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The global trading system from war to war

Anders Ahnlid presents an overview of the global trading system.

The Director General of the National Board of Trade (‘Kommerskollegium’), Anders Ahnlid, visited Lund on 30 March 2022. At a seminar organized by the Centre for European Studies, he presented an overview of how the global trading system came into being, evolved during and after the Cold War, and might develop in light of the challenges imposed upon it by the current war in Ukraine.

Anders, who has an extensive career in the Swedish foreign service, including several ambassadorial positions, and vast working experience of international trade policy issues, traced the birth of the current global trading system to World War II and the Bretton Woods Conference in 1944. It was at this time that the International Monetary Fund and the World Bank were established. The conference also sparked the negotiation on the International Trade Organization, which, however, never came into being due to the unwillingness of the US congress to give up trade sovereignty to an international institution. Instead, the General Agreement on Tariffs and Trade (GATT) was constructed in 1947.

Anders described the four key principles of GATT – free trade as a welfare creating force, non-discrimination, negotiations through reciprocity, and transparent trade policies – as setting the foundation for the present-day global trading system. Several negotiating rounds followed its establishment, with substantial results in terms of trade cooperation.

The establishment of the WTO

1986 saw the beginning of the Uruguay Round which eventually resulted in the formation of the World Trade Organization (WTO) in 1995 and the very impactful liberalization of agricultural and industrial goods. Anders participated in the negotiations from 1988 onwards and argued that “the Uruguay round formed the most extensive and far-reaching regulatory base for international cooperation ever seen”.

Anders emphasized the importance of the end of the Cold War for the success of the negotiations: “This brought about new opportunities for international cooperation at large and the establishment of the WTO was facilitated by the view of globalization as something positive and beneficial”. In 2001, the Doha-round was initiated with the ambition to form a comprehensive global deal. The round saw some success when China finally joined the WTO. However, it ended in 2008 without the achievement of a global trade agreement.

Instead of a “clean” global deal, the contemporary global trade system is constituted by a less efficient “spaghetti bowl of bilateral and regional trade agreement”. Anders believes that the relative economic decline of the US vis-à-vis China, in combination with the EU’s declining trade leadership, have rendered global trade integration more difficult. Moreover, even though millions of people have been brought out of poverty thanks to the global trading systems, relatively speaking, the gains have been distributed unevenly, which has sparked populism and protectionism.

The impact of the war in Ukraine on global trade

Anders stated that the relative weakening of the West during recent decades is significant to why Putin decided to invade Ukraine. Events such as the response to 9/11, the financial crisis, the aftermaths of the Arab Spring, the civil war in Syria and rise of ISIS, the refugee crisis, the election of Donald Trump and Brexit have all revealed signs of western weakness.

The war can also be traced back to the fight over the EU-Ukraine free trade agreement which was first discussed after the launch of the EU-Eastern partnership by the Swedish Council presidency in 2009. The then Ukrainian president, Viktor Yanukovych, discarded increased cooperation with the EU and turned to Russia, which sparked the Euromaidan uprising in 2013, eventually overthrowing Yanukovych.

What has happened changes the conditions for European economic trade at large

“Today, the trade agreement between the EU and Ukraine is one of the most far-reaching and deepest of its sort and gains great support in the country”, Anders said, “but what has happened changes the conditions for European economic trade at large. Security interests will be more important variables for trade possibilities but it is also evident that trading links with trusted partners is key to our resilience and wellbeing.”

The West has rapidly and unitedly imposed extensive sanctions on Russia: ban on key exports, freezing of assets, and exclusion of Russian banks from the transactional system SWIFT. Anders noted a noticeable decline in western companies’ interest in doing business with Russian based companies. He acknowledges that there are justified concerns to what extent these measures will affect the civil population of Russia but stated that “the objective is diminishing the Russian state’s capacity to wage war and the measurements are therefore necessary”.

Russia is presently left out of the global trading system. WTO members are discussing to what extent Russia should be isolated within the confines of WTO regulations. The country might want to leave the organization entirely.  Anders contended that China is a big question mark in all of this. On the one hand, China wants to maintain economic links to the west. But on the other, its position in relation to the war in Ukraine is unclear. Anders identified a risk of a new, Russian-backed Iron Curtain but if it is to be sustained by China is doubtful.

Anders argued that “as was the case after World War II, it makes sense to ask the question of how international integration and trade cooperation can be used to improve Europe’s wellbeing.” He provided several suggestions: Deepening transatlantic economic integration; implementing the EU-Mercosur agreement; finalizing free trade agreements with Australia, New Zealand and Indonesia; deepening links between the EU and the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP); accelerating European integration and strengthening the EU internal market, which is crucial to European security; reviving the EU enlargement; and accelerating the transition from fossil-based economy.

Nevertheless, in conclusion, the future for the global trading system and international cooperation is uncertain. As put by Anders: “There is an era before and there will be an era after the 24th of February 2022. It is too early to say what the war in Ukraine is going to lead to, but it is certain that there will be major changes”.