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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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THE CRISIS OF THE WORLD TRADE ORGANIZATION
The challenges posed to Argentina and countries of the Latin American region


by Félix Peña
January 2020

English translation: Isabel Romero Carranza


 

It is too early to be alarmed about the future of the current multilateral system of international trade guided by rules and, therefore, to conclude that the WTO "is dead". However, it seems to be an appropriate time to become aware of the risks that exist in this regard and to verify the need to act now.

The Twelfth WTO Ministerial Conference will take place in Nursultán (Kazakhstan) next June. It provides an opportunity to agree measures to solve or mitigate the most negative effects of the current crisis in the system of rules of the WTO. The difficulties observed are not limited to the operation of the dispute resolution mechanism but include other aspects that have a bearing on the effectiveness of the WTO in the current international context.

In the specific case of our country, the changes observed in the international trade system, make it more necessary to join efforts with other countries with converging interests in international trade relations and to coordinate their stances on the different negotiating fronts, especially in that of the WTO. Among the Latin American countries, those belonging to the Mercosur and the Pacific Alliance are in a position of priority. This should also be the case with other actors that, due to their relevance and relative dimension, have more capacity and interest in promoting the development of mega-networks of preferential trade agreements, such as the case of the US, China and the EU, among others.

In this perspective, the trends observed in the international trade system make it more valuable for Argentina to actively participate in the actions needed for the effective conclusion of the bi-regional agreement between Mercosur, conceived as a single negotiating unit, and the EU. Its importance transcends the bi-regional level. Due to the many possible ramifications, it would have a profound impact on the design of the institutions and ground rules of world trade that would help strengthen the current global multilateral system of the WTO or, if necessary, replace it.


In the current situation, it has become increasingly relevant to analyze the effects that the current WTO crisis could have on international trade. This crisis is the result of the paralysis in the functioning of the Appellate Body of its dispute settlement mechanism. Taking into account that such paralysis originates in the behavior of the United States, it can signal an expression of the trend towards the increasing deterioration of the rules and institutions that are relevant for the permanence of a reasonable order in international commercial relations (on this topic, see the February 2019 edition of this newsletter on www.felixpena.com.ar).

It is too early to be alarmed about the future of the current rule-oriented international trade system and, therefore, to conclude that the WTO is "dead" However, it seems to be an appropriate time to become aware of the risks that exist in this regard and even to verify the need to act now.

It should be interpreted that this has been the meaning of what its WTO Director General, Roberto Azêvedo, pointed out in a message published on January 1st (see https://www.wto.org/). With the prudence that his position demands of him, he reflects on the achievements and challenges that the multilateral world trade system faces today.

Firstly, he states that its member countries recognize that the institution constitutes "a public good that is worth preserving and strengthening" and that "the WTO has contributed to making market conditions predictable". He points out that such predictability, combined with the improvement in communications, has made possible the development of global value chains. He adds that "having the assurance that they can move components and related services between different locations, companies have been able to distribute the production of manufactured products between different countries and regions." Later on, he provides a central piece of information to understand the relevance of the institutional order in international trade: "the trade that takes place within these value chains represents almost 70% of the world's merchandise trade." It can be argued that it would have been difficult to reach this percentage if a system of rules, such as the one developed since the creation of the GATT and then the WTO, had not existed.

Referring to the dispute resolution mechanism, Azêvedo adds that it is true that "we suffered a setback at the end of 2019". But he points out that consultations are being held in order to detect possible solutions, including options that allow "to keep a two-stage dispute settlement in operation while seeking a permanent solution."

The Twelfth WTO Ministerial Conference will take place in Nursultán (Kazakhstan) next June. It provides an opportunity to agree measures to solve or, at the very least, mitigate the effects of the current crisis in the WTO system of rules. The difficulties observed are not limited only to the operation of the dispute settlement mechanism but include other aspects that have a bearing on the effectiveness of the WTO in the current international context.

These difficulties arise from the profound changes that have taken place in the international system since the creation of the GATT, even since the WTO replaced it. Such changes are especially reflected in the fact that the world is more populated today, in terms of the number of countries and the size of their populations and more connected, both physically and culturally. In addition, both countries and protagonists of world trade, such as companies and consumers, currently have multiple options when deciding with whom to interact.

In a scenario of relative deterioration of the degree of predictability necessary to compete in other markets, it becomes increasingly important to have a proper diagnosis of the factors that influence competition for power and world markets and of what is necessary to obtain in the relations with other countries. Above all, it is important to be clear about the relevance that each country has for the others.

This implies getting quality information that helps develop an international insertion strategy based on all the factors that affect relations with other countries. Such a strategy can only be achieved through the coordinated action of the main actors involved in the international relations of any given country.

From an Argentine perspective, this means coordinating visions and interests in the national government and in that of each one of the provinces, as well as among the business and social actors that most affect the external relations of the country. Moreover, it also implies having a realistic assessment of the value of the country for the protagonists of the other countries with which it interacts.

In any case, the changes observed in the international trade system, make it even more necessary to coordinate and join efforts with other countries with which there are convergent interests in international trade relations and, therefore, bring together their positions in the different negotiating fronts, especially in the WTO.

In this regard, among the Latin American countries, those belonging to the Mercosur and the Pacific Alliance have a position of priority. This should also be the case of other actors that, due to their relevance and relative dimension, have more capacity and interest in promoting the development of mega-networks of preferential trade agreements, such as the case of the US, China and the EU, among others.

In this perspective, the trends observed in the international trade system make it more valuable for Argentina to actively participate in the actions needed for the effective conclusion of the bi-regional agreement between Mercosur, conceived as a single negotiating unit, and the EU.

The importance of this agreement transcends the bi-regional level and, due to its many possible ramifications, it would have a profound impact on the design of the institutions and ground rules of world trade which would help strengthen the global multilateral system of the WTO or, if necessary, replace it (on the Mercosur-EU agreement, see the July 2019 and September 2019 issues of this newsletter).


Recommended Reading:


  • Akbarzadeh, Shahram; Bexter, Kylie, "Middle Politics and International Relations. Crisis Zone", Routledge, London - New York 2018.
  • Arana, Marie, Bolivar. The Epic Life of the Man who Liberated South America", Phoenix, London 2014.
  • Barr, James, "A Line in the Sand. The Anglo French Struggle for the Middle East, 1914-1948"W.W.Norton and Company, New York - London 2012.
  • Barr, James, "Lords of the Desert. The Battle Between the United States and Great Britain for Supremacy in the Modern Middle East", Basic Books, New York 2018.
  • Blustein Paul, "Schism. China, America and the Fracturing of the Global Trading System", Center for International Governance Innovation, Ontario 2019.
  • Caramuru de Paiva; Lins, Clarissa; Ferreira, Guilherme; "Brasil-China. O Estado da Relacâo, Belt and Road, e licôes para o futuro", CEBRI, September 2019.
  • CEPAL; "Boletín de comercio exterior del Mercosur. El rol del Mercosur en la integración regional", CEPAL, Santiago de Chile 2018.
  • CEPAL, "Perspectivas del Comercio Internacional de América Latina y el Caribe. El adverso contexto mundial profundiza el rezago de la región-2019", CEPAL, Santiago de Chile 2019.
  • Hochberg, Fred P., "Trade is not a four letter word. How six everyday products make the case for trade", Avid Reader Press, New York 2020.
  • Nogues, Julio, "Brexit Trade Impacts and Mercosur's Negotiations with Europe", Journal of World Trade, Volume 53, Issue 3, June 2019.
  • Lévy, Bernard-Henry, "The Empire and the Five Kings. America's Abdication and the Fate of the World", Henry Holt and Company, New York 2019.
  • Lindner, Franco, "Fernández & Fernández. Historia secreta de una relación peligrosa", Planeta, Buenos Aires 2019.
  • Lockwood, Matthew, "To Begin the World Again. How the American Revolution Devastated the Globe", Yale University Press, New Haven - London, 2019.
  • O'Donnell, Pacho, "Artigas. La Versión Popular de la Revolución de Mayo", Aguilar, Buenos Aires 2011.
  • Rogan, Eugene, "The Fall of the Ottomans. The Great War in the Middle East", Basic Books, New York 2015.
  • Sarli, Waldemar, "Artigas. La Argentina que no fue", Guid Publicaciones, Barcelona, 2015.
  • Tremolada Álvarez, Eric (editor), "Gobernanza, cooperación internacional y valores democráticos comunes", IUS COGENS, Derecho Internacional e Integración, Universidad Externado de Colombia, Bogotá 2019.
  • Wajner, Fabián Daniel; Labadie, Jimena, "Las negociaciones entre el Mercosur y la Unión Europea: hacia un Acuerdo de Asociación", Universidad ORT Uruguay, Facultad de Administración y Ciencias Sociales, Montevideo 2009.
  • World Trade Organization, "World Trade Review - 2019", WTO, Geneva 2019.

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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