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  • Preliminary Draft- not to be quoted, dt 25 Sep 2014

    1

    Multilateralising twenty-first century Regionalism

    New Trade Governance Rules, the WTO and Emerging Economies

    Suparna Karmakar1

    Abstract

    The salient features and underlying trends in global trade have undergone marked changes during the last

    quarter century. The most notable feature of the last decade from a trade policy perspective is the renewed

    interest in regionalism worldwide given the lack of progress in the Doha Development Agenda (DDA), despite

    the remarkable resilience of the multilateral trading system and the relatively mild increase in global

    protectionism in the face of a marked slowdown in global economic activity in the aftermath of the 2008

    financial crash. The rise of regionalism worldwide, has implications for the large emerging markets, especially

    given that they are not party to the negotiations setting the initial rules. The preference for plurilateral, rather

    than multilateral, negotiations within the WTO system in key areas such as services and environmental goods

    trade is also on the rise. However, it is clear that in the long run, an integrated global trade governance regime

    will have to include these high-growth zones and large consumer markets, both from the legitimacy

    perspective as well as the economic imperatives.

    It is in this above context that the paper explores the implications of the recent global turn to regionalism for

    the emerging markets. Comparing the impact of the super-regional trade agreements with that of WTO-led

    multilateralism, the paper analyses how the different twenty-first century regional agreements under

    negotiation may be multilateralised, and/or made compatible with the WTO regime. Finally, we conclude with

    some thoughts on the potential and ability of emerging market leadership in global trade governance in the

    coming decade, including their role in reviving the WTO.

    JEL codes: F02, F13, F15

    1 Marie Curie Fellow at Bruegel (Project MULTITRADE, No. 328351). This Policy Contribution reflects only the

    author’s views and the Union is not liable for any use that may be made of the information contained therein.

    Special thanks to my Bruegel colleagues and interviewees for their insights, and participants’ comments during

    an in-house workshop on the subject. Author contact email: suparna.karmakar@gmail.com

    mailto:suparna.karmakar@gmail.com

  • Preliminary Draft- not to be quoted, dt 25 Sep 2014

    2

    1. Introduction

    The salient features and underlying trends in global trade landscape have undergone marked

    changes during the last two decades. While the European Union remains the world’s largest trader,

    in 2013 China for the first time became the second largest merchandise trader, as the United States

    slipped to the third position. According to the WTO, even as globalisation resisted the crisis-induced

    protectionist tendencies, in addition to creating a permanent shift downward in the level of trade,

    the global recession of 2008 may have reduced its average growth rate as well2. World trade growth

    has been anaemic and much below par in 20143, the third successive year of trade growth being at

    or below global economic growth rates, something that has not happened for decades. Pre-crisis

    global trade grew at an average rate of 6.0 percent during 1990-2008, a figure attained only once

    since onset of the crisis.

    Economic growth and prospects have also been divergent between the advanced economies

    and the large developing countries; emerging market average growth rates have consistently been

    at rates twice that of developed economies, even in the aftermath of the 2008 crash4. The OECD has

    forecast that economic growth will remain weak in the major developed countries in 2014 and

    2015, partly due to the array of risks that surfaced since last May, even as the leading developing

    economies grow at their usual brisk pace5. The most recent 2014 growth projections from the IMF

    (issued ahead of the G20 meeting in Australia) also suggest that the outlook is darkening further. The

    current climate of weak economic prospects has profoundly changed the liberalisation appetite of

    the west, now often bordering on fear of globalisation. Irrespective of their stated endorsement of

    support for globalisation, strong protectionist tendencies are surfacing, in part driven by popular

    disenchantment with globalisation and trade liberalisation at home. According to an international

    poll undertaken by the Washington-based Pew Research Center6, citizens in key developed

    economies, viz. the US, Japan and Europe, have become deeply sceptical about important elements

    of globalisation even as their governments push for further liberalisation. And across Asia, Eastern

    2 Global trade in goods fell by 12.2 percent in 2009, by far the largest decline since 1950.

    3 Donnan (2014a)

    4 According to the Economist Intelligence Unit, the OECD economies averaged annual GDP growth of 0.5 percent from 2008 to 2012, compared to the non-OECD economies’ average 5.2 percent growth. We should however note here that despite the higher rates of economic growth, the emerging economies will take very long to catch up with the developed country rates of development. In fact, the World Bank’s International Comparison Programme suggests that average income convergence has slowed down considerably in the 2010s compared to the earlier couple of decades. It has been argued by the Economist (2014) in its recent briefing that the rate of convergence a decade ago was due to exceptional circumstances which cannot be replicated easily, if at all.

    5 OECD interim forecasts, 15 September 2014, accessed online at: http://www.oecd.org/eco/outlook/economicoutlook.htm ; http://www.oecd.org/newsroom/global-growth- continuing-at-a-moderate-pace-oecd-says.htm

    6 Donnan (2014b); Stephens (2014)

    http://www.oecd.org/eco/outlook/economicoutlook.htm http://www.oecd.org/newsroom/global-growth-continuing-at-a-moderate-pace-oecd-says.htm http://www.oecd.org/newsroom/global-growth-continuing-at-a-moderate-pace-oecd-says.htm

  • Preliminary Draft- not to be quoted, dt 25 Sep 2014

    3

    Europe, Africa and the Middle-east, geopolitics is once again undermining commerce and the open

    trade and economic globalisation agenda crafted and nurtured in the past half century.

    Given the above, and in view of the inability of the full WTO membership to come to an

    agreement on the Doha market access negotiations after 13 years7, the trade liberalisation focus

    seems to be shifting away from multilateralism, made evident by the recent spurt in bilateral and

    regional trade negotiations worldwide8. While the developments since the recent financial crisis

    indicate that the WTO is yet to lose its relevance as the multilateral referee of global trade relations,

    as least insofar as its rule-making and dispute-settlement roles are concerned, the world’s major

    trading nations revived their preference for regionalism over WTO-led multilateral trade

    liberalisation, with negotiations for three new super-regional trade agreements (super-RTAs) taking

    place in different parts of the globe: the Trans-Pacific Partnership (TPP), the Transatlantic Trade and

    Investment Partnership (TTIP) and the Regional Comprehensive Economic Partnership (RCEP).

    Additionally, at the Asia-Pacific Economic Cooperation (APEC) meeting of trade ministers in mid-May

    2014, China aggressively pushed the idea of a new free-trade zone in the region, despite objections

    from the US, Japan and some other TPP members. This rise of regionalism worldwide, has serious

    implications for the large emerging markets, especially given that they are not party to the

    negotiations setting the initial rules9. The preference for plurilateral, rather than multilateral,

    negotiations within the WTO system (in key areas such as services and environmental goods trade) is

    also on the rise. However, it is clear that in the long run, an integrated global trade governance

    regime will have to include the high-growth zones and large consumer markets, both from the

    legitimacy perspective as well as the economic imperatives10.

    The outcome of these developments is that the old global power balance is changing

    simultaneously as new economic and trade alliances are being forged. Mistrust and a trend of insular

    policies are rife on both sides, as evidenced by the closer BRICS` union earlier this year and the

    perceived west-against-the-rest motivation and strategy of the TPP and TTIP negotiations11, which

    7 Some analysts view this failure of the WTO as an outcome of the massive shifts in the world economy that have challenged twentieth century power configurations and enhanced responsiveness to special domestic interests; as a result, WTO negotiations deteriorated into repeated declarations of unchanging positions.

    8 As of 31 January 2014, 435 physical RTAs (counting goods, services and accessions together) were notified to the GATT/WTO, of which 248 are current

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