Five Coming Geo-Commercial Game Changers

From Ideas Lab, 27 December 2013:

The discord in Bali only highlighted the role of regional trade agreements as the center of gravity in world trade.

There are two ways to look at the WTO’s agreement in Bali on trade facilitation, struck at the last minute after U.S. and India agreed on language on Indian food subsidies. One is that the deal is a jolt for the multilateral trading system after a dozen years of fruitless Doha Round negotiations. The other is that the deal is a mitigated disaster aimed to buy the WTO time to fashion a value proposition in a world where it is crowded out by regional trade deals.Both views have merit. Yet either way, the U.S. will have an edge as five geo-commercial game changers unfold:

1. Unstoppable mega-regionals. The discord in Bali only highlighted the role of regional trade agreements, especially the U.S.-led Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (TTIP), as the center of gravity in world trade. Most of the more than 300 Regional Trade Agreements crisscrossing the world are far more liberalizing and comprehensive than WTO agreements, and now pioneering in such topics as e-commerce, copyrights, and state-owned enterprises. Negotiated among coalitions of the willing, mega-regionals contrast with the WTO of 160 players with widely different aspirations and a “single undertaking” rule that enables any one disgruntled member like India to veto an entire deal. Mega-regionals will face challenges – most immediately, the battle for the trade promotion authority (TPA) on Capitol Hill needed for passing these deals. But they will get done: Leading industry lobbies have placed their energies on mega-regionals, and governments too send star negotiators to mega-regional talks rather than WTO tables. Expect the TPP to be passed within a year and TTIP within three years – and for Washington, Brussels, and Tokyo to set the tone and tempo in global trade policymaking.

2. China. Often considered antagonistic to the TPP, China, the world’s largest trader, is seriously interested in joining the deal. Various domestic lobbies see the deal as a means to counteract economic slowdown and drive domestic reforms, especially to state-owned enterprises. Asia’s new mega-regional deal championed by Beijing, the Regional Comprehensive Economic Partnership (RCEP) containing China, Japan, South Korea, Association of Southeast Asian Nations (ASEAN), Australia, India, and New Zealand, is less of a counterweight to TPP than a stepping-stone for China and ASEAN nations to ultimately join TPP. China is also seeking entry to the plurilateral Trade in Services Agreement (TISA) spearheaded by the United States and EU. Beijing and Washington will clash more than once over TPP and TISA accession criteria – but the bigger point is Beijing’s strategic shift to embracing U.S.-led deals, which is prompting rethink across emerging market capitals on the merits of multilateralism vs. regionalism.

3. Brazil. The host to the 2014 World Cup has completely missed the bus on regional integration with the exception of its own dysfunctional bloc, Mercosur. Brazil’s latest attempts at big-time integration, the 34-nation Free Trade Area of the Americas (FTAA) and the EU-Mercosur talks, collapsed a decade ago, not least due to Brazil’s unhappiness with U.S. and European agricultural protectionism, and U.S. and European frustrations with Brazil’s barriers in manufactures and services.Now the country’s industrial lobby, worried about being left out of global supply chains and mired in endless red tape, has broken with the government to call for a relaunch of the EU talks, even if that means breaking with Mercosur partners. Next on the list: TTIP, and, perhaps the new 210 million consumer bloc, the Pacific Alliance composed of Colombia, Peru, Chile, and Mexico, followed by TPP.

4. Latin power. Long students of European and Asian integration, the Pacific Alliance is quietly showing the world an example of pragmatic, business-driven integration aimed at simplifying the “spaghetti bowl” of overlapping trade deals. Until recently with separate bilateral Free Trade Agreements with one another, the four members have agreed on common rules of origin, a hairy part of trade negotiations, and freed tariffs on 92 percent of goods and services. They have also abolished tourist visas and, remarkably, consolidated embassies and commercial offices, with Peruvians championing Chilean goods and Chileans promoting Mexican products.Integration of infrastructure, customs, capital markets, and energy will follow. This is not only a premier example of deeper integration: The Alliance is well-placed to become the core for a take two of the FTAA, just like the P4 bloc formed by Chile, Singapore, Brunei, and New Zealand was the genesis of the TPP. What helps that all Alliance members already have FTAs with the United States and Canada.

5. Developed vs. developing countries. The developed vs. developing country divisions that have held back WTO talks are eroded in Bali, as China, Brazil, and practically all large emerging nations and developing countries sided with the advanced nations, breaking with India and its accomplices Venezuela, Bolivia, Ecuador, and Cuba. Many emerging markets such as the host nation Indonesia are genuinely concerned about food security, but also see the point in such win-win deals as trade facilitation. That old coalitions give in could open spaces for broader-based plurilateral agreements among sub-sets of WTO members, both developed and developing, in such areas as investment, data security, and trade in environmental goods and services.New Scenarios for Global Trading System

These geo-commercial realignments create three scenarios for the global trading system.

One is a renaissance of multilateralism: Regional deals force outsider India and developing countries’ hands to agree on a set of multilateral deals at the WTO. This is unlikely. WTO’s Director General Roberto Azevedo is a stellar diplomat, but even narrower deals can take years to reach. In a room of 160, someone will always have a problem with something.

In the second scenario, the WTO emerges as a venue for negotiating plurilaterals and handmaiden for “multilateralizing” tested and tried regional rules. This would revive the WTO’s relevance and save its renowned dispute settlement mechanism, which lacks jurisdiction over the newest regional rules. But anything short of multilateralism is hugely political at the WTO: Someone will always feel left out.

In the third scenario, the WTO is sidelined by TPP and TTIP, which power on and ultimately merge. This super-deal is possible: The U.S. and EU already have bilateral FTAs with several common TPP partners – Korea, Peru, Australia, Singapore, Canada, and Mexico to name a few. With China and Brazil on board, the super-deal would cover 80 percent of world’s output and approximate a multilateral agreement – and have cutting-edge rules that could never be agreed in one Big Bang at the WTO.As the liberalizing coalition expands and powers on, India and its partners may yet to become isolated in the global trading system. The United States, meanwhile, will get to call the shots. – See more at: http://www.ideaslaboratory.com/2013/12/27/five-coming-geo-commercial-game-changers/#sthash.qmM2WKvF.dpuf

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