Friday 1 March 2024

The Future of Trade Multilateralism: Between the WTO and other integration efforts

Countries revert to bilateral and regional trade cooperation as WTO trade negotiations continue to stall.

By Sibulele Walaza

W hen the World Trade Organization (WTO) was conceived after the Second World War, it was meant to build a rules-based global trade system that enables global commerce. From 1948 to 1994, global commerce grew exponentially however trade rules covered only trade in goods but not services.

This precipitated global dialogue to reform the multilateral institution. From 2001, when the Doha Rounds negotiations were launched, to date, there has been limited progress in finding a consensus.
Some scholars have asserted that the task of building consensus for a multilateral deal is complicated by the broader scope of issues that are being negotiated.

One of those scholars, Dani Rodrik, notes that trade agreements go beyond traditional trade restrictions at the border, covering ?regulatory standards, health and safety rules, investment, banking and finance, intellectual property, labour, the environment, and many other subjects.”

Attempts by developed countries to impose their position on smaller developing countries has resulted in a push back. States want to guard their sovereignty and with multilateral, they might find themselves in a worse-off position because they may compromise more than what they could
possibly gain.

As a result, nation states have become inward-looking, stalling trade negotiations in the process. With this, regional trade agreements have proliferated further reducing the role of the WTO.

Recent disruptions to trade, brought about by COVID-19 may not ease the erosion of confidence in WTO. The disruptions are similar to recent economic crisis that elicited inward-looking economic policies.
The 2019 ?trade war? between China and US has further thwarted WTO tariff rules as both countries raised tariffs on each other?s goods and services.

The battle of power was spurred by the belief in Washington that Beijing had for too long benefitted from unfair trade practices and was responsible for the loss of manufacturing jobs in the US. The conviction in Beijing was that Washington was simply trying to usurp its rise as an economic power.

The US inward looking foreign economic policy is an emerging trend that started in second halve of the current decade. The founding member and erstwhile champion of WTO threatened to withdraw from the multilateral institution because of perceived unfair benefits China is accruing. Whether the US will withdraw remains to be seen however, withdrawing from the WTO could have major economic consequence for the US according to the WTO.

Responding to US isolationist conduct, the WTO has campaigned for US continued participation in the WTO as it benefits significantly. US enjoys the Most Favoured Nation (MFN) status, which means that other 164 WTO members cannot unilaterally impose unfair trade practices against its traded goods. It will thus lose its MFN status if it withdraws its WTO membership.

Despite WTO continued efforts to encourage states to reach consensus on outstanding issues, many countries have resorted to bilateral and regional agreements to gain foreign markets access. With the exception of the United Kingdom?s recent withdrawal from the European Union (EU), regional trade arrangements have become a feature of global trade trends.

In 2019, the long negotiated African Continental Free Trade Area (AfCFTA) entered into force, with the aim to accelerate intra-regional trade within the continent through the creation of a single market for goods and services.

From a Global South perspective, there is more incentive to participate in regional trade arrangements because the equal opportunity promise of multilateralism has not come to pass. For Africa, it remains a challenge to quantify the collective gains of having a near hundred percent participation in the international body.

In a virtual event in August 2020, convened by the Peterson Institute for International Economics, guest speaker Dr. Vera Songwe, Executive Secretary of the UN Economic Commission for Africa, pointed out that Africa?s share of global trade has remained at around 2% for two decades despite having joined the WTO.

Some experts posit that the challenge may lie with African countries themselves, who have yet to develop their capacity to fully leverage the WTO. However, developed countries have also contributed to marginalization of African countries.

For example, continental agricultural goods cannot compete in developed markets such as EU due to agricultural subsidies, despite the Doha Development Round negotiations that were meant to address this market imbalance.

Whereas evidence points to the diminishing role of the WTO, there have been glimmers of hope such as the conclusion of the Bali package, that followed a ministerial conference in 2013. It was the first multilateral deal reached since the Marrakesh Agreement that established the WTO, almost two decades earlier in 1994.

It was followed by the Nairobi Package in 2015, termed ?historic? by the WTO, that included a commitment to eliminate the contentious export subsidies for farm exports, maintain a clause on public stockholding for food security purposes, as well as some measures for cotton.

However, negotiating global agreements are more challenging and this has proven to be a constraint in efforts to achieve consensus on outstanding global trade issues. Thus, the proliferation of alternatives that exist side by side the WTO will remain a common feature of global trade in the near future.


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