The End of Multilateral Trade?

The World Trade Organization is set to meet in Bali starting today in the latest last-ditch effort to salvage something from the Doha round, which means there’s a round of news stories about the significance of the meetings.  The Wall Street Journal‘s Ben Otto files the exemplar of this kind of story, which is worth mulling over a bit: 

The World Trade Organization this week makes what could be a final effort to keep long-sputtering trade talks alive amid mounting signs that many of its 159 members have given up on a global agreement.

After 12 years of missed deadlines—and the failure last week to agree on even a scaled-back package of measures ahead of the four-day meeting in Bali—the negotiations appear all but dead, barring a last-minute breakthrough.

Countries including the U.S. have turned instead in recent years to smaller bilateral and regional trade deals, bypassing the WTO. Just Monday, U.K. Prime Minister David Cameron called for a free trade deal between the European Union and China.

The WTO as a negotiating forum for trade liberalization has "become irrelevant," said Jean-Pierre Lehmann, a professor at IMD, a Switzerland-based business school.

Even the WTO’s other main function—as an arbiter of trade disputes between members—could be at risk if trade talks break down in acrimony, Mr. Lehmann cautioned. Over the long term, the dispute-resolution mechanism risks losing legitimacy, which could result in more trade wars.

"Dispute settlement only works if there is consensus," he said. "The WTO has no army."….

The growing economic weight of developing nations like China, Brazil and India has added to the cacophony of voices, agendas and friction. Four ministerial conferences failed to make much progress, including in Cancun, Mexico, in 2003, Hong Kong in 2005, and Geneva in 2009 and 2011.

Some observers say the WTO has become less important as the nature of global trade has changed.

Scott Miller, a trade expert at the Center for Strategic and International Studies in Washington, points out that half of global trade is in components, meaning products are rarely made in one country.

Countries in those supply chains are increasingly carving out regional trade agreements. "My view is that Doha has been dead since 2008," Mr. Miller said (emphasis added).

This kind of story is both overly optimistic and overly pessimistic about the state of the WTO.  It’s overly optimistic in assuming that, even if something is negotiated in Bali (and the odds aren’t great of that happening), it’s unlikely that the WTO will ever be the focal point for comprehensive trade talks ever again. Even getting agreement on the "easy" parts of Doha has been super-hard. There’s very little upside to making the WTO the focal point of new talks, especially given that most of the regional and bilateral trade talks have been of the "open regionalism" variety. 

On the other hand, the "slippery slope" argument of the WTO losing relevance is also way overplayed.  Such a statement omits two very important facts.  First, even if there’s no further WTO-guided liberalization, the rounds negotiated to date constitute far more liberalization than what can be achieved in the future.  In other words, the WTO rules still govern a lot of trade, and further liberalization won’t erode the WTO’s bailiwick that much. 

Second, the WTO’s Dispute Settlement Understanding remains the ne plus ultra of enforcement arrangements in global governance.  Contrary to the WSJ story, there is zero evidence that WTO enforcement has weakened as Doha bogged down or as protectionism increased after 2008.  That part of the trade system is still working pretty well. 

For decades, trade commentary has implicitly embraced the "bicycle theory" – the belief that unless multilateral trade liberalization moves ahead, the entire global trade regime will collapse because of a lack of forward momentum.  The last decade — and particularly the post-2008 period — suggests that there are limits to that rule of thumb.  It is possible for the WTO to matter less on jump-starting multilateral trade negotiations while still mattering a great deal in enforcing the rules of the game. 

So Bali might represent the end of multilateral trade negotiations — but it’s not the end of multilateral trade.