Exceptional breakthroughs at the WTO Bali conference

BEIJING, Jan. 11 (Xinhuanet) -- On Dec. 7, 2013, the Ninth Ministerial Conference of the World Trade Organization in Bali successfully closed. The Bali Trade Agreement (Bali Package) reached at the meeting exceeded expectations. This is the first time that the WTO has reached a comprehensive trade agreement.

Some people have tried to figure out the reason for this exceptional outcome. One view is that the harsh global trade environment at the moment calls for further corporation and new trade rules. The trade sector, previously the engine for growth, is now significantly holding back the global economic recovery. A global trade agreement is expected to bring with it an upward turn in global trade and economic growth.

Others believe that the agreement came about as a result of the proliferation in regional and preferential trade agreements after the deadlock of the Doha Round brought members of the WTO back to the organization in order to reach a consensus: they are worried about losing this global trade system and are making joint efforts to prevent the WTO from being completely marginalized.

However, these two factors might not have triggered the conclusion of Bali Trade Agreement. On the one hand, global trade has caused the global economy to drag since the 2008 global financial crisis. International organizations like the WTO and G20 have repeatedly made statements to strengthen the pivotal role of the global trade environment in global economy recovery. However, five years have passed, and the previous biennial WTO ministerial conference did not produce a trade agreement. In other words, promoting trade development is not the true reason for the Bali trade agreement.

On the other hand, the concept of a "marginalized WTO" was introduced even before the 2008 global financial crisis. It was introduced and widely accepted after the WTO officially announced the suspension of the Doha Round in 2006. Afterwards, the global trade system witnessed a boom in bilateral and regional trade agreements. In other words, the marginalization of WTO has been a developing trend, and was not a new trigger for the Bali trade agreement.

In our views, the emergence of new U.S.-dominated trade rules though they are still in an embryonic form, is the real trigger of Bali Trade Agreement. Since its high profile participation in Trans-Pacific Partnership Agreement in 2008, the United States has spared no effort in promoting its global new trade and investment rules. In the past, the United States established its initial global trade and investment framework along three geographical lines: the "eastern line" represented by the TPP; the "middle line" represented by the Plurilateral Services Agreement (PSA) and the "western line" represented by the Trans-Atlantic Trade and Investment Partnership (TTIP). New global U.S-dominated trade and investment rules are coming into place: the TPP negotiation is expected to conclude at the beginning of this year. Meanwhile, the TTIP and PSA are under active negotiation. At the initial stage of the United States' negotiation, it chose negotiation partners very discretely, to minimize risk. It has already made good progress in its negotiations. A new U.S-dominated global trade framework is on the horizon. The United States has also shifted its focus from the success of signatories, to expand its influence. The major motivation behind its strategic shift in trade negotiation is to establish U.S-dominated new global trade and investment rules as the future template.

To achieve this goal, the United States is following a two-pronged strategy. On the one hand, it is actively leading trade negotiations including the TPP, TTIP and PSA, displaying openness in its rule-making process to encourage more countries to participate. On the other hand, it is actively looking to establish a comprehensive platform to promote the new U.S.-dominated global trade and investment rules. The WTO is a good choice, as it represents more than 160 member countries. The Doha Round deadlock has made the United States realize the difficulty in establishing a global trade and investment template without enough allies to support it.

Based on efforts in previous years, the U.S. has won enough allies to support its rules. The TPP, TTIP and PSA are all mega-regional agreements. The TPP has 12 member countries, making up about 40 percent of global GDP. The TTIP covers 28 EU countries and the U.S, which account for about 50 percent of global GDP. The PSA has 49 countries participating in its negotiations, accounting for more than 80 percent of global GDP. Based on these three platforms, the United States has revived the WTO, to help to establish its global trade and investment framework.

A frustrating fact in the burgeoning new trade rule negotiations is that most emerging economies are not able to get a piece of the big pie. For now, most of the developing countries in G20 are excluded from the TPP and TTIP. As for the emerging economies, only China, Mexico and Turkey are included in the PSA negotiations. The TPP is sparking concern that ASEAN might disintegrate due to its complicated relationship with the RCEP (Regional Comprehensive Economic Partnership). Developing countries are battling with new trade rule negotiations and internal divisions, and are rethinking their strategies, as trade and investment rules evolve. As the beneficiaries of the WTO rules, developing countries are willing to get back on track.

Although they have different starting points, both developed countries and developing countries have decided to return to the WTO platform, as the new U.S.-dominated global trade and investment rules have started to appear. The Bali Trade Agreement may be regarded as the consensus between the two parties. However, developed countries and developing countries are still strange bed-fellows. A new era for the global trade system is coming into place. This system is a hybrid one, with both a low-standard trade framework represented by the WTO and a high-standard trade framework dominated by the United States.

China can benefit from this hybrid system by adopting different strategies. China has long been a beneficiary of global trade under the WTO rules. China should therefore prevent the WTO from being marginalized. China now is actively participating in the formation of the high level agreement of the U.S.-dominated rules. It should fully participate in important trade negotiations to increase its voice. This will also help to boost domestic reform.

Yang Panpan is an assistant research fellow at the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. Wang Yaqi is a PhD candidate at Peking University.

Source: Xinhua