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GED Mini-Series: Inclusiveness in the Global Trading System | PART FOUR

Written by IDEAS Centre on . Posted in Publications

 

Collaboration between the Bertelsmann Foundation and IDEAS Centre

 

Global Economic Dynamics (GED)  Mini-Series: Inclusiveness in the Global Trading System

PART FOUR: A Way Out of the Impasse? - How to create more inclusiveness in the global trading system

In 1995, a large portion of the international community set the tone for a more inclusiveand open trading system. The establishment of the World Trade Organisation (WTO) that year marked a new era in global trade governance, where discriminatory trade measures and isolationist trade policies would be prone to challenge and scrutiny thanks to a rules-based system allowing Members to conduct trade in a more transparent and equitable manner.

Still, since the launch of the 2001 Doha round of trade talks very little progress has been made in multilateral talks and the world is now facing a vastly different kind of global trading landscape. One dominated by bilateral talks, preferential trade agreements (PTA’s) and most recently mega-regional free trade agreements. The inclusiveness of the global trading system seems at stake. In our new GED-Project mini-series[1] we want to take a closer look at this on-going change. Over the course of the next four blog posts, we will delve deeply into the history of global trade and trade agreements, the various effects the current trading system is having on developed and developing countries, current trends in the system and a potential way out of the impasse and towards a more inclusive system.

Part four of our four-part series will examine potential solutions to the current situation and consider ways to promote a more inclusive global trading system. If you want to go back and read up on previous parts of our series you can click herehere and here for parts one, two and three.

 

Ways out of the impasse

 There are obviously no clear-cut solutions to the dilemma of the multilateralism crumbling down. The proposed points below are (ambitious) suggestions that could help alleviating any potential negative impacts of mega-regionals as well as the increasing fragmentation of the global trading landscape. But some of these solutions might match the interests of a group of countries and not others. The idea is then to strike a balance to find a compromise good enough for all parties, especially the most vulnerable economies.

Generally speaking, the broad approach to adopt would have to ensure that:

  • Mega-regionals respect the WTO principles and the development interests of developing country non-parties, in particular LDCs and other low-income economies;
  • The discriminatory aspect is minimised to the largest extent possible;
  • The results of mega-regionals and wide-ranging plurilaterals do not lead to a multilateralization of solutions that have been agreed upon in an exclusive fashion and that cannot be adapted to take into account the interests of the outsiders.

 

This could be done through a two-fold line of attack.

  1. Unilateral measures by insiders to the mega-regional trade agreements
  • Establishing a platform under the auspices of the WTO that would enhance regulatory cooperation between insiders and third parties. Such platform would ultimately aim at raising awareness on harmonisation and mutual recognition of standards and norms, leading third parties to comprehend what steps their economic operators need to undertake in order to benefit from heightened standards. In order to do so, the extension of mutual recognition of standards to third parties is essential;
  • Relaxing, simplifying and harmonising rules of origin to the largest extent possible. Exporters in developing countries need to have the guarantee that their products can be integrated into value chains in the simplest way and that trade diversion effects are not exacerbated. Mimicking the same process in customs measures would undoubtedly assist in reducing trade costs for exporters. The implementation of trade facilitation measures is also key to such success;
  • Multilateralising the market access commitments in all services sector covered as well as opening up public procurement processes to third parties as they are stated out in the mega-deals. It is clear that insiders would not accept to extend such preferences to all WTO Members without substantial concessions in return, therefore this treatment should be solely extended to LDCs and small and vulnerable economies. That would obviously mean that for the LDCs willing to benefit from such crucial preferences, they would need to satisfy stringent regulatory requirements. In order to do so, technical assistance and capacity-building programmes should be provided as a complementary measure. The request to obtain such assistance could be done through the abovementioned platform;
  • Mandating specialised international institutions to carry out comprehensive analyses on the effects of deals like TPP, TTIP, TiSA, RCEP and others. The idea is to provide clear and easy-to-understand factual evidence of the impact of such deals on LDCs and low-income developing economies. Parties to the mega-deals should sponsor conferences and workshops on the findings. Such events should be used as a participative platform for exchanging ideas between insiders and outsiders, which in turn would allow outsiders to voice their concerns, and which would assist both parties in drawing out recommendations on how to maintain the inclusiveness of such deals. Additionally, technical assistance through aid-for-trade programmes should be provided to developing countries requesting so, in view of allowing them to understand better how they can benefit from the mega-regionals.
  • Extending the duty-free, quota-free market access of the US, RCEP countries and other major emerging economies to 100% of tariff lines for LDCs and low-income developing countries.
  1. Measures taken at the multilateral level
  • Transforming and enhancing the current transparency mechanism for regional trade agreements. This proposal is not new and has been put forward by many trade experts and delegations. The idea would be to improve the collection and dissemination of information of regional trade agreements, with a specific emphasis on mega-deals and plurilaterals. It could also serve as a platform to analyse the key subjects that are dealt with by mega-deals and other PTAs. The WTO has actually been pushing for this, but to say it boldly, it would not trigger miraculous changes, although it would allow preferential processes to be scrutinised comprehensively by non-parties.
  • Establishing a new committee or a working group at the WTO aiming at elaborating specific inclusive principles to be adopted by WTO Members engaged in preferential trade negotiations. All Members will be compelled to follow those principles, which could include transparency provisions; the right to be consulted; obligation to carry out impact studies on PTA effects on LDCs and other low-income developing economies; obligation to discuss the findings within the General Council; obligation to consider the concerns of non-members and detail out what mitigating measures they would undertake – within the relevant PTA or outside – to guarantee that any outcome would create trade and not divert it.

Also, opening up the accession of third parties to the mega-deals might seem enticing in the first place. Many countries have manifested their interest in joining sooner or later the TPP (most notably Indonesia, South Korea or the Philippines), but the path to accession is feasible for some and impracticable for many others. Accession clauses could only make the mega-deals larger and bigger at the expense of economies which do not possess enough economic and political leverage to become part of them. Enlarging the accession to any country – even if, say, membership requirements would vary according the development level of the acceding country – would only defeat further the purpose of an inclusive system, unless accession principles are defined multilaterally. Moreover, newcomers would also have little or no influence to amend substantive provisions, but a bit of room with respect to the level of liberalisation of tariffs and services. The focus should ultimately remain on multilateralism if we want to save the inclusiveness of the system.

 

Conclusion

 If rule-making continues taking place outside the WTO; if outsiders to the mega-deals must inevitably conform to their trend-setting power whilst not partaking in the rules-shaping process; if the centricity of the WTO is not becoming relevant again… we are clearly heading towards an inextricable dilemma. Inclusiveness as it stands today is bound to be eroded further, unless big and smaller actors take action. The demise of the TPP or TTIP will not solve the problem like magic. Policy and decision-makers hold the very serious responsibility to deal with this matter for building a fairer and more inclusive future for all economies of this world.

Giving more clout and importance to the WTO is the very first step towards a more inclusive system. The WTO decision-making structure has to be adapted to the growingly diverging interests of its Members. Consensus has to remain at the core of the system, but some principles that have been blocking positive outcomes for competing economies need to be revised and reformed. The current situation can only produce greater ostracisation and polarisation amongst trading blocs. We are irremediably moving towards a fragmented governance model where WTO Members will continue to be superficially adamant about the importance of multilateralism, whilst being concretely committed to preferential deals covering areas that the Doha talks do not mention.

There is still time to change that.

 

[1] Note: The text for this mini-series in large parts derives from an earlier draft by Xiankun Lu and Darius Rao, which resulted from a collaboration between GED-Project and IDEAS Centre in November 2016.

GED Mini-Series: Inclusiveness in the Global Trading System | PART THREE

Written by IDEAS Centre on . Posted in Publications

 

Collaboration between the Bertelsmann Foundation and IDEAS Centre

 

Global Economic Dynamics (GED)  Mini-Series: Inclusiveness in the Global Trading System

PART THREE: Where Are We Heading? - What’s the current state of affairs and where are we heading?

In 1995, a large portion of the international community set the tone for a more inclusiveand open trading system. The establishment of the World Trade Organisation (WTO) that year marked a new era in global trade governance, where discriminatory trade measures and isolationist trade policies would be prone to challenge and scrutiny thanks to a rules-based system allowing Members to conduct trade in a more transparent and equitable manner.

Still, since the launch of the 2001 Doha round of trade talks very little progress has been made in multilateral talks and the world is now facing a vastly different kind of global trading landscape. One dominated by bilateral talks, preferential trade agreements (PTA’s) and most recently mega-regional free trade agreements. The inclusiveness of the global trading system seems at stake. In our new GED-Project mini-series[1] we want to take a closer look at this on-going change. Over the course of the next four blog posts, we will delve deeply into the history of global trade and trade agreements, the various effects the current trading system is having on developed and developing countries, current trends in the system and a potential way out of the impasse and towards a more inclusive system.

Part three of our four-part series will take a closer look at the current state of the global trading system and the potential path it is heading on. You can click here and here to go back to part one and two of our series or click here to skip ahead to part four.

 

The future of multilateralism

By going beyond the scope and coverage of multilateral trade agreements, the mega-regionals have raised many issues related to their legitimacy and consequences on global trade governance. Implications for the participating economies have been widely discussed and there seems to be consensus on the positive effects deals like the TPP and TTIP would have for the insiders. Such consensus is nevertheless lacking regarding third countries with some studies actually indicating that the mega-deals will have – albeit they could be lesser than expected – adverse effects for outsiders.

Not only does a focus on the mega-regional negotiations divert attention from the Doha negotiations, impacting therefore non-parties, but many crucial issues covered in the original plans TPP or TTIP do not figure prominently at the WTO. It is clear that the Doha mandate is lagging behind trade realities of the 21st century, but many WTO Members are simply not ready nor willing to cover those issues. On one hand, inclusiveness means that interests of all countries are taken into account. On the other hand, inclusiveness also means that negotiations have to move forward to the benefit of all Members. This does not appear to be the case anymore and the burden of responsibilities can be clearly shared across both developed and developing countries. Both have been blocking the negotiation process for various diverging reasons, but the bottom line is the following: many emerging economies possess enough economic and political leverage to abate the discriminatory effects of the mega-deals, but what about low-income developing countries and other middle-sized economies which strongly rely on multilateralism for their economic integration and growth?

 

Has the West turned its back on the WTO?

There is a controversy on how mega-deals and other major exclusive arrangements affect the multilateral governance of trade. Some WTO Members consider that such deals are precursors of multilateral liberalisation, whilst others believe that they are undermining the system. In the end, whatever their effects are, it is a fact that those mega-deals influence the position of low-income economies. What is even more troublesome is that such situation affects the negotiating position of the big ones:

  1. the economic powerhouses have thus changed their negotiation priorities;
  2. they will not be willing to make concessions in the WTO towards “other” parties, that is if they can obtain what they need through the mega-deals; and
  3. they will hold the power to impose (de facto or de jure) to the rest of the world their solutions based on their interests on trade issues that are not covered multilaterally.

These three points are engendering the main risks to the inclusive system. Such situation does not foster a negotiating environment conducive to inclusive results and can only create more frustration.

By the end of 2017, the Eleventh Ministerial Conference (MC11) will take place in Buenos Aires. As of today, prospects for a consensus on most subjects of negotiations remain meagre. The US is now under a new administration and that administration is unlikely to be able (or even willing given President Trump’s past stance on free trade issues) to negotiate before the second half of 2017. There is a great danger that the negotiations taking place before Buenos Aires will simply echo what happened before Nairobi, i.e. a last minute struggle to find wording on a Ministerial Declaration that will make the MC11 look like a partial success.

The truth is that the major players among the developed countries seem to be no longer counting on the multilateral approach of the WTO to promote their economic interests: pushing their agenda though the mega-regionals has been given a crucial priority as far as the EU is concerned, whereas the US under president Trump now seems to be betting on bilateral agreements. They are convinced that the rest of the world will – sooner or later – have to comply with their version of “best practices”, whether this is done merely de facto or through a later accord within the multilateral system.

 

How are the emerging and developing countries reacting?

The emerging trading powers such as Brazil, China, India, etc. are complacent with the present system and they know that, for any improvement, they would have to pay a price they are not willing to wage. China, while celebrating the demise of rival agreement TPP is working on its own agreements such as the RCEP and other massive initiative such as the One Belt & One Road scheme. It certainly does not want to play an offensive role in the WTO given that the Members are attacking many of its existing policies. India wants to retain policy space in supporting its agriculture and seek market access in some services sectors, but it realises that it will not obtain substantial concessions in the current picture. Given its relative geographical isolation, Brazil is one of the few major economic powers that hold real interest in the Doha Round, especially in agriculture. Nonetheless, the South American nation grasps that there is not much hope that the price it would have to pay would be disproportionate to the benefits it would get in return.

This leaves out the LDCs, small and vulnerable economies, as well as other low to middle-income countries which all have major stakes in a strong and reliable multilateral system. Why is that? They are largely excluded from the mega-regional deals and can mostly make their voice heard through multilateral fora. Despite the fact that they represent a majority of the WTO membership, they possess neither the economic weight nor the capacity to be able to push the system forward. In such a constellation of interests, it is difficult to be optimistic about any grand outcome at the next Ministerial Conference. And no outcome at MC11 means less steam for multilateralism and more grist to the mill of regionalism.

So what can be done to find a way out of this impasse and back towards a more inclusive trading system? Click here to follow us to the final part of our four-part series and find out!

 

[1] Note: The text for this mini-series in large parts derives from an earlier draft by Xiankun Lu and Darius Rao, which resulted from a collaboration between GED-Project and IDEAS Centre in November 2016.

GED Mini-Series: Inclusiveness in the Global Trading System | PART TWO

Written by IDEAS Centre on . Posted in Publications

 

Collaboration between the Bertelsmann Foundation and IDEAS Centre

 

Global Economic Dynamics (GED)  Mini-Series: Inclusiveness in the Global Trading System

PART TWO: The Effects of PTA’s - How do mega-regional trade agreements affect developed and developing countries?

In 1995, a large portion of the international community set the tone for a more inclusiveand open trading system. The establishment of the World Trade Organisation (WTO) that year marked a new era in global trade governance, where discriminatory trade measures and isolationist trade policies would be prone to challenge and scrutiny thanks to a rules-based system allowing Members to conduct trade in a more transparent and equitable manner.

Still, since the launch of the 2001 Doha round of trade talks very little progress has been made in multilateral talks and the world is now facing a vastly different kind of global trading landscape. One dominated by bilateral talks, preferential trade agreements (PTA’s) and most recently mega-regional free trade agreements. The inclusiveness of the global trading system seems at stake. In our new GED-Project mini-series[1] we want to take a closer look at this on-going change. Over the course of the next four blog posts, we will delve deeply into the history of global trade and trade agreements, the various effects the current trading system is having on developed and developing countries, current trends in the system and a potential way out of the impasse and towards a more inclusive system.

Part two of our four-part series will look at the effects PTA’s can have both on those countries directly involved in the deals, as well as, the countries not part of the agreements. To go back to part one of the series or two skip directly to part three or four you can click here (part one), here (part three) and here (part four).

 

Potential economic benefits…

Multilateralism and regionalism can be perceived as complementary and mutually supportive. PTAs can be strong building blocks towards universal trade liberalization. The danger arises when PTAs set back economic activity for non-members. This is usually not the case between smaller economies, but it might become a reality with mega-regionals such as CETA and RCEP or TTIP or TPP should they still be passed in one form or another. On the one hand, the lowering of trade barriers and costs as well as regulatory convergence[2]  might be beneficial as follows:[3]

  • Positive income effects for participants to the mega-regionals can increase demand for final and intermediate inputs from other countries. Some studies have shown that some outsiders from developing countries might enjoy positive spillover effects stemming from increased growth throughout TPP, TTIP or RCEP parties. For instance, economies based on commodity exports might potentially benefit from increased aggregate demand, provided of course that income rises in countries implementing the mega-deals. The same scenario is however not necessarily true for emerging economies, which have a large industrial base and might lose competitiveness gains in certain sectors such as electronics or textiles. This could be the case for countries such as Brazil, China, Korea or the Philippines.
  • Mega-regionals can engender the creation of value chains to which many providers of raw and intermediate commodities can contribute. Traditional trade partners to the insiders of the mega-deals could see considerable increase in relevant exports as long as they would be able to integrate into those new value chains.
  • Regulatory convergence can have a clear negative impact on outsiders. Nevertheless, a positive side to it exists too, to the extent that standards between insiders (which represent big markets for low-income developing countries) can be streamlined and harmonised. This in turn allows developing country outsiders to face one set of standards. For instance, a proper alignment of US and EU regulatory requirements could be positive, as long as they are not stringent enough to divert trade to insiders of the deals. Regulatory convergence can thus potentially create opportunities.

 

…and drawbacks of the mega-regional trade agreements

 On the other hand, comprehensive trading deals between major economic powerhouses might leave non-parties in a difficult situation:

  • Trade displacement or trade diversion may occur when competitiveness gains in the new trading blocs divert trade flows away from non-members. Outsiders would now have to potentially face relatively higher tariffs and more stringent non-tariff barriers vis-à-vis the parties that benefit from new preferences.
  • Many countries already enjoy preferential market access through bilateral PTAs or unilateral preference schemes. A mega-regional trade deal such as the TPP or the TTIP could erode the value of those preferences as parties to those deals profit from greater advantages, hence the preference erosion issue. This is particularly relevant for least-developed countries (LDCs) which currently benefit from duty-free, quota-free schemes provided by the EU, US or Japan. It also represents a serious risk for countries integrated into value chains that may lose their competitive edge vis-à-vis parties to the mega-deals. For instance, countries such as Cambodia or El Salvador fear legitimately that Vietnam might take part of their share in textiles exports to the US and Canada if the TPP is ratified.
  • Should they be passed, implications of regulatory convergence between members of the mega-regional agreements could prove difficult to cope with non-members of deals like the TTIP or TiSA. This would be an even more salient issue for developing countries lacking the capacity to adapt to the new standards. On the one hand, exports of developed countries with like-minded capacity could increase, whilst exports of similar products from developing countries might decline. Such asymmetrical effects may very well hurt firms in developing countries experiencing difficulties to comply with the stringency of elevated standards. In the case of rules of origin, mutual recognition of restrictive rules might also hamper further the imports of non-members.
  •  

As we can see, the effects PTA’s and mega-regionals in particular can be quite diverse. But what about the effects of this new trading paradigm on the international trading community as a whole? Follow us to part three of our four-part series on inclusiveness in the global trading system to find out!

[1] Note: The text for this mini-series in large parts derives from an earlier draft by Xiankun Lu and Darius Rao, which resulted from a collaboration between GED-Project and IDEAS Centre in November 2016.

[2] By regulatory convergence, we mean harmonisation of product standards, mutual recognition of standards and conformity assessment, harmonisation of rules of origin, alignment on non-tariff measures such as import licensing, customs valuation rules, etc.

[3] For more info on positive and negative effects, check amongst others the recent GED Study Series – Effects of Mega-Regional Trade Agreements from Bertelsmann Stiftung (2016), Draper (2014), Ecorys (2016), Aichele and Felbermayr (2015), Baldwin (2014), WEF (2014), etc.

GED Mini-Series: Inclusiveness in the Global Trading System | PART ONE

Written by IDEAS Centre on . Posted in Publications

 

Collaboration between the Bertelsmann Foundation and IDEAS Centre

 

Global Economic Dynamics (GED)  Mini-Series: Inclusiveness in the Global Trading System

PART ONE: How Did We Get Here? - The history of preferential trade agreements

In 1995, a large portion of the international community set the tone for a more inclusiveand open trading system. The establishment of the World Trade Organisation (WTO) that year marked a new era in global trade governance, where discriminatory trade measures and isolationist trade policies would be prone to challenge and scrutiny thanks to a rules-based system allowing Members to conduct trade in a more transparent and equitable manner.

Still, since the launch of the 2001 Doha round of trade talks very little progress has been made in multilateral talks and the world is now facing a vastly different kind of global trading landscape. One dominated by bilateral talks, preferential trade agreements (PTA’s) and most recently mega-regional free trade agreements. The inclusiveness of the global trading system seems at stake. In our new GED-Project mini-series[1] we want to take a closer look at this on-going change. Over the course of the next four blog posts, we will delve deeply into the history of global trade and trade agreements, the various effects the current trading system is having on developed and developing countries, current trends in the system and a potential way out of the impasse and towards a more inclusive system.

Part one of our four-part series will look at the history of preferential trade agreements and aim to give some insight into how we got to the current situation. You can find it on this link or read it directly below. You can click here for part 2here for part 3 and here for part 4 to skip ahead to the next three parts in our series.

 

A little history

 The booming of mega-regional trade agreements in contrast with sluggish multilateral rule-making is slowly but steadily changing the rules of the game. To understand where they come from, and why they put the inclusiveness of multilateralism at stake, it is certainly worth depicting briefly the history and current global state of preferential trade[2]. Since the foundation of the General Agreement on Tariffs and Trade (GATT) in 1947, the contemporary history of regionalism (or preferential trade) can be divided into four major phases:

  1. The first phase (1950s-1980s) refers to the early forms of regionalism, with the European continent spearheading the movement. The establishment of the European Economic Community (EEC) in 1958 and its British-led alternative in 1960 (i.e. EFTA) marked a new era of economic integration although in those times, integration was mostly motivated by consolidation of peace through trade liberalisation.
  1. The second wave of regionalism, which roughly took place from 1980 to 1995, was characterised by the strengthening of regional trading systems. Indeed, the European Community was expanding to include new members and the EEC also evolved to a Single European Market with free movement of goods, services, capital and labour. The second wave was also accompanied by, amongst others, the foundation of the Southern Common Market (MERCOSUR, 1991) and the North American Free Trade Agreement (NAFTA, 1994). NAFTA, for instance, proposed new sets of trade disciplines and approaches going beyond the classic coverage of trade in goods found in the GATT (notably on investment and services).
  1. The third phase concerns the post-Uruguay Round period,[3] which is noteworthy for the emergence of a more complex and multilayered global trading system, bolstered by a tremendous proliferation of PTAs. From the 1990s onwards, the number of PTAs increased from approximately 70 to 300 in 2010. In merely five years (from 2010 till 2015), an astounding number of 92 notifications of PTAs were made to the WTO and more are yet to be concluded.[4] Nowadays, PTAs in force between developing countries represent about two-thirds of the total number; about a quarter of PTAs are between developed and developing countries; and the rest concern developed nations solely. Approximately half of those PTAs are intra-regional and the remainder cross-regional, with the share of cross-regional agreements increasing over the last years.
  1. The fourth phase started in the last years and focuses on deep integration schemes. It overlaps with the third phase in the sense that traditional PTAs continue at the same time to be negotiated across the world. Traditional PTAs can be understood as trade deals that seek mostly to liberalise market access in goods and services without much focus on areas that are not covered by WTO agreements. Deep integration schemes go way beyond mere liberalisation of trade in goods and services, and touch upon drastic reduction of non-tariff barriers, regulatory convergence, common international standards, sustainability concerns, dispute settlement, e-commerce, Part of these deep integration schemes are the so-called mega-regionals and wide-ranging plurilaterals[5]. Generally speaking, these deals are driven by the most advanced economies and seek greatly to facilitate the integration and efficiency of global value chains. There is however a greater number of developing countries getting more and more engaged in deep integration schemes as we can see in the RCEP and TiSA. A more recent, growing reluctance towards mega-regionals in the west, as symbolized by President Donald Trump’s pulling out from TPP, could put further significance on those alternative agreements.

 

Trends and composition of PTAs

In general, a few essential observations can be extrapolated from the rising number of PTAs. First, it seems that trade preferences are becoming less and less important. Indeed, a significant portion of trade between PTA partners is duty-free and around 51 per cent of global trade is already duty-free on an MFN basis (2011). Preferential trade in goods only covers 17 per cent of world trade and the average MFN tariff amounted to about 4 per cent in 2011. Moreover, only 2 per cent of world trade is eligible for preference margins above 10 percentage points.[6] This generally means that there is little space for lowering tariffs within PTAs although certain sensitive sectors, mainly agriculture, remain substantially protected.

Second, PTAs currently have a tendency to deepen and intensify the WTO Agreements standards (WTO+), and to go beyond the scope of the WTO multilateral framework (WTO-X). Combined with a nearly stalled Doha Round and with complex international production networks fostering deep integration and increasing market sizes, the classical approach of tariff liberalisation is becoming less attractive, in particular for most developed countries, as they impose low tariff duties. In addition to WTO+ elements,[7] new PTAs tend to include WTO-X “behind-the-border” areas such as investment, competition policy, intellectual property, environmental laws, movement of capital, labour rights, investor-State dispute settlement, anti-corruption instruments, economic cooperation and so forth. These elements are becoming more and more important, in particular in mega-regional deals.[8]

It remains to be seen how most recent developments, such as the election of Donald Trump, the subsequent cancellation of the US’ role in TPP and a more general trend towards more protectionist policies in the West will influence the these trends in the formation of global trade agreements. For now you can click here to follow us to part two of our four-part series on inclusiveness in the global trading system and learn more about the various effects PTA’s can have on both insider and outsider parties.

 

[1] Note: The text for this mini-series in large parts derives from an earlier draft by Xiankun Lu and Darius Rao, which resulted from a collaboration between GED-Project and IDEAS Centre in November 2016.

[2] For the sake of this piece, preferential trade means trade that benefits from preferential treatment within the scope of a free or preferential trade agreement or regional trading scheme. This detail is important as we could rightfully assume that trade conducted on a most-favoured nation (MFN) basis amongst WTO Members is also preferential, as not all countries in the world are parties of the organisation.

[3] The conclusion of the Uruguay Round (1986-1994) led to the establishment of the WTO in 1995.

[4] See WTO’s Regional Trade Agreements Information System: http://rtais.wto.org

[5] E.g. the Transatlantic Trade and Investment Partnership (TTIP) between US and EU, the Transpacific Partnership (TPP) between Asia-Pacific countries, the plurilateral Trade in Services Agreement (TiSA) between pro-services WTO Members (including some developing countries) or the Regional Comprehensive Economic Partnership (RCEP) between ASEAN countries and their big neighbours China, India, Japan, etc.

[6] World Trade Organization, World Trade Report 2011 – The WTO and preferential trade agreements: from co-existence to coherence, WTO, Geneva, 2011.

[7] E.g. further liberalisation in tariffs, services, relaxed rules of origin, elimination of non-tariff barriers, etc.

[8] See World Economic Forum, Mega-Regional Trade Agreements – Game Changers or Costly Distractions for the World Trading System?, WEF, Geneva, 2014.

Lancement d’un e-book d’IDEAS Centre : Le futur de l’OMC – L’OMC du futur

Written by IDEAS Centre on . Posted in Publications

 

IDEAS Centre a le plaisir de lancer la publication d’une série d’articles et de notes de réflexion sur

Le futur de l’OMC – L’OMC du futur
Contribution à un système commercial multilatéral inclusif et favorable au développement

Le but de cette initiative est d’apporter une contribution pour les pays en développement à faible revenu et les PMA sur la façon de s’’adapter à la nouvelle situation issue de Nairobi ainsi qu’à un environnement du commerce international en pleine évolution. Les contributeurs sont des experts et des spécialistes issus du milieu universitaire, des think tanks et du secteur privé du Sud comme du Nord.

Ces notes de réflexion visent à alimenter la réflexion globale à laquelle l’ensemble des membres de l’OMC et d’autres acteurs ont été invités à participer, pour (re)penser l’avenir du système commercial multilatéral.

Afin d’optimiser la période de réflexion post-Nairobi et de veiller à contribution opportune à l’actuel exercice d’introspection, ces notes de réflexion seront publiées au fur et à mesure et seront plus tard dans l’année rassemblées en un e-book. Pour plus de détails, cliquez ici.

La réflexion est structurée autour de six chapitres et les contributeurs ont été invités à réfléchir sur l’une de ces questions:

  • Chapitre 1 Revisiter le Cycle de Doha après Bali et Nairobi
  • Chapitre 2 Définir la gouvernance du 21ème siècle
  • Chapitre 3 Identifier règles et disciplines selon les besoins
  • Chapitre 4 Faire correspondre le contenu de la négociation et le processus de négociation
  • Chapitre 5 Restaurer / préserver la centralité de l’OMC
  • Chapitre 6 Préparer l’avenir

Le contenu des articles et des notes de réflexion reflète le point de vue des auteurs. IDEAS Centre remercie tous les auteurs pour leur contribution et espère que cette initiative contribuera au débat post-Nairobi.

 

Note de réflexion n°1 sur Le futur de l’OMC – L’OMC du futur – 23 mai 2016

Restaurer la centralité de l’OMC, par Gary Clyde Hufbauer, Reginald Jones Senior Fellow, Peterson Institute for International Economics, Washington D.C.

Notre première note de réflexion ne laissera personne indifférent. Gary Clyde Hufbauer nous invite à considérer quelques idées invitant à la réflexion autour de la restauration de la centralité de l’OMC – tels  que développer des accords plurilateraux ou revigorer le mécanisme de règlement des différends – et à regarder comment les pays en développement pourraient vouloir veiller à ce que leurs intérêts soient préservés avec une telle approche.

La note de réflexion est disponible ici.

Launch of an IDEAS Centre e-book: The Future of the WTO and the WTO of the Future

Written by IDEAS Centre on . Posted in Publications

 

IDEAS Centre has the pleasure to launch the e-publication of a series of articles and think pieces dedicated to

The Future of the WTO and the WTO of the Future
Contributions to an Inclusive and Development-Friendly Multilateral Trading System

The purpose of this initiative is to make a contribution for LIDCs and LDCs on how to adapt to the post-Nairobi situation and the changing international trade environment. Contributors are experts and specialists from academia, think tanks and private sector from the South and from the North.

Those think pieces aim at feeding in the global brainstorming that all WTO members and other stakeholders have been invited to conduct regarding the future of the multilateral trading system.

In order to optimize the post-Nairobi reflection period and to ensure timely contribution to the on-going soul-searching exercise, think pieces will be published as they come and will be later in the year gathered into an e-book. For more details, click here.

Six chapters have been structured and selected contributors have been invited to reflect on one of these issues:

  • Chapter 1          Revisiting the Doha Round after Bali and Nairobi
  • Chapter 2          Defining the 21st century governance
  • Chapter 3          Identifying rules and disciplines according to needs
  • Chapter 4          Match-making between negotiation content and negotiation process
  • Chapter 5          Restoring / preserving the centrality of WTO
  • Chapter 6          Preparing the future

The content of the articles and think pieces reflect the point of view of the authors. IDEAS Centre thanks all authors for their contribution and hope that this initiative will contribute to the post-Nairobi debate.

 

Think piece N°1 on The Future of the WTO and the WTO of the Future – 23 May 2016

Restoring WTO Centrality, by Gary Clyde Hufbauer, Reginald Jones Senior Fellow, Peterson Institute for International Economics, Washington D.C.

Our first think piece will not leave anybody indifferent. Gary Clyde Hufbauer invites us to look at some thought-provoking ideas to restore the centrality of the WTO – such as plurilateral agreements and a reinvigorated Dispute Settlement Body – and to see how developing countries may want to ensure that their interests are preserved in such an approach.

The think piece is available here.

How to Get Out of the SDT Box and Move SDGs and WTO Negotiations Ahead?

Written by IDEAS Centre on . Posted in Publications

 

The International Centre for Trade and Sustainable  Development (ICTSD) has published on 7 March 2016 an article written by Xiankun Lu, Partner at IDEAS Centre. The article is part of an ICTSD blog on the 2030 Sustainable Development Agenda. You can find it on this link or read it directly below.

 

How to Get Out of the Box on SDT and Move the SDGs and the WTO Negotiations Ahead?

Target 10a of the Sustainable Development Goals (SDGs) adopted as part of the 2030 Agenda by the United Nations last year provides that “the principle of special and differential treatment for developing countries, in particular least developed countries” should be implemented, in accordance with World Trade Organization (WTO) agreements, as part of the achievement of SDG 10 on reducing inequality within and among countries. In 2013, WTO Members established a Monitoring Mechanism to review the implementation of existing special and differential treatment (SDT) provisions, but it has proven extremely difficult to design SDT, that is “precise, effective and operational” and at the same time politically feasible, for new WTO agreements.

One reason reaching agreement has been so difficult is because the global economic and trade landscape has undergone substantial change since 2001, which has led to the view among some Members that the economic implications of SDT in a global trade deal are different now compared to when the negotiations began. For example, according to the WTO, the share of developing countries in global trade rose from 33 percent to 48 percent between 2000 and 2012, while South-South trade accounted for 25 percent of world trade, up from approximately 10 percent twenty years ago. According to IMF data, based on Purchasing Power Parity (PPP), emerging economies accounted for around 35 percent of global Gross Domestic Product (GDP) in 2014.

This has given rise to fierce debate within the WTO, with some arguing that rights and obligations should be distributed among developed and developing Members and that emerging economies, still entitled to traditional SDT, should contribute more than poorer countries to a WTO outcome. Others, however, argue that the economic argument for SDT for the developing Members that make up 2/3 of the WTO’s membership remains highly valid, including the need to preserve policy space for domestic adjustment in some sectors that are not strong enough yet to face up to the competition that comes with rapid liberalization, and that emerging economies are still confronted with serious developmental challenges. According to the World Bank, 21.3% and 11.2% of the population of India (2011) and China (2010) are still living on less than US $1.90 a day.

The reality is that, politically, it is impossible for parliamentarians of developed countries to accept that emerging economies should continue to be sheltered under the same SDT as poorer developing countries. However, it is equally difficult to imagine that politicians in emerging economies would agree to forfeit their developing country status and undertake even similar obligations as developed countries. In the absence of solutions to untie this tight knot, substantial progress in WTO negotiations seems to be very difficult. WTO Members are currently deeply divided over how to move WTO negotiations forward. In the Nairobi Ministerial Declaration of December 2015, many Members reaffirmed the DDA mandates and progress since then, while others did not reaffirm the mandates and called instead for “new approaches”.

In my view, because of the high political sensitivity, blunt attempts to redefine “developing countries” or to regroup developing countries to separate big economies from small are therefore political dead ends. Rather than continuing the doctrinal and conceptual debate on the developmental status of emerging economies, negotiators could look at the specifics of each negotiating subject in a flexible and pragmatic manner to find solutions. Successful cases already exist in recent WTO agreements, including the Trade Facilitation Agreement (TFA) and the new Information Technology Agreement (ITA), in which at least some emerging economies have voluntarily exercised de facto “opt out” of SDT.

Meanwhile, the established notion of “principal supplier” in the WTO could also serve as a potential parameter to test where emerging economies may be willing to do more than other developing Members, such as on market access. The “principal supplier” rule was used in previous negotiations under the General Agreement on Tariffs and Trade (GATT), the predecessor of the WTO, to refer to the country or countries that were the most important source of a particular product imported by another country. According to the GATT Analytical Index explanation of Article XXVIII on modification of schedules, in early GATT negotiations: “Participating countries [could] request concessions on products of which they individually, or collectively, [were] the principal suppliers to the countries from which the concessions are asked.” Nowadays, in the context of Article XXVIII, principal suppliers are those WTO Members most affected by changes of schedules, such as increases in tariffs on a product, and therefore have the right to be part of compensation negotiations resulting from the schedule modification.

The logic that a principal supplier country is strong in producing and exporting a particular product, hence may be in a comfortable position to offer better market access and withstand the potential competition from exporters of that product from other countries, could be applied to current WTO negotiations. In fact, such a methodology has already been referenced in DDA negotiations, albeit in an informal manner rather than an agreed principle. As a former trade negotiator of China, I heard many times, such as in negotiations of environmental goods, demands among Members for tariff concessions from other members on particular products based on arguments that the latter were already dominant producers and exporters of those products.

The next step would be to go deeper into trade statistics to do a comprehensive evaluation of which WTO Members are already principal suppliers of particular products and make more specific suggestions about how the concept could be applied fairly in WTO negotiations. Some emerging economies, such as India and China, purely because of their sheer size and big populations, may naturally be principal suppliers of many products. Traditional trade statistics only measure the simple value of exports but not added value, hence may exaggerate the dominance of countries in the production of a product, when in fact the country is responsible only for the product’s assembly, for example. All in all, like in any negotiations, balance is the key.

In a nutshell, the “principal supplier” concept could help Members jump out of the box of doctrinal debates on SDT and serve as an interesting starting point to look at where each WTO Member could potentially contribute more in a fair manner. If the concept helped WTO Members reach agreement on new multilateral trade rules, it could contribute not only to the achievement of Sustainable Development Goal 10, through increased trading opportunities for poorer countries, but also to a range of other SDGs, including Goal 8 on economic growth and employment, and Goal 17 on a Global Partnership for Sustainable Development.

(The author, a former senior trade negotiator of China to the WTO, is Partner of IDEAS Centre Geneva and Executive Dean of New Huadu Business School Switzerland. The views expressed in this article reflects the personal views of the author and do not necessarily represent the views of the institutions the author is affiliated to.)

Article du Temps sur la Chine et sa politique commerciale internationale

Written by IDEAS Centre on . Posted in Publications

Le journal suisse Le Temps a publié le 3 mars 2016 une interview rédigé par le journaliste Dejan Nikolic. M. Xiankun Lu, partenaire auprès d’IDEAS Centre, y répond à un certain nombre de questions liées à la Chine et sa position en tant que superpuissance économique mondiale. Vous pouvez lire l’interview sur le site dudit journal ou directement ci-dessous. 

« Nom de code de l’un des plus gigantesques projets d’infrastructure jamais imaginés: OBOR, pour «One Belt, One Road». Soit une nouvelle ceinture commerciale censée desservir 60% de la population mondiale, une idée du président chinois Xi Jinping. Décryptage

La Chine, deuxième puissance économique du globe, est le leader mondial du commerce de produits manufacturés, le numéro deux en ce qui concerne les échanges de services et le troisième investisseur direct étranger de la planète. Mais Pékin s’est déjà donné pour but d’intensifier son rôle d’acteur dominant sur la scène internationale. Parmi les éléments pivots destinés à asseoir sa politique d’influence: OBOR, pour «One Belt, One Road» (OBOR). Soit un projet d’infrastructures spectaculaire visant à diviser par quatre – dix jours au lieu de quarante – le temps de transport de marchandises, entre la Chine et l’Afrique. L’ambition est de faire de même par voie terrestre, en passant par l’Asie centrale et le Moyen-Orient, jusqu’aux portes de l’Europe.

Explications avec Xiankun Lu, ex-négociateur en chef de la Chine auprès de l’Organisation mondiale du commerce (OMC) durant 14 ans et qui a auparavant représenté Pékin à Bruxelles pendant 8 ans. Membre du groupe académique des 100 relatif au projet OBOR, l’expert de 46 ans est à présent associé du centre genevois IDEAS, tout en étant doyen adjoint du New Huadu Business School à Zurich et chercheur au Shanghai Centre for Global Trade and Economic Governance ainsi qu’à l’Université Wuhan de Chine.

– En quoi consiste OBOR? Et quand pensez-vous qu’il verra le jour?

– Cette initiative ambitieuse, lancée en 2013, a été maladroitement surnommée «Nouvelle Route de la Soie». C’est mal comprendre le périmètre du concept proposé, qui va bien au-delà des infrastructures de transports. Il s’agit en réalité de coordonner les mesures politiques, promouvoir le commerce, renforcer la coopération financière et encourager les liens entre les peuples. Pour la Chine, l’opération s’accompagne d’un programme exhaustif de réformes internes et externes, visant à ouvrir davantage son marché et à l’intégrer à ceux alentours.

– Peut-on parler de «Plan Marshall» pour relancer la croissance chinoise?

– Non, même si l’élan en cours annonce l’émergence d’un nouveau paradigme économique. Il y a 30 ans, la Chine n’était qu’une pauvre nation agricole renfermée sur elle-même. C’est aujourd’hui la deuxième puissance économique au monde. Mais Pékin fait face aujourd’hui à un ralentissement de sa croissance ininterrompue depuis les années 1970. La demande chez ses voisins en développement connaît en revanche un essor très rapide. D’où l’idée de créer une ceinture commerciale terrestre d’Asie centrale à l’Europe, en passant par le Moyen-Orient, ainsi qu’une artère maritime, jusqu’aux côtes africaines. La Chine espère ainsi réorienter ses surcapacités industrielles et ses capitaux, au profit de quelque 65 pays concernés, soit 60% de la population mondiale regroupant 33% de la fortune de la planète.

– A-t-on déjà des exemples d’investissements dans ce chantier, qualifiée par l’IMD de défi le plus brûlant de l’agenda économique mondial dans la décennie à venir?

– Nous n’en sommes qu’aux prémices des opérations. Chaque pays peut s’engager selon ses envies; Pékin n’entend imposer aucun rythme. Le Kazakhstan, par exemple, a déjà annoncé participer à hauteur de 23 milliards de dollars. Selon des calculs préliminaires, OBOR devrait mobiliser quelque 6000 milliards de dollars de fonds, uniquement pour les infrastructures de transports. En 2015, la dynamique ainsi créée a déjà permis d’accroître de 25% les investissements régionaux en Chine, respectivement de 18% ceux de Pékin, dans les pays parties au projet.

– Pourquoi n’entend-on pas parler davantage de cette initiative en Europe?

– Le concept est nouveau, très complexe et sa mise en œuvre manque encore de clarté. De manière générale, la Chine n’a jamais été douée pour expliquer sa stratégie.

– En quoi tout cela concerne-t-il les pays occidentaux?

– OBOR est un processus ouvert aux pays en dehors de la ceinture commerciale. La France et la Grande-Bretagne ont par exemple signé des protocoles d’entente avec la Chine pour des investissements et des projets d’assistance technique en Afrique. La Suisse est également invitée à coopérer avec la Chine [investissements, aide étrangère, projets de développements ou de protection environnementale, etc.] en faveur d’un pays tiers.

– L’économie chinoise ralentit. Cela veut-il dire qu’elle s’affaiblit?

– Le problème est d’ordre structurel. Le modèle de développement chinois n’est pas durable. La Chine souffre de surcapacité dans de nombreux secteurs, comme la chimie ou l’acier. Les réformes à venir pour moderniser le tissu économique chinois s’annoncent extrêmement difficiles, s’agissant notamment de réaffecter les forces de production dans d’autres pays, tout en s’ouvrant à l’industrie de pointe.

– Que pensez-vous des rachats d’entreprises étrangères – dont des fleurons suisses – par la Chine?

– Ce n’est pas un phénomène nouveau. L’encouragement à acquérir de nouvelles technologies et des compétences managériales étrangères date de 2001. La Chine, qui capte environ 100 milliards d’investissements directs étrangers par an, en a dépensé autant dès 2015, à travers le rachat de sociétés dans d’autres pays. La Chine, qui occupe la partie inférieure de la chaîne d’approvisionnement mondiale, avec des produits bon marché et une production de masse, vise à présent une production de qualité à haute valeur ajoutée, en s’aidant de compétences externes.

– Ne pensez-vous pas que cette dynamique revient à étatiser des entreprises privées étrangères?

– La plupart des sociétés d’État en Chine sont cotées en bourse. C’est donc la loi du marché qui dicte leur stratégie.

– Pourquoi avez-vous abandonné vos fonctions de diplomate?

– Je suis resté trop longtemps à ce poste. Ayant effectué plus du double du mandat habituel et pour des raisons familiales, il fallait que je parte.

– Qu’est-ce que l’accession à l’OMC a apporté à votre pays?

– Les efforts de libéralisation de Pékin, et la croissance proche de deux chiffres qui en résulte, datent de 1978. Mais c’est surtout à partir de 2001, après l’entrée de la Chine à l’OMC – soit quinze ans après sa première candidature –, que le développement du pays a été le plus marqué. L’ampleur des engagements consentis en termes de réformes – le prix d’entrée à l’OMC a été largement supérieur à celui demandé à d’autres pays par le passé –, a propulsé la Chine de la 6e à la 2e place des plus importantes puissances économiques au monde. Ce processus, qui a pris environ dix ans, est en grande partie lié aux pressions des standards de l’OMC.

– Des membres influents de l’OMC souhaitent aujourd’hui que la Chine ne soit plus considérée comme un pays en développement, avec les dérogations liées à ce statut particulier. Quel est votre avis sur cette importante source de blocages au sein de l’entité basée à Genève?

– La Chine est en effet un grand pays et une grande économie du pouvoir. Mais elle abrite aussi 24 millions de personnes vivant en dessous du seuil de pauvreté. Près de 700 millions de ses citoyens habitent encore dans les campagnes. Chaque année, 10 millions de ruraux migrent vers les villes à la recherche d’un emploi. Chiffre auquel il faut ajouter annuellement 8 millions d’étudiants, en attente d’un emploi, dans un contexte où les systèmes de santé et de sécurité sociale restent embryonnaires. Non, la Chine n’est pas encore un pays développé. Mais elle reste beaucoup plus puissante qu’un pays en développement normal. En tant que chercheur indépendant, je plaide pour davantage de compréhension mutuelle et de pragmatisme. J’en appelle surtout à dépasser les discours purement dogmatiques. Pékin est prêt à faire davantage d’efforts, là où elle le peut.

– Quel format de négociations est privilégié par la Chine: bilatérale, régionale, plurilatérale (à quelques pays, en marge de l’OMC, mais dont le résultat final est en principe ouvert à tous), ou multilatérale (de manière universelle, entre les 163 pays membres de l’OMC)?

– Clairement, Genève reste la plateforme commerciale privilégiée par Pékin. Pour preuve: longtemps après son accession à l’OMC, la Chine ne disposait d’aucun accord préférentiel. Elle en a depuis signé 14. Mais ces derniers ne représentent que 26% de ses volumes d’échanges internationaux, contre 30% à 50% pour l’Union européenne ou les États-Unis. Et si vous retirez les textes conclus avec Hongkong et Macau, ce chiffre descend à 12%. Cela étant, depuis que le système multilatéral est grippé en raison de difficultés liées au cycle de Doha [ndlr: processus lancé en 2001, soit en même temps que l’accession de Pékin, et au point mort depuis lors], la Chine a un intérêt grandissant pour certaines initiatives plurilatérales, comme l’Accord sur le commerce des services actuellement en discussion, dont de grands acteurs lui refusent toujours l’accès.

– La plupart des observateurs s’accordent à dire que Doha est mort. Pourquoi seuls les diplomates à Genève ont une opinion contraire?

– Officiellement, Doha est toujours en vie. Le processus a en revanche entamé une dynamique de réforme. Des États membres ont proposé d’identifier de nouvelles approches, ce qui ne va pas de soi. Une sortie de crise possible consiste à inclure des thèmes plus contemporains à l’agenda qui date de 2001, comme l’e-commerce, les investissements, la concurrence, etc.

– En quoi l’OMC est-elle toujours pertinente?

– Vous connaissez l’adage: les succès ne s’ébruitent jamais au-delà de deux pâtés de maison, alors que les échecs font le tour de la cité en quelques heures. Hormis sa fonction de négociation, l’OMC est basée sur deux autres piliers – le règlement des différends et la surveillance des normes – fonctionnant parfaitement. Sans eux, le commerce international en serait resté à l’état d’après-guerre.

– L’accord de libre-échange (2013) entre Pékin et Berne a fait l’objet de sérieuses critiques. Pensez-vous que ces dernières étaient justifiées?

– Pas vraiment. Au moment de sa signature, les volumes d’échanges chinois étaient en baisse de 8%. Nous étions alors en période de crise. Ce texte est le résultat d’un compromis, ayant permis de maintenir les relations sino-helvétiques en terrain positif, entre +3% et +4%. Les entreprises suisses ne doivent pas s’estimer perdantes. Le potentiel réel de ce texte doit être déployé à travers un processus de révision périodique. Par exemple, notre accord bilatéral avec Hongkong en est à sa dixième version améliorée. »

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