The hope that multilateralism is an effective way of addressing aspirations and concerns of developed and developing countries in the global economy bounced back with the visit of WTO?s new director general (DG) Roberto Azevedo to New Delhi recently. In a world of disparity where developing countries are at a receiving end, selection of Azevedo from Brazil as the head of WTO generates hope and confidence among two-thirds of humanity and three-fourths of WTO members who belong to the developing world. Assuming the office of WTO, how much he can do to appease the developing world and bring back the confidence of WTO to settle long-pending issues of world trade negotiations is a monumental task that he needs to address. What is the biggest challenge before him is to make multilateralism work because that is the only plank acceptable to all.
It is recognised by all that multilateralism, especially in the economic and trade-related spheres, has yielded rich dividends to a large number of countries. The gains accrued from the system have led these countries to adopt complementary policies to make deeper integration with the world economy. The rule-based arrangements and institutional mechanism under the aegis of GATT and WTO have strengthened multilateralism and enabled them to bring down the tariff to a reasonable level, so as to allow world trade to flourish. Multilateralism thus restored confidence among countries since 1995 with the establishment of the WTO.
However, the current round of multilateral trade negotiations under Doha since 2001 has not delivered expected benefits. Critical issues like negotiations in agriculture, NAMA and services still remain unresolved. The non-delivery of Doha benefits today raises doubt on the role of multilateralism. Therefore, the challenges for Azevedo to make multilateralism work are many and varied.
First, significant tariff reduction may have increased the quantum of global trade, but simultaneous rise in non-tariff barriers (NTBs) is equally decreasing the prospects of world trade. NTBs such as rules of origin, sanitary and phytosanitary requirements, licensing, technical qualifications are curtailing the export prospects of the developing world. The current campaign by the US and the EU of non-meeting eco standards and green technology are further restricting developing countries? integration with the world market.
Second, the spectre of global financial crisis may be receding, but protectionist policies in industrialised countries and the lack of trade finance are still in practice to curtail the export interests of developing countries.
Third, unfulfilled desire and expectations of the least developed countries (LDCs) seem to question the functioning of international trade regime. LDCs feel the institutional make up of WTO, i.e. the procedural requirement, is too costly and beyond their technical expertise.
Fourth, sub-optimal achievement at Doha is further resulting in proliferation of regional trade agreements/trade blocs that slowly lead to decline of importance in multilateralism.
Fifth, a number of countries are turning inward by resorting to a domestic-led demand-driven growth model as global financial crisis has exposed that high export-led growth could be problematic for developing countries. Such inward-driven model may slow down the progress of multilateralism.
Sixth, the present uncertainty at Doha and world developments since the 2008 financial crisis have given rise to apprehension among the developing countries as to how the global economy will behave in the foreseeable future. The economic slowdown and volatility and uncertainty in world economy have impacted almost all nations, and the impact has been particularly severe on those economies which had deeper and extensive global engagement. Many feel such an unregulated and irresponsible behaviour of multilateral financial institutions which led to financial crisis is largely instrumental in damaging the current progress of multilateralism.
Seventh, many countries are adhering to exchange rate management to help their exports. This mechanism is currently being used by a number of countries as WTO has prevented member countries from indulging in other trade promoting measures like subsidies or export incentives. There is a growing apprehension that such exchange rate mechanism may lead to procedural currency problems among some countries. Uncooperative behaviour in the currency market may lead to confusion and mistrust among member countries, thus significantly affecting the prospects of Doha multilateral trade talks.
Lastly, issues like trade facilitation, environmental standards and government procurement are currently occupying the centre-stage of trade negotiations which are deviating the core issues of development on which Doha multilateralism laid its foundation. Developmental concerns like food security, livelihood and rural employment need to be settled first before negotiations on non-developmental issues take off. Otherwise, it will completely bury the foundation of multilateralism that is already set.
It should be recognised that multilateral arrangements being inclusive and non-discriminatory in nature, the benefits would accrue to all, particularly to less developed nations. There is a need to recognise the importance of a highly interdependent and interconnected world as human progress is multilateral. The task before Azevedo is to restore confidence and trust in multilateralism by taking entire WTO members into constructive consultation before the Ninth Ministerial in Bali during December 3-6, 2013.
Anil K Kanungo
The author is editor and senior researcher, Research Division, Indian Institute of Foreign Trade, New Delhi.
