Abstract
As economic powers from the developing world, particularly China, have emerged in the past few decades, their weight has altered the balance in the global trading system. This has presented challenges in the World Trade Organisation (WTO), where the Doha Round of multilateral negotiations has dragged on for more than a dozen years. Frustrated by this stalemate, many countries have sought alternatives. Among these are ‘mega-regional’ trade agreements such as the proposed Transatlantic Trade and Investment Partnership (TTIP) between the US and EU, and a 16-member Trans-Pacific Partnership (TPP).
In this volume, leading commentators – including two former heads of the WTO – examine the possible consequences of this shifting trade landscape. Is globalisation in reverse, and have countries been retreating from liberalisation since the world financial crisis of 2008– 09? Are the ‘mega-regional’ deals an existential threat to the WTO regime, or can they be used as building blocks towards wider multilateral agreement on a broad range of issues, from industrial standards to intellectual property rights. And what does it all mean for the balance of geopolitical power between the developed and developing world?
Reflecting on the challenges facing the World Trade Organisation (WTO), and its inability to conclude the Doha Development Round of multilateral trade negotiations, the then-director-general of the WTO, Pascal Lamy, suggested to an audience in Melbourne in November 2012 that the ‘rising weight of influence of emerging economies has shifted the balance of power’ in the global trading system, and that there has been a ‘redistribution of the geopolitical deck of cards on a global scale’.Footnote1 The impact of this change in the balance of power in world trade became the focus of the WTO's annual publication, the World Trade Report 2013.Footnote2
Lamy and the WTR 2013 were both highlighting the sharp rise in the share of world trade of the emerging economies, most importantly the new global ‘trading power’ China, and the growing clout of these countries in WTO negotiations, thanks in part to their growing domestic markets for goods and services. One consequence of this structural change in the cross-border flows of merchandise goods and services has been an increase in trade between developing countries. This means that, using terms popularised by development economists in the 1970s, a long-standing pattern of ‘north–south’ trade, or trade between the ‘centre’ and the ‘periphery’, has been changed by increased ‘south–south’ trade.
Taken together these two trends, namely, the rise of a new trading power and increased south–south trade, have not only altered global trade flows but have also contributed to a shift in the negotiating power of developing countries within the WTO. Yet, while trade economists have written extensively on the changing dynamics of global trade, the geopolitics of these economic shifts has not received much attention. As Nobel Prize-winning economist Thomas C. Schelling observed long ago, ‘Aside from war and preparations for war, and occasionally aside from migration, trade is the most important relationship that most countries have with each other … trade policy is national security policy.’Footnote3
At the time of its creation in the mid-1990s, the WTO was shaped by the geo-economic consequences of the end of the Cold War and the rise of non-Western economies, especially in East Asia. Developing countries were able to institutionalise their newly acquired geo-economic clout by influencing the principles of decision-making in the WTO. Yet, the struggle for power between the developed and developing economies continues. The impasse in the first round of trade negotiations being conducted by the WTO, namely that begun in Doha in 2001, symbolises this continuing conflict. Indeed, nothing captures this better than a difference of opinion on the very name of the round. While many in the developed economies insist on referring to it as simply the Doha Round, representatives of the developing world insist on highlighting the ‘development’ in the Doha Development Agenda (DDA).
New trading powers, especially China, Brazil, India and South Africa, often complain that they have not been able to secure what they set out to at Doha, despite their growing economic weight. However, some believe they have succeeded in preventing the round from moving forward. There was an attempt to break the impasse at the WTO's Bali Ministerial Conference in December 2013, when ministers agreed to a text on trade facilitation. But India's insistence on securing changes in the Agreement on Agriculture, to protect its domestic food-security scheme, has once again raised questions about the future of the Doha negotiations.Footnote4
A second consequence of the ‘power shift’ in the global trading system has been an increase in policy activity aimed at constructing new plurilateral preferential and regional trade agreements (PTAs/RTAs). In the first year of his presidency, Barack Obama reaffirmed the United States’ commitment to a nascent PTA initiative, the Trans-Pacific Partnership (TPP). The US followed this up by launching a Transatlantic Trade and Investment Partnership (TTIP) designed to build further bridges with the EU, which has also been concerned about China's emergence as a ‘mega-trader’.
Supporters of the TPP and TTIP view these initiatives as either an attempt by some to break the deadlock in the WTO and move forward, or as an attempt to open a parallel ‘high-speed’ track on which countries seeking faster trade liberalisation can progress. Either way, these views present the TPP and TTIP as ‘WTO-plus’ initiatives – i.e., involving further integration in areas covered by the WTO such as industrial and agricultural tariffs, technical barriers to trade, intellectual property and public procurement. Critics of plurilateral preferential trade agreements, on the other hand, reject the view that they are in fact ‘building blocks’ of multilateralism and suggest they have become ‘stumbling blocks’. Leading trade theorist Jagdish Bhagwati has been one of the most consistent critics of PTAs/RTAs, and in the co-authored essay in this volume he once again rebuffs the arguments in favour of the TPP, TTIP and all other such plurilateral arrangements, reiterating the importance of a globally open multilateral trading regime.
While trade economists debate the pros and cons of multilateralism and regionalism, geopolitical analysts take a different view of these policy initiatives. In a slim, stimulating volume on the geo-economics of China's rise,Footnote5 Edward Luttwak, an early conceptualiser of the idea of ‘geo-economics’,Footnote6 proposes that countries whose economies are under threat from China's policies – policies that seek to make China's industries globally more competitive – should come together to ‘contain’ China geo-economically.Footnote7
Are the TPP and TTIP aimed at the geo-economic containment of China? In his essay in this volume, Ashley J. Tellis discusses this possibility. While the post-war open trading regime, with its preferential treatment of developing countries, was in fact designed and implemented by the United States, the US itself is under geo-economic pressure from a rising new ‘mega-trader’, and Tellis says the time may have come for Washington to consider new ways of managing economic multilateralism. So, why have these ‘mega-blocs’ gained traction? Even Pascal Lamy, who takes a more sanguine view of the TPP and TTIP in his essay, concludes: ‘Multilateralism has not been threatened by regionalism. But prospects for the future are more blurred.’ Is this blurring a product of competing economic objectives or of conflicting political ones? Are new mega-RTAs such as the TPP and TTIP merely the ‘building blocks’ of a new multilateralism or a threat to it? Are these initiatives a testament to the failure of the WTO in ensuring trade openness or a political response by the West to the ‘rise of the rest’?
The essays in this volume seek to answer these questions. The first two essays set the stage by defining the nature of the extant global economic and trading environment. Bhagwati, Krishna and Panagariya pay tribute to the WTO for its contribution to trade liberalisation worldwide and underscore the importance of strengthening the multilateral system rather than weakening it. Subramanian analyses the economic and geopolitical consequences of the rise of China as the new global ‘mega-trader’. Both Lamy and Panitchpakdi emphasise the importance of strengthening the WTO. However, Lamy is more understanding of the developed economies’ impatience with the developing ones, while Panitchpakdi highlights disappointment with the lack of progress on the Doha Round's ‘development’ objectives.
The geopolitics of global trade, of the power shift from ‘the West to the rest’ and the options for the US in dealing with the rise of China are issues discussed in detail by Ashley J. Tellis. While urging US lawmakers and the administration to pursue policies that will ensure that the US regains its competitive advantage, Tellis sees nothing wrong in the US pursuing plurilateral initiatives that help it deal with the competition from China, and rejects the view that these amount to a ‘geo-economic containment’ of China.
While it is understandable that the US and EU would seek to preserve the twentieth-century order in which the economies of the West dominated and defined the rules of global trade, Baracuhy suggests that in the twenty-first century a ‘multipolar geo-economic power structure’ is in the making and that countries like Brazil, China, India and other emerging economies will matter far more as the processes of globalisation become more ‘polycentric’. Will the West cede its hegemonic authority to accommodate a wider set of actors and states with different aspirations to govern the international system? This volume offers a balanced assessment of how the global power shift is impacting the rules of the global trading system.
Notes
1 Pascal Lamy, ‘The Future of the Multilateral Trading System?’, The Richard Snape Lecture, November 2012, Melbourne, Australia, http://www.wto.org/english/news_e/sppl_e/sppl258_e.htm.
2 World Trade Report 2013 – Factors Shaping the Future of World Trade (Geneva: World Trade Organisation, 2013).
3 T.C. Schelling, ‘Testimony before the Williams Commission on United States International Economic Policy in an Interdependent World’, vol. 1. p. 737, quoted in Richard N. Cooper, ‘Trade Policy is Foreign Policy’, Foreign Policy, no. 9, Winter 1972–73, p. 32.
4 India pulled out of a 2013 trade-facilitation agreement due to concerns over the WTO rule that caps subsidies to farmers in developing countries at 10% of the total value of agricultural production. Delhi was particularly concerned because the minimum support price it pays to farmers under a new US$4 billion-a-year scheme to supply cheap food to 800 million people could lead it to breach the 10% cap, and it sought assurances that this food-security scheme would be excluded from legal challenges under the WTO.
5 Edward Luttwak, The Rise of China vs. The Logic of Strategy (Cambridge, MA: The Belknap Press of Harvard University, 2012), p. 38.
6 Edward Luttwak, ‘From Geopolitics to Geo-economics’, National Interest, no. 20, Summer 1990.
7 Luttwak The Rise of China vs. The Logic of Strategy, p. 42.