Society problems

Trade coercion poses a growing threat to the global economy

The following is an excerpt from ASPI Vice President Wendy Cutler and Research Director of the Perth USAsia Center Jeffrey WilsonCommentary originally published in Nikkei Asia.

The integrity of the global trading system is under threat.

Growing protectionism, non-market economic practices and the abuse of national security exceptions mean that the trade rules that have facilitated dramatic increases in global growth for more than seventy years can no longer be taken for granted.

And now there is a new threat to add to the list: commercial coercion. It involves governments using trade measures as a political weapon to impose economic costs on a partner in a diplomatic dispute. Common coercive trade practices include the imposition of arbitrary anti-dumping duties, delays in customs processing, and government-sponsored boycotts.

Trade coercion is a serious threat to the global trading system. It violates the fundamental principles of non-discrimination and transparency of the World Trade Organization. It asymmetrically affects small and medium-sized countries, which do not have the size to respond effectively to large players. It also undermines trust in rules-based approaches to business.

The gray area nature of commercial coercion makes it difficult to identify, let alone quantify, the practice. Few governments admit to breaking trade rules to exert political pressure on others, and the coercion often goes unreported. But experts agree the practice has become much more common in recent years and, if left unchecked, could further damage the fragile trading system.

Governments subject to commercial coercion find themselves in a bind. If they retaliate in kind, they usually risk an escalation of greater power which can inflict greater pain. If they capitulate, they risk sacrificing their foreign policy autonomy and facing a public backlash at home. Moreover, when they turn to global institutions, they find themselves shorthanded. The WTO dispute settlement system is in disarray and not suited to providing redress to victims of trade coercion.

Recognizing these issues, governments around the world are studying what can be done to combat this pernicious practice. To contribute to this discussion, an international group of twelve thought leaders in trade policy, convened by the Asia Society Policy Institute and the Perth USAsia Center, released a paper proposing 10 concrete policy options that governments can deploy to respond to commercial coercion.

Read the full article in Nikkei Asia.