WTO: Lost in the Maze of Regionalism

Among the key international economic organizations, the World Trade Organization (WTO) stands out as a vivid example of the headwinds faced by the globalization process and further efforts directed at liberalizing markets in the world economy.

Unable to get over the differences between the advanced and the developing countries, especially in matters of curbing protectionism in agriculture, the WTO over extended periods has been unable to launch new comprehensive rounds of trade liberalization, which in turn rendered the opening of markets increasingly difficult. Part of the reason may be that the leading economies increasingly often opt for establishing regional trade blocs that pursue the policy of exclusive trade liberalization for the select group of their members.

The lack of new trade liberalization impulses coming from the WTO is leading to mounting pressure from protectionist forces. According to the World Trade Organization, in 2012 – 2014 world merchandise trade grew only 2.4 percent, which is the lowest rate on record (for the periods when the world trade grew for three consecutive years). The WTO forecasts that in 2015 – 2016 the world trade will increase by slightly over 3.5 percent, which is lower than the average rate for the last 25 years. What is more, its growth rate will only marginally exceed the global GDP growth rate. This is hardly surprising, given that the largest economies of the world, including the advanced countries have considerably expanded the use of protectionist measures against the backdrop of global growth slowdown. According to Global Trade Alert (GTA), since the financial crisis of 2007 – 2008, the levels of protectionism in the world economy have reached new highs.

There may be various reasons for the difficulties experienced by the WTO in forging consensus on new rounds of trade liberalization. One is the uneven pattern of globalization, which proved unable to bridge the North-South as well as the East-West divides. Another factor may be the rules of the WTO itself, which require consensus on key issues from all member states, which leads to significant difficulties in arriving at a common stance. Most importantly, however, in many respects the WTO crisis in the past few decades has been associated with the active advance of regionalism. Indeed, a key risk stemming from the spread of regionalism in the global economy is that it undermines the role of the World Trade Organization in the regulation of world trade: the emergence of hundreds of regional integration groups reduces the interest of the countries in multilateral liberalization, and the opening of markets becomes preferential and exclusive.

According to the WTO, regional trade agreements (RTAs) have become increasingly prevalent since the early 1990s and as of 1 February 2016, there were 625 notifications of RTAs (counting goods, services and accessions separately) received by the GATT/WTO, of which 419 were in force. Overall, the number of RTAs in force has been increasingly steadily, a trend that is likely to be reinforced by the numerous RTAs currently under negotiations, of which Free Trade Agreements (FTAs) and partial scope agreements make up 90% of the total, while customs unions account for 10%.

It is not just the sheer number of RTAs that presents a challenge to the WTO, but also their size and scope, with the formation of the Trans-Pacific Partnership (TPP) being a case in point. Together, the two oceanic blocks represented by TPP and the Transatlantic Trade and Investment Partnership (TTIP), are set to account for the bulk of global trade rivaling the WTO in terms of scope and regulation. The regulations of the WTO at this stage regarding the compatibility of regional trade blocks with the rules of the organization as well as the enforcement process concerning RTAs are vague and inefficient. To put it simply, thus far the WTO is powerless vis-à-vis the steady advances of regionalism and the emergence of new trans-continental blocks further raises the pressure on the WTO to become more competitive and effective in regulating world trade.

Against the backdrop of explosive growth in regional blocks, the WTO’s own membership is rising only slowly – as of the end of 2015 the WTO included 162 members, with Kazakhstan and Tajikistan among the very few to join in the past several years. At the same time, the number of observer countries is still more than 20, with some of the countries waiting for years to advance appreciably in the accession process, including such European countries as Serbia and Belarus.

Perhaps one of the more efficient and binding arrangements within the WTO is the dispute settlement body (DSB). Even as the rest of the organization is at a virtual standstill in launching new comprehensive trade liberalization rounds, the dispute settlement body is steadily delivering its verdicts, which are observed by all member states. But even here, the effectiveness of the dispute settlement mechanism has been undermined by the propagation of sanctions, competitive devaluations and other forms of protectionism.

What is the future of the WTO? The organization despite current difficulties is tremendously important for global economic growth, for the interaction between globalism and regionalism as well as for the search of the right mode of cooperation between the developing and the developed worlds. While the fact that all countries have an equal vote and weight in the organization may be seen by some as a problem, it may also be an opportunity in making the system of global governance more equitable and just. The key at this stage for the WTO is to find its way out of the maze of RTAs, which may necessitate a more stringent set of rules and a more effective monitoring and enforcement framework with respect to regional integration projects around the globe.
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.