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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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THE MULTILATERAL TRADING SYSTEM AT A CROSSROADS?
The Bali WTO Conference as an opportunity to correct the course

by Félix Peña
March 2013

English translation: Isabel Romero Carranza


 

For a firm with international operations, following closely the facts and trends related with the negotiation of preferential trade agreements is of practical importance. The main trends to monitor are related in particular with the debate on the effectiveness and efficiency of the multilateral trading system institutionalized by the WTO and by the rise in the global horizon of the mega preferential trade agreements of interregional scope.

The WTO has been unable to fulfill its goal of concluding the Doha Round. The Ministerial Conference to be held in Bali, Indonesia, next December is an opportunity to untangle the knots that block its agenda. Work is being carried out on this regard in Geneva and in the capitals of the main member countries, at least of those that due to their participation in the world trade of goods and services it would be logical to presume an interest in strengthening the multilateral trading system.

The mega interregional preferential trade agreements that are currently being negotiated -the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership plus eventually the Transatlantic Trade and Investment Partnership-, may be perceived as a reflection of the stagnation of the multilateral trade negotiations or as one of its causes.

In spite of the illusion that only economic factors mobilize the foreign trade strategies of countries, it is now clear that it is in the current redistribution of world power where we can track the factors that motivate the proliferation of interregional preferential agreements. However, if we consider the weakening of the WTO multilateral framework, the question arises whether if such proliferation will contribute to the global governance objectives or, on the contrary, if it will encourage a greater and unadvisable fragmentation of the international system.


For a firm that has international operations (either producing goods or providing services) resulting for example from its insertion in a transnational value chain, closely following the negotiations of preferential trade agreements is of practical importance. It is important due to the fact that in these negotiations, especially as they are the source of ground rules that impact trade and international investments, we often find the origin of factors that eventually produce favorable or unfavorable shifts of the competitive advantages that the corresponding company may have in the markets of the countries that sign a specific preferential trade agreement. All these agreements imply a certain degree of discrimination with regards to the non-participating countries, supposedly compatible with the multilateral rules of international trade.

It is of relevance as well because, in contemporary trade relations, the speed of the changes that are continuously taking place, for example due to shifts in the relative economic power of countries and the multiplicity of options for their international insertion, tends to dilute the borders between the short and long term. What sometimes seems far off on the horizon may, however, be immediately influencing the investment and localization decisions of the hubs in transnational value chains. The automotive sector, among many others, is a clear example of this. Thus, the distinction between today and tomorrow becomes more blurred. This means that a company that is somehow directly or indirectly involved in international competition and that aspires to grow, or even just to survive, must be aware of the events that are taking place now but that may be anticipating significant changes in the future conditions of its international operations, precisely because of the impact of new ground rules that may affect the access of its goods or services in markets that are of interest.

What was mentioned before applies to monitoring in the perspective of the competitive intelligence of a company or a particular sector, such as that of processed food or agricultural machinery, of the trends and events that reflect some of the major changes that are beginning to show in the institutional map of international trade relations. It is indeed a monitoring that requires increasing synergies between business, government and academic institutions. This is the case in countries that have companies with an active presence in international markets.

Such trends and facts relate in particular to the effectiveness and efficacy of the international multilateral trading system of the WTO and with the rise in the global horizon of mega preferential trade agreements of interregional scope.

The WTO is at a crossroads. It has failed to fulfill its objective of concluding the Doha Round. Few believe that this will be feasible, at least in the short term. A debate on its future has started. Some proposals involve profound changes in the multilateral trading system. The Ministerial Conference to be held in Bali, Indonesia, in December is an opportunity to untangle some of the knots that hinder its agenda. Work is being carried out on this regard in Geneva and in the capitals of the main member countries, at least in those that due to their participation in the world trade of goods and services it would be logical to presume an interest in strengthening the multilateral trading system. Let us remember that approximately thirty countries account for about 90% of the trade of goods and services on a global scale. The goal for the moment being would be to achieve results in three areas: trade facilitation, agricultural trade and some issues related with those countries of lesser relative development. The three imply achieving a balance of interests that sometimes are quite diverting (see ICTSD, Bridges Weekly Trade News Digest, vol. 17, number 7, 27 February 2013, at http://ictsd.org/).

The road to Bali seems long. But if we take into account the poor results of the previous Ministerial Conference (Geneva 2011) and the complexity of reaching agreements between its 159 member countries, with different relative powers and interests, it is not possible to be very optimistic if there are no clear indications of a political will to achieve the necessary agreements within a relatively short period of time. The fact that before the Bali Conference there will be a change of the Director General due to the conclusion of Pascal Lamy's mandate not necessarily contributes to an optimistic view of its results.

Meanwhile the mega interregional preferential trade agreements under negotiation (the Trans-Pacific Partnership-TPP and the Regional Comprehensive Economic Partnership-RECEP), plus the Transatlantic Trade and Investment Partnership-TATIP, which would have more economic and geopolitical relevance because it involves the US and the EU -about a third of world trade- could be perceived as a reflection of the stalled multilateral trade negotiations or as one of its causes. It is reasonable to ask what the future of the Doha Round would be -or to realistically rethink its objectives while preserving its holistic approach- if all the political weight of the US and the EU capsized to support its conclusion. Implicitly, it can be assumed this was present in Pradeep Metha's letter to President Obama, whose reference is included in the recommended reading section of this newsletter.

The fact is that such political clout is now concentrating on the negotiation of mega interregional preferential trade agreements. The TPP and the TATIP especially reflect similar goals and have for their drivers a strong geopolitical value, although once their negotiation is concluded they might reflect different methodologies and scope. These objectives consist of achieving, through preferential agreements, what at the moment seems unachievable in the multilateral framework. This would be something ambitious, comprehensive, flexible and of high quality, with WTO-plus reach. On the one hand, it would imply applying to the wealth of existing international commitments an extensive elimination of tariffs and other restrictions to the trade of goods, and also seeking a greater leveling of the playing field in terms of regulatory frameworks, for example related to technical standards or aimed at ensuring food quality -a current question in the minds of consumers and citizens after the episode of equine meat in Europe-. On the other hand, it would mean much more progress than would be feasible today in the multilateral framework, especially in services, investments, intellectual property and public procurement. These agreements would aspire to signal as well what should be, according to the view of those promoting them, the multilateral collective disciplines in a multipolar world in which trade and investments are channeled increasingly through transnational value chains of global reach.

They are negotiations with many tangles that need to be unraveled, some of them very sensitive. The agricultural issue is one of them, at least in the transatlantic space. This is clearly implied by Senator Max Baucus, chairman of the Finance Committee of the US Senate (see the reference to his article in the Financial Times of March 4 in the recommended reading section of this newsletter). The protection of intellectual property is another of the issues, at least in the transpacific space (see our article referring to both initiatives in La Nación newspaper on Tuesday 6 February).

As Pascal Lamy declared in a masterly lecture on 29 January, in Delhi, "Geopolitics is back at the trade table". (http://wto.org/english/news_e/sppl_e/sppl264_e.htm). In the creation of the GATT the impetus came from the foreign policy of the great powers -especially the US - interested in stopping Soviet expansion. The Doha Round was launched in a post 9-11 traumatic climate. Despite the illusion that it is only economic factors that mobilize external business strategies, it is now clear that it is in the current redistribution of world power where we must trace the factors that drive the proliferation of interregional preferential agreements. But considering the weakening of the multilateral framework of the WTO, the big question that should be cleared is whether such proliferation will contribute or not to the objectives of global governance.

Richard Baldwin, a promoter of a profound shift in focus in the multilateral trading system, has clearly stated the need to go into what he calls a "WTO 2.0" (see the reference to one of his recent articles on the subject in the recommended reading section of this newsletter). He considers that the current WTO responds to a reality of world trade that is being overcome by the growing importance of transnational value chains in international investment and trade. In his opinion, such reality is precisely being considered by the mega interregional preferential trade agreements under negotiation. Hence, in his proposal the new WTO should be launched with the participation of a limited number of member countries, as he considers that only a few have meaningful participation in global value chains if commodities are excluded.

Beyond the questionable justification of some of professor Baldwin's arguments, who perhaps may not provide a deeper analysis into the reasons why his proposals may not be negotiated within the current WTO system if there existed sufficient political will in those countries with the most impact on international trade and investment, initiatives such as this are showing that what is being installed is a fundamental debate on the multilateral trading system that, due to its scope, transcends the economic and commercial and penetrates deep into the geopolitical. It is thus such a central debate for the agenda of global governance that has been dealt with, up until now, within the framework of the G20. An extreme weakening of the current WTO system or it's eventual "shrinking" could be contributing to a fragmentation of the international system. Today, this would not seem advisable.


Recommended Reading:


  • Abu-Ghazaleh, Talal, "WTO at the Crossroads. A Report on the Imperative of a WTO Reform Agenda", Member of the Panel of WTO Experts, Geneva, January 2013, en: http://wto.org/.
  • APEXBrasil, "Mercosur-European Union Dialogue", libro publicado por la Agencia de Promoción del Comercio e Inversiones del Brasil, Brasilia 2012, at http://www.apexbrasil.com.br/.
  • Baucus, Max, "The right transatlantic trade deal is a top priority for America", diario "Financial Times", Monday March 4, 2013, p.9.
  • Baldwin, Richard, "The WTO and global supply chains", East Asian Forum, February 24th 2013, en: http://www.eastasiaforum.org/.
  • Barbosa, Rubens, "O Brasil fora das cadeias produtivas globais", diario "O Estado de São Paulo", 26 February, 2013.
  • Bartesaghi, Ignacio, "Las Uniones Aduaneras: ¿Modelo de integración adecuado para los países de la región?", CEFIR-GIZ-Somos Mercosur, Documento de Trabajo 016, Montevideo, 2013.
  • Berggruen, Nicolás; Gardels, Nathan, "Gobernanza inteligente para el siglo XXI. Una vía intermedia entre Occidente y Oriente", Taurus, Buenos Aires 2013.
  • Bonilla, Adrián; Ortiz, María Salvadora (compiladores), "De Madrid a Santiago: Retos y Oportunidades. Balances y Perspectivas de las Relaciones entre la Unión Europea y América Latina y el Caribe", FLACSO - SEGIB - AECID, San José 2012, at http://nuevo.flacso.org/.
  • De Blij, Harm, "The Power of Place. Geography, Destiny, and Globalization's Rough Landscape", Oxford - New York 2009.
  • Dee, Philippa, "What can the G20 do about the WTO?", East Asian Forum, February 24th 2013, at http://www.eastasiaforum.org/.
  • Desiderá Neto, Walter Antonio; Alves Teixeira, Rodrigo (organizadores), "Perspectivas para la Integración de América Latina", libro electrónico CAF - IPEA, Brasilia 2012, at http://www.ipea.gov.br/.
  • Drysdale, Peter, "What's new in world trade policies?", East Asian Forum, February 25th 2013, at http://www.eastasiaforum.org/.
  • European Union Commission, "Trade and Investment Barriers Report", Brussels 28-02-2013, at http://trade.ec.europa.eu/.
  • Flôres, Renato G. Jr, "In Search of a Feasible EU-Mercosur Free Trade Agreement", CEPS Working Document N° 378, Brussels, February 2013, at http://www.ceps.eu/.
  • Furnari, Pablo; Carrera, Alejandro, "Primera Exportación", Temas Grupo Editorial - IAE Press, Buenos Aires 2012.
  • Gratius, Susanne; Gomes Saraiva, Miriam, "Continental Regionalism: Brazil's prominent role in the Americas", CEPS Working Document N° 374, Brussels, February 2013, at http://www.ceps.be/.
  • Grueff, James (with contributions from Stefan Tangermann), "Achieving a Successful Outcome for Agriculture in the EU-U.S. Transatlantic Trade and Investment Partnership Agreement", International Food & Agricultural Trade Policy Council, Discussion Paper, Washington, February 2013, at http://www.agritrade.org/.
  • ICTSD, "Practical Considerations in Managing Trade Disputes", International Centre for Trade and Sustainable Development (ICTSD) Programme on International Trade Law, Information Note, December 2012, at http://ictsd.org/.
  • INAI, "Boletín del INAI", Fundación INAI, n° 124, Buenos Aires, 28 Febrero, 2013, at http://www.inai.org.ar/.
  • Lamy, Pascal, "A fire-side chat on the change in trade landscape", CUTS International and Global Development Network, New Delhi, January 30, 2013, at http://www.cuts-citee.org/.
  • Lamy, Pascal, "La nouvelle cartographie du commerce international", Discours du Directeur Général de la OMC prononcé à l'École Polytechnique Fédérale de Lausanne (EPFL), 26 February, 2013, at: http://wto.org/.
  • Mahbubani, Kishore, "The Great Convergence. Asia, the West, and the Logic of One World", Public Affairs, New York 2013.
  • Mejía, Leonardo, "Geopolítica de la integración subregional. El rol del Brasil", Editorial La Huella, Quito 2012, at http://www.ibce.org.bo/.
  • Messerlin, Patrick, "The Mercosur-EU Preferential Agreement. A View from Europe", CEPS Working Document N° 377, Brussels, February 2013, at http://www.ceps.eu/.
  • Mehta, Pradeep S., "Open Letter to the US President on the Doha Round", Letter of the Secretary General of CUTS International to the President of the United States, at https://groups.google.com/.
  • Moisé, Evdokia; Sorescu, Silvia, "Trade Facilitation Indicators. The Potential Impact of Trade Facilitation on Developing Countries Trade", OECD Trade Policy Papers N° 144, Paris 2013, at: http://www.oecd-ilibrary.org/.
  • Peterson Institute for International Economics, "Prospects for a US-European Trade Deal: Part I and Part II", Peterson Perspectives. Interviews on current issues. Interview with Jeffrey J. Schott, Washington, February 13-14, 2013, at http://www.iie.com/ and at: http://www.iie.com/.
  • Shambaugh, David, "China Goes Global. The Partial Power", Oxford University Press, Oxford - New York 2013.
  • Sing, Suresh P.; Dube, Memory, "BRICS and the World Order: A Beginner's Guide", SAIIA - Gegafrica, at http://cuts-international.org/.
  • UNCTAD, "Global Value Chains and Development. Investment and Value Added Trade in the Global Economy. A preliminary analysis" (Advance unedited version), UNCTAD/DIAE/2013/1, Geneva, February 27 2013, at http://unctad.org/.
  • USTR, "Fact Sheet: United States to negotiate Transatlantic Trade and Investment Partnership with the European Union", Washington, February 13th, 2013, at: http://www.ustr.gov/.
  • USTR, "TPP Negotiations Shift into Higher Gear at 16th Round", Washington 13th March 2013, at http://www.ustr.gov/.
  • Whyte, Philip, "Freeing the transatlantic economy - prospects, benefits and pitfalls", Centre for European Reform, London, 20 February 2013, http://www.cer.org.uk/.
  • Yuhua, Zhang; Bayhaqi, Akhmad, "SME's Participation in Global Production Chains", APEC Policy Support Unit, Issues Paper n° 3, Singapore, February 2013, at http://publications.apec.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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