The prospect of a new WTO Director-General seems to have a lot of people thinking about the future of the WTO. In the past few days, I've seen articles in the Guardian and Reuters, and also an FT op-ed by economist Arvind Subramanian.
Subramanian thinks the problem with the WTO these days is too much democracy:
Over time the WTO has become an institution where smaller and poorer countries have acquired a stake and voice. This transformation may seem a welcome sign of legitimacy. But it has gone too far. For its future effectiveness, indeed survival, the WTO needs to be de-democratised, with the large countries reasserting themselves.
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... the WTO has suffered from too much democracy and associated blocking powers. A few small countries can effectively exercise their veto if, say, cotton subsidies – an issue of legitimate concern to them but not necessarily of systemic importance – are not addressed.
This veto must be taken away or future negotiations could be stymied by any of the WTO’s 157 members. This outcome can be achieved by allowing the larger countries to negotiate among themselves while offering assurances to the smaller countries that they would receive the benefits of such negotiations and be spared any burdens.
He also says the focus is on the wrong areas:
As a result, it has become impossible to move to a more relevant agenda that can expand market opportunities for the private sector and deal with the current concerns of governments. An example is food, where a decade ago subsidies and barriers to imports were the important issue. Today, high prices and barriers on exports are more important.
Similarly, currency manipulation is now a pressing issue – but is not on the Doha agenda. ...
Over at Reuters, some well-known trade economists offer their thoughts:
Simon Evenett: "The big question is this: does the WTO retain its centrality in the trading system? It's down to the next WTO head."
Richard Baldwin: "The way I see it now the U.S. and China are happy to let the WTO languish - China has nothing to complain about that could be fixed by any conceivable version of Doha, and the U.S. sees no substantial gains from finishing Doha on the current terms"; and "[The TPP and mega-bilaterals] will threaten China, India and Brazil (and others) with exclusion, and at that point, we'll see the current stalemate destroyed. There will be room for discussions to bring the TPP-like disciplines to the multilateral level."
Jagdish Bhagwati: "Now we are really in danger. Let's hope it works out because this is our last chance to save the WTO."
And at the Guardian, they are concerned about development: "Heiner Flassbeck, professor of economics at Hamburg University, and until recently chief economist at the UN's trade arm, Unctad, believes that even now, when few people expect Doha to be revived, the WTO remains stuck with an outdated mindset, in which "free trade" is just about domestic subsidies and taxes on exports. "We don't have the conditions for free trade," he says. "What we have is terribly distorted trade, driven by terribly distorted currencies and financial markets. Yet people run around with the fiction that this is somehow efficient and if you ended protectionist measures it would somehow be even more efficient." He says that the WTO just "doesn't want to talk about" questions such as whether world exchange rates are fair; or whether globalisation delivers for the poor."
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It's hard to know what to make of all this. Everyone has opinions about what ails the WTO, and much has been written in recent years. The naming of a new head of the WTO seems like a good occasion to talk about the issues again, I guess.
For what it's worth, here's the way I'm thinking about it. I agree that all these bilateral and regional trade agreements might be a threat to the WTO. But I'm not yet convinced that they have a better chance of success than negotiations at the WTO. Yes, some smaller ones have been signed. But once you start doing them on a larger scale -- the TPP and the US-EU FTA, for example -- they become very challenging. Moreover, bilateral and regional deals add in many new and controversial issues, making the old WTO controversies seem kind of tame.
So, I want to see if these kinds of agreements are even plausible on a large scale before I worry too much that they will completely undermine the WTO. It may turn out that these deals are no more doable than Doha, in which case perhaps people will turn back to the WTO.
If the TPP and these other deals can't be done, the question then becomes, why can't we do trade deals anymore? On that point, let me offer the following: There is no clear mission for trade agreements these days. If you look at the points made in the various articles quoted above, you see a wide range of issues discussed:
- Subramanian is worried about currency manipulation and high food prices, and doesn't want to let cotton subsidies hold up a deal.
- In the Guardian piece, Ricardo Meléndez-Ortiz says Doha is asking the wrong questions, focusing too much on tit-for-tat bargaining over import taxes and quotas and too little on the wider context. "It's an agenda that was defined back in the 1980s."
- In the Reuters piece, Bhagwati says the TPP is untransparent and influenced by lobbyists, ensuring that it is full of side conditions, such as stipulations on labor and intellectual property, which make it impossible for developing countries to sign up to. "The lobbyists have to be sidelined," he said.
- And Baldwin thinks the WTO needs to take on new issues: "By analogy, the WTO needs a Bernanke or Draghi - a policy leader who can think out of the box and understand how the world has changed and how the policy must change with it - not a Greenspan or Trichet, who were simply implementing the old rules in a faithful, dogmatic style," he added.
What I take from all this is that there are conflicting views on what trade agreements should cover. That's true for the commentators noted above, but also for governments. Despite this fundamental flaw, the current approach seems to be to plunge ahead with trade negotiations, and see if a deal can be struck despite the conflicting visions. As long as that results in trade agreements being completed, I can see why governments do it this way. I'm not sure it always makes sense in terms of the policies being promoted, but I understand the importance of demonstrating accomplishments, and a completed trade agreement is an accomplishment.
Nevertheless, the idealist in me wonders if perhaps all the major players would be better of reflecting a bit on what trade agreements should be about. Instead of jumping right into negotiations, spend some time thinking about the different visions of free trade and economic integration. There are a lot of competing ideas out there. If we are not aware of which ones we ourselves are pushing, and how that differs from what others have in mind, the whole enterprise might be doomed from the start.
