Reality Check 1: With regards to the WTO "do no harm."
Of course you like the WTO but everybody knows it really is in serious trouble. Despite their public statements, Heads of Government are simply just not ready to make the trade-offs essential to complete an economically meaningful Doha Round. Without doubt a mouse could possibly be produced if matters get so very bad that people need a Doha Round deal to "save the machine." But, by 2008, it became clear that everyone had learned that there is no basis for a deal.
Thomas Schelling, the Nobel Prize-winning strategist, supplies the best way of taking into consideration the Doha Round stalemate. Schelling showed that if one negotiator was presented with by its government an extremely restrictive negotiating mandate then, under some circumstances, other negotiating parties keen to summarize a deal would do etc the former’s terms. But Schelling also remarked that if many governments tied the hands of their negotiators then stalemate was possible.
The contemporary relevance of Schelling’s insight are available in the manner where the European Council, the U.S. Congress, the Prime Minister and President of China, and the political forces in India have repeatedly shackled their respective trade negotiators on agricultural trade matters. Worse, the same "leaders" then issued disingenuous G20 Declarations contacting their negotiators to complete the Doha Round negotiations. This cynical device reaches the heart of the Doha Round impasse and certain EU member states bear their share of the blame. With out a substantial offer to reform agricultural support policies, it really is difficult to see what the EU can do to regenerate the WTO’s negotiating function (and even whether this offer will be enough).
The failure to summarize the Doha Round isn’t the only drain on the credibility of the WTO and the rules-based trading system. Poor choices of dispute settlement cases are too. It would appear that some are so besotted with the "power" of multilateral trade rules that they actually think that governments will be cowed sufficiently by losing WTO disputes that they can bring themselves back to compliance with those rules. The risk of sanctions may affect the incentives another into compliance, but that’s no guarantee that compliance will occur. In a few disputes the commercial interests on the line are so big that compliance is unlikely and the magnitude of sanctions so large that their imposition would significantly disrupt the trade.
The foolishness of bringing the EU-US disputes over subsidies to wide-bodied aircraft to the WTO has been compounded by a recently available case to bring a case against China on export taxes for a provision which it alone is legally obliged to in its accession protocol. The latter dispute will probably backfire, allowing the Chinese to highlight the inequities of the WTO accession process and the asymmetries in WTO rules. Moreover, a "victory" here for the plaintiffs will be pyrrhic–for it’ll only encourage Beijing to retaliate against the commercial interests of the plaintiffs, benefiting from the actual fact that WTO accords usually do not cover every way to harm foreign commercial interests. Of course, the guidelines never let for the loser in a case to retaliate but expecting every government to have respect for the guidelines is the sort of naivety a EU trade policy grounded in realism would avoid.
As a car for advancing Europe’s commercial interests in the bigger emerging markets, the above considerations imply limits of what the WTO dispute settlement system can deliver have already been reached. Bringing highly controversial cases will invite retaliation against EU commercial interests from vengeful losers and can only discredit the DSU system in the eyes of developing country WTO members. Case selection ought to be handled careful: "do no harm" being the operative principle. Find various other way to induce foreign governments to improve their behaviour.
So what if the stance of the EU towards the WTO be? Of course, the EU won’t disavow the multilateral trading system. Diplomatic niceties probably dictate that the EU declare that the WTO and finishing the Doha Round certainly are a "priority." Realistically, though, EU expectations for what the WTO can deliver ought to be lowered significantly. Some will reject this assessment, arguing that it demonstrates the necessity for a WTO reform agenda. Possibly the niceties require EU support for a WTO reform agenda but proponents should think hard in what the Doha Round negotiations and the a reaction to the global overall economy really reveal about certain governments’ willingness to be further bound in legally binding accords and whether those accords could be effectively enforced through WTO dispute settlement. The success of any WTO reform agenda ultimately turns on the latter two considerations.
Reality Check 2: RTAs and EPAs certainly are a sideshow.
In its Global Europe Communication in 2006 the European Commission committed itself to negotiating a fresh tranche of RTAs also to completing the EPAs. Much less here has been accomplished than was anticipated at that time. The largest deal, the RTA with Korea, was likely to go well beyond the terms of the US-Korea RTA, a target that nobody mentions any longer. Meanwhile, the RTA negotiations with India, Mercosur, and the GCC countries proceed slowly. The EPA process remains a pr embarrassment, compounded by significantly less than judicious interventions from certain EU member states.
EU RTA policy incurs two constraints. First, EU negotiating objectives are much too diffuse, which range from traditional tariff considerations to new behind-the-border rules to "sustainable development" and various other non-economic goals. The latter tend to be wrapped up in patronising language about promoting European values. Second, a few of the RTA partners are large enough that they too have demands, demands that your EU probably cannot deliver. (Indian demands for visas being truly a just to illustrate.) Both factors have eroded, if not eliminated, the foundation of the deal in lots of negotiations. Actually, the EU negotiating package seems suitable for other industrialised countries which have either defensive agricultural interests (Korea) or are prepared to forgo their offensive agricultural interests (Canada). The problem is that there aren’t many such countries left for the EU to negotiate RTAs with! So far as the large emerging markets are worried, little can be expected.
Overall, unless you will find a substantial streamlining of EU negotiating demands and occasionally a willingness to create serious concessions to negotiating partners, the EU’s RTA and EPA negotiations will stay a sideshow. These negotiations may afford opportunities for experimentation but there aren’t enough deals in the works to dramatically scale up any innovative provisions.
Reality Check 3: Follow the amount of money.
Whatever "grand bargain" the EU has offered trading partners recently, there haven’t been many takers. The EU will be better advised to return to the drawing board and identify those matters that there are substantial supportive constituencies in the home aswell as in negotiating partners. This approach may likely streamline EU trade negotiating priorities along with focus more attention on if the is a real sufficient basis for a deal, however codified.
Recent developments on earth economy suggest that this process might be not merely timely but also more likely to garner the support of leading lights in the organization sector. First, an increasing number of multinationals are headquartered in emerging markets 1 and come across the same regulatory obstacles and malfeasance abroad as Western multinationals. The recent global overall economy has exposed much murky protectionism against foreign commercial interests. Second, participation in international supply chains requires substantial cooperation between collaborating firms, who will probably see commercial obstacles in the same light. A trade policy agenda predicated on extending national treatment principles further into domestic regulations, greater transparency, stronger consultation mechanisms, requirements on scientific and evidence-based decision making by regulators, rights of review for the regulated, and encouragement to look at common standards or at least, mutual recognition of standards would benefit this growing and substantial corporate constituency.
However, there must be no illusions about how exactly significant this agenda could possibly be. The European Commission and its own Member States would need to be prepared, occasionally, to improve their domestic regulatory structures. Something-for-nothing won’t are a negotiating tactic here; the set of failed transatlantic initiatives in the last decade indicates just what happens when each negotiating party won’t contemplate reforming its regulatory institutions. Undoubtedly the EU would face demands for visas (in order that foreign companies can better operate their supply chains in Europe), changes to competition police (especially as it pertains to mergers) etc. Of course, European negotiators will be eligible for advance searching demands of their own. Still, the idea remains, the EU must determine internally what lengths it is ready to go down each one of these paths.
That lots of of the regions of greatest interest to internationally-active business have emerged as sensitive in policymaking terms shows that initiatives here will likely start as cooperative, non-binding accords. (Given the failings of the multilateral trading system and the limited scope for negotiating RTAs mentioned earlier, binding enforceable approaches offer little realistic prospect of success, at least in the short run.) These accords could possibly be sectoral in nature or could possibly be bundled together in a "Business Compact" or some such package. There is absolutely no reason such accords must initially be brought within the ambit of the WTO, despite the fact that this is an appealing long term goal.
Reality Check 4: Create a cooperative relationship with China.
While "Follow the money" must improve the profile giving to tackling murky protectionism, it will help identify the trading partners where in fact the gains from doing this are greatest. The substantial EU corporate investments in China certainly are a case in point. Lately, complaints from European business associations, and from the few business persons ready to stick their head above the parapet, about Chinese domestic policies have intensified. The sheer size of the Chinese economy, plus its expected growth path, mark it out for particular attention in the years ahead.
The way the European Commission best represents EU corporate interests should reflect the lessons of days gone by. The limits of WTO dispute settlement have been mentioned. The incomplete nature of the WTO’s rules in lots of regions of government policy are open invitation to Beijing to retaliate against any punitive European measures. Sticks, it appears, won’t work. Carrots might. The language of partnerships is simple to use but, ultimately, there could be no alternative.
For instance, establishing parallel review processes for industrial policies in the EU and in China, whereby the expenses and great things about existing measures are enumerated and lost distortive alternatives identified in a technocratic process, may be far better in changing minds than sabre-rattling. Establishing common norms for regulatory policies that embody non-discrimination principles is another alternative, supported with monitoring, reporting, and rights of review for aggrieved parties. An evergrowing group of collaborative projects of commercial interest ought to be devised and put into as time passes, serving as constant reminder of the advantages of sustaining cooperation over discrimination. There will be bumps in the street, better that than risking one’s credibility with empty threats about sanctions.
Reality Check 5: Can EU trade policy afford another decade of failure?
The preceding reality checks imply the priority directed at the various challenges facing EU policymakers must evolve. These challenges will demand a change in emphasis so far as fora, subject material, and instruments are worried. A significant shift in mindset is most likely needed–the current approach is a recipe for continued stalemate and limited benefits for europe.
Twenty-first century trade policymaking must rediscover its roots, namely, seeking pragmatic answers to first-order commercial problems. Developments in international corporate strategy and the murky protectionism revealed through the recent global economic depression indicate a national treatment-based and transparency agenda that may be of interest to the EU, america, Japan, and the large emerging markets.
Pursuing this agenda will demand a fresh consensus among Member States regarding the negotiating room for manoeuvre for the European Commission, and for that reason acceptance that key regulatory policies may need to change in response to trading partners’ demands. Talk of propagating European regulatory models abroad ought to be replaced with a willingness to make a level playing field for twenty-first century business. This means dealing with vested interests, usually the regulators themselves.
Finally, failure to update EU trade policy risks a lot more than losing commercial opportunities. Should internal division result in further stalemate and few additional commercial benefits, then surely some medium and larger pro-trade Member States will quickly question the foundation of another deal; namely, what exactly are they getting back in return for pooling their sovereignty on commercial policy matters? These Member States have entitlement to ask what alternatives can be found to them if current arrangements usually do not deliver. Much more reaches stake that a lot of European policymakers probably realise.
Join the VoxEU debate on The continuing future of EU Trade Policy here.