Protectionist buzzwords could ruin the World Trade Organization
The news from Geneva last week was that the World Trade Organization (WTO) will live to see another day.
This is because the 12th Ministerial Conference (MC12) did enough to get members talking about the need to meet again for MC13. There “deliverablesinclude a fisheries agreement, a food safety statement and an intellectual property waiver regarding COVID-19 vaccines. Many details remain to be settled. Several topics, such as dispute resolution, were left for future meetings.
Now comes the hard work. Trade Ministers need support at home for what they have done in Geneva. This task will be made more difficult by two buzzwords: “near-shoring” and “friend-shoring”. Both terms can only serve to politicize supply chains and give protectionists the upper hand. Ultimately, they mean autarky.
The alleged reason for the closeness and relocation between friends is that COVID and the war in Ukraine have caused disruptions in trade. The suggested “solution” is to bring more of the things we need home, or at least to nearby or friendly countries. The irony is that the WTO is designed to reduce the risk of ‘hold-ups’, a theme highlighted in the MC12 declaration on food security. But where the WTO trusts markets, proponents of close and friendly offshoring want to prioritize politics.
First, a few thoughts on a few of the deliverables of MC12. There are key innovations in the fisheries agreement, which aims to reduce subsidies to illegal fishing. The buzz around this agreement is that it is the first WTO agreement to directly tackle a environmental concernand may even cover labor standards.
The statement on “food insecurityis a helpful pledge by members to resist the imposition of the export type and other restrictions that have proven popular as COVID rages on. It doesn’t do anything enforceable, but it sets the right tone at a time when the war in Ukraine reminds us that food markets are inextricably linked.
The to renouncer on intellectual property is just theater. There is already a world oversupply COVID vaccines. Few developing countries have the capacity to manufacture vaccines, and manufacturing more will further strain delicate supply chains. From this perspective, the derogation seems to be more a question of industrial policy ambitions than of remedying unequal access. Moreover, this piece of theater will hurt innovation in the next pandemic. Especially if, six months from now, members expand the waiver to cover diagnostics and therapeutics, which could mean just about anything.
MC12 also pledged to relaunch discussions on the reform of WTO dispute settlement. In a teaser, the “Final documentpromises talks to get the system “fully and well functioning” by 2024. The hope is that, among other things, this means fixing the Appellate Body.
So, was MC12 a success? Critics claim he simply threw the box down the road. Fans insist it’s a win, as everyone is even talking about the need to get back together for MC13. But what sold in Geneva might not sell in the capitals. It is not just a matter of political will. Jargon also gets in the way.
Near-shoring and friend-shoring exploit the intuition that geographic proximity and alliances are good for business. In fact, research shows that physical distance and cordial relationships largely explain trade flows. As a policy prescription, however, closeness and relocation between friends is not about business seriousness between friends, but about how markets cannot be trusted.
Take, for example, a recent bipartisan bill introduced in Congress titled “Nearshoring Law in the Western Hemisphere.” It authorizes the US International Development Finance Corporation to finance the relocation of suppliers to neighboring friendly countries. The cost of doing so would be huge, especially since the bill also covers “costs necessary for workforce development” in addition to moving costs.
But key supply chains, like pharmaceuticals and semiconductors, can’t be close or friends. The same goes for rare earths and critical materials, for which electric vehicles and other technologies have a voracious appetite.
As for intellectual property, the waiver nearly failed on whether China would be allowed to use it. The ensuing heated debate led to a footnote in the waiver disqualifying China. But this debate distracts from a more central point: giving up intellectual property will hurt innovation, whether the physically nearby free riders are friends or foes.
The set of deliverables agreed at MC12 is worth discussing. But make no mistake, proximity and outsourcing are protectionist buzzwords that will leave WTO members, including the United States, less wealthy and less secure.
Marc L. Busch is the Karl F. Landegger Professor of International Commercial Diplomacy at Georgetown University’s Walsh School of Foreign Service. Follow him on Twitter @marclbusch.