Trade and Investment

Where now for the World Trade Organization?

Felipe Sandoval
Counsellor, Permanent Mission to the World Trade Organization
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Trade and Investment

The World Trade Organization (WTO) suffers from the same syndrome as the rest of the international system: a lack of an international order based on common values and beliefs and the sudden restatement of politically driven power dynamics. It’s a direct consequence of the economic prosperity the world has enjoyed since the end of the Second World War and the fall of the Iron Curtain.

In other words, because the distribution of power among nations has changed, the global scenario has become multipolar. In this context, new players do not necessarily share the same belief system that created the current international infrastructure.

In WTO trade language, this means that no consensus on a major deal is likely to take place, because of the diverse and often conflicting nature of economic and political interests.

The world has become a far more complex place, and there is less convergence allowing the renewal or establishment of a global economic order. Therefore, other avenues for striking substantial agreements must be explored.

Multilaterals and plurilaterals – what’s the difference? 

The natural and most logical alternative to a multilateral system (everyone is on board; a global pact) is the plurilateral one. In essence, this means bringing in as many players as possible, while acknowledging that a global big-bang-style deal is unlikely to take place.

Consequently, a plurilateral negotiation pulls together a significant number of likeminded players to work on a set of issues of common interest. Thus, the likelihood of striking a deal is, by definition, higher than in a multilateral setting.

However, there are trade-offs to the rather attractive-looking plurilateral approach.

  1. If not everyone participates, then the benefits arising from the agreement will only go to a few. Hence, economic asymmetries among nations will become greater. In simple words, plurilaterals do not necessarily help in the global struggle against rising inequality.
  1. Plurilaterals create fragmentation of international trade rules. Indeed, many of them, while reaching a high level of sophistication, in effect create a system of rules parallel to the multilateral one that makes navigation in the seas of international trade law an ever more complex endeavour.
  1. Plurilaterals also progressively create an incentive to avoid engaging in multilateral talks. After all, if I (country X) can strike a trade deal with my likeminded trade partners, why bother going back to the WTO?
  1. The Multilateral Trading System (MTS) embodied in the WTO reflects an architecture of global consensus. Indeed, it’s a far more civilized, carefully crafted and balanced approach to resolve differences among nations. It took a long time, tons of conviction and a significant quota of suffering to put the system together. It might take even more to rebuild it, if it were to be broken. Using an allegory, the MTS is like a mirror: once it’s been scratched it can only be repaired by polishing the whole of it. It is delicate, beautiful and clearly not indestructible.

Why is everyone so down on the WTO? 

Sadness and disappointment are the spectres walking the corridors of the WTO. However, the reason for this is what makes the organization possible. The belief that multilateral trade rules are the best alternative for everyone, provided that a deal can be reached. And so, after long and persistent efforts, when a final and comprehensive deal seems to be moving further away instead of getting closer, frustration takes over. What follows is often disappointment and, sometimes, the realization that other alternatives will be explored. This is the underlying power engine moving the political and economic mechanisms behind bilateral, plurilaterals and megaregional trade agreements.

Why are trade-offs important? 

In a context of a multilateral negotiation encompassing such a vast range of trade issues, and with so many different players involved (both in terms of economic development and scale), trade-offs  are the toolkit for balancing a final outcome. It could not be any different, since negotiations at the WTO are so complex (many players, conflicting interest, political agendas). One must play the juggling game while keeping an eye on everything else. Trade-offs allow for effective bargaining as well as for building enough comfort for when a particular element of the negotiation package doesn’t really make you happy. 

What happens after Nairobi?

In my view, unless a substantial trade deal were to be reached at the Nairobi talks, we could be facing a two-stage process. Firstly, a cold and slow-moving winter at the WTO, characterized by no activity on the negotiating front. This situation could have an indefinite (and impossible to determine) duration. The second stage is somehow less dramatic: the plurilaterals could take over the WTO both physically and legally. Indeed, the so-called “new issues” (such as e-commerce, investment, competition) could be introduced at the WTO by individual members or groups of members with a view to launching a multilateral process. However, since not all members are likely to agree to such a process, the possibility of a plurilateral approach becomes the “only available alternative”. According to the existing rules, no consensus is required to begin a plurilateral negotiation. The willingness of a few is enough to kickstart one.

In this scenario, the big question for the plurilaterals will be one of result. Indeed, will the outcomes of the negotiation be extended to all members of the WTO, regardless of whether they have participated in the negotiations? Or will they decide to only benefit themselves?

Of course the issue is more complex

In the first case, the erga omnes (“towards everyone”) extension of the benefits could be subject to reaching a certain “critical mass” (number of participants, percentage of global trade). This would pose a challenge not just for those negotiating the deal, but also to those outside of it. An agreement encompassing a significant portion of global trade and/or a significant number of WTO members looks like a very attractive target for international trade policy.

Additionally, what are the costs associated with staying out of it? Is it possible to stay isolated, foreign to the new emerging quasi-multilateral rules?

In the second case, the plurilateral agreement remains outside the WTO realm. It will only benefit a few; it’s locked in. This would be a typical trade agreement.

The first path would be the better of the two. If negotiated at the WTO, the plurilaterals would be, by definition, opened to everyone; the club rationale would not apply. Hence, the participants are likely to be more diverse and greater in number. Also, by declaring that its ultimate purpose would be to extend its outcomes to all the members of the WTO, the plurilateral agreement would eventually feed back into the multilateral system. Therefore, they would complement and not undermine each other.

That said, mega-regionals such as the Trans-Pacific Partnership (TPP), Transatlantic Trade and Investment Partnership (TTIP), as well as plurilaterals such as the Trade in Services Agreement (TISA) and bilateral agreement, will continue to be negotiated.

The times ahead are going to be interesting.

Have you read?
4 things to know about the TPP trade deal
What can the New Silk Road do for global trade?
International trade at the World Economic Forum

The views expressed in this article are those of the author and not necessarily the Chilean government.

Author: Felipe Sandoval, Counsellor, Permanent Mission of Chile to the World Trade Organization

Image: A man walks near containers at a port in Lisbon August 14, 2012. REUTERS/Rafael Marchante

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