A Fragmenting Global Economy: A Weakened WTO, Mega FTAs, and Murky Protectionism

Abstract

Since the onset of the recent global financial crisis, the threats to the non-discriminatory roots of the world trading system, long a key element of the liberal global order, have grown in prominence and risk becoming entrenched. Governments have repeatedly circumvented Most Favored Nation and National Treatment principles as they sought advantage for domestic commercial interests during an era where postwar assumptions about global economic governance are increasingly questioned and in the panic following the global financial crisis. As the last decade wore on, no basis was found to conclude the Doha Round at the World Trade Organization (WTO), substantially weakening this body’s standing in the eyes of prime ministers and presidents. Meanwhile, the years since 1995 have witnessed a rapid rise in the negotiation of Free Trade Agreements (FTAs), both by major powers such as the U.S., EU, China, and India, as well as by smaller and medium-sized economies. More recently, initiatives to create several so-called mega FTAs were launched, including the Trans-Pacific Partnership (TPP), a Transatlantic Trade and Investment Partnership (TTIP), and a Regional Comprehensive Economic Partnership (RCEP) in the Asia-Pacific. Finally, the crisis-era has seen extensive resort to less transparent—so-called murkier—forms of protectionism and a resurgence of interest in selective government intervention, or industrial policy. After detailing these trends, this article identifies and explains the underlying causes. Our conclusion is that governments are now accelerating the process of fragmentation that had been underway for some time. What the recent economic crisis did was to make governments desperate to advance domestic commercial interests, all too often at the expense of foreign rivals.