Negotiations Archives - WITA

E-Commerce Deal at the WTO Is Suddenly Back in Play

Thomas Nielsen — Tue, 07 May 2024 21:09:05 +0000

Left for dead, a deal to permanently ban e-commerce duties is suddenly springing back to life as 90 WTO member-countries are defying the Ministerial Conference’s decision in March to kill the moratorium. This subset of members is racing to deliver a deal whose obligations and privileges are available only to signatories. Such an outcome could shake the WTO to its foundations — but it may well save the institution from its drift into irrelevance.

Two months after a near-complete absence of tangible accomplishment at the World Trade Organization’s Ministerial Conference in Abu Dhabi, new life is convulsing the beleaguered global rule-making institution. It may herald deep and long-term shifts in how WTO business is conducted and could, in turn, lead to a renaissance of the organization.

Since MC13 concluded in early March, members’ exasperation with the multilateral body’s paralysis in advancing global trade policy has been mounting.

India, which has consistently been among the handful of members regularly blocking progress on a wide range of negotiations from e-commerce to fisheries subsidies, was the target of harsh criticism at the post-MC13 General Council, the WTO’s highest decision-making body.

In late April, negotiations among 90 members – a subset of the WTO’s full membership of 164, soon to be 166 – have moved swiftly to establish new global rules for digital trade.

The WTO has been woefully behind the times on the development of rules for digital trade. But the 90-member group’s negotiations in April appear close to delivering a deal that the full WTO membership could not – so close that a deal could be struck as soon as July, members say. Its scope may not be all that some had hoped for, but the emerging deal would be a meaningful not least because, among this subset of WTO members, a long-sought prohibition on the application of customs duties on electronic commerce transmissions would be made permanent.

In recent weeks, movement toward this prize has picked up steam as proponents increasingly embrace the reality that the future of the WTO hinges on whether countries can move ahead on issues where there is broad support, even if other members stridently object.

This concept, also called plurilateralism in contrast to the usual decision-by-consensus multilateralism, has been many years in the making but remains controversial. In 2017, large majorities of members at the Ministerial Conference in Buenos Aires endorsed a model known as the Joint Statement Initiatives (JSI), in which interested members discuss and negotiate deals in issues like electronic commerce, investment facilitation, services regulation, help for smaller companies to trade, and women’s economic empowerment. Frustration over the obstructionist tactics taken by some members, notably India and South Africa, that had for decades stymied multilateral progress on global trade issues, had reached boiling point among these smaller subsets of members. Proponents of the plurilateral approach were anxious to try something unconventional.

After MC13, this trend accelerated. At Abu Dhabi, India undermined a deal to curb environmentally harmful fisheries subsidies and, together with South Africa, did all they could to derail plurilateral agreements setting new rules for how services are regulated and how developing countries can better attract foreign direct investment.

The two countries have for years thrown sand in the gears of JSI negotiations. In Abu Dhabi, they succeeded in bringing the curtain down on a 1998 WTO agreement that stopped members from putting customs duties on e-commerce. New Delhi and Pretoria say they have a right to collect state revenue from such transmissions. The Ministerial Conference text flatly states that by 31 March 2026 at the latest, the moratorium will expire – meaning WTO members will be free to slap duties on e-commerce.

Demand for a permanent moratorium is not universal among the JSI e-commerce participants. But such is the eagerness for a deal that a large and growing majority of proponents are ready to go ahead regardless.

What is most remarkable is that most of these 90 WTO members now favor keeping the benefits from such an agreement exclusively for those who sign on to it.

Such a premise would up-end one of the fundamental tenets of the WTO. A deal along these lines would mean discarding the multilateral institution’s traditional ‘most favored nation’ (MFN) terms, wherein all members are accorded equal treatment – so that favorable terms extended to any single partner automatically apply to all other WTO members.

What the e-commerce deal’s plurilateral proponents now want is for those who stand outside the agreement to lose both the obligations and the privileges of an e-commerce deal. Non-signatories would not be subject to its rules but nor would they share in its benefits.

This shift in stance is significant as, previously, legal arguments underpinning support for the JSIs have rested on the fact that benefits from these deals would flow to all WTO members, not just signatories. But such assurances failed to stem attacks from the likes of New Delhi and Pretoria against the process. Consequently, attitudes have hardened among those who want to press on with closing the deal.

Abandoning MFN will doubtless spark an outcry among opponents of plurilateral negotiations. Yet such are the levels of exasperation with obstructionist tactics at the WTO that enough JSI members are now prepared to ditch Marquess of Queensberry negotiating rules – a code of boxing rules that mandates gentlemanly conduct – and take on a more uncompromising posture. This hardline is favored by many, even though some members participating in the plurilateral – especially Indonesia but also possibly Brazil and Turkey – do not support making the moratorium permanent.

Those JSI participants who seem reluctant to adopt a permanent moratorium do so for different reasons. Brazil wants support in the World Intellectual Property Organization to expand coverage of intellectual property to encompass ‘traditional knowledge’, which would require patent-holders of medicines, for example, to disclose the source of the ingredients and the know-how that went into producing the product. Turkey worries that its internal taxation system may be impacted by a permanent moratorium, even though language in the current text specifically states that moratorium would not “preclude a Party from imposing internal taxes.” Proponents have not given up on these two countries joining the moratorium. Indonesia, by contrast, which wants the customs revenue and policy space to develop its own tech industry, is considered a lost cause. Nonetheless, the deal’s supporters plan to go forward.

“Members don’t want MFN especially with regard to customs duties. The members are just going to do it. If Indonesia can’t accept a permanent moratorium, too bad. Maybe we don’t have all 90 members on board, but if we have 85, that is still a lot,” said one delegate participating in the process.

The European Union has been a strong proponent of a permanent moratorium. US Trade Representative Katherine Tai has given mixed signals on supporting the moratorium, but the United States now seems to be on board. What is new is that China has come out strongly in favor of a permanent ban on duties, something Beijing had not accepted in any of its previous bilateral or regional trade agreements.

Other important elements to the pending accord have already been agreed. Members have agreed to establish global guidelines for electronic payments, for the validity of digital contracts and invoices, and the authentication of signatures. The deal as outlined would strongly promote the use of paperless trading. A committee will be established to oversee the agreement. A review will be conducted after two years and “periodically thereafter”, with an eye to enhancing the accord and ensuring it remains relevant in a fast-evolving global trade landscape.

The agreement would require countries to ban the dissemination of information pertaining to “misleading, fraudulent, and deceptive commercial activities.” The text calls on members to adopt measures curbing the use of spam. A deal would enable governments to provide special digital trade treatment for indigenous persons living under their jurisdiction.

Finding the right balance in the text on privacy has been difficult but proponents believe a deal could be struck which states that each party will work toward the provision of personal data protections while recognizing different regulatory approaches.

An unfortunate development is that language protecting proprietary information, like algorithms in the field of cryptography, will be dropped due to Chinese objections. Nonetheless, the in-depth discussions held on this topic has shed some light on how to bridge differences and may pave the way for further discussions on broader provisions barring the forced transfer of source code, an issue that had hitherto brought members to a stalemate on the broader deal.

Ambitious supporters of global rules in e-commerce may frown on the fact that the agreement sets aside negotiations on broader rules pertaining to the cross-border flow of data, the forced harboring of data on domestic servers, and the forced transfer of source code. But the plurilateral nature of these negotiations – part of a burgeoning trend toward “flexible multilateralism” – increases the likelihood that, down the road, this “organic” text can be updated to include new measures.

Interestingly, proponents say the unfortunate outcome in Abu Dhabi has actually helped the JSI. The multilateral moratorium is not the only element which will terminate in 2026 – so too will the zombie-like multilateral e-commerce work program. This endeavor – which, like the moratorium, arose from the 1998 Ministerial Conference – has been the victim of years of Indian and South African sabotage and had yielded precious little.

Plurilateral agreements are not new to the WTO or to its predecessor the General Agreement on Tariffs and Trade. There are many ways in which they can be negotiated. Article V of the General Agreement on Trade in Services, which experts strongly suggest could also apply to an e-commerce agreement, states that no member can be prevented from “being a party to or entering into an agreement liberalizing trade in services between or among the parties to such an agreement.” It also states the coverage of the agreement must be broad and that its terms do not discriminate against those which are not party to the pact. It is for this reason that so many favor a different tack for the e-commerce plurilateral.

In 1997, WTO members agreed on services-related protocols in financial services and telecommunications in which the benefits were extended to all WTO members.

Other types of agreements are closed and only apply to the signatories. Such pacts are allowable under so-called Annex 4 rules. Originally, there were only four such accords, but two have expired. The remaining two are the Government Procurement Agreement which has 49 members and came into force in 1981 and the Agreement on Trade in Civil Aircraft which has 33 members and entered into force in 1980.

These two were completed before the WTO came into being, though they are very active and continue to attract other members. Because of the closed nature of these agreements, were they to be pursued under the current WTO arrangements, a consensus of WTO members would be required for them to come into force. This is how India, South Africa, and Turkey were able to block the 127 WTO members who tried in Abu Dhabi to bring the Investment Facilitation for Development Agreement into the WTO rule book.

But the Domestic Regulation in Services agreement struck in 2021 by 67 WTO Members will enter into force because its legal status is different. All parties to the pact made specific pledges in their “schedule of commitments”, through which they outlined their legally binding assurances to the others seeking to operate in services markets. Once these schedules were certified, they became binding and the agreement entered into force this way.

The ironclad guarantees under the GATS agreement which enable members to improve their schedules shielded them from efforts to derail the deal. Stopping this accord would require challenging each schedule and proving that Indian and South African interests had been adversely affected. Given the facilitating nature of the services, this left the obstructionists on shaky legal ground. Nonetheless, it’s still an “open” agreement vulnerable to obstructionism. South Africa and India have held up the “certification” of the schedules of 17 members, effectively forcing these 17 out of an agreement they would like to join.

Despite the inevitable legal arguments against a “closed” e-commerce agreement, proponents believe a pact agreed by more than 80 members – including the EU, China, and the United States – and which covers the vast majority of the world’s digital trade will be a formidable achievement. It also opens a route for these WTO signatories to up-end standing WTO rules at obstructionists’ expense. With the e-commerce work program soon to join the multilateral customs moratorium on the WTO’s scrap heap, the plurilateral talks are the only game in town. Even if the legal status of the plurilateral agreement is not recognized by all, it will be seen by most as the global standard. Parties to the investment facilitation agreement feel the same way.

“The investment facilitation agreement is now the standard. Annex 4 or not, it’s an agreement of three-quarters of the members and this will be the standard,” said a negotiator from one major WTO member.

For the better part of the last two decades, the negotiating landscape at the WTO has been arid terrain. A consensus-based system of decision-making once widely praised for ensuring all WTO members have a voice has shown its crippling disadvantages – any disgruntled member can stop work on dead in its tracks.

Now, a significant shift is in train and this may be just the beginning. Members are starting to discuss other new ways of operating in the WTO, from broadening the way flexible multilateralism works to developing the concept of “responsible consensus” to blunt the poisonous misuse of the consensus principle.

Singapore has been at the forefront of this movement. At the Asia-Pacific Economic Cooperation summit in San Francisco in November 2023, Prime Minister Lee Hsien Loong urged other leaders to support “flexible multilateralism” through plurilaterals and “responsible consensus… where we adopt a win-win approach to avoid undermining collective systemic interests.”

The extent to which WTO members champion this initiative will be clear later this month when the Singapore delegation puts forward at the General Council a draft decision calling on members to pursue consensus in a manner which enables governments to protect their national interests without undermining the WTO and the multilateral trading system.

The Singaporean proposal suggests that negotiations should be conducted in a flexible manner which encourages compromise and should be based on facts and evidence.

Already there are indications of support for this proposal coming from major players including the United States, China, and the EU.

Reforming the WTO’s creaky architecture will be a tall order. But if members tread the same ramshackle negotiating path they have followed for decades, it will be impossible.

Maybe, just maybe, the coming months will show a new determination to break with the past and seriously address the organization’s shortcomings. The alternative is a continued drift to irrelevance.

Keith M. Rockwell is a Senior Research Fellow at the Hinrich Foundation. Prior to his retirement in June 2022, Keith served as a Director at the World Trade Organization (WTO) and spokesperson for the organization for more than 25 years. He also is Global Fellow at the Wilson Center.

To read the full article published by the Hinrich Foundation, click here.

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Future-Proofing the World Trade Organization

Mia Buswell — Tue, 27 Feb 2024 21:49:51 +0000

166 Trade Ministers are gathered from February 26-29, 2024, in Abu Dhabi, UAE to make important decisions about the multilateral trading system and the World Trade Organization (WTO). Past Ministerial Conferences were action-forcing events that provided political pressure to resolve differences and conclude open negotiations. But this year’s Ministerial Conference (MC13) comes amid backlash to global trade and alongside a slew of new challenges. Rapid technological advancements and increasingly fragmented patterns of trade and investment require innovative and flexible mechanisms for policy coordination. Future-proofing the WTO so that it can handle these challenges will require ongoing dialogue, adaptation, and institutional reforms. Most urgently, the ministers need to re-boot the WTO’s negotiations and dispute settlement processes so they can address food security, climate change, and digital trade. Indeed, it is becoming increasingly difficult to keep extending a moratorium on digital tariffs which benefits the US.

The backdrop to MC13

Ministers have gathered to discuss a series of critical issues including environmental issues like fisheries and climate change; digital trade; investment facilitation; and new negotiations on agriculture and industrial policies. In addition, the WTO is adding two new members, Timor-Leste, and Comoros, demonstrating that countries continue to see value in joining the WTO.

Yet within the WTO, members disagree on the form and prioritization of potential agreements—with more advanced economies pushing for forward-leaning issues like digital and climate change negotiated with a subset of members, while less developed countries push for work on issues such as food security as well as special and differential treatment. As the WTO rules require unanimous approval, countries’ willingness to use their veto power as a bargaining tool creates complex negotiations. Ministers must advance their country’s and citizens’ priorities, but increasingly narrow, nationalistic policies such as tariffs, export restrictions, import bans, and discriminatory non-tariff barriers make finding middle ground and compromise in negotiations more challenging than in the past. At MC13, the WTO’s consensus driven process will require ministers to find a balance in addressing these divergent but connected issues and finding common ground where possible.

While the substantive issues are important, the most critical issues ministers must address are the structural deficiencies that undermine the future health and functioning of the WTO. The WTO has undertaken many reforms since MC12, with improvements implemented via changes in the WTO’s typical practices. However, critical areas remain unresolved within the four primary areas of work within the WTO: (1) negotiations, (2) technical assistance, (3) reviews, and (4) dispute settlement. Currently, both the negotiation and dispute settlement functions are broken and not working to their full potential. Before tackling additional issues, the WTO members must first make the WTO functional and fit for purpose.

Negotiations

Reviving the negotiating function of the WTO is the most important outcome of MC13. In the past thirty years, the Doha Development Round talks collapsed and have remained dormant. The WTO members concluded a plurilateral agreement on Trade Facilitation in 2013, and the first phase of an Agreement on Fisheries Subsidies in 2022, but members have concluded no other agreements. The Fisheries agreement took more than twenty years to negotiate and despite heroic efforts by several dedicated chairpersons, members agreed to kick some unresolved issues into a Phase 2 agreement that is still being negotiated. Today’s world requires that the WTO and its members move faster on dynamic and urgent issues.

In 2019, a sub-group of countries tried another approach, launching three new plurilateral negotiations on (1) domestic regulations for services, (2) e-commerce, and (3) investment facilitation, in a new format known as the “Joint Statement Initiatives (JSIs).” India and South Africa have challenged the legal basis for these agreements as outside Annex 4 of the WTO Agreement and argue that they undermine multilateralism. With agreements concluded on Services Domestic Regulations (67 signatories) in December 2021 and Investment Facilitation for Development (130 supporters) at MC13, a small group of countries continue to oppose including them as official plurilateral agreements to the WTO.

Innovative approaches to negotiations could strengthen the multilateral trading system while accommodating the diverse interests of WTO members. If the WTO remains confined to negotiating only on issues that all 164 members (soon to be 166) can agree upon, this prevents the institution and its members from updating or adapting trade rules in a timely manner. Without such flexibility, the WTO will become brittle and irrelevant, with countries moving to other fora such as regional or bilateral agreements. At MC13, it is critical to resolve this issue and find a path forward.

Dispute settlement

The second important reform is revisions to the WTO’s dispute settlement. Ensuring that WTO members comply with their obligations instills fairness and confidence in the global trading system. Due to concerns with previous rulings, the United States blocked appointments to the dispute settlement’s appellate body since 2017. The EU led the creation of an alternative system, but countries have appealed dozens of cases “into the void”. Members must discuss meaningful reforms to the dispute settlement system at MC13 and outline either a new process or reforms to correct imbalances in the previous process. There are glimmers of hope for progress at MC13 with members constructively engaged.

Priorities for MC13

If these reforms received meaningful progress at MC13, the WTO could move to work on forward-looking global issues where it can make meaningful contributions. The UAE, as host of MC13, will present a strategic report on trade and trade policy in 2050, providing a vision for the WTO. This report will try to marry the forward-looking issues such as technology and climate change, with the needs of less developed members who still need assistance to develop and cover the basic needs of their citizens. Future-proofing the WTO will necessitate ongoing dialogue, adaptation, and institutional reform to remain relevant in a rapidly changing world. Providing a common vision for 2050 will require the UAE to be an active and engaged chair.

The WTO has a lengthy list of other issues that ministers will discuss at MC13, especially with the e-commerce moratorium generating attention. This agreement on duty-free cross-border digitally delivered services will expire, and members need to decide whether to extend or retire the moratorium. The United States and China agree with extending the moratorium, a rare occurrence. And they’re right about it: As governments grapple with how to fund their activities when economic activity shifts online, study after study has shown tariffs are an easy but inefficient and counter-productive method of raising revenue.

Finally, the WTO will address several environmental issues during MC13. Beyond the Agreement on Fisheries Subsidies, which impacts overfishing and overall health of our oceans, the WTO will also look at other areas where trade and environmental goals are mutually reinforcing, as well as areas of friction including in industrial policies. Director General Ngozi Okonjo-Iweala has repeatedly pointed to the significant role trade must play in addressing climate issues for all countries.

At a time when global fora are dwindling, the WTO remains an imperfect but important forum for countries to engage in constructive conversations about economic and trade issues. World merchandise exports grew from around $5.4 trillion in 1995 to over $19 trillion in 2019, with a similar increase expected over the next 25 years. Ministers must use this week’s meeting to outline a robust, future-looking agenda, built on strong foundational reforms and reflecting the need to balance the needs of advanced economies and less developed economies. A strong political message from the ministers this week that integrates the interests of all stakeholders and fosters consensus-building will be essential for revitalizing the multilateral trading system and ensuring its long-term sustainability.

Penny Naas is a nonresident senior fellow with the Atlantic Council’s Europe Center and was most recently UPS president for international public affairs and global sustainability.

To read the full blog post as it appears on the Atlantic Council website, click here.

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Should the EU be Blamed for the Downfall of the WTO?

Megan Walsh — Tue, 21 Mar 2023 16:36:42 +0000

The answer is no, but why has the EU moved towards one-to-one trade agreements instead of relying on the WTO in recent years? The reasons lie in the immobility of the latter and the efficiency of the former.

The European Union has been busy making bilateral trade agreements with diverse international partners since the mid-2000s. It has taken its integration with global markets into its own hands, and rarely relies on the WTO, the organisation that supposedly coordinate and monitor global trade cooperation. In this article, EUrologus seeks to explain the EU’s shift to one-on-one trading agreements, and its broader implications on how trade negotiations are currently conducted.

In 1995, the establishment of the WTO promised closer economic integration of world markets. The concept was appealing: to establish an organization that would create common rules for trade, adjudicate and settle any potential disputes. Experts and politicians alike had high hopes, especially after 2001, when even China signed on to be a member. Currently, the WTO has 164 member countries, which, at least on paper, looks like a blazing success.

But there is a problem. Most major decisions on trade cooperation currently simply forego WTO, and are negotiated between two or, at best, a small group of countries. These one-on-one agreements, also called bilateral trade agreements have a strong message for proponents of global economic institutions. Many countries no longer look to the WTO for strengthening economic cooperation opportunities, and simply take matters into their own hands. Resulting in negotiating closer trade agreements with their desired partners, one at a time. This is, by many metrics not ideal. Arguably negotiating agreements bilaterally is significantly more time-consuming and less efficient than coordinating as a group, and smaller countries may be at a significant disadvantage in one-on-one situations.

There are very few actors in the world right now who are keener on establishing bilateral agreements than the EU. The European Union has 83 bilateral agreements in place with international partners. According to the European Commission, an additional 25 agreements are already negotiated and are under ratification or adaptation. Most of these are relatively recent: according to our analysis, 59 out of the 83 started after 2008.

In our analysis, we grouped the EU’s bilateral trade agreements into three categories, corresponding to key years in the history of the WTO and global trade. The first watershed date is 1995, the establishment of WTO. The second one is 2008, the year of the global economic crisis, and by many expert accounts, the year when the WTO’s practices started to show significant cracks in their effectiveness. This gives us three time-categories: pre-1995 (5 agreements), 1995-2007 (19 agreements) 2008-today (59 agreements). We also counted provisionally applied agreements. In cases where an existing agreement is renegotiated later, we counted the agreement when its terms were originally made: even this way, there are significant differences between periods.

The past, present, and future of the WTO

While the shift away of the EU from WTO integration clearly does not help the initiative, the former is arguably just reacting to issues, not causing them. The first signs of the WTO stagnation became apparent after 2001, when the so-called “Doha round” of integration efforts, focusing on developing countries, ultimately failed, due to (seemingly unsolvable) conceptual disagreements. The 2008 economic crisis was the last straw, and negotiations did not pick up after the crisis. Some light can be seen at the end of the tunnel, as in 2013 the WTO was able to establish its first multilateral agreement since the creation of the organization: the Trade Facilitation Agreement . Still, we can argue that the pace of economic integration led by multilateral WTO processes is slow, and it is not surprising that some, including the EU, turn to alternative solutions to strengthen economic ties with trade partners.

Given that the WTO has a difficult time integrating global economic rules, let’s look at its other major function: dispute settlement. Since its establishment, according to the analysis of the Council on Foreign Relations (a well-established hub of experts and think-tank) over 500 disputes were brought to the WTO table, many of them from the US and China. The US was initially by far the most active participant of the WTO’s dispute settlement mechanism, initiating 124 cases and being the defendant in 156 more. At the peak of this tendency, President Obama’s administration alone filed 25 cases while in power, 16 of them against China. Interestingly, it was also the US that killed the WTO’s dispute settlement mechanism for good. More precisely, the Trump administration started to block new appointments to the Appellate Body of the WTO. As the terms of the initial seven judges on the panel gradually expired, the body became unable to hear cases; there is currently only one active judge, while cases need three to be settled

In this instance, despite its passive acting thus far, it was the EU that stepped up. Brussels led the initiative to establish an effectively functioning alternative dispute settlement mechanism: the Multi-party Interim Appeal Arbitration Arrangement (MPIA). The problem is that this is an additional opt-in agreement between countries, and currently only has 26 members. This results in a situation in which a country that does not wish to be held accountable for WTO rule violations, such as the US, can simply not join the mechanism. Currently, the US is not a member, but China is, which does give some hope for the initiative’s future.

The EU’s bilateral trade agreements

Hence, the EU has not been the actor who actively demolished WTO institutions, but it arguably still silently gave up. Prior to the establishment of the WTO, the EU was not big on international economic integration: something that is not surprising, given that the union was itself a relatively young integration project of countries. At the time, the EU only had 5 bilateral agreements, mostly with European partners such as Andorra, San Marino, and Switzerland. These were fairly logical agreements, considering the territorial proximity of these countries to the EU.

The difference gets striking between the 1995-2007 (13 years), and the 2008-2023 (16 years) periods. In nearly the same time span, the EU stipulated almost three times as many bilateral trade agreements in the most recent period as in the previous one. This is not even counting the 25 agreements that are waiting for final ratification or approval, most of which will likely become active in a few years. Moreover, many of the new bilateral agreements are ensuring cooperation with many of the developing countries the Doha round was unable to integrate. While negotiations are conducted with territorial blocks larger than a single country (Southern African countries, Pacific countries, the Western Balkans, etc.) the agreements are nonetheless bilateral. This means that members of the block do not need to agree about signing a partnership with the EU or negotiate together, they can sign on independently.

For example, in the case of the Southern African Development Community (SADC), some members of the block, namely Botswana, Lesotho, Mozambique, Namibia, South Africa and eSwatini (the former Swaziland) signed agreements with the EU, while others, the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Zambia and Zimbabwe are still in various stages of negotiations. So, the negotiation does not necessarily happen with the Southern African Development Community as a group, but with its individual members, and a successful agreement has little to no implication on negotiations with other countries.

There are clear reasons the EU likes bilateral trade deals. Firstly, it seems to be remarkably efficient in establishing them, an improvement of the slow WTO proceedings. Second, the EU has an excellent bargaining position in bilateral negotiations with small partners, as it is a large and influential market. Thus, the EU is very effective in negotiating with less economically powerful countries, while it is perhaps less so when it comes to stronger partners. In the Asian case, South Korea and Japan are positive examples of trade cooperation, and even the EU-China Comprehensive Agreement on Investment is progressing slowly, but relatively well. On the other hand, trying to negotiate a free trade agreement with the US (the Transatlantic Trade and Investment Partnership, TTIP), was a huge failure. Canada has a provisionally applied but functioning bilateral agreement with the EU, and an agreement with Australia is under negotiation since 2018.

In conclusion, the EU is far from responsible for the WTO’s failure in establishing efficient multilateral global economic cooperation, but the Union did shift its focus on bilateral agreements reasonably quickly when the WTO did not deliver at the expected pace. Is the EU’s choice fair? Surely so, given its own economic interest. But the lack of a functioning WTO does increase the risk of potential trade wars, something the organisation was set up to prevent. And shocks from a trade war such as the US-China one, do reach European markets as well: in the long run, the EU does have an interest in keeping the WTO at least functional, if not increasingly relevant. Given the US’s recent reluctant behaviour towards the WTO, this is no easy task, but the EU, given its undeniable economic and market power, is probably in one of the best positions to give the WTO the boost it so desperately needs.

To read the full article, please click here.

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U.S. Must Aim High With IPEF to Maintain Influence – Pacts That Exclude Washington are Reshaping Supply Chains and Trade Flows

Maya Ghazi — Fri, 10 Mar 2023 18:12:11 +0000

The U.S. and its 13 partners will sit down in Bali next week for a new round of Indo-Pacific Economic Framework for Prosperity negotiations. They are moving quickly in hopes that the initiative will boost their pandemic recovery efforts, clean energy transition and digital transformation.

Indo-Pacific countries recognize that the IPEF has the potential to deepen commercial ties, promote sustainable economic growth and development, diversify trade flows and bolster U.S. commitment to the region.

These nations are keen to expand economic ties with the U.S. to complement progress made in recent years on political and security issues. But they have legitimate questions about whether the U.S. is prepared to engage seriously on economic matters of interest to them.

The U.S. says that it views the IPEF as a key tool to advance its economic and strategic interests, and that developing deeper ties with Indo-Pacific allies and partners is critical. It says its aim is to sustain and build its leadership and influence, deepen its economic relationships, catalyze progress on global issues and deter malign regional actors.

The challenge now is to raise the level of ambition so that the IPEF can achieve these goals.

The new U.S. “worker-centric” model for trade initiatives has been met with skepticism even among allies and, so far, is more a slogan than a clearly defined policy. Washington has yet to articulate how its approach can promote trade and investment among IPEF members, advance the interests of workers, protect the environment, promote innovation and strengthen competitiveness.

Success will require the U.S. to move from rhetoric to substance and put forward a bold framework.

First, the agreement must provide clarity and predictability through binding and enforceable rules and standards. These rules must be detailed enough to provide tangible benefits, especially if the U.S. continues to refuse to offer the kind of market access that have traditionally been the trade-off for developing countries to accept new high-standard rules.

What might these rules include?

On the trade pillar, IPEF members could increase market opportunities by addressing specific nontariff barriers their exporters face today and establishing processes for tackling new ones.

They could agree to rules simplifying and modernizing customs procedures to make trade faster, cheaper and more predictable across the region, while helping governments detect fraud and enforce health, safety and labor regulations.

They also could agree to strong digital trade rules, comparable to the high standards set in recent U.S. agreements, to facilitate trusted data flows, support small businesses and encourage innovation and inclusion. They could include intellectual property protections to promote trade in innovative goods and services, and agree on common standards in key sectors to make trade more seamless.

On the supply chain pillar, IPEF governments could agree on information sharing and coordination mechanisms that would provide early warning of potential supply-chain shocks and ensure more effective responses.

They could establish common, trusted standards to promote secure supply chains and environmental sustainability and combat forced labor. To foster the development of IPEF supply chains in critical goods, they also could provide preferential access to each other’s markets, including eliminating tariffs on critical minerals, food, medicine, medical technologies and batteries.

On the clean energy pillar, to support their climate goals, IPEF members could eliminate barriers to trade in environmental goods and services, offer incentives for goods produced using clean energy, and develop common standards and metrics for carbon emissions and carbon intensity.

They could coordinate joint research and development projects on clean energy and offer royalty-free licenses for the deployment of the resulting technologies in IPEF countries. They could also secure financing to build supply chain and clean energy infrastructure through investment protection commitments.

Second, the U.S. and other IPEF members should establish a new model of engagement with stakeholders. Governments need stakeholders invested in the IPEF’s success. They are depending on business to provide technical assistance, participate in public-private partnerships, finance infrastructure, share information and reorient supply chains. They also are relying on the expertise of businesses and other stakeholders to inform their discussions on how to incentivize the outcomes they seek.

As they develop protocols for new issues that were not addressed in previous trade agreements, the U.S. and other governments should establish working groups that include both government and stakeholder representatives. These groups would be tasked with developing proposals on specific issues and would also be a resource to inform government discussions.

Third, the U.S. needs to act with urgency. Trade liberalization is proceeding between IPEF members and third parties outside of the framework, shaping regional supply chains and trade and investment flows and influencing broader relationships and regional dynamics. But the speedy conclusion of political commitments should not take precedence over substantive economic outcomes.

The IPEF will be seen as a test of the effectiveness of the new U.S. worker-centric approach to trade agreements. To pass muster, the agreement must be robust enough to increase trade among IPEF members, enhance supply-chain resilience and significantly advance their energy transitions.

Some IPEF members may be willing to accept incremental progress and will certainly welcome offers of new projects or technical assistance from the U.S. and other countries. But baby steps will do little to achieve the initiative’s objectives. Given the challenges at this pivotal moment, the U.S. must pursue a grander vision. Success is critical, and the U.S. cannot afford to come up short.

Barbara Weisel is a managing director of Rock Creek Global Advisors in Washington and a member of the advisory board of the American Association of the Indo-Pacific. She was previously the chief U.S. negotiator for the Trans-Pacific Partnership Agreement.

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