The Asian Perspective
ADBI series on Asian Economic Integration and Cooperation
Edited by Richard Baldwin, Masahiro Kawai and Ganeshan Wignaraja
Chapter 2: WTO 2.0: governance of global supply-chain trade
The cross-border flows of goods, investment, services, know-how, and people associated with international production networks – call it ‘supply-chain trade’ for short – has transformed the world. The WTO has not kept pace. This chapter argues that adapting world trade governance to the realities of supply-chain trade will require a new organization: a WTO 2.0 as it were. The argument for a new organization boils down to profound differences between supply-chain trade and traditional trade: Traditional trade means selling into one nation goods that were made in another nation; traditional trade is thus mostly about selling things internationally. Supply-chain trade is much more complex and much more asymmetric. Supply-chain trade arises when high-tech firms combine their know-how with low-wage labor in developing nations; supply-chain is thus mostly about making things internationally, although international selling is also important. Today’s WTO is crafted to facilitate traditional trade – its nature, membership, and rules are designed to support international selling. Supply-chain trade, by contrast, enjoys little or no global regulation. This ‘21st century international commerce’ is currently underpinned by an ad hoc combination of regional trade agreements (RTAs), bilateral investment treaties (BITs), and unilateral reforms by developing nations. But supply-chain governance is evolving rapidly. Advanced-technology nations, especially the US, are leading efforts to knit together the ad hoc governance into ‘mega-regionals’, such as the TPP and the Trans-Atlantic Partnership (TAP), and mega-bilaterals, such as EU–Canada, Japan–EU, and so on.
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