The US is currently training various African economies on how to meet common value systems standards, and India along with other economies, needs to press for a more inclusive system where countries "pressurise on how to manage concerns and reach viable solutions."
The World Trade Organization, having completed its 20th Anniversary on January 1, 2015, has become one of the largest and most vital multilateral organisations today. On the occasion, ORF organised a roundtable discussion on the way forward for the WTO on May 13.
Chairing the discussion, Dr. Geethanjali Nataraj stressed that the propping up of various regional organizations and Regional Trade Agreements (RTA) has undermined the efficacy of the WTO.
Dr. Ram Upendra Das, Professor at the Research and Information System for Developing Countries, spoke on how the multilateral system and the regional trading agreements complement each other and in spite of the emergence of Mega FTA’s like Transatlantic Trade and Invest Partnership (TTIP) and the Trans-Pacific Partnership (TPP), the WTO also continues to co-exist with the mega regionals.
The growing belief amongst people is that regionalism in fact erodes multilateralism and that RTAs have contributed towards a failure of the WTO, like the Doha Round negotiations. However, people fail to understand that although regional trading agreements have mushroomed, multilateralism has also prevailed and this can be discerned from the popularity of the WTO which has only increased over the years with many countries wanting to become members of the WTO. In fact it is important to understand the inherent economics of regional trading agreements and regionalism is a compliment to the multilateral system than something that detracts it.
Dr. Das explained the concept of Dynamo Effect. According to the ’Dynamo Effect’, a hypothetical scenario is created when for instance, the moment, the United States and China sign an FTA, it is likely to lead to a chain of FTAs being signed between various countries causing the average global tariff protection to fall. Thus, creating a self-propelling force that unleashes when RTAs are signed that will deepen the economic engagement between countries.
Dr. Das opined that regionalism is a "stepping-stone" to multilateralism. Efficiency-based concepts of "Trade Creation" and "Trade Diversion", in a static sense, do not lead to an enhancement or diminishment of trade. Instead, they are based on a switch in trade relations. If a country decides to trade with a more efficient trading partner, it is exercising the concept of trade creation and vice versa. Hence, it is imperative to analyse these concepts in a dynamic setting where trade creations are welfare enhancing and trade diversions are welfare diminishing.
According to Dr. Das, "enabling clauses for developing countries must be introduced so that FTAs and regional organizations, if carefully formulated and implemented, are legally WTO consistent." Many times, the debates regarding regionalism and multilateralism are misplaced since it is our inherent human nature to reject new and unconventional ideas. However, we cannot reject something that has become the main stage of global trade dynamics with the shifting economic gravity of the world. Hence, it is natural for us to assume that regional trade is opposing something that is already there and TPP and TTIP are just stepping-stones to a multilateral world.
Dr. Harsha Vardhana Singh, former Director Deputy General of WTO and the Chair of the WTO Dispute Settlement Panel, provided deep insights into the debate on multilateralism versus plurilateralism and how smaller countries that were earlier sidelined can now participate in the negotiations with a much larger impact. However, the FTAs become a major concern when they constitute a large percentage of world trade, such as the TPP which is responsible for almost 30% of the world’s trade. Furthermore, the signing of the TTIP between the EU and US was the first time in history that two major economies of the world came together to sign a FTA. With the TTIP and TPP overlapping each other, they are responsible for almost 50% of the world’s trade.
Dr. Singh regarded TTP, TTIP, and ASEAN as three of the world’s mega regional organizations present today. This creates a major issue in a multilateral world where over 100 countries are sidelined by these three mega regional organizations. This is a serious issue since "we live in a world where trade, investment, technology, etc. overlap and are interlinked and any changes in the policies pertaining to either of these aspects will have a recurring impact." Hence, when agreements are negotiated the discussions are not about how to trade and what disciplines to have on investment, but rather on the significant extent of how you want to conduct your economic activity.
Dr. Singh, who has a "meandering path to optimism," believes that trade agreements are not simply about multiple policies pertaining to economic activity, but in fact go much beyond that. The US is currently selling the TPP as a foreign policy to other nations. Hence, given the current situation, the path to a multilateral word goes through the process of having plurilateralism. It is unattainable without it; it is a building block for both disciplines and multilateralism.
Due to the exponential growth in investment, we live in a far more interlinked and interdependent world than before. Therefore the need for a multilateral world is far greater than before. We need to work with it effectively and make it effective for all. Furthermore, since the WTO works on the basis of a consensus, it is imperative for all nations to agree and take the system forward as "trade relations are not just about trade, but instead carry strategic relations with them too." However, if a nation decides to derail from the system then the system will not move, but the trade will still go on.
Furthermore, there is a greater interlinkage amongst nations; value systems are present, emphasizing the larger goals; and due to the varied economics in different countries, the conflict is in a strategic manner. Hence, we have an informal process going on. "We live in interesting and complicated times." At present, with the increasing competitiveness, each nation has to make a larger effort to go where it needs to and combine it with phases of economic decline.
Addressing the current situation, Dr. Singh believes that there is a growing importance for a common value system. All businesses that are part of a TPP nation will have an incentive to align their value chains with that of the TPP and a criterion of standards and conformity assessment will have to be met.
The US is currently training various African economies on how to meet these standards, and India along with other economies, needs to press for a more inclusive system where countries "pressurise on how to manage concerns and reach viable solutions." A fair negotiation is required to avoid conflict; hence "the playing field has to be levelled."
According to recent statistics, the middle class is set to grow to 3.1 billion by 2020 - from 1.8 billion in 2010. Thus, creating a larger demand for goods and services. This will lead to a conflict led by the African economies in the WTO since a trade agreement is also a trade investment related agreement and a foreign policy. Hence, given the intricate web of relations, objectives, and greater interdependence the need for a multilateral system is emphasized upon in order to create a conflict free situation.
(This report is prepared by Zuber Singh, Research Intern, Observer Research Foundation, Delhi)
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