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Is plurilateralism making the WTO an institutional zombie?

The inability to complete the Doha Development Round launched in 2001 and the failure to curb fishing subsidies despite the decimation of global fish stocks indicates that multilateralism is floundering.

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The World Trade Organization’s (WTO) 2014 Trade Facilitation Agreement is the only significant multilateral agreement it has concluded since its inception in 1995. Against that success, significant failures stand out.

The inability to complete the Doha Development Round launched in 2001 and the failure to curb fishing subsidies despite the decimation of global fish stocks indicates that multilateralism is floundering.

The growth in plurilateral agreements adds to that view and raises questions about the WTO’s future. Plurilateralism refers to trade and investment negotiations between three or more countries, but fewer than all WTO members. Plurilaterals can occur inside the WTO, where non-signatories still receive the benefits through the most-favoured-nation requirement.

The 1996 Information Technology Agreement is one early example. Issue-specific WTO plurilaterals, such as the e-commerce negotiations, are becoming a popular option. To reduce free-riding, these ‘open’ WTO plurilaterals require a critical mass of members to have signed on before entering into force.

Plurilaterals can also occur outside the WTO to form between-country preferential trade agreements (PTAs) where benefits flow only to parties to the agreement.

PTAs include free trade agreements (FTAs), such as the China–Australia FTA, as well as regional and mega-regional trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP). To be legal under WTO rules, PTAs must liberalise ‘substantially all trade’.

Multilateral gridlock means trade progress is now happening at the plurilateral level. This creates opportunities and dangers for the WTO. Opportunities arise through the prospect for trade progress that is sorely needed; danger lies in the possibility of governance fragmentation from external PTAs. In 2000 there were 83 PTAs in force, and by 2020 there were 303. This trend risks  the WTO becoming an institutional zombie struggling to manage a smorgasbord of inconsistent rules.

The success of the WTO’s predecessor, the General Agreement on Tariffs and Trade (GATT), is a key reason for multilateral difficulties today. The GATT began in 1948 with 23 members agreeing to reduce trade tariffs. Tariff reductions were the primary focus of negotiations through to the 1986 Uruguay Round, by which time there were 123 members. A reduction in tariffs from about 22 per cent of traded goods value in 1947 to 5 per cent after the Uruguay Round is indicative of the success of GATT negotiations.

When the WTO became operational in 1995, the GATT had largely completed ‘negative’ economic integration. This required very little ‘positive’ integration, the latter referring to rule convergence on national regulatory standards. The GATT also provided foundations for the current system, including non-discrimination rules, a dispute resolution forum and the norm of reciprocity between nations regarding tariff concessions.

The WTO was born into a role demanding greater regulatory convergence between nations on issues such as non-tariff measures, services standards, intellectual property, subsidies and an array of technical and legal standards. Further, with no provisions on e-commerce or digital trade and the incomplete General Agreement on Trade in Services, the WTO was outdated on arrival. The need for greater rule convergence to achieve further progress has significant ramifications for national regulatory sovereignty. It also demands national capacity for implementation and oversight that developing countries often struggle to meet.

The WTO sought such convergence with greater member heterogeneity compared to the GATT. The WTO now has 164 member nations, with divergences in development status, political systems and social preferences. Yet agreement on any WTO issue must be reached by consensus. Even between culturally and developmentally similar countries, differences in social preferences create major hurdles to securing a trade agreement when behind-the-border regulatory issues are at stake.

Two implications for PTAs are now evident. First, PTAs are a logical response to the difficulties of achieving consensus across WTO membership on issues that reduce domestic policy space. Second, the growth in PTAs indicates an ongoing desire by members to continue deepening trade integration. Neither implication suggests the WTO is becoming redundant.

Rather, the WTO is a crucial foundation on which modern PTAs build. The United States–Mexico–Canada Agreement (USMCA), for example, uses significant amounts of WTO text and requires that basic disputes over technical barriers to trade be heard within the WTO’s framework.

By building upon the existing multilateral…

Author: Naoise McDonagh, University of Adelaide

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Opinion

Is there a Happiness gap in the Land of Smiles?

With the coronavirus pandemic, the global economic slowdown, and domestic political tumult, if the government refuses to be responsive to people’s feelings, our famous Thai smiles won’t be able to return anytime soon.

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How happy are people in the “Land of Smiles?” Not too happy. In fact, the Thai people’s spirit was at its lowest last year, and things don’t look much brighter in 2021.

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China

Mainland China is in no position to take Taiwan by force

Unlike his predecessors, Chinese President Xi Jinping has demonstrated greater intensity in the desire for reunification.

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The situation across the Taiwan Strait has seemed to be on the brink of crisis since 2018. Beijing has sent numerous sorties of military aircraft to conduct exercises near Taiwan and frequently crossed the median line of the Taiwan Strait.

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How can Biden win over a still sceptical Asia?

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The United States abandoned economic leadership in Asia four years ago.

Rather than promote and strengthen the multilateral institutions and frameworks that underpin Asia’s prosperity, the United States under President Trump began systematically undermining them: from the WTO, WHO and Paris Agreement, to military alliances with Japan and South Korea, bilateral trade ties and cooperation in regional forums.

The message that Asian policymakers received was crystal clear: Asia is too reliant on an increasingly unreliable America. The damage from the Trump presidency is likely, sadly, to be permanent.

While President Biden is a refreshing change, three things still weigh on the minds of Asian policymakers.

First, Asian policymakers recognise that Trump was not an accident. He was the product of long-standing deep structural challenges in the US economy and society.

Addressing those challenges will be a difficult, long-term proposition. The Democrats winning the White House, House of Representatives and Senate means Biden has more room to manoeuvre in addressing those challenges.

But failing to secure a majority big enough to defeat the filibuster means cooperation with the Republicans — a party suffering a deep identity crisis — is still essential.

Second, Biden is swamped with domestic problems. American presidents in the past have had to deal with race riots, pandemics, recessions, political polarisation and the alleged criminal acts of their predecessors before, but never has a president had to deal with all of them at once.

With so many problems at home, Asian policymakers fear Biden will be too preoccupied and have too little political capital to spend on foreign policy issues in the region.

Finally, although Biden has begun reframing US foreign policy, there are still plenty of signals from Washington that worry Asian policymakers: from aggressive ‘Buy American’ rhetoric to a continuation of a hyper-securitised approach to China that under-weights the economic role China plays in the region and the role that economic prosperity plays in Asia’s national security.

Biden has his work cut out winning over a sceptical Asia.

The reality is that both need each other: Asia needs the counterweight of America, and Biden needs Asia if he is to deliver on his foreign policy objectives. What can Biden do to instil confidence in a region still battered and bruised from four years of the Trump administration waywardness?

In our lead article this week, Adam Triggs suggests one answer: using Indonesia’s upcoming G20 host year in 2022 to strengthen the multilateral institutions that Asia relies upon and which underpin long-term US influence in the region. In turning its back on multilateral institutions, the United States surrendered one of the most powerful weapons in the US arsenal: the ability to shape global rules and institutions. The problem is that too many multilateral institutions are in desperate need of reform. As these institutions atrophy over time, so does US influence as a patchwork of competing institutions emerge.

There are several major global institutions that need reform, Triggs suggests. The global trade rules need updating while the IMF and World Bank’s outdated governance structures weaken their legitimacy, funding and effectiveness. The World Health Organization’s budget is smaller than that of most big hospitals and too much of its funding is earmarked, while the International Energy Agency’s membership still excludes a majority of the world’s energy consumers.

‘The consequences of these out-of-date institutions are the same: more fragmentation and less US influence’, says Triggs. ‘As the funding, legitimacy and effectiveness of these institutions dwindles, regional competitors emerge’. For the WTO, it’s a plethora of plurilateral and bilateral trade agreements. For the IMF, it’s the European Stability Mechanism, the Chiang Mai Initiative and hundreds of bilateral currency swap lines. For the World Bank, it’s the Asian Development Bank, the Asian Infrastructure Investment Bank and many others.

For the first time in more than 10 years, President Biden has a window of opportunity to fix this. With the White House and both houses of Congress in alignment, the United States can lead reform in these institutions and create new rules where they are lacking today.

‘Historically, successful reforms in global governance have required at least three things’, says Triggs: ‘leadership from the President of the United States, approval from the US Congress (at least when funding is required) and a quorum of major countries that support the change. For the first time in more than a decade, all three pieces of the puzzle…

Author: Editorial Board, ANU

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