Trade

Plurilateral trade agreements: an overlooked but powerful force for international trade opening for Asia?

Plurilateral trade agreements: an overlooked but powerful force for international trade opening for Asia?

After over a gloomy decade of inconclusive talks, a small but important step was taken in early December 2014 to finish the Doha Round negotiations of the World Trade Organization (WTO). In 2015 and beyond, actions to arrive at a Doha Round Agreement should be accompanied by embracing new plurilateral trade agreements within the WTO. This move can benefit growth and development in Asia. This article reviews the outlook for the WTO Doha Round and examines the case for plurilateral trade agreements for Asia.

Status of the Doha Round at the end of 2014

The recent WTO General Council Meeting at last has brought a positive outcome to a rather difficult year for the trade diplomats in Geneva. After an agreement between India and the United States (US) over the disputed public stockholdings for food security purposes earlier in the month, the WTO members finally adopted the Bali Package on 27 November 2014. Director-General Roberto Azevêdo strongly welcomed this commitment to the multilateral system by WTO members. In addition, the members agreed during the General Council Meeting to develop a work program by July 2015 on how to go forward on the remaining Doha Development Agenda issues. The core themes of the work program will be agriculture, non-agricultural market access, and services. In the area of agriculture, the key challenge will be to find a permanent solution for the issue of public stockholdings. In light of the difficult negotiations, Director-General Azevêdo urged members to consider what is “doable” and to set “reasonable goals.”1 It thus seems that he is convinced that the DDA can only be successfully concluded if all WTO members lower their ambitions. For the 20th anniversary of the WTO as well as the 10th Ministerial Conference in 2015, it might be more important to have a shallow agreement rather than no agreement at all.

The agreement among all WTO members at the end of November 2014 is certainly good news for a world economy that is confronted with uncertain growth prospects. The implementation of the Bali Package is expected to generate billions of dollars of additional trade. Optimistic projections also suggest that millions of jobs will be created.2 However, a note of caution seems warranted. The Bali Package will take many years to implement and most of the commitments are not binding. Furthermore, speeding up cross-border trade by enhancing soft and hard trade infrastructure will require substantial development assistance from advanced countries as well as from multilateral and regional development banks. Especially the poorest of the developing countries will struggle to fully implement the Bali Package agreement.

The promise of plurilaterals in 2014

While the potential gains from the Bali Package are uncertain, 2014 has brought about dramatic and immediate improvements in market access for a large number of WTO members through breakthroughs in plurilateral agreements. These agreements are concluded among a subset of WTO members and the commitments made among them can be either exclusively for the signatories of the agreement or for all WTO members. The trade opening that was achieved through plurilateral agreements in 2014 has received little public attention, despite the fact that we can expect large immediate benefits for trade and growth.

The first plurilateral achievement of the past year was the entering into force of the revised WTO Agreement on Government Procurement (GPA) at the beginning of April 2014. The revisions, which were agreed about 2 years ago, include additional market access to numerous government entities (ministries and agencies) and extend the scope to new services and other areas of public procurement. The WTO expects that the revision of the GPA holds gains in market access of up to US$100 billion annually for the 43 WTO members.3 Moreover, 10 other WTO members, among them the People’s Republic of China (PRC), have applied to join the GPA.

Another example is the Information Technology Agreement (ITA). Initially agreed among 29 WTO members in 1996, the ITA now includes 70 WTO members which represent about 97% of world trade in information technology (IT) products.4 ITA signatory countries grant duty-free access to all IT products covered by the agreement with small exceptions for developing countries. In order to take into account technological advances, 54 WTO members started to negotiate on how to add new products to the agreement in 2012. However, the negotiations stalled over a dispute between the US and the PRC, which was resolved in November 2014. At the time of writing, negotiations among some of the parties were still ongoing, but hopefully the agreement will be finalized soon. Once concluded, the enhanced ITA will bring gains between US$0.8 trillion and US$1.4 trillion, according to the WTO.5 The US government expects that the expanded ITA will create 60,000 new jobs in the US alone.6

Finally, the third positive news for world trade came in summer 2014, when 14 WTO members, among them the PRC, the European Union, Japan, and the US, agreed to start plurilateral negotiations on liberalizing trade in environmental goods. The main objective will be to identify an agreeable list of environmental goods on which the 14 WTO members would grant duty-free market access. As a starting point, the negotiators will look at the list of 54 environmental goods agreed among Asia-Pacific Economic Cooperation (APEC) members. Once agreed, the duty-free market access would not only apply to the signatories of the agreement, but would be extended to all WTO members following the most-favored nation (MFN) principle. Given the heavyweights included in the negotiations, the liberalization of environmental goods could substantially spur trade in environmental goods with positive effects not only for growth, but also for the environment.

Evaluating plurilaterals for Asia

The year 2014 has shown that plurilateral efforts to liberalize trade can be a powerful tool. Almost unnoticed by the international media, the plurilateral negotiations are achieving more than the heavily publicized negotiations of the Doha Development Agenda. As long as the plurilateral liberalization is based on the MFN principle, such as the ITA or envisaged environmental goods agreement, it is certainly a welcoming trend. The fact that all plurilateral agreements described above have been negotiated under the auspices of the WTO is a positive development. Compared to multilateral trade opening, plurilateral agreements might not be the first-best solution. However, as long as the commitments are MFN based, plurilaterals constitute a powerful tool for trade opening and are certainly a building block for a more open international trade regime.

As such, plurilaterals seem a useful additional track for Asia’s multitrack trade opening strategy—which is currently based on pursuing multilateral negotiations under the WTO, mega-regional free trade agreements such as the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP), and unilateral liberalization. Plurilaterals will certainly make an important contribution to Asia’s trade liberalization as some of the largest Asian economies, such as the PRC, Japan, and the Republic of Korea, play a vital role in the negotiations. As long as the plurilateral agreements are MFN based, smaller developing countries, including least developed countries, in Asia can also benefit. Plurilaterals can thus become an additional powerful engine of trade liberalization and an important means to boost Asia’s growth and job creation amid a fragile world economy.
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1 See WTO General Council news item at http://www.wto.org/english/news_e/news14_e/gc_rpt_10dec14_e.htm
2 G.C. Hufbauer, J.J. Schott, C. Cimino, and J. Muir. 2013. Payoff from the World Trade Agenda 2013. Report to the ICC Research Foundation. April. http://www.iccwbo.org/Advocacy-Codes-and-Rules/Document-centre/2013/Payoff-from-the-World-Trade-Agenda-2013/ (retrieved 7 December 2014).
3 See http://www.wto.org/english/news_e/news14_e/gpro_07apr14_e.htm
4 See http://www.wto.org/english/news_e/news14_e/ita_11nov14_e.htm
5 Note 4.
6 See Office of the US Trade Representative fact sheet at http://www.ustr.gov/about-us/press-office/fact-sheets/2014/November/Supporting-Economic-Growth-Home-Abroad-Eliminating-Trade-Barriers-on-IT-Products

Photo: By John Stroject (Own work) (“1-surv.JPG“). Licensed under Creative Commons Attribution-Share Alike 3.0 Unported via Wikimedia Commons.

Matthias Helble

About the Author

Matthias Helble is a senior economist and co-chair, Research, Asian Development Bank Institute.
Ganeshan Wignaraja

About the Author

Ganeshan Wignaraja is Advisor in the Economic Research and Regional Cooperation Department at the Asian Development Bank, and prior to that was Director of Research at Asian Development Bank Institute.

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