Regulating World Trade
The container ship Houston Express at the Burchardkai terminal of the port of Hamburg, GermanyThe container ship Houston Express at the Burchardkai terminal of the port of Hamburg, Germany
Credit: Pexels/Julius Silver/CC BY
Summary
The liberalization of world trade continues, despite economic crises, protectionist pressures, and the entanglement of conflicting dynamics between numerous actors (MNF, SME, Southern or Northern states, WTO, NGO, etc.).
The value of global exports of merchandise grew by 32% over 10 years to reach US$ 16 trillion in 2016; exports of commercial services grew by 64% to US$ 4.77 trillion. Among the merchandise categories, manufactured goods and agricultural products in particular saw strong growth (increasing by 37% and 67% respectively) while exports of fuels and mining products decreased by 10% in value terms due to falling oil prices.
World trade in goods and services, 2006-2016
Comment: According to WTO statistics, world trade in goods has substantially increased since 2006, despite the curve’s considerable unevenness (impact of the 2008 crisis, slowdown since 2014). The upper curves show the change in volume, expressed in dollars: in 2016, the trade in goods appears to be three times greater than the trade in services. The lower curves, with base 100 (100 = the value in 2006), show more of the development over time, and trade in services appears to have risen more than trade in goods.
Actors of selective globalization
Highly comprehensive databases (UN/ COMTRADE and WTO) make it possible to track trends in world trade but do not fully reflect the complexity of regional and bilateral trade agreements. The practice of recording trade flows at borders is inadequate and obsolete, the ‘country of origin’ concept reflects neither industry value chains nor inter-company trading, and some actors still remain poorly understood (SMEs, e-commerce, etc.).
Trade in goods, 2016
Comment: The WTO data used for this map have been incorporated into large regions, producing an image that is simple and easy to read but which masks significant imbalances (for example, China represents 76% of all Asian exports) and repeats concepts which should be qualified (the Northern “triad” where most trade is said to be concentrated). The arrows showing the direction of interregional trade reveal confusions, a hierarchy and, often, an imbalance between exports and imports (between Asia and North America for example). The circles showing intra-regional trade show the transactions between states within a zone; they should be taken with caution, because they partly depend on numbers of states or level of economic integration, hence the high figure for Europe.
The end of protectionist import substitution policies and the opening-up of trade facilitated the emergence of major players from the Global South. Having joined the WTO (World Trade Organization) in 2001, China is now playing a major role, both through its relationships with the two other main hubs of world trade, the US and Europe (the three together accounting for 44% of global exports and 45% of global imports in 2016) and in South-South trade.
Even though changing technologies are playing an key role in declining manufacturing jobs, trade liberalization is often identified as the main cause of deindustrialization in the countries of the Global North. The remedies proposed by some, populist parties in particular, are a return to protectionism by increasing tariff barriers to imports (such as the taxes of 25% on steel and 10% on aluminum introduced in the US in March 2018, measures against the Chinese e-commerce platform Alibaba, etc.) and renegotiating regional agreements concluded via the WTO.
Although small and medium-sized companies account for a significant proportion of employment worldwide, their contribution to GDP is lower than that of major companies (due to lower productivity) and their share of trade is just one-third of the total even though they represent three-quarters of exporters by number. These companies face multiple obstacles in the marketplace: lower economies of scale on fixed costs, cumbersome customs formalities, lack of information, difficulties accessing financing and inadequate public policy support. Electronic commerce is an opportunity the WTO, the UN, the European Union and the OECD (Organization for Economic Cooperation and Development) are trying to measure more effectively – one that is primarily benefiting the newly-established, flexible SMEs created in the era of accelerated globalization.
Global infrastructures
All world trade actors are benefiting from more efficient goods transportation flows. Since the 1950s, standardized containers and the installation of cargo handling systems and dedicated wharves in ports have helped to cut costs and transform the global geography of trade. For Asia and for the South more generally, the network of shipping routes and the infrastructure of the major ports (some of which are major trade hubs) are tools furthering their integration within the global economy (as well as being productive investments for companies of the North). Activities related to the shipping industry are concentrated in the hands of powerful shipowners and terminal operators; Asian companies are playing an increasingly important role in this sector.
The top 100 container ports in the world, 2016
Comment: Lloyd’s List is the main historical actor in the insurance and reinsurance market. It analyses maritime trade activities, including freight ports. These infrastructures are mainly based on containers and constitute the tool for integration in the global economy. Their geographical distribution reveals a succession of ports stretching along the shipping routes connecting Asia, Europe, and North America. The largest ports – in terms of traffic – are concentrated in Eastern Asia, where 12 out of the 15 top ports are located (8 of them in China), whereas Rotterdam, which for a long time was the world’s largest port, now only occupies 12th position.
More recently, the growth of the internet and of the number of people using it has driven the expansion of e-commerce, dominated by two highly dynamic global operations, Amazon (United States) and Alibaba (China), which together had more than 750 million customers in 2016. Yet the two companies are based on very different models: while Amazon holds stock in its warehouses, selling and dispatching by means of powerful infrastructure and a large global workforce (300,000 employees in 2016), the Chinese platform is merely an intermediary between millions of sellers and hundreds of millions of customers.
The challenge of multilateral regulation
GATT, the General Agreement on Tariffs and Trade, was established in 1947, promoting free trade as a force for peace. When the United States failed to ratify the Havana Charter, however, the agreement over many years became a mechanism for undertaking multilateral negotiations outside the UN, encompassing ever more countries, products and subjects. This produced a multitude of partial agreements – leading, in 1994, to the Marrakesh Agreement, which created the World Trade Organization, a permanent organization for supporting and regulating international trade, including a Dispute Settlement Body (DSB) that can impose sanctions (between 1995 and 2016 more than 500 disputes were submitted to the DSB). WTO agreements (covering goods, services and intellectual property) formalize the principle of trade liberalization (and its exceptions); member countries commit to lowering barriers to trade in a transparent way and to settling their disputes, while special provisions and progressive measures can be put in place for developing countries. In 1999, the launch of a new round of negotiations in Seattle faced disagreements between the European Union and the United States, objections from countries of the South regarding the event’s scope and coverage, and disruption caused by alter-globalist protestors. Between 1996 and 2017, 11 Ministerial Conferences were held, reconciling the motivations of states with divergent interests and very unequal negotiation capabilities (highly specialized officials and legal teams) with those of competing multinational corporations backed by powerful lobbies. The Doha Round, which began in late 2001, comprises 20 areas of negotiation. In 2018 it was still in a state of impasse – evidence, in itself, of the challenges involved in regulating world trade.
Disputes at the World Trade Organization, 1995-2018
Comment: The WTO’s Dispute Settlement Body (DSB) has power of sanction when arbitrating in trade disputes between member states. The grid shows that the two commercial giants formed by the United States and the European Union (EU, which sits in its own right and on behalf of its member states) are the focus of most complaints, whether they are themselves complainants or are the subject of complaints; against one another or against many other countries, some of them emerging, with China in the lead. In 2001 China became the 143rd member state of the WTO, but has only complained against the United States and the EU.
- borders > Border
- The line that marks the limit of state sovereignty, as distinct from the hazy boundary zones or limits of empires. In no way natural, these long-term historic constructs, which can be more or less endogenous and more or less subject to dispute and violence, are being profoundly altered by contemporary globalization processes. Regional integration processes are transforming and diminishing them – even erasing them, and pushing them back; transnational actors are crossing them or bypassing them; at the same time, they are being closed to migration, while new borders (social, cultural) are being constructed.
- import substitution > Import Substitution
- A notion and practice developed by the Economic Commission for Latin America and the Caribbean (UN/CEPAL) with the aim of industrializing a country by promoting the development of production enabling it to replace imports with home-produced goods. This policy usually goes hand in hand with protectionist measures in order to protect national producers against external competition.
- Global South > North and South
- Relatively recent spatial metaphors which, like other labels around underdevelopment or low development levels, tend to focus on the homogeneity of each of these worlds, the oppositions between them, and the fracture lines – running the risk of overlooking the fact that flows and exchanges (economic, demographic, cultural and political) connect them and that social and political fractures are evident within both of these categories, too.
- liberalization > Liberalism
- Arising from Enlightenment philosophy, Liberalism refers to a corpus of political philosophy that places the preservation of individual rights at the center of its conception of society and the political order. Devolving from this, on the one hand, are mechanisms to safeguard the individual against the arbitrary use of state power, which mostly translate into a preference for a democratic political order; and, on the other, an emphasis on respecting private property, which leads in turn to a preference for minimal state involvement in the economy – restricting the state’s role to matters of sovereignty. Behind this consensus are many debates around the level of state involvement in the economy, or around protection of individuals vs. that of a political order and given social norms, which translate into different variants of liberalism (such as German-style ordoliberalism, libertarianism, or liberal conservatism).
- deindustrialization > Industrialization
- The process of industrialization developed from the Industrial Revolution onward – in Western Europe then in the United States, and in their colonies. It is constantly changing (structure, production and location). Companies are restructuring their operations on a global scale (new international division of labor). FDI and delocalization are at the crux of this deindustrialization/industrialization pairing a withdrawal from traditional industrial areas on the one hand (plant closures, job losses, dissolution of subcontracting networks) and the creation of facilities in emerging countries and the global South on the other. Value added is growing in manufacturing industries thanks to productivity gains (innovation and R&D) and the outsourcing of corporate services (maintenance, transport, logistics, research, IT, advertising).
- Global North > North and South
- Relatively recent spatial metaphors which, like other labels around underdevelopment or low development levels, tend to focus on the homogeneity of each of these worlds, the oppositions between them, and the fracture lines – running the risk of overlooking the fact that flows and exchanges (economic, demographic, cultural and political) connect them and that social and political fractures are evident within both of these categories, too.
- protectionism > Protectionism
- Protectionism is the opposite of free trade. The term describes a political doctrine and state practice that implements measures to protect national industries and services from foreign competition (chiefly tariffs and non-tariff barriers). After World War II, protectionism was seen as an aggravating factor in political hostilities and commercial rivalries that could lead to war, and free trade was adopted as a common goal in response to business needs and growth objectives. As free trade is now increasingly challenged, primarily by countries of the South but also in some developed countries, protectionism has reappeared as a doctrine, a political program or brandished as a threat (e.g. in relations between the USA and China since the election of Donald Trump).
- e-commerce > Electronic commerce
- A form of commercial transaction developed from the 1990s together with the expansion of internet use. It includes advertising, sales and the distribution of products and services through communication networks. Largely dominated by rapidly-expanding global businesses, electronic commerce means that all sorts of products can be offered on a worldwide scale – but its clientele is also global and unequally divided, reflecting the inequality of internet access. Its rapid spread has helped redraw the map of companies and jobs in the retail trade because of the competition inflicted on neighborhood stores (leading to the desertion of town centers) and even urban peripheries (involving a crisis for large food retailers).
- GDP > Gross Domestic Product
- An economic indicator measuring a country’s wealth as generated by investment and expenditure on consumption by households, businesses and the state (not to be confused with gross national income, which measures total wealth created exclusively by national economic actors). Much used by economists (notably per capita GDP), it is biased in a number of ways: it considers only commercial activities, does not include negative externalities (such as environmental destruction), avoids the issue of social and geographical inequalities and (wrongly) postulates the existence of a correlation between wealth and degree of development. Other statistical tools have been developed to counteract these shortcomings (Human Development Index, Gini Index, etc.).
- globalization > Globalization
- The term globalization refers to a set of multidimensional processes (economic, cultural, political, financial, social, etc.) that are reconfiguring the global arena. These processes do not exclusively involve a generalized scale shift toward the global because they do not necessarily converge, do not impact all individuals, and do not impact everyone in the same way. Contemporary globalization means more than just an increase in trade and exchanges, an internationalization of economies and an upsurge in connectivity: it is radically transforming the spatial organization of economic, political, social and cultural relationships.
- network > Network
- Classical geography tended to place too much importance on surface areas, territories, countries and soil, but network analysis has now become central to its approach. Networks are defined as spaces in which distance is discontinuous and consists of nodes linked by lines. Some are physical (networks for the transportation of people, goods and energy, IT cables and information super highways), others not. When they are partly virtual (such as the internet), they also involve individuals and organizations. Philosophers (Gilles Deleuze and Félix Guattari), sociologists (Manuel Castells), political scientists (James Rosenau), and economists use this concept to analyze the interconnected functioning of individuals.
- internet > Internet
- Global interconnection of local IT networks facilitating the exchange of texts, images, sound and video by means of a standard protocol (TCP/IP). Invented by researchers and the military in the US in the 1960s, the network has been steadily growing, spreading and innovating ever since. At the start of the 1990s, browsers made the internet accessible to the general public. High-speed connections have permitted increasingly large data transfers, driving a proliferation of online activities and the transition from an information storage approach to a logic of continuous flows. The community-based and interactive Web 2.0 stimulates interactions between users, changes social behaviors and alters forms of engagement by giving them instant visibility. Internet censorship is regularly practiced by non-democratic states. The Internet of Things (IoT) refers to the connection between this network and connected objects of various kinds.
- peace > Peace
- The definition of peace is much debated. A restrictive definition sees peace simply as an absence of conflict (negative peace). Peace Studies reinterpreted this definition to include the conditions necessary for peace – positive peace must be an integral aspect of human society. Combined with the concept of structural violence, positive peace was then defined more broadly to include social justice. Among the different theories of peace, the sometimes criticized notion of democratic or liberal peace asserts that the liberal democracies do not go to war with each other and only fight against non-liberal states (this approach qualifies Kant’s postulate in Perpetual Peace, 1795).
- multilateral > Multilateralism
- To see multilateralism as international cooperation involving at least three states reduces it to a mere technique. In fact, it also has a qualitative, normative aspect which has been evident since the time of the League of Nations. According to Franck Petiteville, this makes multilateralism a form of international collective action which aims to produce “norms and rules seeking to establish a cooperative international order governing international interdependencies.” The adjective “multilateral” first appeared in the late 1940s which is when awareness of the concept began to emerge.
- sanctions > Sanctions
- Sanctions, which can be negative or positive, are a means by which one or more states or international organizations employ coercive measures (embargo, recall of an ambassador, visa refusal, freezing of foreign bank accounts) or incentives (economic aid) to persuade another state, or particular individuals within it, to end a current course of action, return to the status quo, or to take a particular course of action. Sanctions may exert direct coercion by targeting political leaders, or they may act more indirectly by fostering public discontent with the regime. Their efficacy is disputed. Those in favor regard them as a tool for exerting pressure without recourse to military intervention, those against emphasize their social and human cost for the most disadvantaged groups.
- intellectual property > Intellectual Property
- This term covers the rights of use of an “intellectual creation” such as copyright in literary and artistic works and industrial property rights, such as trademarks and geographic origins, the protection of inventions (patents) and industrial models and designs. At a time when ideas and knowledge constitute a growing proportion of the added value of goods sold throughout the world, these rights are intended to protect investment in research and development and ensure long-term funding. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), signed in 1994 as part of the foundation of the WTO, harmonizes these protections in internationally recognized laws that oblige member states to combat counterfeiting and pirating.
- negotiations > Negotiation
- Practice which aims to secure agreement between public or private actors, satisfying the participants’ material and symbolic interests by means of mutual concessions. International negotiations are one of the methods of peacefully resolving disputes and can be bilateral (between two actors) or multilateral (three or more actors). They often result in an official document (joint declaration, peace agreement, trade treaty, international convention). Collective negotiation (or collective bargaining) refers to negotiations within a company between the employer and workforce representatives (generally belonging to trade unions) regarding the application of labor law.
- alter-globalist > Alter-globalist
- Someone who favors fairer and more human globalization that does not only take into account the economic interests of the most powerful businesses and states. Most alter-globalists are not opposed to the globalization process itself, but to its present liberal and commercial version. They therefore try to persuade public opinion of the need for sustainable development, fair trade, and alleviation of debt for the poorest countries. The alter-globalist galaxy includes local, national, and international groups, and makes abundant use of the internet to conduct its activism. The regular meetings of the World Social Forum, where experiences can be exchanged, ideas discussed, and proposals formulated are just one example among others.
- states > State
- The state is a political system that is centralized (unlike the feudal system), differentiated (from civil society, public/private space), institutionalized (institutions are depersonalized), territorialized (a territory whose borders mark the absolute limit of its jurisdiction), that claims sovereignty (holding ultimate power) and that bears responsibility for ensuring its population’s security. In public international law, the state is defined as a population living on a territory defined by borders subject to a political authority (the national territorial state).
- multinational corporations > Multinational corporation
- Company that has undertaken foreign direct investment (FDI) giving it access to facilities that it owns fully or in part (subsidiaries). The first MNCs date from the late 19th century; corporations of this kind have become widespread in the early 21st century. The majority of FDI takes place between industrialized nations. Such companies are now transnational rather than multinational, the largest among them tending to evolve into global corporate networks.
- lobbies > Lobby
- Pressure or interest group whose aim is to influence political authorities so that they make decisions in the interest of that group’s members. Lobbies are recognized and accepted in varying degrees within the political cultures of different countries – and their methods and actions can involve varying degrees of transparency and legitimacy. Given the increasing technical complexity of trade negotiations and the intricacy of decision-making levels and processes, today lobbyists are amassing funding proportional to the interests they are defending and using high-level experts to prepare their dossiers. They play an important role in legislative development processes in the United States, in the institutions of the European Union and in the WTO.