In international relations, we normally define a system as an assemblage of parts, units, and objects integrated by some form of regular interaction. The World Trade Organization (WTO) is an example. But what happens with that system when some of its parts and units, change? Or, when new actors try to upset some of the fundamental notions and norms of that system? Can it survive?
There was a time when any of these questions could be answered by looking at the current international trading dynamics. As some international relations scholars have argued, since the consolidation of the system of Westphalian nation-states, the Western international system—in other words the liberal world order—has become our standard notion of what a system should look like. But other regions and moments operate differently from our Western perspective.
These questions are all the more relevant today in the swell—and threatening tsunami—of nationalistic and protectionist popular attitudes toward trade. In just three short months, the threat posed by the rejection of global liberal trade regime has become clear, from the new U.S. administration and the growing radical-right movements in European countries from France to Austria to the Netherlands.
The result is a world that, once confident in its liberal foundations and direction, is now facing profound, historical uncertainty. One example, though the Trans-Pacific Partnership (TPP) was signed by its 12 members, representing 40 percent of global GDP and negotiated over the course of years, the trade deal once hailed as being an example of the new generation of liberal agreements was routinely jettisoned when last Monday, with a mere stroke of pen, Donald Trump formally abandoned the agreement.
Is this a threat or an opportunity to rethink the current trading system?
While the outcome is still to be seen—and debated—there is growing evidence that beyond the acts of a single or growing set of developed governments there are larger, shifting dynamics of the international trading system at work now. These new dynamics are based on the emergence of new actors and contexts that have challenged and stretched the current trading regime embodied both by the World Trade Organization (WTO) and the bilateral free trade agreements that for years and in many ways have eroded the WTO’s authority.
Two major perspectives in international relations attempt to explain the new trading system. One focuses on how new emerging powers disrupted the neoliberal project (for instance, Kristen Hopewell’s Breaking the WTO); the other concentrates on the institutional reforms necessary to restore the WTO’s ability to complete global trade agreements. While these ideas lack one clear voice or advocate, the reforms would include a more flexible application of the consensus rule—a common understanding among all members about the limits of domestic policy space that is subject to negotiation—and clearer rules on reciprocity obligations. (One example of this argument is Kent Jones’s Reconstructing the World Trade Organization for the 21st Century).
There are other data that show how the global trading system is currently in the midst of profound changes. What they reveal is not always positive. First, there is a large number of mega-regional agreements trying to realize most of the WTO’s agenda, but they include a smaller set of countries. While being less countries allows them to achieve agreements more easily than in the context of the 164 countries of the WTO, this challenges the very notion of a liberal trading order. Examples include the TPP; The Transatlantic Trade and Investment Partnership (TTIP), a proposed trade agreement between the European Union and the United States; and the Regional Comprehensive Economic Partnership, a proposed free trade agreement between the ten member states of the Association of Southeast Asian Nations (ASEAN) and the six states with which ASEAN has existing FTAs. And while many of these seemed a safer way of continuing to build a global economic order in the midst WTO trade negotiations, now even these backdoor routes to a global liberal order are at risk, as Trump’s TPP executive order showed.
Parallel to this mega-regionalistic tendency is the regionalization and bilateralization of trade that started many years ago. For instance, as WTO data shows, as of July 2016, some 635 notifications of Regional Trade Agreements (counting goods, services, and accessions separately) have been received by the GATT/WTO. Free Trade Agreements (FTAs) account for 90 percent of those 635 notifications, while customs unions represent just 10 percent.
Second, in recent years we have witnessed a “protectionism resurrection.” Probably as a consequence of the 2008 recession and the stagnation of the multilateral trading system, many countries have decided to protect their markets. In July 2016, the WTO published a report urging its members to resist protectionism. It shows that the overall stockpile of restrictive measures introduced by WTO’s members grew by 11 percent between 2008 and 2016. There were 2,835 new trade-restrictive measures recorded for WTO’s members since 2008. Only 25 percent of them had been removed by mid-May 2016. The total number of restrictive measures still in place today adds to 2,127.
A third example of how global trade is changing is that international trade is not growing at the same rate as past decades. Another WTO report published in 2016 shows that world merchandise trade volume grew by 2.8 percent last year, unchanged from 2.8 percent in 2015, as GDP eases in developed economies and picks up in developing ones. In addition, the report states that trade growth should accelerate to 3.6 percent in 2017, which is still below the 5 percent average since 1990. Risks to the forecast are tilted downward, including further slowing in emerging economies and financial volatility.
So, what are these new dynamics telling us? First, that these changes cannot be solely understood or addressed with economics and trade. The current historical upheavals over global trade stem in part from the emergence of new powers, which the traditional trading system cannot accommodate. Second, while there might be a new wave of protectionism, what is clear is that we are facing a crisis of the trading institutions. The mega-regional agreements such as TPP and TTIP are challenging the WTO as an institution, while keeping most of the WTO’s agenda that could help ensure more equitable, modern agreements (e.g. IP, services, environmental regulations).
Even though President Trump formally abandoned the Trans-Pacific Partnership on Monday, what TPP shows is that many developed and growing countries are willing to open their economies and rethink many trade regulations. Now in the increasing push back against broad multilateral agreements, the next task is to reform and resurrect—in a modified, modern form—the global institutions that negotiate, promote and govern international trade. According to Jones, the problem lies in the institutional structure it inherited from the WTO’s predecessor, the GATT, which was designed for a more limited scope of trade negotiations among a relatively small number of wealthier, industrialized countries.
A reformulation of the current WTO is still possible and the multilateral system is still alive. Even in crisis, we can see results, such as the Agreement on Government Procurement (GPA). The GPA is “a pluri-lateral agreement within the framework of the WTO, meaning that not all WTO members are parties to the Agreement. At present, the Agreement has 19 parties comprising 47 WTO members. Another 29 WTO members participate in the GPA Committee as observers.” The fundamental aim of the GPA, is to mutually open government procurement markets among its parties, which have already opened procurement activities worth an estimated US$ 1.7 trillion annually to international competition (i.e. to suppliers from GPA parties offering goods, services or construction services).
To rethink the untold crisis in the international trade regime (beyond TPP), we should focus on the natural adaptation of institutions to changing international contexts with new actors as part of it. A key element of this institutional perspective is that the current protectionism, regionalization and bilateralization of trade is not a threat, but rather an opportunity to multilateralize new and deeper trade integration in future WTO agreements.
This current, complex juncture is an extraordinary opportunity for the WTO to invite major members to put WTO again in the center of trade discussions (as it should have always been). But doing so will require the WTO rethinking its institutional structure and culture. As Jones describes, one of the most important changes that the WTO will need to undertake is developing new ways to find common ground among countries negotiating and seeking mutual gains from trade.
The current upheaval over free trade and protectionism should motivate those who care about and are committed to a liberal free-trade world order to ask new questions about the existing trade regime and how to improve it. It’s a broad agenda, for political economists, trade specialists and general academics. But it will determine the future not just of global integration of the Americas but also global prosperity and stability.