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The U.S.-Asia Trade Deal Puts Dysfunction at the WTO on Full Display

The U.S.-Asia Trade Deal Puts Dysfunction at the WTO on Full Display

The United States just finalized the Trans-Pacific Partnership (TPP) with 11 Pacific nations, a trade deal that will affect 800 million people and account for 40 percent of the global economy, and is negotiating the Transatlantic Trade and Investment Partnership (TTIP) with Europe, which would encompass nearly half of world’s gross domestic product. The deals are different but share one thing in common: Neither involved the World Trade Organization (WTO), the global governing body for trade.

That these massive trade deals are done outside the 161 WTO member nations reflect what experts say is dysfunction within the world’s trade body, created in 1995. And that, experts say, is because developing countries have refused to budge on disputes with more advanced economies.

In the case of ongoing negotiations to facilitate worldwide trade, for example, developing nations are stonewalling over agricultural issues. Those negotiations, known as the Doha Round, have been ongoing since 2001. Minus a small breakthrough in 2013, known as the Bali Package that eliminated some of the red tape surrounding trade, even the WTO has admitted the talks are deadlocked.

“The dispute mechanism works well, but obviously the talks have failed,” said Joshua Meltzer, a senior fellow on the global economy at the Brookings Institutions, referring to the WTO’s ability to mediate disagreements on trade practices.

The WTO did not respond to a request for comment.

Developing countries like Costa Rica and Brazil are using issues surrounding agriculture tariffs and subsidies to hang up the Doha negotiations, said Jeffrey J. Schott, a senior fellow on trade policy at the Peterson Institute for International Economics who has written extensively on the WTO.

Developing countries “want to move first on agriculture, and then let everything else pass,” Schott told FP. “That’s not realistic. Things have stopped. There is no progress on services, no progress on manufacturing. The whole agenda is adrift.”

This is one reason why developing countries have been left out of TPP and TTIP negotiations. Their unwillingness to budge at the WTO makes them less than ideal bargaining partners.

The Asian deal and the talks with Europe are a “patchwork. Africa is not there. Brazil and Argentina and China aren’t there,” Meltzer said, referring to countries that are WTO members.

However, Schott said he believes the TPP can provide an incentive for developing countries to change their tune on agriculture and get on board with international trade negotiations.

“The TPP is useful because it contains already a significant number of countries accounting for a large scale of global output and there are a lot of countries who want to join it,” he told FP. “The TPP contains a lot of innovative new areas that could be precedents for multilateral negotiations.”

The failure of developing countries to join large trade agreements come at a dangerous time for emerging economies. On Wednesday, the International Monetary Fund warned they are at risk of falling victim to the global economic slowdown.

“The poorest countries have the most to lose from global instability,” Eric LeCompte, finance expert and executive director of Jubilee USA Network said in a statement. “While some economies are improving, we still are seeing uneven growth.”

But Schott said he hasn’t completely given up on the WTO or Roberto Azevêdo, its Brazilian director-general, who took the job in 2013.  

The deadlock is “very frustrating for Acevedo and it leaves many miniseries around the world wondering if people going to Geneva are really serious,” Schott said, referencing WTO’s Swiss headquarters. But the WTO is “not broken. It’s a problem of political will and pragmatism.”

Photo Credit:  Fabrice Coffrini/Getty Images