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Preserving multilateralism through PTAs

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.

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