Will Mega-regional trade agreements doom the WTO?
by Bernard M. Hoekman
Director, Global Economics research area, Global Governance Programme
7 July 2014
The US and the EU are engaged in an effort to create a Transatlantic Trade and Investment Partnership (TTIP) and both are negotiating trade deals with other major OECD economies—such as the Trans-Pacific Partnership (TPP). These efforts are controversial – civil society groups in Europe have expressed concerns about the implications for regulatory sovereignty, in particular giving foreign investors greater scope to contest policy measures of host governments through investor-State arbitration mechanisms.
The recent moves by the EU and the US towards mega-regional trade and investment integration initiatives are in part a reflection of the lack of progress in the WTO Doha Round, and a desire to establish new rules of the game in areas that are not on the WTO agenda (such as, investment policies, behaviour of state-owned enterprises, opening up government procurement, and reducing the trade-impeding effects of different regulatory standards). Indeed, one motivation for the effort to negotiate mega-regionals is to define what the rules of game should be in new areas and to create a fait accompli for countries that are not part of these talks – most notably the large emerging economies.
An important question that is not the focus of civil society concerns is what the mega-regionals imply for the world trading system that has provided a framework for the rapid integration of the world economy in recent decades. The mega-regional blocs exclude most developing countries, which constitute the majority of WTO members.
Although there is certainly cause for concern regarding the potential effects of the mega-regionals, in my view they will not doom the WTO precisely because the major emerging economies – Brazil, China, and India – are not participating in them. Many of the policy areas that are of interest to emerging economies are not being addressed in the mega-regionals (such as, agricultural support policies, antidumping, or biofuel and “green” industrial policies). The WTO remains the best forum for the large OECD countries to negotiate with the large emerging economies on market access barriers and trade policy rules of the game.