How the conflict in Russia and Ukraine might affect the availability of commodities, the functioning of trading institutions, and globalisation

‘As a result of the ongoing conflict in Europe, there is already evidence of, and potential for further escalation of, interruptions in the supply of products ranging from the components used to manufacture semiconductor chips to foodgrains.’ There may be a need for some serious rethinking of supply chains in regard to items that are essential for the functioning of the contemporary world.

Two wars that occurred in the last hundred years have left their imprint on the organisations that are in charge of controlling international commerce while also occupying the collective memory of mankind. Following the conclusion of the Second World War, a number of significant events occurred, one of which was the establishment of the General Agreement on Tariffs and Trade (GATT). The General Agreement on Tariffs and Trade (GATT), which was signed in 1947, was a treaty that bound signatory states to its provisions, which defined fair trade and, to some extent, free trade. After then, there was a long period of time known as the “Cold War,” which was characterised by low-level warfare between two ideologically distinct factions. The World Trade Organization (WTO) was officially established in 1995, not long after the conclusion of the cold war. It would appear that the establishment of institutions for international commerce occurred after every episode of widespread fighting or prolonged disturbance of peace. After all, nations not only engage in warfare against one another but also engage in commerce with one another. It appears that after being weary with one activity, people desired to engage in the other activity, and in order to do so, they need regulations. Institutions were required to put rules of trade into practise, which is how the World Trade Organization came to exist in its current form.

Manufacturing and supply chains have been more globalised over the course of the past three decades as a result of international commerce being facilitated by technical advancements and using the rules-based trade system. Raw materials and components are typically supplied from several places that span multiple nations in today’s typical supply chain. The final assembly of the goods may take place in a separate location, while the products themselves may be disseminated through multiple regional hubs. Transparent standards of valuation, classification, origin, and non-tariff limitations guarantee that the economics of movement of inputs, intermediates, and completed commodities are, to a considerable degree, predictable. These regulations are necessary for countries that want to participate in international trade.

Disruptions caused by conflict as well as realignment after the war

The continuous conflict in Europe is causing supply chain disruptions that are already being felt and are likely to worsen in the near future. These interruptions affect a wide variety of items, from the components used to make semiconductor chips to foodgrains. The disruption of the fossil fuel industry does not qualify since the current disruption may get us closer to being independent of our reliance on fossil fuels. On the other hand, for other things that are essential for the functioning of the contemporary world, there can be a need for some careful consideration about supply chains. It will be necessary to establish an adequate level of redundancy across supplier nations or regions, taking into consideration tariff prices, free trade agreements, and non-tariff obstacles, in order to source inputs. In order to reduce the likelihood of business being disrupted as a result of geopolitical tensions or armed conflicts, it may be necessary for manufacturers and merchants to keep a diverse range of supplier areas, despite the fact that these countries have varying prices.

Institutions for Commercial Trade After the War

However, following this battle, there is a possibility that the institutions that govern commerce based on norms would undergo a more significant transformation. To begin, it is anticipated that the inertia of legal and judicial organisations involved in international trade would be overcome. The economic activities that countries take as the ongoing conflict proceeds will produce issues that cannot be readily addressed in national courts, and these problems will be caused by the acts themselves. Restrictions on particular types of transactions, prohibitions on interactions with identified entities, and denial of Most Favored Nation treatment are two key non-military acts that are increasingly being resorted to by states that take sides in wars. These kinds of activities are authorised by Article XXI of the GATT for the sake of national security, and the dispute settlement mechanism of the WTO allows for them to be litigated in court. It is only natural that nations that are subjected to such activities will cast doubt on the legitimacy of those actions.

It is possible that the international community will be put in a position where it will be forced to face the repercussions of chances that were missed in the past because international institutions were obstructed without taking into account the potential long-term effects of their actions. Many commercial disagreements remain unresolved as of this day since the World Trade Organization (WTO) Appellate Body has been inoperable for some years now because its members have not been appointed. As a direct consequence of this, appeals against rulings made by the disputes panel have been pending for years without being resolved. However, on a more “pragmatic” level, many nations did not appear to worry that the appellate body remained non-functional. This is despite the fact that several members have voiced their wish to get the appellate system back up and running. In the years following the end of the war, it’s likely that some of these issues may be resolved.

A move away from the consensus approach to decision making in institutions of trade, where fundamental agreements authorise choices by a majority or a supermajority, might be another potential area of change. This is something that might grow more possible in settings where there are significant ideological differences between member states, such as the war that is currently taking place in Europe.

Globalisation against Regionalisation:

The equilibrium between globalisation and regionalization is another another aspect of commerce that can be subject to shifts in the future. While the World Trade Organization (WTO), which is considered to be the primary instrument of economic globalisation, has been spreading its wings, a parallel trend of nations negotiating preferential trade deals in regional groupings has also been gaining momentum. Some nations have made it clear that they want such regionalization over globalisation, despite the fact that the former would make the global trade system that is based on rules less effective. It is impossible for regional groupings to serve as suitable alternatives for global institutions, first and foremost due to the fact that various areas develop into competing organisations and inward-looking trade groups. One other drawback of regionalization is that it does not provide adequate capacity for the enforcement of norms that are mutually agreed upon. Building up such an enforcement capability is not an easy task, particularly in a world where a single nation might be a member of many groupings at once thanks to economic unions or trade agreements. On the other hand, a global organisation can wield more power if it employs the tools of international trade law that have been distilled from multilateral agreements. However, if the World Trade Organization (WTO) and other economic agencies move away from a consensus approach to decision making, it is feasible that regionalization may become an alternative for nations that do not agree with choices made by majorities in multilateral institutions.

While corporations take steps to protect their supply chains and markets in a world that is prone to war, the interactions such corporations have with nation states might lead to a new definition of the term “narrow national interest.” As time goes on, one can only hold out hope that the values of freedom and justice would eventually triumph over economic nationalism, therefore contributing to the consolidation of international institutions and the rule of law in the context of economic exchanges between different nation states.

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