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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009
THE DEBATE ON THE RULES AND INSTITUTIONS OF GLOBAL TRADE
Issues that will be present on occasion of the next WTO Ministerial Meeting

by Félix Peña
October 2017

English translation: Isabel Romero Carranza


 

The standstill of the Doha Round and recent questions arising especially in the US, are evidence that we are entering a stage in which it will be necessary to address the redesign of some of the rules of the global multilateral system of international trade. This topic will most certainly be present in the discussions that take place in the context of the 11th WTO Ministerial Conference, to be held in Buenos Aires in December, and next year at the G20 Summit.

While it would not seem to be an issue formally included in the Conference agenda, this event will provide an opportunity to at least clarify whether the essence of the questioning is directed towards the global scope of the current multilateral system of international trade and not necessarily to the fact that it is rule-oriented.

In that case, a country might argue that 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 system of multilateral trade.

The fracture of the system originated in the GATT and later in the WTO would be thus consolidating. It 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 in particular to the major issue of global governance, a subject relevant for the G20 and for the Buenos Aires Summit next year.

Among other issues that are important due to their incidence in the mentioned systemic deterioration, two deserve particular attention. They relate to how developing countries can resort to emergency measures through safety valves that imply greater flexibility than that offered by the current rules, and how to strengthen collective disciplines on preferential trade agreements to prevent them from contributing to the fragmentation of the multilateral system of world trade.

The suggested initiatives could form part of an agenda of adaptations of the system of world trade to the requirements of the transition to a new international economic order. Aside from those already mentioned, these adaptations could also include initiatives regarding trade facilitation, different modalities of plurilateral and sectoral agreements, the development of productive chains that encourage the internationalization of SMEs, and trade aid.


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.


Recommended Reading:


  • Clinton, Hillary Rodham, "What Happened", Simon & Schuster, New York 2017.
  • CRIES, "Cuba y el proceso de actualización en la era de Trump", Edición especial a cargo de Andrés Serbin, Revista "Pensamiento Propio", nº 45, Enero-Junio 2017/ Año 22, en http://www.cries.org/.
  • Drozdiak, William, "Fractured Continent. Europe's Crises and the Fate of the West", W.W.Norton & Company, New York - London 2017.
  • Freeden, Michael, "Liberalism. A Very Short Introduction", Oxford University Press, Oxford - New York 2015.
  • Harvey, David, "A Brief History of Neoliberalism", Oxford University Press, Oxford - New York 2005.
  • Harvey, David, "Marx, Capital and the Madness of Economic Reason", Profile Books, London 2017.
  • International Trade Centre, "SME Competitiveness Outlook 2017. The region: A door to global trade", ITC, Geneva, October 2017, en http://www.intracen.org/ y Executive Summary, en
    http://www.intracen.org/.
  • James, Harold, "Bretton Woods to Brexit", IMF, Finance & Development, Washington D.C., September 2017, en http://www.imf.org/.
  • Mudde, Cas; Rovira Kaltwasser, Cristóbal, "Populism. A Very Short Introduction", Oxford University Press, Oxford - New York 2017.
  • Roy, Martin, "The Contribution of Services Trade Policies to Connectivity in the Context of Aid for Trade", WTO, Staff Working Paper ERSD-2017-12, Geneva 13 September 2017, en https://www.researchgate.net/.
  • Sanders, Bernie, "Guide to Political Revolution", Henry Holt and Company ebook, New York 2017.
  • Serantes, Eduardo, "UE-Mercosur: pese a oferta decepcionante hay que seguir negociando", diario "El Cronista", Sección Opinión, Bs.As 6 de octubre, en https://www.cronista.com/.
  • Steger, Manfred B. & Roy, Ravi K., "Neoliberalism. A Very Short Introduction", Oxford University Press, Oxford - New York 2010.
  • Sundarajan, Arun, "The Sharing Economy. The End of Employment and the Rise of Crowd-Based Capitalism", The MIT Press, Cambridge-London 2016.
  • Trevaskes, Susan, "China's party-led rule-of-law regime", East Asian Forum, 2 october 2017, en http://www.eastasiaforum.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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