Are Trade Wars Missing the Point? (Part II)

By Sungjoon Cho [originally posted on the International Economic Law and Policy Blog on February 12, 2019]

In the previous post, I introduced main finding of the recent McKinsey report (“Globalization in Transition: The Future of Trade and Value Chains.”)  The report highlighted the growing importance of services and the relative decline of goods production in global value chains (GVCs).  Likewise, GVCs have become more technology and knowledge-intensive.  In addition, “regional” value chains have become prominent as emerging economies mature and are now capable of insourcing more of intermediate products, which they used to import from advanced economies.  Then, what would be possible implications of those new phenomena to the WTO?

First, the recent launching of the WTO negotiation on electronic commerce appears to be timely, given the technology-driven nature of new GVCs.  Second, WTO members should be more ambitious in expanding the current WTO Information Technology Agreement (ITA).  Third, the implementation of the WTO Trade Facilitation Agreement (TFA) must be expedited.  In particular, developed countries must provide developing and the least-developed countries with a meaningful level of capacity-building assistance so that the latter countries could mainstream GVCs in their development strategies.  Fourth, WTO members should revive the now-stalled services negotiation, given the critical role played by services in contemporary GVCs.  Fifth, as Bernard Hoekman argues, WTO members must rethink the conventional sector-specific (“silo”) negotiation model and instead embrace a holistic approach to trade negotiations that links all related areas in a more GVC-conscious manner.

Finally, would WTO jurisprudence still matter in the era of GVCs?  I believe so, at least regarding one crucial principle, i.e., “non-discrimination,” which encompasses GATT Articles I, III, XI, XX and TBT Article 2.1, among others.  Trade restrictions are likely to be sclerosis that impedes or blocks trade flows in the artery of GVCs.  Most, if not all, trade restrictions could be effectively disciplined by the non-discrimination principle, no matter what modalities of such restrictions might be.