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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009
MULTIPLE COMPLEMENTARY OPTIONS?
The redesign of institutions and ground rules that affect world trade.

by Félix Peña
May 2016

English translation: Isabel Romero Carranza


 

The concept of "free trade" is being challenged, at least as a central element of the identity of the agreements which countries develop to promote global trade. Rather than a formal instrument that, in accordance with the rules established by the GATT, enables to differentiate non-member countries, free trade agreements are often conceived as a reflection of a vision of trade policy that is opposed to protectionism or administered trade.

This is not a minor consideration when designing or redesigning trade and investment agreements, particularly those that include a large number of countries in different regions and especially when they involve Latin American countries. The sensitivities unleashed with the discussions that arose from the failed FTAA negotiations are still present and cannot be underestimated at a time of growing political and economic complexity, both in the world and in the region. This makes it advisable to exercise great caution in the use of concepts that can evoke emotional and ideological connotations from the past.

In the case of Argentina, as well as of its Mercosur partners, the main fronts of international trade negotiations have multiple complementary options. None of them are lacking in alternatives. The problem, however, may be the political and economic costs of each one. Reflecting on the options and their relative costs will henceforth be a priority of any exercise in strategic thinking on the international insertion of the country.

The first front is Mercosur's adaptation to the new global realities and those of its own member countries. The second is the convergence in diversity in the Latin American regional space. And the third is that of negotiations at global scale and with the large regional economic spaces.

In all three fronts Mercosur countries, as well as their Latin Americans partners, could promote new approaches with regards to the characteristics of the trade agreements that are negotiated. Three could be the effects of such agreements on trade and transnational investments involving companies from countries in the region: to favor job creation; to ensure fluidity and predictability in commercial transactions and investments, and to preserve a sufficient degree of flexibility in public policies and in trade agreements to help navigate complex economic conditions and uncertainties.


Currently, there is a tendency to design, through government negotiations, new institutional frameworks for the promotion of international trade and productive integration, as well as to redesign existing ones to adapt to the continuous changes in economic realities and policies.

Many of these frameworks are bilateral, involving countries from different regions. Some are regional in scope and have developed under various forms and with different intensities in recent decades. Such are the cases of Mercosur, the Pacific Alliance, the ASEAN and the EU. They usually have a clear political scope arising from the fact that the countries that form them share a geographical space. Others have an inter-regional scope and involve countries or blocs of countries, even few that are interconnected. This is the case of the Transpacific Partnership (TPP), which is the most recent example and not yet in force. Moreover, there is still no certainty about when it will be valid and which countries it will involve. (In this regard, see the April 2016 issue of this newsletter on http://www.felixpena.com.ar/). When concluded, it would also be the case of the transatlantic agreement between the US and the EU, and the EU with, among others, Mercosur and India. And still outstanding is the task of redesigning the global framework institutionalized in the WTO. The stalemate of the Doha Round and the partial progress made in the Ministerial Conferences of Bali (2013) and Nairobi (2015) are part of the picture that characterizes the current state of affairs of the multilateral global scenario.

Designing and negotiating new types of agreements and adapting those from another era, is not an easy task now and will not be any easier in the future. It is an endeavor where the logic of power, economy and even legality interact in a way that is sometimes difficult to perceive. Realizing this interaction is essential to understanding and operating on concrete realities.

And it is no easy task also due to the fact that often categories and concepts from an earlier historical moment, which started at the end of the Second World War, are used. These are, at least in some cases, being overcome by the profound changes seen in recent years, both in the distribution of world power and, especially, in the modalities of the international trade of goods and services and transnational investments. In this sense, we can verify that the reality of the expression "made in the world" as used by the WTO (https://www.wto.org/) turns obsolete the approaches, policies and instruments used in the past to encourage world trade and, at the same time, to consider the national interests of the different players.

The concept of "free trade" as the central element of the agreements that countries develop to promote world trade and to organize global economic competition is now being challenged. Its scope is clearer when it is used as a contrast to a customs union, which is the other instrument provided for in Article XXIV of GATT to legitimize exceptions to the principle of non-discrimination as stated in Article I, which establishes the treatment of the most-favored-nation. But in practice it is often used in a broader sense, almost equivalent to free trade.

Rather than as a formal instrument which, in accordance with the rules established by the GATT, allows to differentiate with regards to non-member countries, free trade agreements are usually presented as reflecting a view of trade policy opposed to protectionism or administered trade between nations. That is when they are ascribed a certain ideological connotation, even of the dogmatic type, with a flavor of the old. This may partly explain the growing ill-mood seen in the citizenships of many countries, even of the most industrialized ones, who tend to reject new agreements that evoke the notion of free trade and that are associated with the loss of jobs and the displacement of factors that create social welfare, including those having to do with the environment and cultural identity. Larry Summers and Danny Rodrik have recently referred to this mood in provocative articles that prompt reflection, (http://larrysummers.com/ and (https://www.project-syndicate.org/, respectively).

This is not a minor fact to consider when addressing the design or redesign of trade and investment agreements, in particular those including a large number of countries belonging to the same or eventually to different regions, especially when they involve the participation of Latin American countries. The sensitivities unleashed by the discussions that arose as a consequence of the failed FTAA negotiations are still present. They cannot be underestimated at a time of growing political and economic complexity, both in the world and in the region. This complexity could fuel emotional and ideological reflexes in international relations and therefore at the internal level of countries. In the past there have been many experiences in this regard, even in Latin America. It is thus advisable to exercise great caution in the use of concepts that can evoke emotional and ideological connotations from the past.

The situation is even more complicated when it is argued that there are set modalities of how to conceive a "free trade agreement". This rigidity often has a dogmatic origin which goes beyond what may be derived from paragraph 8 of Article XXIV of GATT. It is important to note that in the subject of the trade of goods this is, together with the "enabling clause", the main rule of international validity to be considered when assessing the compatibility of an agreement with the commitments made in the framework of the WTO. The history of Article XXIV helps us understand its implicit flexibilities and why it can be considered a good example of the so-called "constructive ambiguities" which characterize a text of the GATT of clear Anglo-Saxon origins. (In this respect, see the interesting article by Kerry Chase, "Multilateralism compromised: the mysterious origins of GATT article XXIV", World Trade Review, 2006, on http://people.brandeis.edu/).

In the case of Argentina, together with its Mercosur partners, the main fronts of international trade negotiations present multiple complementary options. Reflecting on these options and their relative costs will henceforth be a priority of any exercise in strategic thinking on the international insertion of the country. In a world that can be characterized as "multiplex" (Amitav Acharya, "The End of American World Order", Polity, Cambridge - Malden 2014), fully knowing the options and their respective relative costs becomes mandatory when developing a strategy for the international trade integration of the country that includes negotiations with other countries or economic blocs.

A first front is the necessary adaptation of Mercosur to the new global realities and those of its own member countries, in some cases in full and complex evolution. The idea is not to fall again into the "relaunching syndrome" which has manifested with some frequency, almost always coincidentally with government changes in some of the partners with the largest economic dimension. It may be more practical, effective and thus advisable to practice the art of metamorphosis (Edgar Morin, "Elogio de la metamorfosis", newspaper "El País", 17 January 2010, on http://elpais.com/) This means to make gradual changes that help capitalize on previous experiences -and the results achieved- and introduce any changes that may be considered necessary.

This is even more advisable when an integration process between countries is facing more than an existential crisis, a methodological one on how to develop the joint work of the nations involved. And today that seems to be the case of Mercosur. This accounts for the fact that no member country has raised, at least openly, the idea of withdrawing from the political, economic and legal pact that binds its partners together. It is like recognizing that none of the partners has a real contingency plan.

A conceivable alternative plan such as transforming Mercosur into a free trade zone, abrogating the common external tariff (CET) -for legal reasons the elimination of Decision 32 / 00 would not suffice-,would have substantial economic and political costs, especially in the trade of manufactures. This would involve amending the Treaty of Asuncion. It is for each country to determine whether it would be convenient to face such costs. It should be noted that the elimination of the common external tariff or its downright violation could have a potential negative effect on the commitment to ensure free trade among the partners as a result of the provisions of Article 2 of the Treaty of Asuncion. (On the 25 years of Mercosur and on some priority issues to be considered for its adaptation to a new stage, refer to the March 2016 issue of this newsletter on http://www.felixpena.com.ar/).

A second front is that of convergence in diversity in the Latin American regional space. It was the strategy proposed by the government of President Michelle Bachelet and it was discussed at a meeting with the participation of the Ministers of Foreign Affairs and Foreign Trade of the countries of the Mercosur and the Pacific Alliance, that took place in the Palacio de la Moneda, in Santiago de Chile, on November 24, 2014. In that opportunity, it was made clear that there was no need for an integration agreement between the two schemes, but that it was necessary to draw up roadmaps leading to the establishment of multiple communicating vessels between the processes of productive transformation and international integration of the countries in both blocs, but not necessarily all of them. At that time the ECLAC proposed very concrete ideas that still remain valid. And it was acknowledged that the 1980 Montevideo Treaty which created the ALADI, provides adequate, although underused, institutional frameworks and tools -among others, the various types of partial scope agreements- to carry out the strategy suggested and shared by the countries of the region. (In this regard, see the December 2014 issue of this newsletter, which includes information about the background of the abovementioned meeting and the reference to the document prepared by the ECLAC, on http://www.felixpena.com.ar/).

A third front is that of negotiations at global scale and with large regional spaces. In this regard, it should be noted that the exchange of negotiating offers between the EU and the Mercosur took place on May 11 in Brussels. The negotiating process that will seek to bring the positions of both parties closer will now begin. It is a stage that will demand creativity and technical knowledge and that will require that the main participating countries on both sides of the Atlantic maintain a strong political momentum.

It is possible to foresee that during the second half of the year the countries which currently form the Mercosur customs union -which are the founding partners- also advance initiatives to expand the negotiating agenda with other major economic spaces such as China, Japan and India, in Asia, and the United States and Canada, in North America. If such initiatives were promoted, they would need to relate to the abovementioned convergence strategy with the countries of the Pacific Alliance and with the broader space of Central America and the Caribbean, including most certainly Cuba. The fact that Cuba is a member of the ALADI may even make the role of this regional organization more significant in the development of a more ambitious strategy for Latin American integration in global international trade.

In all three fronts, the Mercosur countries, as well as their Latin Americans partners, should assertively promote new approaches with respect to the characteristics of the trade agreements that are negotiated. Perhaps it should be best to call them "strategic agreements for the promotion of trade and investment". They could not be limited to the tariff aspect. They should cover all issues affecting productive investment decisions aimed at transnational trade. Three could be the effects of such agreements on trade and transnational investments involving companies from countries of the region: to favor the creation of stable jobs; to ensure fluidity and predictability in commercial transactions and investments, and to preserve a sufficient degree of flexibility in trade policies that allows to navigate complex economic conditions and great uncertainties, for example, using different types of safety valves with impartial custodians.

All this will imply, incidentally, breaking free from concepts and paradigms that come from a world that is rapidly being replaced by a new reality.


Recommended Reading:


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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 information.

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


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