WTO malfunction is symptomatic, but so is the profusion of commercially nonsensical preferential trade agreements (PTAs). Doha Round negotiations have been bogged down with obscure discussions on ‘special and differential treatment’, ‘aid for trade’, ‘special products’ and ‘sensitive products’ in agriculture, and mind-numbingly complicated coefficients for cutting tariffs and subsidies – all mostly about exemptions from liberalisation and a world away from commercial realities outside Geneva. PTAs, meanwhile, are creating a veritable mess of bureaucratic and discriminatory regulations that threaten to complicate rather than simplify international commerce. Neither the WTO nor PTAs have launched a fresh wave of much-needed market reforms or contained emerging protectionist threats.
How must the WTO change to make policy relevant to real-world producers and consumers?
WTO negotiations have been drifting in the direction of UN-style irrelevance. The WTO’s much-expanded agenda goes deeper into politically sensitive domestic regulations. It is riven internally with intergovernmental divisions and buffeted externally by protectionist interests and anti-market NGOs. A bigger and more active developing-country membership also makes it more difficult to find common ground. The traditional reciprocal bargaining model – exchanging concessions over relatively simple border tariffs and quotas on manufactured goods – does not work with complex regulation covering a wide range of goods and services. Consequently, the WTO has broken down as a negotiating mechanism. ‘UN-isation’ – flatulent rhetoric, petty point-scoring and political grandstanding – has replaced serious decision making. All these structural problems have played into the miserable failure of the Doha round.
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What should be done to get the WTO out of its rut? The Doha Round should be scrapped for starters. What was on the table was so full of exemptions, flexibilities, escape clauses and implementation conditions that only the Geneva circuit of trade negotiators, academics and NGO junkies could understand the details. Even if outstanding issues had been settled, a resulting agreement would have been impossible to understand for businesses looking for foreign expansion. Pursuing a midget, largely commercially-irrelevant deal is not worth the candle. It would be a distraction from more important business.
Attention should now switch to a post-Doha agenda. The post-Doha agenda should shift emphasis from liberalisation to rules. Substantial multilateral liberalisation is highly unlikely. At best, future WTO agreements will ‘bind’ pre-existing liberalisation measures, that is, lock them in legally and prevent protectionist reversal. But more important than extra multilateral liberalisation is closing loopholes, safeguarding the principle of non-discrimination, making trade procedures more transparent and user-friendly, and generally updating vital multilateral rules for stable and open international commerce.
This presupposes a different, more differentiated kind of WTO. The reality outside Geneva is that the OECD plus about twenty advanced developing countries account for about 90 per cent of world trade and foreign direct investment (FDI). They comprise about a third of the WTO membership. Within this outer core there is an inner core of Big Beasts: the USA, EU, and now China, India and Brazil. These outer and inner cores should come together in self-selecting ‘coalitions of the willing’ to sign up to stronger rules. Such opt-in coalitions would vary from issue to issue. They would cover elements of the Doha agenda. But they should also cover new rules to contain 21st-century protectionist threats, such as trade-restrictive border security measures, ‘carbon tariffs’ to enforce climate-change policies, and foreign-investment restrictions in ‘strategic’ sectors.
The other two-thirds of the WTO membership (about 100 countries) account for ten per cent or less of global economic activity. These countries have almost without exception been arch-defensive in the Doha Round. They should not be expected to sign up to new commitments, and should be given a free ride – providing they do not block overall progress.
Finally, the WTO should adapt to a more modest, politically realistic future. That means an end to big trade rounds with high ambitions and expectations. It is better to think in terms of a serviceable multilateralism with limited, realistic means and ends rather than ambitious – but mostly flatulent and fluffy – ‘global governance’.
Overall, the priority is to hitch trade policy to domestic economic policy and its institutional framework. It has to be grounded in bread-and-butter domestic reforms, especially on the trade-related regulatory barriers that constitute a ‘second-generation’ reform agenda. This is essentially a matter of unilateral action and competitive emulation among governments; something to be ‘initiated from below and diffused by example’ as the historian David Landes puts it.
Unilateral reforms are by no means a panacea. They are inevitably partial and patchy. Above all, they are no substitute for transparent, predictable and non-discriminatory multilateral rules. The WTO’s role, therefore, should be to assist unilateral reforms with stronger multilateral rules, rather than misguidedly trying to drive liberalisation ‘from above’.
Razeen Sally is Director of the European Centre for International Political Economy in Brussels and Professor, London School of Economics