thought were needed to ensure Australia is better off in the next trading system. This is a debate we need to have sooner rather than later.

Authors: Giovanni Di Lieto, Lecturer of international trade law, Monash Business School, Monash University

Read more http://theconversation.com/australia-has-to-prepare-for-life-after-the-world-trade-organisation-100522

Politics

Prime Minister interview with Alan Jones

Good morning Alan.   ALAN JONES: Thank you for your time. Could I just begin by saying that politicians rarely get praise. I have been speaking to farmers during the course of the weekend. You wen...

Alan Jones - avatar Alan Jones

Scott Morrison on Shorten's Border Protection backdown

Border Protection   PRIME MINISTER: Less than 24 hours ago, I warned Australia that Bill Shorten would make Australia weaker and the Labor Party would weaken our border protection. That they could...

Scott Morrison - avatar Scott Morrison

Funding to support women and children escaping domestic violence

Hundreds more women and children escaping domestic and family violence will have a safe place to sleep with a $78 million investment by the Morrison Government.   This investment includes a $60 mi...

Scott Morrison - avatar Scott Morrison

Business News

Statewide Super announce Tony D’Alessandro as CEO

Tony D’Alessandro Tony D’Alessandro will be the new Chief Executive Officer of Statewide Super, effective 1 March 2019. Mr D’Alessandro will replace Richard Nunn, who in January announced his ...

Media Release Service - avatar Media Release Service

Why ‘Handover Culture’ Doesn’t Exist in Australia – And Why It Should

Handing over a business to the next generation might seem like something that can wait, but Australian business is largely unprepared for succession – and that’s a problem.   Handover culture is t...

Andrew Williams - avatar Andrew Williams

Officeworks sponsors disadvantaged school kids with The Smith Family

RECORD-BREAKING SUPPORT FOR STUDENTS IN NEED THANKS TO OFFICEWORKS 2019 BACK TO SCHOOL APPEAL  As a new school year gets under way, more than 1000 students will have access to the education essenti...

The Smith Family - avatar The Smith Family

Travel

Fun Things You Must Do In Perth

Perth: Sun, sand and 19 beaches might seem to sum up the city, but not quite. The sunniest capital city in Australia offers so much more for you to do. Regardless of what your idea of fun is, you wi...

News Company - avatar News Company

ex-HMAS Tobruk dive site Fraser Coast

Fraser Coast Has a New Sunken Treasure for Divers to Explore A rush of scuba divers from around Australia is expected to begin exploring the underwater wonderland created by the ex-HMAS Tobruk after...

Tracey Joynson - avatar Tracey Joynson

3 Steps to Make Your Dream of Working Abroad Come True This Year

Oh, the New Year. The time of year when anything seems possible and everything seems doable. For some people, nothing will change over the course of the next 12 months. For others, everything may. I...

Bevan Berning - avatar Bevan Berning