From regionalism to cross-regionalism

Commenting on the relationship between prolific and pioneering regional trade agreements and a faltering WTO, the author questions whether the latter can regain initiative and control on trade regulation. The multilateral trading system is geared towards a disciplined opening of markets and liberalisation of trade. Cooperation is regulated in order to ensure that equal treatment is respected by states, both in their relationships to one another and towards foreign operators on their territory. However, the proliferation of regional trade agreements, with their ever-widening normative influence and the numerous overlaps they entail, not only undermines the universal scope of the multilateral trading system, but also reveals the challenges involved in trying to renew and adapt its rules to our interconnected and globalised world.

Regionalism, an institutional tolerance

The problem of regionalism goes back to the origins of the multilateral trading system. Initially, special regulations were only conceived to deal with customs unions and cross-border traffic, but in Havana, discussions were extended to areas of free trade. A compromise was eventually reached to handle these, and article XXIV of the 1947 GATT was subsequently amended. Free-trade zones thus acquired the same recognition as customs unions and were subjected to the same rules. Still, a certain ambiguity persisted. That the involved countries were cooperating more closely, searching for a tighter integration of their economies and thus contributing to freedom of trade was certainly laudable. Nonetheless, such agreements, preferential by nature, constituted a major infringement of the GATT's founding principle of Most-Favoured-Nation Treatment. Appearances, however, were preserved: beneath the general rules of ‘universal’ scope are special rules, conditional on the former being observed. Indeed, it is in this manner that the habit (beginning in the 1990's) of qualifying as ‘regional’ any agreement that is not multilateral should be interpreted. This significantly reduces the scope of the geographic criterion, despite its influence during previous decades on debates and texts, including the Havana Charter, on economic integration. More recently, a new trend has emerged: WTO is now speaking of preferential agreements. This only increases the terminological vagueness surrounding these concepts, since it has also been customary to refer to non-reciprocal agreements between developed and developing countries as ‘preferential’. The fact remains that this terminological imprecision mostly helps to conceal a vast institutional tolerance. In leaving states with a lot of leeway, the designers of the modern trade system preferred to opt for economic realism, considering trade regionalism only from the standpoint of a complementarity to be preserved between itself and multilateralism. Today, the problem has changed. It comes not only from the fact that regional trade agreements exist, but that in turning the rules to their advantage, they have taken new directions and proliferated with enormous success.

Three waves of regional agreements

In short, regional agreements after WWII were mostly aimed at creating large spaces of solidarity. Regional economic integration was actively sought after and deployed in the service of closer cooperation between the countries it involved. This gave rise to many models, and many failed ones, but one emerged from the lot, the European Community model. While the 1980's were years of crisis for this model, the years that followed witnessed the emergence of a new, ‘contractual’ model, as it was called, which was resolutely geared towards competitive integration, opening of markets and protection of corporate rights. NAFTA was undeniably the flagship agreement for this ‘new regionalism’. It paved the way for a multitude of similar agreements, and in doing so, also set the stage for a major reform of the multilateral trading system, which was partially endorsed in Marrakech in April 1994. There were many advances, and just as many obstacles to overcome. Also, far from bringing fresh impetus to the multilateral trading system, the effect of the Doha negotiations that followed the Uruguay ones was mostly to drive it into a dead end. As for regional trade agreements, they are witnessing a new boom. Not only has the movement gained momentum in Asia, it has also started to take on new institutional forms (in the form of partnerships). It has also become more and more cross-regional, giving rise to mega-agreements that rival one another. Yet another noteworthy evolution is the problem raised by the scope and impact of their new dispositions. The opening of markets is no longer such a central issue as it was before, at least so far as trade in goods is concerned. In this respect, NAFTA and the Uruguay cycle clearly marked a turning point, in particular with regard to services, corporate rights and cross-border regulations. But since it was not possible to move forward quickly through multilateral channels, the shortcut provided by regional and plurilateral agreements became the default. In the current decade, two trends closely related to the new issues of globalisation have begun to emerge. First, trade negotiations increasingly revolve around cross-border trade, digital trade and value chains. Second, they are characterised by their interoperability. Today's globalisation does not so much integrate as connect. And with interconnection, the problem of international regulatory cooperation arises. This issue is now at the core of discussions within the OECD, APEC or new trade agreements, according to terms and principles very different from previous negotiations.

Reform proposals

Clarifying the rules pertaining to regional agreements has no doubt become a necessity. Nevertheless, it will do little to resolve the underlying problem raised both by the proliferation of these agreements and by their content. Indeed, there can be no turning back, as it is impossible to deny the advantages gained by trade agreements for the contracting parties, nor the positive effects they can have, generally speaking, on the trade and economy of the countries involved. Hence, it is these positive effects that current reform proposals seek to enhance, while also reducing their negative side effects, particularly for developing countries. Amongst the proposals that most frequently come up in discussions, let us mention a possible application of the principle of subsidiarity, borrowed from the European experiment. This would amount to delegating a certain amount of authority to the WTO. Let us also highlight a proposal notably defended by Richard Baldwin and taken up at the WTO. Going from the assumption that regionalism is here to stay, the focus is to ‘multilateralise’ it and make it more ‘multilateral-friendly’. This would be achieved by linking large regional groups to one another through multiple treaties, regrouping bilateral agreements and turning them into plurilateral ones, and extending the preferential terms of the new agreements to other WTO countries. These proposals, and others yet, while certainly not devoid of interest, come up against a deep resistance to change, notably in that the WTO is an organisation guided and conducted by its members, who, on the whole, remain attached to the notion of consensus. To implement these proposals would require a bolstering of the WTO's authority, turning it into a supranational organisation rather than an international one. The other part of the problem comes from the fact that current mega-negotiations are using new channels, bringing up the litigious issue of regulatory cooperation, which in turn raises democratic problems. Furthermore, it is far from clear whether the WTO is really the best forum to discuss this issue. Indeed, is it not towards the OECD that developed countries have turned, an organisation more skilled in the practice of convergence and regulatory equivalency than WTO?

What future for multilateralism?

Today, most states are members of the WTO and the organisation still acts as a watchdog for international trade, fully playing its role as a mediator in conflict resolution and as a catalyst for negotiations between its members. Far from being marginalised, the WTO today is a widely recognised organisation with great legitimacy. The organisation is far from perfect, much to the contrary, however its weakest link remains the issue of trade agreements. Some would say that there are simply too many members and that interests are too divergent for the organisation to function effectively, and for multilateral negotiations to move forward quickly while the consensus rule is used as its decision-making principle. Indeed, it would be hard to affirm the contrary. Still, the question remains as to whether the growing popularity of trade agreements is caused by this stalemate in multilateral negotiations, or conversely, whether the interest that states find in trade agreements blocks any serious progress on the multilateral front. While no one has ever truly contested the relevance and usefulness of regionalism, opinion has always been divided as to the place it should occupy within any international system or regime of global scope. Friends or foes, complementary or competitive: how should the dilemma between regionalism and multilateralism or, to state things differently, between the particular and the universal, be resolved? Though this question obviously remains open, it also appears simplistic in light of the problems with which the WTO is currently faced. Indeed, is it not illusory to think of this problem merely in terms of a coherence to be regained between two levels of commercial cooperation? Trade agreements have now moved outside the scope of the WTO and their ambition, henceforth, is to rewrite the trade rules of the 21st century, trade rules for an interconnected and globalised world, not only for an interdependent world. That is the point: the world has changed, regionalism has changed, but what about the WTO? This text is adapted from an article by Christian Deblock, Le régionalisme commercial. Y a-t-il encore un pilote dans l’avion ?, Interventions économiques, no 55 (2016), http://interventionseconomiques.revues.org/2882 . About the author Christian Deblock is professor of international political economy in the Department of Political Science, and Director of Research at the Centre for Integration and Globalization Studies (CEIM), University of Quebec in Montreal.

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This article was published in GREAT Insights Volume 5, Issue 6  (December 2016/January 2017).