Author: Jagdish Bhagwati, Columbia University
Under regional FTAs like the Trans-Pacific Partnership (TPP), far fewer countries are involved compared to multilateral trade negotiations like the Doha Round.
The potential trade-offs in negotiations are more manageable and participant states may be more likely to make offers and examine concessions. But apart from this possible advantage, the TPP process has many downsides, and is undermining successful multilateral free trade.
Stronger countries often ‘divert’ trade from cheaper non-member sources to more expensive member sources, bringing harm rather than good. Also, the enormous growth of such FTAs, now more than 350 and still growing, has led to a systemic effect: creating a ‘spaghetti bowl’ of preferences and chaos in the world trading system … The American doctrine of inducing multilateral trade liberalisation by signing on FTAs has proven to be a chimera’.
For example, to liberalise agricultural trade, both production subsidies and export subsidies need to be eliminated. The Hong Kong Declaration in 2005 set out an agreement to abolish export subsidies. But to get rid of production subsidies a multilateral agreement (through the Doha Round), and not a bilateral one, is absolutely critical. This is because unlike with export subsidies, it is technically impossible to reduce or relax a production subsidy so that it applies bilaterally to only one country. Under a regional agreement like the TPP, this problem is only slightly reduced, because there are still not enough countries to effectively reduce production subsidies.
The Republicans in Congress are now fiercely committed to protecting US agriculture. Their continued control of the US House of Representatives will make it more difficult to reach an agricultural deal under the TPP. US business lobbies also have little interest in liberalising agriculture — they want concessions in manufacturing and services. Although it is not yet clear whether these can be achieved either, they certainly cannot be done with Doha.
Many aspects of the TPP reflect the demands of US business lobbies and are actually calculated to reduce the openness of the trade system for new members. Smaller countries, like Vietnam and Singapore, are therefore being pressured to have ‘WTO Plus’ kinds of copyright protection. The same problem occurs with respect to labour standards under the TPP.
India could never agree to these aspects. Membership of the TPP should be open to countries willing to make trade concessions, and members should not be required to sign onto all of the TPP’s provisions. For example, countries should be allowed to sign onto the ‘WTO Plus’ rules on intellectual property, or sign onto different labour standards, but meeting the demands made by US lobbyists should not be a pre-condition to joining the TPP.
ASEAN+1 and ASEAN+3, which preceded ASEAN+6, deliberately excluded the United States. But China’s aggressiveness on the external front pushed smaller Asian countries, such as Vietnam, Malaysia and Singapore, to support the TPP. The TPP thus became the United States’ way of getting back into the Asian region.
Yet US policy — wittingly or unwittingly — is moving to fragment Asia in the same way that it fragmented South America. This is where the ASEAN+6 grouping could play a role, by demonstrating to the United States that it is welcome, but only within a genuine trade grouping.
ASEAN+6’s Regional Comprehensive Economic Partnership (RCEP) can only work if it is stripped of trade-unrelated demands, but it presents an alternative to the TPP, one where other countries — even countries such as Canada and France — could be included. If ASEAN+6 has India and China joining it, they can present the RCEP as a template where no comparable side conditions will apply. However, this may mean that the United States will not join it.
Finally, the investor-state dispute settlement mechanisms being advocated as part of the TPP will invariably involve surrendering some sovereignty in order to gain other benefits. This is the case when a country joins any international agreement. The problem with the TPP dispute settlement mechanisms is that there is already an incredibly successful and wide-reaching dispute settlement mechanism at the WTO, a multilateral institution. But regional agreements like the TPP and bilateral agreements automatically generate more dispute settlements and so-called arbitration within those groups. The bigger powers within those groupings, such as the United States or the European Union, have greater clout and will therefore have more influence over those arbitration panels and their outcomes, and that will in turn eventually undermine the WTO dispute settlement process.
The WTO multilateral trade system and WTO dispute settlement system are likely to be undermined by the TPP. Smaller powers have to ensure that the WTO dispute system remains paramount. Unless these complexities are better understood, they are going to miss the boat on better multilateral free trade.
Jagdish Bhagwati is Professor at Columbia University and Senior Fellow in International Economics at the Council on Foreign Relations. He is the author of Termites in the Trading System: How Preferential Agreements Undermine Free Trade. This article is a digest of an interview with Jagdish Bhagwati, available here.