Whither, global trading system?

Business Line, May 14, 2013

By Pradeep S Mehta

Reviving multilateralism in the global trading system calls for a new, more flexible approach

The new Director-General of the World Trade Organisation (WTO), Roberto Carvalho de Azevedo, will face a Sisyphean task in breathing life into the comatose Doha Round that has been under negotiations since its official launch in November 2011.

The talks have failed to make much progress, made worse by fragmentation due to a spaghetti bowl of preferential trade agreements (PTA), many of which have been signed or are under construction. The international community’s challenge now is to resurrect trade multilateralism, because PTAs are not the best option; the bigger partners often get the better of the smaller parties in these treaties.

That is why multilateralism needs to be resuscitated. But that calls for a fresh approach.

When the Doha Round took off, it had the appellation of ‘development’. That was intended mainly to bring on board recalcitrant poorer nations grappling with the complex and iniquitous WTO texts, even while the rich countries only wanted better market access and blocked clarificatory efforts in this regard.

But this has also been one of the main problems with the Round. The collapsed Cancun Ministerial in 2003, in particular, became a turning point in the geo-economic calculus, when emerging economies such as Brazil, India and China entered the high table along with the US and Europe. And that has since been causing indigestion to the latter, who had until then ruled the global trading system in a feudal manner.

Resolving the deadlock

Faced with this impasse, Azevedo’s predecessor, Pascal Lamy, last May, set up a high level stakeholders’ panel to ideate on the future architecture of the trading system in the 21st century. Its remit did not include the Doha Round, as the idea was to step aside from the current imbroglio and views matters holistically.

The panel’s report was released at Geneva this April, amid controversy that was to be expected. The panel itself was a disparate group, as such bodies tend to be. Hence, its report carried a disclaimer about there being a divergence of views, while only aiming at some consensus rather than unanimity. Secondly, it was clearly said that the issues articulated were not part of any negotiating agenda; individual WTO members retained the exclusive right to decide on how they would receive and react to the report.

The best part about the report was its emphasising the preamble of the WTO, which is that trade should lead to creation of jobs with real incomes and raise the living standards of people all over the world. And that this mantra has to be well understood by lay people, so that they do not fear the trade liberalisation agenda.

Of course, there will be winner and losers here, but for this complementary policies, including adjustment programmes, need to be in place. The panel also recognised the increasing concerns over rising inequality within and among countries. But for that, the blame could not be laid on the WTO; many of the issues need to be addressed domestically.

WTO-plus rules

Among the few controversies in the report, one pertains to the issue of rules on investment and competition, which were removed from the Doha Round agenda in July 2003. There is growing recognition now that these rules need to be incorporated in a multilateral setting, because they are anyway being inserted in most PTAs, and the weaker partners can hardly object to them. All bilateral investment treaties (BITs) involving the US, in fact, have TRIPs-plus commitment on intellectual property protection and many also include a social clause.

In terms of competition rules, too, when the dialogue was being conducted at the WTO following the Singapore Ministerial in 1996, many countries said that they do not have a domestic competition regime. Hence, they did not have the capacity to negotiate an international treaty. In 1995, only about 35 countries had domestic competition laws. But today that number has crossed 120. Everyone today recognises that liberalisation must be accompanied by market regulating tools; otherwise the gains from trade can be lost.

In a report, “A Fair Globalisation: Creating Opportunities for All” released in early 2004 – soon after the change in the Doha Round agenda – the International Labour Organisation’s World Commission on the Socialisation Dimension of Globalisation noted the developing countries’ discomfort on the above two issues.

At the same time, the report said that BITs are already stealing the policy space and, hence, recommended that the world needs not only multilateral rules on both investment and competition, but even an international competition agency. The distinguished Commission was co-chaired by Tanzania’s President Benjamin Mkapa and Tarja Halonen, President of Finland, the rich yet most giving nation in term of overseas development assistance.

More than half of the members in the Commission consisted of experts from developing countries, including progressive (left leaning) persons such as the Philippines’ Victoria Tauli-Corpuz, India’s Deepak Nayyar and the American Nobel laureate economist, Joseph Stiglitz.

Reciprocity, flexibility

The other controversial issue in the stakeholders’ panel report was a recommendation on managing reciprocity and flexibility, which would also include allowing a group of willing countries to negotiate plurilateral agreements among themselves and/or a waiver from most favoured nation obligations. This is a reality and, in no way, will it undermine development concerns or poor countries’ right to trade.

Without the above new approach being followed, it is quite unlikely that the current contours of divergences between and among member-states can be addressed. The new approach will create space for following both offensive and defensive interests at the same time. For instance, India has both offensive and defensive interests on a broad subject such as farm goods. Issuing specific flexibility and concomitant reciprocity will help in negotiating such conflicting combination of interests.

The report highlights the dire need of convergence between four strands of policy responses. Firstly, members need to converge on negotiating issues and their sequencing to achieve progress. Secondly, the PTAs need to be gradually aligned with the multilateral trading regime. Thirdly, better coherence needs to be developed domestically between trade and so-called flanking policies relating to health, education, skills or innovation. Fourthly, and this is a most serious issue, there has to be greater harmony between trade policies and public policy-driven non-tariff barriers, the bane of the trading system.

Finally, intergovernmental organisations dealing with global governance issues also need to align their working with the trade agenda, wherever there is a linkage or overlap. For example, climate change and trade have a close relationship, just as food security demands better global policy response through continuing dialogue between the WTO and Food and Agricultural Organisation.

Ultimately, we need to move to a real ‘Geneva Consensus’ on Trade Multilateralism, which can work towards harmony and coherence on issues impacting international trade.

(The author is Secretary-General, CUTS International and member of the WTO’s Panel on Defining the Future of Trade that submitted its report last month)

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