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The regulatory framework of the system of world trade is the result of
principles (that sometimes reflect cultural and ideological differences);
institutions (especially as spaces for negotiation, creation of rules
of the game, collective disciplines and solution of conflict) and rules
(both formal and informal, including tacit understandings), that arise
from the interactions of the three levels of the world trade system.
As is well known, such levels are the national, the regional (including
that of trade preferential agreements) and the global multilateral level.
The dialectic tension that results from the interaction of these three
levels is inevitable (unless a country chooses to close down completely
to the external environment); extremely dynamic (its scope and intensity
are constantly changing); and relatively complex to manage (given the
extent and diversity reached by the international exchange of goods and
services and its financing).
The interaction between the three levels is relevant for the elaboration
and implementation of public policies in each country, as well as for
business strategies, particularly of those firms exposed to any kind of
international competition.
Additionally, said interaction is relevant for the efficiency, in the
global multilateral level, of the WTO institutionalized system and of
any negotiations that are carried within it, specifically for the Doha
Round. The debate over current trends and modalities of protectionism
has made this fact evident (with regard to this matter, please refer to
our January, February and March 2009 Newsletters).
It should also be considered that, as long as the rules (be they national,
preferential or global) seep into reality, becoming effective, they can
have an impact on the direction of the flows of goods and services, of
capital and technology, through nations and their jurisdictions. In fact,
they might even prevent them. This is the reason why they are one of the
key factors to take into account, when making rational investment decisions
and threading the dense weave of transnational production and supply business
networks that currently characterize international trade relations.
As for global multilateral rules (and given the case, the regional and
preferential ones) their role is, additionally, to contribute to the increase
of world trade, to the economic development of nations and to the generation
of mutual gains for those involved. In actual fact, many times these goals
are not achieved, at least in the measure of expectations. On the contrary,
throughout history there are alternate cycles of expansion and contraction
of market globalization and especially steep differences in the distribution
of the benefits of world trade, either among the different nations as
well as within each one of them.
Principles, institutions and rules are the result of a long process
of experience gathering throughout the centuries, many times of a negative
kind. This is a process that, almost in slow motion at first and in a
more accelerated manner during the last decades, but always with advances
and setbacks, has increased the connections between the different national
markets and their capacity to produce and consume goods and to offer and
use services, be it within as well as amongst the multiple regional geographic
spaces. This is an economic and political connectedness, which today has
a universal outreach but which still shows a marked disparity in its geographical
distribution.
The result of such process is a world trade system with increasingly
intense interactions, with differences in its regional expressions and
which has become more decentralized, in the sense that the concentration
of relative power in a few dominant centers tends to be diluted.
Any intellectual exercise aimed at understanding the regulatory framework
of the world trade system should begin by acknowledging a first level
of action, the national one, which is the result of policies and preferences
of sovereign protagonists - what we know today as nation states. Currently
they have become more numerous, although the distribution of power between
them is still unequal and might always be so. Such inequality has its
roots, among other factors, in the difference of size (territory and population);
geographical location; level of social and economic development; endowment
of productive resources and aptitude for the creation of technical progress.
All these factors condition the possibility, or even the will, which
each protagonist might have of exerting power upon the others. Additionally,
these factors create differences in the real capability that each nation
might have to influence the definition of the rules of the game of world
trade.
However, these are factors that are exposed to a strong change dynamic.
This is the reason why the relative power of nations in the regional geographic
scenarios and the global arena has been subject to continuous mutations
throughout time. The current and deep transformations of world power and
its distribution among a growing group of countries are, in this sense,
a relevant undertone to the present global crisis and will have strong
repercussions for international trade and a yet uncertain outcome.
National rules are the ones that have a direct impact on market access
conditions and costs. They are the result of policies and regulatory frameworks
that reflect the specific interests of the respective social actors, as
well as cultural preferences and dominant ideological concepts of a given
nation. Most importantly, they are the result of the perception of power
that a nation has or believes to have and, as such, of its ability to
affect the scope and the conditions of the relations with other nations
and their respective markets.
It was from their corresponding national spaces that countries gradually
built the rules of the game and later the international institutions that
nowadays are main components of the world trade system. For a long time
in its history, this construct was expressed through bilateral or multilateral
agreements that always had a partial reach in terms of the involved countries.
Different mechanisms were generated that were geared towards an opening
of the markets or at least towards preventing any discrimination amongst
the involved countries in regards to the prevailing conditions for entry.
Thereof, one of the very first rules that were agreed at a transnational
level was that of the "most favored nation clause" in its different
modalities.
The increase in connectedness between the main markets, evinced during
the last two centuries, as well as the devastating effects of the protectionist
experiences that followed the great crisis of the thirties finally led
-after the last World War- to a growing development and interaction between
the two other levels which, together with the national one, give shape
to the current system of world trade.
One of such levels is, precisely, the global multilateral one institutionalized
through the GATT-WTO system, with its sixty years of evolution. As is
well known, the non-discrimination principle is one of its central points,
expressed by the most-favored-nation-treatment of article I of the GATT.
Together with the consolidation of what each country grants to the others,
these provide the system -at least in the regulatory aspect- with an expectation
of a relative potential for stability and a relevant insurance against
discrimination and protectionism. With the evolution experienced after
the Uruguay Round by the mechanism of dispute settlement within the WTO,
this global multilateral system has reinforced its tendency to be rule-oriented,
increasing thus its political and economic value and its standing as an
international public good.
The other level is that of the different trade preferential spaces. These
result either from regional governance strategies (as are the cases of
the European Union and the Mercosur, among other relevant examples), or
from strategies for the international projection of the trade interests
of nations or groups of nations (such as the multiple existing bilateral
and multilateral trade preferential agreements) that are supposed to be
consistent with the GATT's and GATS principles and rules.
The proliferation of such agreements of partial reach -meaning that they
do not encompass all WTO members- has intensified during the last years.
It has given rise to the creation of different types of preferential agreements.
Some are what can be called regional agreements in the strictest sense,
with a clear goal of contributing to the governance of the corresponding
regional geographic space. Others, instead, have materialized between
distant countries. These are the preferential trade agreements, whatever
their modality or denomination.
Two common traits can be noticed in all of them. They answer to explicit
or implicit political objectives and they are discriminatory in relation
to the main principle of the-most-favored-nation-treatment institutionalized
by the GATT-WTO. Increasingly, they also include non-preferential elements
as well, that do not imply exceptions to the abovementioned principle
of non-discrimination.
The proliferation of agreements may even increase if the Doha Round is
not completed or if no reforms to the global multilateral system are also
introduced.
Issues related with the dialectic tension between the abovementioned
levels are currently relevant for the world trade system and, in particular,
for the GATT-WTO. The idea of the predominance of one level -for example
of the global multilateral one- over the others may correspond with theoretical
and ideological views. In reality, this is not the case and it is unlikely
for it to happen unless there is an effective centralization of world
power, something that seems highly improbable at least from what can be
foreseen from the current international situation.
In practice, and probably for a long period of time yet, the national
level will continue to be the fundamental one. It is through this level
that each nation -whatever its relative power- will eventually be able
to place the other two levels in the perspective of its own interests,
its strategies and its possibilities.
Hence, if a nation lacks a correct definition of its interests and an
effective strategy to develop them by using to its advantage what can
be obtained from the other two levels, it will have less possibilities
of obtaining what it needs from the trade interaction with the rest of
the nations. The same can be said for a country that has an incorrect
assessment of its possibilities for action, in particular as a consequence
of a wrong appraisal of the real value of its contribution to other countries
and their markets.
However its is through the two remaining levels that it will be necessary
to create, in the future, institutions, working methods and rules of the
game that enable to complement them and, if possible, neutralize the effects
of their eventual incompatibilities.
Different authors, especially during recent times, have made useful contributions
towards the explanation and understanding of the dialectic tension between
the three levels that form the system of world trade. These are helpful
in particular for those who need to operate on global realities from their
national perspective, be it through the creation of public policies as
well as through the development of visions and negotiating strategies.
They are also useful in the case of those firms which strive for a competitive
insertion of their goods and services in the global and regional markets,
particularly when acting through the wide range of transnational productive
and commercial networks.
Three recent books deserve to be mentioned, among others, for their valuable
expositions and contributions. The first of them is by Richard Baldwin
and Patrick Low (editors), (see the reference in the Recommended Readings
Section of this Newsletter). The other is by Simon Lester and Bryan Mercurio
(editors), ("Bilateral and Regional Trade Agreements Commentary and
Analysis". Cambridge University Press, Cambridge 2009). And finally
is the book by Tatiana Lacerda Prazeres, with a substantial foreword by
Pofessor Celso Lafer ("A OMC e os Blocos Regionais", Aduaneiras,
Sâo Paulo 2008).
Its analysis and contributions prove especially relevant from the point
of view of an attempt to better understand and manage the interaction
between the three mentioned levels. An interdisciplinary outlook is required
for such purpose, one that merges the logic of power, welfare and legality.
Without such combination it will become difficult to attempt to decode
reality, a fact that is well known by those who have been involved with
the practice of international trade relations.
Precisely, one of the main contributions of Tatiana Lacerda Prazeres'
book is her analysis of what is customary presented as an excluding dichotomy
between global multilateralism and preferential regionalism, a relation
which is viewed as complementary by some and as antagonist by others.
The author rightfully argues that the relation is simultaneously complementary
and antagonist. The same could be said if the national level were to be
included in the relation.
In this regard, what is important is to identify the different factors
that can have the strongest impact, either positive or negative, on the
predominance of complementarity or antagonism in order to achieve a reasonable
balance between them. This is the central point of the author's contribution.
With good reason, the author identifies time as one of the main factors
to explain the trend to develop preferential trade agreements -particularly
when these are unrelated to governance strategies of regional geographic
spaces-. In this sense, it has been observed in the case of the Doha Round
that the main costs in the global multilateral level, especially the local
political ones, are incurred in the short term, whereas the benefits only
begin to show in the mid and long terms. This fact has caused a growing
number of countries -and its businesses- to attempt to move forward through
agreements of partial outreach, thus conforming at times preferential
trading networks in connection with a particular country.
Quite accurately, the author points out, however, that trade regimes
are just one of the components that determine the dynamics of world trade.
She identifies the main ones as being the transition from the industrial
to the knowledge society; the technological development in the areas of
transportation, communication and logistics; the trade within and among
firms; the intensification of the globalization of financial markets,
and the proliferation and strengthening of transnational productive chains.
In search of a reasonable balance, it would be essential to work simultaneously
on the three levels that form the world trade system. In any case, this
would be an unstable balance, exposed to the effects of the dynamics of
change of global economic competition and the international political
system itself. The existing uncertainties over the future -which are currently
accentuated- allow us to foresee, precisely, the constant instability
of any balances that are achieved. The ability to continuously adapt to
new realities will become, then, one of the required aspects of the regulations
and institutions of the system of world trade.
On the national level the essential goal will be to preserve, in the
main protagonists, the favorable vision towards the continuity of international
cooperation especially resulting form the interest of governments of ensuring
the predominance of peace and political stability, both at a global scale
as well as in their own geographical regions.
Said interest will be reinforced by firms -more numerous each day and
originating in emerging economies as well- which are present in multiple
markets. They will demand that governments develop and preserve the conditions
to safeguard the smooth flow of their supply chains, taking advantage
of the benefits that are emerging today all around the world. Firms are
required to export and import to and from multiple markets at the same
time. Hence that the internationalization of the capacity to produce goods
and provide services has become a main factor in favor of the articulation
between the three levels of the system of world trade.
In the regional and preferential trade levels -where there are no single
models on how to approach the corresponding agreements- and in the multilateral
global level, the new reality in the distribution of world power, with
its impact on international economic competition, as well as the results
of the different forms of transnational productive integration, will become
the source of a demand for creative adaptations in the outlooks and in
the specific rules of the partial agreements, as well as in those of more
general nature of the GATT-WTO system. An acceleration of the obsolescence
of the regulations, mechanisms, work methods and institutions originated
in previous stages of the international reality can be observed in both
levels.
It is possible to foresee that the new realities will drive all those
involved -governments and businesses alike- for their own interest, to
strive for institutions and rules of the game that ensure flexibility
and predictability at the same time. It will be expected that these enable
the development of strategies that are adapted to a world that will increasingly
offer multiple options for the international insertion of countries and
businesses.
This will mean a review of the WTO regulations, particularly of article
XXIV of the GATT and the Enabling Clause. These are, as well, regulations
that were born in international contexts that have now been overcome by
the new realities. In the future, the transparency of the corresponding
agreements will be an essential factor to build mutual trust among the
different participants of the global economic competition.
It should be highlighted as well that the recent trend towards innovative
forms of protectionism, even when different in scope from that of the
30's crisis, constitutes an alert for those who value the preservation
of a world trade system functional to global governance. These forms of
protectionism imply the risk of weakening the safety nets against protectionism
and discrimination that have taken so much to develop during the last
decades. The trend toward the indiscipline proliferation of preferential
trade agreements may, in that sense, contribute to this weakening if it
takes place within the framework of a GATT-WTO system that loses its effectiveness
and legitimacy. In such case the problem would be not the proliferation
per se, but the inadequacy of the necessary collective disciplines in
which that trend is settled.
This is a forewarning that should lead not only to the conclusion of
the current Doha Round but also, to the review of many of the regulations
and institutions that enable to preserve and increase the connectivity
between the multiple markets, while protecting the non-discrimination
principle as a necessary condition, although insufficient, for the pursuit
of the prized objectives of progress and economic development of every
country.
In our opinion, such revision should take priority in the WTO agenda
during the newly initiated four year mandate of its experimented Director-General,
Pascal Lamy (please refer to his presentation before the WTO General Council
of April 29, 2009 on WTO
site).
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