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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009
A DENSE YEAR OF INTERNATIONAL TRADE NEGOTIATIONS
The three main fronts that can affect Argentina and Latin America

by Félix Peña
February 2018

English translation: Isabel Romero Carranza


 

The year 2018 presents a dense agenda of international trade negotiations. Many of these negotiations will have an impact on the redesign of the institutional architecture of world trade. Their essence is to define ground rules that help achieve economic and even political objectives for those countries that participate in them. Moreover, they will help establish institutional mechanisms to ensure that such rules penetrate reality. However, these negotiations have a most uncertain future due mainly to the accumulation of past frustrations and the rarefied climate in the international coexistence of nations.

The agenda unfolds on three linked fronts. One of them is the multilateral global. The central issue is the questioning of the system based on rules and institutionalized through the WTO. It affects three elements: i) the principle of non-discrimination, embodied in the most-favored-nation clause; ii) its exceptions, the main one being that which authorizes preferential trade agreements, and iii) the dispute settlement mechanism.

Even when this is not a front formally incorporated into any international negotiating environment, it is difficult to imagine that it will not be present in some way or another in the necessary consensus building process implied by the G20 Summit of Buenos Aires. In this regard, given the evident inequality of relative power among the countries that compete for world markets, it would seem essential to reaffirm the validity and strength of the principle of non-discrimination. At the same time, it would be necessary to redesign i) the rules that affect the compatibility of preferential trade agreements with the global multilateral system of international trade, and ii) the dispute settlement mechanisms to ensure their effectiveness.

A second front is that of interregional and trans-regional preferential agreements. These agreements are likely to multiply especially if the standstill of the Doha Round were not to lead to new modalities of agreements with a multilateral global scope and, much more so, if the mentioned questioning resulted in the actual collapse of the principle of non-discrimination resulting from Article I of the GATT-WTO. From the perspective of Argentina and its Latin American partner, the main front of interregional negotiations to watch closely is the agreement between Mercosur and the EU. Regarding the negotiations of trans-regional scope, the one that seems to deserve more attention is that of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership" (CPATPP).

A third front is that of regional geographic agreements. Without underestimating others, the three most important regional fronts are those that are developing among the NAFTA countries; among European countries -partly because of Brexit-and among Latin American countries (Mercosur, the relation Pacific Alliance-Mercosur and ALADI).


The year 2018 presents a dense agenda of various international trade negotiations. These would all give rise to "private clubs" of international trade and, therefore, would have some kind of discriminatory effect towards those countries not included in the resulting agreements. They can even contribute to a fracture of the current global multilateral system of world trade.

Many of these negotiations will have an impact -to a greater or lesser degree, directly or indirectly- on one of the most relevant dimensions of current international relations, which is the redesign of the institutional architecture of international trade, with the objective -at least formal-of reaching a reasonable degree of order in a system that is undergoing and accelerated process of change and, at the same time, producing a favorable effect so that international trade contributes to the sustainable economic and social development of a large number of countries.

The essence of such negotiations is not only to define ground rules that enable to achieve economic and even political objectives considered valuable for the countries that participate in them, but also to install institutional mechanisms that ensure that such rules effectively penetrate reality. It is, therefore, not a minor issue for the stability of the international system, either globally or in the different regions, and especially for those countries with less relative weight in their relations with the central powers.

At the beginning of the year, these negotiations present an uncertain future. The strained climate in the international coexistence of nations also contributes to generate these uncertainties. A recent issue of "The Economist", with the striking cover title of "The Next War. The growing threat of great-power conflict ", includes a special report on "The future of war. New battlegrounds." Specifically, it analyzes the factors (geopolitical and technological) that explain the trends in possible armed conflicts involving major powers (see "The Economist", January 27, 2018).

In the perspective of Argentina and its Latin American partners, the development of the 2018 international trade negotiations agenda unfolds on three main interlinked fronts which are: the multilateral global, the interregional or trans-regional, and the regional geographic. (See the December 2017 edition of this Newsletter on http://www.felixpena.com.ar/).

Moreover, these are fronts influenced by factors that transcend the commercial and which reflect the deep changes that have been observed in recent years in at least the following aspects:

i) the greater physical and cultural connectivity of nations and regions;

ii) the unequal redistribution of relative power -both political and economic- between the main countries, as well as between the companies that compete for international markets; and

iii) the impact on the production and exchange of goods and services of innovations resulting from continuous technical progress, as well as cultural and demographic changes.

The mentioned ones are changes that, in addition, are rendering obsolete many strategic approaches originated in a historical moment that is being overcome. This period began at the end of the Second World War and was characterized by a strong concentration of political and economic power -and therefore of negotiating clout-in a very small group of countries belonging to what was called the West. At times, as for example during the 1990s, it generated the expectation of reaching the conditions to consolidate a unipolar international system. It was the time of "the end of history".

This also caused a certain degree of obsolescence of the concepts, theories, paradigms and models that, during the last seventy years, have developed and prevailed in international trade negotiations and in the modalities of the resulting agreements. An example of this is the concept of "free trade zone" in the light of the interpretation that prevailed on the rules that were created with the GATT, especially with its article XXIV.

Hence, the necessary negotiating strategies of each country -including those of its companies-require taking into account the complexity of the commercial, political and technological factors that are now affecting the redesign of the institutional map of world trade. Negotiating as if nothing had changed can be a serious mistake.

A first front of the current international trade negotiations is the multilateral global. The central issue on this front is the questioning that has been made to the multilateral global trading system institutionalized by the WTO (on the need to defend the WTO system see the excellent article by Andrew Elke, in the East Asia Forum of last February, included bellow as recommended reading). Relevant protagonists, especially in the US, which had a decisive role in promoting the creation of the GATT, affirm it is a system guided by rules that, in some cases, have become obsolete.

We should bear in mind, however, that the questioning of the rules of the world trading system embodied in the GATT and then in the WTO often came from developing countries, and in particular from Latin America. As we have pointed out on other occasions, they considered that the interpretation of some rules of the system -including Article XXIV- introduced unnecessary rigidities, contrary to the flexible modalities of cooperation and economic integration necessary in the relations between developing nations.

At the G20 meeting in Hamburg, in July of 2017, a consensus could not be reached on the need to preserve and eventually update the multilateral global trading system based on rules (see the July 2017 edition of our Newsletter on http://www.felixpena.com.ar/). This was reflected in the ambiguities of the corresponding paragraph of the final communiqué of the Summit.

Nor was it possible to make progress in this regard at the XI WTO Ministerial Conference, held in Buenos Aires, in December 2017 (see the December 2017 edition of our Newsletter on http://www.felixpena.com.ar/). Although it was not an issue included in the formal agenda of the Conference, simply reviewing the press coverage of the event indicates the relevance that was attributed to this issue. This was also reflected in the "Buenos Aires Declaration" of the presidents and ministers who attended the opening of the Conference (https://www.wto.org/).

Why is it relevant to address the issue about the preservation of the multilateral global system guided by institutionalized rules, formerly in the GATT and now in the WTO? The fact that the questioning of the system has been made by the US government gives it, indeed, a significant political relevance.

The main reason is that at least three key elements of the current system are affected by such questioning. The first is the principle of non-discrimination, embodied in the most-favored-nation clause established by Article I of the GATT. The second is that of the exceptions to this principle, the main one authorizing-under certain conditions, not clearly defined-those that result from the application of Article XXIV of the GATT. The third element is the dispute settlement mechanism, which was perfected when the creation of the WTO under the leadership of the great Latin American expert and Uruguayan jurist, Julio Lacarte Muró.

Although the first front is not formally incorporated into any sphere of international trade negotiations, it would be difficult to imagine it not being present in any way in the deliberations that precede the necessary and complex process of consensus building implied by the upcoming G20 Summit of Buenos Aires.

In the perspective of Argentina and its Latin American partners, but also of other regions, the fundamental thing would seem to be to reaffirm the validity and strength of the principle of non-discrimination, avoiding its gradual erosion. This can be considered as non-negotiable in view of the evident inequality of relative power between the nations that compete for world markets. At the same time, it would seem necessary to redesign, i) the rules that affect exceptions to this principle, through the determination of the compatibility of preferential trade agreements (regional, inter-regional or trans-regional) with the global multilateral system of international trade, and ii) the mechanisms for settling disputes, in light of the experience gathered since the creation of the WTO.

A second negotiating front is that of preferential agreements of interregional and trans-regional scope. These are agreements that are likely to multiply, especially if within the WTO, among other factors, the standstill of the Doha Round does not to lead to new modalities of agreements of multilateral global scope. Much more so, if the questions we have already mentioned translated into an actual collapse of the principle of non-discrimination resulting from Article I of the GATT-WTO. Furthermore, we should not rule out that the promotion of trans-regional agreements reflects a strategy that goes beyond the stage in which the epicenter of the global international trading system was the WTO, through the creation of other multilateral systems of global scope.

From the perspective of Argentina and of its Latin American partners, the main front of interregional negotiations to watch closely is the agreement between Mercosur and the EU. Although the bi-regional negotiations seem to have entered into a conclusion stage, it is prudent to wait for the facts to confirm what the negotiators have optimistically allowed to transcend. The erratic history of these long negotiations makes caution advisable, at least on the part of those who do not have access to all the necessary information. Even if it were confirmed that the signing of the bi-regional agreement is imminent, it would take a relatively long period to make it effective and realize its practical impact.

Meanwhile and as we have pointed out before, it would seem even more advisable to take full advantage of the 1995 bi-regional framework agreement, especially in terms of the roadmaps and mechanisms provided for in articles 6 to 24 (for the full text of the agreement, still in force, go to http://www.sice.oas.org/). A bi-regional report on any progress made in compliance with such articles, would be extremely useful and should be easily accessed through the web.

Regarding the negotiations of trans-regional scope, the one that seems to deserve more attention is the future of the Trans-Pacific Partnership (TPP). After the withdrawal of the US, negotiations to achieve the effective validity of the agreement have continued. It has been announced that the remaining eleven countries will sign it in March. It will be called "Comprehensive and Progressive Agreement for Trans-Pacific Partnership" (CPATPP). (See the information on https://en.wikipedia.org/. It was not possible to access the new text of the agreement that would be signed. It has been pointed out that the negotiations and the texts remain secret (in this regard, see what was published by Civil Liberties Australia, on https://www.cla.asn.au/News/category/treaties/).

The original text of the TPP provided that any country, even when not a member of APEC, could apply to become a member (see the text of article 30-4 on https://www.direcon.gob.cl/). Official sources have allowed to transcend the possibility that after Brexit, the entry of Great Britain to this mega trans-regional agreement "of the Pacific" could happen (see https://www.ft.com/, and http://www.globaltrademag.com/). The possibility that the US government finally decides to return and the addition of other highly relevant countries of the Asia-Pacific region have not been ruled out yet.

In this regard, it should be noted that a development that will be advisable to monitor closely is that of the scope involved in the concept of "geographic region". A recent book on the Eurasian regional geographic space published by Bruno Maçâes, who was the Secretary of State for European Affairs of Portugal, helps to reflect on this issue with a perspective that contemplates the historical and cultural as well as the contemporary and geopolitical. (See the reference listed as recommended reading of this newsletter. For more information on the author, go to https://en.wikipedia.org/).

Finally, the third front of negotiations is that of preferential agreements between countries of the same regional geographical space. Among others, the three most important regional fronts are those that are being developed among the NAFTA countries, among the European countries, partly as a consequence of the withdrawal of the United Kingdom, and among the Latin American countries.

The latter has three main spheres of negotiations. One of them is the recovery of the full vitality of Mercosur. The electoral processes in Brazil and Paraguay will probably affect the pace that can be applied to the adoption of decisions that will allow for the full restoration of such vitality, based on the progress that has been achieved in the last Mercosur meetings. The second is the articulation between the Pacific Alliance and Mercosur, in which there have also been advances in recent months. Finally, the third is that of the initiatives aimed at harnessing the full potential of the institutional framework of LAIA. The three can be linked together and, to that end, it will be essential to watch closely the progress that can be achieved from the initiatives promoted at the time by the General Secretariat of the LAIA. (In this regard, refer to the June 2017 edition of this Newsletter on http://www.felixpena.com.ar/).

The three fronts that make up the 2018 agenda of international trade negotiations relevant to Argentina and its Latin American partners will require an effective effort of intelligent monitoring by the respective governments and the social sectors concerned, especially the business sector. Only through well-processed quality information can they expect to adapt their own strategies to negotiations that will continue to be very dynamic and complex. This will require an effort to overcome concepts and approaches that have become obsolete. Such effort will not come easy.


Recommended Reading:


  • Bartesaghi, Ignacio, "Un mundo a la deriva, pero…El ritmo de las interacciones económicas, comerciales y sociales avasalla las estructuras clásicas", diario "El Observador", Sección Opinión, Montevideo 5 de enero de 2018, en https://www.elobservador.com.uy/.
  • Bown, Chad P.; Sykes, Alan O., "The Trump Trade Team's Vocabulary Problem", Peterson Institute for International Economics (PIIE), "Wall Street Journal", May 14, 2017, en https://piie.com/.
  • Ciuriak, Dan; Ptashkina, María, "The Digital Transformation and the Transformation of International Trade", IDB - ICTSD, RTAExchange, Isue Paper, January 2018, en http://e15initiative.org/.
  • Defraigne, Jean-Christophe, "Sleeping giants or global competitors? Assessing the possibilities of the largest Chinese firms to evolve from state-nurtured national champions into global competitors", Cahier du CEREC, Louvain 2008, en https://jeanchristophedefraigne.files.wordpress.com/.
  • Defraigne, Jean-Christophe, "Is a strengthening south-south regional integration possible? The case of Mercosur and Latin America", Régionalisme et fédéralisme, Vol. 16, 2016.
  • Edwards, John, " What a U.S. China trade war would look like ", Real Clear World, Lowy Institute for International Policy, January 24, 2018, en https://www.realclearworld.com/.
  • Elek, Andrew, "Re-energising the G20", ANU, Crawford School of Public Policy, 26 February 2013, en https://crawford.anu.edu.au/.
  • Elek, Andrew, "China takes the lead on economic integration", East Asian Forum, 7 July 2015, en http://www.eastasiaforum.org/.
  • Elek, Andrew, "How can East Asia defend the WTO", East Asia Forum, 9 February 2018, en http://www.eastasiaforum.org/.
  • Elizondo, Marcelo, "La reinserción internacional requiere algo más", diario "El Cronista", Sección Opinión, 25 de enero de 2018, en https://www.cronista.com/.
  • Erthal Abdenur, Adriana; Gonzalez Levaggi, Ariel, "Trans-Regional Cooperation in a Multipolar World: How is the Belt and Road Initiative Relevant to Latin America?", LSE Global South Unit, Working Paper Series, Working Paper Nº 1/2018 en http://www.lse.ac.uk/.
  • European Commission, "Report from the XXXth round of negotiations of the Trade Part of the Association Agreements between the European Union and Mercosur", Brussels, 29 November - 8 December 2017.
  • Freund, Caroline, "The United States Wins from Trade Agreements", Peterson Institute for International Economics - PIIE, -Trade and Investment Policy Watch, December 2017, en https://www.chathamhouse.org/.
  • Frum, David, "Trumpocracy. The Corruption of the American Republic", Harper Collins Publishers, 2018.
  • Gunther McGrath, Rita, "The End of Competitive Advantage. How to keep your strategy moving as fast as your business", Harvard Business Review Press, Boston 2013.
  • Harding, Rebecca, Harding, Jack, "The Weaponization of Trade. The Great Unbalanching of Politics and Economics", London Publishing Partnership, London 2017.
  • INTAL-BID, "Pensando el Sistema Multilateral de Comercio", Conexión INTAL Nº 256, Diciembre 2017, en http://conexionintal.iadb.org/.
  • INTAL-BID, "Latindia. El Futuro de la Cooperación de India y América Latina", INTAL-BID, I&C Nª 43, Año 21, Diciembre 2017.
  • Levitsky, Steven; Ziblatt, Daniel, "How Democracies Die", Crown, New York 2018.
  • Levy Yeyati, Eduardo, "Exportar y crear trabajo, las asignaturas pendientes", diario "La Nación", Opinión, 17 de enero de 2018, en http://www.lanacion.com.ar/.
  • Maçâes, Bruno, "The Dawn of Eurasia. On the Trail of the New World Order", Allen Lane, London 2018.
  • Olivié, Iliana; Gracia, Manuel, "The discrete role of Latin America in the globalization process", LSE Global South Unit, Policy Brief Series, Policy Brief Nº 1/2018, en http://www.lse.ac.uk/.
  • Reeves, Richard, "Dream Hoarders. How the American upper middle class is leaving everyone else in the dust. Why that is problem, and what to do about it". Brookings Institution Press. Washington, D.C., 2017.
  • Rizzi, Andrea A., "Nuestros mayores enemigos son nuestros defectos", diario "El País", Internacional, Análisis, 15 de enero de 2018, en https://elpais.com/.
  • Smith, Sheila A., "Can the Trump administration survive 2018", en East Asia Forum, 23 January 2018, en http://www.eastasiaforum.org/.
  • USTR, "2017 Report to Congress on China's WTO Compliance", United States Trade Representative, January 2018, en https://ustr.gov/.
  • Valvis, Anastasios I., "Regional Integration in Latin America", Institute of International Economic Relations (IIER), February 2008.
  • Wang, Jiao, "Can China solve its systemic risks in 2018", en East Asia Forum, 20 January 2018, en http://www.eastasiaforum.org/.
  • Wickett, Xenia, "Transatlantic Relations. Converging or Diverging?, Chatham House. The Royal Institute of International Affairs, Chatham House Report, London, January 2018, en https://www.chathamhouse.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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