Authors’ Concluding Response: Assessing the Case for More Plurilateral Agreements

Editor’s Note:  This is the authors’ concluding response in a series of posts discussing the article in the current issue of EJIL Vol. 26 (2015) No 2, by Bernard Hoekman and Petros Mavroidis. The original post is here. See also the  posts  discussing the article by Junji Nakagawa, Diane Desierto, and Geraldo Vidigal.

We have profited a lot reading the responses to our article by our three colleagues. Undoubtedly, this discussion will help us streamline our thinking going forward, since we believe the discussion regarding the institutional design of the WTO is about to start. Indeed, the passage from the Tokyo round ‘GATT clubs’ approach to the ‘WTO single undertaking’ was not discussed in depth among the institutional stakeholders. It is high time it takes place now, and this is what we hope our contribution will help happen.

We would like at the outset to set the record straight regarding property rights on this issue. We claim no originality in making a case for more plurilateral agreements (PAs). The main contribution on this front is a paper by Robert Z. Lawrence (2006), to which we refer a number of times in our article, and which, surprisingly had been left unanswered. Lawrence brought together discussion that preceded him, and provided a clear framework to think in concrete policy terms about clubs within the multilateral system. Academic literature on ‘clubs’ or ‘codes’ (the term used during the Uruguay round, in the GATT, and more generally, “minilateral” liberalization and cooperation goes back to the 1980s). A notable contribution on this score is B. Yarborough and R. Yarborough (1992), Cooperation and Governance in International Trade: The Strategic Organizational Approach.

Our basic point, simply put is that there are three factors that all bolster the case for PAs, and the ensuing ‘club of clubs’ approach originally advocated by Lawrence almost ten years ago. These factors are:

• the proliferation of PTAs (preferential trade agreements) following the advent of the WTO, that is, at a time when tariffs are at an all-time low. Modern PTAs deal to a significant extent with regulatory matters;
• the geo-political dynamics associated with the rise of China and other emerging economies; and
• the fact that the trade agenda increasingly centers on regulatory differences, an area where the ‘single undertaking’ approach has not proved to be much of a success.

There is one more clarification regarding what our article does not purport to do: offer a “way to save the multilateral trading system”.  Indeed, this was not even contemplated anywhere. Our analysis would have focused in other instruments as well, if this had been the case. We have simply argued that PAs can play a useful role in fostering cooperation in new areas and offer a means for gradual multilateralization of new rules of the game that are being developed in PTAs. Our thinking has been influenced by the trade agenda as it has developed over the years, the appetite for trade deals evidenced by the hundreds of PTAs notified to the WTO and the recent shift towards mega-PTAs, and the fact that some of the most far-reaching, in principle at least, discussions (like the TiSA initiative regarding trade in services) take place outside the confines of the WTO.

Moreover, we are fully cognizant of the limits of the argument for PAs. We note explicitly that PAs are not and cannot be a substitute for broader market access deals of the type that is being pursued in the DDA (Doha Development Agenda). We note clearly in the article that such deals require the big players to agree and that PAs are not a vehicle for this. We do not support the view that a DDA deal is hard because there are so many developing countries. In our view, the DDA is stuck because a handful of the largest players, and most notably the US and China, could not agree on some of the issues involved. On this point, we fully agree with the analysis by Bob Wolfe in a recent World Trade Review issue).   A normative call that WTO members should move to a new “WTO 2.0” that will maximize world welfare is hardly an operational proposition absent some additional thinking. Analysts need to recognize, in particular, the incentive structures that confront governments and the underlying political economy that drives policy and that has led to the current situation.

Our advocacy for more PAs under the umbrella of the WTO should not be inferred as indicating that we are against PTAs, in principle. There are good reasons why countries may pursue deep PTAs that aim at integration of markets. That is how Germany was created (Zollverein). That is how the European Union was established, a process that allowed 28 diverse countries to become a single market. That is how other countries are moving forward on integrating their economies in different dimensions. The Pacific Alliance effort to integrate their capital markets by creating one stock market offers a good illustration in this respect. PTAs are not just economic agreements. They often have political goals such as cementing a peace. This is not something that can or should involve 160+ countries–nations that have different objectives and asymmetric preferences.

We agree with the opinion advanced in at least one of the critical comments that the ATF (Agreement on Trade Facilitation) offers a good model for moving forward on some issues on a concerted basis. In fact, one of us has written on this in some depth. Incidentally, in our EJIL article we argue that any new PA should include technical assistance and capacity building along the lines of the ATF. On this score, therefore, there is no disagreement between us, and our respondents.  But the ATF is one instance. There are policy areas, where it will make sense to move from a PTA-focus to a PA focus. In PTAs, participation is explicitly limited and discriminatory and there is usually no mechanism for expansion in country coverage — in part because the PTA deals with many other issues and generally does not have an accession clause. Facilitating additional PAs may allow gradual multilateralization of rules in a specific area.

In short, we do not think PAs are a panacea, and indeed we did not advance any argument to this effect. Our view is that there is a good case for moving on multiple fronts and that PAs can help ensure that WTO remains policy-relevant. To demonize clubs is counterproductive, there are 500 of them around. To integrate clubs into the multilateral disciplines is what this article is all about. For the reasons we mention in the article, PAs keep the umbilical cord to the WTO much tighter than PTAs do.