To Save Liberal Trade, Reboot the WTOClive Crook
Dec. 5 (Bloomberg) -- When the world’s trade ministers wrap up their meeting in Bali this week, we’ll know whether the World Trade Organization is seriously injured (success) or critically injured (failure). In either case, governments face a clear imperative: The WTO can no longer perform its mission and must be reinvented.
Although you’d hardly know it from the meager attention paid to Bali this past week, trade policy matters. If the subject seems small, reflect on the following: In the second half of the 20th century, the world experienced a miracle of surging growth and living standards unlike anything previously known. Poverty receded worldwide and continues to recede faster than it ever has before -- and international trade deserves much of the credit. By expanding markets, spurring competition, and spreading knowledge and technologies across borders, policies promoting liberal trade were vital to this economic breakthrough.
The General Agreement on Tariffs and Trade, the WTO’s precursor, made this transformation possible. It opened markets in a series of big and increasingly difficult steps, negotiated in successive rounds of talks. This work isn’t finished. Some trade issues are perennials; farm subsidies, a bone of contention in Bali, spring to mind. More important, as the global economy changes, the focus of trade policy shifts, too -- from tariffs on manufactured goods (mostly low these days) to barriers to trade in services, cross-border investment, protection of intellectual property, and so on.
Despite an unstoppable flow of new issues, the Doha round is likely to be the last such exercise, and indeed should be the last. It began in 2001 with huge ambitions that were pared to almost nothing after years of getting nowhere. This week, even the remnants of that initial agenda -- “Doha Lite” -- have been in doubt.
They’re still worth having, by the way. The biggest piece is “trade facilitation,” which means reducing the costs of moving stuff across borders. In many industries these days, those costs are higher than prevailing tariffs. That’s partly due to the growth of so-called global value chains, which move products to and fro many times as they’re built into increasingly elaborate intermediate goods. A big win on trade facilitation would boost trade a lot.
Regardless, the WTO’s old approach no longer works. The 12 years it took the Doha round to get here is sufficient proof. The old logic relied on two things. First, everybody has to agree: A lone holdout can block the deal. Second, it’s all or nothing: Under the principle of the “single undertaking,” accepting a deal means accepting every part, however complicated the whole. Issues that command consensus can’t be pulled out and agreed to separately. There have been exceptions to this approach, but that was the basic model.
Insisting on consensus once made sense. It widened the circle of participants, and the single undertaking made possible bargains across a vast range of issues. For whatever reason, this era has ended. Maybe it’s a failure of leadership. Maybe the issues are more divisive, so consensus is harder to achieve. Maybe widening the scope of the deal increases opportunities to disagree more than it adds to the ways to strike deals. Whatever. The result is “Doha Lite” -- if that deal is even struck.
Global liberalization -- multilateralism, as it’s called -- is failing. And governments have taken up the alternative, regionalism, with zeal. The next big moves in trade reform will be settled within regional groups. The WTO must adapt to this or die.
The Trans-Pacific Partnership aims to unite the U.S. and 11 Pacific Rim countries in a new trade alliance. The U.S. and the European Union are negotiating the Transatlantic Trade and Investment Partnership. There’s Nafta. There’s AFTA. There’s EFTA, Mercosur and Cafta. I could go on: Almost 400 bilateral and regional trade pacts are currently in force.
Regionalism expands trade but also distorts it by leaving barriers between insiders and outsiders. Compared with no reform, it’s usually a net plus in economic terms, but it’s not as good as the old approach (when the old approach worked). It also risks merging trade and geopolitical rivalries in a way that multilateralism avoided. The U.S. wants TPP for strategic reasons, not just to grease the wheels of commerce.
The goal of a reinvented WTO should be to preside over regionalism, making sure it conforms to global rules, and keeping it as compatible as possible with multilateralism, should the appetite for that ever be revived. Meanwhile, no more mega-rounds. No more unanimity. No more single undertakings. All the causes of Doha Lite syndrome must go.
Instead, let governments strike deals sector by sector, or form regional coalitions of the willing. Let them do what they’re already doing, but bring these new “plurilateral” arrangements fully within the WTO’s purview. Among other things, that would extend the scope of its dispute-settlement procedures, a benefit for countries whether they’ve signed on to the plurilateral agreements in question. Governments could also agree -- and empower the WTO to ensure -- that membership of these arrangements would remain open to newcomers on the same terms.
More than any other innovation, the guarantee that new trade pacts will stay open to others on equal terms would keep the flame of multilateralism alive. Letting that idea die would be a bigger loss than governments seem to realize.
(Clive Crook is a Bloomberg View columnist.)
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