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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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CAN THE WTO AND MERCOSUR ADAPT TO THE NEW REALITIES?
Some issues that demand priority attention


by Félix Peña
December 2021

English translation: Isabel Romero Carranza


 

The agenda of international trade negotiations in which Argentina and several other countries participate has become very diverse and complex.

In today's world, which is more populated and connected than ever and thus more competitive but, above all, more dynamic, every country -even the largest and most developed ones-will need a continuous effort to diagnose the changes that may arise in the future and their potential effects.

From an Argentine perspective, in relation to the agenda of international negotiations that have an impact on the country's foreign trade, two fronts appear to be a priority in the very short term. The first one is that of the negotiations within the world trade system institutionalized by the WTO. The second is Mercosur, which is based on two complementary ideas. One is the creation of a regional space that facilitates joint work among its member countries. The other is an integration into the international trade system that encourages productive investment and economic and social development in its member countries.

Thirty years after its creation, Mercosur needs to adapt its instruments and working methods to the new global realities and those of its member countries, in line with its founding objectives.

Perhaps the time has come for Mercosur to formally promote the objective of developing an agenda for the negotiation of free trade or preferential trade agreements, especially with each of the major players in world trade.

The Mercosur Council meeting, convened for December, could therefore be an opportunity to channel the vision of the Mercosur countries with respect to their international trade negotiations, especially with the three major actors in world trade, which are the US, the EU and China.


As we have pointed out on different occasions, the agenda of international trade negotiations in which Argentina and several other countries participate has become very diverse and complex.

Given the changes taking place in the international system, the trend towards diversity and complexity can be expected not only to continue but also to intensify.

Among others, three significant changes can be mentioned:

  • the diversity of relevant issues with a direct or indirect impact on the future development of world trade. These include: a) climate change, with its potential effects on the economies of all countries and on their foreign trade; b) technological innovations, especially the increasingly intensive use of artificial intelligence; and c) the growing cultural diversity of the population of countries and regions due, among other factors, to the cumulative effect of migratory phenomena.

  • the increasingly significant number of players-be they countries, companies, or individuals-that are now attractive for the development of the global exchange of goods, services, ideas and knowledge, with its effects on the multiplicity of options that are generated for those seeking to interact successfully in the international arena, and

  • the constant innovation of concepts, models and paradigms that affect the evolution of international trade relations in all their dimensions, rendering obsolete the policies and institutions that used to be employed for the worldwide projection of the competitive advantages of each country or region.

In today's world, which is more populated and connected than ever and, therefore, more competitive but, above all, more dynamic, every country-even the largest and most developed ones-will need a continuous effort to diagnose the changes that may arise in the future and their potential effects.

These are efforts that call for an active and shared participation of protagonists and institutions, especially of those of action-oriented thinking. Nowadays, devising international trade insertion policies for countries, geographical regions, companies and even individuals, under the assumption that everything is or will remain the same as before, would not seem advisable.

Within the framework of the above, it is worth addressing, from an Argentine perspective, the issue of a necessary agenda of international negotiations that has a bearing on the country's foreign trade.

Among others, two fronts appear as immediate priorities, that is, for the remainder of 2021 and for 2022. However, these are priorities that must be continuously reviewed and updated.

A first priority front is that of negotiations within the world trade system institutionalized by the World Trade Organization, (see the article by Inu Marak cited below under Recommended Reading).

The Twelfth Ministerial Conference was scheduled to be held in Geneva from November 30 to December 3, 2021 (see the November issue of our newsletter). It would have been the first to take place since the Buenos Aires Conference of 2017 and since the appointment of the new Director General, the Nigerian Ngozi OKonjo-Iweala.

However, on November 26, the WTO General Council had to postpone the Conference due to the evolution of Covid 19 in several member countries and its effects on the possibilities for travel of the attendees. A new date has not yet been set.

The WTO has just released its annual report examining the vulnerabilities and resilience of the global trade system (see the text of the WTO World Trade Report 2021, under the title "Economic Resilience and Trade" on www.wto.org).
Among the pending issues on the WTO agenda is the full reestablishment of its dispute settlement mechanism, including the reforms that may eventually be deemed necessary. It was, in fact, paralyzed following the questioning by the administration of President Donald Trump. This has affected the scope of an international trade system that is, presumably, governed by rules that are actually complied with.

A second priority front is that of Mercosur. Thirty years after its creation, Mercosur needs to adapt its instruments and working methods to the new global realities and those of its member countries, in line with its founding objectives.

The Council meeting and the Summit of Presidents are scheduled for mid-December. As always, there are several issues to be addressed. Among these, the level of protection resulting from the common external tariff and trade negotiations with third countries that are not members of ALADI stand out, due to their relative importance.

The December meeting would then be an opportunity to reestablish a reasonable degree of credibility in the effectiveness and efficacy of Mercosur as an environment for joint work among its member countries. That is, its true and original reason for existing.

At times, such credibility appears to be affected by the behavior of its member countries in matters relevant to its functioning, such as the effectiveness of its common external tariff and the possibility that individual member countries enter into bilateral preferential trade agreements with third countries. Depending on how it is conceived and its potential scope, this is a possibility that could require modifications to the Treaty of Asunción, even substantial ones, especially with regard to core concepts of the founding pact, such as the "common external tariff", "customs union" and "common market".

Mercosur is based on two complementary ideas. One is the creation of a regional space that, even due to its exclusivity derived from the formula of a customs union, facilitates joint work among its member countries, especially when negotiating trade preferences with third countries. The other is an integration into the international trade system that encourages productive investment and economic and social development in its member countries.

There are at least three areas where improvements on the objectives and functioning can be made. The first is that of the methods of coordination of national interests for the adoption of effective and efficient joint decisions. The second is in the full use of the instrument of sectoral agreements provided for in Article 5 d. of the Treaty of Asunción and later in Decision No. 3, adopted in 1991 by the Mercosur Council of Ministers. Finally, the third is the incorporation of new joint work issues, among others, those related to climate change, digital trade and artificial intelligence.

These aspects must be addressed in conjunction with an active strategy of simultaneous trade negotiations with developed and developing countries. This should include the negotiation, if possible concurrently, of trade and investment agreements with the world's major markets (China and the United States, to which we should add the completion of the pending agreement with the European Union).

Because of its unquestionable importance in the development of international trade, it would be natural for Mercosur to aspire to have preferential trade agreements or free trade agreements with each of these three relevant actors.

An initial agreement has already been made with the EU, after about thirty years of probing, talks and formal negotiations, but so far no progress has been made, or really sought to be made, towards its final conclusion.

A first step was taken with the United States through the conclusion, in 1991, of the so-called "4 plus 1" agreement, but thereafter talks aimed at finalizing a formal free trade agreement were not pursued.

In relation to China, Mercosur never formally responded to proposals made at the time by Beijing to negotiate a preferential trade agreement.

Perhaps, the time has come for Mercosur to formalize its objective of developing an agenda for negotiating preferential or free trade agreements in the short term with each of the three major players of world trade, without excluding the possibility of doing so with other countries with large markets, such as Japan, the UK, India, Canada, South Korea, Australia and Russia, to name a few.

In addition to those mentioned above, there would be the possibility of market expansions that could result from taking full advantage of the underutilized potential of ALADI, as well as those that could result from preferential or free trade agreements to be promoted and concluded with the countries of ASEAN and the African Union, among others.


Recommended Reading:


  • Alí López, Ociel, "Dale más gasolina. Chavismo, Sifrinismo y Burocracia", Casa Nacional de Las Letras Andrés Bello, Caracas 2015.
  • Ayuso, Anna, "La agenda exterior de Biden y sus implicaciones para la Unión Europea y América Latina", in Revista de Relaciones Internacionales, year 30, N° 60, January/June 2021, Instituto de Relaciones Internacionales, Universidad Nacional de La Plata, pp. 265 - 278.
  • Baer, Marc David, "The Ottomans. Khan, Caesars, and Caliphs", Basic Books, New York 2021.
  • Baldwin, Richard, "The Globotics Upheaval. Globalization, Robotics, and the future of work", Weidenfeld & Nicolson, London 2019.
  • Bogado Bordazar, Laura, "Migraciones en el Mercosur. Hacia la conformación de un modelo de integración regional", in Revista de Relaciones Internacionales, year 30, N° 60, January/June 2021, Instituto de Relaciones Internacionales, Universidad Nacional de La Plata, pp. 279 - 298.
  • Caetano, Gerardo, "El "primer Mercosur" y la "flexibilización". Antecedentes útiles para la reflexión (1991-2001)", in Revista de Relaciones Internacionales, year 30, N° 60, January/June 2021, Instituto de Relaciones Internacionales, Universidad Nacional de La Plata, pp. 73 - 99.
  • Canuto, Otaviano, "Climbing a High Ladder - Development in the Global Economy", Policy Center for the New South, Hay Riad, Rabat, Maroc, 2021.
  • Cohen, Daniel, "The Inglorious Years. The Collapse of the Industrial Order and the Rise of Digital Society", Princeton University Press, Princeton and Oxford, 2021.
  • Editorial Board - ANU, "Middle power diplomacy essential to secure Asia against big power rivalry", East Asia Forum, November 22, 2021, http://eastasiaforum.org.
  • Fisman, Raymond; Miguel, Edward, "Economic Gangsters. Corruption, Violence, and the Poverty of Nations", Princeton University Press, Princeton and Oxford 2010.
  • Hayton, Bill, "The Invention of China", Yale University Press, New Haven and London 2020.
  • Holslag, Jonathan, "World Politics since 1989", Polity Press, Cambridge - Medford, 2021.
  • Kauskan, Bilahair, "Can Asia Reinvent Global Trade?", East Asia Quarterly, April-June 2021, p. 6.
  • Kissinger, Henry A.; Schmidt, Eric; Huttenlocher, Daniel, with Schuyler Schouten, "The Age of AI and Our Human Future", Little Brown and Company, New York- Boston -London 2021.
  • Krishen Koul, Autar, "Guide to the WTO and Gatt. Economics, Law and Politics", Satyam Law International-Springer, New Delhi, 2018.
  • Leonard, Mark, "The Age of Unpeace. How Connectivity Causes Conflict", Bantam Press, London 2021.
  • MacMillan, Margaret, "The War that Ended Peace. The Road to 1914", Random House - Profile Books, New York- London 2013.
  • Manak, Inu, "Agenda to save the WTO", East Asia Forum Quarterly, April-June 2021, p. 3.
  • McMeekin, Sean, "July 1914. Countdown to War", Icon Books Ltd, London 2013.
  • Morrow, James D., "Order Within Anarchy. The Laws of War as an International Institution", Cambridge University Press, New York 2014.
  • Oppenheimer, Andrés, "El Metaverso cambiará nuestras vidas", Opinion Section, newspaper "La Nación", November 10, 2021, p. 31.
  • Leith, Sam, "Write to the Point. How to be clear, and persuasive on the page", Profile Books, London 2017.
  • Penghong, Cai, "China and the US can play a positive-sum game in the CPTPP", East Asia Forum, November 22, 2021, http://eastasiaforum.org.
  • Peña, Félix, "Se viene una agenda de negociaciones que incide en el comercio internacional", in the Foreign Trade Supplement of newspaper "La Nación", November 11, 2021, p. 3.
  • Peña, Félix, "Aportes a un debate sobre el futuro de la integración latinoamericana y del Mercosur", Revista de Relaciones Internacionales, year 30, N° 60, January/June 2021, Instituto de Relaciones Internacionales, Universidad Nacional de La Plata, pp. 299 - 308.
  • Qureshi,Asif H. "Interpreting WTO Agreements. Problems and Perspective", Cambridge University Press, Cambridge 2015.

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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