WTO: dead again

is the subject of my Trade Tripper column for this Friday-Saturday issue of BusinessWorld:

Happened to read Bryan Magee’s Confessions of a Philosopher last weekend and noted this quite interesting passage: "What matters above all else in politics is what happens, not what people say about it. And for the most part what happens is independent of my wishes. In politics especially, people tend to allow their wishes to influence their assessment of reality, and to mix up the two even at conscious levels of thinking." Magee might as well be talking about international trade.

For instance, former US trade negotiator Clyde Prestowitz wrote (Financial Times, 20 March 2012) that the EU, Japan, China, and Brazil seems intent in playing a different "trade game" than that of the US. As Prestowitz puts it, "experience taught me that in today’s globalized world two different games are being played. One is suggested by the formal rules of the World Trade Organization. The other is a silent mercantilism played by countries that use subsidies and domestic regulations to exploit ambiguities in the formal WTO rules -- or that simply ignore them." Hence, while ideally everybody should be playing what he calls "trade rugby," instead certain countries are playing a different game which takes "advantage of the rules’ ambiguity, it can be played in the shadows of the global institutions, but it cannot be disciplined by them because it is a game with its own very different rules and scoring system."

This view is apparently shared by others. But, unfortunately, the logic has been extended in a distorted way by people that ordinarily would be considered reasonable, arriving at rapid conclusions that, in essence, call for the death knell of the WTO. But to consider the WTO or the multilateral system it represents or embodies as outmoded, irrelevant, or systemically inadequate is wrong. It’s like calling an end to basketball just because certain quarters have gotten adept at the run-and-gun game while the founding teams rather insist on their set half court plays. The game stayed the same, it’s still basketball. It’s just that some players found another way, a way suited to their particular circumstances, of playing it. While the traditional players could not be faulted for feeling threatened by this new type of play (and Prestowitz admits as much when he states that "‘they’ [meaning other countries] are playing a different trade game than ‘we’ [the US] are, and their approach is unfair to us"), nevertheless, it would be incredibly unjust, "unsporting" if you like, to scrap the game altogether merely because of it.

And what would be the suggested substitute if the WTO is indeed dead? In so many words, preferential or free trade agreements. But FTAs, as anybody following this column knows, is preferred by developed countries (the "traditional players") simply because that system and its playing field is currently loaded in their favor. As I noted a few years ago, the disparity between the benefits going to richer countries as opposed to that going to poorer countries was affirmed in a UN University Working paper ("North-South vs. South-South Asian FTAs: Trends, Compatibilities, and Ways Forward"). The paper’s empirical analysis reveal "that several incompatibilities exist between N-S and S-S FTAs in core areas including tariff liberalization, rules of origin, [and] liberalization of services trade." It must be emphasized that such realities, aren’t new. The Economist stated way back in 2004 ("Trade Policy: Not All Trade Agreements Are Good"), that: "Most bilateral agreements are far from ideal… Bilateralism may be a route to freer global trade, but it is, at best, a risky one." It must be emphasized that 20 years after its inception, Philippine utilization of AFTA benefits still remains at a low 20%.

That is why Columbia University’s Jagdish Bhagwati calls FTAs "termites in the trading system," used "by hegemonic powers to foist on weaker trading partners demands unrelated to trade but desired by domestic lobbies, at times in a markedly asymmetric way." Besides, the thinking that certain regional arrangements are there to balance against developed countries is again merely wishful thinking. Take for instance BRICS (Brazil, Russia, India, China, and South Africa), which is touted as the counterpoint to Western trade powers. And yet, as the Center for Policy Research’s Brahma Chellaney points out, BRICS remains "a concept in search of a common identity and institutionalized cooperation" and it remains "uncertain whether the group’s members will ever evolve into a coherent grouping with defined goals and institutional mechanisms."

Finally, the WTO will remain simply because there is no alternative to its highly effective dispute settlement system, a system that developing countries are using against developed countries with ever increasing confidence and competence. One WTO finding even declares that "since 1995 developing countries have brought nearly 40% of the complaints filed in the WTO. However, since 2000, developing countries have brought nearly 60% of the complaints."

As Mark Twain would probably say, the death of the WTO is "highly exaggerated."