Global trade and growth after the Doha Round Richard Baldwin Professor of International Economics The Graduate Institute, Geneva 1 ©2016 Richard Baldwin

2 WTO: Winning while losing

3 ©2016 Richard Baldwin

Doha Development Agenda (“D.D.A.”) 4 ©2016 Richard Baldwin

5 Doha Development Agenda “Fail Trail” Doha 2001: Launch (to finish Jan 2005). Cancun 2003: Breakdown. Geneva 2004: Revival (deadline Dec 2005). Hong Kong 2005: Failed (deadline Dec 2006). Geneva 2006: Failed. Potsdam 2007: Breakdown. Geneva 2008: Acrimonious breakdown. G20 Summits 2009, 2010: Revived. Geneva 2011: Failed. Bali 2013: Bali “surrender”. Nairobi 2015: Doha expires.

Doha Development Agenda “Fail Trail” Doha 2001: Launch (to finish Jan 2005). Cancun 2003: Breakdown. Geneva 2004: Revival (deadline Dec 2005). Hong Kong 2005: Failed (deadline Dec 2006). Geneva 2006: Failed. Potsdam 2007: Breakdown. Geneva 2008: Acrimonious breakdown. G20 Summits 2009, 2010: Revived. Geneva 2011: Failed. Bali 2013: Bali “surrender”. Nairobi 2015: Doha expires. 6 ©2016 Richard Baldwin

7 The Doha Round is dead Long live the Doha Round issues.

8 ©2016 Richard Baldwin WTO: Winning while losing WHY?

9 ©2016 Richard Baldwin Background Why globalisation changed. Why this changed trade.

Globalisation changed (twice) 10 ©2016 Richard Baldwin Shares of global GDP

Focus on 3 costs that constrain globalisation 11 ©2016 Richard Baldwin 1. Trade costs - (cost of moving goods) 2. Communication costs - (cost of moving ideas) 3. Face-to-face costs - (cost of moving people)

Pre-Globalised World All 3 costs high => Production was bundled with consumption geographically. 12 ©2016 Richard Baldwin

Steam Revolution changed globalisation Trade costs plummeted with Steam Revolution, Industrial Revolution & Pax Britannica. 13 ©2016 Richard Baldwin

Production unbundled from consumption People stayed; production dispersed internationally according to competitiveness. 14 ©2016 Richard Baldwin

Industry clustered locally as it dispersed internationally Communication costs, not trade costs are what mattered for micro- clustering. 15 ©2016 Richard Baldwin

The “Great Divergence” Local clustering in North => innovations that stayed in North due to high communication costs. 16 ©2016 Richard Baldwin

ICT Revolution changed globalisation Communication & coordination costs fell dramatically due to ICT (Information & Communications Technology) improvements. 17 ©2016 Richard Baldwin

G7 factories unbundle geographically Easier communications + huge wage gap led to North-to-South offshoring. Lower 18 ©2016 Richard Baldwin

Knowhow flows from North to South Firms send their knowhow along with offshored stages to keep the production process in synch. Hi face2face costs 19 ©2016 Richard Baldwin Lower

Key change: ICT ‘liberated’ knowhow of G7 firms from G7 labour 20 ©2016 Richard Baldwin

21 ©2016 Richard Baldwin How this changed trade 20th vs 21st century trade

20 th century trade “Goods crossing borders” 22 ©2016 Richard Baldwin

21st century trade “Factories crossing North-South borders” Flows that used to happen inside G7 factories are now part of international commerce. 23 ©2016 Richard Baldwin

Trade policy changed ‘Doing-business abroad’ assurances New disciplines needed: 2 types ‘Supply chain’ assurances 24 ©2016 Richard Baldwin

25 ©2016 Richard Baldwin Trade policy making changed Offshoring disciplines arose in “deep” regional trade agreements; Now being knit together in mega-regionals (TPP, TTIP).

26 ©2016 Richard Baldwin WTO did not change Result: “Erosion of WTO centricity”.

27 ©2016 Richard Baldwin Looking ahead Today’s trajectory: –Mega-regionals creating parallel governance; –Fragmented & exclusionary system likely Run by old Quad. Excludes new trade powers (e.g. BRICs). A 2-pillar world trade governance system: –WTO (20 th century trade). –Bilateral Investment Treaties & Mega-regionals (21 st century trade). We can do better than this.

28 ©2016 Richard Baldwin WTO is needed more than ever Avoid fragmentation and exclusion of the big new trade powers.

29 ©2016 Richard Baldwin The WTO’s future? Stay on the 20th century track –Allow fragmentation of global trade governance & exclusion of some major WTO members. Seek to multilateralise the new supply-chain-trade disciplines. How to start, an idea: –Begin APEC-like study & discussion of what ‘multilateralisation’ of 21 st century disciplines would mean. –WTO is most legitimate body for this task.

30 ©2016 Richard Baldwin Trade and Growth Implications for developing nations’ growth prospects.

Source of the “Great Divergence” Imbalance in global distribution of knowhow per worker low Low wages & Developing nations high high wages & G7 nations Knowhow Worker Knowhow Worker 31 ©2016 Richard Baldwin

Source of the “Great Convergence” International production networks redraw the international contours of knowledge and competitiveness. low Low wages & Developing nations high high wages & G7 nations Knowhow Worker Knowhow Worker 32 ©2016 Richard Baldwin

New Globalisation & commodity supercycle Knowhow flows to nations with ½ world population – sparks growth & commodity supercycle. Price of all commodities (10 year average rate of return) 33 ©2016 Richard Baldwin

34 ©2016 Richard Baldwin Is the Great Convergence over? No.

Old Kuznets Cycle: late 1800s Steamships & Railroads turned New-World wasteland into farmland. Old-World labour moves to cheap New-World land. Boom & bust (10-20 year cycles). How it ended: US shut off the flow with migration policy. Get image of US pioneers with wagons, RR’s, etc. 35 ©2016 Richard Baldwin

21st century Kuznets Cycle G7 knowhow moves to low-wages via Global Value Chains. Governments “can’t” shut off the flow. – Basically via ICT channels. Boom & bust cycles are likely. 36 ©2016 Richard Baldwin

37 ©2016 Richard Baldwin The trade slowdown/decline Structural or cyclical

Has world trade peaked? 1981 to to to to 2014 Trade Growth GDP Growth 38 ©2016 Richard Baldwin

39 ©2016 Richard Baldwin Cyclical (temp) or structural (perm)? Cyclical factors –Biz cycle obviously part of the explanation. Structural factors –China turns towards services? –GVC Revolution slows? –Protection rises? –De-materialisation of manufacturing? (transmission not trade)?

EU & China investment slowdown China EU Change in global demand composition 2008 Global shares of trade (blue) & GDP (green) 40 ©2016 Richard Baldwin

Trade slowdown analysis Vox eBook: “The Global Trade Slowdown: A New Normal? Bernard Hoekman, 24 June 2015” VoxEU.org 41 ©2016 Richard Baldwin

42 ©2016 Richard Baldwin End Thank you for listening.

Extra slides for 43 ©2016 Richard Baldwin

GVC provisions' in RTAs Number of RTAs Number BITs (right scale) South Asia Sub- Sahara n Africa Middle East & North Africa 1994 East Asia & Pacific Applied tariffs, simple mean, all goods (%) 20 th century ‘protectionism’ becomes ‘destructionism’ 44 ©2016 Richard Baldwin

45 ©2016 Richard Baldwin Political economy changed 20 th century trade = Selling things. –Political economy = exchange of market access. 21 th century trade = Making things. –Developing nations industrialise by joining a supply chain, not building one. –Political economy = Northern factories for Southern reforms. NB: No factories on offer in Geneva China is different: ‘My market for your factories & technology’