Global trade is continuously going through phases. From the burst of globalization in the early 2000s, to the more protectionist mode of the post-financial crisis world. The atmosphere of trade is thus constantly changing. Recently the trade agreements have been at the centre of the attention.
The autumn of 2014 was a case in point. China announced bilateral trade agreements with both South Korea and Australia. Although the distance between China and South Korea is not so great, the trade is all the more important. Total trade in RoRo cargo between the two countries amounted to about 100 000 units in 2013, with the largest volume going from South Korea to China. The agreement could boost this figure going forward. More important perhaps, is the agreement struck with Australia. The Memorandum of Understanding for an agreement between the two countries promises to give Australia a significant reduction in the tariffs on its export products, notably natural resources such as iron ore and agricultural products. With China being Australia's main trading partner, the deal is of a certain significance if all the current details of the MoU can be transferred into the final agreement.
Although both these deals are significant, they are dwarfed by the potential of the Trans-Pacific and Trans-Atlantic trade agreements that are currently on the diplomatic drawing board. If the final agreements match the current ambition level, they will be of great significance for global trade, covering and impacting a major part of global trade in automotive, heavy equipment or breakbulk cargoes. In addition the ASEAN trade area is a significant driver for trade growth in Asia. With a combined GDP in of more than US$2.5 trillion and some 600 million people this trade region is not to be underestimated.
In general, the above mentioned agreements will serve to increase trade, reduce tariffs and contribute to trade growth. They are also important signals of a more level playing field and interest in trade, which are all very valuable in the global low growth environment we currently find ourselves in. Every stimulus we can get is a good one.
Secondly, the recent announcements are indications of a policy change from the Chinese government. The best example of this is the climate change agreement struck with the US in Bejing during the summit there in October. This is the first real commitment on climate emission reduction by China, as well as an important clarification of the US and Chinese ambition level when it comes to slowing and reducing emissions. Even if it is too late and too little, it is a whole lot better than nothing. In itself this is worthy of much more headline attention than the deal has yet to get. In addition it opens a lot of potential for new technology such as alternative energy sources, car park renewal and investments in more energy efficient equipment across a swathe of industrial sectors, all being positive drivers for the trade in RoRo cargo. It also shows the seriousness of the recent Chinese environmental focus. Need is the mother of invention and the increasing public concern over environmental affairs in China certainly seems to be driving the agenda to the top of policy makers’ attention.
Although the above trade agreements are good in itself, it is important that we do not get to a situation where bilateral agreements risk disrupt the unilaterality of the WTO agreements and open global trade. The world is full of suboptimal, politically motivated bilateral trade agreements. The recent extension of the quota system in automotive trade between Brazil and Mexico serves as an example of this. Although the deal secures a minimal level of trade, it limits the full potential, primarily at the cost of Mexico’s exports.
However, the large regional agreements that are currently being negotiated are generally open in its description, rather than protectionist, appearing on paper at least to contribute more positively than negatively. The devil, however, is as always in the details and the global impact will depend on how the final agreements turn out and the way they are implemented.