Expansion and contraction

[WANG YANGYANG/FOR CHINA DAILY]

Protectionism is fracturing the global supply chains and hindering further trade and investment liberalization

As shown by the World Openness Index 2022, released during the fifth China International Import Expo, the openness of the world has demonstrated a downward trend in 2020. The openness level of most economies, in particular the major developed countries, has been declining. The openness level of G7 has been decreasing since 2008 while in contrast, other countries have been increasing their openness. The World Trade Organization's pace of trade liberalization has also slowed markedly.

As a matter of fact, liberalization of the multilateral trading system had been mostly accomplished before the mid-1990s. Back then, through the Uruguay Round of trade negotiations, the General Agreement on Tariffs and Trade reached a magnificent package of deals covering the trade in goods and services, as well as intellectual property rights protection, pushing trade liberalization and economic globalization to a new high.

However, since the WTO's creation in 1995, most WTO members have ceased to make more commitments in their market opening, with the exception of the Expansion of Information Technology Agreement concluded by a group of members in 2015.The trade liberalization of the WTO has generally been contributed by newly acceded members through their accession commitments, especially such a large developing country as China.

The major developed countries that were previously the most vociferous in insisting on open markets have abandoned this idea themselves. During China's WTO accession negotiations over 20 years ago, the developed countries touted China to lower its trade barriers, cut tariffs, open up its market, welcome foreign investment, abide by the WTO rules, and strengthen the rules-based multilateral trading system.

China did so, and made itself stronger and stronger by virtue of continuous opening-up. Regrettably, those who were once the "teachers" of globalization are now taking a stand against it. They have blatantly introduced trade protectionist measures, advocated onshore production and the purchase of domestically produced goods, claiming this will save and create domestic jobs. Those policies have hindered global trade and investment liberalization, as well as breached international economic and trade rules, leaving the multilateralism in the doldrums.

In line with its WTO accession agreement over 20 years ago, China was entitled to a 10-year transitional period to gradually fulfill its WTO commitments. However, Chinese leaders, overcoming numerous difficulties, decided to launch negotiations on China's first free trade agreement without delay by signing the Framework Agreement on Comprehensive Economic Cooperation between ASEAN and China on Nov 4, 2002 in Phnom Penh, Cambodia.

In the following 20 years, China has been unswervingly opening its market wider and wider by signing a total of 19 free trade agreements with 26 countries and regions. The volume of trade between China and its FTA partners accounts for about 35 percent of the country's total foreign trade. Thanks to its continuous trade liberalization driven by negotiations over those free trade agreements, to date, China's trade-weighted tariff rates have been reduced to 3.4 percent, very close to that of developed countries.

The Regional Comprehensive Economic Partnership agreement officially entered into force on Jan 1, 2022. Accounting for roughly 30 percent of the world's population, GDP and trade, the RCEP has created the world's largest free trade area. To fully implement the obligations of the RCEP agreement, China will further open up its goods, services sectors and investment market to the rest of RCEP partners.

The trajectory of continuous opening-up of the Chinese market has been quite evident in this year's World Openness Index. The ranking of China's openness index jumped from the 62nd in 2008 to the 39th in 2020. Continuous opening-up has benefited both China and its trading partners with win-win outcomes. China's contribution to global economic growth has been around 30 percent annually, making it the biggest engine for world economic growth for more than 10 consecutive years.

Currently, the world's major developed economies have shifted their economic and trade policies from the traditional trade liberalization to trade protectionism. Compounded by the global COVID-19 pandemic and Russia-Ukraine conflict, this round of globalization wave that started around 30 years ago is gradually coming to an end. Global supply chains are being forced to undergo fundamental restructuring, which makes it shorter and more regional or even self-sufficient within a nation. The priority of multinationals has changed from "lower cost, higher efficiency" toward "supply chain security and politically correct value-based trade". China, once dubbed "the world's factory", is faced with unprecedented challenges.

That said, we should also note that anti-globalization could be very costly for consumers. Currently, the high inflation worldwide is, to a certain extent, brought by the deglobalization drive. The economic globalization will not go backwards to the level of the Cold War period, as the basic logic for business competition has not changed. In the process of deglobalization, consumers will continue to seek inexpensive and good-quality products, and businesses with higher costs will eventually be out of the running. Therefore, the deglobalization process driven by geopolitics will also face its bottleneck.

The author is former deputy director-general of the WTO and former vice-minister of commerce of the People's Republic of China. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn