A realist's view of the global trading system

Reuters

World Trade Organization (WTO) Director-General Pascal Lamy arrives for a news conference on world trade figures for 2012 and forecast for 2013, at the WTO headquarters in Geneva April 10, 2013.

Article Highlights

  • WTO trade negotiators, rather than converging on vital compromises, are moving farther apart on key areas

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  • Whatever the outcome in December, the world trading system is almost certainly in for a time of reflection and retrenchment before moving forward on major new trade issues

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  • The trading world is witnessing a real time experiment on how far and how fast renewed liberalization can go on a bilateral and regional basis.

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  • By 2015, we will have a much clearer picture of what is possible in the juxtaposition of old-fashioned 20th century protectionism against 21st century liberalization goals.

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There is great lamentation these days about the state of the multilateral trading system and its institutional symbol, the World Trade Organization (WTO). The Doha Round of multilateral negotiations has now dragged on for twelve years, with no end in sight on major issues. From 2003, when the first breakdown came at Cancun, Mexico, through a further standoff in Hong Kong in 2005, and a huge negotiating defeat after a marathon 2008 session in Geneva, world leaders have executed a political ritual: frantic calls for the "political will" to successfully conclude the round, followed by a total absence of action. Indeed, the greatest damage inflicted on the WTO has come from these feckless and increasingly vitiating global calls for action.

Now, attention is focused on salvaging a "mini" outcome when WTO trade ministers meet in Bali in December. But even this token outcome seems in jeopardy. In a stinging, blunt assessment of the prospects for even minimal success, U.S. WTO Ambassador Michael Punke recently stated that "the picture is grim." In Punke's view (echoed in part by WTO Director General Pascal Lamy), WTO trade negotiators, rather than converging on vital compromises, are moving farther apart on key areas-trade facilitation (customs reform, removal of transportation and regulatory blocks to moving goods and services) minor agricultural trade reforms, and granting free trade access to the least developed nations.

Whatever the outcome in December, the world trading system is almost certainly in for a time of reflection and retrenchment before moving forward on major new trade issues-so-called 21st century challenges: the impact of supply chains and state-owned enterprises on trade policy, investment, intellectual property advances, services, health and safety regulations and labor and the environment. In my view, the most realistic avenue to future advances will come from building from the ground up. Specifically, this means monitoring the substantive results of the major new regional and trans-regional trade negotiations that have been launched, or are in process of being launched-and then gleaning these new liberalization commitments as the foundation for a new multilateral trade round several years down the road.

Why do I think this is possible and politically the most attractive option? First, just look around at where liberalization is occurring (beyond the substantial unilateral barrier reduction by individual nations). It is through bilateral, plurilateral and regional trade agreements. There are now over 300 bilateral trade agreements in operation, and many more being negotiated. On average, WTO members belong to 13 FTAs. It is true that many of the FTAs are shallow, and do not cover many "21st century, inside-the-border issues. But most provide zero tariffs in the near future for over 90 percent of manufactured goods, and many do include some services, investment and other regulatory reforms.

Of greater import, however, are the relatively new regional and bilateral agreements that do tackle head on behind-the-border barriers to trade and investment. Examples on the bilateral level include the U.S.-Korea FTA, the EU-Korea FTA, and the proposed US-EU, EU-Japan, and Canada-EU FTAs. These "deep integration" FTAs in turn will provide a partial template for much larger regional FTAs that are being negotiated: the Trans-Pacific Partnership Agreement (TPP) that now includes 12 trans-Pacific nations, with future eligibility for all APEC nations; and the Regional Comprehensive Economic Partnership (RCEP) agreement, that includes all of the ASEAN nations, plus Australia, China, India, Japan, Korea, and New Zealand. The real breakthrough here is that big economies-U.S., Japan, China, EU-are now negotiating with each other, breaking the older FTA model of larger countries negotiating "hub and spoke" FTAs with many small countries. Clearly, the outlier is China, which is a member of RCEP that includes Japan, but is not currently negotiating with the U.S. or EU, either directly in within a larger regional framework.

The negotiating timetables are important for future WTO negotiations. Most of key bilateral FTAs-US-Korea, Korea-EU, Japan-EU and Canada-EU-are either completed or have deadlines within the next year or so. The TPP has set a goal of completion by the end of 2013 (with a more likely date of mid-2014). The RCEP nations are aiming to wrap up their negotiations two years from now, at the end of 2015. In effect, the trading world is witnessing a real time experiment on how far and how fast renewed liberalization can go on a bilateral and regional basis.

These are all ambitious negotiations and they may fail or fall well short of their liberalization goals. But by 2015, we will have a much clearer picture of what is possible in the juxtaposition of old-fashioned 20th century protectionism against 21st century liberalization goals. The lessons learned from these negotiations will provide the baselines for a future, realistic WTO trade negotiating agenda.

Does this mean that the WTO must stand still over the next several years? By no means-it should use that time to get its own house in order. Besides substantive conflicts, other lessons from the Doha Round failure implicate the mechanics of WTO negotiations, and a number of suggestions for procedural and administrative reforms have surfaced and need to be vetted-should the rule by consensus be scrapped and replaced by a "critical mass" of members for rule adoption; should the so-called single undertaking whereby agreement must be achieved in all areas before a round is complete be scrapped in favor of a "variable geometry" of individual sub-agreements; should the WTO Director General and/or the Secretariat be granted additional authority to suggest compromises to get around negotiating roadblocks? These are just a sample of a procedural negotiating agenda. In some circles, it has been assumed that such changes will come easily. Not so-large and small nations will calculate their gains and losses from procedural changes with just as much zeal as they devote to substantive issues. The changes being contemplated will require a detailed and politically dicey negotiation. Thus, there is plenty for WTO members to decide while awaiting the results of current bilateral and regional negotiations.

Claude Barfield is a former consultant to the office of the U.S. Trade Representative and a resident scholar at the American Enterprise Institute. 

 

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About the Author

 

Claude
Barfield
  • Claude Barfield, a former consultant to the office of the U.S. Trade Representative, researches international trade policy (including trade policy in China and East Asia), the World Trade Organization (WTO), intellectual property, and science and technology policy. His many books and publications include Swap: How Trade Works with Philip Levy, a concise introduction to the principles of world economics, and Telecoms and the Huawei conundrum: Chinese foreign direct investment in the United States, an AEI Economic Studies analysis that explores the case of Chinese telecom equipment maker Huawei and its commitment to long-term investment in the US.
  • Phone: 2028625879
    Email: cbarfield@aei.org
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