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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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THE DIFFICULT ART OF CONCLUDING WHAT WAS STARTED:
The experience of the Doha Round and the EU-Mercosur negotiations

by Félix Peña
April 2011

English translation: Isabel Romero Carranza


 

A decade after being launched the Doha Round and the bi-regional negotiations between Mercosur and the European Union (EU) are still not producing any concrete signs of a prompt conclusion.

Regarding the Doha Round, there is currently a strong impression that the "window of opportunity" that seemed to have opened up at the beginning of he year is now closing down. Several observers and analysts agree in that the existing obstacles could be surmounted by a strong and honest political will that goes beyond the repeated declarations made at the summits of the highest political level. One option would be to procure a less ambitious agreement and, as a trade-off, to initiate a new stage of multilateral negotiations using more innovative methodologies and introducing different multi-speed and variable geometry negotiation modalities.

There are no signals either of any concrete progress towards the conclusion of the negotiations between Mercosur and the EU this year. A similar situation to that which led to the October 2004 failure seems to be happening again. The political drive has apparently dissipated and, if still present, is not clearly visible. Additionally, there are factors that could introduce an unnecessary rigidity in the negotiations such as, for example, the interpretation of the scope that the free trade commitments should have.
With leadership at the highest political level -such as that which led to re-launching the negotiations last year in Madrid- and with flexibility in the interpretation of the requirements of the WTO rules, it would seem feasible to avoid some of the existing obstacles. A less ambitious agreement that opens the door to a long term process with greater strategic intent could prove better than a new failure in the negotiations.


Both the Doha Round and the EU-Mercosur negotiations are dragging their feet. A decade after their launch neither trade negotiation is giving off any concrete signals of moving forward towards a prompt conclusion. They seem to be avoiding success inasmuch as they are resisting failure.

Towards mid-April the perspectives for the conclusion of the Doha Round during this year were dismal (on this regard see the article entitled "WTO Negotiators Eye "Soft Landing"", ICTSD, Bridges Weekly Trade News Digest, volume 15, number 13, April 14, 2011, on http://ictsd.org/i/news/bridgesweekly/104413/). The impression that the "window of opportunity" that seemed to have opened up at the beginning of the year is now closing down was accentuated.

Among others, a working group from the Evian Group (see the reference in the Recommended Reading Section of this Newsletter) alerted, in its February meeting, of the possible consequences of the failure to fulfill the objective of concluding the negotiations by the end of this year. It pointed out that only a joint effort of all the parties interested in an effective multilateral international trade system would make it possible to successfully conclude the negotiations during this year. This would imply a strong political and business leadership.

On this regard, the working group pointed out that "it is important that the business community understand the systemic implications of the framework in which they will evolve if short-term incentives and quarterly balance sheets dominate their approach to the multilateral trade regime". It added that "the private sector has much to lose from the absence of an agreement - with a spiral chain which could take the form of continued export subsidies, no discipline on domestic support, no tariff cuts in manufacturing, no agreement on cotton, no progress on trade facilitation, credibility damage, and an overall unpredictable environment". These would be some of the hidden costs of a scenario in which the Doha Round failed or entered a long period of stagnation -which could be the same or eventually worse-.

The report mentions the risk that the rules of the multilateral international trade system become relatively obsolete, due to the speed of the trend towards preferential trade agreements and the deep changes in world trade caused by the evolution towards multiple modalities of productive articulation, both at a global and regional scale.

The Evian Group working group identified the main sensitivities and obstacles that would hinder the conclusion of the multilateral negotiations this year (on this regard there seems to be certain consensus among observers and analysts). These are: the degree of ambition and the sector priorities with regards to the access of markets, especially among the five main protagonists (the US, the EU, China, India and Brazil); the political assets necessary to present a multilateral agreement to voters and parliaments within a context of unemployment and of the perception of economic vulnerabilities originated by external economic competition; and an insufficient willingness to commit within a prevailing climate of mutual mistrust. However, at the same time, there is a confirmation that countries perceive the benefits that could be reaped from a success in the negotiations or, otherwise, the systemic consequences of their collapse.

Many observers and analysts agree in that the existing obstacles could be overcome by a strong and real political will that goes beyond the repeated declarations by the G20 or, most recently, of the BRICS group that met in Sanya, China, in April (for the final declaration of the Sanya Summit on April 14 2011, go to http://news.xinhuanet.com/).

A more reasonable option would be to lower the ambitions of the agreement to be reached and, as a trade-off, to start a new stage of multilateral negotiations that uses more innovative methods and introduces different multi-speed and variable geometry negotiating modalities (refer to our 2007 article on http://www.felixpena.com.ar/).

With regards to the EU-Mercosur negotiations, no signals that would indicate any concrete progress leading to their conclusion this year could be observed after the March meeting of the Bi-regional Negotiations Committee held in Brussels. At times, it would seem that the situation is similar to that which led to the failure of October 2004.

One explanation of this state of affairs could be the insufficiency of the political livelihood required to conclude a complex and unique trade negotiation. This is so because it involves thirty-one countries grouped in two blocks with different institutional densities, relative powers and interests. Additionally, within each block there are diverse economic interests, which sometimes can even be contradictory.

In view of a situation that seems to be repeating itself the question that comes up is why was the negotiation re-launched last year at the Madrid Summit in the first place. It would be safe to say that nobody would voluntarily participate in a negotiating table unless there was an interest of achieving something. A halted negotiation is not willingly resumed knowing that in a short time it will come to a standstill once again.

The answer could be that when the negotiation was re-launched there was sufficient "oxygen" coming from the highest political level. This was brought in by the governments of Argentina and Spain in charge of the respective pro-tempore presidencies of each block. At the same time, there were strong economic interests on the European side in favor of a preferential agreement with a regional space that, in spite of the insufficiencies of its integration process, is attractive for hefty competitors such as China and the US. Moreover, the road towards a bilateral agreement with Brazil was closed, at least at that moment.

The initial political drive seems to have faded on both sides of the Atlantic. Or if it still exists it is imperceptible. For a time it was recaptured by President Lula, who was occupying Mercosur's pro-tempore presidency during the second semester of last year. Yet the main weakening can be observed in Europe which is still -and maybe for a long time- under the effects of the financial shock of 2008. Furthermore, several European governments are plagued by their own internal dilemmas. They are going through a period dominated by uncertain elections and by bewildered, if not outright frightened, public opinions. The events of Northern Africa do not contribute to change this scenario. On the contrary they seem to have accentuated defensive reflexes.

On the European side the negotiation has remained in the hands of officers with an apparent will but with insufficient political weight. Nobody at the highest political level is expressing with conviction "this negotiation interests me". Those making the most noise -this is part of the game- are the agricultural interests opposed to the progress of the negotiation. Or what is practically the same; they subject it to the increasingly uncertain conclusion of the Doha Round.

In our opinion an additional factor is generating an unnecessary rigidity in this bi-regional negotiation. This is the alleged demand that a bi-regional free trade agreement, such as the one that is sought, must contemplate at least ninety percent of reciprocal trade. It is claimed that it is required by article XXIV of the GATT when it prescribes that the coverage of a free trade agreement should comprise "substantially all the trade". For those who support this idea it would be necessary to comply with it so that the resulting agreement is not vulnerable within the scope of the WTO.

However this is not what the GATT article expresses. In any case it is a possible interpretation in view of its ambiguity, an interpretation that seems to prevail in Brussels. It is influenced by the precedent that the smaller percentages could have in other EU trade negotiations (among which one of the most relevant is the one being carried out with India and of which there is scarce information).

However there are other valid interpretations reflected by a long-standing, unfinished debate among member countries and also among experts on the criteria to be used to interpret such an imprecise text. Depending on the interpretation used the percentage of trade could be reduced to seventy percent or even less (for an analysis of the interpretation of the requirements of article XXIV, paragraph 8 of the GATT, consult the work by Kyle W.Bagwell and Petros C. Mavroidis (editors),"Preferential Trade Agreements. A Law and Economics Analysis", Cambridge University Press, Cambridge 2011; and by Sangeeta Khorana, Nicholas Perdikis, May T.Yeung and William A.Kerr "Bilateral Trade Agreements in the Era of Globalization. The EU and India in Search of a Partnership", Edward Elgar, Cheltenham-Northampton, 2010. Refer also to the report by Robert Scollay and Roman Grynberg cited in the Recommended Reading Section of this Newsletter).

This is no trivial issue. A more flexible interpretation of the commitment assumed through the GATT would enable to find a balance in the bi-regional negotiation to contemplate the existing sensitivities on both sides. These are most intense precisely because some European governments are facing election processes in the midst of the perception of a growing economic uncertainty.

This is but one example of an important tangle in the negotiation that will require the involvement of the highest political levels in order to be untied. The necessary "oxygen" could be obtained if a distinction is made between the degree of ambition of the preferential commitments that are to be assumed in the agreement that is signed and that of the long term objectives of the bi-regional association that is established. Evolutionary clauses would later help continue with the following steps when the circumstances and needs allow it. It would thus be a "two step agreement" with a "built-in-agenda" (see a proposal along these lines in the report of the Mercosur Chair entitled "Concluding the EU-Mercosur Agreement", edited by Alfredo Valladäo, Chaire Mercosur, Science-Po, Paris 2004 and, in particular, the Introduction by Félix Peña and Patrick Messerlin, pages 13 to 20, on http://www.chairemercosur.sciences-po.fr/).

Formulated when the negotiation was approaching its first standstill -that of October 2004- and the results of the Doha Round were also viewed with uncertainty, the proposal of splitting the bi-regional negotiation drafted within the framework of the Mercosur Chair seems to preserve its validity in spite of the time elapsed and, at the very least, as a sort of "Plan B". In fact the current scenario, even when different, can also be characterized by the convergence of a bi-regional negotiation lured by paralysis and a Doha Round negotiation that sails, yet one more time, in the midst of a strong uncertainty regarding its outcome.

Concluding what was started ten years ago continues to pose a challenge for these negotiations. In both cases a failure could still be prevented by a strong political drive, flexibility and technical creativity. Confirming a failure would have high costs in both cases.


Recommended Reading:


  • Bhagwati, Jagdish; Sutherland, Peter (co-chairs), "The Doha Round: Setting a Deadline, Defining a Final Deal", High Level Experts Group - Interim Report - January 2011, on http://www.number10.gov.uk/.
  • Baumann, Renato, "Regional Trade and Growth in Asia and Latin America: the importance of Productive Complementarity", ECLAC/World Bank, Brasilia 2010, on http://siteresources.worldbank.org/.
  • Basaldúa, Ricardo Xavier, "Tributos al Comercio Exterior", Abeledo Perrot, Buenos Aires 2011.
  • Fundación Carolina, "Nombres Propios - 2010", Fundación Carolina, Madrid 2011.
  • Herreros, Sebastián, "The Trans-Pacific Strategic Economic Partnership Agreement: a Latin American perspective", ECLAC, Division of International Trade and Integration, Serie Comercio Internacional, n° 106, Santiago de Chile, March 2011, on http://www.eclac.org/.
  • INAI, "Boletín del INAI", Fundación Instituto para las Negociaciones Agrícolas Internacionales, Boletín n° 103, Buenos Aires, 31 March 2011, on http://www.inai.org.ar/.
  • INTAL-BID, "Informe Mercosur N° 15, Período: Segundo Semestre 2009 - Primer Semestre 2010", Instituto para la Integración de América Latina - Inter American Development Bank, Buenos Aires, February 2011, on http://www.iadb.org/document.cfm?id=33038858.
  • IPEA, "Internacionalizaçâo das empresas chinesas: as prioridades do investimento direto chines no mundo", Instituto das Pesquisa Economica Aplicada (IPEA), Comunicados do Ipea, n° 84, Brasilia, 6 April 2011, on http://www.ipea.gov.br/.
  • IPEA, "As relaçôes bilaterais Brasil-China: a ascensâo da China no sistema mundial e os desafios para o Brasil", Instituto das Pesquisa Economica Aplicada (IPEA), Comunicados do Ipea, n° 85, Brasilia, 8 April 2011, on http://www.ipea.gov.br/.
  • IPEA, "Relaçôes comerciais e de investimentos do Brasil com os demais países do BRICS", Instituto das Pesquisa Economica Aplicada (IPEA), Comunicados do Ipea, n° 86, Brasilia, 13 April 2011, on http://www.ipea.gov.br/.
  • Kaplinhsy, Raphael; Readman, Jeff, "Integrating SMEs in Global Value Chains. Towards Partnership for Development", UNIDO, Vienna 2001, on http://www.unido.org/.
  • Low, Patrick; Marceau, Gabrielle; Reinaud, Julia, "The Interface Between the Trade and Climate Change Regimes", WTO, Economic Research and Statistics Division, Staff Working Paper ERSD-2011-1, Geneva, 12 January 2011, on http://www.wto.org/.
  • Maito, Miguel, "Reformulación de las instituciones para la eficacia del Mercosur en la integración económica", Facultad de Derecho de la Universidad de Buenos Aires - Editorial La Ley, Buenos Aires, 2011.
  • Malik, Mahnaz, "The Stakes of States in Defending Investment Treaty Arbitrations: A Game of Luck and Chances?", IISD - Invest India - South Centre, IV Annual Forum for Developing Country Investment Negotiators, New Delhi, October 27-29, 2010, on http://www.iisd.org/.
  • Malik, Mahnaz, "Recent Developments in International Investment Agreements: Negotiations and disputes", IISD - Invest India - South Centre, IV Annual Forum for Developing Country Investment Negotiators, New Delhi, October 27-29, 2010, on http://www.iisd.org/.
  • McKinsey Global Institute, "Urban world: Mapping the economic power of cities", McKinsey & Company, March 2011, on http://www.mckinsey.com/.
  • The Evian Group, "Evian Group Doha Task Force 2011(EGTF11)Kick-Off Meeting, Summary Report, Evian Group-IMD, Lausanne, 24 February 2011, on: http://www.imd.org/ (also in Spanish on http://www.imd.org/)
  • Scollay, Robert; Grynberg, Roman, "Substantially all Trade: Which Definitions are Fulfilled in Practice? An Empirical Investigation. A Report of the Commonwealth Secretariat", Norman Girvan, Caribbean Political Economy, 15 August 2005, on http://www.thecommonwealth.org/.
  • Sidiropoulos, Elizabeth, "India and South Africa as Partners for Development in Africa?, Chatham House, Briefing Paper, ASP/AFP BP 2011/01, London, March 2011, on http://www.chathamhouse.org.uk/.
  • UNCTAD, "Latest Developments in Investor State Dispute Settlement", IIA, Issues Note, n° 1, Geneva, March 2011, on http://www.unctad.org/.
  • UNCTAD, "Scope and Definition", UNCTAD Series on Issues in International Investment Agreements II, New York - Geneva 2011, on http://www.unctad.org/.
  • UNCTAD, "Most-Favoured-Nation Treatment", UNCTAD Series on Issues in International Investment Agreements II, New York - Geneva 2011, on http://www.unctad.org/.
  • UNCTAD-UNDP, "Creative Economy - Report 2010", UNCTAD, Geneva, December 2010, on http://www.unctad.org/.
  • Unión Europea, "Acuerdo comercial entre la Unión Europea y Colombia y Perú", on http://trade.ec.europa.eu/.


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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