Global Supply chains and an international agreement

I have blogged about global supply chains here and here. Richard Baldwin has argued that the present multilateral trade arrangement or WTO 1.0 is incapable of addressing the reality of international supply chains and a need for WTO 2.0 is evident. He has recently written about it in EastAsiaForum here.

In a recent piece in the NYT Paul Krugman referred to the USITC report on the economic effects of significant import restraints. The USITC report explained the nature of global supply chains:

"The Apple iPod is a prominent example of a good produced via a global supply chain. Apple is headquartered in the United States and most of its R&D, marketing, top management, and corporate functions are located in the United States. The iPod’s hard drive, however, was designed in Japan by Toshiba and built in factories in China and the Philippines. The controller chip was designed by the U.S. firm Portal Player, but is produced by firms in either Taiwan or the United States. Other parts are manufactured in Japan, Thailand, Taiwan, Korea, and Singapore. Finally, the iPod is assembled by Taiwanese manufacturing firms in China."

To what extent are global supply chains impacting world trade? Is a large proportion of world trade a result of international supply chains or is it an insignificant percentage? Which are the countries involved in this supply chain? What is the developed-developing country dynamic here? Will it lead to the enhancement of the industrial base of a developing country? What would the nature of an international agreement covering supply chains be? How different would it be from an existing multilateral trade agreement?

 

International supply chains and the irrelevance of the WTO

I had earlier blogged about Richard Baldwin's presentation at the Public Forum at WTO titled WTO 2.0. In an article explaining what international supply chains is all about and what impact it has for international trade rules as well as the WTO, he emphasizes:

"The world of trade politics and trade governance also changed. If a high-tech firm is to locate production stages in a developing nation, the nation’s government must ensure the necessary free movement of goods, services, information and the protection of tangible and intangible property rights. Old-fashioned protection, anti-FDI policies, or lax property rights almost guarantee that the offshored stages will go somewhere else. 

Developing nations that got the offshored factories became hyper-competitive and wiped out the exports of developing nations that clung to import-substitution industrialization. In the world of supply-chain industrialization, protectionism has become destructionism. 

Having learned this lesson, developing nations unilaterally lowered tariffs and eagerly signed up for deep disciplines in regional trade agreements and bilateral investment treaties. It happened regionally, rather than multilaterally, since most supply chains are regional, a tendency that the WTO’s decade-long preoccupation with 20th-century trade issues (tariffs and agriculture) exacerbated."

He has predicted that the WTO would lose its centrality in international trade rules if it does not address this fundamental shift in trade pattern from old mercantilist exports and imports to supply chain industrialization. How severe is the impact of these changes going to be on international law and internternational trade rules? Will the WTO Agreements become irrelevant? Will bilaterals define the parameters and contours of supply chain trade? Will the role of the dispute settlement mechanism of the WTO move into oblivion in the coming years? Or will the WTO adapt to the changed reality and negotiate on new trade rules keeping in mind the reality of international supply chains? Will Doha be resurrected due to the inevitability of trade? What changes will the rules have to take care of the new trade world?

WTO 2.0 - Richard Baldwin on the future of world trade

The WTO recently held a Public Forum titled "Is Multilateralism in Crisis/" where various stakeholders met to discuss the future of multilateralism and future of global trade rules. The details of the Public Forum are found here with excellent audios.

I found this presentation by Richard Baldwin (I have blogged about his works here and here) particularly interesting. He speaks about the future of WTO in terms of WTO 2.0 which has to recognize the realities of global supply chains and regional and bilateral trade agreements. For the WTO to be relevant he calls for it to multilateralise supply chain rules or become an insignificant player by 2020.

Some food for thought?