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The Global Retreat of Free Trade

At last month's G7 summit in Biarritz, leaders again paid lip service to reforming the World Trade Organization. But, given the US-led effort to weaken the WTO, the more likely scenario is the emergence of a new international order in which trade deals replace trade rules, and raw power politics stand in for dispute adjudication.

BUENOS AIRES – In the 1980s, US President Ronald Reagan’s administration forced Japan to accept “voluntary” restraints on its exports, particularly of automobiles, in order to reduce America’s trade deficit and protect its companies from Japanese competition. By 1994, the deficit hadn’t shrunk, but US car manufacturers had become more competitive, so the restrictions were discontinued. The next year, the World Trade Organization was established, and such unfair “voluntary” restraints were outlawed.

Since then, Japan – for which trade represents about 35% of GDP – has been a staunch defender of multilateral trade rules. But that may be changing in response to US President Donald Trump’s escalating attacks on the rules-based trading system.

Japan recently agreed to negotiate a preferential trade agreement with the United States that could challenge one of the pillars of the multilateral trading system: the “most favored nation” (MFN) obligation, which states that any concessions or privileges granted to one country in a trade deal must be extended to all WTO members. Here, Japan is again acting “voluntarily,” under strong pressure from the US.

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