Multilateralism versus regional trade deals

Pascal Lamy's last address to the General Council of the WTO before he will demit office summarised his views on where the WTO is headed and the challenges before it. His point on multilateralism versus regionalism with all the regional trade agreements gaining steam is worth quoting:

"I often hear that the way forward is to abandon the WTO and simply move to plurilateral or regional arrangements. But we have all seen the fate of a number of these plurilateral deals such as the ACTA or the Global System of Trade Preferences among developing countries. We also know that behind the headlines of the launching of mega regionals, as some refer to them, lie tremendous difficulties and sometimes even no final deal at all, as was the case of the Free Trade Area of the Americas. 

I do not wish to be misunderstood. I am not against trade opening outside the WTO. I believe that plurilaterals, mega regionals, regionals, bilaterals and unilateral arrangements CAN contribute to trade opening and hence to the levelling of the global trade playing field, which must ultimately remain our collective goal. Because this is what fairness is about. But I do think we would do well to recognise that the issue is not trade opening IN the WTO as opposed to trade opening OUTSIDE the WTO. The issue today is with the difficulties involved in trade opening. Domestic trade politics have become more difficult and trade deals have become more complex because the nature of obstacles to trade has evolved. We are no longer negotiating just the reduction of tariffs, but also of non-tariff barriers, which have gained enormous importance."

 So the bottomline is whether it is multilateralism or regionalism, trade obstacles are becoming more complex with high tariffs being replaced by non-tariff barriers. How one addresses these non-tariff barriers would determine the fate of the global economic landscape.

World Trade Report 2013

The World Trade Report 2013 is out. 

And some of it's conclusions make interesting reading:

"Inertia within WTO trade negotiations is becoming an increasing burden for a large number of countries. What needs to be done? First, governments need to move forward on the existing agenda addressing market access conditions for both goods and services with equal determination as well as other trade costs covered by the talks on trade facilitation. 

Secondly, other sources of uneven competition and limitations on the open flow of trade need to be addressed at the global rather than regional level. Analysing the information provided under the WTO’s PTA transparency mechanism and further strengthening the WTO’s other transparency and monitoring functions may help to identify issues of concern that are already addressed in one way or another at the WTO, such as various types of NTMs. Additionally, new issues are likely to emerge, such as investment and competition policy, where multilateral action may be beneficial.

Thirdly, areas for international action that will shape the future of trade but reach beyond the mandate of the WTO must be addressed, including in terms of their impact on trade cooperation. Climate change and macroeconomic policies are two examples. Further reflection and discussion is needed on the role of the WTO in the institutional framework of global governance in order to ensure policy coherence and fruitful working relationships."

Inertia to be replaced by a new agenda for multilateralism? Sounds promising but  is it anywhere in sight? 

Is it time for GATS 2.0?

While the GATT and other WTO Agreements deal with the trade in goods, the General Agreement on Trade in Services (GATS) deals with the trade in services. It is the multilateral agreement dealing with the trade in services with individual member countries underrating varying commitments in different service sectors.

Now there is news that several countries are undertaking an exercise to enter into a new international services agreement to go beyond the GATS to further liberalize the services sector. The failure of the Doha round to achieve further liberalization of the services sector is put forth as one of the reasons for this move. It is another example of the "plurilateral" route that many countries are taking to international agreements with the failure of multilateralism. The USTR website explains the rationale for seeking fresh negotiations in this area with 20 other trading partners quoting USTR Ambassador's letter seeking fresh negotiations. Coverage of new services not covered under GATS, ensuring greater transparency and predictability in regulations covering services of trading partners and addressing new issues that arise int he global market place and the way services trade is conducted are offered as the reasons for entering into a new agreement apart from increasing access to markets for national services sectors. Stewart and Stewart summarizes the move well in this analysis. Peterson Institute for international Economics in this paper has suggested a new framework for an international agreement on services.

Will this be a movement towards GATS 2.0? While the US intends to enter into negotiations with 20 trading partners initially (Australia, Canada, Chile, Chinese Taipei, Colombia, Costa Rica, European Union, Hong Kong, China, Iceland, Israel, Japan, Korea, Mexico, New Zealand, Norway, Pakistan, Panama, Peru, Switzerland, Turkey), the notably absentees in this initial round are Brazil, Russia, India and South Africa. Will we see more countries joining the bandwagon or will it remain a plurilateral agreement without many emerging economies? What implications would this have on developing economies that have strong service sectors? It is clear that the US is leading this endeavour of a new agreement - a classic case where liberalization of the services regulation is linked to increase one sports of their services worldwide. This letter of the USTR Ambassador is clear about the intention of entering into new negotiations - more access to markets and more jobs at home.

While change in the way trade is conducted often does not get reflected in existing agreements making agreements not only obsolete but requiring change, what is the best route to go about it? Is this new international agreement in services another example of the failure of the WTO to address the realities of trade? Is it a triumph of plurilateralism over multilateralism? How should the WTO respond? A good analysis of whether the agreement should be within or outside the WTO and its implications is found here. How should developing countries outside the initial negotiations respond? Would there be a coalition of developing economies against this negotiation or will they eventually join viewing it as beneficial? Countries strong in the services sector would have to analyze their relative strengths and weaknesses and potential for their national service sector with increasing market access.

CUTS and defining the future of trade

CUTS-International is an organization that works on consumer issues as well as international trade. The website has a number of thought-provoking publications on many issue on international trade and multilateralism. The CUTS Centre for International Trade, Economics and Environment has many publications on international trade and multilateralism.

Found an interesting discussion paper on the future of trade called "Defining the Future of Trade" by Pradeep Mehta, Bipul Chaterjee, Rashid Kaukab. Pradeep Mehta is also a member of the "Panel on Defining the Future of Trade" which was constituted by the Director General of the WTO recently. I had blogged about setting up of this mulitstakeholder panel here. 

The discussion paper calls for a new Quad of WTO members (Brazil, U.s., EU, India and China) to stabilize multilateralism. Their assessment of the challenges for international trade:

"Trade policies of countries should be reviewed in respect to their ability to fulfill the role of trade as an effective means for poverty amelioration and reduction in income inequality leading to inclusive growth - in other words, the relationship between trade and consumer welfare (as described in the Preamble Establishing the WTO) should be the guiding principle of reviewing trade policies. 

The impact of non-tariff measures on trade under imperfect competition should be studied so as to negotiate multilaterally-agreed rules, including quantification of non-tariff measures and their gradual reduction on the basis of countries ability to reciprocate, to reduce their scope to distort trade.

Trade in tasks cannot be performed well unless there is equal emphasis on all three factors of production - capital, labour and knowledge - as their use is increasingly getting integrated, in some sense they are endogenous as well. While trade in capital and that in knowledge is drawing political attention among the policy-makers, that is not so in case of trade in labour. More emphasis on addressing labour market rigidities through trade in labour will not only strengthen the role of trade as a tool for inclusive growth but will also help poor countries to get integrated with global efforts on trade in tasks.Based on the principles of reciprocity and non- discrimination, there should be multilaterally- agreed rules to address trade-related market- contestability issues arising as a result of competition-related trade distortions and trade- related competition distortions.The WTO Secretariat should do joint studies with United Nations Framework Convention on Climate Change, Food and Agriculture Organisation and other inter-governmental organisations to understand trade and trade-related issues in governing global public goods such as climate change, food security and how the poor countries can deal with them."

Will multilateralism rise up to these challenges? 

21st Century trade and WTO

The failure of the Doha negotiations has raised many issues about the future of the WTO. Will the WTO continue to remain as an effective multilateral institution playing a relevant role in 21st century trade? I have blogged here about the view that the future of the WTO is bright inspite of the current negotiation impasse. While many believe that the WTO continues to perform many functions like trade monitoring and dispute resolution which remain unaffected by the failure of the negotiations, others acknowledge that there is a dent in the the institution's credibility due to the impasse. To what extent has the failure of the Doha round affected multilateralism?

The WTO website has a public forum inviting comments on this issue titled "Is Multilateralism in Crisis?". Richard Baldwin has a well written piece titled "21st century trade and global trade governance: The WTO’s future" wherein he brings to the fore the emerging trends of 21st century trade comprising of international supply chains. Arguing that the failureof the negotiations does not reflect anti-liberalisation sentiment,  WTO's unpopularity or it's irrelevance, he attributes the failure of the WTO to address issues of 21st century trade that is the main issue.

 He characterises 21st Century trade thus:

"This essay argues that the WTO’s woes stem rather from the emergence of a new type of trade — call it 21st century trade. This new trade is intimately tied to the unbundling of production (global value chains). It has reshaped the geography of global production. And — since joining a supply chain is the fast route to industrialisation — unbundling is also at the heart of emerging market growth, which has in turned reshaped the geography of global demand.

21st century trade requires disciplines that go far beyond those in the WTO’s rulebook. To date, virtually all of the necessary governance has emerged spontaneously in regional trade agreements or via unilateral ‘pro-business’ policy reforms by developing nations. The real threat, therefore, is not failure of the WTO, but rather the erosion of its centricity in the world trade system."

He paints two scenarios for the WTO - one which addresses only 20th century trade and ignores the reality of 21st century trade and the other where the WTO plays a crucial part in shaping and engaging with new trade realities.21st Century trade is characterised by the demands for new rules and disciplines governing the nexus of trade, investment, services, intellectual property, and business mobility which are being formulated outside the WTO in Regional Trade Agreements.

"This line of reasoning suggests the WTO’s future will take one of two forms.

1) The WTO remains relevant for 20th century trade and the basic rules of the road, but irrelevant for 21st century trade; all ‘next generation’ issues are addressed elsewhere.

In the optimistic version of this scenario, which seems to be where the current trajectory is leading us, the WTO remains one of several pillars of world trade governance. This sort of outcome is familiar from the EU’s three-pillar structure, where the first pillar (basically the disciplines agreed in treaties up the 1992 Maastricht Treaty) was supplemented by two new pillars to cover new areas of cooperation.¹ In the pessimistic version of this first scenario, the lack of progress undermines political support and the WTO disciplines start to be widely flouted; the bicycle, so to speak, falls over when forward motion halts.

The second scenario involves a reinvigoration of the WTO’s centricity.

2) The WTO engages in 21st century trade issues both by crafting new multilateral disciplines — or at least general guidelines — on matters such as investment assurances and by multilateralising some of the new disciplines that have arisen in regional trade agreements. 

There are many variants of this future outlook. The engagement could take the form of plurilaterals — following the lead of agreements like the Information Technology Agreement, the Government Procurement Agreement and the like (where only a subset of WTO members sign up to the disciplines). It could also take the form of an expansion of the Doha Round agenda to include some of the new issues that are now routinely considered in regional trade agreements."

Which way will the WTO go? Will it remain an institution of the 21st century addressing trade needs of the 20th century or will it play a more pivotal role in guiding and shaping 21st century trade rules? The pressures on the dispute settlement system with the first approach would be telling. When the rule making does not reflect the new realities of trade, it is left to judicial bodies to interpret and re-interpret existing rules to reflect reality. Will this not lead to new tensions? To what extent can the judicial function reflect realities? What essentially is a political question of negotiation, concession and rule making will fall on the rule based dispute resolution system. The coming years will see the WTO either addressing this dichotomy or facing the dilemma of this dichotomy.

Proposed EU trade policy - Does it hurt the WTO?

Iana Dreyer's recent paper on EU trade policy titled "Trade Policy in the EU's neighbourhood : Way Forward for a Deep and comprehensive Free Trade Agreements" calls for an aggressive push towards Free Trade Agreements by the EU with its neighbours. This study assesses the trade policy of the European Union (EU) in its neighbourhood and formulates proposals for the negotiation of “Deep and Comprehensive Free Trade Agreements” (DCFTAs) that the EU is currently engaged in, or offering to, Ukraine, Moldova, Georgia, Armenia, Jordan, Egypt, Tunisia and Morocco, as part of the European Neighbourhood Policy (ENP). The paper is an extensive study of existing EU policy as well as the course EU should take with its new partners.

Proposing a cautious approach to new DCFTAs the paper concludes:

"In the DCFTAs that the EU proposes, it should instead suffice to ask their trade partners to comply with EU standards to be able to sell in the EU markets and ask these partners to allow the EU to export its products according to its own standards. The EU can directly help exporters from these economies comply with EU standards.Changing the entire domestic law of DCFTA partners to fit the EU’s rule book is not necessary and is politically and economically unhelpful. Some partners are not only very poor but also very small, and hence not of major commercial interest to EU business. It is thus perplexing to see the EU spending bureaucratic energy and putting its political capital at risk in its neighbourhood by imposing a costly rule book with its DCFTA efforts with Georgia, Armenia or Moldova. 

...

The EU should focus its efforts on economies that need trade liberalising reforms and a better environment for investors. In the context of its DCFTAs, Egypt is the greatest priority, though the EU cannot expect an economy like Egypt’s to readily and easily adopt EU-style legislation. The EU should rather attempt to offer an attractive FTA, similar to those it has been signing with other emerging markets in recent years, with significant market openings in goods and services on both sides. A DCFTA between the EU and Tunisia, Morocco and Jordan is a good means to lock in their recent domestic economic reforms, as long as they are not overburdened by regulatory approximation with the EU.

...

A final point is on political conditionality. While it is understandable that the EU conditions the signing of a DCFTA on the partner country signing up to democratic principles, the EU should deal with the DCFTA as a comprehensive economic and commercial package and not subject individual items of the DCFTA to a conditionality that is not related to trade and investment."

I am not an expert on trade policy nor on EU trade dynamics. I found this paper highly informative. What implications does this approach have for the WTO? The trend of regionalism as against multilateralism is a hotly debated topic and there is abundance of scholarly literature on PTAs and its impact on multilateral trade rules. Does the approach presented have a negative bearing for the WTO or are they just building blocks? Are WTO rules not being able to address the issues the DCFTA seek to address? 


A reference in this paper to a study titled "Beyond the WTO? An anatomy of EU and US preferential trade agreements" by Henrik Horn, Petros C.Mavroidis and Andre Sapir made interesting reading. They conclude by analysing the obligations under the EUs and US PTAs vis a vis WTO obligations and tend to suggest that the WTO plus obligations contained in the PTAs may be breeding concern about the unfairness in trade relations since the same obligations could not be included in the WTO multilateral negotiations due to strong opposition by the developing countries.It would be interesting to see Iana Dreyer's paper debated around the issues of its impact on the multilateral trading system and on WTO's relevance and efficacy.