Tuesday, March 2, 2010

International Trade At The Cross-roads?

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The world moves on. The question is whether it will move so far and so fast as to leave the World Trade Organization (WTO) behind. The Doha Round negotiations have been stalled for months. This should concern the international business community. The difficulties in the negotiations could spill over and lead to a diminishing of the WTO role as a central institution and a weakening of its legitimacy as a dispute-resolution body.

The paralysis of the WTO’s parliamentary process reflects an inability of government negotiators to agree on the ‘modalities’ for completing the Round so as to adapt and modernise rules for enhanced market access for industrial goods, agriculture, services and other items in the negotiating agenda – the 2001 Doha Declaration. Whether matters can sort themselves out over the next few months, after almost 10 years of negotiation, is the question.

Two crucial meetings in the next few months will be determinative. The first will be a ‘stock-taking’ in Geneva in March.

The more important will be the G-20 meeting in Toronto in June where world leaders will try to break the Doha Round log jam. Will deep-seated differences among the major players – the US, the EU and a powerful network led by China, India, Russia and Brazil – be resolved?

Failure to complete the Doha Round would be a setback for multilateralism and for the progressive development of international trade law. The business community, which surprisingly has paid only intermittent and tepid attention to the WTO talks, would be negatively affected. Business depends on rules and commercial certainty. Incompletion of the Round would reduce that certainty in an already uncertain world. It would be a lost opportunity that would close off major market-opening initiatives at the multilateral level for many, many years.

How did we get here?

For the better part of half a century, the multilateral trading system was governed by the predecessor of the WTO, the General Agreement on Tariffs and Trade, an imperfect arrangement in many ways but one that worked surprisingly well in establishing norms of State behaviour and in adjudicating disputes. But the GATT system was imperfect, lacking both a fully-functioning legal system and a juridical framework on a par with the other Bretton Woods institutions.

Over time, these limitations became increasingly apparent. A consensus developed among governments to modernise the system, to make trade rules clearer and to create a more effective dispute settlement process based on law and less on expedient diplomatic compromise. This produced the Uruguay Round in 1989-1993, ultimately resulting in the universe of treaties making up the 1994 World Trade Organization Agreement. This was no small achievement, especially when viewed in retrospect. But now that the WTO negotiating process seems to be seriously stalemated, questions are being asked about the future of the multilateral trade diplomacy and of the WTO itself as an institution.

Some are suggesting that the Doha Declaration overshot the mark and that the Uruguay Round may represent the pinnacle of international achievement, possibly the last time the world community was able to muster the political will to reach consensus on a complicated package of rights and obligations opening markets and prescribing rules of behaviour in international trade.

The question is less how the multilateral system got to this point, however, but rather where it is going in 2010 and beyond. With the stock-taking exercise in Geneva only a few weeks away (at the time of writing) and the impending G-20 gathering in June, 2010 will be a critical year for the Doha exercise.

The world moves on

The 21st century world is incredibly fast-paced and inordinately more complicated than as short time ago as the 1990s when the Uruguay Round ended. The speed and scale of change is breath-taking. This makes it enormously difficult for governments to define goals that can endure in the slow and deliberate pace of international trade talks. The ground shifts so rapidly that the issues that were considered important recede and new and more immediate challenges emerge. This in part is what’s befallen the Doha Round since the agenda was set almost a decade ago.

Two are prominent: the proliferation of internet-based commerce and global concerns over climate change and greenhouse gas reduction. On the latter, the Doha Round has an incomplete and arguably unresponsive agenda. Yet the relationship between trade rules and national greenhouse-gas reduction measures is an issue of paramount importance. The focus on trade aspects of climate change at the December 2009 meeting of the Conference of Parties of the UNFCCC in Copenhagen is testimony to this fact.

Further complicating the WTO’s task is that international trade is no longer confined to border measures as in the days of the GATT and the early days of the WTO. Trade is interwoven with many other aspects of domestic policy and internal economic and social regulation. Modern-era trade negotiations are less concerned with tariffs, duties and quotas and more focused on the trade effects of domestic regulation, thereby bumping directly up against fundamental issues of State sovereignty. To a considerably degree, finding an acceptable balance to these twin factors is bedevilling the Doha Round negotiations

Added to all of this is the growth in WTO membership over the last 15 years and the emergence of much more powerful and influential members – led by China, India, Brazil and South Africa, with Russia waiting in the wings. This has permanently changed the dynamics of the Organization. With one-hundred and seventy-three members, with a multitude of alliances, blocs, common and divergent interests depending on the particular issue, the difficulties of mustering consensus have grown exponentially.

Regional agreements and universality

As the Doha Round drags on without agreement, governments are responding to pressures from their respective business communities to fill the vacuum. Regional trade agreements (RTAs), bilateral free trade agreements (FTAs), foreign investment protection agreements (FIPAs) and bilateral investment treaties (BITs) are proliferating. These are now major factors in the world trading system. As governments conclude discrete agreements as a more expedient route, the importance and relevance of the multilateral system embodied in the WTO Agreement may be waning.

Questions are arising as to how to apply a multitude of these overlain and inter-woven regional and bilateral treaties, especially if the treaty provisions depart from the universal rules of the WTO Agreement. This is a critical issue for the notion of universality, once the lynchpin of the global trading system, as these treaties and agreements emerge and as separate dispute settlement bodies develop their own extra-WTO jurisprudence.

Concluding observations

The prognosis for the Doha Round (at least at this juncture) does not seem particularly promising.
Yet in spite of the risks to global economic advancement, governments seem unwilling or incapably of bridging the gaps that remain. As one leading statesman recently commented, it would be a tragedy to have swum an ocean only to drown in sight of the beach. The tragedy will be that agreement in Geneva will elude the world, even in the face of clear recognition of the magnitude of that last, lost opportunity to make a difference.

Lawrence L. Herman is International Counsel at Cassels Brock & Blackwell LLP. He can be contacted on +1 (416) 869 5983 or by email: lherman@casselsbrock.com.

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