| THE MULTILATERAL TRADING SYSTEM AT A CROSSROADS?
The Bali WTO Conference as an opportunity to correct the course
by Félix Peña
English translation: Isabel Romero Carranza
For a firm with international operations, following
closely the facts and trends related with the negotiation of preferential
trade agreements is of practical importance. The main trends to monitor
are related in particular with the debate on the effectiveness and efficiency
of the multilateral trading system institutionalized by the WTO and by
the rise in the global horizon of the mega preferential trade agreements
of interregional scope.
The WTO has been unable to fulfill its goal of concluding
the Doha Round. The Ministerial Conference to be held in Bali, Indonesia,
next December is an opportunity to untangle the knots that block its agenda.
Work is being carried out on this regard in Geneva and in the capitals
of the main member countries, at least of those that due to their participation
in the world trade of goods and services it would be logical to presume
an interest in strengthening the multilateral trading system.
The mega interregional preferential trade agreements
that are currently being negotiated -the Trans-Pacific Partnership and
the Regional Comprehensive Economic Partnership plus eventually the Transatlantic
Trade and Investment Partnership-, may be perceived as a reflection of
the stagnation of the multilateral trade negotiations or as one of its
In spite of the illusion that only economic factors
mobilize the foreign trade strategies of countries, it is now clear that
it is in the current redistribution of world power where we can track
the factors that motivate the proliferation of interregional preferential
agreements. However, if we consider the weakening of the WTO multilateral
framework, the question arises whether if such proliferation will contribute
to the global governance objectives or, on the contrary, if it will encourage
a greater and unadvisable fragmentation of the international system.
For a firm that has international operations (either producing goods
or providing services) resulting for example from its insertion in a transnational
value chain, closely following the negotiations of preferential trade
agreements is of practical importance. It is important due to the fact
that in these negotiations, especially as they are the source of ground
rules that impact trade and international investments, we often find the
origin of factors that eventually produce favorable or unfavorable shifts
of the competitive advantages that the corresponding company may have
in the markets of the countries that sign a specific preferential trade
agreement. All these agreements imply a certain degree of discrimination
with regards to the non-participating countries, supposedly compatible
with the multilateral rules of international trade.
It is of relevance as well because, in contemporary trade relations,
the speed of the changes that are continuously taking place, for example
due to shifts in the relative economic power of countries and the multiplicity
of options for their international insertion, tends to dilute the borders
between the short and long term. What sometimes seems far off on the horizon
may, however, be immediately influencing the investment and localization
decisions of the hubs in transnational value chains. The automotive sector,
among many others, is a clear example of this. Thus, the distinction between
today and tomorrow becomes more blurred. This means that a company that
is somehow directly or indirectly involved in international competition
and that aspires to grow, or even just to survive, must be aware of the
events that are taking place now but that may be anticipating significant
changes in the future conditions of its international operations, precisely
because of the impact of new ground rules that may affect the access of
its goods or services in markets that are of interest.
What was mentioned before applies to monitoring in the perspective of
the competitive intelligence of a company or a particular sector, such
as that of processed food or agricultural machinery, of the trends and
events that reflect some of the major changes that are beginning to show
in the institutional map of international trade relations. It is indeed
a monitoring that requires increasing synergies between business, government
and academic institutions. This is the case in countries that have companies
with an active presence in international markets.
Such trends and facts relate in particular to the effectiveness and efficacy
of the international multilateral trading system of the WTO and with the
rise in the global horizon of mega preferential trade agreements of interregional
The WTO is at a crossroads. It has failed to fulfill its objective of
concluding the Doha Round. Few believe that this will be feasible, at
least in the short term. A debate on its future has started. Some proposals
involve profound changes in the multilateral trading system. The Ministerial
Conference to be held in Bali, Indonesia, in December is an opportunity
to untangle some of the knots that hinder its agenda. Work is being carried
out on this regard in Geneva and in the capitals of the main member countries,
at least in those that due to their participation in the world trade of
goods and services it would be logical to presume an interest in strengthening
the multilateral trading system. Let us remember that approximately thirty
countries account for about 90% of the trade of goods and services on
a global scale. The goal for the moment being would be to achieve results
in three areas: trade facilitation, agricultural trade and some issues
related with those countries of lesser relative development. The three
imply achieving a balance of interests that sometimes are quite diverting
(see ICTSD, Bridges Weekly Trade News Digest, vol. 17, number 7, 27 February
2013, at http://ictsd.org/).
The road to Bali seems long. But if we take into account the poor results
of the previous Ministerial Conference (Geneva 2011) and the complexity
of reaching agreements between its 159 member countries, with different
relative powers and interests, it is not possible to be very optimistic
if there are no clear indications of a political will to achieve the necessary
agreements within a relatively short period of time. The fact that before
the Bali Conference there will be a change of the Director General due
to the conclusion of Pascal Lamy's mandate not necessarily contributes
to an optimistic view of its results.
Meanwhile the mega interregional preferential trade agreements under
negotiation (the Trans-Pacific Partnership-TPP and the Regional Comprehensive
Economic Partnership-RECEP), plus the Transatlantic Trade and Investment
Partnership-TATIP, which would have more economic and geopolitical relevance
because it involves the US and the EU -about a third of world trade- could
be perceived as a reflection of the stalled multilateral trade negotiations
or as one of its causes. It is reasonable to ask what the future of the
Doha Round would be -or to realistically rethink its objectives while
preserving its holistic approach- if all the political weight of the US
and the EU capsized to support its conclusion. Implicitly, it can be assumed
this was present in Pradeep Metha's letter to President Obama, whose reference
is included in the recommended reading section of this newsletter.
The fact is that such political clout is now concentrating on the negotiation
of mega interregional preferential trade agreements. The TPP and the TATIP
especially reflect similar goals and have for their drivers a strong geopolitical
value, although once their negotiation is concluded they might reflect
different methodologies and scope. These objectives consist of achieving,
through preferential agreements, what at the moment seems unachievable
in the multilateral framework. This would be something ambitious, comprehensive,
flexible and of high quality, with WTO-plus reach. On the one hand, it
would imply applying to the wealth of existing international commitments
an extensive elimination of tariffs and other restrictions to the trade
of goods, and also seeking a greater leveling of the playing field in
terms of regulatory frameworks, for example related to technical standards
or aimed at ensuring food quality -a current question in the minds of
consumers and citizens after the episode of equine meat in Europe-. On
the other hand, it would mean much more progress than would be feasible
today in the multilateral framework, especially in services, investments,
intellectual property and public procurement. These agreements would aspire
to signal as well what should be, according to the view of those promoting
them, the multilateral collective disciplines in a multipolar world in
which trade and investments are channeled increasingly through transnational
value chains of global reach.
They are negotiations with many tangles that need to be unraveled, some
of them very sensitive. The agricultural issue is one of them, at least
in the transatlantic space. This is clearly implied by Senator Max Baucus,
chairman of the Finance Committee of the US Senate (see the reference
to his article in the Financial Times of March 4 in the recommended reading
section of this newsletter). The protection of intellectual property is
another of the issues, at least in the transpacific space (see our article
referring to both initiatives in La
Nación newspaper on Tuesday 6 February).
As Pascal Lamy declared in a masterly lecture on 29 January, in Delhi,
"Geopolitics is back at the trade table". (http://wto.org/english/news_e/sppl_e/sppl264_e.htm).
In the creation of the GATT the impetus came from the foreign policy of
the great powers -especially the US - interested in stopping Soviet expansion.
The Doha Round was launched in a post 9-11 traumatic climate. Despite
the illusion that it is only economic factors that mobilize external business
strategies, it is now clear that it is in the current redistribution of
world power where we must trace the factors that drive the proliferation
of interregional preferential agreements. But considering the weakening
of the multilateral framework of the WTO, the big question that should
be cleared is whether such proliferation will contribute or not to the
objectives of global governance.
Richard Baldwin, a promoter of a profound shift in focus in the multilateral
trading system, has clearly stated the need to go into what he calls a
"WTO 2.0" (see the reference to one of his recent articles on
the subject in the recommended reading section of this newsletter). He
considers that the current WTO responds to a reality of world trade that
is being overcome by the growing importance of transnational value chains
in international investment and trade. In his opinion, such reality is
precisely being considered by the mega interregional preferential trade
agreements under negotiation. Hence, in his proposal the new WTO should
be launched with the participation of a limited number of member countries,
as he considers that only a few have meaningful participation in global
value chains if commodities are excluded.
Beyond the questionable justification of some of professor Baldwin's
arguments, who perhaps may not provide a deeper analysis into the reasons
why his proposals may not be negotiated within the current WTO system
if there existed sufficient political will in those countries with the
most impact on international trade and investment, initiatives such as
this are showing that what is being installed is a fundamental debate
on the multilateral trading system that, due to its scope, transcends
the economic and commercial and penetrates deep into the geopolitical.
It is thus such a central debate for the agenda of global governance that
has been dealt with, up until now, within the framework of the G20. An
extreme weakening of the current WTO system or it's eventual "shrinking"
could be contributing to a fragmentation of the international system.
Today, this would not seem advisable.
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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