Challenges to the Multilateral Trading System
Published: March 2007
Ever since the GATT was established in 1948, the growth in international trade and economic growth has been remarkable. The traditional mercantilism of trade relations is less and less appropriate for the global economy. Bilateral trade deals make the business environment more complex and unpredictable. Preferential trading agreements erode the principle of non-discrimination. They distort trade away from the underlying comparative advantage; create rents which are appropriated by special producer interests; multiply the complexities associated with aspects such as rules of origin, technical regulations, health and safety standards and administrative arrangements. They are also far harder to enforce than WTO rules, whose resolution mechanism has been very effective. Partial agreements outside the scope of the WTO lack the power of universal rules and legally binding commitments. Regarding the Doha Round of WTO negotiations, a key contradiction from the start was its construction as a ‘development’ round. This concept gave developing countries unrealistic expectations and opened the way for a damaging emphasis on the idea that they should not be required to make the same commitments to WTO rules as the developed countries. But avoiding WTO commitments almost always operates against the long-term economic interests of developing countries. The true development agenda lies in making commitments to WTO rules, rather than in seeking exemptions from them under the rubric of ‘special and differential treatment’. The steps needed to move forward are practical measures to reform the WTO and its processes, as well as longer-term steps towards enhancing political commitment to the framework of multilateral trade.