Multilateralism and regional economic cooperation
The Port of Xiamen in Fujian Province opens a new RCEP route, Jan. 10, 2022. Photo: CFP
The direction of multilateral trading systems and regional economic cooperation is not only related to China’s high-quality opening up, but also related to the future global trade governance system.
Since the establishment of the WTO, a bipolar system of global trade governance has gradually formed. The first pole is the multilateral trading system with the WTO as the core. The second pole consists of new regional trade agreements covering trade in intermediate goods and services, investment and intellectual property rights, capital flow, and key personnel flow. The relationship between regional trade agreements and the multilateral trading system has become the focus as the number of regional trade agreements increases.
Mutual promotion
Skeptics, represented by Professor Jagdish Bhagwati from Columbia University in the US, believe that regional trade agreements are more likely to result in trade diversion than trade creation, leading to a general reduction in the overall benefits of global trade which therefore undermine the multilateral trading system. On the contrary, optimists represented by Fred Bergsten, director emeritus of the Peterson Institute of International Economics in the US, are full of confidence in the multilateral trading system.
Current events demonstrate that regional trade agreements are beneficial supplements to the multilateral trading system. Since the 1990s, regional trade agreements have gradually become an integral part of global trade governance, reflecting systems’ continuous adaptation to the internationalization of the production process. With the expanded scope of global regulations, enterprises can differentiate their production processes. The intra-industry trade of intermediate products has become a vital part of contemporary international trade. Thus, it strengthens the existing global production network, and meets the different preferences of WTO members. At the same time, participants in regional trade agreements also seek to comply with WTO requirements in order to maximize benefits from multilateral liberalization. This mutual adaptation process between systems ensures that regional trade agreements will not prevent economies from benefiting, and the WTO has formed a “loose link” with these increasing regional trade agreements, which is conducive to the formation of a more resilient free trade order.
When participating in global governance, China has always adhered to a mutual promotion of regional trade agreements and the multilateral trading system. In the practice of actively maintaining a multilateral trading system and gradually implementing China’s free trade zone strategy, China has formed a rational school of thought distinct from skeptics and optimists.
Over the past 20 years, China has actively safeguarded the multilateral trading system, actively negotiated with trading partners to build free trade zones under the WTO’s framework, and successively signed 19 free trade agreements with 26 countries and regions. In 2020, China’s total import and export volume was $4.65 trillion, of which the trade volume with WTO members and free trade partners accounted for 97.9% and nearly 35%, respectively. China’s theoretical and empirical research shows that the multilateral trading system and regional trade agreements are the two mutual promotional engines driving economic globalization, international trade, and investment liberalization.
True multilateralism
China has always been a staunch supporter of multilateralism. However, effective mutual promotion between regional trade agreements and the multilateral trading system needs to be strengthened from the following aspects. First, unequivocally safeguarding true multilateralism is the premise of future regional economic cooperation. With problems gradually exposed in the operation process, WTO members, including China, put WTO reform on the working agenda. However, differences between parties on issues such as the dispute settlement mechanism are still difficult to bridge in the short term. Therefore, in order to maintain and enhance the authority and effectiveness of the multilateral trading system, it is urgent to reform the WTO.
Second, revealing the US system’s pseudo-multilateralism can effectively safeguard a true multilateralism. As the main system founder, the US’s stand-offish and uncooperative behavior embodies the system’s shift from hegemonic multilateralism to “competitive multilateralism,” and its shift to regional trade negotiations to establish alternative systems. This shift has reduced the WTO’s legitimacy and authoritativeness, threatening the existing status of global trade systems and deepening deficits in global trade governance. With emerging economies rising together, and the arrival of the diverse governance era, global trade governance needs to change accordingly. Only with the global trade governance model shifting from competitive multilateralism to inclusive multilateralism, can we practice true multilateralism.
Third, safeguarding true multilateralism requires guaranteeing the status of the multilateral trading system as the major channel in international rule setting. Practices have testified that supply models such as “competition of major countries” and “regionalism” cannot satiate the needs of today’s socio-economic development, failing to address global issues. All WTO members should participate as entities of global trade governance. Different WTO members should be allowed to choose different negotiation forms such as bilateral, regional, and multilateral forms, and to join different agreements at different times in accordance with their specific conditions.
Fourth, constantly deepening institutional opening up is the driving force of China’s future participation in regional economic cooperation. China’s new round of high-quality opening up is transforming from a flow of commodities and factors of production to an institutional opening up, which requires China to effectively match international opening systems and bring positive influence. Based on the consensus that the multilateral trading system and regional free trade agreement arrangements promote each other, China will further participate in WTO reform in a positive and constructive manner, sparing no efforts to break existing rules’ restrictions and realize the modernization of trade rules through new rule-making and strengthening reasonable existing rules, to make space for developing countries.
Furthermore, as WTO reform can not be finished in one go, China has to play a greater role in regional trade agreement negotiation, partaking in institutional supply at regional and global levels, and promoting regional comprehensive economic cooperation. China officially applied for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Digital Economy Partnership Agreement’s (DEPA) membership in 2021, demonstrating its determination to actively partake in regional economic cooperation.
Chen Shumei is a professor from the School of Economics and Finance at Shanghai International Studies University.
Edited by ZHAO YUAN