From UPSC perspective, the following things are important :
Prelims level : Not much.
Mains level : Paper 3- Cause of the emergence of trade disputes and how can emerging economies negotiate the deals
Developing countries have argued for decades that the rules governing international trade are profoundly unfair. But similar complaints are now emanating from the developed countries that established most of those rules.
Why are developed countries complaining now?
- Competition: A simple but inadequate explanation is “competition.”
- Turning tide: In the 1960s and 1970s, industrialized countries focused on opening foreign markets for their goods and set the rules accordingly.
- Since then, the tide has turned.
- Left behind communities in developed countries
- Cheap labour-an advantage: One reason why emerging-market producers are competitive is that they pay workers less.
- Job creation in services by developed countries: To replace lost manufacturing jobs, developed economies have been creating jobs in services.
- Not everyone has moved to the service sector job: Unfortunately, not everyone in developed countries has been able to move to good service jobs.
- Efforts by the left-behind bring back the manufacturing job: The left-behind former manufacturing communities have a voice in the capital city now, and it wants to bring back manufacturing.
- Yet this explanation, too, is incomplete. The ongoing US-China trade war is not about manufacturing, it is about services.
- Services a reason behind US-China dispute: Much of the US dispute with China is not about manufacturing. It is about services.
- Emerging market competition increasing in services: Although eight of the top ten service exporters are developed countries, emerging-market competition is increasing.
- New services related rules: This increased competition from emerging markets is prompting a major push by advanced-economy firms to enact new service-related trade rules.
- An opportunity to protect the developed country producers: The new rules will ensure continued open borders for services. But it will also be an opportunity to protect the advantages of dominant developed-country producers.
Trade disputes- The combined effects of the two factors
- There are no easy trade deals anymore.
- Two conflicting factors: In sum, two factors have increased the uneasiness over international trade and investment arrangements.
- First-Left behind community: Ordinary people in left-behind communities in developed countries are no longer willing to accept existing arrangements.
- They want to be heard, and they want their interests protected
- Second-emerging economy demanding access to service sector: At the same time, emerging-economy elites want a share of the global market for services and are no longer willing to cede ground there. So, there is no easy trade deal anymore.
- Trade disputes-exercise in power politics
- High tariffs and ram tactics: Threats of sky-high tariffs to close off markets, for example, and battering-ram tactics to force “fairer” rules on the weaker party.
- The important difference from the past: One important difference is that the public in emerging markets is more democratically engaged than in the past.
- Short timed victory: Any success that rich countries have in setting onerous rules for others today could prove pyrrhic.
- No consensus on the rules: For one thing, it is unclear that there is a consensus on those rules even within developed countries. For example- rules to regulate social media.
How should developed countries respond to domestic pressures to make trade fairer?
- Demand lower tariffs from developed countries: For starters, it is reasonable to demand that developing countries lower tariffs steadily to an internationally acceptable norm.
- Challenge the discriminatory barriers: Discriminatory non-tariff barriers or subsidies that favour their producers excessively should be challenged at the World Trade Organization.
- Go for less intrusive treaties: To go much beyond these measures—to attempt to impose one’s preferences on unions, regulation of online platforms, and duration of patents on other countries—will further undermine the consensus for trade.
- Less intrusive trade agreements today may do more for the trade tomorrow