Swiss negotiator: Regional trade deals are good for multilateralism

By Daniela Vincenti

Frustrated by the slow pace of multilateral trade negotiations, more countries are seeking to liberalise trade through bilateral and regional agreements. This may prepare the ground for further multilateral deals, Ambassador Didier Chambovey, the Swiss trade negotiator.


Ambassador Didier Chambovey, Delegate of the Federal Council for Trade Agreements, is the Swiss trade negotiator, working for the Secretariat of Economic Affairs.


The WTO on Friday cut its forecast for trade growth this year to 2.5% as the euro-region debt crisis drags down the global economy, the US, and China. Western countries are eyeing at export-led growth to lift them out of the crisis. Are they doomed?


The declining growth momentum in key emerging markets, namely in China, makes the global economic situation indeed still more difficult. In many Western economies, domestic demand is held back by a mixture of restrictive fiscal policies and deleveraging in the private sector. As a consequence, especially the southern countries of the eurozone (Greece, Portugal, Spain and Italy) are facing severe recessions with sharply rising unemployment.


It is clear, that booming export markets outside Europe would make the crisis easier to handle, because export-led growth could compensate weak domestic growth. But the unpleasant reality is that the unavoidable structural adjustments in the euro area – and also beyond, in the US, the UK and Japan – have to take place in a subdued world economic environment.


All in all, slow progress towards more balanced growth seems possible, but it might be a hard task over the coming years. For many countries, a return to the high growth rates recorded before the financial crisis is not in the cards.


It is no secret that trade barriers and protectionism are creeping up. If the fight does not deliver, is there a risk we will not be able to avoid mistakes of the 1930s?


The most recent report of the WTO on trade-related developments shows indeed that there has been no slowdown in the imposition of new trade restrictions in recent months and this is not good news.


At the same time, the regular monitoring of trade policies undertaken in the WTO since the outbreak of the financial and economic crisis in 2008 has also shown that on the whole governments have largely continued to resist large-scale protectionism.


Despite the persistent risks, WTO rules and commitments have acted as an insurance policy against protectionism and have been instrumental in maintaining for a large part trade openness during the global financial and economic crisis.


Thanks to the existence of the WTO, some large mistakes of the 1930s were not repeated. But there is no room for complacency. WTO members need to preserve and strengthen this system so that it can keep performing this vital function in the future.


Will this flurry of trade disputes not weaken already stretched political ties, especially with emerging economies?


It is true that a large number of trade disputes does not create the best possible atmosphere for trade talks to strive. However, the main problem here is that the economic difficulties of industrial countries are concomitant with the entry on the world scene of emerging economies which are conscious of their importance.


While the United States and the EU are losing influence, emerging economies are not ready yet to assume a leading role commensurate to their economic weight in the search for multilateral solutions. This is one of the reasons why the Doha negotiations are presently stalled.


It is therefore difficult to see how and when the [Doha] round can be revived. The top priority is therefore to preserve the acquis of the WTO, i.e. its agreements, institutions and dispute settlement system.


As long as countries settle trade disputes through the WTO and comply with its decisions, the system will function. At the same time, WTO members should advance the trade agenda in the areas where this seems to be feasible. Trade facilitation is a case in point.


Furthermore, a thorough reflection on possible avenues to further develop international cooperation in trade is also badly needed. This process will have to take into account the increasing importance of global value chains.


The Doha round is moribund if not dead. There is a proliferation of regional trade agreements. Are they really a good thing? What impact do they have on global trade rules?


There is an obvious link between the current impasse in the Doha round and the proliferation of preferential trade agreements [PTAs]. Given the absence of progress in the multilateral trade negotiations, a growing number of countries are seeking to liberalise trade through PTAs.


They are catalysts of trade liberalisation and may prepare the ground for further multilateral deals. In this sense, PTAs are complementary to but not substitutes for the WTO.


One should not lose sight of the fact that PTAs build on WTO rules and commitments. You would be surprised by the number of references to WTO provisions contained in these agreements.


Likewise, the WTO remains fully relevant, a kind of basic point of reference. Of course, in an increasingly globalised economy it would be ideal for trade operators to weave together the current flurry of PTAs into a coherent whole.


Such a harmonisation can only be achieved within the ambit of the WTO. I have to admit that this view may seem utopian at the moment but one cannot rule out that the multiplication of PTAs eventually conducts to such an end.  Please do not ask me when.


Does the WTO need to be reformed?


Multilateral trade negotiations are not only about trade liberalisation. They are also about rulemaking. The WTO was established with a wide set of rules and a very effective dispute settlement system.


There are few international organisations, if any, which are comparable to the WTO in this respect. The acquis is good and its preservation should rank high among the priorities of member states.


This is all the more true at a moment where governments are faced with protectionist demands and need to defuse trade conflicts.


We should therefore think twice before envisaging a major overhaul to the system.


This being said, one has to admit that the development of the acquis is extremely tedious and that broad-based negotiations may not be, at least in the current circumstances, the best way to achieve tangible results.


Focusing on the most promising elements of the Doha mandate is certainly a good avenue. In addition, it is also worthwhile testing various approaches, including plurilateral initiatives such as the one which is already under way in Geneva on the further liberalisation of information technology products.


Some are advancing the idea of keeping the best parts and launching a global recovery round that would focus on manufacturing and services, leaving out agriculture which has wrecked Doha. First is it feasible and would it work?


Agriculture was not the only or even the main problem in the impasse of the Doha negotiations.


While agriculture was clearly a sensitive issue for some, mainly developed countries, including the EU and Switzerland, non agriculture market access and services were issues at least as sensitive as agriculture, notably for some of large emerging economies.


Therefore, focusing only on manufacturing and services would not be conducive to a successful outcome of the negotiations as it would be strictly refused by a considerable number of countries.


Already now, some developing countries, including the large emerging economies, are trying to link progress in the current negotiations on trade facilitation to the progress in some aspects of the agriculture negotiations such as disciplines on the administration of tariff rate quotas.


What about the idea of a new International Services Agreement?


This idea is worth pursuing provided a certain number of conditions are met. The International Services Agreement, conceived as a plurilateral initiative in the first place, is a good vehicle to advance co-operation in services.


Most participants have already concluded several free trade agreements covering services. The new initiative will allow to pool, revamp and improve what has been achieved so far as well as to enhance the coherence of the regimes governing global trade in services.


The downside is that not all key players, especially among emerging markets, have joined this project. It is therefore of utmost importance that the International Services Agreement remains compatible with WTO rules and open to outsiders. It should provide for accession procedures to attract a critical mass of parties so that its implementation can eventually be envisaged consistently with the most-favoured nation tenet.