WTO Heresy: D-G Pascal Lamy Warms to PTAs

♠ Posted by Emmanuel in , at 7/25/2011 12:04:00 AM
Let's get the obvious out of the way: the WTO Doha Development Agenda still looks as unsalvageable as it did at the start of this year. Being the guy who inherited the stillborn negotiations, failed to get them done during his first term, and likely will pass it on to someone else the way things are going in his second term, WTO Director-General Pascal Lamy is a fellow very much in need of a face-saving exercise. It's only human nature. Aside from say, Charlie Brown and Rodney Dangerfield, few have parlayed repeated failure into career success.

Probably having spent more than a few sleepless nights tossing and turning about the futility of further multilateral trade negotiations, our man appears to have come up with a solution which may yet dissociate his name from WTO failure: If you can't beat 'em, join 'em. To be sure, Pascal Lamy has inveighed against PTAs more than anyone else this side of Jagdish Bhagwati over the years. After all, it's part of the job for the head of an organization whose name features words such as "world" and "trade." And so he begins his latest missive introducing the World Trade Report 2011 to the potential danger of PTAs to global trade. Warning against trade diversion, some scary statistics are marshalled concerning the number of notifications about PTAs the WTO has received. (WTO members are obliged to report negotiations for preferential deals.)

That done, however, Lamy then makes some rather uncharacteristic concessions. Can such minilateral deals get past the old building blocks versus stumbling blocks framing to one which considers the latticework of multilevel trade arrangements with greater verisimilitude? With several trade arrangements being at least as much about political cooperation as trade liberalization, it may make sense. From the WTO blurb...

Deep integration changes the nature of the relationship between the multilateral trading system and preferential trade agreements. For far too long, this relationship has been understood using the building bloc-stumbling bloc paradigm. In its strictest sense, this framework says that bilateral or regional integration either complements or substitutes for multilateral liberalization. One can either lower global tariffs through periodic rounds of multilateral trade negotiations or lower then circuitously through a web of PTAs. However, if PTAs are less and less about tariffs, this paradigm is becoming less relevant and one will need to fashion a new framework more applicable to deep PTAs.

Let me suggest some ideas that could be part of this new way of thinking about PTAs and the WTO. [1] One idea would be that there is little to be concerned about with deep PTAs on the tariffs side, since the limited role of preferential tariffs implies little danger of trade diversion. [2] Another idea would be that we should not ignore the potential difficulties that deep PTAs can give rise to on the regulatory side. One can observe in the sprawl of agreements what can only be called “families” of PTAs, with each family adopting a particular approach to important policy areas such as technical barriers to trade or competition policy. The peril here is that PTAs may lock-in their members to a particular regulatory regime reducing the potential for trade to prosper with countries outside the arrangement.

In a nutshell, the new challenge posed by deep PTAs to the multilateral trading system is one of market segmentation because regulatory systems, which can become divergent, have now more importance on trade flows than tariffs. This is not a statement about the legitimacy of these regulatory systems. It is a factual assessment of their impact on economies of scale, which is what the WTO should care about.

We have a number of options before us to reduce this risk and increase coherence between PTAs and the multilateral trading system.
  • We could fix deficiencies in the WTO legal framework;
  • We could develop a set of non-binding good PTA practices that members could follow;
  • We could extend existing preferential arrangements in a non-discriminatory manner to additional parties;
  • Finally, we could accelerate multilateral trade opening through a more ambitious regulatory agenda; this would surely prove a very effective means of reducing the scope for divergence between the multilateral and preferential trade opening.
The important change IMHO is that WTO leadership is now adjusting to the reality of PTA proliferation and welcomes ideas on how to move with the fashion. In the past, PTAs would always give lip service to being "WTO legal." We may thus see a change in the terminology to highlight the growing importance of PTAs in relation to Doha (or whatever multilateral deal may be on offer in the future). That is, instead of various minilateral deals having to justify their existence by being consonant with existing WTO obligations, the WTO's multilateral negotiations will in the future assume subservient status to PTAs in being "PTA-compatible."

Far fetched? If the WTO chief is beginning to cry uncle, then it may not be long before others' opinions follow.