Mega-regionals and the Doha negotiations: Implications for developing countries

1 December 2014

During the first “wave” of Regional Trade Agreements (RTAs) bilateral agreements were the norm; most of the 300 plus agreements notified to the WTO are bilateral agreements although there are some exceptions – for example, the North American Free Trade Agreement (NAFTA) and some economic integration agreements among developing countries in Africa, Asia and Latin America.

This is no longer the case. We are now in presence of a new “wave” of RTAs where the emphasis is being placed on the negotiation of mega-regional agreements. In some cases these agreements are designed to foster convergence among existing RTAs and/or involve countries representing a large share of global trade, GDP and population.

When we refer to mega-regionals, we usually refer to three arrangements: the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP), and the Pacific Alliance.

Among these only the latter, the Pacific Alliance, has been completed and signed. The TPP and the TTIP are still under negotiation with deadlines being systematically postponed. The TPP, for instance, was supposed to be finalised by November 2011, but there is still no end in sight for the negotiations; the situation is not different for the TTIP, but the formal deadline – end of 2014 – is almost there.

In general, the negotiations are conducted in confidentiality, not to say secrecy, as most trade negotiations are. Thus we do not know yet the precise content of these agreements (even though the EU recently released its TTIP negotiating mandate), or the depth of the commitments made. Therefore, when we look at the impact of these agreements on the Doha negotiations, we need to necessarily make a series of assumptions regarding their content and the likelihood of their completion.

We know however two key facts: the economic weight of the participants and the list of subjects under negotiation. Both are important for our analysis. The more important, economically speaking, the partners to these agreements, the more significant their impact on Doha and the multilateral trading system would be. By the same token, the wider the subjects under negotiation – including a number of WTO-plus issues or issues not currently within the WTO purview –, the more complex the analysis will become.

Economic weight

Both the TPP and the TTIP involve countries representing a very large share of the world’s population, economic activity and trade.

The TPP countries are both economically and demographically diverse as they include developed and developing countries, big countries such as the United States and small ones such as Singapore. Roughly, the TPP countries include 40 per cent of the world’s population, are responsible for some 60 per cent of global GDP, and trade among TPP partners was more than US$ 2 trillion in 2012.

The TTIP involves 29 developed countries (the US and 28 EU member countries) and is the world’s largest economic relationship, with reciprocal trade (goods and services) and investment flows that amounted to more than US$ 1 trillion in 2012. The negotiating parties are also the source of most trade preferences in favour of developing countries.

The economic weight of countries participating in mega-regional negotiations, particularly the TPP and the TTIP, will certainly influence the capacity of these agreements to impact both the Doha negotiations and the multilateral trading system, and the elimination of tariffs among them will have an undeniable effect on tariff preferences through preference erosion (although some studies see preference erosion as a relatively minor effect). These agreements may also have, as most preferential trade agreements, trade diversion effects. However, the latter are difficult to quantify.

Regulatory issues

It is in the area of trade regulation that mega-regionals may have a more lasting effect, and it is in this area that the impact on Doha and in the multilateral trading system at large will be felt more dramatically especially if mega-regionals are completed as scheduled and the Doha Round does not draw to a close soon.

What distinguishes mega-regionals from other free trade or preferential agreements is the inclusion in the negotiations of a number of regulatory issues, many of which are currently outside the scope of the WTO and subject to domestic regulations, but are nevertheless considered essential for today’s global commercial relations.

These regulatory issues include but are not limited to regulatory coherence – for example on the safety of products and the methods of production – state-owned enterprises, professional services, customs, e-commerce, labour and environment issues, government procurement, investment issues, currency issues, temporary entry of business people as well as standards related to sanitary and phytosanitary measures and technical barriers to trade.

In other words, the mega-regionals have the potential, due to the sheer size of the countries involved in the negotiations and the nature of some of the issues under negotiation, to significantly expand the scope of the international trading system by setting up standards that would apply initially only among member countries but could eventually become global standards.

Once the mega-regionals are completed and new regulatory issues agreed upon by the participant countries, the newly agreed standards will not be easy to modify in WTO negotiations or elsewhere; they will fix TPP and/or TTIP countries’ positions in future negotiations and form the basis for their negotiating positions. Therefore, there is the risk of a “fragmentation” of the multilateral trading system with different standards adopted by different sets of countries, a situation not very dissimilar to the one experienced after the Tokyo Round of negotiations and the adoption of “codes” on a number of non-tariff barriers by a group of mainly developed GATT members.

Thus, rather than based on traditional market access issues, tariffs, preference erosion and trade diversion, the mega-regionals’ impact on Doha and the WTO should be analysed in terms of their “regulatory” impact, that is, in terms of the implications for the multilateral trading system of such a large group of countries, involving developed and developing countries, and representing such a large share of global trade, to set up new standards in areas not yet covered or insufficiently covered by the WTO.

Although mega-regionals are still under negotiation, for the purpose of this discussion and in light of the considerations above it is important to look at the possible alternative scenarios regarding mega-regionals and the Doha negotiations.

The scenarios

Mega-regionals are not completed and Doha is not brought to a close

This is the current status quo, but it is highly unlikely this situation is kept indefinitely. As in recent years, the lack of progress in the Doha negotiations would encourage mega-regional negotiations to intensify. In fact many observers consider that the push for mega-regionals started with the 2008 failure of the WTO to deliver on Doha.

Mega-regionals are not completed, but Doha is completed

This would imply that mega-regional negotiations would be discontinued in light of a Doha agreement; this would also be highly unlikely as it would presuppose that regulatory issues being dealt with in the TPP and TTIP negotiations – and not part of the Doha negotiations – would be set aside. Should the Doha negotiations end before the mega-regionals are completed, this will probably encourage participating countries to complete these agreements and prepare for a “high” standard, future WTO round of negotiations.

Mega-regionals are completed and Doha is not brought to a close

This is the worst case scenario, as given the sheer size and economic dimension of mega-regionals as well as their focus on WTO-plus regulatory issues, the multilateral trading system would be gradually rendered irrelevant. Moreover, the risk of “fragmentation” will materialise with countries aligning themselves along a two-tier trading system. Developing countries not participating in the mega-regionals will be left out, the “high” standards of the mega-regionals will be difficult to alter and the WTO would be unable to provide a forum to deal with them in a multilateral framework.

Both mega-regionals and Doha are successful

This would be perhaps the preferred and most likely scenario. The risk of “fragmentation” would still be present, but such an issue could be addressed once Doha is left behind and WTO members start discussing how to update the multilateral trading system by, among others, looking at regulatory issues and new standards which are now part of the mega-regional negotiations.

Reaching an agreement on these issues multilaterally will not be easy as by the time they are tackled multilaterally, some 40 plus countries (the 12 TPP plus the 28 EU countries participating in the current mega-regional negotiations) would have already agreed on how to deal with them in their mega-regionals. Still, refraining from updating the multilateral trading system will not be a viable proposition.

Conclusion

Summing up, the current mega-regional negotiations, that is the TPP and the TTIP negotiations, offer both risks and opportunities to developing countries, the Doha negotiations and the multilateral trading system.

Like any free trade agreement, these negotiations may have an impact on trade preferences and some trade diversion effects. However, these ramifications should not be overemphasised. If the experience with past free trade agreements offers any guidance, trade diversion and/or preference erosion are less significant than some academic analyses have suggested. More significant, particularly in the case of the current mega-regional negotiations, is the set of new standards and regulatory frameworks that could be incorporated into the agreements and, as a result, would fix the positions of participant countries on those standards, complicating thereby the multilateral examination of the latter.

Countries have moved to regional negotiations because of the long-lasting deadlock in the Doha Development Round. This may be changing now with the recent agreement between the US and India over the outstanding issues on the Bali package adopted during the Ninth Ministerial Conference of the WTO in December 2013. If these new understandings materialise and lead eventually to a conclusion of the long-standing Doha negotiations, there is a chance that the WTO will again become the preferred forum to deal with trade issues and set new standards for global commerce. This certainly should be the privileged approach for developing countries, most of which are outsiders to regional and/or bilateral trade deals, including the current mega-regional negotiations.

Author: Miguel Rodriguez Mendoza, Senior Associate at ICTSD, Geneva, Switzerland.

 

  

    

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