E15 rta summary report of 1st meeting

The

E15

Initiative

Strengthening the multilateral trading system

Forget about Doha?

New Pathways toward Multilateral Trade Liberalization: Mega-Regionalism, Plurilateralism, and Multilateralization Kati Suominen

Summary report for the E15 Expert Group on Regional Trade Agreements

Draft version, not for citation

1. Introduction As multilateral trade talks have stagnated, regional trade agreements (RTAs) have taken the center stage in the world trading system.1 Well over 200 regional trade agreements have been notified to

the World Trade Organization (WTO), and the total number of agreements is more than 300 (figure 1). In addition, there are numerous agreements that cover only trade in services. By now, almost countries are member to at least one RTA, and most countries belong to two or more agreements at once.

Figure 1 - RTAs in Effect, 1960-2012

The proliferation of RTAs has changed the logic of global trade integration, and it poses thorny questions for the multilateral trading system. Still in the 1990s, multilateralism was the undisputed modality by which countries integrated with one another. Now the world is different. RTAs claim the attention of trade negotiators around the world, and their rise has generated a massive debate within and outside the WTO on their implications for the world trading system, particularly their potentially discriminatory effects. There have also been several attempts since the 1980s in the context of the Generalized Agreement on Tariffs and Trade (GATT) and the WTO system to ensure RTAs conform to different interpretations GATT Article XXIV that regulates the formation and format of RTAs. However, these efforts have been rather narrow in focus, and have had scant impact on the design and proliferation of RTAs.

This may not matter. The long-standing concerns that RTAs might balkanize the global trading system are becoming moot – most RTAs have been shown to be more trade-creating than tradediverting, thanks to the concurrent unilateral, preferential, and multilateral tariff lowering around the world. RTAs have also incubated sophisticated rules in such trade-related areas as investment, government procurement, and competition policy.

RTAs are an irreversible feature in the world economy and largely good cholesterol for global commerce. They have also enabled WTO members to pursue trade liberalization and integration while multilateral talks have flailed. Granted, there are challenges, most importantly the transactions costs incurred by multinationals, small exporters, and customs that on a daily basis navigate the RTA

1 RTAs here include free trade agreements (FTAs), customs unions, and common markets.

2

Forget about Doha?

New Pathways toward Multilateral Trade Liberalization: Mega-Regionalism, Plurilateralism, and Multilateralization

June 2013

“spaghetti bowl” of distinct overlapping rules and regulations. However, the policy question should not be how to constrain or modify RTAs – the past three decades show that such an effort would be futile – but (1) how RTAs can be additive to the multilateral trading system, and (2) how the multilateral trading system can induce greater coherence across the dozens of RTAs.

tariffs of IT goods to zero is now a plurilateral agreement in the WTO context, covering 46 nations such as the United States, the EU, Japan, and China. There are also plurilateral agreements on basic telecommunications and financial services. Plurilaterals and RTAs are often closely related, as plurilaterals draw on rules made in RTAs.

Positively, the WTO has already started to move in the right direction by focusing away from interpreting or seeking to revise Article XXIV to monitoring RTAs, dissecting their various rules, and assessing their effects on the multilateral trading system. But more needs to be accomplished, first because the WTO is uniquely placed to help share best practices across the various RTAs, and second because of three changes in the RTA “ecosystem” which can have profound implications for the multilateral trading system:

• Multilateralization. A related trend is the growing interest in “multilateralization” – a process by which certain key RTA disciplines or plurilateral agreements could be adopted by an expanding share of the WTO membership.

Multilateralization has been discussed rather intensely over the past few years, drawing on the ITA experience. In some traderelated disciplines, multilateralization may be occurring by default: for example, RTA provisions on competition policy tend to be multilateralized through non-discrimination clauses.

• Mega-regionals. The “spaghetti bowl” of RTAs is already consolidating. The leading WTO members such as the United States and the European Union have set out to pursue “megaregional” agreements, most notably the TransPacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP).

These agreements can create a new, expansive dynamic. For example, as TPP talks have advanced, major nations such as Korea and Japan have expressed interest in joining.

It is not inconceivable that over time some of the outsiders – such as Brazil, India, and China – would be induced to seek entry. The formation of mega-regionals can also provide incentives for the insiders to ask their other common RTA partners to dock onto their mega-schemes. This could be the case of, say, Mexico, Canada, and Korea in the TTIP. • Plurilaterals. In perhaps the most striking reflection of the frustration with the Doha Round, some of the leading WTO members have become increasingly interested in forging plurilateral agreements – sectoral or issuespecific agreements among gradually expanding coalitions of the willing. A substantial subset of the WTO membership, including the United States and the European Union, is currently preparing to launch negotiations for a plurilateral agreement in services.

Plurilaterals are not new: the Information Technology Agreement (ITA) launched in 1996 in the context of the Asia-Pacific Economic Cooperation (APEC) among 15 members to bring

That many of the largest nations now prioritize these pathways of economic integration over the multilateralism does not mean multilateralism is over. Rather, based on the logic of ever-growing memberships, mega-regionals, plurilaterals, and multilateralization alike can further multilateral trade integration far beyond what can be attained in a conventional multilateral trade round under the single undertaking principle. However, these developments also do not mean that the multilateral trading system is no longer necessary.

Rather, the WTO system is ever-more essential today, as a means to shed light on and monitor the new developments, uphold the Most Favored Nation (MFN) principle, and, in particular, provide a venue for exchanging best practices across RTAs, facilitating the formation of plurilateral agreements, and encouraging multilateralization processes. In short, rather than seeking to regulate RTAs and other forms of integration “topdown”, the WTO should seek to make the most of the on-going “bottom-up” trade integration in the interest of the multilateral trading system.

The purpose of this report is to assess the future of the multilateral trading system in light of the alternative pathways of trade integration, and to make policy recommendations for the WTO to leverage and build upon the various alternative forms of trade integration. The following section reviews the state of the debate on the relationship between RTAs and the multilateral trading system.

Section three elaborates on the opportunities and

Draft version, not for citation

3

challenges posed by the emerging modes of trade integration. The fourth section puts forth policy recommendation for the WTO members in these areas. Section five concludes.

2. RTAs and the WTO: State of Play Regional trade agreements have proliferated around the world in the past two decades alongside and independent from the GATT/WTO system. The GATT has since its very start allowed member countries to grant each other preferential treatment under free trade areas or customs unions, as long as certain conditions are met. These conditions are defined mainly in GATT Article XXIV, but also in General Agreement on Trade in Services (GATS), other WTO Agreements, and the so-called Enabling Clause, which exempts developing countries from the MFN obligation for RTAs they form with each other.

By now two parallel systems, multilateral and regional, are in place. The conventional policy question related to RTAs has been whether RTAs help or hamper the global trading system and MFN treatment. This is an important question both from a legal and economic point of view: incompatibilities between RTAs and the multilateral trading system could seriously distort global trade flows, production patterns, and economic growth.

The relationship between RTAs and the multilateral trading system is also a big question, one that has troubled the GATT/WTO members for decades.

GATT Article XXIV stipulates that members notify their RTAs to what is now the WTO, and that the RTAs liberalize “substantially all trade” among the members “in reasonable length of time.”, and do not introduce new “restrictive rules on commerce.”

The article also demands open regionalism – that RTA members do not raise barriers to third parties.

The proliferation of RTAs in the past three decades have created a sense of urgency among the GATT/ WTO system members to assess RTAs’ compliance with these provisions and address RTAs in a more rigorous fashion. After all, even members that themselves belong to numerous RTAs are outsiders to, and concerned about, the dozens of other RTAs. Since the early 1980s, there have been a number of efforts at the GATT/WTO system to somehow regulate RTAs in order to shed light on RTAs and to counteract the odds of trade diversion. The quest for transparency has intensified in the wake of the Uruguay Round. In 1996, the WTO General

Council established the Committee on Regional Trade Agreements (CRTA) as a means to examine individual RTAs and to consider their systemic, cross-cutting implications for the multilateral trading system. Parties to a new RTA are required to submit certain data to the WTO, such as on the RTA’s tariff concessions and rules of origin, and the members’ MFN duties and import statistics.

The CRTA is subsequently to prepare a detailed survey of the contents of the RTAs, and to perform legal analyses of WTO provisions pertinent to RTAs, draw comparisons across RTAs, and examine the economic aspects of RTAs. In the Doha Round, WTO members elevated RTAs to a “systemic issue”, or one that affects the entire world trading system and requires to be addressed as such. In December 2006, the members issued a “Transparency Mechanism for Regional Trade Agreements” that requires the members provide an “early announcement” of their involvement in RTA negotiations and promptly notify a newly concluded RTA, and that puts forth a schedule for the RTA’s examination by the WTO Secretariat.

While the drive at transparency has been positive, the resources for the WTO Secretariat to perform in-depth analyses are limited, and there are also political sensitivities that can curb the ambition of these studies. Meanwhile, the discussions on ways to somehow constrain RTAs have been narrowly focused, like Article XXIV mostly is, on market access provisions. These efforts have also proven to be toothless. WTO members have practically never debated hard or agreed whether any one RTA breaches multilateral trade rules, let alone revised Article XXIV: multilateral, top-down regulation of RTAs has not worked. The reason is simple: WTO members are jealous of their respective RTAs and their prerogatives to form new ones, and unlikely to agree to any multilateral rules that would curb their ability to negotiate RTAs or force them to modify their existing agreements. Moreover, since all but two WTO members belong to at least one RTA, all members are reluctant to challenge the RTAs of other members as discriminatory, let alone take another member to dispute settlement body, as the challenger could be next to be called out. As such, the dispute settlement body has dealt with RTAs in only a handful of occasions.2 None of this may matter. The long-standing concerns that RTAs might balkanize the global trading system are becoming moot – research

2 The main one is Turkey–Textiles, the WTO Appellate Body held that the burden of establishing that an RTA meets the requirements of Article XXVI falls on the respondent WTO Member if it invokes the RTA to justify a discriminatory measure.

4

Forget about Doha?

New Pathways toward Multilateral Trade Liberalization: Mega-Regionalism, Plurilateralism, and Multilateralization

June 2013

indicates that most RTAs are more trade-creating than trade-diverting. Besides, RTAs have also helped fuel the liberalizing momentum in the world trading system when multilateral talks have frozen and as some protectionist practices emerged during the 2008-09 global financial crisis. Moreover, uniand multilateral trade liberalization and the very proliferation of RTAs have all helped curb the preferential edge that any one RTA may confer.

RTAs have many further benefits. They have been found to impart benefits that go well beyond traditional analyses on gains from trade, such as propelling export-oriented, efficiency-seeking investment flows among the members, encouraging cooperation among the members on customs and infrastructure integration, and helping relax the political economy constraints to multilateral trade talks in the RTA member nations. Negotiated among small groups of likeminded countries, RTAs have also been better able to drive at deep integration and innovate new trade-related rules in such areas as services trade, investment regulations, customs procedures and trade facilitation, environment, intellectual property rights, and e-commerce.

In many of these areas, RTAs are unquestionably more advanced and sophisticated than the body of multilateral trade rules is.

As such, RTAs are about much more than market access, and thus the effects of market access rules in RTAs should not be the sole or even the primary focus of policy discussions. The policy question today should also not be whether RTAs undermine the global trading system, but about how RTAs and their many WTO+ features can be additive to the world trading system. This question is particularly prescient as the RTA ecosystem is metamorphosing into broader integration areas, and as the WTO members are increasingly interested in plurilateral agreements and multilateralization processes. The following section turns to these developments.

3. Emerging Pathways of (Multilateral?)

Trade Integration Still in the 1990s, the GATT/WTO system was the undisputed center of gravity in the multilateral trading system, and the primary pathway to multilateral trade opening. However, since the conclusion of the Uruguay Round, trade negotiators’ focus has shifted to RTAs. While the first agreements such as the North American Free Trade Agreement (NAFTA) or the European Union’s bilateral agreements with East European post-Communist nations tended to be formed

among neighboring nations, at the turn of the millennium countries turned to partners across oceans. Some examples of such transcontinental deals include US-Australia, Chile-China, MexicoJapan, and EU-South Africa FTAs. As RTAs proliferated, some analysts suggested that the competition for preferential edge would feed on itself, so that ultimately all main nations would have an RTA with each other.

However, a different dynamic is taking hold in the RTA ecosystem. Both the United States and the European Union are pursuing “megaregional” agreements; major WTO members are increasingly predisposed to forming plurilateral agreements; and policymakers and analysts have stepped up discussions on “multilateralizing” RTAs and plurilaterals. The following parts consider the benefits and downsides of these three developments in turn.

Mega-Regionals A potentially highly consequential development the global trade architecture is the formation of “mega-regionals”, agreements that subsume and consolidate multiple bilateral FTAs and connect some of the world’s largest trading nations.

The front-running mega-regional is the TransPacific Partnership agreement, currently under negotiation among the United States and 11 Pacific Rim economies – including NAFTA partners Mexico and Canada, and four countries with which the US has an existing bilateral agreement (Singapore, Australia, Peru, and Chile). Korea and Japan are also discussed as future members.

Another notable mega-regional is the TTIP between the European Union and the United States, aimed at erasing remaining tariff and non-tariff barriers among the world’s two largest markets. There are also such regional zones being formed on a more modest scale. For example, in the Americas, Chile, Colombia, Peru and Mexico, all of which have bilateral trade agreements with each other, are pursuing the Pacific Alliance with the goal of freeing movement of goods and people by the end of 2012. Costa Rica and Panama are observer members.

Besides encompassing parties that make up for a large share of world trade, both the TPP and TTIP are likely to be highly encompassing and as such set new, gold-standard templates for a range of trade-related rules to be deployed in subsequent RTAs and in plurilaterals. For example, the TPP

Draft version, not for citation

5

draft agreement includes various commitments that go well beyond tariff opening, such as renunciation of currency manipulation and mercantilist practices; intellectual property rights protection; removal of barriers to foreign direct investment/ownership; elimination of a host of other non-tariff barriers such as manipulation of standards; transparency and openness in government procurement practices; and restrictions on preferential treatment toward state-owned enterprises. If as ambitious as hoped, the US-EU agreement will likely have fresh language and provisions in such areas as harmonization of standards.

Mega-regionals can have further wide-ranging implications for the global trading system.

As they are concluded, it is plausible that the insiders will want their other common RTA partners to dock onto their new mega-regional.

For example, much like the United States, the EU has FTAs with Mexico, Canada, Colombia, Peru, Korea, Australia, and Chile, and is currently completing bilateral agreements with Singapore, Malaysia, Vietnam, and Japan – all likely future US Trans-Pacific Partners. Once having formed the TTIP, the United States and EU may have greater incentives to weave agreements with their common FTA partners together, thus also gradually connecting the TTIP with the TPP. As mega-regionals expand, outsiders’ incentives to join should only grow. In one future scenario, all major traders integrate with each other not through a multilateral agreement, but in a giant mega-regional.

Mega-regionals are not without risks. For example, should their members increase barriers to third parties or create a stringent rules of origin regime, mega-regionals could become trade-diverting. However, mega-regionals based on open regionalism (liberalization by members vis-à-vis outsiders) can be very positive to global commerce. Essentially bridging multiple existing RTAs, mega-regionals should also help sort out the transactions costs the RTA spaghetti bowl and propel economies of scale. Particularly smaller nations should benefit. This was the case for the many Eastern European nations that became part of the Paneuro system of cumulation formed in 1999, after sporting bilateral trade agreements with the EU.

6

Plurilaterals Plurilateral agreements have gained growing attention as the Doha Round has stagnated.

Some of the leading WTO members are about to launch a plurilateral negotiation in services – a deal that could set a powerful precedence for the multilateral trading system.

In a plurilateral agreement, only a coalition of the willing would accede to an agreement, receiving all the rights and accepting all obligations. Historically, a number of plurilateral codes evolved in parallel with the tariff agreements negotiated under the GATT. These were folded into the Uruguay Round, which is the first multilateral trade round based on the single undertaking principle. In light of the impasse in the Doha Round, numerous analysts, policymakers, and WTO members themselves see plurilaterals as a feasible way to negotiate global trade disciplines.

The benefit of plurilateralism over multilateralism is speed, as countries that do not want to accede are left out and do not constrain the talks, as can and does occur under single undertaking. Plurilaterals also allow for variable geometry, where different subsets of WTO members accede to different deals. As such, plurilaterals can be used to pioneer new rules or propel market liberalization in an otherwise clogged system, while keeping the WTO at the center. Moreover, since members self-select into the agreements, compliance will be easier.

It is also far from certain that plurilaterals would be narrow-based. The incentives are substantial, particularly when plurilaterals contain the key trading nations and/or expand rapidly.

Plurilaterals also offer insurance to countries seeking to advance their trade interests through RTAs, particularly through mega-regionals.

Since those processes are large, complex, and politically sensitive, member states negotiating them are likely to want to keep open their options for advancing trade rules through the WTO as well.

Granted, plurilateralism has its risks, both to the MFN treatment and for the give-and-take that the single undertaking is to incentivize. For example, plurilaterals can end up revolving around the

Forget about Doha?

New Pathways toward Multilateral Trade Liberalization: Mega-Regionalism, Plurilateralism, and Multilateralization

June 2013

export interests of the major trading powers.

Once those export interests are satisfied, they would effectively be removed from the equation of broader, cross-sectoral trade-offs. In other words, when sectors or issues are negotiated in silos, the political economy forces may be less forceful to encourage log-rolling across issues – such as among advanced and developing nations over services and agricultural liberalization.

Moreover, plurilaterals can highlight asymmetries in WTO members’ bargaining power, and jeopardize the smaller players’ interests. All such dynamics could have substantial implications for the political economy of multilateral trade negotiations, including complicate the launch major trade rounds in the future. With smart designs, however, some of these problems can be pre-empted.

Types of Plurilaterals Plurilaterals can take two forms, inclusive or exclusive. Inclusive plurilaterals essentially entail conditional unilateral sectoral liberalization.

These are market access instruments rather than applying to rules. The key point is that liberalization in inclusive plurilaterals would be accomplished on an MFN basis, and be conditioned on other key nations also conducting such MFN liberalization. Since the liberalization is unilateral, it does not depend on WTO rules or broader negotiations per se. It could also be locked in through revisions to tariff or services schedules as submitted to the WTO. The foremost example of this approach is the ITA. The benefit of this set-up is the prospect for liberalization breakthroughs when multilateral negotiations are stalled. However, the problem is that major exporting interests can become removed from the equation, which would undercut subsequent, broader liberalization efforts.

Exclusive plurilaterals involve liberalization for only those members participating and signing up to the subsequent agreement.3 The Government Procurement Agreement (GPA) opens up government procurement markets only to firms from signatory countries. This agreement, and two others covering bovine meat and dairy (both terminated in September 1997), do not apply on an MFN basis and therefore required the consent of all member states for their incorporation into WTO law.

Exclusive plurilaterals like the GPA are challenging to initiate and conclude. As WTO law currently stands, members wishing to initiate such negotiations need to be assured that no WTO member would object to the arrangement.

Any new agreements of this kind would thus require the “consent” of all WTO members (i.e., no member objects) – which is difficult to accomplish. 4 Inclusive plurilaterals are easier to accomplish, since the full consent of the entire membership of the WTO is not required. However, inclusive plurilaterals are subject to the freerider problem, which could make it more difficult to secure a critical mass to join an agreement.

Multilateralization Pathway RTAs have emerged as incubators of new trade and trade-related rules in such areas as services trade, investment regulations, customs procedures and trade facilitation, environment, intellectual property rights, competition policy, product norms, and e-commerce. Especially recent RTAs have addressed such behind-theborder issues in a very robust fashion. 5 These are also areas that tend to be implemented on an MFN basis, de facto or de jure, yet where the multilateral trading system often lags far behind.

Empirical work suggests that the trade effects of the various RTA rules are largely positive to third

3 These plurilaterals take several forms, such as goods RTAs covered by GATT article XXIV; services RTAs, covered by GATS article V; and those residing under the Marrakech Treaty, article X, annex 4. Since RTAs have their own sets of rules, it is more useful to focus here on such agreements as the GPA. 4 Some analysts point to the possible use of waivers from existing rules, as covered under the Marrakech agreement article 9, as allowing for plurilateral outcomes. However, a waiver applies only to existing rules, and cannot be used to negotiate new rules. It could conceivably be granted for new market access arrangements, such as for generalized system of preferences market access for poor countries. But such arrangements would probably not constitute plurilateral arrangements per se. Furthermore, waivers are granted for limited periods only and can be withdrawn. Therefore this avenue would be cumbersome at best, and most likely very partial relative to what proponents of plurilaterals are looking for.

5 Granted, not all RTA disciplines are necessarily WTO+. Indeed, a recent study indicates that there are some WTO-minus elements in services – commitments that fall short of the RTA member countries’ obligations under the General Agreement on Trade in Services (GATS). Made in some North-South RTAs and typically in financial, communication and business services, these WTO-minus commitments may for example impinge upon the rights of third-country investors in the RTA members, and deny national treatment for subsidies and other financial measures. However, RTAs do offer a rich universe Gradual, bottom-up multilateralization will be likelier than top-down WTO-mandated multilateralization.

See Adlung, Rudolf and Sébastien Miroudot. 2012. “Poison in the Wine? Tracing Gats-Minus Commitments in Regional Trade Agreements.” WTO Staff Working Paper ERSD-2012-04 (February).

Draft version, not for citation

7

parties. For example, the EU’s Single Market rules appear to have increased access at least as much for firms from third parties. 6 However, there is a tension between the principle of subsidiarity, whereby common rules should be addressed at their lowest level of governance possible in order to suit the needs of the parties, and efficiency, whereby also other jurisdictions should accede to the rules, especially if and when such rules have spillover effects on the outsiders and yield public goods.

These considerations have sparked a wide-ranging academic and policy debate on the prospects of multilateralizing some of the RTA provisions.

Multilateralization is also today discussed in the context of expanding plurilateral agreements beyond their initial membership and across the WTO membership. Multilateralization is ultimately about efficiency – reducing the transactions costs accruing to companies navigating in the RTA spaghetti bowl, and expanding the reach of rules applied by a handful of nations to the broader WTO membership. It is quite plausible that there would be efficiency gains for the global trading system from expanding the scope of parties with common regulations or even mutual recognition.

Multilateralization has been discussed quite intensely over the past five years as a means of “re-patriating” RTAs into the multilateral system. The most frequently cited example of the mechanics of forming them is the ITA. Only interested WTO members that were genuinely committed to signing the ITA took part in the negotiations; however, further parties joined, and the agreement now claims 46 of the largest WTO members, such as the United States, the EU, Japan, and China. There are also regional efforts to encourage multilateralization that can be drawn upon. For example, APEC has made an attempt to encourage commonalties among the various RTAs among APEC members through APEC’s Best Practices for PTAs. In some disciplines, multilateralization may not have to be worked for: it may be occurring by default. For example, RTA provisions on competition policy tend to be multilateralized through non-discrimination clauses. Similar de facto multilateralization may be occurring in services, as RTAs’ rules of origin for services trade are generally quite loose. In most cases, thirdcountry service providers can free-ride on the

preferences provided by the RTA by establishing an investment presence in one of the partner countries.

The fact that such large traders as the United States and EU use similar templates across their respective RTAs also aides multilateralization.

There are clear “RTA families” around these hubs.

Moreover, these templates have been borrowed by third parties in other RTAs. For example, the Chile-Korea FTA’s market access provisions are a rather striking copy of the disciplines in the US-Chile FTA – which in turn is modeled quite extensively after NAFTA. There are a number of modalities by which multilateralization may occur. One is through ad hoc process by which certain rules proliferate and become widely accepted across RTAs. Another and likelier is through ever-expanding megaregionals. With a growing set of countries docking onto such giant groupings, multilateralization will automatically take place. Still another ways for multilateralization to occur is through a plurilateral agreement – inclusive plurilaterals are automatically multilateralizing.

4. Policy Recommendations: What Role for the WTO in the Changing World Trading System?

The WTO is at a defining moment. Hard-pressed to adjust to an increasingly complex global economy and constituency, it faces questions about its legitimacy and effectiveness, is surrounded by increasingly vibrant system of regional trade agreements and a growing enthusiasm for plurilateral arrangements.

These developments should largely be viewed as positive rather than negative for the multilateral trading system. However, their benefits are not automatic. The key policy question is how the WTO system and the evolving alternative pathways to multilateral trade integration can be and be made most synergistic and help deepen and improve each other. Moreover, as the global trade architecture transforms, the WTO system is critical. A global system-manager institution plays a central role in ensuring non-discrimination, providing a venue for information-sharing and analysis across the various regional or plurilateral initiatives, and in bringing consistency to dispute settlement. What, then, should the WTO do?

6 See Mayer, T. and Zignago, S. 2005. “Market Access in Global and Regional Trade”, CEPII Working Paper 2005-02.

8

Forget about Doha?

New Pathways toward Multilateral Trade Liberalization: Mega-Regionalism, Plurilateralism, and Multilateralization

June 2013

Creating an RTA Exchange

Advancing Plurilateralism

The WTO has scant power over the evolution of RTAs, but it can help make the best out of RTAs in the interest of the global trading system. As a multilateral organization, the WTO is uniquely placed to provide dedicated clearing house and forum where all matters related to regional trade agreements and their rules and their practices could be discussed among all WTO members. This forum could be called “RTA Exchange”.

Plurilaterals can be an effective way to spur momentum in the WTO system. Besides the ongoing services agreement, plurilaterals could be most readily pursued in the following areas:

The RTA Exchange would also help transfer best RTA practices from one RTA to another. Among other things, the RTA Exchange can include an informative and interactive website on RTAs, their rules, the various research findings on RTAs, and the practical experiences in negotiating and implementing them. The RTA Exchange can readily draw on the countless of datasets and analyses that have been produced around the world, and it should actively promote debate on multilateralization options.

The RTA Exchange can also include an annual conference where the member states regularly share practices and challenges from building RTAs. The conference would also highlight best practice elements in RTAs and ways in which these elements relate to obligations and objectives of the multilateral system. In order for the RTA Exchange not to water down to long-winded political statements, both the annual event and the website should include inputs from independent outside analysts.

The RTA Exchange could also focus on the various ways in which governments have sought to complement their RTAs through further regional cooperation. For example, great many nations could learn from the efforts made in the NAFTA context to harmonize standards after the regional tariff liberalization was complete. Asians and Latin Americans nations ought to have much to learn from the experiences and failures of the European Union nations in deepening their regional arrangement.

This type of a forum would raise the level of debate on RTAs, systematize it, and make it more applied than prior policy discussions focused on RTAs. It would automatically enhance RTAs’ transparency, and it could help bring together analytical work that is already being generated around the world. A global clearing house, the RTA Exchange would also give the premier source of information and ideas for policymakers, companies, and analysts around the world.

• Investment, in its broadest sense; • Agriculture, which in some senses already constitutes a quasi-plurilateral arrangement with all its boxes and their relative applications; • Food security; and • Environmental goods and services.

As for dispute settlement, each plurilateral arrangement would specify its own dispute settlement arrangements and that recourse to the WTO’s dispute settlement mechanism could be built in in two ways: for exclusive arrangements under Marrakech article X; and for inclusive arrangements if the liberalization schedules are lodged with the WTO. In the latter case, WTO’s dispute settlement would apply. The issues of retaliation across agreements would need to be defined.

More generally, there may be a case for taking a step back and initiating a formal process of negotiating a code of conduct to govern plurilaterals. There could be two broad contours of such a framework arrangement. The first is a transparency mechanisms aimed at minimizing exclusiveness and building trust and interest in a plurilateral. The second could be a set of enabling mechanisms to ensure that LDCs would participate, such as technical assistance and perhaps some special and differential treatment.

The revised GPA agreement provisions may be of guidance in this regard.

Nonetheless, negotiating such a code is likely to be a fraught undertaking given the ongoing impasse in the Doha Round. It would require, at a minimum, upfront good faith gestures on the part of major trading powers such as committing to a real development-friendly outcome. Even this is difficult as there are quite a few developing countries that remain implacably opposed to the notion of plurilaterals.

Re-Organizing the WTO In the changing world trading system, WTO members might also be well-served to revise their approach to Ministerial Conferences. An

Draft version, not for citation

9

important element in the Ministerial agenda should be developments in regional trading agreements and plurilaterals. For example, the ministers ought to regularly review rules and practices in RTAs, and discuss the viability of multilateralizing such rules in the WTO context.

To develop a more practical and hands-on approaches, the Ministerial meetings could also be “de-dramatized”, such as be held annually in Geneva on a regular schedule, along the lines of the OECD Ministerials in Paris.

Inside the WTO, the discussion of RTA issues could be organized on a hybrid basis. Existing WTO Committees and Councils would have responsibility for taking up and reviewing RTA elements within the purview of their committee (i.e., the TBT committee would look at TBTrelated matters). Issues and questions that do not fall within the purview of existing bodies would need to be taken up elsewhere – perhaps in the RTA Exchange.

Forming a Forum on Complementary Policies Importantly, enhancing consistencies in the global trading system, such as convergence across the countless RTAs, risks “RTA myopia” – excessive focus on RTA rules, when there are several other ways in which the RTA members could expand their trade and trade with outside parties. For example, trade facilitation, customs modernization and improvements in infrastructures are also likely to generate trade gains that are probably larger than those stemming from convergence processes. They also benefit all countries, not only members of the particular convergence zone. Such further measures are highly complementary and synergistic to efforts to converge or multilateralize RTA, consistent with the Doha Round’s development agenda and the Aid for Trade agenda, and should be prioritized.

They are also politically easier to accomplish than renegotiating existing agreements or negotiating new ones.

The RTA Exchange should be complemented by a dedicated forum that includes independent analysts, leaders of global companies, trade and economic development officials for the various member nations, and multilateral development bank officials to define measures complementary to RTAs that provide the greatest “bang for the buck” in terms of expanding trade among the various nations and globally. The forum’s discussions should be motivated include sophisticated, technical analyses on the benefits and costs of various plausible complementary measures that facilitate and expand trade with their partners in different.

5. Conclusion The WTO is surrounded by increasingly vibrant system of regional trade agreements and megaregionals, and is grappling with the growing enthusiasm for plurilateral agreements. While these developments have been worried to undercut the WTO system, they should rather be viewed as buttressing multilateral trade integration. They can deepen trade ties, expand world trade, and create grounds for broader cooperation among their members, well beyond what can be accomplished at the multilateral level alone.

Yet regionalism and plurilateralism are not enough: multilateralism is also critical, and global, system manager institution plays a central role in ensuring non-discrimination, settling disputes, enhancing exchange of ideas across the membership, and paving the way for multilateralization. Even as RTAs and plurilaterals advance the cause of open markets and provide insurance against breakdown of multilateral talks, they are not a substitute for multilateral liberalization. The two fronts must now be moved in parallel and always with the end-consumer in mind – companies and consumers engaged in global commerce.

e15initiative.org 10

Forget about Doha?

New Pathways toward Multilateral Trade Liberalization: Mega-Regionalism, Plurilateralism, and Multilateralization

June 2013