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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009
THE RULE-BASED MULTILATERAL SYSTEM OF INTERNATIONAL TRADE
Has a stage been opened that could lead to an eventual redesign of some of its rules?

by Félix Peña
July 2017

English translation: Isabel Romero Carranza


 

The current questioning of the WTO by the US, is based on the fact that it is a system of rules derived from an international economic reality that has long been overcome and whose rules can therefore be considered obsolete. Moreover, these rules allegedly limit the country's ability to defend its national interests in world trade.

The final declaration of the recent G20 Summit in Hamburg reflected decisions aimed at addressing the ongoing questioning of the current rule-based international trading system. Although it is a text that seeks to balance the different positions, it does not give any indication as to how to deal with the issue of preserving the rule-oriented trading system, which has more than seven decades of existence, or how to deal with the redesign of its most debated rules.

Furthermore, it should be noted that the questioning of some of the rules of the GATT system and later of the WTO originated in the founding moments and that, for the most part, were made by developing countries, including several Latin American ones.

It is possible that some of the questions that arose in the months leading up to the recent G20 Summit will also be present at the XI WTO Ministerial Conference to be held in December in Buenos Aires. This could open a new stage in the redesign of the system and its rules, based on the explicit recognition by all the WTO members that institutions and rules are necessary for the effectiveness of the system, and to guarantee conditions that contemplate the differences of relative power among nations.

In such case, the G20 Summit that will take place in Buenos Aires in November 2018, could become an opportunity to assess the progress made in the redesign of the system and eventually, if necessary, to inject the political drive that may be required to achieve this goal.


The G20 Summit of Hamburg (July 7 and 8, 2017) was held against the backdrop of the questioning by senior officials involved with the trade policies of President Trump's government -especially by the Secretary of Commerce, Wilbur Ross- of the rule-based multilateral system of international trade established in the GATT and later incorporated into the WTO.

Such questioning is based on the realization that it is a multilateral system that originated in a global economic reality that has long been overcome and, therefore, many of its mechanisms and rules can be considered obsolete. Moreover, these mechanisms and rules would allegedly limit the possibility of the US to defend its national interests in international trade. The expression "America First" reflects a view that is prevalent in Washington today in relation to this and other aspects.

Specifically, the most critical references to the system have been directed at the principle of non-discrimination, embodied in the unconditional most-favored-nation clause of Article I of the GATT; the trade defense mechanisms and their limited effectiveness against what are considered dumping practices in sectors such as steel, and the characteristics and effectiveness of the WTO dispute settlement system. (In this regard, refer to the April 2017 edition of this newsletter on http://www.felixpena.com.ar/).

The final G20 Summit Declaration of Hamburg failed to reflect the leaders' decisions aimed at addressing the underlying questions that are being raised to the current rule-oriented international trading system and some of its main regulations. In this regard, the leaders merely pointed out that: "We will keep markets open noting the importance of reciprocal and mutually advantageous trade and investment frameworks and the principle of non-discrimination, and continue to fight protectionism including all unfair trade practices and recognize the role of legitimate trade defense instruments in this regard". (Fort the full text of the declaration, published in German and in English only, go to https://www.g20.org/). Although it is a text that seeks to balance the different positions, it does not give any indication as to how to deal with the issue of the preservation of the rule-based multilateral system of international trade, which is more than seven decades old, let alone how to address the redesign of its most questioned rules.

Moreover, it should be noted that the objections to some of the rules of the GATT system and later the WTO originated almost at the moment of their creation and that, for the most part developing countries, including Latin American ones, made them. Therefore, it is not only the current US government that has expressed dissatisfaction with the multilateral system of international trade.

The link between trade and development, for example, was on many occasions at the heart of the critical arguments of Latin American countries with respect to the GATT and later the WTO. The need to make such rules more favorable for the early industrial development of many developing countries and to make the requirements for exceptions to the principle of non-discrimination more flexible in order to facilitate preferential agreements aimed at promoting economic development, was often demanded by Latin American countries.

Following the frustrated experience of the International Trade Organization -which resulted in the "provisional" entry of its Chapter IV into the GATT- the subsequent establishment of the UNCTAD reflected the dissatisfaction of the developing countries with the multilateral system of international trade. Moreover, it was also present in the process that led to the launch of the Doha Round.

It was not just the questioning of certain rules of the system. It was also a disagreement with the predominance of an elitist vision of its negotiation mechanisms, reflected in the so-called "Quad", and the lack of transparency of some of its procedures.

It is possible that some of the abovementioned questions that arose in the months leading up to the recent Hamburg Summit will be present at the next WTO Ministerial Conference to be held in Buenos Aires in December. They might not be included on the formal agenda, which is currently being negotiated within the WTO bodies in Geneva. However, they might be present on what could be considered an informal or parallel agenda, which in the political perception might be regarded as the real substantial agenda.

As was noted previously (see our newsletter of last April) the region can contribute greatly with ideas and initiatives to help with the increasingly necessary redesign of the ground rules and institutions of the multilateral system of international trade, which are now being put into question, precisely, by the country that played a key role in establishing them. This is especially so if we take into account that the WTO Ministerial Conference of December and the 2018 G20 Summit will take place in Buenos Aires.

The next regional meetings, especially in the context of the initiative launched at the time by the ALADI (see the March 2017 edition of this newsletter on http://www.felixpena.com.ar/) and the link between the Pacific Alliance and Mercosur could provide opportunities to try to articulate the positions of the Latin American countries.

The question to be answered in relation to the mentioned perspective is: What changes in the design of the multilateral system of international trade and its rules would be more relevant from the point of view of the countries of the region, especially taking into account their strategies for global commercial insertion, the requirements of their regional integration processes and of their own processes of economic and social development? In which aspects of this redesign could positions be articulated with other WTO member countries, including the US?

Perhaps, the 11th Ministerial Conference will be the right time for WTO member countries to strike a balance. This balance should be between the political need to recognize the importance of a multilateral world trade system based on rules, whose fulfillment is not simply left at the discretion of each nation, and to redesign institutional mechanisms and ground rules that the member countries consider necessary. Political need understood in terms of international trade governance and, therefore, the need to neutralize tendencies towards a new experience of international disorder, such as those that led to the two great wars of the last century.

This could open a new stage in the redesign of the system and its rules based on the acknowledgement by all WTO members, that institutions and rules are necessary to guarantee conditions that take into account the reality of economic asymmetries and the differences of relative power between nations.

In any case, the next G20 Summit that will take place in Buenos Aires in November 2018 could be an opportunity to assess the progress made in the redesign of the system and possibly, if necessary, to inject the additional political drive that may be required to achieve this goal.


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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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