| THE EROSION OF MULTILATERAL COLLECTIVE DISCIPLINES:
A result of the lack of adaptation of the WTO system to the new realities?
by Félix Peña
English translation: Isabel Romero Carranza
One of the most important conditions required for
the validity, effectiveness and social legitimacy of an institutionalized
international system, either of regional or global scope, is its ability
to adapt to the new realities that have an impact on its objectives, functions
and rationale. This implies the timely adaptation of its regulations,
instruments and rule-making processes to the continuous changes that are
taking place in the context where they operate and, particularly, in the
distribution of power among the countries that form part of it.
Certain tendencies towards the relaxation of the collective disciplines
that result from the regulations agreed within the WTO -most of them originated
in the GATT period- turn the issue of the adaptation of the system as
a whole to the new international realities into a current one.
Such tendencies are, in the first place, those novel modalities of
protectionism that arise because the system's regulations fail to provide
the support for what is considered a necessary defense of national interests.
The second trend is the growing proliferation of preferential trade agreements
that might imply, in practice, the erosion of the principle of non-discrimination
that, as is well known, has always been considered the backbone of the
global multilateral international trade system; or that might accentuate
a dangerous fragmentation of the world trade system especially due to
their "WTO plus" content.
The Eight Ministerial Conference, to be held in Geneva next December,
will offer an opportunity to express the will and ability of the member
countries to adapt the WTO to the new world realities that are emerging
in more evident ways each day. Given the skepticism that seems to prevail
regarding its results, a step forward might be, at least, if the Conference
manages to initiate a gradual new process aimed at addressing those relevant
issues that might cause a systemic erosion of unpredictable results.
Recent events are revealing certain systemic deficiencies on the side
of the World Trade Organization (WTO) to preserve collective disciplines
regarding those issues related with the trade policies of its member countries.
Said deficiencies might prove dangerous due to their potential political
effects, given the toxic climate generated by the current economic and
financial crisis that, so far, has had its epicenter in the developed
These are events that reveal a trend towards the erosion of the collective
disciplines that are allegedly the outcome of a good faith implementation
of WTO rules and, as a consequence, lead to the fragmentation of the world
Such tendencies are becoming evident on two levels. Firstly, on the "self-defense"
attitude against what are considered new modalities of unfair trade, especially
as a result of exchange rate policies that, at least in the perception
of those trying to defend themselves, seek to have an impact on foreign
trade that is favorable to the country applying them. Secondly, on the
proliferation of preferential trade agreements of "WTO plus"
scope that, even when contemplated by the current regulations, show in
part a clear dissatisfaction with the progress that has been achieved
through multilateral trade negotiations in terms of the opening up of
markets and regarding the inclusion of relevant issues, such as intellectual
property, government procurement, services and direct investments.
These tendencies towards the fragmentation of the world trade system
are caused by the difficulties to find, within the WTO, the necessary
support to implement actions that are fully compatible with its rules
and that are considered necessary by its member countries. Operating on
the limits of the system, or even outside of them, would thus become and
option in view of the lack of adaptation of the system's rules and mechanisms
to the new realities.
One of the necessary conditions for the validity, effectiveness and social
legitimacy of an institutionalized international system, either of regional
or global scope, is its ability to adapt to the new realities that have
an impact on its objectives, functions and rationale.
It implies the timely adaptation of its regulations, instruments and
rule-creating processes to the continuous changes that are taking place
in the context where they operate and, particularly, in the distribution
of power among the countries that are part of the respective system. This
becomes much more necessary if, as is currently happening, such changes
are deep structural ones, meaning, in historical terms, that they deserve
the qualification of "revolutionary". They mark a clear "before
and after" in the evolution of the international system. In doing
so, they might render obsolete concepts, paradigms, and, above all, institutions
and ground rules.
This is the reason why demonstrating its ability to adapt to international
realities, that are radically different from those of the time of its
creation, might be the main challenge faced today by the multilateral
world trade system, first institutionalized by the GATT and later by the
WTO. Each day it is becoming more evident that the world in 1947 or 2001
was very different, in its economic and political aspects, to the current
one, to that which can be envisioned -though with great caution- in the
near future, and still more so to that which is coming to existence and
will reach maturity in the long term.
The stagnation of the multilateral trade negotiations of the Doha Round
- and it is not yet clear whether this is of a circumstantial or permanent
nature- reflects an underlying problem currently being faced by the WTO.
We are referring to the fact that it has not been possible to achieve,
within its decision-making mechanisms, the articulation of positions that
are shared by all its members or, at least, by those that could guarantee
a sufficient critical mass of power so that what is decided penetrates
The Eighth Ministerial Conference, to be held next December in Geneva,
would offer an opportunity to demonstrate the will and ability to adapt
the WTO to the new world realities that are emerging each day in more
evident ways. (See
the August 2011 edition of this Newsletter).
Given the skepticism that seems to prevail regarding its results, it
might be sufficient if the upcoming Conference is at least able to begin
a gradual process aimed at addressing some of the most relevant issues
that could cause a systemic erosion of unpredictable consequences. At
that respect we must have in mind that history has always shown a close
relation between trade-related disputes and the kind of political conflicts
that eventually have led to violent confrontation between nations.
There are three requisites that need to be met that would send out clear
signs of the WTO's ability to adapt to the new realities.
The first is the elaboration of a shared diagnostic by the member countries
on the most relevant deficiencies or shortcomings of the WTO system of
rules, collective disciplines and negotiation mechanisms and how to overcome
them, at least through gradual changes, i.e. some sort of systemic metamorphosis.
A step in the right direction would be to commission a report to a group
of top specialists of renowned expertise in the field of international
trade relations. This under the condition that it meets a different fate
than that of the Sutherland Report which, in spite of the wealth of its
contents, never had a proper follow-up and ended up being archived.
Other requisite is to gather the sufficient political drive within the
group of member countries so that the decisions needed to effectively
promote the process of systemic adaptation are later adopted. Reportedly,
this should be the contribution of the G20.
The third factor is the accuracy in the efficacy conferred to the rules
and instruments that finally materialize such decisions. For this purpose,
it would be essential to effectively incorporate flexibility, variable
geometry and multi-speed criteria. In particular, it would seem necessary,
in view of WTO's own experience, to incorporate mechanisms for the continuous
adaptation of the system to the changes that will probably continue to
happen for a long time.
A new G20 Summit will take place in Cannes before the Ministerial Conference
of Geneva. In theory, the critical mass of power that would be necessary
to make decisions that fulfill the threefold quality of effectiveness,
efficacy and legitimacy will be reunited on this occasion.
It is expected that this Summit sends out clear signs to help strengthen
the leading role of the WTO as the appropriate ambit to resolve at least
those issues relevant to world trade that were made evident after the
manifestation, in 2008, of the current process of structural change in
global economic competition. Among others, there is the issue of what
to do with the Doha Round and with the development of novel protectionist
modalities that conjure up the idea of "trade wars".
There are firm reasons to doubt that such signals will result from the
G20 Summit. Even if they did emerge, they might be as ineffective as the
political intention to conclude the Doha Round expressed in the first
Washington Summit (the trade issue was absent from the final declaration
of the Meeting of Finance Ministers and Presidents of Central Banks, held
in Paris on 14 and 15 October: http://online.wsj.com/.
For an appraisal on the G20 refer to Alan Beattie in the Financial Times
of 17 October: "G20 ageing aristocracy stands in way of new ideas").
As was pointed out above, certain trends towards a relaxation of the
collective disciplines that resulted form the rules agreed within the
WTO -most of them originated in the GATT period- turn the issue of the
adaptation of the system as a whole to the new international realities
into a current one.
These are, in the first place, the trends towards novel protectionism
modalities that arise because the system's regulations fail to provide
a solid legal ground for what is considered to be a necessary defense
of national interests. (On this regard refer to the report directed by
Vera Thorstensen and other articles especially that by Roberto Giannetti
da Fonseca, included in the latest edition of the FUNCEX review, mentioned
in the Recommended Reading section of this Newsletter). The other trend
is the growing proliferation of preferential trade agreements of "WTO
plus" content that may imply, in practice, the erosion of the principle
of non-discrimination that has always been considered the backbone of
the global multilateral international trade system, or that may accentuate
a dangerous fragmentation of the world trade system.
Certain recent events illustrate both tendencies. One is the passing
of a bill by the US Senate aimed at, among other things, enabling the
application of protective trade measures to counteract the distorting
effects in competition originated by the manipulation of exchange rate
policies (for the full text go to http://www.govtrack.us/).
Because China seems to be the most obvious target its approval has produced
strong reactions in this country (see among other publications the article
of 13 October 2011 published by Xinhua News on
http://xinhuanet.com/, and by People's Daily Online, of 11 October
2011, on http://english.peopledaily.com.cn/).
Even when there are strong doubts as to whether the project will become
a law, especially with the extent of the Senate's project, the fact that
it is being promoted is a clear example of the kind of reactions that
can be expected (on this regard see Businessweek's article of 12 October
2011 on http://www.businessweek.com/).
The other event is the approval by the US Congress of the free trade
agreements with Colombia, Korea and Panama (on this issue refer to the
information provided by the USTR webpage, in particular on http://www.ustr.gov/,
and the article published by Businessweek on 13 October, on http://www.businessweek.com/).
Negotiated by the previous administration, their approval by Congress
had been deadlocked for different reasons. It will still require some
time for them to become fully valid but, in the context of the standstill
of the Doha Round, this fact may contribute to accentuate the conclusion
of new free trade agreements by WTO members. Two very relevant agreements
are being negotiated by the European Union, one with India and the other
with Mercosur. In a best case scenario these will only be finalized during
the course of next year.
Linking both trends and in the case that there was no evidence of the
intention and capability to promptly adapt WTO rules to the new realities
(for example, in the relation between exchange parities and foreign trade
and in the collective disciplines concerning preferential trade agreements,
which would imply a further development of the ambiguous rules contained
in article XXIV of the GATT, particularly its paragraph 8), the issue
of exchange parities could be included in the mechanisms and protective
trade regulations of agreements such as those being negotiated between
the EU and Mercosur -or eventually in a future agreement with China- and
even within the framework of Mercosur itself. This would set a precedent
to be taken into account in other preferential trade agreements and would
be useful to direct the process of adaptation of WTO's own mechanisms
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Félix Peña Director
of the Institute of International Trade at the ICBC Foundation. Director
of the Masters Degree in International Trade Relations at Tres de Febrero
National University (UNTREF). Member of the Executive Committee of the
Argentine Council for International Relations (CARI). Member of the Evian
Group Brains Trust. More