Tuesday, Nov 29, 2022

The new regionalism

As a new WTO chief takes over,faith in multilateral trade seems lost

As a new WTO chief takes over,faith in multilateral trade seems lost

As Pascal Lamy prepares to hand over charge to his successor,he would be mindful of the fact that the multilateral framework for world trade has hardly made any significant progress over the last five years. Lamy’s second term in office,since September 2009,has been one of the most lukewarm phases for global trade,though he can hardly be held responsible for that. The global financial crisis and the sovereign debt crisis in Europe have ensured that some of the world’s biggest players in global trade are delegated to playing a marginal role. This has had its effect on global trade,with the last five years producing an annual average growth of only 2.2 per cent.

The outgoing WTO chief’s biggest regret,however,would be ending his term with the world showing distinct signs of losing faith in the multilateral trade system. This is not only due to lack of movement on the Doha Development Agenda (DDA). Developing countries and emerging markets are unhappy over the DDA not coming through in the WTO. The developed world,meanwhile,realises that pushing through its own trade agenda in the WTO and the DDA is virtually impossible,given the WTO’s emphasis on consensus. The multilateral trade system is thereby incurring the wrath of both the global North and the South.

Lamy is not incorrect in attributing the deadlock in world trade talks and the crisis of the multilateral system to the new global geopolitical order. The rise of large emerging market economies such as China,India and Brazil,and the weight they command,has heavily influenced global trade talks. The lack of consensus on balancing benefits and contributions between these “new” economies and the advanced OECD economies like the US,Europe and Japan are prolonging the deadlock. The gap between the two groups in their visions of world trade,based on their different comparative advantages and market access interests,has remained unbridgeable despite several discussions at the highest level of the WTO.

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The disenchantment of the world’s major economies with multilateralism has led to a strong growth of regionalism. Indeed,regionalism had begun reviving almost a decade ago,with the number of bilateral and regional trade agreements notified by the WTO increasing steadily from early 2000. The formalisation of the EU and introduction of the euro created a large trade bloc with distinct rules. Also,China’s hard-earned entry in the WTO was accompanied by the denial of a “market economy” status,enabling WTO members to initiate easy safeguard and anti-dumping actions against Chinese exports. China tried to compensate for the damage to its exports by striking bilateral deals,particularly in Asia. Several Asian economies were otherwise encouraged by regional agreements for facilitating their deep intra-industry trade through similar rules of origin and standardisation procedures. India and many other developing countries,mostly from Latin America and Africa,also became disillusioned with the WTO as the DDA got stuck and tried working out bilateral deals.

One of the biggest setbacks to the prospects of multilateralism has come from the increasing disenchantment of the US. By 2008,the US had realised that emerging market economies had become too influential to let global trade be dominated by its own specific interests. The interests of the US,and those of most other OECD countries,are in making the “non-traditional” or “WTO-plus” trade issues more embedded in the multilateral framework. These include rules on services,intellectual property,labour and environment standards,government procurement,e-commerce and domestic regulatory coherence. Most emerging market economies,including the BRICS group,are uncomfortable with the tabling of these issues in trade talks as they amount to making significant changes in domestic regulations and stoking political sensitivities. Moreover,their comparative advantages in global trade are relatively low in industries where the “WTO-plus” issues are significant,such as digital and entertainment products. As a result,they have steadfastly opposed the demands of the US and other advanced economies on these issues in the WTO.

For quite a few years now,the US has been focusing on bilateral trade pacts. The Obama administration has raised the pitch through its commitment to the Trans-Pacific Partnership (TPP). Comprising several major economies of the Asia-Pacific,such as the US,Australia,Brunei,Canada,Chile,Japan,Malaysia,Mexico,New Zealand,Peru,Singapore and Vietnam,the TPP is dealing with several “WTO-plus” issues and aiming to achieve regulatory convergence among members. Once formalised,it is likely to become one of the most powerful regional pacts in the world with new trade rules. The advent of the TPP and the US commitment to the compact has been followed by the announcement of the Regional Comprehensive Economic Partnership (RCEP) in Asia involving the 10-member ASEAN,Australia,China,India,Japan,New Zealand and South Korea. The US is also seeking to formalise its bilateral trade links across the Atlantic by pursuing a trade deal with the EU.


With almost all major economies busy scouting partners and tying knots,the vision of the world trading as a family with common rules appears to be becoming increasingly irrelevant. Lamy would indeed be a sad man as he steps down.

The writer,formerly with the Union ministry of finance,is senior research fellow at the ISAS,National University of Singapore

First published on: 13-05-2013 at 12:44:47 am
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