Last year was another banner year for the world economy, especially for developing countries. But Goldilocks conditions breed complacency. Panglossian optimists do not worry about the breakdown of the World Trade Organization’s (WTO’s) Doha Round or other protectionist threats; business will flourish regardless. This outlook is dangerously myopic. Goldilocks did not live forever; and, as Voltaire told us, Pangloss got it wrong. The sustainable health of the world economy depends on updated, reinvigorated market-based rules. Otherwise government intervention will cramp global commerce, and with it the life chances of the bulk of the world’s population.
Trade policy is no exception. It is stuck in anachronistic 20th century mindsets, institutions and regulations. It is disconnected from 21st century globalization.
Start with WTO. Its 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—does not work with complex regulatory issues. Consequently, WTO has broken down as a negotiating mechanism. “UN-ization”—flatulent rhetoric, petty point-scoring and political grandstanding—has replaced serious decision making. All these structural problems have played into the failure of the Doha Round.
What can be done to get WTO out of its rut? First, a post-Doha agenda should shift emphasis from liberalization to rules. Substantial multilateral liberalization is highly unlikely. More important is safeguarding and updating vital multilateral rules for stable and open global commerce.
Second, the Organisation for Economic Co-operation and Development and about 20 advanced developing countries, gathered in self-selecting “coalitions of the willing”, should make the major decisions. Together they account for more than 80% of world trade and foreign direct investment (FDI). There is also an inner core of Big Beasts: the US, the EU, and now China, India and Brazil. Without their leadership, nothing will move.
Third, WTO should adapt to a more modest, politically realistic future. That means an end to big trade rounds with high ambitions.
Given the parlous state of WTO, it is no surprise that preferential (i.e., discriminatory) trade agreements (PTAs) are spreading like wildfire. Almost 200 are in force. About 80 are on the books or in the negotiating pipeline in East and South Asia.