WTO Ministerial Conference: Time for a new world trade strategy

Professor Christopher Findlay
Executive Dean of the Faculty of the Professions at the University of Adelaide
Vice-Chair of AUSPECC

Republished from the East Asia Forum

The weather was awful outside the WTO Ministerial Conference in Geneva last week, but there was some sunshine within the convention centre.

Russia acceded as a member, along with Samoa, Montenegro and Vanuatu (the club still attracts new members, and as one minister said: ‘as far as I know, nobody has asked to leave’).

The Plurilateral Government Procurement Agreement was revised — after 10 years of negotiations — further opening up procurement markets to give foreign economies better access. China is also en route to joining, having agreed to do so on its accession to the WTO, after further negotiations took place.

But there were some strange decisions, like giving countries the option to waive most favoured nation (MFN) provisions, so as to allow least-developed countries preferential access to services markets. It is not yet clear how this will happen or how it would help resolve constraints in developing countries, which hinder reforms in their own service sectors. There were some non-decisions as well. No conclusion was reached on a set of principles for food security, for example, although the WTO’s Director-General rebutted a protectionist report from a UN official.

Why the lack of progress at this year’s Ministerial Conference? Here are five suggestions.

One factor is that ‘development’ has been mixed with trade. On the face of it, having a ‘development round’ seems positive, but lumping these two areas together complicates the process, and introduces new items for debate. The WTO should remain focused on the resource allocation gains from international business.

Another reason for the lack of progress is that the WTO cannot deal with the barriers that have now become relatively more important to business. This includes the rules and processes affecting international business which are not managed at the border. These barriers create significant rents — and those who currently gain from the arrangements resist their removal. Analytical work on these barriers is more and more important.

The third factor involves the uncertainties faced by policy makers when removing such barriers. Some were put in place for genuine public policy purposes, and policy makers are not confident about the likely consequences of their removal. Capacity building programs focused on this issue could help address the problem, and the EU and APEC, in particular, could work well together on this.

Fourth, the use of preferential agreements does not make the process any easier. Rents are created for local business, which are then shared with a state’s ‘favourite partners’ when preferential trade agreements find a way of allowing market access. In this way, the grand bargain once represented by the WTO has been diminished.

The US is the fifth reason why progress has stalled, although the US would likely say that other leading members were the problem. The US wants to create more domestic jobs — and good ones — which it associates with more market access, especially in countries like India, China and Brazil. These economies are not offering enough, and the US is therefore pursuing other options like the Trans-Pacific Partnership, or negotiations with the EU, to flush out some response from recalcitrant members. Meanwhile, this tactic promotes the use of FTAs and depreciates the political capital available to the WTO.

What will happen now?

Within the WTO, fundamental principles including MFN provisions and the ‘single undertaking’ will be challenged in the name of pursuing more-achievable — or less-ambitious — goals. Australian Minister for Trade Craig Emerson said the situation ‘argues for breaking the round into its component parts … instead of waiting for some grand bargain, magically, like a bolt from the blue, to strike us from the sky’.

Tension will be regarded as a plus, and created by excluding trading partners from special deals. Plurilaterals will proliferate, both within and without the WTO. We will move to a world in which there are clubs within clubs, and in which they all overlap. There is also the possibility of great tension in the Asia Pacific as ‘a line is drawn down the middle of the Pacific’.

It is not clear what the circuit breakers will be in this situation. Whatever happens, small group negotiations within the WTO could be okay if guided by the right principles. Some will call for new leadership at the top, in order to consolidate and multilateralise small groups outside the WTO. Others hope that the situation will be resolved from below, via competition; some clubs will exit (in effect, if not in name) or amalgamate, and what remains will be (hopefully) efficient.

Our best chance is to build confidence in reform led from within economies. This requires transparency and benchmarking (via strong trade-policy reviews in the WTO, good peer reviews in APEC and clones of Australia’s Productivity Commission). It will also require us to demonstrate the real linkages between policy and performance, and the ability to translate that work into compelling public commentary. We then have to think through where world trade policy is at now, and develop a new, more coherent global strategy.