| A DANGEROUS GAME?
Trends towards the fragmentation of the global international trading system
by Félix Peña
English translation: Isabel Romero Carranza
Within the outlook of an eventual erosion of the efficacy
of the collective disciplines established by the WTO multilateral institutional
framework, the proliferation of preferential trade agreements between
major markets could contribute to a significant fragmentation of the global
international trading system.
The problem may result from the fact that relevant
protagonists of world politics could eventually perceive that some of
these agreements may have geopolitical goals that go far beyond the plane
of trade and investment flows. If this were the case, it would imply the
beginning of a dangerous game that could contribute to accentuate the
fragmentation of the international political system. Depending on the
evolution of the corresponding negotiations, this could be the case of
the simultaneous initiatives of the Trans-Pacific Partnership and the
trilateral agreement between China, Korea and Japan in the complex and
sensitive Asia Pacific space.
The epicenter of this game could result from an eventual
competition between great powers -both longstanding and emerging- in geopolitical
spaces with a high potential for conflict. On this regard the perceptions
of countries such as China, the United States and the European Union -still
trying to deal with its own identity crisis- on the intentions of each
one of them at the moment of promoting preferential agreements should
be watched closely.
After the Eighth Ministerial Conference this December
the WTO and especially the Doha Round still raise questions regarding
their future. However, some positive events should be highlighted, such
as the incorporation of new members, in particular Russia, and the acknowledgement
that the Doha Round has reached an impasse, which leads to the need of
exploring different negotiation approaches that are compatible with the
principles of inclusion and transparency.
The Eighth WTO Ministerial Conference (held in Geneva from 15 to 17 December)
confirmed the diversity of stances among the member countries with regards
to the future of the global multilateral international trading system,
including the final fate of the Doha Round (to find all the information
on the WTO Conference go to: http://www.wto.org/
for a previous analysis of the Conference see the October 2011 edition
of this Newsletter on http://www.felixpena.com.ar/).
In principle, these positions would not seem to be irreconcilable. A
common ground is that all member countries agree that the global multilateral
system must be preserved and strengthened. Russia's addition is a contribution
towards such goal. Aside from this, nobody can overlook the link between
the current Doha Round negotiations and economic development. Also perceived
as politically correct is the continuous reference to the need for special
treatment required by less developed countries. However, this could all
be just part of the rhetoric and outward appearances that sometime prevail
in multilateral economic diplomacy.
All signs indicate that it will take time to articulate the required
consensus, either to conclude the current multilateral negotiations -it
seems unlikely that this will take place in the short term-; to suspend
them for good -nobody seems to be interested in having the responsibility
of accounting for a failure in the inevitable blame game that would follow-
; or to agree new negotiation modalities that allow to soften the rigidity
of the single undertaking such as, for example, those that do not require
the participation of all member countries and that are agreed within the
WTO framework (different variations of plurilateral agreements). There
are certain factors that show an influence on this regard.
The first factor is the high number of participating countries, with
evident differences in relative power, cultural traditions and degree
of economic development. After the addition of Russia and other countries
the number of members has currently grown to 157. It is quite a difficult
task to find an agreement among all of them regarding agendas that are
filled with the most diverse and sensitive issues, both for political
and economic reasons. However, aside from this, the most relevant fact
is that the scattering of relative power among the relevant players in
world trade has increased since the creation of the WTO.
In fact, in a less centralized world the international institutions conceived
within different historic contexts show systemic deficiencies to gather
the critical mass of power required to adopt decisions that are both effective
and legitimate. Indeed, this is not just the case of the WTO. In the main
international economic organizations originated after the Second World
War -and that were designed with a clear influence of the United States-
the small group of decision-makers nations has increasingly expanded and
many of those left out not necessarily feel represented by it. Neither
a G2 nor a G20 seem to suffice today to articulate effective decisions,
i.e.: decisions that penetrate reality and that at the same time are invested
with sufficient international legitimacy.
As was pointed out in the beginning, in the case of the WTO the patchwork
of different views was reflected in the sessions of the recent Ministerial
Conference. However, it is also present in the debates over the future
of the Doha Round and of the very same WTO that are taking place in the
academic front and in non-government organizations. At times these are
debates that remind us of the chaotic scenes that Federico Fellini masterfully
portrayed in his film "Orchestra Rehearsal" ("Prova D'Orchestra",
1979), maybe inspired by the Italian reality of that moment.
A second factor that anticipates a long period of uncertainties in the
WTO is the low intensity of the present incentives to conclude the negotiations
of the Doha Round. This may be explained by the effects of the current
international financial and economic turbulence, which have accentuated
political reflexes against innovation in all those non-urgent issues.
Concretely, if the domestic political costs are high the tendency of the
protagonists is to favor inertia even when this could mean risking eventual
long term benefits.
The current paradox is that even when the local agendas of many countries,
including the most relevant ones, are strongly influenced by the effects
of the globalization of world economy their ability to participate in
the formulation of collective answers is, at the same time, strongly conditioned
by domestic factors. This has accentuated in later years by the fact that
in many countries citizens have started to manifest their outrage, sometimes
even in a very riotous manner. Outrage at what they perceive to be the
causes of their problems but, above all, outrage at the lack of adequate
explanations by their leaders on the realities being confronted and of
any concrete proposals to overcome what is perceived as an unexpected
and frustrating situation. Uncertainties about the present and especially
about the future tend to accentuate people's indignation.
A third factor is a growing trend towards favoring alternative paths
to those offered by the global multilateral trading system. The difficulties
to move forward in the option that would involve the successful conclusion
of the Doha Round feed this trend. It is then understandable that the
alternatives proposed by different types of restricted trade clubs might
prove more functional to the aim of facilitating the expansion of trade
and investment flows among the participating nations. Additionally, these
allow for the creation of WTO plus agreements.
Said clubs are not limited to countries from neighboring geographic spaces,
where preferential agreements are regarded as instruments of a strategy
toward regional governance and eventually with deep economic integration
On the contrary, a new stage of inter regional plurilateral agreements
has started. There are three examples worth mentioning due to the extent
of the economic dimension in terms of population and trade involved if
the negotiations currently under way succeeded. These are the Trans-Pacific
Partnership (TPP), the agreement between China, Korea and Japan, and the
free-trade agreement between the European Union (EU) and India.
The TPP (originated in an agreement signed in 2006 by Chile, Singapore,
Brunei and New Zealand and currently being negotiated by ten countries
who expect to conclude it by 2012) has acquired greater currency after
the recent APEC Summit held in Honolulu, Hawaii and, most particularly,
after Japan's decision to participate in the negotiations. The negotiations
for an eventual free trade agreement between China, Korea and Japan have
also gained political momentum (see the references included in Recommended
Reading at the end of this Newsletter). At the same time, the possibility
that the ongoing negotiations between the EU and India could reach a conclusion
during the first semester of 2012 has not yet been discarded.
With the prospect of an eventual weakening of the multilateral framework
provided by the WTO, the proliferation of preferential agreements between
large markets could contribute to a fragmentation, even a chaotic one,
of the world trading system. However, the main problem could derive from
the fact that the relevant players of the world political scenario eventually
perceive that some of these agreements pursue geopolitical objectives
that go far beyond trade and investment flows. This could imply the beginning
of a dangerous game that may contribute to a greater fragmentation of
the international political system.
The epicenter of such game could result from an eventual competition
between great powers -both longstanding and emerging- in geopolitical
spaces with a high potential for conflict. On this regard the perception
that countries such as China, the US and the EU -still trying to manage
its own identity crisis- have of the intentions of each one of them at
the time of promoting preferential and WTO plus agreements should be watched
After the Eighth Ministerial Conference of December, the WTO and especially
the Doha Round still raise questions regarding their future. However,
certain positive events should be highlighted such as the incorporation
of new members, in particular Russia, and the acknowledgement that the
Doha Round is at an impasse that generates the need to explore different
negotiation approaches that are compatible with the principles of inclusion
and transparency (see the final declaration by the President of the Conference,
in which he corroborates some elements of consensus reached with regards
to the future action of the WTO, including the Doha Round, on: http://www.wto.org/).
In like manner when speaking at the opening session of the Ministerial
Pascal Lamy announced his intention of convening a panel of multi-stakeholders
to analyze the current and future situation of world trade. If this were
to be carried out it would be a positive sign. It should be noted that,
simultaneously with the Conference, the ICTSD organized a symposium on
trade and development with the participation of negotiators and experts
from WTO countries (see http://www.ictsdsymposium.org/).
The proposals included in the contributions by Miguel Rodriguez Mendoza,
Marcel Vaillant and Carolyne Birkbeck Deere, deserve to be highlighted
due to the quality of their argumentation and their practicality (see
the references in Recommended Reading at the end of this Newsletter).
- Armstrong, Shiro, "China's participation in the Trans-Pacific
Partnership", East Asia Forum, 11 December 2011, en: http://www.eastasiaforum.org/.
- Deere Birkbeck, Carolyn, "The Future of the WTO: Governing Trade
for a Fairer, More Sustainable Future", ICTSD -FDEA Trade and Development
Symposium, A Collection of Short Essays, Geneva, December 2011, en:
- Drysdale, Peter, "China, economic containment and the TPP",
East Asia Forum, 12 December 2011, en: http://www.eastasiaforum.org/.
- Fergusson, Ian F.; Vaughn, Bruce, "The Trans-Pacific Partnership
Agreement", Congressional Research Service, Washington June 25,
2010, en: http://www.crs.gov.
- Fulponi, Linda; Shearer, Matthew; Almeida, Juliana, "Regional
Trade Agreements - Treatment of Agriculture", OECD Food, Agriculture
and Fisheries Working Papers N° 44, Paris 2011, en: http://www.oecd-ilibrary.org/.
- Funes, Óscar, "Retos de la Unión Aduanera en Centroamérica",
CEPAL, Sede Subregional en México, Serie Estudios y Perspectivas
131, México, Octubre de 2011, en: http://www.eclac.cl/.
- Huchet-Bourdon, Marilyne; Korinek, Jane, "To What Extent Do Exchange
Rates and their Volatility Affect Trade?", OECD Trade Policy Working
Papers, N° 119, Paris 2011, en: http://www.oecd-ilibrary.org/.
- IPEA, "Las relaciones del Mercosur con Estados Unidos y China
ante el desplazamiento del centro dinámico mundial", Comunicados
del IPEA, N° 121, Brasilia, 15 de noviembre de 2011, en: http://www.ipea.gov.br/.
- IPEA, "Mudanças na orden global: desafíos para
o desenvolvimento brasileiro", Comunicado do IPEA, N° 100,
Brasilia, 23 de novembro de 2011, en: http://www.ipea.gov.br/.
- Kaldor, Mary, "New and Old Wars. Organized Violence in a Global
Era", (2nd Edition), Stanford University Press, Stanford, California,
- Lanz, Rainer; Miroudot, Sébastien, "Intra-Firm Trade:
Patterns, Determinants and Policy Implications", OECD, Trade Policy
Working Papers, N° 114, Paris 2011, en: http://www.oecd-ilibrary.org/.
- Lowenthal, Abraham F., "Disaggregating Latin America: Diverse
Trajectories, Emerging Clusters and their implications", The Brookings
Institution, Washington, Wednesday November 9, 2011, en: http://www.brokings.edu/.
- Minassian, Gaïdz, "Zones Grises. Quand les États
Perdent le Contrôle", Éditions Autrement/Frontières,
- Matto, Aaditya; Subramanian, Arvind, "A China Round of Multilateral
Trade Negotiations", Peterson Institute for International Economics,
Working Paper Series, WP 11-22, Washington, December 2011, en: http://www.iie.com/publications/wp/wp11-22.pdf.
- Morris, Ian; Scheidel, Walter (eds.), "The Dynamics of Ancient
Empires. State Power from Assyria to Byzantium", Oxford University
Press, Oxford-New York 2010.
- Rodriguez Mendoza, Miguel, "Towards "plurilateral plus"
agreements", ICTSD - FDEA, Trade and Development Symposium, A Collection
of Short Essays, Geneva, December 2011, en: http://www.ictsdsymposium.org/.
- Scheidel, Walter (ed.), "Rome and China. Comparative Perspectives
on Ancient World Empires", Oxford University Press, Oxford-New
- Smith, Dennis, "Globalization: the hidden agenda", Polity
Press, Cambridge, UK, 2006.
- Tu, Xinquan; Lin, Guijun, "The revival of industrial policy:
how should the WTO address it?, ICTSD - FDEA, Trade and Development
Symposium, A Collection of Short Essays, Geneva, December 2011, en:
- Vaillant, Marcel, "How to encourage the network trade rules interconnections?
An application on the case of Non Tariff Barriers", ICTSD - FDEA,
Trade and Development Symposium, A Collection of Short Essays, Geneva,
December 2011, en: http://www.ictsdsymposium.org/.
- Yiu, Lichia; Saner, Raymond (with Mario Filadoro), "Mainstreaming
Tourism Development in Least Developed Countries: Coherence and Complementarity
of Policy Instruments", CSEND, Governance Trade Policy, Geneva,
August 2011, en: http://www.csend.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