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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009
THE POLITICAL, THE ECONOMIC AND THE LEGAL:
Three dimensions needed to understand how the WTO functions in reality.

by Félix Peña
April 2017

English translation: Isabel Romero Carranza


 

In international commercial relations, the political, the economic and the legal, interact and affect each other in a dynamic way. This is why it may be difficult to understand their connection using a single-discipline approach. If reality is analyzed through the perspective of only one of these three dimensions, there is a strong risk of not being able to understand the complex network of factors that affect the development of competition for international markets.

Understanding this three-dimensional link is more relevant today than in 1947 when the GATT was created and the basic rules of the multilateral trading system were formulated. At the time, very few participating countries had a decisive impact on the process of creating such rules, much less their effective implementation. The US was the main country of this system. Nowadays, there are numerous countries and it is difficult to pinpoint which of them have a decisive influence on the approval of new rules, on the effective application of the rules already agreed, or of those that are agreed in the future.

Recently, it has become evident that the basic rules of the multilateral system of world trade are being questioned by relevant member countries of the current WTO. One of such rules is the one that establishes the principle of non-discrimination. It is stated in Article I of the GATT -incorporated into the WTO - which establishes the unconditional most-favored-nation clause as one of the cornerstones of the system. Also under question is the rule of Article III, which requires not discriminating in the domestic market against products from other markets with respect to domestic products.

Moreover, the application of the "America First" principle, as per the US's view of the multilateral trading system, could lead to a growing erosion of the effectiveness and legitimacy of various basic rules of world trade.

All of this adds to the relevance of the Eleventh WTO Ministerial Conference, which will be held in Buenos Aires next December. It is an arena where member countries may seek to move forward in the development of new ground rules, as was the case at the previous Conference held in Nairobi in 2015. It is also expected that member countries seek to clarify the validity of the fundamental rules of the current multilateral system of world trade and, if necessary, promote initiatives that contribute to their redesign, at least in what is considered necessary to achieve a greater effectiveness of the WTO.


The multilateral system of world trade, previously institutionalized through the GATT and now the WTO, consists of (i) legal rules agreed upon by the participating countries, (ii) processes for the creation of new rules, and (iii) custody mechanisms of compliance with the rules. As happens with sports such as, for example, soccer, the rules deemed necessary and the custody of their effectiveness are key elements to ensure a level playing field where to compete. A rule-oriented competition protects the interests of participants who may be weaker. (On the importance of respecting international rules agreed by a country, refer to the ruling by Antonio Boggiano in the famous case "Cafés La Virginia SA." before the Supreme Court of Justice on October 13, 1994, at http://www.saij.gob.ar/, in particular, his references to the opinions of John Jay in "The Federalist Papers", at page 1305, and to the views of Juan Bautista Alberdi, at pages 1305 and 1306).

In real life, the effectiveness of multilateral rules that apply to international trade relations is often at odds with other factors that influence the behavior of competitors, such as those related to their relative power and economic interests. Hence, when Pascal Lamy was the Director-General of the WTO and pointed out that geopolitics had returned to the table of international trade negotiations, he was referring to a link that is often underestimated when addressing international realities and, much more so, when designing national strategies that are effective for foreign trade -including those of companies that project themselves to the world. It is the link between the logic of power, the logic of the economy in all its ramifications and the logic of the rules-that is, of the law. Actually, they interact so dynamically that it is often difficult to comprehend their interrelation through single-disciplinary perspectives. If one tries to grasp reality through the lens of only one of these rationales, we risk not fully understanding its complex essence.

Today, understanding the threefold link has become more relevant, largely because when the basic GATT rules were formulated, in 1947, very few participating countries had a decisive impact on the rule-creation process, whereas now there are many countries and it is difficult to pinpoint which ones play a decisive role. It is clear that there is no longer a main rule-maker, as was the case of the United States in those founding years.

Recently, some basic rules of the multilateral system of world trade have been brought into question by relevant players (see the March edition of this Newsletter on http://www.felixpena.com.ar/). The paradox is that this is being done precisely by those who created them. While it is premature to draw any conclusions from what is being observed in the initial phase of President Trump's administration, the application of the "America First" approach as per the US's view of the multilateral trading system, formerly institutionalized through the GATT and today through the WTO, could erode the efficacy and legitimacy of various basic rules of world trade. At times, this would seem evident from some of the declarations by senior officials of President Trump's administration regarding the value that the multilateral rules of world trade have for the US. Specifically, this is expressed through the questioning of the principle of non-discrimination stated in Article I of the GATT and incorporated into the WTO, which establishes the unconditional most-favored-nation clause as one of the fundamental rules of the multilateral system of world trade. The provision of Article III, which requires not discriminating in the domestic market against products from other markets with respect to domestic products, would also be called into question. This is not a trivial issue, as was made evident at the G20 Finance Ministers' meeting in Baden-Baden, Germany, on 16 and 17 March (see https://www.g20.org/), when the reference to protectionism, which had been present in this arena since 2008, had to be diluted in the final declaration. The motive seems to have been clear: the US Treasury Secretary might have opposed the terms of such reference.

The above underscores the practical relevance of understanding the link between power, economics and law in the WTO system. Even more, history reminds us that such a link has always been key to understanding international trade relations.

Hence, the importance of using a multidimensional approach when addressing the training of professionals specialized in these subjects. This is what is being observed today in professional programs for international trade and international commercial relations, at both the undergraduate and graduate levels.

However, it also highlights the relevance of the next WTO Ministerial Conference, which will be held in Buenos Aires next December. This is the arena in which countries will seek to clarify aspects that are essential to the validity of the current multilateral trading system and possibly provide initiatives that contribute to its eventual redesign, at least in what is considered necessary for its effectiveness.

Finally, on a cautionary note, it should be remembered that the history of the path that led to the disaster of the Second World War illustrates the negative impact that the wearing out of the institutional framework and the rules of world trade can have on global governance.


Recommended Reading:


  • Bartesaghi, Ignacio, "La integración regional en Asia Pacífico: El caso de la ASEAN, la APEC y el RCEP", publicado en el libro Agora Latinoamericana, tomo I, Bogotá 2017, ps. 3 - 36, en https://www.researchgate.net/.
  • Blaxland, John, "Sweetening regional ties amid heightened global uncertainty", East Asia Forum, 8 March 2017, en http://www.eastasiaforum.org/.
  • Boduszynski, Mieczyslaw; Le, Tom, "Reviving the "pivot to Asia"", East Asia Forum, 27 March 2017, en http://www.eastasiaforum.org/.
  • Bown, Chad P.; Lederman, Daniel; Pienknagura, Samuel; Robertson, Raymong, "Better Neighbors. Toward a Renewal of Economic Intergration in Latin America", World Bank Group, WB Latin American and Caribbean Studies, Washington D.C. 2017.
  • Casilda Béjar, Ramón, "La internacionalización de las empresas españolas desde la perspectiva inversora en Latinoamérica", Instituto de Estudios Bursátiles, 2016.
  • Chomsky, Noam, "Requiem for the American Dream. The Ten Principles of Concentration of Wealth and Power", Seven Stories Press, New York - Oakland - London, 2017.
  • Comisión Europea, "Libro Blanco sobre el Futuro de Europa. Reflexiones y escenarios para la Europa de los Veintisiete en 2015", Bruselas 2017, en https://ec.europa.eu/.
  • Department of Jobs, Enterprise and Innovation, Ireland, "Ireland Connected: Trading in a Dynamic World", Ireland, Dublin 2017, en https://www.djei.ie/.
  • Donnan, Shawn, "Trump apunta contra el libre comercio", Financial Times - El Cronista, Buenos Aires, 6 de marzo, página III.
  • Garton Ash, Tomothy, "Los achaques de Europa", Sección Opinión, diario El País, 25 de marzo 2017, página 18, en http://elpais.com/.
  • Goodhart, David, "The Road to Somewhere. The populist revolt and the future of politics", Hurst & Company, London 2017.
  • Greenville, Jared, "Domesti Support to Agriculture and Trade: Implications for Multilateral Reform", ICTSD, Issue Paper, Geneva March 2017, en http://www.ictsd.org/.
  • Helble, Matthias, "Salvaging the Trans-Pacific Partneship: Building Blocks for Regional and Multilateral Trade Opening?", ADBInstitute, ADBI Working Paper Series, N° 695, Tokyo, March 2017, en https://www.adb.org/.
  • INTAL/LAB, "ECO Integración de América Latina. Ideas Inspiradas por la Encíclica Laudato Sí", INTAL-BID, Planeta, Buenos Aires 2017.
  • INTAL/LAB - BID, "Los Futuros del Mercosur. Nuevos Rumbos de la Integración Regional", INTAL-BID, Buenos Aires 2017, en https://publications.iadb.org/bitstream/handle/11319/8172/Los-futuros-del-Mercosur-Nuevos-rumbos%20de-la-integracion-regional.pdf?sequence=6.
  • Leonard, Mark, "¿Qué orden mundial liberal?", Sección Opinión, diario El País, 24 de marzo 2017, página 17, en http://elpais.com/.
  • Lewis, Sinclair, "It Can't Happen Here", Signet Classics, Penguin Group, New York 2014.
  • Love, Patrick; Lattimore, Ralph, "Comercio Internacional ¿Libre, justo y abierto", Esenciales OCDE - UNAM/IIES, OECD, Paris 2015, en http://www.oecd-ilibrary.org/.
  • Márkaris, Petros, "Offshore", Serie Kostas Jaritos, Colección Alianza, Tusquets Editores, Buenos Aires 2017.
  • Minghul, Shen, "Lifting global free trade from the "noodle bowl"", East Asia Forum, 9 March 2017, en http://www.eastasiaforum.org.
  • Slaughter, Anne-Marie, "The Chessboard & the Web. Strategies of connection in a networked world", Yale University Press, New Haven and London, 2017.
  • Triggs, Adam, "Is the G20 backing down on its fight against protectionism?", East Asia Forum, 20 March 2017, en http://www.eastasiaforum.org/.
  • Vickers, Brendan, "A Handbook on Regional Integration in Africa", Commonwealth Secretariat, London 2017.
  • Vickers, Brendan, "Revitalising World Trade: Issues and Priorities for the Commonwealth", The Commonwealth, Trade Hot Topics, Issues 140, London 2017, en http://thecommonwealth.org/.
  • World Bank Group, "Governance and the Law", World Bank - Development Report, Washington D.C. 2017.

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 information.

http://www.felixpena.com.ar | info@felixpena.com.ar


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