For too long, the World Trade Organization has languished, to lift a reference from T.S. Eliot, by the “waters of Leman” (Lake Geneva). Once the world’s preeminent multilateral trade forum, the WTO has been steadily marginalized in recent years, and recent rebukes of globalization, such as the United Kingdom’s Brexit vote and the election of Donald Trump as US president, suggest that this trend will accelerate. But these outcomes may actually have the opposite effect, owing to three key developments that could enable the revival of the WTO — and of the multilateralism that it embodies.
The first development is the decline of alternative trade arrangements. The WTO reached its peak in the early 2000s, a few years after the Uruguay Round of global trade negotiations concluded, and a time when more countries, most notably China, were acceding to the organization.
But major trade players like the United States and the European Union subsequently shifted their focus from multilateral trade agreements to bilateral, regional, and mega-regional deals. The mega-regionals — namely, the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) — posed a particularly grave threat to the WTO. Yet those are precisely the deals that the Trump administration is rejecting, or at least postponing.
European integration had a similar impact on the WTO, as it provided an alternative platform for managing intra-European trade. But the European project has fallen on hard times, the most salient sign being the UK’s impending departure from the EU. After Brexit, the WTO will probably become an important forum for Britain’s trade relations with the world. Any further disintegration of the EU will only bolster that trend.
Of course, it is possible that regional trade agreements in Asia and elsewhere will continue to flourish. But new leadership would have to emerge. And no single systemically important country today meets the rigorous requirements of such leadership: internal political stability, economic dynamism, relatively contained risk, and a steadfast commitment to open markets.
However counterintuitive that may sound, a second development that bodes well for the WTO’s revival is voters’ increasing rejection of hyper-globalization. Hyper-globalization is essentially ‘deep’ integration. It goes beyond creating open markets for goods and services to include increased immigration (in the US and Europe), harmonizing regulations (the ambition of the TPP and the TTIP), and intrusive adjudication of domestic policies (the investor-settlement procedures under NAFTA and the TPP). In the EU’s case, it even entails a common currency. For such integration, regionalism is much more effective than the WTO.
Now that ‘deep’ is out, the WTO could once again become an attractive forum for trading countries to do business. Make no mistake: there will still be a lot of globalization for the WTO to facilitate and manage, not least because of the inexorable march of technology. The mesh-like structure of trade and investment connecting countries, embodied in global value-chains — what Aaditya Mattoo of the World Bank and I have called “criss-crossing globalization” — will prevent significant backsliding.
The third development that could reinvigorate the WTO is a more protectionist stance by the Trump administration. If the US raises tariffs or implements a border-adjustment tax favoring exports and penalizing imports, its trade partners are likely to turn to the WTO for adjudication, given the organization’s demonstrated dispute-settlement capability.
The WTO could, therefore, become the place where US trade policies are scrutinized and kept in check. The universality of WTO membership, previously seen as an impediment to countries eager to move ahead with new rules and agreements, could be its main strength, as it implies a high degree of legitimacy, which is essential to minimize trade tensions and the risk of conflict.
In my book Eclipse, I argued that multilateralism offered the best means for ensuring the peaceful rise of new powers. But it seems that the same argument could apply equally well to the management of receding powers.
But the WTO’s revival will not happen automatically. Willing stakeholders must actively pursue it. The most obvious candidates for the job are the mid-size economies that have been the greatest beneficiary of globalization, and that, unlike the US and some European countries, are not currently under pressure from a globalization-averse public.
The champions of multilateralism should include Australia, Brazil, India, Indonesia, Mexico, New Zealand, South Africa, the United Kingdom, and possibly China and Japan. Because none of them is large, with the exception of China, they must work collectively to defend open markets.
Moreover, they must open their own markets not only in the traditional areas of agriculture and manufacturing, but also in new areas such as services, investments, and standards. In doing so, these countries would also be responding to the increasingly transactional approach to sustaining openness that the larger traders are being compelled to adopt.
The world needs a robust response to the decline of hyper-globalization. Multilateralism, championed by mid-size trading economies with a strong interest in preserving openness, may be it. To the shores of Leman they must now head.
Chief Economic Adviser to the Government of India