Responding to trade coercion: A growing threat to the global trading system

By Asia Society Policy Institute and Perth USAsia Centre

As growing trade coercion threatens the integrity of the global trade system, how can governments effectively respond?

Trade coercion – where governments arbitrarily impose trade barriers on others to apply political and economic pressure – has unfortunately become common. As geopolitical tensions have increased in recent years, many governments have used trade as a weapon to threaten or punish others.

These practices are a serious threat to the integrity of the global trading system. It breaches core World Trade Organisation (WTO) principles of non-discrimination and transparency. It also undermines confidence in rules-based approaches to trade, at a time when the global system is under enormous stress.

The ‘grey zone’ nature of trade coercion makes it difficult to quantify. Few governments admit to breaking rules, and coercion often goes unreported. But it is clearly becoming much more common, and is being driven by some the largest players in the global system.

Worse, trade coercion also targets and affects small and medium countries. Lacking the size to retaliate against a larger player – and escalating to trade warfare – these countries face enormous pressure to capitulate. Trade coercion is often used by the large to bully the small.

And when smaller players look to global institutions for help, they are left short-handed. The WTO dispute settlement system is in disarray, and is not fit-for-purpose to deliver justice for victims of trade coercion.

Many govts are now exploring strategies to address this pernicious practice. To contribute to this discussion, the Perth USAsia Centre and Asia Society Policy Institute convened an international group of twelve trade policy thought leaders to develop more effective international responses to trade coercion.

The group produced an options paper, which outlines ten  policies – at the national, like-minded coalition and WTO levels – which are effective and credible responses. This offers a ‘menu’ of strategies that governments can deploy as best fits their unique circumstances.

Getting one’s own house in order comes first. To prepare defences against coercion, Government need to better understand their vulnerabilities, diversify their at-risk trade relationships, and offer support to affected industries and their workers.

Cooperation between likeminded partners is also critical to bring collective weight against these unfair practices. Intelligence sharing, coordinated diplomatic responses in solidarity with victims, and “name and shame” international advocacy will also help deter coercion.

The WTO has a special role to play. While its unrealistic to expect Geneva to solve the problem alone, trade coercion needs to get prominent attention in its work program. The WTO cannot be silent to this grave threat to the integrity of the global trading system.

The policy options established can go a long way in ensuring all countries to enjoy the benefits of transparent, non-discriminatory and rules-based trade. During an era of economic dislocations, now is the time to ensure trade coercion does not further weaken this critical global system.

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