Discussion Paper

No. 2013-3 | January 10, 2013
Challenges to the Multilateral Trading System and Possible Responses

Abstract

This paper develops three major themes. First, the atmosphere of gloom around the multilateral trading system due to dim prospects of a successful conclusion of the Doha Round notwithstanding, global trade regime remains open and the institution in charge of it, the World Trade Organization, is in sound health. If anything, the Doha Round has been a victim of its own success: considerable de facto liberalization in agriculture has been achieved since the launch of the round. Second, to secure the future of the multilateral trading system, it is nevertheless crucial that the Doha Round is brought to a conclusion even if in a highly diluted form. The damage to the system from an outright failure will be very substantial. Finally, closing the Doha Round will require the United States leading the negotiations. Suggestions that as the largest merchandise exporter, China should now take the lead are frivolous.

Paper submitted to the special issue
Multilateral Trade Liberalization and Regional Integration under Stress
Workshop in Honor of Prof. Dr. Rolf J. Langhammer

JEL Classification

F13 F15

Cite As

Arvind Panagariya (2013). Challenges to the Multilateral Trading System and Possible Responses. Economics Discussion Papers, No 2013-3, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2013-3

Assessment



Comments and Questions


Anonymous - Comment on Challenges to the Multilateral Trade System
February 07, 2013 - 08:59

This paper makes some very interesting points and is well-worth the read. It puts on the table a lot of interesting issues. Some comments:

I agree with the author that the WTO as an institution of global governance is sound and successful. But have FTAs ...[more]

... really “undermined” the multilateral system? This statement seems to contradict the author's own arguments that the WTO is “in charge” and the international trade is doing so well. Also what about the empirical evidence? Is Europe worse off with the (discriminatory) Single Market Programme? ASEAN worse off with AFTA and the AEC? This typical approach that berates perhaps good but second best policies in favor of an ideal that has shown itself to be politically unobtainable at present is getting a bit old.

I think that a very clear case can be made for global free trade. It can also be made for non-discriminatory concerted liberalization, or even unilateral liberalization. Yet, economists have been unsuccessful in getting politicians to follow this strategy. One would think that after all these years we would have learned more about political economy! Here we see it also regarding “the Transatlantic Liberalization Initiative”, which both Rolf and the author advocate: good economics, naïve politics. Did the APEC “Bogor Vision”, which was predicated on the same economics, produce anything? A bit on trade facilitation but not much toward the stated goal of a region of open trade and investment.

In Section 2.1: it is indeed good news that international trade has been booming and barriers have been coming down. No doubt the Uruguay Round contributed to liberalization, but an embrace of outward-orientation in developing countries was arguably far more significant for these changes (as noted by Bhagwati in In Defense of Globalization, quoted later in the paper).

This section offers an interesting overview but it might improve the current discussion of trade in services liberalization with some actual data. In particular, the author might reference the new database just launched by the OECD-WTO on “Trade in Value Added” (TiVA), which offers very interesting insight into changing services trade. For example, while services trade relative to goods trade remained fairly constant at between one-fifth and one-fourth—even as the importance of services in most developed and developing economies has risen significantly—using the TiVA data we see that it is now at about one-half!

In addition, in looking at trends in international trade, I think that it is important for the author to underscore the rising importance of production chains in driving these trade numbers, as well as how they inflate them via double- (and x-) counting. Again, we get more insight on this from the TiVA database. But note that almost 50% of China’s imports are processing imports, which means that they have to be used in exports; China is the largest exporter in the world in terms of nominal data, but not value added. The Japanese data are particularly interesting: China became its largest export market long ago using nominal trade values, but on a value added basis the United States continues to be the most important.

I note that the one “success” for developing countries in the Doha DEVELOPMENT Agenda, the Aid for Trade initiative, isn’t even mentioned in the paper. I think that it should be (especially given the research suggesting its positive contributions and the fact that it has risen to about $32 billion in disbursements in 2010).

The author makes a good point that the rise in protectionism during the Great Recession is often greatly exaggerated. There were, of course, some instances, but there are always some instances even in good times (the Global Trade Alert, for example, does not benchmark). And it could have been a lot worse!

The major problem with a weak Doha is that it will still leave PTAs as the only game in town. The private sector is demanding far more from commercial policy liberalization than a weak Doha would offer. I agree that we need a success; but a weak Doha will mean that we won’t be looking at another “result” for another decade or two.

On the drop in export subsidies: it is odd that the author avoids completely the price spikes in relevant commodities that made it unnecessary to use the subsidies! What about more recent data, after prices came down after the 2007-08 price spikes? Looking at the changes may cause the author to reduce his enthusiasm.

Finally, I believe that the author would do well to pick up intra-BRIC disputes in preventing a successful Doha. The North-South focus is no doubt justified but is only part of the story; Brazil and India simply don’t want to give up too much to what they see as an overly-competitive China. Note Brazil’s proposal to offset undervalued exchange rates by raising bilateral tariffs.

In sum, while I do have some quibbles, I found the paper to be an interesting read and it makes some interesting points regarding where international trade governance has been, where it is going, and what can be done to contribute to the goal of promoting global free trade.


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