This article is part of our special report Free Trade for Growth.
SPECIAL REPORT / While multilateralism is faltering, its supporters are trying to find a new raison d’être for the deadlocked Doha trade talks ahead of the WTO’s next big meeting in Indonesia in December 2013.
“It is now clear the goal of achieving a Doha package encompassing 20 topics among the WTO’s 157 members is out of reach in the short term,” WTO chief Pascal Lamy said at the Brookings Institution in Washington on 1 October. “But in this difficult environment the possibility still exists of advancing in smaller steps.”
A week earlier in Singapore, Lamy questioned the increase of regional alternatives to the multilateral deal, which he sees as “embedding geopolitical tensions and carrying an exclusiveness that makes arrangements a poor second to a genuinely multilateral framework for trade relations.”
Global Recovery Round
In support of the WTO, some are pushing the idea of launching a Global Recovery Round focusing on manufacturing and services, which represent around 55% of total trade, leaving out agriculture and the Doha mantra – “Nothing is agreed until all is agreed.”
The Global Recovery Round could be launched at the next G20 finance ministers’ meeting in Mexico City and be given one year to deliver in time for the next big WTO meeting in Bali, Indonesia, next year.
Regardless of the alternatives, something needs to be done, as trade barriers and protectionism are creeping up and the number of disputes has increased. Latest WTO figures forecast a drop for trade growth this year to 2.5% as the euro debt crisis drags down the global economy, including the United States and China.
But trade has the potential to flourish in the years ahead.
HSBC recently forecast that world trade would grow by close to 90% over the next 15 years. The report predicts a tipping point in the balance of trade power where imports will grow faster than exports in 'emerging' markets within the next five years. This will signify a shift, where traditionally export-driven countries are now starting to see imports rise, driving developed and emerging market growth.
Regional, bilateral deals: Good or bad?
Countries are well aware of this trend and are racing to reach bilateral and regional deals outside the scope of the WTO.
In his State of the Union address, European Commission President José Manuel Barroso said Europe needed a pro-active trade policy by opening up new markets. “This is the gold mine that is yet to be fully explored,” he said.
Trade as a share of global GDP has risen from roughly 40% in 1980 to around 60% today, according to the WTO. By 2015, 90% of world growth will be generated outside Europe, with a third from China alone, the European Commission estimated. Developing and emerging countries are likely to account for nearly 60% of world GDP by 2030.
In an interview with EURACTIV, EU commissioner for trade Karel De Gucht noted that even if Doha round of trade talks is moribound, the EU should maintain the course on bilateral trade agreements, while keeping up the pressure to go back to the Doha negotiating table.
“What we are doing does not go against Doha, but it is complementary,” said De Gucht, stressing a multilateral track is needed to “put a floor in the system.”
The European Union, itself the biggest free-trade area in terms of value, made side deals with South Korea last year, and Columbia and Peru in June. Bigger EU deals, with India, Canada, Japan and perhaps the United States, are in the pipeline.
“Trade is obviously good for growth. There are few things that economists agree so strongly about. But it’s nevertheless difficult, because you have to surrender some of your regulatory autonomy. And there will always be losers, despite the overall gains,” explained Marc Vanheukelen, De Gucht’s head of cabinet, arguing that the EU trade deal with South Korea is a model as it is comprehensive, including services and agriculture.
Vanheukelen added that there are “more jobs in tradeable services than in manufacturing, so if we can liberalise these, we’ll really see benefits.”
Given the importance of services to boost growth, the EU and a couple of dozen rich countries of the so-called group of Really Good Friends, have launched negotiations for an International Services Agreement (ISA).
Their goal is to agree on a set of rules that would make it easier for banks, insurers, engineering firms and other service providers to win business in the participating nations.
"There is recognition of the danger that the multilateral trading system might be eroded, giving way to a more fragmented system and less favourable environment for cross-border trade and investment," said Stuart Harbinson of the European Centre for International Political Economy (ECIPE) in Brussels.
Across the Atlantic, the United States is also accelerating negotiations to strike regional deals outside the WTO. Behind closed doors, they are pushing for a Trans-Pacific Partnership (TPP) with Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.
"These trading arrangements may include elements not covered by the WTO agreements such as social and environmental standards, recognition of standards or qualifications. There is a danger that the regulatory elements of each accord may not only differ but clash, creating perhaps unintended but very real barriers to trade," admitted WTO chief Lamy.
But the TPP is perceived as the US attempt to solve many of the problems that have come from overlapping trade deals in the past decade. It is also supposed to be different – “a high-quality, 21st-century” agreement that will set standards for future trade agreement.
All this much ado about trade, will surely have geopolitical implications. “There is a danger that we are witnessing a gradual balkanization of the trading system which would be highly inimical to international business and highly undesirable in a geopolitical sense,” argued Harbinson.
Even in areas where there might be some hope to strike a WTO deal, divisions between developed and developing/emerging economies mar negotiations. Take trade facilitation.
Customs procedures, paperwork and border delays today comprise roughly 10% of the value of world trade, or around $1.4 trillion (€1 trillion).
“A trade facilitation deal in the WTO to curtail fees and paperwork, create greater transparency and reduce obstacles to goods in transit would cut those costs in half,” Lamy said last week.
Some, however, don’t see it as a win-win deal. India’s ambassador to the WTO, Jayant Dasgupta, reportedly said that developed countries were now aggressively pushing new rules in trade facilitation which would result mainly in facilitating more imports from developing countries rather than exports. That would also be costly, and the promised funding is not forthcoming.
The ambassador hinted at the fact that the developed countries were also pushing for other ways to open up developing countries’ industrial markets, through a second Information Technology Agreement and tariff elimination of what is termed environmental goods, with a wide definition of both, thus involving many sectors and goods.
We can expect more pressures to negotiate new issues in the agenda for a new round, Dasgupta said. Meanwhile, he added, developed countries would not accept cuts in their agricultural subsidies or provide greater market access, thus their proposals would lead to even more unfairness.
Dasgupta stressed that the WTO faced a real crisis of reconciling the different demands and ambitions of countries which have up to $80,000 (€61,600) per capita income and those with as low as $500 (€385).
So what of the future? The WTO has assembled a panel of 12 experts – including Tom Donahue from the US Chamber of Commerce — to report on their findings by the beginning of next year.