Shot in the arm

Building a people-centered global trade governance system is the best way to inject new vitality into the multilateral trading system

In the 80 years since the end of World War II, the global trade governance system — characterized by trade liberalization and built on the platform of the General Agreement on Tariffs and Trade and its successor, the World Trade Organization — has facilitated economic globalization and made a historic contribution to global economic growth.

However, as the international landscape has shifted, this system has increasingly revealed structural shortcomings in inclusiveness and shared benefits. Global trade governance now faces an unprecedented dilemma: On the one hand, trade protectionism has risen markedly in developed economies, posing serious challenges to the multilateral trading system; on the other hand, developing countries — least-developed countries in particular — have long had a low level of participation in global trade and have struggled to fully benefit from globalization.

Under these new conditions, reforming the global trade governance system around a people-centered approach has emerged as a new direction for its development.

A people-centered global trade governance system is essentially about ensuring that, while upholding trade liberalization as a fundamental premise, all countries and all people benefit from international trade as much as possible. This concept comprises two interrelated dimensions: At the national level, it is reflected in the development orientation; at the people's livelihood level, it is reflected in social protection.

At the national level, priority should be given to building the export capacity of countries. Traditional comparative advantage theory rests on the key implicit assumption that countries already possess the capacity to produce and export tradable goods, and that trade liberalization need only remove border barriers for them to participate smoothly in the international division of labor. For the vast number of countries in the Global South, however, the predicament lies not merely in how high tariff barriers are, but in the more fundamental questions of "what to produce for export" and "how to produce competitive products". A people-centered global trade governance system must therefore, at the national level, move beyond the traditional "market access" mindset and toward a "capacity-building" orientation.

It is worth noting that developed economies face a similar challenge in strengthening export capacity — namely, reviving manufacturing. The way to achieve this should be through more open investment policies rather than protectionist barriers. This means the future global trade governance system must be development-oriented and must lower investment restrictions, so that the cross-border flow of capital and technology genuinely serves to improve the productive capacity of countries.

International trade theory makes clear that the gains from trade are not automatically distributed evenly: While free trade can raise a country's overall welfare, it inevitably reshapes the domestic distribution of income, and the real incomes of owners of scarce factors of production will decline. Being people-centered means governments — whether in developed or developing countries — should proactively assist those harmed by trade, through fiscal policy, vocational training and social protection systems, to compensate those who lose out, preventing trade shocks from turning into employment crises or worsening income distribution. This means that, going forward, countries need to coordinate to establish and improve trade adjustment assistance mechanisms, so that the gains from globalization can be shared more fairly.

In short, a people-centered global trade governance system can be summarized as follows: built on trade liberalization, supported by the twin pillars of development orientation and social protection, and ultimately aimed at an inclusive globalization in which all countries participate and all people benefit.

Without a people-centered approach, the difficulties currently facing global trade governance will only intensify, potentially even threatening the survival of the multilateral trading system.

If trade protectionism continues to rise, multilateral rules will continue to erode. When vulnerable domestic populations do not receive effective support, political pressure inevitably translates into trade restrictions, ultimately undermining global welfare. Anti-globalization sentiment has continued to grow in developed economies, with some attributing domestic industry and employment shocks to globalization. This reflects a structural flaw in the existing governance system's capacity to respond to public grievances.

At the same time, the development challenges facing the Global South remain severe. Least-developed countries account for only about 1 percent of global trade. Without people-centered reforms to genuinely integrate developing countries into the global trading system, the North-South gap will continue to widen, breeding further geopolitical instability.

While upholding the foundational role of trade liberalization, the following measures could serve as effective ways to put the people-centered approach into practice.

First, deepening the Global Development Initiative and international development cooperation. China's extension of zero-tariff treatment on 100 percent of tariff lines to least-developed countries stands as a model of trade preference within South-South cooperation. Going forward, countries should step up cooperation in areas such as technology transfer, digital capacity building and the green transition, helping developing countries secure a place in global value chains.

Second, lowering investment restrictions and improving international direct investment rules. Efforts should continue to advance the incorporation of the Investment Facilitation for Development Agreement into the WTO legal framework — a step that would help drive global FDI growth. Developing countries should continue to improve their business environments and streamline administrative approval procedures, while developed countries should lower their barriers to investment originating from developing countries. Greater efforts should be made to attract foreign investment in both infrastructure and manufacturing.

Third, establishing international rules to coordinate trade adjustment assistance across countries. Governments should act proactively — using fiscal transfers, vocational training and employment support to assist those who have been harmed — rather than waiting to respond passively after domestic anti-globalization coalitions are already formed. Going forward, mechanisms for sharing information and best practices on trade adjustment assistance should be explored within the WTO framework, helping countries build more effective social protection systems.

Looking ahead, a people-centered global trade governance system is not a repudiation of the existing system, but its refinement and advancement. It upholds the efficiency gains brought by trade liberalization while striving to ensure that every country and every ordinary worker can fairly share the dividends of globalization. Only in this way can economic globalization proceed on a steady and sustained path, and the multilateral trading system regain vitality.

The author is a researcher on world economics and politics at the Chinese Academy of Social Sciences.

The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.