Plurilateral Agreements and Global Trade Governance: A Lesson from the OECD

Abstract

A key lesson from failure at the Organization for Economic Cooperation and Development (OECD) to negotiate a multilateral agreement on investment is that attempts to reduce barriers to trade and investment will fail without broad-based domestic support for open markets. This article applies that lesson to the faltering Doha Round of multilateral trade negotiations and argues that the deadlock is due to the collective failure to make-the-case for liberalization rather than, as is commonly suggested, the systemic constraints of a 'single undertaking' or the ascendancy of emerging powers. Deadlock in the Doha Round has triggered the pursuit of alternatives to multilateral negotiation. The result is increased emphasis on plurilateral approaches and the further entrenchment at the centre of trade diplomacy of preferential trade agreements (PTAs) - such as those being negotiated across the Pacific and the Atlantic. This article outlines the powerful motivations behind PTAs but also the dangers, including of limited welfare gains, disincentives to non-discriminatory liberalization and increased complexity and discord in international rule making. Plurilateral agreements involve particular risks for developing countries, whether through marginalization from single-issue agreements or asymmetric pressure within multi-issue PTAs. This article concludes that an effective, first-best, multilateral response to the challenge of the political economy of trade will require that trade liberalization be placed more firmly within the framework of sound domestic economic policy and that top-down liberalization, including through the G20 process, be accompanied by more effective bottom-up advocacy of the gains from market opening.