The objective of this report by a group of 18 academics and practioners brought together by the University of Warwick (UK), under the chairmanship of Pierre Pettigrew, a former Minister of Trade for Canada, is to examine how the multilateral trade regime can better serve the global community. The focus is on five inter-related challenges: (i) growing opposition to further liberalization in high-income countries; (ii) ensuring that the rise of major emerging market countries does not result in a stalemate or worse, disengagement by the US and Europe; (iii) agreeing on the ‘boundaries’ of the WTO, i.e. defining its objectives and functions; (iv) ensuring that the WTO benefits (more) its poorest members; and (v) multilateralizing the ever proliferating set of preferential trading agreements.
The report makes a number of suggestions on the way forward, including greater reliance on ‘variable geometry’ – the formation of ‘clubs’ (subsets) of WTO members that agree to cooperate in a specific area, permitting other WTO members to opt out; create a Dispute Settlement Ombudsman to bolster the prospects of mediation in case of disputes; opening formal dispute settlement deliberations to the public and permitting submission of amicus curiae briefs; requiring cash compensation in instances where a member does not comply with the findings of the WTO dispute settlement body; define ‘clear, concrete special and differential treatment provisions based on solid analysis of development needs’; delineating responsibilities across members and international institutions regarding the delivery of aid for trade; strengthening rules on preferential trade agreements (PTAs), in particular their rules of origin; forbearance by rich countries in negotiating PTAs with each other; and bolstering and making permanent the new WTO Transparency Mechanism for reviewing PTAs and moving towards a mechanism that facilitates the collective surveillance of PTAs and the establishment of a code of best practices for PTAs.
All these recommendations center on the coverage and enforcement of multilateral rules of the game. Most of them make good sense, although as noted below some are unlikely to have much operational impact. The authors of the report stress that they make no claim to have generated a comprehensive set of recommendations, or that their suggestions are original – much of what is recommended echoes the Sutherland et al. (Reference Sutherland2005) report to the Director General of the WTO. An excellent feature of the report is a very balanced biographical appendix that summarizes some of the voluminous literature that deals with the various subjects covered. The authors recognize that the subject matter addressed in the report is complex and that identification of – and agreement on – both the nature of the problems and possible solutions will require a concerted effort by WTO members to take a ‘time out’ from negotiating, litigating, and the day-to-day business of trade policy to undertake an inter-governmental ‘reflection’ exercise.
As noted by Krueger (Reference Krueger2007) in a recent special issue of the Oxford Review of Economic Policy on the trading system, multilateral cooperation has arguably been a key to the huge economic successes of the past half-century. The case for multilateralism must rest on the benefits it generates and the extent to which the continued realization of these benefits are conditional on maintaining (specific forms of) multilateral cooperation. Times have been (very) good for the world economy as a whole when looking back over the past 50 years, thanks in no small measure to the open multilateral economic system of which the GATT/WTO is an important component. One obvious potential explanation for declining support for multilateralism in trade is that the system has been so successful that it is increasingly being taken for granted. Trade barriers are much lower than a few decades ago. Most traditional nontariff barriers have been eliminated, and average tariffs have fallen dramatically around the globe. Large proportions of trade are now duty-free. Trade growth has been phenomenal, further boosted by capital flows (FDI) and economy-wide reforms in both developed and developing countries to expand the role of the private sector and reduce transactions and operating costs. A non-specialist could well conclude that some of the recommendations are examples of solutions looking for a problem.
The importance of re-visiting the modalities of multilateral trade cooperation and the value of the proposed specific recommendations would be more compelling if more had been done to document the benefits of the open multilateral trading system, assessing the magnitude of the downside risks of an unraveling of the system, and analyzing the likelihood of (incentives for) such an unraveling.
While it is undoubtedly the case that ‘diminishing returns’ to market access negotiations have set in – barriers today are relatively low not just in developed economies but also in most developing countries, with the average uniform tariff equivalent of all policies restricting trade in most countries now below 10% – in specific sectors such as agriculture and selected services industries trade and investment barriers remain high. Moreover, there is still much to be done to reduce tariffs and to ‘lock in’ the mostly unilateral liberalization and policy reforms that have been undertaken by governments in developing countries. That in turn suggests that the need to move down the path of extending WTO disciplines into areas of domestic policy and regulation may be limited – there is still much traditional negotiating coin on the table (Hoekman and Vines, Reference Hoekman and David2007). The report does not take a view on this question, although it is an important one for the question of where to draw the boundaries of the institution. The case for shifting back to variable geometry in negotiating and enforcing rules arguably depends in part on the extent to which WTO members need (want) to go beyond market access.
Views on the appropriate ‘boundaries’ and rules of the WTO must also be informed by an assessment of the effectiveness of other multilateral institutions, such as the international financial institutions (IMF and World Bank) and the various agencies of the United Nations. For example, a world in which exchange rates and capital flows are not subject to effective multilateral disciplines will generate very different pressures on the trading system than one where governments have agreed to common rules of the game for policies affecting such variables. In focusing almost exclusively on the WTO – with the exception of the discussion of ‘aid for trade’ – the report misses an opportunity to reflect more broadly on the question of ‘coherence’ – the role that other constituent elements of the multilateral system must play in safeguarding an open global economy. As emphasized by Winters (Reference Winters2007), such a broader perspective is important in determining how specific global public goods – including transparency and analysis of the effects of trade and investment-related policies – are best provided. ‘Coherence’ is also important at the national level. Governments need to address adjustment costs in a credible manner and explicitly consider the relative costs and benefits of using trade policies for redistributive or industrial policy purposes. As argued in the report aid for trade is an example of a potential move towards greater policy coherence both nationally and globally, but realization of the potential depends on the actions of governments and other international institutions.
A major motivation for the report is the purported resistance by electorates in the OECD to further liberalization. This is somewhat at odds with the fact that these economies are very open to trade and have benefitted enormously from trade during the last 50 years. The authors of the report refer to surveys that suggest there is increasing concern in rich countries about the effects of globalization, but it is not at all clear that such concerns pertain to trade and trade openness. Nor is it clear that such concerns are translating into protectionist policies. Indeed, a striking feature of the trading system in the last decade has been the absence of (re-)imposition of protectionist trade policies, despite several major financial crises. This is not to deny that this may not happen – a good case can be made that traders and consumers are excessively complacent on this front. But much of the concern regarding globalization that is registered in the surveys may well reflect dimensions of the phenomenon that are not covered by the WTO – such as migration – or that are not susceptible to traditional trade policy instruments – such as offshoring of services.
The report exhorts political leaders to ‘explain what is at stake’, confront vested interests, pay more serious attention to the distributional consequences of change, and for the rich countries to demonstrate leadership by refraining from negotiating PTAs among themselves. However, governments and parliaments are presumably very well aware of vested interests and that (trade) policy has distributional effects – that after all helps to define the political equilibrium at any given point in time in a polity. An explicit analysis of the political economy forces that define national policies and negotiating positions is needed to understand why the called for leadership has not been forthcoming. If traders and other interest groups perceive the probability of re-imposition of barriers to trade and international competition to be low, the leadership may not be needed (yet). As noted, the trend in both policy and outcomes has been towards more openness and more trade.
This is so despite the ever more rapid proliferation of PTAs. Although the section of the report dealing with PTAs is balanced and nuanced, PTAs do not appear to have led to the trade diversion that economists worry about. This may be because PTA-based reforms mostly have been applied in a nondiscriminatory manner or been accompanied with external liberalization (for some recent evidence on the latter see Estevadeordal, Freund, and Ornelas, Reference Estevadeordal, Caroline and Emmanuel2007). This is an area where the report's call for more transparency and analysis is very important and urgent. We simply do not know to what extent recent PTAs have resulted in additional policy reforms, whether this entails an increase in discrimination, and if so what the incidence of the associated costs are. Greater transparency is likely to have much greater benefits than efforts to strengthen the WTO rules on PTA provisions or to define ‘best practices’ – experience suggests that rule-making, even if feasible, will have low returns because of a lack of enforcement.
