Wheels Falling off the WTO: Is it high time to write an obituary for multilateralism?

January 27, 2015
3 mins read

Multilateralism was believed to have returned from the grave, when delegates to the World Trade Organization (WTO) bragged of the Bali deal, the first fruit to be reaped out of the long-deadlocked multilateral trade negotiations in December 2013. The resurrection of the Doha round of international trade talks was indeed quite a surprise to those who already promulgated the end of multilateralism. Doha negotiations, initiated in 2001, were suffocated owing to the conflict of interest among WTO members in intractable issues such as agricultural subsidies, intellectual property rights and trade in services. They also experienced the collapse of talks in 2003 and 2008. In 2012 however, the flame of multilateral negotiations was rekindled as the WTO endeavored to simplify the agenda and channel the focus of talks into “trade facilitation”, i.e. the cutting of red tape in customs procedures, which was predominantly supported by the members. When the Bali package was signed in late 2013, a rosy future of multilateralism was sketched out with optimistic economic estimates—for instance, the Peterson Institute for International Economics forecasted that trade facilitation would generate 21 million jobs, particularly in less developed nations, and could increase developing countries’ annual output by $523 billion, tilting the playing field of world trade to the advantage of underprivileged countries.

The banquet for the revival of multilateralism was soon called off when India, claiming itself as a torch-bearer for Third World countries, scuppered the Bali deal in July 2014. India’s backing-out was due primarily to its “food security” laws and domestic politics. Responding to recent food price fluctuations, India planned to implement a series of policies to ramp up agricultural production via farming subsidies. Such growing subsidies were likely to run afoul of the WTO legal principle—for example, trade-distorting subsidies to farmers in a developing country cannot exceed 10% of the total value of its harvests. Highlighting the significance of food security, India has insisted on a change in the multilateral trading system. Succumbing to pressure, other WTO members were willing to make concessions to India by including a four-year “peace clause” that would have exempted its food security measures from challenges in the WTO. However, the new Indian government was unsatisfied with this offer and halted the Bali deal, demanding a permanent solution for agricultural subsidies in developing countries. It is unfortunate that India’s stiff opposition to the Bali package is likely to deliver a fatal blow to most of the developing countries, as most of the benefits from the trade facilitation deal would be concentrated in impoverished nations.

What is even more concerning is that a continuing failure to reach a consensus on a multilateral trade deal would eviscerate the world trading system and question the WTO’s raison d’etre. Difficulty in gathering a consensus among the WTO members is attributed to the WTO’s “single undertaking” approach, in which nothing is accepted until everything is agreed. In turn, making progress is extremely challenging without resolving some of the inflexible trade issues. Furthermore, the eclipse of the multilateral trade system reflects a shift in the economic balance of power. Flexing their newly found muscle in the economy, emerging market economies (EMEs) are stalwartly voicing their opinions and are often demanding exemptions in negotiations with industrialized nations, which are reluctant to give ground. EMEs also call for protection from each other, China in particular. Limits of the “single undertaking” approach coupled with rising demand from newly emerging stakeholders have outshadowed the prospect of multilateralism and, in turn, have spotlighted regional trade deals as an alternative.

Fatigued by lack of progress on a multilateral deal, many of the rich nations arm-twisted their way with mega-regional trade agreements (RTAs), including a Trans-Pacific Partnership (TPP) and a Trans-Atlantic Trade and Investment Partnership (TTIP), blazing an alternative path for trade liberalization. TTP and TTIP, accounting for half of the global trade, aims not only to ensure comprehensive duty-free market access but also to incorporate “21st-century” aspects of “behind-the-border” issues, such as intellectual property, labor and environmental standards and government procurement. Witnessing a shift to a more fragmented world trading system and recognizing difficulties in reconciling with the US-led “behind-the-border” liberalization, countries like China and Russia attempted to entrench their own regional trade blocs. China, for example, has been vigorously pushing various bilateral trade deals. It also participates in the Regional Comprehensive Economic Partnership (RCEP), whose members are comprised of ASEAN countries, Australia, India, Japan, New Zealand, South Korea and China. Evidently, a growing number of RTAs are apt to serve as a substitute for, not a complement to, multilateralism. This therefore poses an existential threat to the multilateral trading system. Now it is time for us to hearken to Arvind Subramanian of the Peterson Institute’s warning that “multilateral trade as we have known it will progressively become history.”

Leave a Reply

Your email address will not be published.

Previous Story

Testing Theories of American Politics

Next Story

Lee Kuan Yew & The Curious Legacies of “Benevolent Dictators”

Latest from Economics

Inside the Vision of Global Capitalism

There are various approaches to the journey of humanity, from the Age of Discovery, Industrial Revolutions, Enlightenment, Renaissance and Reformation Movements, the French Revolution, to the emergence of nation-states, leading swiftly to the present day. There are authors who remind us of Colonialism, Imperialism, and the Middle Ages from a contemporary perspective. Above all, each day, even every second, is immensely valuable for a world inhabited by 8 billion people!
cop21 mexican president pena nieto

After COP21: Mexico In-Between Energy Security and Climate Change Mitigation

Climate change is perhaps one of the thorniest economic and social problems of our time. This is not unrelated to the fact that in many countries, the forms of energy that power economic growth are those with the highest concentrations of carbon –oil and coal. It has been argued that it only takes three economies – the United States, China and India – to produce more than 40% of all global greenhouse gas emissions [1]. After the recent UN Paris Climate Change Conference (COP21) nonetheless, energy policies have quickly become priority issues in many developing countries’ agendas for a number
chuquicamata chile mining

Cyclical Failure – Economic Crisis and Commodities in Latin America

Despite a great deal of discussion on the information economy in recent years, (much of it useful and much of it overhyped,) the actual world economy’s health is still reliant on raw materials, which is expressed in their prices. While in parts of the developed world the recent fall in commodity prices has been referred to as the equivalent of a tax break, in countries that are heavily dependent on commodity exports, calamity is a better reference point. The primary issue here is dependence. Many developed nations also produce raw materials in great quantities, but their economies are comparatively diverse.
Chinese economic trouble

Moves to a Service-Based Economy is Likely China’s Catch-22

The achievements of President Xi Jinping’s short duration in Britain are the first steps of what China hopes to be the path to becoming a fully-developed country. Proclaimed a “golden era” in relations between the two nations by Prime Minister David Cameron, China views Britain as a “great platform from which China can go global,” according to head of Chatham House’s Robin Niblett. Indeed, as China seeks to shift its economy from an export-based to a service-based economy and to propel the yuan into an internationally-traded currency that could potentially rival the dollar, yen, and Euro, access to Britain’s financial markets

Don't Miss