27.11.14

The WTO's faded glory

was my Trade Tripper column in the past weekend issue of BusinessWorld:

To say that the World Trade Organization (WTO) is struggling is an understatement. Particularly regarding relevance, the WTO is grappling with a global economy that currently seems to have no use for it. That may not seem like the case here, with law schools in the Philippines still treating it (i.e., “international trade law” or “international economic law”) as some sort of prestige program. But the truth is that local “trade lawyers” today are merely living off faded glory.

It doesn’t mean that the WTO is dead and should stay dead. But it would have to take a fair amount of change at profoundly varying levels for it to recover its significance.

And the stakes are worth it. As I wrote previously, the best way to ensure “developmental” success for developing countries is through multilateralism. But that requires the developed countries to practice what they preach. Instead, the tact of the developed countries is to break up developing country positions through regional or bilateral trade agreements.

Though the United States is more successful than the European Union in that aspect, yet, as seems systemic in anything having to do with international affairs today, the US’ (more specifically, the Obama administration’s) lack of leadership in this area is calamitous.

Melbourne economics professor Peter Lloyd more descriptively states: “The US has joined the EU in preferring improved market access through preferential trade agreements with small groups of countries over general multilateral trade liberalization. Now in the WTO few members seem convinced of the gains from multilateral trade liberalization. After a session of negotiations relating to industrial goods in 2009, the chair likened himself to ‘the captain of a boat no one seemed to want to board.’”

Obviously, there is a need to “fix” the WTO. But how? Most blame the “consensus”-driven system of the WTO, as Emily Jones reported: “The World Trade Organization’s (WTO) director-general, Roberto Azev√™do, has called for an urgent shake-up of his institution. Last week, he declared the WTO to be in ‘the most serious situation [it] has ever faced,’ and now he is convening crisis talks with member countries. One of the main reform proposals, reportedly advocated by the United States and the European Union, is to move away from consensus-based decision making -- one of the WTO’s founding principles. That might boost efficiency, but it also could jeopardize one of the WTO’s greatest assets: its legitimacy.”

However, such presents an irony. Developed countries only resorted to that reasoning simply because of Doha.

Doha’s unintended importance is that it publicly revealed developed country calculations: launch a round with some nice motherhood statements, let the developing countries flounder in their under-resourced and unorganized way through the talks, conclude like Uruguay, and developed rich countries happy again. Unfortunately, the developing countries were apparently not given copies of the script. Learning from the Uruguay Round and gaining further experiences from Cancun and Hong Kong, the poorer countries learned to stand their ground and maintained focus.

Hence, a further aspect of developed country efforts to “fix the WTO” and that is free trade agreements. As Jones puts it: “These efforts include the US-EU Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership. The US and the EU are also leading the charge on the Trade in Services Agreement (TiSA), assembling a coalition of like-minded WTO members for closed-door negotiations on further liberalization and new rules for their mutual trade in services. To date, none of these non-WTO talks include the other major players in global trade -- China, India and Brazil. The reason most of the large ‘plurilateral’ negotiations are taking place outside of the WTO is simple: agreements within the WTO need the approval of all members to proceed. But unanimous approval is likely only when the content of agreements is not controversial -- hence the proposal to abandon the rule.”

Which leads to the second irony: that the trading system is stuck due to the developed countries’ inability to recognize fundamental developments. As Fung Global Institute William H. Overholt writes: “We must begin addressing the world as it is and will be, not the world of generations past. Ironically, in the process the WTO remains crucial to a vibrant world economy. Without the WTO’s dispute settlement mechanism, trade wars will ignite everywhere. By allowing the WTO system to decay, and by blaming globalised trade for problems that are unique to the past generation, we risk going back to pre-World War II trade wars. We need a modern, multilateral structure that updates the WTO, not a degeneration of the global trade and investment system based on a failure to recognize the shape of the new world we are entering.”

Unless that happens, the likely probability is that the WTO remains sidelined. And with that, the interests of developing countries.