Our international liberal trade order is facing tremendous challenges: growing populism of the left and the right, the rise of protectionist economic policies as well as an ever-increasing systemic competition between the model of a liberal market-economy and the state dominated crony capitalism of China are threatening the internationally established structures of economic freedom. Global trade rules are increasingly perceived as encroachments on state sovereignty – despite the enormous welfare gains that the multilateral world trade order embodied by the WTO has facilitated for countries worldwide. Important stakeholders even seem to be completely abandoning multilateralism by undermining its institutions and pursuing their own national agenda at the expense of others.
It is our task as Liberals to tackle these challenges and vehemently oppose the dismantling of the world trade order. Much is at stake. Free trade between countries and continents has not only led to an enormous increase in global prosperity and lifted millions of people out of poverty. At the same time, the increasing global interdependence of national economies has also torn down borders and promoted peace in the world. As Immanuel Kant noted in his book on „Perpetual Peace”: the commercial spirit is incompatible with war. Free trade and open markets make an important contribution to our international peace order. It is therefore our task to promote and strengthen the global liberal trade order in the pursuit of progress, prosperity and peace worldwide.
In this spirit, the Working Group on Fair Trade will deliver liberal answers for fair and sustainable trade. Based on our core liberal principles – individual freedom, freedom of choice and rule of law – we aim to set a liberal agenda on fair trade for the future.
In doing so, we will concentrate on three main themes:
Since the middle of the 20th century, the liberalization of markets for goods and services has brought economic growth, prosperity and quality of life to people worldwide. By fostering ever-closer trade relations with former enemies, free trade has also made an important contribution to global peace. It also acts as an engine of progress, as it promotes competition and accelerates innovation. Similarly, regional integration has promoted prosperity within countries as well as for a region as a whole. The experience of the European Union is a prime example for that. Also in other regions, integration has the potential to foster economic development and industrialization while decreasing poverty. By creating larger markets, regional integration offers new trading opportunities. It also opens the door to intra-regional and global value chains and thus promotes the transformation of countries offering mainly unprocessed goods to become suppliers of valuable goods for the global market. More integrated markets are also more attractive for foreign direct investment, which is an important catalyst for economic development. In addition to the positive economic effects, regional integration also has a political dimension: it has a positive political impact on regional security and stability, on the negotiating power of the region as a whole on the international stage and on financial co-operation in regional projects.
Despite the enormous advantages of free trade, integrated markets and direct investment in both developed and developing countries in recent decades, many people feel left behind by the fast pace of globalization. It is indeed undisputed that the liberalization of markets can also pose major challenges for domestic economies and its employees, e.g. through accelerated structural change or the relocation of business locations. Similarly, the experience of many developing countries shows that economic integration and investment only contribute to poverty reduction if institutional frameworks, such as efficient public administrations, a transparent legal system and independent judiciaries, are in place.
As Liberals, we need to address these concerns and take them seriously. In the Working Group, we want to discuss viable solutions to shape free trade in such a way that as many people as possible benefit from an open global economy. This way we want to contribute to make markets work for all.
Digitalization is an engine of economic growth worldwide. New technologies have the potential to intensify economic integration and trade by reducing deficits in the areas of access to the financial system, (intellectual) property protection and tax administration and decreasing trade costs by digitizing bills of lading and making them more secure. It also helps to counter corruption and fraud by promoting transparency and security of processes.
However, at present, 41% of the world population, especially in developing countries, is still without Internet access[1] and cannot benefit from the opportunities offered by digital commerce. Liberals believe in the opportunities offered by innovative technologies as a basis for inclusive, sustainable development and growth. The new digital technologies are the driving force for global social transformation. A lack of Internet access, insufficient digital skills and inconsistent legal frameworks make it particularly difficult for developing countries to participate and to take full advantage of the potential of digital markets.
In the Working Group, we want to discuss how opportunities offered by information and communication technologies (ICT), such as more technological leaps, cost reduction, transparency against corruption and digital trade, can be made available more broadly. In doing so, we do not close our eyes to the fact that changes brought about by digitalization, automation and globalization require accompanying adaptation measures in order to achieve broad-based economic growth and prosperity.
A rules-based, multilateral trading system, combined with an effective dispute settlement mechanism, is essential to ensure a level economic playing field for all. Without such a system, only the law of the strongest applies at the expense of states with less economic leverage.
The multilateral world trade system embodied by the World Trade Organization (WTO) and its regulatory framework is a success story. Since its creation 25 years ago, it has regulated commerce and safeguarded the rules of the international trade system thereby promoting peace and stability.
Today, the WTO is facing the biggest crisis since its inception. The increased tensions between the United States and China have unveiled a latent crisis that has deeply affected the WTO. Spurred by the infringement on WTO rules by China subsiding its companies and devaluating its own currency, the U.S. has reacted by blocking any new replacements to the Appellate Body. The blockage to appoint new judges incapacitates the body, potentially causes major disruptions for international trade relations, and might ultimately lead to the unravelling of the existing global trade order.
In the Working Group, we want to address these issues and propose liberal solutions for them. In addition to strengthening the WTO as the central place for a fair and rules-based world trade system, we also want to press for the long overdue, transparent and inclusive reform of the WTO. While reducing tariffs is still important, it is now time to address the pressing issues of our time: the recognition of production standards and health rules, rules for subsidies, state enterprises and services, climate change and cyber security and, as a consequence, migration. This is essential to create the necessary regulations for the 21st century.
[1] https://www.statista.com/statistics/617136/digital-population-worldwide/
The LI Working Group on Fair Trade is chaired by
Prof. Karl-Heinz Paqué
Deputy President of Liberal International
Professor of International Economics
