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The WTO and the post-Cancun
world
By Suranjan Gupta
The
collapse of the World Trade Organization's (WTO) Cancun
ministerial talks in September has raised more questions
than answers. As the rhetoric surrounding the talks dies
down, important issues pertaining to trade
liberalization are being raised in different parts of
the globe.
Does Cancun herald the end of multilateralism in
international trade? Will regional trade agreements and
free trade areas become the order of the day? Are we
destined for another global crash like the world
witnessed during the 1930s?
Will the WTO as an institution survive or will
reforms be sought by major countries for it to become a
more cohesive decision-making body?
What happens to the Doha Development agenda? Will
the rich countries come back to the table to discuss the
agenda or will this turn into a protracted battle
between North and South countries?
Certainly,
preferential trading arrangements have proliferated
around the world, especially after the success of the
North American Free Trade Agreement (NAFTA)signed in
1993 between Canada, Mexico and the United States. The
WTO had been notified of as many as 250 preferential
agreements by the end of 2002. The proposed Free Trade
Area of the Americas (FTAA) and the emerging
arrangements in East and Southeast Asia are expected to
strengthen this process.
However, this process
of regional trade groupings has gone on simultaneously
with, first, the formation of the WTO and then
subsequently, its strengthening as a global body. In
fact, in the eight years of existence of the WTO since
1995, 130 preferential trade agreements have been
officially notified to it. Thus, facts indicate that
irrespective of the consequences of the multilateral
process of trade liberalization, regional agreements
have a logic of their own that will continue. Moreover,
the WTO itself recognizes this. Article 24 of the
General Agreement on Tariffs and Trade (GATT) that
preceded the WTO and the "enabling clause" takes
cognizance of the circumstances in which member
countries can form free trade areas or customs unions.
Despite all the positives associated with a body
like the WTO, it does have certain limitations. New
membership is excruciatingly difficult. No wonder then
that while 130 preferential trade agreements have been
formed since 1995, only 19 countries have been able to
become new WTO members. Trade economists may despise
regional trade groupings, but they will continue to be a
force to reckon with, Cancun or otherwise. The world is
more often than not run on "second best" lines, and
international trade seems to be no exception to that
rule.
What has been the impact of regional
groupings on trade flows? World trade hovered in the
region of US$6 trillion annually during 1999-2001.
Intra-regional merchandise trade between the seven most
important regions of the world accounted for around 50
percent of global trade.
Clearly, the logic of
regional trade groupings also makes good economic sense.
But at a disaggregated level, the trade flows indicate
some interesting trends. During 2001, for instance,
intra-exports in the European Union (EU) fell by 2
percent as opposed to growth of 1 percent in 2000. In
contrast, extra-exports grew 7 percent in 2000 and zero
growth during 2001. The trend is similar for
intra-imports and extra-imports for the EU.
This
is not something exceptional to the EU only. Other
regional trade agreements (RTAs)have also witnessed
similar trends, though the evidence suggests that newer
groupings such as NAFTA and Mercosur have witnessed
faster growth in their intra-trade vis-a-vis their
extra-trade. The point that one is trying to make is
that while there is an economic rationale for regional
groupings, especially in contiguous geographical areas,
countries will find that, over the passage of time, a
multilateral reduction in most-favored nation (MFN)
tariffs is still the optimum solution. Also the evidence
seems to point to the fact that only those
bilateral/RTAs that go substantially beyond classical
tariff only free trade agreements (FTAs)are worth
considering, especially for the developed world.
Such FTAs must therefore include non-tariff
barriers and/or strictly non-trade issues, some of which
were also rejected for WTO negotiations at Cancun. So if
developing countries accept such FTAs in future, it is
likely that that in itself will be an impetus to
successful multilateral trade negotiations under the
auspices of the WTO. In a sense, therefore, the
FTAs/RTAs between rich and the poor countries, if they
are to succeed, will generate the necessary momentum at
Geneva.
The infamous Smoot-Hawley tariff passed
during the Great Depression of the 1930s in the US and
the competitive raising of trade barriers worldwide was
one of the important ingredients that led to the
worldwide depression of the 1930s. Post-Cancun, there
are no such fears. While agriculture is protected in the
rich countries, there is still enormous pressure to
reduce subsidies, even internally. Some protectionism is
also evident in the sphere of services in the developed
world.
Industrial tariffs by and large are low.
Except in some sectors, there is no evidence of tariffs
being hiked upwards. Even a formerly relatively autarkic
developing country like India is now committing to
reduce tariffs and providing greater market access to
countries in Southeast Asia, Africa and Latin America.
The gains from trade liberalization seem to be accepted
by all. Extending the ambit of liberalization to the
so-called non-trade issues seems to be the main problem
area.
What happens then to the WTO? There is no
immediate threat to this important institution. The 19
agreements are far reaching and it will be difficult for
the international community to undo the work of the past
eight years. While the rich countries are keen to reform
the WTO, especially the one-country-one-vote,
consensus-led decision-making process, Article 9 of the
General Agreement on Tariffs and Trade that preceded the
WTO is sacrosanct for the developing countries. The WTO
is unique for them as opposed to the Brettenwood
institutions. Other changes in procedures, ministerial
meeting formats, etc may also be called on for reform.
The tug-of-war over the decision-making process is
likely to gather momentum, once the big powers come back
to Geneva. But the WTO will continue to play an
important role in the arena of international trade.
The G20+ countries have called for the early
resumption of talks on the Doha Development Agenda. This
was to be expected. The big two, the EU and the US, are
unlikely to come back so easily. There are no surprises
in this position as well. Since no agreement was reached
at Cancun, technically, the Doha Ministerial Declaration
stands as it is. The only agreement has been with regard
to the paragraph pertaining to trade-related aspects of
intellectual property rights (TRIPS) and public health.
Elections in the US and the enlargement of the EU and
the lack of political will are expected to ensure that
the deadline of end-December for the conclusion of the
Doha Round is breached as well.
This is not the
first time talks have failed, nor will it be the last.
While the context of negotiations was different, the
timing of the talks in Seattle and Cancun were in many
ways similar. The outcome of Cancun is in that sense not
surprising, though it may be stretching one's
imagination to say that it was expected. But the dice
was, indeed, overloaded.
It is therefore
premature to say that the Doha Agenda has no future.
Indeed, as things settle down and countries retrospect,
confabulate within and with each other, Geneva will come
alive at some point in time. How soon that happens can
be anybody's guess, but come December, the pointers will
be much clearer.
Suranjan Gupta is an
economic analyst based in India.
(Copyright
2003 Asia Times Online Co, Ltd. All rights reserved.
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