The 1995 creation of the WTO – as an institutional extension of the GATT - held out the promise of an effective, rules-based world trading system where all countries were treated alike. In addition to establishing a global judiciary for trade disputes, the WTO was expected to provide a forum for trade negotiations and other related functions. Progress on the judiciary side has been brilliant, but the negotiation promise has yet to be fulfilled (Messerlin 2012).
Recent developments, however, have thrown the world trading system into a state of flux causing uncertainties over global trade governance under the WTO (Lester 2013). This column introduces a new Asian Development Bank Institute (ADBI) and VoxEU eBook, The Future of the World Trading System: Asian Perspectives (available to download here). The eBook presents 19 chapters by trade experts from Asia and beyond reflecting on the state of the world trade system and its future.
There is little doubt that the world trading system has changed fundamentally over past years with the rise of emerging markets, the expansion of international production networks and supply chain trade, signs of new commercial and industrial policies, and the spread of trade-agreement-led regionalism. These developments are all here to stay but the WTO has not kept up with them. Furthermore, the WTO Doha Round has been going on for more than a decade. Despite being the longest multilateral trade talks in history, it shows no signs of concluding anytime soon. WTO centricity in global trade governance is eroding and risks continuing to erode (Baldwin 2008).
Asia’s rise and regionalism
The rise of Factory Asia through supply-chain trade has placed it increasingly at the heart of the global economy. The slicing of production stages into geographically separate stages illustrates how Asian countries uniquely interact with each other through trade and investment. Trade and regional integration are likely to influence the Asia’s future growth, with some predicting that the region will account for over half of world GDP by 2050.
Asia is also experimenting with new approaches to free-trade agreements and economic policies to sustain economic growth amidst a fragile world economy. Bilateral trade agreements are spreading with the risk of a troublesome Asian “noodle bowl” of different, competing tariff schedules, exclusion lists, rules and standards (Kawai and Wignaraja 2009). Additionally, there are two competing mega regional proposals for trade-agreement consolidation - the Regional Comprehensive Economic Partnership and the Trans-Pacific Strategic Economic Partnership (Wignaraja 2013). How Asia thinks and acts on these issues will likely influence the world economy.
As Pascal Lamy, Director-General of the WTO writes in his essay:
“Asia has been a successful model of development through trade, which has inspired many others around the world. There is no doubt that the region will continue to inspire the trade community in the next decades to come.
With its significant economic and trade weight in the global economy, Asia is expected to shoulder more responsibilities and take the lead in the global trading system in the future. Their contribution to a successful WTO Ministerial Conference in Bali in December 2013 will be essential.” (Lamy 2013)
Policy insights from Asia’s experience
Asia’s experience of open trade-led development offers many valuable lessons for other regions. These include the importance of pursing market-friendly trade and industrial policies to develop supply chain trade, improving surveillance of non-tariff measures, and consolidating trade agreements into a large region-wide one. Using more accurate data to measure value-added trade and participants in supply chain trade (e.g. small firms) provide empirical insights for policy development.
In the longer term, better coherence is vital between Asia’s regional trade rules and global trade governance. Improving the quality of large Asia-wide trade agreements, a WTO agenda on supply chains and trade agreements, and significant reforms of the WTO are necessary moves towards this end. Issue-based plurilateral agreements and an eventual multilateral agreement on investment can also play a role in facilitating coherence between regional and global rules on trade.
The debate on global and regional trade governance in the new era is a work in progress and we hope that this e-book will better inform the search for policy options. ADBI, Vox and CEPR look forward to hosting further policy commentary and analysis as they arise.
Editors’ note: Download The Future of the World Trading System: Asian Perspectives, edited by Richard Baldwin, Masahiro Kawai and Ganeshan Wignaraja for free here.
Baldwin R, M Kawai and G Wignaraja (eds) (2013), The Future of the World Trading System: Asian Perspectives, A VoxEU.org eBook.
Kawai, M and G Wignaraja (2009) "Tangled up in trade? The “noodle bowl” of free trade agreements in East Asia", VoxEU.org, 15 September.
Messerlin, Patrick A (2012), "Keeping the WTO busy while the Doha Round is stuck", VoxEU.org, 29 July.
Lester, Simon (2013), "How much global trade governance should there be?", VoxEU.org, 20 January.
Lamy, P (2013), "The Future of the World Trade System: Asian Perspectives", in R Baldwin, M Kawai and G Wignaraja (eds) The Future of the World Trading System: Asian Perspectives, A VoxEU.org eBook.
Wignaraja, Ganeshan (2013), "Evaluating Asia’s mega-regional RTA: The Regional Comprehensive Economic Partnership", VoxEU.org, 6 April.
Baldwin, Richard (2008) "The WTO tipping point", VoxEU.org, 1 July.