Does free trade have a future? Challenges in the multilateral trading system

1. Does free trade have a future?Challenges in the multilateral trading system Anders Ahnlid Director General for Trade Swedish Ministry for Foreign Affairs

2. Outline • Long term changes and present challenges • The golden era of the multilateral system… • …followed by the “great trade collapse” • The present trade policy dilemma • Procedural and substantive challenges in the WTO Doha-round • From chaos in Seattle 1999 to a workable process in Geneva 2008 • Traditional vs. “new” trade policy issues • Bilateral and regional free trade agreements • “Noodle bowl”… • …or “birds nest” • Does free trade have a future?

3. Export BNP 30 25 20 15 10 5 0 Källa: WTO, International Trade Statistics 2006 Long term benefits: 1950-1995 the golden era of the multilateral trading system? • One of the most successful areas of multilateral co-operation • Long period of successful trade liberalization from 1947 • Eight trade rounds • From 40 to 4 % industrial tariffs • Unprecedented increase in trade • From GATT and US hegemony… • …via joint EU-US leadership and establishment of WTO… • …to a multipolar structure • Have we seen the end of this era? Utveckling i världshandel och BNP 1950-2005, volym

4. Share of world trade as proxy of power in the world trading system Source: WTO, 2010

5. Global production in 1990 and 2015, GDP Source: www.worldmapper.org

6. 25 20 15 10 5 0 - 5 - 10 månad föregående år (%) Förändring över motsvarande - 15 - 20 - 25 Short term challenges: “The great recession” and “the great trade collapse” • Dramatic decline in trade • -30 % in four months • Followed by strong upturn • Trade crucial for recovery • WTO has stood the test… • …no protectionist flood • Measures taken cover 0,5 % of world trade • But danger not over! Global export growthJan 2008-Feb 2010

7. The current trade policy dilemma • A robust and liberal world trade regime is a “core interest” for Sweden and more needed than ever… • …yet it seems more difficult than ever to move forward and make progress multilaterally • Why? And what can be done about it?

8. Bumpy road to the launch of the Doha-round • Debate on globalization after the launch of WTO in 1995 • US no longer hegemon • EU sought to provide leadership… • …proposed new WTO round… • …that the US and emerging economies first resisted • Impasse in Seattle 1999 • Launch of Doha-round in autumn 2001 after the atrocities of 9/11

9. The Doha Development Agenda 2001- • Launch in Doha, Qatar, 2001... • …where China also joined the WTO • Intended duration: 4 years • Mostly failed ministerial conferences: • Cancun 2003 • Geneva 2004 • Hong Kong 2005 • Geneva 2006 and 2008 • Stalemate since 2008 – but talks came close to breakthrough • “The July/Lamy Package” – a substantial deal on the table • 80-90 percent of round done • Boost global economy by at least USD 150 billion per year

10. Procedural challenges in the WTO Doha-round (1) • Failures 2001-2006 partly due to shaky and heavily criticized negotiating process • The Cancun 2003 ministerial ended in chaos… • …under Mexican chair and weak WTO DG Supachai • From comprehensive agenda… • …to ‘market access round’ • Re-launch in Geneva 2004… • …Hong-Kong 2005 ministerial partly successful… • …agricultural G-20 cemented primacy of agriculture

11. Procedural challenges in the WTO Doha-round (2) • Geneva 2008 renewed sense of urgency • Real interest by all to move forward • 10 day negotiating marathon • Chair of Trade Negotiating Committee WTO DG Lamy found a negotiating structure that worked • Very close to deal but… • …the US pulled out in eleventh hour • All other participants willing to go ahead • Unprecedented in GATT/WTO history… • …still, WTO has not been able to adjust to the new structure of power

12. Procedural challenges in the WTO Doha-round (3) Negotiating structure in Geneva 2008 • 153 member states • Transparency regarding all meetings • G-7 key informal body (EU, US, Japan, Australia, China, India and Brazil) • ‘Green room’ with 20-30 participating ministers • Consultations and anchoring in regional and functional groups • 26 groups (ACP, APEC, Cairns, Mercosur, G-90, LDC, G-10, G-11, G-20, NAMA-11, EU and more…) • NGOs and parliamentarians informed in parallel • Informal anchoring for heads of delegation and formal anchoring in the Trade Negotiation Committee • Worked without major criticism in Geneva – not the negotiating structure that led to failure

13. Substantive challenges in the Doha-round (1)– traditional vs. non-traditional ‘trade issues’

14. Substantive challenges in the Doha-round (2) • The EU initially sought ‘a comprehensive round’ • The DDA work-programme contained ‘Singapore-issues’: • Investment • Competition • Transparency in government procurement • Trade facilitation • Only trade facilitation survived Cancun and Geneva 2004… • …that turned DDA into a ‘market access round’ as proposed by the US and the emerging economies • Trade issues relating to environment moved to back burner • ‘July package’ or ‘Lamy package’ from 2008 almost made it… • …all but the US in favour of the package

15. Non-Agricultural Market Access Developed countries to bind tariffs at an average below 3 %, no tariff above 8 % Acceptance of formula by emerging markets major breakthrough. Bound tariffs lowered to an average of 11-12 % New market access – India’s applied tariff lowered by 10 %, China’s by 26 % In addition: sectoral deals and progress on Non-Tariff Barriers Agriculture Elimination of export subsidies 2013 The US and EU to lower Overall Trade-Distorting Support by 70-80 percent Developed Countries should on average lower tariffs by 54 percent The EU to reduce its tariffs on average by 60 percent Substantive challenges in the Doha Round (3)Meaningful “July-package” on the table • Services • Growing but still neglected area • 20-25 percent of world trade • “Signaling” of meaningful offers, including telecoms, financial services, distribution and professional services • Movement of individual service providers key • Other topics • Progress on trade facilitation (2-15 percent of transaction costs) • Anti-dumping? • Trade and environment, incl. free trade for environmental goods and services • Aid for Trade

16. Still hope for Doha? • No substantive progress since 2008 • Technical work going on in Geneva • The “great recession” makes result more needed than ever… • …largely budget neutral and non-inflationary stimulus of 150 billion USD within reach • G-20 has so far not managed to push Doha… • …new opportunity in South Korea in November

17. What is needed to break the deadlock? • G 5, consisting of the US, the EU, China, India and Brazil, largely holds the key • New roles for all major participants under the new structure of economic power

18. The EU – from follower to leader? • Commission EU negotiator • Lead driver for the Doha-round and… • …for the first time not blamed for problems • Enlargement from 15-27 members • Responsible position during crisis • The Lisbon treaty creates new internal institutional balance • Increased power for the Commission… • …and for the European Parliament

19. US no longer committed leader • Took the lead in all previous trade round… • …but reluctant DDA participant from the beginning • What is on the table not enough for Congress, business and labor • Need more from emerging economies • Obama-administration so far defensive on trade • New window of opportunity 2011 after up-coming mid-term elections?

20. Role of the emerging economies • G-20 (agricultural developing countries) key to negotiating dynamics • Demanded “re-balancing of unfair system”… • …but still ”not responsible stakeholders” • China reluctant to move beyond commitments taken upon accession 2001 • India and Brazil feel threatened by competition from China • Accept bindings but unwilling to offer new market access • Willing to move to satisfy the US?

21. Other participants likely to follow • Cairns group of agricultural exporters largely satisfied with the “July package” • G-10 of agricultural protectionists still defend protection, but will have to come along • South Africa raise particular issues • Least-developed countries not asked to contribute much and support package • Cuba, Venezuela and Bolivia likely to seek to spoil but can hardly bloc final deal

22. Need to move beyond Doha that addresses “old issues” but leaves crucial new topics untouched • Investment • Competition • Transparency in Public Procurement (China’s accession to WTO agreement important) • Regulatory issues, international standards • Environment and climate change • Need for modernization of WTO rules… • …if not, loss of business support and interest

23. Trade and climate change • Link between climate and trade regimes challenging • Quest for border-tax adjustment to tackle difference between countries with strong and weak climate commitments • Possibly legal under WTO… • …but difficult to manage, and risk for protectionist capture • Need to make sure climate related regulations and standards not used for protectionist purposes • Liberalization of climate-friendly goods and services

24. Trade and development • Doha Development Agenda • Questioned by many… • …but important development gains possible • Aid for Trade – comprehensive co-operation between donors and international development institutions • Increase capacity of developing countries to trade and integrate in the global economy… • …and ease the costs of adjustment

25. Window of opportunity 2011? • Need for real and strong G-20 signal • No elections in the US may make it possible to move in Washington • Too much political capital invested in the negotiations for it to fail and the world economy needs the deal • No guarantee for success • Do bilateral and regional Free Trade Agreements provide a viable alternative?

26. Free Trade Agreements:“noodle bowl” or “birds nest”?

27. Bilateral free trade agreements – ‘noodle bowl’ or ‘birds nest’ (1)? • Lack of progress in the WTO has triggered avalanche of bilateral and regional FTAs… • …462 FTAs notified to WTO, many more under negotiation • Asia in the forefront – 54 Asian FTAs in 2009, up from three in 2000 – an additional 78 negotiated or planned • China a more active FTA partner (Taiwan, Japan, South Korea, ASEAN, India, New Zealand, Norway, Switzerland) • US seek to move on South Korea and Colombia and interested in Trans-Pacific Economic Partnership • Rapid developments in Africa and Latin America as well

28. Existing EU Free Trade Agreementsand ongoing FTA negotiations

29. The Asian “noodle bowl syndrome”

30. The web of FTAs seen from Latin America… Source: IDB – Regional Integration in LAC, 2010

31. Overlapping African agreements… Nile River Basin COMESA IGAD ECCAS AMU CEMAC Somalia Sao Tomé & Principe Algeria Libya Morocco Mauritania Tunisia Egypt Cameroon Central African Rep. Gabon Equat. Guinea Rep.Congo ECOWAS Djibouti Ethiopia Eritrea Sudan Burundi* Rwanda* Ghana Nigeria Conseil de L’Entente Chad Cape Verde Gambia DR Congo Kenya* Uganda* Benin Niger Togo Burkina Faso Cote d’Ivoire Angola Guinea-Bissau Mali Senegal EAC Liberia Sierra Leaone Guinea Tanzania* Mauritius* Syechelles* Malawi* Zambia* Zimbabwe* SACU Comoros* Madagascar* WAEMU Mano River Union South Africa Botswana Lesotho CLISS Namibia* Swaziland* Reunion AMU: Arab Maghreb Union CBI: Cross Border Initiative CEMAC: Economic & Monetary Community of Central Africa CILSS: Permanent Interstate Committee on Drought Control in the Sahel COMESA: Common Market for Eastern and Southern Africa EAC: East African Cooperation ECOWAS: Economic Community of Western African Studies IGAD: Inter-Governmental Authority for Government IOC: Indian Ocean Commission SACU: Southern African Customs Union SADC: Southern African Development Community WAEMU: West African Economic & Monetary Union *CBI Mozambique SADC IOC

32. Bilateral free trade agreements – ‘noodle bowl’ or ‘birds nest’ (2)? • Trade creation or trade diversion? • Need to meet WTO criteria and provide zero tariffs for ‘substantially all trade’ • Too many new agreements too shallow • Multinational firms with global supply chains often critical • Negative effects of protectionist or discretionary rules-of-origin • FTAs possible stepping stones towards multilateral progress? • EU and NAFTA could serve as models to follow

34. Multilateral solutions still first best – is new momentum for global free trade possible? • Need for continued ‘trade advocacy’ and political leadership… • …in “old” developed countries as well as in emerging economies • Link between support for liberal trade policies and well functioning social safety nets • Possible to build new coalitions for free trade? • FTAs risk undermine support for multilateral liberalization in WTO… • …and do not always provide an economically sound alternative… • …but broad and deep bilateral free trade agreements could serve as a second best complement and stepping stone towards multilateral progress

35. Does free trade have a future?Yes – but not clear in what form and multilateral solutions still first bestThank you for your attention!