Thoughts on trade, investment and development from the ARTNeT community
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Multilateralism has been the backbone of international trade relations for seven decades. We usually associate multilateralism with non-discrimination, referred to in GATT/WTO circles as the most-favoured-nation (MFN) principle. That principle has been applied pragmatically and two prominent institutionalized exceptions are permitted. One is MFN departures for regional integration agreements and the other is for special and differential treatment to support development in lower income economies.
These exceptions have caused their fair share of contention over the years, but they have never seriously challenged the idea that non-discrimination must remain the point of departure – the essential principle – underpinning multilateralism.
That was until now. The WTO has spent the last decade and a half in virtual negotiating deadlock. Results have been few and far between, such as the Trade Facilitation Agreement negotiated in Bali in 2013, and the agreement on agricultural export subsidies in Nairobi in 2015.
Some are beginning to question the very essence of the multilateral model. Merely pondering the nature of the void that abandonment of multilateralism would leave, and the economic costs that would ensue, should be enough to focus minds.
Preferential Trade Agreements (PTAs) can complement the multilateral trading system, but they are no substitute. They overlap, create multiple trade regimes for the same jurisdictions, and risk market-fragmenting regulatory divergence. They can be exclusionary and suffused with geopolitics as a direct result of their preferential nature.
Above all, PTAs would be set adrift without the mother ship of the multilateral trading system. That essential dependency is often poorly understood.
The good news is that many countries grouped together at the WTO’s eleventh ministerial meeting in Buenos Aires last December to launch self-starting initiatives in the areas of electronic commerce, investment facilitation, and the promotion of micro, small and medium enterprises. These initiatives will explore the issues and possibilities for negotiations on strengthened rules. They are designed to be inclusive, and all are welcome to join them.
This new dynamic offers the best hope for preserving multilateralism that we have seen in a long time. It builds on the old idea of non-discriminatory “critical mass” trade deals such as in telecoms and information technology.
Asia can play a critical role in shaping agreements that are truly inclusive, non-discriminatory, and serve the interests of all parties.
Kick Starting Multilateralism
Support for multilateral solutions to trade policy problems is high among analysts in the Asia-Pacific region. Governments too say they prefer multilateralism over unilateral policy shifts. But what are we prepared to do about it? We are taught in game theory that talk is cheap--and there has been a lot of cheap talk about supporting the WTO in recent years. Indeed, if fine words in summit communiques resolved trade disputes and negotiation impasses, commercial peace would have broken out a long time ago.
Given the multilateral solutions involve give-and-take what initiatives could Asia-Pacific governments--potentially in collaboration with states from other parts of the world--propose that can generate tangible progress at the World Trade Organization in Geneva? Is there any serious appetite for taking on new bindings obligations? If not, then what are the alternative forms of cooperation that can be fostered at the WTO and can they address big ticket (ie. trillion dollar plus) matters of commercial significance. Of course, there may be a case for confidence-building measures that start small and beget further cooperation. But how can ministerial support be sustained without eye-catching initiatives?
Posturing is easy but unproductive. No doubt some will be tempted to repeat one-sided demands of trading partners. This forgets that trade deals are deals--all parties have to change policy. Or, will historians conclude that the appetite for global trade deal-making is over for now and that the populist and nationalist developments in certain industrialised countries and emerging markets were a convenient scapegoat for rot that set in many years ago?
Since the early 1990s there has been a steady and continuing creation of new Regional Trading Agreements (RTAs) in the world economy. By contrast attempts to conclude the Doha Development Round of multilateral negotiations have floundered. There is a growing concern that these discriminatory RTAs may be hindering further multilateral liberalisation.
One response has been a drive to “multilateralise regionalism”. This movement began with a 2006 paper by Richard Baldwin. He proposed to extend the range of countries which may benefit from regional trade liberalisation.
One suggestion is to extend cumulation under rules of origin so that more countries supplying raw materials and inputs can benefit from regional liberalisation. Another example is the 1996 Information Technology Agreement which replaced national and regional tariffs on IT goods by multilateral free trade. These were seen as steps to move the world economy to the ultimate goal of global free trade. More recently other policies have come under the rubric. An example is the accession provisions which allow other countries to join an existing RTA. Others cite the development of new rules in RTAs which have subsequently been adopted in the WTO; for example, the Canada-US Free Trade Agreement was the first to includes rules for service trade, a step later adopted in Uruguay Round GATS.
However, these are a rather motley collection of policies, some adopted regionally and some multilaterally. The obvious method of multilateralising regional preferences would be for one or more members of an RTA to extend all the lower regional tariff rates on an MFN basis to all WTO members. However, no countries have agreed to this, partly because it conflicts with the commitment to exchange market access commitments among the regional members and partly because it involves no reciprocity on the part of the rest of the world. Meanwhile RTAs continue to proliferate. This highlights the urgency of resuming multilateral reductions in trade barriers.