What does the fragmentation of the WTO mean for global trade?

In 2001, the World Trade Organisation (WTO) admitted that “more than half of global trade today is conducted under preferential trade agreements, both regional or multilateral.”

Based on the principles of the General Agreement on Tariffs and Trade (GATT) and the WTO, countries can establish custom unions and free trade areas (FTAs), which can be extended to free trade agreements, economic unions and common markets in order to strengthen regional trade integration. However, the possibilities offered by the WTO and GATT have limitations: they have in fact created geographical trading blocs (the European Union, North American Free Trade Agreement, Common Market for Eastern and Southern Africa, Association of Southeast Asian Nations, Mercado Común del Sur, etc.), which come with restrictions (for instance tariffs and tax imposition), and do not fully enable multilateral trade between wider WTO members.

Besides tariffs and taxes, such restrictions include policy regulation related to anti-dumping, standards and subsidies and more and more environmental protection and sustainability.

The failure of WTO members to conclude the Doha Round [2001-2006] of negotiations led to the weakening of the organisation and the growing establishment of regional trade agreements and free trade agreements globally. To safeguard their economic and trade interests, governments integrate particular markets in order to circumvent trade barriers and tariffs or benefit trade policies with some countries they can better trade with based on their comparative advantages and competitive advantages. However, the establishment of existing and new mega regional trade blocs and FTAs led to protectionism, tensions and contentious trade deals between the world’s trade leading countries at times to counter emerging and developing economies. That led to the proliferation of FTAs in the 1990s and mega FTAs in the 2000s.

More and more regional efforts to create common markets for regional trade liberalisation and openness brought countries from the same continent to gather around regional trade blocs. These different drivers (FTAs and regional trade blocs) even led to mega FTAs that bring together countries in different continents to tie trade partnerships and agreements (Comprehensive Economic and Trade Agreement—CETA, Transpacific Trade Partnership—TPP, Transatlantic Trade and Investment Partnership –TTIP, China-Australia, EU-Japan; etc.). However, it is important to mention that these regional trade blocs and FTAs are not without tensions as some of them are still pending to really materialise with lengthy negotiations underway. Through these negotiations, countries weigh their trade advantages and drawbacks against each other based on production factor, tariffs and more recently environmental protection and sustainability.

While the WTO has always fostered a global multilateral trade, the current global trend in trade is increasingly based on regional trade through regional trade agreements (RTAs) between regional blocs and FTAs. One of the main objectives of the RTAs is to reduce trade barriers.

Some observers believe that regional trade agreements deepen market integration and complement efforts by the WTO to liberalise international markets, while acknowledging that regional trade agreements can open up markets. Others contend that these agreements also distort trade and discriminate against non-member countries.

Beyond regional trade, there is a growing trend to establish transpacific and transatlantic trade and partnerships mainly based on FTAs. Such an approach has led to negotiations to establish the TTP, which now is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and fosters negotiations for the possible establishment of the TTIP between the United States and Europe.

The TTP, now the CPTPP brings together Canada, Japan, Australia and other countries in the Asia-Pacific region (with the stepping down of the United States in 2017), which aim at trading based on some of the WTO’s principles.

The TPP has been thought to be one of the major transregional trade partnerships. The US strongly supported the TPP under Obama’s presidency. The main ideas behind such support were to counter China’s growing economic and trade influence in Asia as well as to foster commercial ties between the US and a number of Asian countries (even though countries like Canada, New Zealand joined the TPP for instance). However, under President Trump the US stepped down in 2017 from the TPP, as Trump does not see the US to support such a trade partnership.

Even though Donald Trump was harsh with China during his presidential campaign over unfair trade, delocalisation of American companies to China in search of cheap labour and production costs, the US withdrawal from the TPP was very welcome by Chinese officials. But economic tensions between the US and China remain and are even growing today with what is considered to be ‘a trade war’ between the US and China with recent trade barriers and tariffs imposed on both sides.

While major steps were made to finalise the TPP in 2015, Trump’s willingness to save American economic and trade interests are taken as a shock by other TPP members. It seems that the US is more interested in fostering bilateral trade deals with its partners in order to have easy control over them during bilateral trade negotiations.

The TTIP brings together the US and the EU (even though negotiations are underway), which are global trading leaders and partners. It is becoming quite clear that, if successful, these partnerships will determine the future of global trade in the coming decades.

Trade between countries or different regional trading blocs has become unequal based on trade policies and regulations around tariff and nontariff arrangements to determine which products and under which circumstances a country can trade or not with another country.

In 2013, the US and the EU started to negotiate a trade and investment partnership, which will lead to the establishment of the TTIP. If concluded, the TTIP will be the largest ever achieved free trade and investment agreement. It will represent 50 percent of the world’s gross domestic product and a third of global trade. This will determine the future of global trade and economic interactions.

With the TTIP, European countries will be more aligned with the American rules of the game, which aim at protecting their multinationals’ interests rather than being ruled by European policies. The TTIP aims at fostering trade and investment integration between its member countries by eliminating market protection and tariff barriers. But the issue of the harmonisation of policies and regulations remains a thorny one, which could jeopardise the EU-US negotiations.

Furthermore, the CETA (between the US and the EU) and NAFTA (US, Canada and Mexico) were negotiated for their member countries’ best interests even though interests can be imbalanced from one-member country to another.

The signing of the CETA in late October 2016 has been an important move for Europe and Canada to deepen their trade relations even though certain points and aspects under the CETA still need further negotiations. In this era when the WTO is lingering and when global trade policies have become contentious, the signing date of the deal between the EU and Canada for the CETA to concretise was a good choice to counter Trump’s ambitions. While the TTIP is unlikely to materialise with negotiations not going faster as expected between the US and the EU, consensus around the CETA has been reached between Canada and its EU trade partners.

While RTAs and FTAs are developing globally, developing and emerging countries have developed interests in South-South trade. In this context, Africa has developed trade ties with other developing economies, particularly China, India and Brazil. Following the continuing failures of the Doha Round of trade negotiations, developing and emerging countries have joined forces to coordinate policy positions in WTO’s negotiations. Such a coordination has several objectives, including trade facilitation, human capital movement from South to North and market access for developing country exports to developed economies through global South trade partnerships.

Investments by emerging economies in developing economies in the global South contribute to trade complementarities, technology transfers and intra- and inter-regional investment.

Trade between developing countries, including emerging economies, has increased over the past decade. This growth is particularly due to the rise in trade between China, Brazil, India and South Africa and developing countries in Africa, Asia and Latin America.

While the Doha Round of trade negotiations aim at lowering tariff barriers, it has become an arena to defend self-interests between developed and developing countries, with the former wanting to achieve their trade interests and the latter wanting their voices to be taken into account during the negotiations process. This has led to failures at the Doha meetings to find consensus on trade negotiations; and it such failures that led to the fragmentation of the WTO.

*Daouda Cissé is an independent researcher based in Montreal, Canada.