Ministry for Foreign Affairs Sweden
Does free trade have a future? Challenges in the multilateral trading system
Anders AhnlidDirector General for Trade
Swedish Ministry for Foreign Affairs
Ministry for Foreign Affairs Sweden
Outline• Long term changes and present challenges
– The golden era of the multilateral system…– …followed by the “great trade collapse”– The present trade policy dilemma
• Procedural and substantive challenges in the WTO Doha-round– From chaos in Seattle 1999 to a workable process in Geneva
2008 – Traditional vs. “new” trade policy issues
• Bilateral and regional free trade agreements– “Noodle bowl”…– …or “birds nest”
• Does free trade have a future?
Ministry for Foreign Affairs Sweden
0
5
10
15
20
25
30Export BNP
Källa: WTO, International Trade Statistics 2006
Utveckling i världshandel och BNP 1950-2005, volym
Long term benefits: 1950-1995 the golden era of the multilateral trading system?
• One of the most successful areas of multilateral co-operation
• Long period of successful trade liberalization from 1947
• Eight trade rounds• From 40 to 4 % industrial
tariffs • Unprecedented increase in
trade• From GATT and US hegemony…• …via joint EU-US leadership
and establishment of WTO…• …to a multipolar structure• Have we seen the end of this
era?
Ministry for Foreign Affairs Sweden
Share of world trade as proxy of power in the world trading system 2008
USA11%
EU38%
China9%
Japan5%
Others37%
1990
USA12%
EU44%
China2%
Japan8%
Others34%
Source: WTO, 2010
Ministry for Foreign Affairs Sweden
Global production in 1990 and 2015, GDP
Source:www.worldmapper.org
Ministry for Foreign Affairs Sweden
Short term challenges: “The great recession” and “the great trade collapse”
• Dramatic decline in trade• -30 % in four months• Followed by strong upturn• Trade crucial for recovery• WTO has stood the test…• …no protectionist flood • Measures taken cover 0,5
% of world trade• But danger not over!
-25-20-15-10-505
10152025
Förändring över motsvarandemånad föregående år (%)
Global export growth Jan 2008-Feb 2010
Ministry for Foreign Affairs Sweden
The current trade policy dilemma• A robust and liberal world trade
regime is a “core interest” for Sweden and more needed than ever…
• …yet it seems more difficult than ever to move forward and make progress multilaterally
• Why? And what can be done about it?
Ministry for Foreign Affairs Sweden
Bumpy road to the launch of the Doha-round
• Debate on globalization after the launch of WTO in 1995
• US no longer hegemon• EU sought to provide
leadership…• …proposed new WTO
round…• …that the US and emerging
economies first resisted• Impasse in Seattle 1999• Launch of Doha-round in
autumn 2001 after the atrocities of 9/11
Ministry for Foreign Affairs Sweden
The Doha Development Agenda 2001-• Launch in Doha, Qatar, 2001...• …where China also joined the WTO• Intended duration: 4 years• Mostly failed ministerial
conferences:– Cancun 2003Cancun 2003– Geneva 2004Geneva 2004– Hong Kong 2005– Geneva 2006 and 2008
• Stalemate since 2008 – but talks came close to breakthrough
• “The July/Lamy Package” – a substantial deal on the table
• 80-90 percent of round done• Boost global economy by at least
USD 150 billion per year
Ministry for Foreign Affairs Sweden
Procedural challenges in the WTO Doha-round (1)
• Failures 2001-2006 partly due to shaky and heavily criticized negotiating process
• The Cancun 2003 ministerial ended in chaos…
• …under Mexican chair and weak WTO DG Supachai
• From comprehensive agenda…
• …to ‘market access round’• Re-launch in Geneva 2004…• …Hong-Kong 2005 ministerial
partly successful…• …agricultural G-20 cemented
primacy of agriculture
Ministry for Foreign Affairs Sweden
Procedural challenges in the WTO Doha-round (2)
• Geneva 2008 renewed sense of urgency
• Real interest by all to move forward• 10 day negotiating marathon• Chair of Trade Negotiating
Committee WTO DG Lamy found a negotiating structure that worked
• Very close to deal but…• …the US pulled out in eleventh hour• All other participants willing to go
ahead• Unprecedented in GATT/WTO
history…• …still, WTO has not been able to
adjust to the new structure of power
Ministry for Foreign Affairs Sweden
Procedural challenges in the WTO Doha-round (3) Negotiating structure in Geneva 2008
• 153 member states• Transparency regarding all meetings• G-7 key informal body (EU, US, Japan, Australia, China, India
and Brazil)• ‘Green room’ with 20-30 participating ministers• Consultations and anchoring in regional and functional
groups • 26 groups (ACP, APEC, Cairns, Mercosur, G-90, LDC, G-10, G-
11, G-20, NAMA-11, EU and more…)• NGOs and parliamentarians informed in parallel • Informal anchoring for heads of delegation and formal
anchoring in the Trade Negotiation Committee • Worked without major criticism in Geneva – not the
negotiating structure that led to failure
Ministry for Foreign Affairs Sweden
Substantive challenges in the Doha-round (1)– traditional vs. non-traditional ‘trade issues’
The two dimensions of contemporarytrade policy making
Autarchy Free trade
High interference of tradepolicy in other policy areas
Low interference of tradepolicy in other policy areas
Ministry for Foreign Affairs Sweden
Substantive challenges in the Doha-round (2)
• The EU initially sought ‘a comprehensive round’• The DDA work-programme contained ‘Singapore-issues’:
– Investment– Competition– Transparency in government procurement– Trade facilitation
• Only trade facilitation survived Cancun and Geneva 2004…
• …that turned DDA into a ‘market access round’ as proposed by the US and the emerging economies
• Trade issues relating to environment moved to back burner
• ‘July package’ or ‘Lamy package’ from 2008 almost made it…
• …all but the US in favour of the package
Ministry for Foreign Affairs Sweden
Substantive challenges in the Doha Round (3)Meaningful “July-package” on the tableNon-Agricultural Market Access
• Developed countries to bind tariffs at an average below 3 %, no tariff above 8 %
• Acceptance of formula by emerging markets major breakthrough. Bound tariffs lowered to an average of 11-12 %
• New market access – India’s applied tariff lowered by 10 %, China’s by 26 %
• In addition: sectoral deals and progress on Non-Tariff Barriers
Agriculture
• Elimination of export subsidies 2013• The US and EU to lower Overall Trade-
Distorting Support by 70-80 percent• Developed Countries should on
average lower tariffs by 54 percent• The EU to reduce its tariffs on
average by 60 percent
Services
• Growing but still neglected area
• 20-25 percent of world trade• “Signaling” of meaningful
offers, including telecoms, financial services, distribution and professional services
• Movement of individual service providers key
Other topics
• Progress on trade facilitation (2-15 percent of transaction costs)
• Anti-dumping?• Trade and environment, incl.
free trade for environmental goods and services
• Aid for Trade
Ministry for Foreign Affairs Sweden
Still hope for Doha?
• No substantive progress since 2008• Technical work going on in Geneva• The “great recession” makes result more
needed than ever…• …largely budget neutral and non-
inflationary stimulus of 150 billion USD within reach
• G-20 has so far not managed to push Doha…• …new opportunity in South Korea in
November
Ministry for Foreign Affairs Sweden
What is needed to break the deadlock?
• G 5, consisting of the US, the EU, China, India and Brazil, largely holds the key
• New roles for all major participants under the new structure of economic power
Ministry for Foreign Affairs Sweden
The EU – from follower to leader?
• Commission EU negotiator• Lead driver for the Doha-round
and…• …for the first time not blamed for
problems• Enlargement from 15-27 members • Responsible position during crisis• The Lisbon treaty creates new
internal institutional balance• Increased power for the
Commission…• …and for the European Parliament
Ministry for Foreign Affairs Sweden
US no longer committed leader
• Took the lead in all previous trade round…
• …but reluctant DDA participant from the beginning
• What is on the table not enough for Congress, business and labor
• Need more from emerging economies
• Obama-administration so far defensive on trade
• New window of opportunity 2011 after up-coming mid-term elections?
Ministry for Foreign Affairs Sweden
Role of the emerging economies
• G-20 (agricultural developing countries) key to negotiating dynamics
• Demanded “re-balancing of unfair system”…
• …but still ”not responsible stakeholders”
• China reluctant to move beyond commitments taken upon accession 2001
• India and Brazil feel threatened by competition from China
• Accept bindings but unwilling to offer new market access
• Willing to move to satisfy the US?
Ministry for Foreign Affairs Sweden
Other participants likely to follow• Cairns group of agricultural exporters
largely satisfied with the “July package”• G-10 of agricultural protectionists still
defend protection, but will have to come along
• South Africa raise particular issues• Least-developed countries not asked to
contribute much and support package• Cuba, Venezuela and Bolivia likely to
seek to spoil but can hardly bloc final deal
Ministry for Foreign Affairs Sweden
Need to move beyond Doha that addresses “old issues” but leaves crucial new topics untouched
• Investment• Competition• Transparency in Public Procurement
(China’s accession to WTO agreement important)
• Regulatory issues, international standards• Environment and climate change• Need for modernization of WTO rules…• …if not, loss of business support and
interest
Ministry for Foreign Affairs Sweden
Trade and climate change
• Link between climate and trade regimes challenging• Quest for border-tax adjustment to tackle difference
between countries with strong and weak climate commitments
• Possibly legal under WTO…• …but difficult to manage, and risk for protectionist
capture• Need to make sure climate related regulations and
standards not used for protectionist purposes• Liberalization of climate-friendly goods and services
Ministry for Foreign Affairs Sweden
Trade and development
• Doha Development Agenda• Questioned by many…• …but important development gains possible• Aid for Trade – comprehensive co-operation
between donors and international development institutions– Increase capacity of developing countries to trade
and integrate in the global economy…– …and ease the costs of adjustment
Ministry for Foreign Affairs Sweden
Window of opportunity 2011?• Need for real and strong G-20 signal• No elections in the US may make it
possible to move in Washington• Too much political capital invested in
the negotiations for it to fail and the world economy needs the deal
• No guarantee for success• Do bilateral and regional Free Trade
Agreements provide a viable alternative?
Ministry for Foreign Affairs Sweden
Bilateral free trade agreements – ‘noodle bowl’ or ‘birds nest’ (1)? • Lack of progress in the WTO has triggered avalanche
of bilateral and regional FTAs…• …462 FTAs notified to WTO, many more under
negotiation• Asia in the forefront – 54 Asian FTAs in 2009, up from
three in 2000 – an additional 78 negotiated or planned• China a more active FTA partner (Taiwan, Japan, South
Korea, ASEAN, India, New Zealand, Norway, Switzerland)
• US seek to move on South Korea and Colombia and interested in Trans-Pacific Economic Partnership
• Rapid developments in Africa and Latin America as well
Ministry for Foreign Affairs Sweden
Canada
UruguayParaguay
Argentina
Brazil
Mexico
Chile
Bolivia
Ecuador
Peru
VenezuelaColombia
Panama
NicaraguaCosta Rica
El SalvadorGuatemalaHonduras
Dominican Republic
Antigua & Barbuda, Barbados,Belize, Dominica, Grenada,Guyana, Jamaica, St. Lucia, St. Kitts & Nevis,St. Vincent & the Grenadines,Suriname,Trinidad &Tobago
MERCOSUR
ACN
CARICOMCSME
CACM
Canada-CRI
CAFTA-DR(CARICOM members but not in CSME)
Chile-Cent. Amer.
NAFTA
ACE 35
ACE 36
Source: IDB.
ACE 59
ACE 59
ACE 59
ACE 58
G-3
USA
EU, EFTA
Singapore
Australia
China
Korea
Japan
EU
Brunei
TPP
Bahamas
Haiti
EU-CARIFOUM
EPA
Thailand
N.Z.
Late 2000s: Toward Convergence?
ASEAN
ASEAN+6
ASEAN+3
ARCO
PA
PA
UNASUR
The web of FTAs seen from Latin America…
Source: IDB – Regional Integration in LAC, 2010
Ministry for Foreign Affairs Sweden
AlgeriaLibyaMorocco MauritaniaTunisia
AMU
GhanaNigeria Cape Verde
Gambia
ECOWAS
Benin NigerTogo Burkina FasoCote d’Ivoire
Conseil de L’Entente
Guinea-Bissau Mali Senegal
WAEMU
Liberia Sierra Leaone Guinea
Mano River Union
CLISS
CameroonCentral African Rep.GabonEquat. GuineaRep.Congo
Chad
Sao Tomé & Principe
ECCAS
CEMAC
Angola
Burundi*Rwanda*
Egypt
DR Congo
DjiboutiEthiopiaEritreaSudan
Kenya*Uganda*
Somalia
Tanzania*
EAC
South AfricaBotswanaLesotho
Namibia*Swaziland*
Mozambique
SACU
Malawi*Zambia*Zimbabwe*
Mauritius*Syechelles*
Comoros*Madagascar*
Reunion
IOC
*CBI
SADC
COMESA Nile River BasinIGAD
AMU: Arab Maghreb UnionCBI: Cross Border InitiativeCEMAC: Economic & Monetary Community of Central AfricaCILSS: Permanent Interstate Committee on Drought Control in the SahelCOMESA: Common Market for Eastern and Southern AfricaEAC: East African CooperationECOWAS: Economic Community of Western African StudiesIGAD: Inter-Governmental Authority for GovernmentIOC: Indian Ocean CommissionSACU: Southern African Customs UnionSADC: Southern African Development CommunityWAEMU: West African Economic & Monetary Union
Overlapping African agreements…Overlapping African agreements…
Ministry for Foreign Affairs Sweden
Bilateral free trade agreements – ‘noodle bowl’ or ‘birds nest’ (2)?
• Trade creation or trade diversion?• Need to meet WTO criteria and provide zero tariffs
for ‘substantially all trade’• Too many new agreements too shallow• Multinational firms with global supply chains often
critical• Negative effects of protectionist or discretionary
rules-of-origin• FTAs possible stepping stones towards multilateral
progress?• EU and NAFTA could serve as models to follow
Ministry for Foreign Affairs Sweden
Multilateral solutions still first best – is new momentum for global free trade possible?
• Need for continued ‘trade advocacy’ and political leadership…• …in “old” developed countries as well as in emerging
economies• Link between support for liberal trade policies and well
functioning social safety nets• Possible to build new coalitions for free trade?• FTAs risk undermine support for multilateral liberalization in
WTO… • …and do not always provide an economically sound
alternative…• …but broad and deep bilateral free trade agreements could
serve as a second best complement and stepping stone towards multilateral progress