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In our newsletter of the month
of July 2017 (http://www.felixpena.com.ar/),
we referred to the current questioning regarding some of the main rules
of the global multilateral trading system. Among the most relevant are
those referred to the principle of non-discrimination as set out in Article
1 of the GATT 1994 -the most-favored-nation clause- and to the dispute
settlement mechanism.
These questioning have recently arisen in the United States, which played
a key role in the design and establishment of the GATT rules which were
later incorporated into the WTO. These may be added to the questions that
have been made since the origins of the GATT by developing countries,
especially by Latin American ones, even from the time of the negotiation
of the Havana Charter (see, among others, the book by Jesus Reyes Heroles,
"La Carta de La Habana (comentarios y digresiones", E: D: I:
A: P: S: A, Mexico 1948).
The standstill of the Doha Round, together with those questioning, is
making clear that we are entering a stage where it will be necessary to
address the redesign of some of the rules of the global multilateral trading
system. This topic cannot be absent in the discussions that will take
place in the context of the 11th WTO Ministerial Conference, to be held
in December in Buenos Aires, and next year at the G20 Summit.
.
While it does not seem to be a topic formally included in the agenda of
this Ministerial Conference, the fact is that this event provides an opportunity
to at least clarify whether what is under question is the existence of
a multilateral system of international trade, with a global scope and
governed by rules, or if the questioning is referred to the current system
precisely because of its global reach. In this second interpretation,
the essence of the questioning would be to the global scope of the present
system and not necessarily to the fact that it is governed by rules. In
such a case, a country could argue that the WTO and, in particular, the
1994 GATT Agreement, is just one of the multilateral systems of global
scope to which it must be considered bound. That would be tantamount to
pointing out that there is no single global multilateral trading system.
In this case, the fracture of the current global system, originated in
the GATT and later in the WTO, would have been consummated. Such a fracture
would mean a return to the world before the Second World War. Some of
its consequences are well known, although often forgotten. We are referring
specifically to a major issue of global governance, that for that reason,
could be a subject relevant for the G20 and the Buenos Aires Summit next
year.
From this perspective, it can be understood that the central point under
discussion is, in fact, the principle of non-discrimination in the implementation
of trade policies of the member countries of the system. But it would
be a question that would not come only from the current US government.
A significant precedent to the introduction of elements that would make
it possible to effectively challenge the global scope of the system of
rules of the WTO, can be found in the Trans-Pacific Partnership (TPP).
It is a treaty that has not yet come into force, since President Trump
fulfilled his promise to withdraw the US from that mega-interregional
agreement. In fact, it is possible that it may never really take effect.
But in its Chapter 30, Article 4, by providing that any country can apply
to become a member of the TPP, even if not belonging to the APEC, a door
was left open for the possible development of a global trading system
that could co-exist in practice with the current system of the WTO. (The
following is the text of Article 30.4: "Accession. 1. This Agreement
is open to accession by: (a) any State or separate customs territory that
is a member of APEC; and (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 go to https://ustr.gov/).
This rule of the TPP would mean altering another rule that is central
to the original GATT system, which is that the main exception to the principle
of non-discrimination established in Article I could only be made by applying
Article XXIV, referred to possible agreements that create a free trade
zone or a customs union. Until the conclusion of the TPP, it had always
been understood that these two figures referred to pairs of countries
or to limited groups of countries of a same geographic region.
The fact is that the above-mentioned questions are contributing to the
gradual erosion of the current global multilateral trade system as a result
of the cumulative effect of, on the one hand, the standstill of the Doha
Round and, on the other hand, new initiatives leading to the proliferation
of interregional preferential mega-agreements, not all compatible with
the basic rules of the current WTO system.
Such erosion, because of its fragmentation effects on the institutional
framework of world trade, may not only affect the transnational flows
of goods, services and productive investments, but may even have geopolitical
connotations. The debate on the possible geopolitical dimension of the
so-called TPP illustrates this. If so, it could contribute to affect the
already complicated global governance in aspects such as the prevalence
of conditions for peace and stability within the different regions and
in the world as a whole.
However, it is hard to imagine, as noted on other occasions (see, for
example, the article published by the FLACSO
WTO Chair, on http://www.felixpena.com.ar/),
that in the short term-or even the midterm-it, will be possible to reach
a consensus on overhaul proposals that involve a substantive review of
the WTO system, even if this were eventually advisable. The difficulty
in gathering the critical mass of world political power required to generate
new institutions and ground rules, allows us to anticipate that the transition
already initiated will require a long time before a new stage of the international
order can be realized. This would imply opening the debate on the revision
of some mechanisms and instruments of the current system of world trade
that, if introduced, could contribute to improving its effectiveness,
efficacy and social legitimacy. At the very least, they could help stop
the current trend towards the gradual deterioration of those three systemic
qualities that are indispensable for institutions and rules that are meant
to last.
Among other issues that are relevant due to their incidence in the mentioned
systemic deterioration, two deserve particular attention. They relate,
firstly, to how developing countries that are members of the WTO can approach
emergency measures through safety valves, that imply greater flexibility
than that offered by the current rules and, secondly, how to strengthen
the collective disciplines on preferential trade agreements, in order
to prevent them from contributing to a further fragmentation of the multilateral
system of world trade and even to its fracture.
Dani Rodrik, among others, has advanced suggestions on how to have a
more flexible system of safety valves that allows developing countries
to face, under certain conditions, situations of economic emergency that
compromise their development objectives. It would involve, among other
measures, reforming the provisions on safeguards of the current WTO agreement,
so that developing countries can more flexibly address economic and trade
emergency situations that may temporarily affect their ability to navigate
globalization, including those caused by any exchange rate fluctuations.
(On the topic of designing exceptions and escape clauses in international
trade agreements, we recommend reading the recent book by Professor Krzysztof
J. Pelc, "Making and Bending International Rules", Cambridge
University Press 2016, in which he explores in depth the important issue
of achieving architecture of rules with a sustainable balance between
reasonable degrees of flexibility and predictability).
With regard to preferential agreements, especially those covering a number
of countries -even from different regions-and with commitments that go
beyond those assumed in the WTO, it would seem advisable to analyze new
collective disciplines given their potential effects of fragmenting the
world trade system. They should ensure transparency in terms of the preferential
measures that are included, and that could be potentially discriminatory
for countries that are not members of a specific agreement. They should
also ensure a periodic independent technical assessment of their effects,
on trade flows and investment originated in third countries and on the
cohesion of the multilateral system of world trade.
These are suggested initiatives that could form part of an agenda of
adaptations of the multilateral system of world trade to the requirements
of the transition to a new international economic order, and that could
include, aside from the ones mentioned, others related to trade facilitation,
modalities of plurilateral and sectoral agreements, the development of
productive chains that encourage the internationalization of SMEs, and
trade aid, among others.
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