This article has been authored by Bashar H. Malkawi, Dean and Professor of Law, University of Sharjah
International trade constitutes a vital lynchpin of the global governance architecture with a staggering $20 Trillion of annual trade. The global trade order consists of trade policies and systems – in particular free trade agreements (“FTAs”) – which have played an increasingly crucial role in the infrastructure of global governance and substantially impacting international economic development and strategic affairs. The shifting sands of trade rules and policies both impacts upon, and is reflective of, the current great power rivalry.
Important questions arise from the current political and economic contexts and the transformative changes sweeping the global governance architecture. For the current Chief Architect – the United States – do FTAs advance U.S. economic and national security interests and objectives? If so, which route is preferred – limited FTAs or expansive agreements? Should FTAs be viewed as complementary or a replacement to the multilateral trade system of the WTO? On what basis should partners be selected or rejected? Does the failure to sign on to the TPP reflect a temporary or specific policy as to the TPP or a long-term secular change that reflects a disengaged US? How should trade policy be shaped in the context of China which is offering itself as a global leader on trade and globalization?
A mere five years ago, the U.S. did not presume that its position could be challenged . However, the global context has materially altered and added further complexity to these multifaceted questions. The world has changed remarkably in a relative brief time span in three significant ways. One, until recently, globalization was viewed favorably with economic integration perceived to bring economic benefits. However, in recent years, national movements against globalization and free trade have reached a critical mass and have resulted in the election of new political leaders who want to stop or even reverse globalization and restore perceptions of lost national power and sovereignty. Two, until recently, the U.S. was viewed as the sole hegemon with superlative primacy in finance, technology and military spheres. The U.S. was the “indispensable nation” and the unchallenged leader and rule-setter of the post WWII governance architecture. However, the U.S. hegemony is at risk to co-option by a rising China which has skillfully ensconced itself as a global leader championing globalization, trade and establishing institutional frameworks such as the AIIB and OBOR. Three, as late as the 1990s, the internet, e-commerce and virtual currencies were either in nascent stages or non-existent. Global business is becoming based on a digital economy with widespread access to the internet in developed nations (and increasing access overall), transformation to robotics, AI and virtual currencies. Even traditional industries such as banking face changes due to the ability of clients to bypass banking channels and transfer non-governmental issued currency (or stores of wealth) via the internet seamlessly and privately.
FTAs are inextricably and increasingly linked to global strategy and the international political order and broad, geopolitical and global governance contexts and have always played a role in international investment and trade agreements. The U.S. trade policy has been dominated by the establishment of FTAs to both create new, and cement existing economic relationships, and a means of entrenching the presence of the U.S. in different regions. Indeed, the impetus for the (currently abandoned by the u.s.) tpp was the drive to retain the u.s. lead in rule making so that Washington, rather than Beijing, to create the foundation for “21st-century trade rules,” including standards on trade, investment, data flows, and intellectual property.
For example, the U.S.-Jordan FTA was at least partly motivated to show U.S. appreciation of Jordan’s efforts in supporting the Mideast peace process and in combating international terrorism. Such interests encompass other FTAs as well. The post-Jordan U.S. FTAs with Morocco, Bahrain and Oman represented a key element in a broader U.S. political and economic strategy. That strategy was designed to encourage economic development and democracy in the Middle East and North Africa, with most of the same political/security considerations that were material in the conclusion of the U.S-Jordan FTA.
The geo-political context is particularly important in the emerging U.S.-China hegemonic rivalry. Indeed, China recognizes the significance of trade agreements as a pillar of the global governance architecture and has embraced trade as means to grow its economy as well as to exert influence globally. Just as access to American markets and capital was once a key component of u.s. diplomacy, China is now employing its financial and trade muscle to win friends and influence. China has embraced trade as means to advance its global ambitions as the U.S. has done for decades. It is obvious that China’s trade policy focuses on regional leadership.
Of course Chinese goals are in furtherance of the socialist model and it will be interesting whether the success of China and its emergence as a major architect of the governance architecture will influence nations to imitate the Chinese model.
Indeed, the importance of the strategic context is further illustrated by NAFTA. Prior to NAFTA, U.S.-Mexico relations were cool. Mexican attitudes towards American investors have been described as antagonistic. Yet NAFTA changed a former cool neighborly relationship into a significantly warmer friendship. In terms of both private sector and governmental relations, the U.S. and Mexico are on significantly better terms. NAFTA dramatically improved the dynamic of official and private relations.
The move towards imitating a U.S. economic/political model through NAFTA is clearly the opposite of the Chinese model of state capitalism and one party rule. And, in the context of a rivalry for which model should be embraced globally, the economic effects should not be underestimated. In the U.S.-China rivalry, an economically unified North America is a vastly more powerful competitive platform than the United States alone in seeking to address global economic challenges including China.
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