The vitality of the global trading system is crucial not only to Australia’s long-term economic outlook, but also the countries within our region. Access to global trade networks both for Australia and key emerging markets within the Indo-Pacific region are therefore of major interest to the International Economy Program at the Lowy Institute for International Policy.
Australia’s terms of trade have changed significantly in recent years. After reaching historic highs due to record export prices in Australia’s three major bulk commodities (iron ore , metallurgical coal and thermal coal), Australia’s terms of trade are projected to return to pre-boom levels over the next decade. This readjustment will have a significant impact on the value of the Australian dollar, and will have a number of other effects on the real economy.
Similarly, post the global financial crisis, the structure of international trade is undergoing a major transition. Despite the relative gains made from a multilateral trading system that centred around the World Trade Organization (WTO), the inability to conclude the Doha Development Agenda has seen a decline in enthusiasm for major multilateral rounds. In particular, the single undertaking agreement in the WTO (i.e. nothing is agreed until everything is agreed) has led many countries to pursue bilateral and mega-regional agreements (such as the Australia-Japan FTA, and the Transpacific Partnership or TPP).
The emergence of mega-regional agreements like the TPP will have significant ramifications for the future of the global trading system. Like the Transatlantic Trade Investment Partnership (TTIP), the TPP will see a collection of major economies authoring new standards and rules for trade. This could detract from the multilateral underpinnings of the WTO and the truly global trading network that had begun to emerge since the WTO was established in 1995. That neither TPP nor TTIP includes the poorest countries in the world, let alone China, raises further questions about the legitimacy, efficiency, and economic value of a shift away from true multilateralism.
The Lowy Institute has approached current and future trends in the global trading system from several angles. In addition to the work on trade undertaken by the International Economy Program, the G20 Studies Centre has produced several outlooks and perspectives on the role of trade within global economic governance generally, and within the Group of Twenty process specifically. This has involved investigations into initiatives of the G20 on trade, such as the post-GFC ‘standstill’ agreement that prevented a return to 1930s-era trade protectionism that followed the Great Depression as well as how the G20 can value-add to establishing a more coherent global trading system, that ensures new initiatives such as the TPP and the TTIP make positive contributions to the future of international trade, rather than become vehicles for its disintegration. This has become especially relevant after the conclusion of the Bali talks on trade facilitation, that represented the first agreement within the WTO, since its creation.
International trade, and governance of the global trading system, will continue to be an ongoing focus for the International Economy Program, as well as the G20 Studies Centre.