Protectionist buzzwords could ruin the World Trade Organization

The news out of Geneva last week was that the World Trade Organization (WTO) will live to see another day.

That’s because the 12th Ministerial Conference (MC12) did enough to get members talking about the need to reconvene for MC13. The “deliverables” include a deal on fisheries, a declaration on food security and a waiver on intellectual property with respect to COVID-19 vaccines. There are many details still to be worked out. Several topics, like dispute settlement, were left to future meetings.

Now comes the hard work. Trade ministers need to get support back home for what they did in Geneva. This task will be made more difficult by two buzzwords of the day: “near-shoring” and “friend-shoring.” Both terms can only serve to politicize supply chains and give protectionists the upper hand. In the limit, they spell autarky.

The purported reason for near- and friend-shoring is that COVID and the war in Ukraine have led to disruptions in trade. The suggested “fix” is to bring more of the things we need home, or at least to countries that are close by or friendly. The irony is that the WTO is designed to reduce the risk of “hold up,” a theme made clear in MC12’s declaration on food security. But where the WTO puts its faith in markets, proponents of near- and friend-shoring want to prioritize politics.

First, some thoughts about a few of MC12’s deliverables. There are key innovations in the fisheries deal, which aims to curtail subsidies on illegal fishing. The buzz about the deal is that it’s the WTO’s first to directly get at an environmental concern, and may even cover labor standards.

The declaration on “food insecurity” is a useful pledge by members to resist imposing the type of export and other restrictions that proved popular as COVID raged. It doesn’t do anything enforceable, but it sets the right tone at a time when the war in Ukraine is reminding us that food markets are inextricably intertwined.

The waiver on intellectual property is just theater. There already exists a global over-supply of COVID vaccines. Few developing countries have the capacity to make vaccines, and making more of them will further strain delicate supply chains. In this light, the waiver seems to be more about industrial policy ambitions than redressing an inequity of access. Moreover, this bit of theater will hurt innovation when the next pandemic rolls around. Especially if, in six months, members expand the waiver to cover diagnostics and therapeutics, which could mean just about anything and everything.

MC12 also vowed to jump-start talk about reforming WTO dispute settlement. In a teaser, the “Outcome Document” promises discussions with a view to getting the system “fully and well-functioning” by 2024. The hope is that, among other things, this means fixing the Appellate Body.

So, was MC12 a success? Critics argue it simply kicked the can down the road. Proponents urge that it’s a win because anyone is even talking about the need to get back together for MC13. But what sold in Geneva may not sell in capitols. It’s not just a question of political will. The jargon is also getting in the way.

Near- and friend-shoring tap an intuition that geographic proximity and alliances are good for trade. In fact, there’s research showing that physical distance, and cordial relations, explain a lot about trade flows. As policy prescription, however, near- and friend-shoring aren’t about commercial gravity among friends, but about how markets can’t be trusted.

Consider, for example, a recent bipartisan bill introduced in Congress titled the “Western Hemisphere Nearshoring Act.” It authorizes the U.S. International Development Finance Corporation to fund the relocation of suppliers to nearby friendly countries. The cost of doing this would be staggering, especially since the bill also covers the “necessary workforce development costs” on top of moving expenses.

But key supply chains, like pharmaceuticals and semiconductors, can’t be near- or friend-shored. The same goes for rare earths and critical materials, for which electric vehicles and other technologies have a voracious appetite.

As for intellectual property, the waiver nearly failed over whether China would be allowed to use it. The heated debate that followed led to a footnote in the waiver that disqualifies China. But this debate distracted from a more central point: Waiving intellectual property will hurt innovation regardless of whether physically close free riders are friends or foe.

The package of deliverables agreed to at MC12 deserve to be debated. But make no mistake, near- and friend-shoring are protectionist buzzwords that will leave WTO members, including the U.S., less wealthy and less secure.

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University. Follow him on Twitter @marclbusch.