There are some new directions in the way economic and trade agreements are structured… or rewritten.
Last week, a revised deal was finally signed between the US, Canada and Mexico, and seen as an alternative for the NAFTA agreement concluded during the 1990s. There were many twists ahead of the revised trade deal, and overcoming stridently voiced disagreements on the part of Mexico and Canada.
At the same time, the US is reassessing earlier deals with China, the EU, the UK and India. Many believe this US approach stems out of a personal desire by US President Donald Trump to rewrite rules of trade - yet the facts are completely different.
It is due to the structural changes in the global economy and the advances in technology achieved over the past two decades, especially in the domains of artificial intelligence and e-commerce, mostly dominated by US enterprise.
Need for a relook
The US believes that previous agreements have compromised its best interests. Let’s take changes that were made to the NAFTA pact by the US, Canada and Mexico. Washington’s trade with Mexico suffers from an annual deficit of $100 billion, while that with Canada is estimated at $27 billion.
Washington is trying to reshape the relationships by changing the nature of the trade exchange in which that of high-tech US-made goods are increasing.
One of the most important changes made to the agreement was related to digital goods, including films, electronic books, music, video games and other streaming content, which will mostly benefit US tech companies.
The changes also extend to 40-45 per cent of a vehicle’s value need to come from “high wage” areas, which too gives preference to US car manufacturers. As a precaution against future changes, Washington stipulated a reassessment of the agreement after six years to take into account progress being made, and whether it will be in Washington’s interest.
Tilting in US’ favour
The US agreement with China also sees a reset of major terms and despite Chinese reluctance.
In much the same way, the US agreements with the EU are now being reassessed, with the US administration threatening last week to impose more than $1.3 billion fees on French imports in response to Paris’ intention to levy fees on services provided by US digital companies operating in France. It has placed more onus on the need for revising the trade pact with the EU.
Such a shift resulting from technological advances is not limited to bilateral relations or within economic blocs. The US has been threatening to pull out from the World Trade Organization given its agreements do not respond to ongoing changes from Washington’s point of view.
This means either the collapse of such organizations or the revision of their articles of association, which may be amended to respond to the requirements of the new economic realities.
Despite all of that, the problem here does not lie in the changes per se. Agreements can be reevaluated. However, what is being attempted is completely different.
The amendments mean an incredible transfer of wealth; as represented by the frenetic spread of e-giants Amazon and China’s Alibaba. We find that this contributes dangerously to the destruction of retail trade in the rest of the world and leading to the transfer of tremendous fortunes, as evidenced by Amazon’s recent transformation into the largest company in the world in terms of market value exceeding $1.5 trillion.
All countries have to prepare themselves for these changes and try to cope - despite the inherent difficulty it means.
- Mohammed Al Asoomi is a specialist in energy and GCC economic affairs.