Bhagwati: How the Multilateral Trade System Is Being Eroded

Trade economist Jagdish Bhagwati’s latest article points out dangers to the world trading system of bilateral and regional trade agreements between unequal partners that establish rules that could erode the World Trade Organization’s influence and add further roadblocks to progress on multilateral trade negotiations.

Bhagwati notes that, through preferential trade agreements, powerful countries like the U.S. are imposing their standards and rules on countries with smaller economies and introducing non-trade-related issues into trade agreements at the behest of special interests. Issues such as labor rights, environmental standards, the ability to impose capital standards are now being extolled as templates for future agreements, even though emerging economies and less developed countries have resisted such efforts in the WTO.

In discussing how the asymmetry between countries in many bilateral and regional trade agreements erodes the authority of the WTO, Bhagwati points to the WTO’s dispute settlement mechanism (DSM), in which even small and poorer countries can appeal to the WTO to enforce rules agreed upon by the members.  He warns of the negative effects of including alternative mechanisms for settling disputes in bilateral and regional agreements:

The DSM is the pride of the WTO: it is the only impartial and binding mechanism for adjudicating and enforcing contractual obligations defined by the WTO and accepted by its members. It gives every member, big or small, a platform and a voice.

Once PTA [preferential trade agreements]-based DSMs are established, however, adjudication of disputes will reflect asymmetries of power, benefiting the stronger trade partner. Moreover, third countries will have little scope for input into PTA-based DSMs, though their interests may very well be affected by how adjudication is structured.

He urges large emerging economies and other developed countries to resist the inclusion of these new templates in future trade agreements and work to get the WTO negotiations moving again:

Given that the US has abandoned any pretense of leadership on world trade, it is up to major emerging economies and like-minded developed countries to establish their own template, one that adheres to trade objectives and discards what special-interest lobbies in hegemons like the US seek to foist on PTAs. This is exactly what India has done with the EU, which is now stripping such features out of its proposed PTA.

Other countries – Brazil, South Africa, and China among the major emerging economies, and Japan and Australia among the developed countries – should back such “garbage-free” PTAs as well. That just might be an adequate rebuff to the rise of PTAs whose main objective is to serve hegemonic interests alone – perhaps even sufficient to get the multilateral approach back on track.

CEI here, here, and here, has pointed to the influence of special interests in U.S. bilateral and regional trade agreements and the need for the multilateral approach through the WTO.