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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009
THE COMPLEX AGENDA OF GLOBAL TRADE GOVERNANCE:
Opportunities for an active and assertive Latin American strategy?

by Félix Peña
October 2016

English translation: Isabel Romero Carranza


 

Seventy years after its founding the multilateral trading system is experiencing problems. For many protagonists and observers, it is losing effectiveness, efficiency and social legitimacy, which are essential attributes of institutional quality and, thus, for the strength of a system of international governance. Current trends are moving away from it as the main playing field of institutions and ground rules of world trade. One of such trends is the negotiation of mega-interregional preferential agreements, which aim to set new rules for global international trade. Will they aim to replace the current multilateral system?

The risks of fragmentation of the multilateral trading system are becoming apparent. Its implications for global governance may be illustrated by what happened in the 20s and 30s last century. The lack of a common framework for international trade relations is recognized as one of the factors that ultimately led to war. That experience later contributed to the momentum that the US gave to the process that ended with the creation of the GATT.

Hence the concern regarding the trend to negotiate mega-interregional trade agreements, conceived as part of a process leading to the formulation, by a small group of countries, of new ground rules for world trade.

Knowing which country or countries have sufficient capacity and power to lead the process of creating the rules that affect global economic competition and, therefore, world trade, is one of the basic questions that needs to be answered in order to achieve an international order that is sustainable. The gradual erosion that the institutions and rules of the multilateral world trading system have been suffering in recent years makes this question ever more current.

The agenda of the preparatory period of the WTO Ministerial Conference, to be held next year in Buenos Aires, should be regarded in this perspective, as should the next two G20 summits, the first to be held in Germany and the second in Argentina. These two countries will form part next year of the troika of the G20, alongside with China, which chaired the Summit in Hangzhou last September. These events will reflect a complex agenda of global trade governance. Latin American countries will have the opportunity to develop an assertive and active negotiating strategy within their sphere.


The September edition of this Newsletter ended with the following question: How to adapt the rules and institutions of the global trading system to the realities of trade and investment, on the one hand, and to the current distribution of world power, on the other hand? This will be a key item on the agenda of global governance in the coming years (http://www.felixpena.com.ar/).

We now return to the subject, remembering that the institutional framework and some of the main ground rules that shape the global multilateral trading system originated in a global environment that has experienced radical and profound changes in the last decades, both politically and economically. Moreover, this transformation is not over yet, nor has it produced all its effects.

The founding moments of such a system were those of the final and following years of World War II. They reflected a world in which the victors -especially the US-understood that they had sufficient power to set the rules of global order. They knew this and acted in consequence.

This was made evident in the Bretton Woods Conference (1944) and later in the Havana Conference (1947), from which the International Trade Organization emerged, eventually leading to the GATT (1948). These were the years when the power of the US to create rules would only be disputed from outside the system, then called "Western", by what was known as the "Eastern bloc", in which the unquestioned power was the Soviet Union.

The multilateral trading system arising in the post-war and "Cold War" context became institutionalized in the GATT. Originally, there were 23 contracting parties. Few belonged to the category of developing countries. In 1994, the system became institutionalized in the WTO. Today it has 164 member countries.

Seventy years after its founding, the multilateral trading system is experiencing problems, some of them serious. For many protagonists and observers, it is losing effectiveness, efficiency and even social legitimacy, which are essential attributes of institutional quality and, thus, for the strength of a system of international governance.

There are certain trends that would indicate its abandonment as the main sphere of institutions and ground rules of international trade. One of such trends is the negotiation of mega interregional trade agreements that, being conceived as "WTO plus", aspire to set new standards and rules for global international trade. This is the case of the Trans-Pacific Partnership, known by its acronym TPP (this agreement has been signed but has not yet entered into force and there are doubts about this happening within a reasonable time or in its current version).

Although the TPP is presented as an agreement between countries belonging to a regional geographical area -that of the Pacific Ocean-, the provisions of chapter 30, article 4, paragraph b, state that, if conditions are met, any other country in the world can become a member and submit its claim for approval of the member countries, in accordance with the legal procedures applicable in each case. The text states that the agreement is open to accession by "(b) any other State or separate customs territory as the Parties may agree, that is prepared to comply with the obligations in this Agreement, subject to such terms and conditions as may be agreed between the State or separate customs territory and the Parties, and following approval in accordance with the applicable legal procedures of each Party and acceding State or separate customs territory (accession candidate).". For the full text, refer to https://ustr.gov/).

The risks of fragmentation of the multilateral trading system are becoming apparent. Its potential implications for global governance evoke what happened in the 20s and 30s last century. The lack of a common framework for international trade relations is recognized as one of the factors that ultimately led to war.

It was precisely this experience that led the US to promote the process for the creation of the GATT. Preventing discrimination in international trade, at least in appearance, and therefore its fragmentation effects was one of the central ideas of the negotiating process that culminated in the Havana Conference. The idea was embodied in Article I of the GATT and in the resistance to "imperial preference" promoted by Great Britain through the Imperial Economic Conference of Ottawa (1932).

Knowing which country or countries have sufficient capacity and power to lead the process of creating rules that affect global economic competition and therefore world trade is one of the basic questions that need to be answered, if the aim is to attain an international order that is sustainable.

The gradual erosion that the institutions and rules of the multilateral world trade system have been experiencing in recent years make this question all the more current. It impinges on the geopolitical dimension of the increasingly complex agenda of global trade governance.

Hence the concern regarding the tendency to negotiate mega-interregional trade agreements, conceived as part of a process leading to the formulation of new global ground rules.

President Barak Obama has himself pointed out that, if the US does not set the rules for world trade, other countries will. On one opportunity, he specifically referred to China: "We have to make sure America writes the rules of the global economy. And we should do it today, while our economy is in the position of global strength. Because if we don't write the rules for trade around the world -guess what-China will. And they'll write those rules in a way that gives Chinese workers and Chinese businesses the upper hand, and locks American-made goods out" (For the remarks by President Obama on May 8, 2015 refer to the Office of the Press Secretary of the White House https://www.whitehouse.gov/).

The agenda of the ongoing preparatory period of the WTO Ministerial Conference, to be held next year in Latin America (Buenos Aires), should be regarded taking into account the perspective mentioned in the above paragraphs. This conference is the continuation of a series of ministerial meetings that took place in different developing countries and regions. The previous ones were held in Asia (Bali) and Africa (Nairobi).

Likewise, this perspective should also be considered during the preparatory period of the next two G20 summits, the first to be held in Germany, in 2017, and the second in Argentina, in 2018. Next year these two countries will form part of the troika of the G20, together with China, who chaired the Summit in Hangzhou last September.

In fact, the preparatory stage for the Buenos Aires WTO Ministerial Conference has already begun. It runs along at least three tracks. The first is that of the official preparation work within the WTO bodies. In this case, the epicenter is Geneva. The second is that of the preparation in each of the member countries, including the host. In this case, the epicenters are the respective capitals of the 164 member countries and, especially, of those who are most relevant in shaping decisions and rules. Finally, the third track is the one that runs outside of the official sphere. It typically develops in spaces of action-oriented thought, that is, of the multiple forms of think tanks and transnational networks in which these participate. (In this regard, see the December edition of this newsletter on http://www.felixpena.com.ar/).

The latter track provides an excellent opportunity for think tanks from Argentina, as host country, and from other Latin American countries -especially those of Mercosur and the Pacific Alliance, which together with Cuba have more WTO tradition before the GATT- to interact with think tanks from other regions and contribute to the design of a new era of global trade governance. Incidentally, this is not an official activity, but it can have a strong impact on the development of the official agenda of the Conference and its results. It proves an excellent opportunity for the region to try to have an active and assertive role in terms of the future development of the international multilateral trading system.

In this regard, the fact that it is being acknowledged that globalization and the multilateral system of international trade are at a turning point towards what will be a different stage from what has prevailed since the creation of the GATT, opens the way for a regional leadership, or at least of those Latin American countries interested in having a constructive influence.

Additionally, there is a certain fatigue or moodiness of the citizenships, particularly in Europe, but also in the US, regarding trade globalization and mega interregional agreements of the type of the Transnational Trade and Investment Partnership and even the TPP.

As Enrique V. Iglesias noted in his rich and stimulating presentation on the 20th Conference CAF-Latin American Development Bank, held in September in Washington DC last month, "societies are angry." They feel marginalized, do not understand and have no participation in international trade negotiations, from which often originate rules that affect their access to productive employment and other highly sensitive social issues. The moodiness of societies, together with a confusing economy and misguided international policies, are three factors that today have an impact on the complex international setting. (See the presentation by Enrique V. Iglesias on https://www.youtube.com/).

Perhaps, the fact that societies are angry should lead to place much emphasis, during the preparatory stage of the upcoming Buenos Aires Conference, on how to develop what could be called a "WTO of the people". Hence, the issue of transparency in international trade negotiations and in the WTO itself could be one of the main topics of the discussions that may develop during this preparatory phase.

There is also concern regarding the abovementioned trends toward the fragmentation of the international trading system due to the effect of the erosion of the WTO rules, as a possible result of the proliferation of mega-interregional preferential agreements.

Without overlooking other relevant issues, what to do about the Doha Round will be again a complex issue and should also be addressed in the discussions at the preparatory stage. Probably, what should be stressed is the need to preserve and strengthen the link between trade and development, being flexible as to how to approach such link in the future. Mechanisms of variable geometry and multiple speeds would seem advisable. Thinking of them, without dogmatic views of what the rules and institutions that are agreed upon should be like, would seem more than necessary in the discussions at the preparatory stage of the upcoming Buenos Aires Ministerial Conference.


Recommended Reading:


  • Arya, Nitin, "Mercosur. Common Market of the South. A Study on the Origins, Organizational Structure, Latest Developments and the Contemporary Trade Partners of Mercosur", SAPRU House Paper, Indian Council of World Affairs, New Delhi 02/2013, en: http://www.icwa.in/pdfs/SHP022013.pdf.
  • Badie, Bertrand, "El Tiempo de los Humillados. Una Patología de las Relaciones Internacionales", EDUNTREF, Buenos Aires 2016.
  • Beliz, Gustavo, "La creatividad es decisiva para aprovechar las oportunidades", Opinión en la Sección Economía del diario "La Nación", del domingo 9 de octubre de 2016, página 6, en: http://www.lanacion.com.ar/.
  • Brenton, Tony (ed.), "Historically Inevitable? Turning Points of the Russian Revolution", Profile Books, London 2016.
  • Brook, Timothy, "The Troubled Empire. China in the Yuan and Ming Dinasties", The Belknap Press of Harvard University Press, Cambridge - London 2010.
  • Brown, Kerry, "CEO, CHINA. The Rise of Xi Jingping", I.B.Tauris, London - New York, 2016.
  • Brunnermeier, Markus K; James, Harold; Landau, Jean-Pierre, "The Euro and the Battle of Ideas", Princeton University Press, Princeton NJ., 2016.
  • Closa, Carlos; Casini, Lorenzo, "Comparative Regional Integration. Governance and Legal Models", With a Study by Omri Sender on "International Secretariats in Comparative Perspective", Integration Through Law, Cambridge University Press, Cambridge UK., 2016.
  • Cuadros, Alex, "Brazillionaires. The Godfathers of Modern Brazil", Profile Books, London 2016.
  • Foreign Affairs, "Who Benefits From Trade?", Foreign Affairs Anthology Series, Septembre 2016, en: https://www.foreignaffairs.com/.
  • Gallagher, Kevin P., "The China Triangle. Latin America's China Boom and the Fate of the Washington Consensus", Oxford University Press, New York 2016.
  • Galli, Emiliano, "Los arietes para devolverle a la Argentina su lugar en el mundo", Suplemento Comercio Exterior del diario "La Nación", del martes 4 de octubre de 2016, página 2, en: http://www.lanacion.com.ar/.
  • Gourdon, Julien; Kowalski, Przemyslaw, "Participation in Global Value Chains in Latin America: Implications for Trade and Trade-Related Policy", OECD. Trade and Agriculture Directorate - Trade Committee: Working Party of the Trade Committee, TAD/TC/WP(2015)28/FINAL, Paris, 30-Sep-2016, en: http://www.oecd.org/.
  • ICTSD, "Trade Policies and Sustainable Development in the Context of Global Value Chains", ICTSD, Framework Paper, Geneva, Septembre 2016, en: http://www.ictsd.org/.
  • International Trade Centre, "50 years of unlocking. SME competitivness. Lessons for the Future", ITC, Geneva 2014, en: http://www.micci.com/.
  • Inama, Stefano; Sim, Edmund W., "Rules of Origin in ASEAN. A Way Forward", Integration Through Law, Cambridge University Press, Cambridge UK., 2015.
  • Kagan, Robert, "Of Paradise and Power. America and Europe in the New World Order", Vintage Books, New York 2004.
  • Kaplan, Robert D., "In Europe's Shadow. Two Cold Wars and a Thirty Year Journey Trough Romania and Beyond", Random House, New York 2016.
  • Keogh, Dermot, "La independencia de Irlanda: la conexión argentina", Ediciones Universidad del Salvador, Buenos Aires 2016.
  • Myers, Margaret; Wise, Carol (ed.) "The Political Economy of China-Latin America Relations in the New Millennium. Brave New World", Routledge, New York and London 2017.
  • Neufeld, Nora, "Implementing the Trade Facilitation Agreement: From Vision to Reality", WTO, Economic and Research Division, Working Paper ERSD-2016-14, Geneva, 29 September 2016, en: https://www.wto.org/.
  • Oddone, Nahuel; Quiroga Barrera Oro, Martín; Sartori de Almeida Prado, Henrique; Williner, Alicia, "Pactor territoriales en la construcción de regiones transfronterizas: por una mayor integración a múltiples niveles", CEPAL, Serie Desarrollo Territorial 20, Santiago de Chile, septiembre 2016, en: http://repositorio.cepal.org/.
  • OMC, "Informe sobre el comercio mundial 2016. Igualdad de condiciones para el comercio de las pymes", Organización Mundial del Comercio, Ginebra 2016, en: https://www.wto.org/.
  • Schillinger, Hubert René, "In Need of Rethinking. Trade Policies in Times of De-Globalization", Dialogue on Globalization, Perspective, Friedrich Ebert Stiftung, Geneva, August 2016, en: http://library.fes.de/
  • UNCTAD, "Trade and Development Report, 2016: Structural transformation for inclusive and sustained growth", Report by the Secretariat of UNCTAD, United Nations, New York and Geneva 2016, en: http://unctad.org/
  • von Glahn, Richard, "The Economic History of China. From Antiquity to the Nineteenth Century", Cambridge University Press, Cambridge UK., 2016.

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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