The economic map of the world has lost its contours
[ad_1]
The basis of any economic relationship is trade. Translating from political language into economic language the maxim about friendship – “with whom and against whom we trade.” Established international economic blocs have long been undergoing tectonic changes, causing fragmentation of the world economy, and torn trade ties are inevitably looking for new ways to build alternative chains.
Predictions for the future of the multilateral trading system are getting more and more alarming every month. Aleksey Mozhin, Russia’s executive director at the IMF, warns: “The blatant use by the West as a weapon of international trade, finance, and of the dollar and the euro itself makes the fragmentation of the world economy not only inevitable, but irreversible.”
The head of the IMF, Kristalina Georgieva, in turn, believes that the long-term costs of trade fragmentation alone can range from 0.2% of world output to almost 7% in a hard scenario, which is approximately equivalent to the combined annual output of Germany and Japan.
Fragmentation does not happen by itself. This is usually the result of either a change in the rules of trade, or their failure to comply due to quite conscious decisions of governments, often taken for political reasons. But sometimes, emergency situations can cause fragmentation. The crisis of 2008–2009 and the pandemic forced countries to reconsider their policies regarding many instruments of international trade, in particular state support for production and export restrictions. Whatever the reasons for fragmentation, it is accompanied by uncertainty and unpredictability, the destruction of global value chains and inefficient localization of production.
It is unlikely that anyone thinks about the rules of world trade, when companies are massively closed, and the number of sick people goes to hundreds of thousands every day. These are emergencies that require emergency response. But what prevents agreement on the framework of these measures? Such attempts were made, including by Russia, but to no avail. The West preferred to keep its autonomy on the sly, to protect its own interests rigidly, and without regard for the rules or interests of other countries.
International trade law does not exclude the possibility of the existence of special trade regimes in certain situations. Free trade zones are an example of how preferential rules can be applied to a narrow group of states: there are more than 300 such agreements in the world. Together, they regulate more than 40% of world trade. But there are other categories as well.
Each new accession to the World Trade Organization (WTO) was associated with an ever-increasing volume of requirements for candidate countries. As a result, a special negotiating group of countries affected by excessive demands even appeared in Geneva. Some of them tried to challenge trade discrimination in the court of the WTO. But when Russia managed to do this, having won a dispute with the EU regarding anti-dumping measures (domestic chemical and metallurgical enterprises seriously suffered from them), its final consideration in the appeal body did not take place, since the United States blocked the appointment of arbitrators.
This blockade gave rise to a new stage of fragmentation, which continues to this day. After all, if there is no judge, there is no one to complain to – you can deviate from the rules. It is quite possible that the Americans needed it in order to get out of the legal field for a while …. Indeed, in this logic, the United States adopted dozens of acts that artificially support the domestic industry and limit the ability of competitors (primarily China) in the American market.
The European Union did the same, tightening its export and investment controls and adopting, under the umbrella of climate policy, an ambitious plan to develop the competitiveness of its industry and agriculture. This plan is built on the exclusive role of the EU in determining the requirements for goods and methods of their production, and in case of non-compliance with these requirements – in punishment in the form of taxes and even bans on circulation.
Aggressive US and EU trade and industrial policies are supported by unprecedented levels of subsidies. This leaves most other countries no chance for fair competition – few people can find comparable state budgets.
And that’s not all – anti-Russian economic sanctions have become another instrument of competition that contradicts the basic principles of the WTO. The sanctions made it possible to literally push American suppliers into the energy and other markets of Europe instead of Russian companies, goods and services. These sanctions did not give other expected results. Russia has not changed its intentions towards Ukraine and has found a way to quickly reorient its trade to other regions, demonstrating the effectiveness of the multilateral system of rules that the US and EU are so painstakingly blocking along the way.
Sanctions, export controls, import restrictions and massive “environmental” programs with accompanying subsidies have essentially become an instrument of competition. Their impact on world trade is not yet noticeable – it is expected that it will grow by 1.7% in 2023, and by more than 3% in 2024. However, its further fragmentation, sooner or later, can do its devastating business – and above all for its initiators from the West.
The world trading system is based on multilateral rules. On their base there is trade between 164 states. This trade is woven from hundreds of thousands of value chains operated by millions of companies. The advantage of this system is that each of its participants can trade with what he wants, with whom he wants, that is, choose a partner anywhere in the world, based on his own performance criteria, and count on trading with him on the basis of generally accepted rules. . Intervention in this system, non-observance of these rules inevitably leads to a loss of efficiency, which one way or another will have to be compensated for by something. The losses from sanctions imposed on Russia and from US trade discrimination due to the passage of the Inflation Reduction Act forced the EU to expand the rules for granting state aid and adopt the Industrial Development Plan – in order to help its affected companies. However, the whims of geopoliticians – whether they are climate or sanctions – no economy can withstand. They are not based on objective factors. Decisions are almost always irrational, which means they will hinder economic development. In addition, any significant deterioration in the terms of trade will be accompanied by similar actions on the part of the affected countries, including China and India. If further fragmentation is global, one should not expect that partners in the trading club will not respond to the constant infringement of their economic interests.
For Russia, whose exports account for about a third of GDP and which is highly dependent on the development of world trade, new troubles on the external economic perimeter are also highly undesirable. The potential of the EAEU is important, but not sufficient to maintain an acceptable level of economic development. Diversification of trade directions (with the automatic deduction of sanctioning countries, with which a sane businessman would not count on serious long-term deals) is important, if only as a tool for distributing risks. Therefore, Russia must use its resources to maintain the integrity of the trading system.
You can turn from west to east, south, from North America to South – analysts offer many ways, forgetting about the seemingly simplest one: to force everyone to fulfill their obligations in the WTO. To do this, it is necessary to restart the dispute resolution system and return to some WTO members (primarily the EU and the US) the culture of attitude to international trade law with which they created the GATT in 1947 and the WTO in 2001. After all, this exercise will be nothing new to them.
Newspaper headline:
The economic map of the world loses contours
[ad_2]
Source link
