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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009
THE RULES OF PLAY AND THE NECESSARY BALANCE OF INTERESTS: Requirements for adaptation and flexibility within the WTO and Mercosur.

by Félix Peña
August 2009

English translation: Isabel Romero Carranza


 

Are the safety valve mechanisms contemplated by WTO regulations sufficient enough in view of the effects of the current global crisis, particularly on developing countries? Is it realistic for Mercosur to lack any formal mechanisms to be used at times of emergencies considering the experience that has been accumulated in sub-regional trade during the last years?

These are questions that deserve our attention, especially if we take into consideration the protectionist trends that have emerged in several countries as a consequence of the global crisis. In the case of the WTO, the recently published 2009 World Trade Report constitutes an outstanding technical work that might help provide some answers. Nothing similar is available in the case of Mercosur.

Flexibility to face contingencies, as well as a continuous adaptation to the new realities, is necessary for the efficient functioning of the system of rules originated by international trade agreements. Otherwise, the dynamics of the deep transformations in the realities of economic competition and the recurring crises, both global and regional, may alter the balance of the national interests that uphold each agreement and their regulatory frameworks.


The new realities of world economic power and the effects of the current global crisis on international trade are circumstances which highlight the importance of a key issue, both within the scope of the World Trade Organization (WTO) as well as within the regional scope of Mercosur. This relevance is emphasized by the fact that both constitute international ambits with a strong bearing on the development of Argentine foreign trade.

The issue being referred to is that of the relation between the requirements for adaptability and flexibility of trade regulations and economic integration and the essential collective disciplines to guarantee every player - be they countries or businesses - the necessary degree of predictability. Due to its relevance, this topic has been discussed in previous editions of this Newsletter (see June 2007 and August 2008 editions).

In the case of Mercosur in particular, it becomes an indispensable issue for the creation of the required environment for productive investment in compliance with an expanded market. In fact, a low degree of certainty in the rules of play as a consequence, for example, of the tendency towards a de facto malleability of the agreed commitments when an economic emergency arises, is likely to cause a decline in the investment plans to expand or create new production capacity in those markets with less relative economic weight. To make provisions for the continuous adaptation to new realities and the necessary flexibility to face contingencies, becomes then an essential requisite for the efficiency of the ground rules originated by international trade agreements and for the work methods implemented in their respective institutions and decision-making processes.

Otherwise, the dynamics of the deep transformations and the recurring crises, either global or regional -such as the current ones- may alter the balance of the national interests which uphold each agreement and their regulatory frameworks. Such balance is at the root of the respective agreements and would account for their origin and ground rules. In short, the principle of reciprocity of rights and obligations, which is at the foundation of the legal architecture of the Asuncion Treaty (Article 2), may be eroded. As a consequence, this erosion may have obvious legal and practical implications.

It has been rightfully pointed out that the associative link between nations which are willing to cooperate in the area of international trade or through the integration of their economies, is supported by the reciprocity of interests which envisages mutual gains for those involved. To maintain a dynamic balance through time is the key to the success of these international agreements. On the contrary, the disruption of the necessary balance results in a gradual but persistent erosion of the efficiency and social legitimacy of the corresponding institutional ambits.

It should also be noted that Mercosur currently suffers from a condition of growing deterioration. Its precarious ground rules and the constant breaches have contributed to this situation. Nobody has expressed this in a clearer way than José Mujica, the presidential candidate from the Frente Amplio party in Uruguay, who pointed out that "Mercosur is lame and in misery". This is not an isolated opinion even though it is seldom expressed in such a candid manner.

The fact that the recent Asuncion Summit and, especially, the Common Market Council Meeting failed to obtain significant results -in particular in relation to the issue of developing the customs union- (see the information on the approved decisions on www.mercosur.int), leads us to ponder on the future of regional integration in the light of the new international realities.

However, not all the experience accumulated by Mercosur turned out to be negative. Both in the political and economic planes there are concrete results that neither countries nor businesses would be willing to give up. Yet, in spite of this fact, the prevailing feeling is that of frustration. This could be the counterpart of the propensity towards narratives that give rise to high expectations. The excess of media and special effects diplomacy can lead, sooner than later, to feelings of failure when the actual outcome is compared with the promises that had been made.

Referring back to Mujica's statement, we may conclude that the new international reality does not allow any margin for wasted opportunities and, in this sense, Mercosur -as the space for joint work between countries and businesses of the region- can not afford to continue "lame and in misery". Such as was pointed out in our previous Newsletter, in order to overcome this state of affairs it might be useful to get acquainted with the proposals from those who, at present time, actively participate in the commercial exchange and in the productive investments that take place within this common space, oftentimes due to the commitments previously assumed by countries.

The opinion of businessmen on regional integration in the new international scenario was one of the issues recently discussed at the II Industrial Colloquium of Cordoba, held on July 27th and 28th, and whose main topic was "The industrial model required by Argentina in the forthcoming years" (for information on the Colloquium and the corresponding presentations go to http://www.uic.org.ar/pagina.asp?id=1080).

It should be noted that the abovementioned process of deterioration may happen in the case of the WTO as well. Even when today this idea may seem remote, it would be dangerous to underestimate such possibility. Thereof the importance of ensuring the success of the next Ministerial Conference, to be held in Geneva at the end of November, and the progress in the conclusion of the Doha Round. The upcoming informal ministerial meeting, to be held on September 3rd and 4th in New Delhi and where thirty-six WTO member countries have been invited to participate, as well as the G20 Summit, which will take place in Pittsburg, Pennsylvania on September 24th and 25th (see http://www.pittsburghsummit.gov/), will provide the opportunity to assess if there is sufficient political willingness to overcome the ongoing obstacles in order to achieve the goal announced at the L'Aquila G8 Summit, which took place last July, of concluding an ambitious and balanced Doha Round by 2010.

Within the WTO system, the previously mentioned dialectic tension between realities and regulations is made manifest particularly in two situations. One of them refers to the transformations resulting from the shift of relative economic power between the member countries of a trade agreement, which may take years to become evident but, once they do, they alter the maps of international economic competition and trade negotiations. This is what is happening now at the global level with the visible re-emergence of China and India as relevant players in world trade, a condition that has also been achieved by other emerging economies. The fact is that WTO regulations and work methods were designed for a world that is rapidly disappearing. The same can be said in the case of Mercosur, given the changes that the world and the region have experienced since the time of its creation (on this subject, refer to the October 2008 edition of this Newsletter).

The other situation shows up during periods of economic crisis, either internal or international. During such periods one or more member countries of a trade agreement need to adopt defensive measures to protect their interests, which can eventually clash with the rules currently in use.

The insufficient safety valves in the corresponding agreement -such the case of the WTO- or the complete lack thereof -such the case of Mercosur (these are only contemplated at the bilateral level between Argentina and Brazil, with the so-called mechanism of competitive adaptation, or MAC, which is still not in effect)- may then lead to situations of blatant contradiction between the emergency measures adopted and the international commitments undertaken. Even in such situations, if the emergency measures employed by member countries are numerous, it is probable that the mechanisms for the settlement of disputes are rendered useless. Thence, the soundness of the choice of the main topic of the recent WTO report on world trade (see the reference in the Recommended Readings Section). In its foreword, Director General Pascal Lamy pointed out that "The choice of topic for this year's World Trade Report is highly relevant to the challenge of ensuring that the channels of trade remain open in the face of economic adversity. Well-balanced contingency measures, designed primarily to deal with a variety of unanticipated market situations, are fundamental to the effectiveness and stability of trade agreements. The Report explores this proposition from a variety of angles".

Specifically, the report discusses the issue of the necessary adaptability of the agreed rules as "special measures" (the safeguards, anti-dumping measures and countervailing duties, the renegotiation of tariff commitments, the increase of tariffs to their maximum legal levels -binding- and the use of export taxes) in order to contemplate the different contingences originated in the evolution of the international economy.

The report leaves the reader wanting more. There are questions that would be convenient to address in preparation for the upcoming November Ministerial Conference. One that merits particular attention, considering the protectionist tendency that can be observed, is the following: Are the safety valve mechanisms foreseen by WTO rules sufficient enough given the effects of the current global crisis, particularly on developing countries? The report fails to mention other special measures that may be required to facilitate strategies for the competitive insertion of developing countries in international markets (such as those suggested by Dani Rodrik in his book "One Economics Many Recipes", Princeton University Press, Princeton and Oxford 2007). Certainly, the issue of the adaptation of the WTO system to the new global realities, in view of the changes in relative power between the main players in world trade, is not included among the objectives of this report.

It would be necessary then to adapt the ground rules of international trade to the new realties and grant them more flexibility to face contingencies, in order to preserve the balance of the national interests which sustain them. The WTO now holds an initial technical assessment, at least in regards to the issue of flexibility. In addition, it has planned a forum in which the countries will be able to debate how to approach these courses of action. We are referring to the previously mentioned Ministerial Conference, which will take place in Geneva at the end of November. Nothing similar can be anticipated in the case of Mercosur. However, a thorough debate on the adaptation and flexibility of its ground rules, not just limited to the scope of governments, would seem essential in order to rescue an integration project still imbued with a deep strategic significance.


Recommended Readings of Recent Publication:

  • Braun, María; Straw, Cecilia (comp.), "Opinión Pública. Una mirada desde América Latina", Emecé, Buenos Aires 2009.
  • Cantera Carlomagno, Marcos, "Las venas tapadas de América Latina", Linardi and Risso (third edition), Montevideo 2008.
  • Centro de Economía Internacional, "Revista del CEI - Comercio Exterior e Integración", CEI- MRECIC, Buenos Aires, April 2009 - Number 14.
  • CEPAL, "Estudio económico de América Latina y el Caribe, 2008-2009", Naciones Unidas, Comisión Económica para América Latina y el Caribe, Santiago de Chile 2009, on http://www.eclac.org.
  • Fingleton, Eamonn, "In the Jaws of the Dragon. America's Fate in the Coming Era of China Dominance", Thomas Dunne Books, StMartin's Griffin - New York 2008.
  • Frost, Ellen L., "Asia's New Regionalism", Lynne Rienner Publishers, Boulder London 2008.
  • Grant, Charles, "Is Europe doomed to fail as a power?" (with a response by Robert Cooper), Centre for European Reform, Essays, London, July 2009, http://www.cer.org.uk.
  • INTAL, "Integración & Comercio", Nº 29, Year 13, January-June 2009, on http://www.iadb.org/intal.
  • Oropeza García, Arturo (coord.), "China-Latinoamérica. Una visión sobre el nuevo papel de China en la región", UNAM, México 2008.
  • Ott, Andrea; Vos, Ellen (editors), "Fifty Years of European Integration: Foundations and Perspectivas", T.M.C.Asser Press, The Hague 2009.
  • Pinot de Villechenon, Florence (direction), "L'Argentine, Terre d'Investissement?, CELARE, Horizons Amériques Latines, L'Harmattan, Paris 2008.
  • Siebert, Horst, "Rules for the Global Economy", Princeton University Press, Princeton and Oxford 2009.
  • World Trade Organization (WTO), "World Trade Report 2009 - Trade Policy Commitments and Contingency Measures", WTO, Geneva 2009, http://www.wto.org/.

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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