| INNOVATIONS IN THE MULTILATERAL TRADE RULES
Their adaptation to the challenging transition to a new global economic
by Félix Peña
English translation: Isabel Romero Carranza
The adaptation of the multilateral trade system to
the deep transformations of world power distribution and global economic
competition constitutes one of the major challenges of the international
agenda for the upcoming years. This adaptation seems all the more necessary
if we consider the current perception of many countries that, in great
measure, the existing rules and institutions reflect a reality in the
distribution of word power that is being rapidly surpassed.
Unlike the world in which the multilateral trade system
was born, first institutionalized in the GATT and later in the WTO, where
only few countries had the sufficient power to adopt decisions and create
rules that penetrated reality, the current one is much more diverse, complex
and dynamic. However, it seems difficult to imagine that in the short
term - or even in the mid term- it would be feasible to agree on re-founding
schemes that entail an in-depth revision of the WTO system, assuming that
this were eventually necessary. The difficulty to gather the sufficient
critical mass of world power required to create new institutions and ground
rules anticipates that the initiated transition will last some time before
a new stage of international order can begin.
A recent report by the OECD highlights the effects
of one of the factors behind the erosion of a system that originated in
the international realities resulting from the last World War. We are
referring to the significant changes that are taking place at a global
scale in the relative dimension of the different national economies. In
2011, China and India represented 24% of the world GDP measured in Purchasing
Power Parity. Projections for 2030 indicate that both countries will add
up to 39% of the world GDP and that by 2060 such participation would reach
46%. This means that they will have roughly a 50% share in world GDP,
the degree of participation that they had had for centuries until about
Managing the effects on the world trading system that
may result from the complex transition to the future international economic
order is one of the challenges to be faced immediately. Among the relevant
issues that have an impact on the systemic deterioration that can be observed
there are two that deserve special attention. They refer to how WTO member
countries can address trade emergency measures that imply greater flexibility
than what is tolerated by the current rules and how to strengthen collective
disciplines on preferential trade agreements.
There seems to be a certain consensus on the gradual erosion of the
multilateral trading system institutionalized by the World Trade Organization
(WTO) that could be the result, on the one hand, of the cumulative effects
of the standstill of the Doha Round and, on the other, of new initiatives
that would lead to accentuate the proliferation of preferential trade
agreements -such as the Transpacific Partnership (TPP)- and a Transatlantic
Association that would partner the European Union (EU) and the United
States in a free trade area. (See on this respect the speech by the Trade
Commissioner of the EU, Karel de Gucht, in Dublin on November 9 on http://trade.ec.europa.eu/)-.
Due to the fragmentation effects on the institutional framework of world
trade said erosion may not only affect the transnational flows of goods,
services and productive investments but may have geopolitical connotations
as well. The debate surrounding the eventual geopolitical dimension of
the so-called TPP is a proof of this. If this were the case, it could
also affect the already compromised global governance in terms of the
prevalence of the conditions for peace and stability in the world and
in the different regions.
This is the reason why the adaptation of the multilateral trading system
to the profound transformations that are currently taking place in world
power and in global economic competition is regarded as one of the main
challenges for the international agenda of the upcoming years.
This adaptation is even more necessary if we consider the perception
that many countries have -especially the emerging or re-emerging protagonists,
depending on the historical perspective applied- that, in great measure,
the existing institutions and rules reflect a reality of world power that
is being rapidly overcome.
Unlike the world in which the multilateral trade system was born, institutionalized
first in the GATT and later in the WTO, where few countries had the sufficient
power to adopt decisions and generate rules that penetrated reality, the
present one is much more diverse, complex and dynamic. It is a world of
many clubs. However, there is not a dominant club such as the "oligarchic
condominium" referred to by some analysts in the sixties and seventies
during last century.
In the context of the WTO, Pascal Lamy, the current Director-General,
has commissioned a group of high ranking experts to develop ideas and
proposals to meet the challenges of global trade in this century. (On
this regard, check the information on the WTO page referred to the panel
on defining the future of trade, on http://www.wto.org/).
Worthy initiatives may eventually emerge from this and similar exercises
carried out in multiple governmental and non-governmental ambits, including
those with a "multi-stakeholder" scope.
However, it seems difficult to imagine that in the short term - or even
in the mid term- it would be feasible to agree on re-founding schemes
that entail an in-depth revision of the WTO system, assuming that this
were eventually advisable. The difficulty of bringing together the sufficient
critical mass of world power that is needed to create new institutions
and ground rules would indicate that the initiated transition will require
a long time before we can enter a new stage in international world order.
(On this regard, refer to the May 2012 issue of this newsletter on the
Therefore, the idea of a metamorphosis, understood in the sense proposed
by Edgar Morin in his famous article entitled "In Praise of Metamorphosis"
would seem more advisable.
This would imply opening a debate on the revision of some of the mechanisms
and instruments of the current multilateral world trading system that,
if introduced, could help improve their effectiveness, efficiency and
social legitimacy. At the very least, this could help stop the current
trend of gradual deterioration of these three systemic qualities that
are essential for those institutions and rules meant to last.
A recent report by the OECD (see the reference in the recommended reading
section of this newsletter) highlights the effects of one of the factors
behind the erosion of a system that originated in the international realities
resulting from the last World War. We are referring to the significant
changes that are taking place at a global scale in the relative dimension
of the different national economies. According to this report that examines
the trends of world economic growth in the next fifty years, the GDP of
China and India together will soon surpass that of the G7 countries and,
towards the year 2060, it will exceed that of all the current OECD members
combined. In 2011 China and India accounted for 24% of the world GDP measured
in Purchasing Power Parity (PPP). The projection for 2030 indicates that
both countries will accumulate 39% of world GDP and that in 2060 this
share would reach 46% (refer to pages 22 and 23 and Table 10 of the abovementioned
It is interesting to note that at the time of the creation of the GATT,
developed countries accounted for around 60% of global GDP and that when
the G7 was born in the 70's, its member countries accounted for around
45% of global GDP. In 1950 China and India represented approximately 8%
of global GDP, a percentage that remained quite stable in the 70's. The
current OECD projection would mean that China and India would again have
the degree of participation in global GDP that they had had for centuries,
until about the year 1820, which is roughly 50%. (These last percentages
are derived from data included in Table A.6: Share of World GDP, 20 Countries
and Regional Totals, I-2003AD from the book by Angus Maddison, "Contours
of the World Economy, I-2030AD. Essays in Macro-Economic History",
Oxford University Press, Oxford - New York 2007, page 381). Hence, there
is a natural tendency to regard both countries as "re-emerging"
Managing the effects on the world trading system that may result from
the complex transition to the future international economic order is one
of the challenges to be faced immediately. More than re-foundational inclinations
it will require a great practicality to help resolve some of the weakest
points of the current system. In this regard, it would not seem advisable
to think of actions that meet ideological or theoretical approaches. A
sign of the times is precisely the speed at which many ideological and
theoretical concepts applied to trade relations are becoming obsolete.
Among the relevant issues that have an impact on the systemic deterioration
that was mentioned before, there are two that deserve special attention.
First is the issue of how WTO member countries can address trade emergency
measures through safety valves that imply greater flexibility than what
is tolerated by the present rules. Second, how to strengthen collective
disciplines on preferential trade agreements to prevent them from contributing
towards a greater fragmentation of the multilateral world trading system
and even to its fracture.
Dani Rodrik, among others, has made some suggestions on how to achieve
a more flexible system of safety valves that allows developing countries
to address, under certain conditions, situations of economic emergency
that compromise their development goals. (See his proposals in his book
"The Globalization Paradox", W.W.Norton and Company, New York
2011, particularly page 252 onwards). It would imply, among other measures,
reforming the existing provisions of the WTO agreement on safeguards so
that developing countries can face with greater flexibility those situations
of economic and trade emergency that may temporarily affect their ability
to navigate globalization, including those arising from eventual exchange
Given the potential of preferential trade agreements to fragment the
multilateral trade system, especially those that involve several countries
-even from different regions- or that include commitments that transcend
those made within the WTO, it would seem advisable to analyze new collective
disciplines. These should ensure effective transparency regarding any
preferential measures -that could be discriminatory for those countries
that are not members of a particular agreement- and a periodic independent
technical assessment of their effects on trade and investment flows originating
in third countries and on the cohesiveness of the multilateral system
of global trade.
These are suggested initiatives to be added to those issues being considered
in order to address the hypothesis of a prolonged stagnation of the Doha
Round, or even of its conclusion with less ambitious outcomes than those
that were imagined in a global context very different from today.
They could form part of an attractive agenda of adaptations of the world
trading system to the requirements of the transition to a new world economic
order. This agenda could also include, aside from those already mentioned,
other adaptations related with the facilitation of trade, the different
forms of plurilateral and/or sector agreements, and aid for trade.
In a first stage, it would be convenient for the possible derivations
of this agenda to be analyzed and debated in multidisciplinary and multi-stakeholder
forums. Only in a second stage, those ideas that were deemed most appropriate
and most likely to achieve the necessary consensus, would reach the sphere
of intergovernmental debate.
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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