No future for multilateral rounds of trade negotiations

April 21, 2007

There are more and more voices expressing the view that the model of multilateral trade liberalisation rounds, such as held since the founding of the GATT back in 1947, makes no sense today. 15o states now make up the WTO, and the principle of consensus renders decision-making almost impossible.

Back in 2003, Razeen Sally from the LSE wrote a paper that remains as relevant as ever, analysing at that time the WTO’s decision-making difficulties in the run-up to Cancun:

“Clouding the negotiations at the WTO are three alarming trends: creeping standards harmonization, through which more-developed members seek to impose higher regulatory standards in such areas as intellectual property on less-developed members; excessive legalism, through which WTO panel rulings fill in the gaps of WTO agreements; and a more politicized WTO, where interest-group politics threatens to paralyze the organization”.

Now in 2007, what has changed? Not much. We are in a climate in which open markets and trade liberalisation are looked upon with increasing scepticism. With a booming world economy fuelled by high commodity prices, the urge to continue creating an infrastructure for long-term prosperity by increased liberalisation and a stronger rules-based trade system does not make itself felt. Bilateral agreements are proliferating, with dangers for the whole WTO system, for economic efficiency and long-term prosperity, for the poorer developing countries…(please see previous post).

There were hopes that the Doha Round could be concluded before the US’ Trade Promotion Authority expires this June. In fact not many believed in this, and the news of a new “deadline”, just announced, of end of 2007 I personally receive with a a good dose of cynicism. Without US Trade Promotion authority – will the US congress extend it? I doubt – the whole exercise does not seem to make much sense. This time, the round-spoiler seems to be India. But does it matter? If it is not the US, it is the EU, or India, or Brazil, or a powerful coalition of developing countries. China, who is benefiting so much from the WTO, has not developed enough of an active policy towards what in the end is its interest. China is still too self-centered.

Should Doha be concluded at all? For once, hard-core free traders and protectionists seem to agree. In personal discussions I have heard “free trade purists” say that an ultimate failure of Doha would not be a great loss, as it concentrates too much on matters not related to freeing up trade (regulation of all sorts, exemptions for developing countries, “aid for trade”, etc.). Not having Doha concluded would limit the damage. On the other side, the likes of Dani Rodrik and other more or less radical protectionists argue that the world economy is “open enough”, countries should now concentrate on repairing the damage created by the disruptive effects of freed-up trade, on preserving fragile domestic political and social equilibria, etc.

The main reason why the strong WTO could emerge back in 1995 was that its decision-making is based on consensus. But consensus is what bogs it down. So: que faire?

Clearly, the principle of a comprehensive multilateral round, that would liberalise everything from banking to agriculture, and impose more IPRs, adopted by consensus, in a single undertaking, cannot survive. So far proposals have concentrated on approaches that do not require full-fleged consensus, such as more “plurilateral” agreements on selected issues where only countries with a clear interest in seeing liberalisation happen in that sector sign up.

The Atlantic Council just published a report (courtesy of Trade Diversion via the FT), that could send a few shock waves since it represents a dent to the sacred graal of non-discrimination, such as enshrined in the GATT’s “most-favoured-nation” (MFN) clause! Its last report calls upon the two world leaders, the EU and the US to push for a new governance architecture reflecting the realities of today’s world, namely: increasing emerging market weight and clout. In issues related to the WTO, the report says:

“The United States and the European Union must lead a broader effort to remove trade barriers in the global economy by engaging major trading nations in negotiating WTO-compatible accords. Specifically, after the conclusion of the Doha Round, the United States and the European Union should engage their partners in a set of negotiations using the concept of variable geometry to:

  • Work with like-minded WTO members to eliminate barriers to trade in products and services overthe next ten years, extending those reductions on an MFN basis while ensuring that “free riding” is minimized;
  • Negotiate accords with interested WTO members to liberalize market access in specifi c sectors;
  • Work with like-minded WTO members to reduce additional barriers that extend across sectors in such areas as competition policy and government procurement.”

The FT adds:

“The council, which is chaired by two former US commerce undersecretaries, said the struggle to complete the Doha round showed that it was no longer possible to make meaningful progress in a global negotiating system that operated through consensus. It said economies willing to offer large tariff and subsidy cuts need to be able to deal with the “free rider” problem by not extending the same terms to everyone regardless of whether they made equally big concessions – the so-called MFN principle.”

The Atlantic Council’s views are welcome. The idea of a “variable geometry” does point to a way forward. Yet, how far go with the “variability”? MFN, for instance – that is what the WTO is all about! We might as well leave the whole business and go bilateral! This report will probably send shock-waves. At least it gives a new spark to the discussions.

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