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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009
THE EROSION OF MULTILATERAL COLLECTIVE DISCIPLINES:
A result of the lack of adaptation of the WTO system to the new realities?

by Félix Peña
October 2011

English translation: Isabel Romero Carranza


 

One of the most important conditions required for the validity, effectiveness and social legitimacy of an institutionalized international system, either of regional or global scope, is its ability to adapt to the new realities that have an impact on its objectives, functions and rationale. This implies the timely adaptation of its regulations, instruments and rule-making processes to the continuous changes that are taking place in the context where they operate and, particularly, in the distribution of power among the countries that form part of it.

Certain tendencies towards the relaxation of the collective disciplines that result from the regulations agreed within the WTO -most of them originated in the GATT period- turn the issue of the adaptation of the system as a whole to the new international realities into a current one.

Such tendencies are, in the first place, those novel modalities of protectionism that arise because the system's regulations fail to provide the support for what is considered a necessary defense of national interests. The second trend is the growing proliferation of preferential trade agreements that might imply, in practice, the erosion of the principle of non-discrimination that, as is well known, has always been considered the backbone of the global multilateral international trade system; or that might accentuate a dangerous fragmentation of the world trade system especially due to their "WTO plus" content.

The Eight Ministerial Conference, to be held in Geneva next December, will offer an opportunity to express the will and ability of the member countries to adapt the WTO to the new world realities that are emerging in more evident ways each day. Given the skepticism that seems to prevail regarding its results, a step forward might be, at least, if the Conference manages to initiate a gradual new process aimed at addressing those relevant issues that might cause a systemic erosion of unpredictable results.


Recent events are revealing certain systemic deficiencies on the side of the World Trade Organization (WTO) to preserve collective disciplines regarding those issues related with the trade policies of its member countries. Said deficiencies might prove dangerous due to their potential political effects, given the toxic climate generated by the current economic and financial crisis that, so far, has had its epicenter in the developed world.

These are events that reveal a trend towards the erosion of the collective disciplines that are allegedly the outcome of a good faith implementation of WTO rules and, as a consequence, lead to the fragmentation of the world trade system.

Such tendencies are becoming evident on two levels. Firstly, on the "self-defense" attitude against what are considered new modalities of unfair trade, especially as a result of exchange rate policies that, at least in the perception of those trying to defend themselves, seek to have an impact on foreign trade that is favorable to the country applying them. Secondly, on the proliferation of preferential trade agreements of "WTO plus" scope that, even when contemplated by the current regulations, show in part a clear dissatisfaction with the progress that has been achieved through multilateral trade negotiations in terms of the opening up of markets and regarding the inclusion of relevant issues, such as intellectual property, government procurement, services and direct investments.

These tendencies towards the fragmentation of the world trade system are caused by the difficulties to find, within the WTO, the necessary support to implement actions that are fully compatible with its rules and that are considered necessary by its member countries. Operating on the limits of the system, or even outside of them, would thus become and option in view of the lack of adaptation of the system's rules and mechanisms to the new realities.

One of the necessary conditions for the validity, effectiveness and social legitimacy of an institutionalized international system, either of regional or global scope, is its ability to adapt to the new realities that have an impact on its objectives, functions and rationale.

It implies the timely adaptation of its regulations, instruments and rule-creating processes to the continuous changes that are taking place in the context where they operate and, particularly, in the distribution of power among the countries that are part of the respective system. This becomes much more necessary if, as is currently happening, such changes are deep structural ones, meaning, in historical terms, that they deserve the qualification of "revolutionary". They mark a clear "before and after" in the evolution of the international system. In doing so, they might render obsolete concepts, paradigms, and, above all, institutions and ground rules.

This is the reason why demonstrating its ability to adapt to international realities, that are radically different from those of the time of its creation, might be the main challenge faced today by the multilateral world trade system, first institutionalized by the GATT and later by the WTO. Each day it is becoming more evident that the world in 1947 or 2001 was very different, in its economic and political aspects, to the current one, to that which can be envisioned -though with great caution- in the near future, and still more so to that which is coming to existence and will reach maturity in the long term.

The stagnation of the multilateral trade negotiations of the Doha Round - and it is not yet clear whether this is of a circumstantial or permanent nature- reflects an underlying problem currently being faced by the WTO. We are referring to the fact that it has not been possible to achieve, within its decision-making mechanisms, the articulation of positions that are shared by all its members or, at least, by those that could guarantee a sufficient critical mass of power so that what is decided penetrates reality.

The Eighth Ministerial Conference, to be held next December in Geneva, would offer an opportunity to demonstrate the will and ability to adapt the WTO to the new world realities that are emerging each day in more evident ways. (See the August 2011 edition of this Newsletter).

Given the skepticism that seems to prevail regarding its results, it might be sufficient if the upcoming Conference is at least able to begin a gradual process aimed at addressing some of the most relevant issues that could cause a systemic erosion of unpredictable consequences. At that respect we must have in mind that history has always shown a close relation between trade-related disputes and the kind of political conflicts that eventually have led to violent confrontation between nations.

There are three requisites that need to be met that would send out clear signs of the WTO's ability to adapt to the new realities.

The first is the elaboration of a shared diagnostic by the member countries on the most relevant deficiencies or shortcomings of the WTO system of rules, collective disciplines and negotiation mechanisms and how to overcome them, at least through gradual changes, i.e. some sort of systemic metamorphosis. A step in the right direction would be to commission a report to a group of top specialists of renowned expertise in the field of international trade relations. This under the condition that it meets a different fate than that of the Sutherland Report which, in spite of the wealth of its contents, never had a proper follow-up and ended up being archived.

Other requisite is to gather the sufficient political drive within the group of member countries so that the decisions needed to effectively promote the process of systemic adaptation are later adopted. Reportedly, this should be the contribution of the G20.

The third factor is the accuracy in the efficacy conferred to the rules and instruments that finally materialize such decisions. For this purpose, it would be essential to effectively incorporate flexibility, variable geometry and multi-speed criteria. In particular, it would seem necessary, in view of WTO's own experience, to incorporate mechanisms for the continuous adaptation of the system to the changes that will probably continue to happen for a long time.

A new G20 Summit will take place in Cannes before the Ministerial Conference of Geneva. In theory, the critical mass of power that would be necessary to make decisions that fulfill the threefold quality of effectiveness, efficacy and legitimacy will be reunited on this occasion.

It is expected that this Summit sends out clear signs to help strengthen the leading role of the WTO as the appropriate ambit to resolve at least those issues relevant to world trade that were made evident after the manifestation, in 2008, of the current process of structural change in global economic competition. Among others, there is the issue of what to do with the Doha Round and with the development of novel protectionist modalities that conjure up the idea of "trade wars".

There are firm reasons to doubt that such signals will result from the G20 Summit. Even if they did emerge, they might be as ineffective as the political intention to conclude the Doha Round expressed in the first Washington Summit (the trade issue was absent from the final declaration of the Meeting of Finance Ministers and Presidents of Central Banks, held in Paris on 14 and 15 October: http://online.wsj.com/. For an appraisal on the G20 refer to Alan Beattie in the Financial Times of 17 October: "G20 ageing aristocracy stands in way of new ideas").

As was pointed out above, certain trends towards a relaxation of the collective disciplines that resulted form the rules agreed within the WTO -most of them originated in the GATT period- turn the issue of the adaptation of the system as a whole to the new international realities into a current one.

These are, in the first place, the trends towards novel protectionism modalities that arise because the system's regulations fail to provide a solid legal ground for what is considered to be a necessary defense of national interests. (On this regard refer to the report directed by Vera Thorstensen and other articles especially that by Roberto Giannetti da Fonseca, included in the latest edition of the FUNCEX review, mentioned in the Recommended Reading section of this Newsletter). The other trend is the growing proliferation of preferential trade agreements of "WTO plus" content that may imply, in practice, the erosion of the principle of non-discrimination that has always been considered the backbone of the global multilateral international trade system, or that may accentuate a dangerous fragmentation of the world trade system.

Certain recent events illustrate both tendencies. One is the passing of a bill by the US Senate aimed at, among other things, enabling the application of protective trade measures to counteract the distorting effects in competition originated by the manipulation of exchange rate policies (for the full text go to http://www.govtrack.us/). Because China seems to be the most obvious target its approval has produced strong reactions in this country (see among other publications the article of 13 October 2011 published by Xinhua News on http://xinhuanet.com/, and by People's Daily Online, of 11 October 2011, on http://english.peopledaily.com.cn/). Even when there are strong doubts as to whether the project will become a law, especially with the extent of the Senate's project, the fact that it is being promoted is a clear example of the kind of reactions that can be expected (on this regard see Businessweek's article of 12 October 2011 on http://www.businessweek.com/).

The other event is the approval by the US Congress of the free trade agreements with Colombia, Korea and Panama (on this issue refer to the information provided by the USTR webpage, in particular on http://www.ustr.gov/, and the article published by Businessweek on 13 October, on http://www.businessweek.com/). Negotiated by the previous administration, their approval by Congress had been deadlocked for different reasons. It will still require some time for them to become fully valid but, in the context of the standstill of the Doha Round, this fact may contribute to accentuate the conclusion of new free trade agreements by WTO members. Two very relevant agreements are being negotiated by the European Union, one with India and the other with Mercosur. In a best case scenario these will only be finalized during the course of next year.

Linking both trends and in the case that there was no evidence of the intention and capability to promptly adapt WTO rules to the new realities (for example, in the relation between exchange parities and foreign trade and in the collective disciplines concerning preferential trade agreements, which would imply a further development of the ambiguous rules contained in article XXIV of the GATT, particularly its paragraph 8), the issue of exchange parities could be included in the mechanisms and protective trade regulations of agreements such as those being negotiated between the EU and Mercosur -or eventually in a future agreement with China- and even within the framework of Mercosur itself. This would set a precedent to be taken into account in other preferential trade agreements and would be useful to direct the process of adaptation of WTO's own mechanisms and regulations.


Recommended Reading:


  • Allègre, Claude, "Peut-on Encore Sauver l'Europe", Plon, Paris 2011.
  • Badie, Bertrand, "La Diplomatie de Connivence. Les dérives oligarchiques du système international", Éditions La Découverte, Paris 2011.
  • Devin, Guillaume, "Sociologie des relations internationales", Collection Repères, Éditions La Découverte, Paris 2007.
  • Drezner, Daniel W., "All Politics is Global. Explaining International Regulatory Regimes", Princeton University Press, Princeton and Oxford 2008.
  • Eichengreen, Barry, "Globalizing Capital. A History of the International Monetary Systeme", Princeton University Press, Princeton and Oxford 2008.
  • Fourest, Caroline, "La Dernière Utopie. Menaces sur l'universalisme", Biblio Essais, Le Livre de Poche, Grasset, Paris 2009.
  • FUNCEX, "Defesa Comercial", Revista Brasileira de Comércio Exterior, RBCE-FUNCEX, Ano XXV - n° 108, julho/setembro de 2011.
  • Hessel, Stéphane, "Indignez vous!, Indigene Éditions, Paris 2011.
  • Hessel, Stéphane, "Toutes comptes faits…ou presque", Libella Maren Sell, Paris 2012.
  • Hessel, Stéphane; Morin, Edgar, Le chemin de l'espérance", Fayard, Paris 2011.
  • Jamet, Jean-Francois, "L'Europe peut-elle se passer d'un gouvernement économique?", La documentation Française, Paris 2011.
  • Jay, Peter; Stewart, Michael, "Apocalypse 2000. Economic Breakdown and the Suicide of Democracy 1989-2000", Sidgwick & Jackson, Londo 1987.
  • Lehmann, Jean-Pierre, "Why the World Needs a "Post-Atlantic" Charter", 16 August 2011, en http://www.fungglobalinstitute.org/.
  • Lonsdale, Michael, "L'Amour sauvera le monde", Philippe Rey, Paris 2011.
  • Minassian, Gaïdz (dir), "Eurasie au Coeur de la Sécurité Mondiale", Éditions Autrement-Frontières, Paris 2011.
  • Mistral, Jacques (dir.), "Le G20 et la Nouvelle Gouvernance Économique Mondial", PUF, Descartes & Cie, Paris 2011.
  • Pennetta, Piero, "Organizzazioni Internazionali Regionali", en Enciclopedia del Diritto, Annali IV, Giuffré, Milano 2011.
  • Ramel, Frédéric, "Philosophie des relations internationales", SciencesPo, Les Presses, Paris 2011.
  • SELA, "Arquitectura Institucional de la Integración en América Latina y el Caribe: Nuevos Desafíos y Perspectivas", Secretaría Permanente del Sistema Económico Latinoamericano (SELA), SP/CL/XXXVII.O/Di No. 18 -11, Caracas, Septiembre 2011, en http://www.sela.org/.
  • Thorstensen, Vera; Marcal, Emerson; Ferraz, Lucas, "Impacts of Exchange Rates on International Trade Policy Instruments: The Case of Tariffs", (second draft), September 2011, en http://www.imd.org/.
  • Valéry, Paul, "Regards sur le monde actuel", Folio Essais, Gallimard, Paris 1945.
  • Vicién, Carmen; Pena de Ladaga, Susana; Petri, Gerardo, "Modelización Económica en el Sector Agropecuario", Buenos Aires 2011.
  • Wollrad, Dörte; Maihold, Günther; Mols, Manfred (editores), "La agenda internacional de América Latina: entre nuevas y viejas alianzas", Nueva Sociedad - SWP - FES, Buenos Aires 2011.
  • Zakaria, Fareed, "The Post-American World - Release 2.0", W.W. Norton & Company, New York -London 2008-2011.


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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