Trade Power and Geopolitics Undermining the WTO?

In the last 60 years the United States has dominated the world scene. It has dominated commerce, pushed nations to open their markets, championed liberal democracy and achieved military supremacy over other nations.

It helped craft the international system, for instance, the General Agreement on Tariffs and Trade (GATT).

The U.S. has led industrial innovation, world industrial output (its economy has been 3 times larger than the 2nd largest economy-Japan and almost larger than the first 10 biggest economies in the world combined).

It has been the world’s largest exporter, housed the largest number of billionaires, biggest enterprises (7 out of 10 world biggest corporations are American), tallest skyscrapers and is still the most competitive economy in the world.

Every thing biggest, largest, tallest, and cutest and many other –ests came from America. After the fall of the Soviet Empire, American might has gone an unchallenged in the last two decades, but now the tide is changing.

Four months ago Zakaria Fareed, editor of Foreign Affairs and Newsweek, magazines published a book titled “The Post-American World-The Rise of the Rest” in which he asserted that America was not declining in global influence but everyone else was rising.

Probably there is no where else this assertion has been demonstrated recently more conspicuously than in the global trading system at the World Trade Organisation (WTO).

Late July, 2008 the Doha Round of trade negotiations failed for the fourth time in a row (every end of summer, every year in the last 4 years, the Doha Round collapses) since its launch in November 2001 in Doha Qatar. It was originally scheduled to end Dec. 31, 2004; this end is not in sight even in the near future according to some analysts.

Political and economic commentaries point to a range of issues as causing failure: that Doha Development Agenda (DDA) was an ambitious, broad agenda; that the “single undertaking” principle of WTO is problematic (which states-nothing is agreed until everything is agreed) in which all 153 politically and economically diverse member nations must agree on everything on the negotiating table to achieve consensus.

Agriculture reform in the rich world is the most fundamental of these! The club of rich nations liberalised their industrial tariffs (U.S., EU and Canada and Japan, average industrial tariffs are below 5 percent amongst themselves) and they do not perceive that the benefits to reforming their agricultural trade largely in favour of the developing world is worth the political costs in their domestic constituencies to bring convergence in DDA.

The July failure was blamed on U.S, China and India. The three disagreed over the Special Safeguard Measures (SSM). SSM are mechanisms intended to shield developing countries from having their economies unexpectedly flooded with subsidized agricultural imports. They allow a developing country to temporarily increase customs tariff in response to a surge in import volumes or a sharp decline in prices.

The U.S. favoured use of SSM only when agricultural imports surged above 40 percent in volume. India and China wanted the mechanism be triggered when imports rose by 10 percent to protect small poor farmers. The impasse between the three giants led the 10 days ministerial negotiations to collapse.

Analysts have pointed to a new reality and changing global economic equation to put the persistent DDA failure in perspective:

First, is that “the rich nations club” (U.S., EU, Japan, and Canada) are no longer able to “buy up” a few developing countries with special sops as has been the practice in the previous Rounds. The developing world led by India, China, Brazil and South Africa has remained united and refused to yield ground to powerful nations!

Second, since the launch of DDA, three things happened reinforcing the changing global economic equation: American global economic and political leadership has stumbled; China joined WTO (in 2001) and is on the match to becoming the world’s biggest exporter; and economic expansion in China (annual average of 10 %GDP growth), India (within 8%) Brazil (above 3 %) has been faster than any of the “traditional industrial powers”, many of which are now at the brink of recessions.

Thus the rise of the rest, is trimming economic and political influence of until recently a loner global hegemony and its allies.

Mr. Zakaria has put this in perspective, that America’s power is being confronted by the rapid economic rise of the giants:-China, India, Brazil and South Africa, given their size (total population of above 3 billion), “they will have a large footprint on the map of the future from industrial to financial (American financial system is in turmoil now) to social and to cultural”. And this is already visible in the global trading system. They are the new shakers and movers of the world economy and not the old club of G7!

WTO is also being hurt by bilateral and regional trade deals. These are largely anti-small economies like Africa economies and their development objectives. Many analysts believe this is what is happening with EPAs between EU and the ACP states. Regional pacts are pushing ahead at breathtaking speed; more than 100 deals came into force during DDA’s seven frustrating years.

The bigger economies will be able to achieve their ambitious mercantilist objectives of opening developing countries markets under PTA and RTAs without paying the liberalisation costs in agricultural sector than at WTO.

If the multilateral trading system is to remain relevant, at least three things must happen! (i) The rich nations must accept sharing leadership of the system with the emerging south. (ii) The global trade rules must be reformed and rebalanced and improved to serve all member states of the WTO, (iii) WTO must use its power to protect weak members against the might of the powerful in the regional and bilateral trade rules to promote development.