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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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A DANGEROUS GAME?
Trends towards the fragmentation of the global international trading system

by Félix Peña
December 2011

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/ and 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 purposes.

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 closely.

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 Conference (http://www.wto.org/), 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).


Recommended Reading:


  • 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: http://www.ictsdsymposium.org/.
  • 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, 2006.
  • 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, Paris 2011.
  • 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 York, 2010.
  • 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: http://www.ictsdsymposium.org/.
  • 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 information.

http://www.felixpena.com.ar | info@felixpena.com.ar


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