Arturo Reyes
Confederation of Customs Agents Associations of Mexico (CAAAREM)
Expert Contributor

Trade Multilateralism Crisis Makes Mexico a Global Leader

By Arturo Reyes | Tue, 09/01/2020 - 09:17

In view of the pandemic we are experiencing today, the World Trade Organization (WTO) in April predicted a serious scenario for the exchange of goods in the world. Its annual trade forecast considered the degree of uncertainty regarding the severity and economic impact of COVID-19 and spoke of two possible scenarios: an optimistic situation in which the volume of world trade in goods would contract by 13 percent during 2020, and a pessimistic situation in which world trade would be reduced by 32 percent.

In the first quarter of 2020, the volume of merchandise trade declined at a 3 percent year-on-year rate, according to the WTO. Data for the second quarter, during which the virus and containment measures affected much of the world's population, point to a year-on-year decline of 18.5 percent, a reduction that reaches historic levels but which is far from the worst scenario projected in April. 

In fact, WTO economists point out that it will be enough for trade to grow 2.5 percent per quarter for the rest of the year for the optimistic projection to be fulfilled. They also mention that international trade started its recovery in June, noting that "changes in the PMI (Purchasing Managers Index) appear to reflect improvements in real trade flows, indicating that trade rates could bottom out in April or May 2020 before beginning to recover in June. 

However, to understand the magnitude of the problem, the current crisis we are experiencing is triple the impact of the global financial crisis of 2008. In addition, the pandemic came at the worst time for international trade, which had already been declining for two years, dragged down by the trade war between the two great economic powers of the world: the US and China. Added to this was the growing discontent of the world's population with globalization, Britain's withdrawal from the European Union and the collapse of multilateralism in the face of a WTO that is now almost paralyzed. 

In fact, the director of the WTO, the Brazilian Roberto Azevedo, announced his resignation at the height of the world economic crisis, leaving his post on Aug. 30, 2020, a year before the end of his second term at the head of this body, opening the door to a possible restructuring of the organization. 

Today, there are eight candidates seeking the position of WTO Director-General: Jesús Seade of Mexico, Amina C. Mohamed from Kenya, Yoo Myung-hee from South Korea, Abdel-Hamid from Egypt, Tudor Ulianovschi from Moldova, Ngozi Okonjo-Iweala from Nigeria, Mohammad Maziad from Arabia and Liam Fox from the UK. All of them have mentioned in their speeches the imperative need for the WTO to resume its international leadership in order to boost the world's economic development after the passage of the COVID-19 pandemic and to play a much more active role in the US-China trade war. 

Dr. Seade, Mexico's candidate and former representative of President Andrés Manuel López Obrador in the renegotiation of NAFTA, now T-MEC, points out that the dispute settlement system must be repaired and that China will have to adjust to its new status as a foreign trade power.

It should be recalled that the US, under the argument that the WTO has taken sides with China and other "rivals" in trade disputes, has blocked the appointment of two judges to the Appellate Body for a couple of years. And that the Supreme Court of Trade, which should have consisted of seven judges, now has only five, making it impossible to obtain the quorum needed to resolve any matter.

The US has repeatedly accused the WTO of benefiting everyone but them. President Donald Trump claims that the US has lost almost all the trials there. However, as the statistics demonstrate, the truth is very different. The US has been the most frequent user of the Appellate Body of the WTO, and the nation with the most victories in court.

President Trump has shown, especially with the renegotiation of NAFTA with Canada and Mexico, that it is more in the interest of the US to look after its national interests through bilateral treaties than to opt for multilateralism and WTO rules. 

In addition, China is today the biggest trading partner in the world but it continues to be classified as a developing country. Other WTO members have declared this situation unfair. In 2001, China joined the WTO promising to open its economy to foreign trade and yet, 19 years later, this has not been fulfilled. 

Because of these issues, Dr. Seade, in his speech to the WTO plenary, pointed out that the main crisis of the organization lies in its credibility. There is an urgent need to renegotiate with member countries to give the WTO back its leadership at a time when the world needs it most. 

It is important to note that Mexico has played its cards masterfully. In other words, Mexico is taking the best from both sides, multilateralism, but above all from the bilateral or trilateral negotiation of the T-MEC, which has a much more solid future than the rest of the developing countries. 

And although July's figures are still low, we see that Mexico's vehicle exports have revived favorably, returning in one month to the levels of 2015 and 2016. We can also see that agri-food exports not only did not fall during the worst months of the pandemic, but grew at a rate of 1.9 percent. Hence, according to INEGI, our country recorded a surplus in the trade balance of US$2.7 billion dollars between January and June 2020 despite the fall in exports and imports derived from the coronavirus.

Finally, in June, we registered a surplus of US$5.55 billion and gradually, customs agents are seeing the normalization of the flow of goods through the country's customs, which will undoubtedly translate into prosperity and a lever for Mexico's development. 

Photo by:   CAAREM