Threats to the Rule-Based Trading System: EU-Thailand FTA and the Future of Global Trade

Strategic Insights -

As both Sweden and Thailand celebrate their 30th anniversary of World Trade Organization (WTO) membership, the two countries are working towards finalizing a free trade agreement (FTA) aimed at strengthening the rule-based trading system. However, the recent shift in US trade policy, where the country has stopped using WTO rules as a point of reference, poses a significant threat to the established trading system. The US's trade policy has already resulted in significant damage, and there is a risk that more countries will follow suit and abandon the rule-based trading system.

Key Takeaways:

  • The EU-Thailand FTA is critical in supporting the rule-based trading system, which has contributed to growth and prosperity around the world for almost 80 years.
  • The US's decision to stop using WTO rules as a point of reference has caused significant damage to the trading system, with a risk of more countries following suit.
  • The EU-Thailand FTA can serve as an important pillar in building a new rule-based trade coalition, which could emerge as the center of gravity in world trade.
  • Thailand's geographical position makes it well-suited to benefit from such a coalition, and its membership is in the broader interest of both Sweden and Thailand.
  • The success of the EU-Thailand FTA will depend on the ability of the two parties to navigate the current crisis and agree on a rules-based trade relationship.

Statistics:

  • The EU-Thailand FTA is expected to have a significant impact on trade between the two countries, with 10% of Sweden's external trade currently affected by US tariffs.
  • The EU-Vietnam Free Trade Agreement (EVFTA) has seen Vietnam's export value to the EU surge by nearly 50%, while imports from the EU have grown by over 40%.
  • The global trade paradox is emerging, as research has uncovered stronger links between trade and productivity, with some of the most important productivity effects materializing through imports.

Sources:

  • [1] World Trade Organization (WTO)
  • [2] EU-Thailand Free Trade Agreement
  • [3] European Union-Vietnam Free Trade Agreement (EVFTA)
  • [4] Vietnam Briefing
  • [5] Sweden's Ministry of Trade and Industry