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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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INNOVATIONS IN THE MULTILATERAL TRADE RULES
Their adaptation to the challenging transition to a new global economic order

by Félix Peña
November 2012

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 1820.

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 link http://www.felixpena.com.ar/). Therefore, the idea of a metamorphosis, understood in the sense proposed by Edgar Morin in his famous article entitled "In Praise of Metamorphosis" (http://www.laissemoitedire.com/pages/quand-edgar-morin-fait-l-eloge-de-la-metamorphose--2371606.html) 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 report).

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" economies.

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 rate fluctuations.

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.


Recommended Reading:


  • Bartesaghi, Ignacio; Mangana, Susana, "Las Relaciones Comerciales entre Uruguay y China", Departamento de Negocios Internacionales e Integración, Facultad de Ciencias Empresariales, Universidad Católica del Uruguay, Informe Semestral, Montevideo, Enero - Junio 2012, Año 1 - N° 1, Montevideo, 10 de setiembre de 2012, en: http://espectadornegocios.com/.
  • Blij, Harm de, "Why Geography Matters. More than ever", Oxford University Press, Oxford - New York 2012.
  • Cienfuegos Mateo, Manuel; Mellado, Noemí Beatriz (directores), Los cambios en la infraestructura regional y sus impactos ambientales en clave de mejorar la gobernabilidad del Mercosur", Lerner Editora SRL, Córdoba 2011.
  • Cienfuegos Mateo, Manuel; Nerys, Wilson; Mellado, Noemí (editores), "Desafíos del desarrollo de la infraestructura regional para el medio ambiente, la cohesión social y la gobernabilidad del Mercosur", Taller de Comunicación (Uruguay), Montevideo 2012.
  • Farole, Thomas, "Competitiveness and Connectivity: Integrating Lagging Regions in Global Markets", The World Bank, Economic Premise, Washington, October 2012 - Number 93, en: http://siteresources.worldbank.org/.
  • Frijters, Paul, "The rise of China: realpolitik", East Asia Forum, November 10th 2012, en: http://www.eastasiaforum.org/.
  • Gagnon, Joseph E., "Combating Widespread Currency Manipulation", Peterson Institute for International Economics, Policy Brief, Number PB12 - 19, Washington, July 2012, en: http://www.iie.com/.
  • Go, Julian, "Patterns of Empire. The British and American Empires, 1688 to the Present", Cambridge University Press, Cambridge - New York 2011.
  • Hurtado, Carlos, "The Euro Experience and Lessons for Latin America", The World Bank, Economic Premise, Washington, October 2012 - Number 92, en: http://siteresources.worldbank.org/.
  • Jonquieres, Guy de, "The multilateralism conundrum: international economic relations in the post-hegemonic era", ECIPE - GMF, Transatlantic Task Force on Trade, Working Paper, Brussels 2012, en: http://www.ecipe.org/.
  • Lawrence, Robert Z., "How Can Trade Policy Help America Compete?", Peterson Institute for International Economics, Policy Brief, Number PB12 - 21, Washington, October 2012, en: http://www.iie.com/.
  • López, Andrés; Rozemberg, Ricardo (coordinadores), "Los desafíos de la integración y los bienes públicos regionales: cooperación macroeconómica y productiva en el Mercosur", Red Mercosur, 21, Montevideo 2011.
  • Maalouf, Amin, "Los desorientados", Novela, Alianza Editorial, Madrid 2012.
  • Mann, Thomas, "Confesiones del estafador Félix Krull", Novela, Pocket - Edhasa, Barcelona - Buenos Aires, 2012.
  • MacIntyre, Andrew, "Responding to Asia's rise", East Asia Forum, October 28 2012, en: http://www.eastasiaforum.org/.
  • Márkaris, Petros, "La espada de Damocles. La crisis en Grecia y el destino de Europa", Ensayo - Tusquets Editores, Buenos Aires 2012.
  • Márkaris, Petros, "Liquidación Final", Novela - Tusquets Editores, Barcelona, noviembre 2012.
  • Negro, Sandra (coordinadora), "Lecturas sobre Integración Regional y Comercio Internacional. Homenaje a Susana Czar de Zalduendo", Facultad de Derecho de la UBA - Editorial La Ley, Buenos Aires 2012.
  • Noland, Marcus; Park, Donghyun; Estrada, Gemma B., "Developing the Services Sector as Engine of Growth for Asia: An Overview", Peterson Institute for International Economics, Working Paper Series, WP 12-18, Washington, October 2012, en: http://www.iie.com/.
  • OECD, "Looking to 2060: Long-term global growths prospects. A going for growth report", OECD Economic Policy Papers, No. 03, Paris, November 2012.d
  • Palma, Hugo (editor), "El Perú en el Escenario Mundial. Hacia la segunda década del siglo XXI", CEPEI-CAF-Universidad del Pacífico, Simposio Internacional 2010, Centro Peruano de Estudios Internacionales asociado con la Universidad del Pacífico, Lima 2011.
  • Peña, Félix, "A Transiçâo para uma Nova Etapa", en revista Interesse Nacional, Ano 5 - Número 19 - Sâo Paulo - Outubro - Dezembro de 2012, ps.52 a 59, en: http://interessenacional.uol.com.br/.
  • Peña, Félix, "La agenda de negociaciones comerciales que son de interés para el comercio exterior", Revista Megatrade, Año XXI Nro. 235, Octubre 2012, p. 51 y ss., en: http://www.revistamegatrade.com.ar/ultimo.html.
  • Rey, Jean Daniel, "Antidumping Regional Regimes and the Multilateral Trading System: do regional antidumping regimes make a difference?, World Trade Organization, Economic Research and Statistic Division, Staff Working Paper, ERSD -2012-22, Geneva, 31 October 2012, en: http://www.wto.org/.
  • Santa Gadea, Rosario (editora), "Integración Física Sudamericana. Diez años después: impacto e implementación en el Perú", CEPEI-BID-Universidad del Pacífico, Lima 2012.
  • SELA, "Mecanismos y modalidades para fomentar el comercio entre los países de América del Sur", Sistema Económico Latinoamericano, XXXVIII Reunión Ordinaria del Consejo Latinoamericano, Caracas, Venezuela, 17 al 19 de octubre de 2012, SP/CL/XXXVIII. O/Di Nº 14-12 http://www.sela.org/.
  • SELA, "La crisis en la Zona Euro, su impacto en el proceso de integración europeo y en las relaciones birregionales entre América Latina y el Caribe y la Unión Europea. Líneas de acción desde la perspectiva latinoamericana y caribeña", Sistema Económico Latinoamericano, XXXVIII Reunión Ordinaria del Consejo Latinoamericano, Caracas, Venezuela, 17 al 19 de octubre de 2012, SP/CL/XXXVIII. O/Di Nº 21-12, en: http://www.sela.org/.
  • SELA, "Situación y desafíos de la actual arquitectura institucional de la integración en América Latina y el Caribe", Sistema Económico Latinoamericano, XXXVIII Reunión Ordinaria del Consejo Latinoamericano, Caracas, Venezuela, 17 al 19 de octubre de 2012, SP/CL/XXXVIII. O/Di Nº 27-12, en: http://www.sela.org/.
  • Sennes, Ricardo, "Brasil, Paraguai e as Questôes Regionais", en revista Interesse Nacional, Ano 5 - Número 19 - Sâo Paulo - Outubro - Dezembro de 2012, ps.61 a 70, en: http://interessenacional.uol.com.br/.
  • UNCTAD, "Technology and Innovation Report 2012. Innovation, Technology and South-South Collaboration", UNCTAD, Geneva 2012, en: http://unctad.org/en/PublicationsLibrary/tir2012_en.pdf.
  • Winters, Jeffrey A, "Oligarchy", Cambridge University Press, Cambridge - New York 2011.
  • WTO - OMC, "Report on G-20 Trade Measures (Mid-May 2012 to Mid-October 2012), WTO-OMC, Geneva, 31 October 2012, en: http://www.wto.org/english/news_e/news12_e/igo_31oct12_e.htm.

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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