A Breakthrough for Global Trade?

You have to admit, it's getting better.

Photographer: Tim Rue/Bloomberg

When the world's two largest economies agree on anything -- whether climate change or trade -- the agreement has global impact. The question then becomes how to maximize the good and minimize the bad.

Related: Could the U.S.-China Pact Be a Breakthrough for Climate Protection?

In the case of trade, the economic benefits of the China-U.S. deal to cut tariffs on information technology are clear to both countries. It may also help revive global trade talks, which have been stuck in a morass for well more than a decade.

The agreement covers devices that weren’t around in 1996, when the original agreement entered into force under the auspices of the World Trade Organization. If the other signatories to the planned agreement sign on, the reduction in more than 200 separate tariffs could boost global gross domestic product by more than $190 billion and create as many as 60,000 jobs in the U.S.

As the first major cuts to tariffs at the WTO in 17 years, the expanded agreement would also be a rare bit of good news for an institution that has descended into paralysis. No wonder that so many of the WTO’s members have been seeing other people -- that is, making regional trade agreements such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership. Although WTO rules allow such free-trade agreements to discriminate against nonmembers, these big pacts risk creating conflicting standards and stoking regional rivalries.

One of the advantages of this U.S.-China deal is that it is part of the larger WTO framework: As a nondiscriminatory “plurilateral” agreement on a given trade sector, it extends the same benefits to all WTO members -- even those that haven’t signed on.

That makes it much easier to sell to the WTO’s 160 members. True, the WTO has discriminatory agreements on government procurement and civil aircraft whose benefits (and obligations) are limited to signatories. But those were grandfathered in from the old General Agreement on Tariffs and Trade. Any new ones would be much harder to get approved. That constraint is pushing nations to go outside the WTO framework for talks on trade in services and in solar panels, wind turbines and other environmental goods.

Fundamentally, restoring the WTO’s effectiveness will require moving away from this insistence on consensus. (A proposal to allow agreements in some areas to be approved by a three-quarters vote of its members, for example, makes sense.) For all the problems the organization has had in negotiating agreements, it has worked well as an arbitrator of trade disputes. Its expertise in compiling and analyzing trade data is unrivaled. And it provides an invaluable forum for members to review one another’s proposed trade regulations and prevent small disagreements from becoming major disputes.

Of course, changing WTO voting rules will hardly be easy or quick. There is one speedy way, however, to build on this week’s agreement: India could approve the trade facilitation deal it blocked this summer to protect its wasteful food subsidies. If that agreement came into force, global trade could expand by as much as $1 trillion -- and the WTO would get back some of its mojo.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.