The Future of the Multilateral Trading System in a Multi-polar World

Abstract

This paper assesses the future of the world trading system in the face of diminishing returns from current multilateral trade negotiations and the proliferation of bilateral and regional trade agreements (RTAs). It traces the evolution of the postwar trading regime from the early decades of the General Agreement on Tariffs and Trade (GATT) that were dominated by the United States and the European Communities to the new World Trade Organization (WTO) in which developing countries have begun to play a more important role, especially in the current Doha Round of multilateral trade negotiations (MTNs). The paper discusses the substantive and tactical reasons why the Doha Round has progressed so grudgingly and is unlikely to achieve its ambitious objectives. It then examines why developing countries increasingly have turned to RTAs to complement WTO talks, whether these pacts benefit or hinder MTNs, and how RTAs affect the influence of developing countries in the WTO. The final section of the paper looks at the WTO going forward and posits that, after the Doha Round, the trading system in the 21st century requires substantial reform. The problems of the Doha Round and the proliferation of regionalism confront WTO members with three central challenges: First, multilateralize multilateralism. There are a vast number of exceptions that take the WTO far away from the ideal of a universal system with a single set of rules. The paper suggests that officials focus on the broad exceptions to most-favored nation (MFN) and national treatment in Articles XX and XXI, especially the provisions covering border security and environmental issues. Second, multilateralize regionalism. The challenge is to make the design and implementation of RTAs more WTO-friendly. The paper calls for greater transparency of RTAs through more frequent and rigorous WTO reporting requirements, and new disciplines on discriminatory rules of origin. The paper offers two correctives: cut MFN tariffs and thus reduce the margin of preference for RTA members; or, alternatively, require that RTA members harmonize and lower the MFN tariffs down to the level of the lowest rate applied by any of the RTA members. Third, modernize multilateralism. The WTO agenda needs to be refocused on the problems of international commerce in the 21st century. WTO rules on taxes and subsidies need to be recast to cover concerns about currency manipulation, regulatory abuse or neglect, and labor market practices as well as to meet the new challenges of climate change initiatives. In addition, WTO members will have to address trade and security linkages before pre-shipment inspection and visa requirements become major obstacles to international flows of goods, services, and people. To do so, the WTO will have to collaborate more effectively with other international economic organizations.