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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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FRAGMENTATION IN TRADE NEGOTIATIONS:
Mega interregional agreements and their potential impact on global governance

by Félix Peña
March 2014

English translation: Isabel Romero Carranza


 

The negotiations of mega interregional agreements now have a central place on the agenda of international trade relations. These are negotiations that are inserted in a framework of strong uncertainties regarding their future evolution. They can have the potential to fragment the international trading system and affect its governance.

The fact that the WTO Conference in Bali did not restore the expectations of a global multilateral negotiation that can be concluded within a reasonable time frame would seem to be an incentive to move forward through mega interregional agreements. However, it is possible to argue that the time that these partial scope negotiations would demand would weaken the political and technical effort that would be needed to untie some of the major knots that hinder global multilateral trade negotiations.

The problem would not arise from the interregional mega agreements themselves but from the fact that they could be realized without having restored the strength and efficacy of the global multilateral system. The main reason for this is that all the mega agreements that are being negotiated-and many others that have been concluded or with ongoing negotiations, such as those between the EU and India and also with Mercosur- are of a preferential nature. This means that they include commitments that generate benefits only for the participating countries and are therefore discriminatory towards non-participating countries. Consequently, they have a significant potential to fragment the international trading system. It is here precisely where we could find the potential for negative effects of a network of mega preferential trade agreements inserted in a weakened global multilateral trade system. It would mean introducing a debilitating factor in the conditions for global governance.

In this perspective the idea of promoting the convergence of the global multilateral and preferential agreements, whether regional or interregional, within common frameworks becomes ever so important. It is an idea that maybe central so that the many agreements being negotiated help to achieve the necessary goal of reaching reasonable guidelines for global and regional governance. It implies reconciling the approaches of partial scope with a joint vision that is essential for promoting global trade in a context favorable for peace and political stability and, at the same time, for the economic and social development of all countries.


The negotiations of mega interregional agreements now have a central place on the agenda of international trade relations. They seem to have come into fashion and it is likely that this will continue to be so for a while. Despite the results of the WTO Ministerial Conference in Bali, the attention of those seeking to understand the future of international trade will continue to focus on what will eventually be, in a still uncertain time frame, the agreements that result from two major partial scope negotiations, due to the number of countries involved: the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP).

These negotiations are inserted within a context of strong uncertainties regarding their future evolution which have been made evident recently in both the TPP and the TTIP. These uncertainties are related to the resistance that has been shown by some of the main protagonists, particularly the United States and some countries of the European Union. However, they are also related to the broader uncertainties that exist in relation to the evolution of the global international system and some of its main regions. The trends towards fragmentation and confrontation seem, at times, to prevail over those of cooperation and convergence. The long history offers a glimpse of what can result from such trends.

Currently, there are other international trade negotiations under way. However, the two we have mentioned draw more attention perhaps because they encompass the US and the EU, on the one hand, and the US and a group of still undefined countries of the Pacific Rim, on the other hand. If added together, these countries still represent a significant share of world product and trade. Moreover, those who promote them seem to expect that the contents of the agreements that are reached set the standards for the ground rules of world trade in the future. This means that they are pursuing goals that include, but at the same time transcend, the scope of trade promotion.

The fact that the Bali Conference did not restore the expectations of a global multilateral negotiation that can be concluded within a reasonable time frame -through the current Doha Round or some of the variations that have arisen within the framework of the WTO- would seem to be an incentive to move forward through mega interregional agreements. However, it is possible to argue that the time that these partial scope negotiations would demand would weaken the political and technical effort that would be needed to untie some of the major tangles that hinder global multilateral trade negotiations.

At the same time, what can be seen quite clearly is that these major hindrances are similar in all fronts, either the global multilateral or the interregional. They have to do, among other things and not always with the same overtones, with the sensitive aspects of the trade of agricultural products; with key industrial sectors such as the automotive, information technology and capital goods; with the different regulatory frameworks; with government procurement; with intellectual property and with the treatment of investments and the settlement of disputes that these may originate between investors and host countries.

There may be two interpretations as to the motives that lead countries that are relevant protagonists in world trade and investment -who not only have been so for many years but who have played the role of rule-makers in the creation of GATT and later of the WTO- to favor now, in practice though not always in theory, the sphere of interregional agreements above the global multilateral.

The first interpretation places the emphasis on the fact that within a small group of countries -and much more so if they can be considered as like-minded- it is more probable to reach agreements that go beyond the currently existing commitments within the framework of the WTO (i.e.: what is often referred to as commitments "WTO plus" or "WTO 2.0"). Such commitments could then be extended to those interested in joining. According to those that promote them, this would be an easier way to attain what today is seen as unfeasible within the scope of the stalled Doha Round.

The second interpretation attaches greater weight to geopolitics. This is closely linked to what Pascal Lamy noted by stating that "geopolitics is back at the table of international trade negotiations." It is an interpretation which attributes the momentum of the negotiations of mega interregional agreements to political reasons related to the need to counterbalance the growing importance of economies called "emerging", not only in world trade but also in the competition for world power. According to some analysts the weight of geopolitics would be more visible in the TPP negotiations, especially if they conclude without having incorporated China.

One version of this second interpretation sees the negotiation of such agreements as a practical method to generate rules for international trade and investment which could not be achieved at the global multilateral level and that, due to the economic weight of the participating countries, could not be rejected afterwards by other countries. These would have no choice but to join the WTO plus agreements that are concluded. Sometimes China, Russia, India and Brazil are referred to as "the others" (without overlooking those developing economies that have a strong potential for international trade and investment, among which are, no doubt, Argentina and many of the members of the G77). If this were the case, it would be clear that the strategy of promoting mega trade agreements with a group of countries of relevant economic dimension and longstanding tradition as central protagonists of the international system has a fundamentally political purpose and content. Some might argue, quite rightly, that this could be viewed as an attempt to reframe what Bertrand Badie called the "diplomacy of collusion" at the level of trade and investments but with a significant impact on competition for world power.

Actually, the problem would not derive from the mega interregional agreements themselves but from the fact that they could be realized without having restored the strength and efficacy of the global multilateral system. The main reason for this is that all the mega trade agreements being negotiated -and many others that have been concluded or with ongoing negotiations, such as those between the EU and India and also with Mercosur- are of a preferential nature. This means that they include commitments that generate benefits only for the participating countries and are therefore discriminatory towards non-participating countries. Consequently, they have a significant potential to fragment the international trading system.

And it is here precisely where lies the potential for negative effects of a network of mega preferential trade agreements inserted in a weakened global multilateral system. It would mean introducing a possibly debilitating factor in the conditions for global governance. It could involve accentuating the tendency to fragment the international system at a time when geopolitical tensions in various regions of the world -the recent events in Crimea are just one example- remind us of a scenario of similar characteristics to those that led to the catastrophe of 1914 (in this regard refer to the book by Christopher Clark, recently translated into Spanish and listed in the Recommended Reading Section of this Newsletter and that by Margaret MacMillan included in the same section of our Newsletter of last February).

In this perspective, the idea of promoting the convergence of the global multilateral and preferential agreements becomes ever so important. This was one of the main recommendations of the report produced by a panel of experts convened by the WTO and which perhaps has not received the attention it deserved (see the full text of the report "The Future of Trade: The Challenges of Convergence", Geneva, 24 April, 2013 on http://www.wto.org/).

Precisely, the idea of convergence in diversity is one of the main contributions of the Latin American strategy that will guide the new government of Chile (see the article by Chancellor Heraldo Muñoz in El País of Madrid from March 13, on http://elpais.com/). While it refers specifically to the necessary articulation between Mercosur -especially if the methodological renewal is achieved- and the Pacific Alliance -especially if its incipient commitments are fulfilled-, its approach focuses on the idea of differentiated commitments and speeds that, if inserted in common institutional and regulatory frameworks such as LAIA at the regional Latin American level or a renewed and strengthened WTO at the global multilateral level, would neutralize the systemic fragmentation trends observed today.

It is an idea that may be central so that the agreements that are being negotiated contribute to the goal of achieving reasonable guidelines for regional and global governance. It involves reconciling the partial scope approaches with a joint vision that is essential for promoting world trade in a favorable context for peace and political stability and, at the same time, for the economic and social development of all countries.

Showing that this is possible might be a worthy goal to feed the agenda of cooperation between Latin American countries. Its effects would then transcend the regional scope. It will require, though, a good dose of perseverance, technical imagination and political will.



Recommended Reading:


  • Baldwin, Richard; Kawai, Masahiro; Wignaraja, Ganeshan, "The Future of the World Trading System: Asian Perspectives", ADBI Institute - CEPR, VoxEU Org. e-Book, Tokyo, June 2013, on http://www.adbi.org/.
  • Barroso, Antonio, "Prospectiva y planificación estratégica en la acción exterior española", Real Instituto Elcano, Estrategia Exterior Española, N° 4, Madrid, Febrero 2014, on http://www.realinstitutoelcano.org/.
  • Blanchard, Emily J., "What Global Fragmentation Means for the WTO: Article XXIV, Behind-the-Border Concessions, and a New Case for WTO Limits on Investment Incentives", WTO Economic Research and Statistic Division, WTO Working Paper ERSD-2014-03, Geneva, February 5, 2014, on http://wto.org/.
  • Canning Papers, "Mercosur vs. the Pacific Alliance", Canning House, published by LatinNews, London, February 2014.
  • Clark, Cristopher, "The Sleepwalkers. How Europe Went to War in 2014", Harper, New York 2013.
  • Clark, Cristopher, "Sonámbulos. Cómo Europa fue a la guerra en 1914", Galaxia Gutenberg, Barcelon 2014).
  • Kawai, Masahiro; Wignaraja, Ganeshan, "Patterns of Free Trade Areas in Asia", East-West Center, Policy Studies 65, Honolulu 2013, on http://www.eastwestcenter.org/.
  • Easton, Laird M., "Journey to the Abyss. The Diaries of Count Harry Kessler, 1880-1818", Vintage Books, New York 2013.
  • MacClanahan; Chandra, Alexander; Hattari, Ruben; Vis-Dunbar, Damon, "Taking Advantage of ASEAN'S Free Trade Agreements. A Guide for Small and Medium-Sized Enterprises", ASEAN BBAC-Foreign & Commonwealth Office-IISD, January 2014, on http://www.realinstitutoelcano.org/.
  • Medalla, Erlinda, "Taking Stock of the ROOs in the ASEAN+1 FTAs: Toward Deepening East Asian Integration", Philippine Institute for Development Studies, Discussion Paper Series N° 2011-36, Makati City, December 2011, on http://dirp4.pids.gov.ph/.
  • Montobbio, Manuel, "Planificación y gestión por objetivos de la política exterior española", Real Instituto Elcano, Estrategia Exterior Española, N° 7, Madrid, February 2014, on http://www.realinstitutoelcano.org/.
  • Muñoz, Heraldo, "Convergencia en la diversidad: La nueva política latinoamericana de Chile", article published in El País, Madrid, Tursday 13 March, 2014, on http://elpais.com/.
  • Naray, Olivier, "Commercial Diplomacy: A Conceptual Overview", 7th World Conference of TPO's - The Hague, Netherlands, 2008, on http://www.intracen.org/.
  • OSCE, "The integration of formerly deported people of Crimea, Ukraine. Needs assesment", OSCE High Commissioner on National Minorities, The Hague 2013, on http://www.osce.org/.
  • Real Instituto Elcano, "Hacia una renovación estratégica de la política exterior española", Coordinador Ignacio Molina, Informe 15, Madrid, February 2014, on http://www.realinstitutoelcano.org/.
  • Ruel, Huub; Zuidema, Lennart, "The Effectiveness of Commercial Diplomacy. A Survey Among Dutch Embassies and Consulates", Netherlands Institute of International Relations "Clingendael", Discussion Papers in Diplomacy, N° 123, The Hague, March 2012, on http://www.clingendael.nl/.
  • Steinberg, Federico, "La economía en la estrategia de acción exterior española", Real Instituto Elcano, Estrategia Exterior Española, N° 5, Madrid, Febrero 2014, on: http://www.realinstitutoelcano.org/.
  • Tovar, Juan, "España como potencia media con presencia global", Real Instituto Elcano, Estrategia Exterior Española, N° 3, Madrid, Febrero 2014, on http://www.realinstitutoelcano.org/.
  • Thuchman, Barbara W., "The Guns of August", Ballantine Books, New York, 1994.
  • Thuchman, Barbara W., "The Zimmerman Telegram", Ballantine Books, New York, 1994.
  • Urata, Shujiro, "Constructing and Multilateralizing the Regional Comprehensive Economic Partnership: An Asian Perspective", Asian Development Bank Institute. ADBI Working Paper Series, N° 449, Tokyo, December 2013, on http://www.adbi.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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