An article in the Economist highlights how “the
decline in multilateralism may not make much difference to big countries able
to negotiate regional agreements on their own terms. Small countries without
such leverage may be harder hit. But the marginalization of the World Trade
Organisation (WTO) as a deterrent to protectionism is taking on new forms that
are hard to deal with,” (p.16).
They go on to say how “free-traders in the West
worry that the proliferation of regional trade agreements (RTA’s) is gutting
the multilateral trading system. Arvind Subramanian of the Peterson Institute
for International Economics calls for the rise of ever larger RTA’s as an
‘existential threat’ and gives warning that ‘multilateral trade as we have
known it will progressively become history.’ Where the debate about whether
RTA’s help or hurt the multilateral trading system has gone on for decades.
Supporters argued that whenever two countries entered into an RTA, they would
create incentives for others to join or to negotiate their own RTA. Trade
barriers around the world would fall, one by one, and political support for
multilateral deals would increase. Detractors claimed that once inside an RTA,
countries would discriminate against outsiders and lose interest in
multilateral liberalization, undermining the authority of the WTO. They would
divert as much trade as they created and introduce big distortions.”
One of the key issues around this debate is “what
are the forces that are driving ‘trade agreements’ and whether they are mostly
‘business’ driven or ‘politically’ driven”? It might be assumed that the two
shouldn’t be mutually exclusive, but the time horizon for political decisions
can be focused on a much shorter time scale and for totally different reasons
than the drivers behind business decisions – where a business focus is often
looking for long-term, reliable relationships that offer sustainable growth to
the businesses concerned.
The forerunner of the European Union was established
in 1957, even as the members of the General Agreement on Tariffs and Trade, the
WTO predecessor, continued to cut tariffs. In the 1990s Bill Clinton signed the
North American Free-Trade Agreement just as the Uruguay round of the trade liberalization
was completed. Then in the early 2000s China joined the WTO and the EU expanded
into Eastern Europe. In the past decade, though RTA’s have increasingly looked
like an alternative, not a complement, to multilateralism. The Doha
‘development’ round, which began in 2001, immediately ran into trouble as
emerging markets chafed at the central bargain: big cuts in their industrial
tariffs in exchange for more access to rich-world agricultural markets. Talks
faltered in Cancun in 2003 and finally collapsed in Geneva in 2008.
The problem with ‘developing’ regional or
multilateral trade is that the negotiations and decisions are often made by
government administrators in conjunction with representatives from big business
(i.e. very big), with little consultation with the sme market and what their
needs and/or expectations might be. Where ‘deals’ are made that help secure
large government contracts with little regard for anyone else, and there
doesn’t appear to be any research or data that shows whether this ends in an
overall ‘gain’ for the economy or not, in both the short and long-term.
As the Economist highlights one of the biggest
obstacles to more multilateral trade deals in today’s current global climate is
the changing balance of global economic power. “Brazil, Russia, India, China
and South Africa (the BRICS countries) see themselves as countries still poor
enough to need protection for their industries while the rich ones lower their
own barriers, especially to agriculture. But the rich world increasingly views
the BRICS as fully-fledged economic competitors whose state capitalism is
incompatible with a free and open global economy,” (p.14).
The dichotomy comes with the continued growth of
multinational companies with a global reach, where there is no doubt that
“regional trade liberalization is better than no liberalization at all, yet it
interferes with globalization in several damaging ways. By excluding sensitive
sectors or imposing onerous rules of origin, it complicates life for
multinational companies whose supply chains cross multiple borders.” But
further than this, the impact of the global financial crisis has had a severe
effect on many sme sectors and governments would be well advised to look
further than ‘negotiating’ trade deals that aid their big business partners and
also actively consider the needs of their re-emerging sme sectors and their
specific needs to compete on the international stage.
References:
In my backyard: Multilateral trade pacts are
increasingly giving way to regional ones. The Economist. 12-18 October, 2013.
P.11-16.
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