September 10, 2014

GED at the Global Economic Symposium (GES) in Malaysia

The Global Economic Symposium was held in Malaysia on September 6th – 8th. “Restructuring Economies, Transforming Societies” was the theme of the conference in Kuala Lumpur. Participants from government, business and academia worked on developing specific solutions for global problems in a variety of workshops and discussion groups.

Global Economic Dynamics took part in the session “Shaping a Free and Fair World Trade Order”, with GED Director Andreas Esche at the podium. The other discussion participants were: Pascal Lamy, former EU Commissioner for Trade and Director-General of the WTO until 2013; Richard E. Baldwin, Professor at the Graduate Institute of International and Development Studies in Geneva, Gita Wirjawan, former Trade Minister for Indonesia, Renato Flores, Professor at the Graduate School of Economics/EPGE in Rio de Janeiro and Gabriel Felbermayr, Director of the Ifo Center for International Economics in Munich.

Free trade agreements 2.0 – a new era

The discussion focused on the effects of the rapid increase of regional trade agreements (RTAs) and the emergence of “mega-regionals” – major regional trade agreements like the TTIP or TPP – on the global economy and the future of multilateralism and the WTO.

Richard Baldwin separates the previous regional trade agreements into three different categories: What he calls “Free Trade Agreements 2.0” – which includes the TTIP as well as the Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP) – set completely new standards. In Baldwin’s opinion, these new mega-regionals strive primarily for regulatory convergence and cooperation. The second category encompasses traditional bilateral or regional agreements negotiated with the WTO that promote market access. Smaller bilateral investment agreements fall into the third category.

A new role for the WTO?

Professor Baldwin holds the opinion that the role of the World Trade Organization needs to be redefined with regard to Free Trade Agreements 2.0. The involved mega-regionals need to take sole responsibility for the process. The WTO needs to pull back in this area, but still focus on traditional topics of market access.

By contrast, Professor Renato Flores spoke strongly against changing the WTO’s role. The Brazilian considered the Transatlantic Free Trade Agreement more of a political power play than a classic trade agreement. The agreement among the major players is an attempt to impose their standards on the rest of the world – a less acceptable option for non-member countries. To prevent that, the World Trade Organization needs to remain the most influential negotiating party.

Positive effects for non-member countries

Richard Baldwin continued to argue the case for “regional multilateralism”, which he believes could have thoroughly positive aspects for non-member countries. While standard-setting would be subject to the sovereignty of mega-regionals, the WTO in its changed position could concentrate more heavily on monitoring and act as a clearinghouse. This would ensure significantly greater transparency in the future.

Gita Wirjawan added another aspect to the discussion. We cannot lose sight of the extent to which the backgrounds of various trade agreement partners can differ. The people involved have a vast array of backgrounds and experiences shaped by completely different eras: The Middle Ages, present and future often sit together around the negotiating table.

Pascal Lamy relented, saying that there certainly are many different perspectives on the new 2.0 agreements. Skeptics ask about the consequences that could result from having a few parties setting the standards. Others see themselves in the role of the doer, the only one taking responsibility for progress.

How will the TTIP become a success?

In the last part of the discussion, the question was posed about the actual implementation of the TTIP. While Lamy believes that the agreement’s realization is only a matter of time, GED Director Andreas Esche took a much more reserved position. Surveys show that certain segments of the population reject the agreement, which has negatively impacted the debate, according to the GED Director. Lamy presented his proposal for a solution: a clear and transparent line of communication. As negotiation partners, Europe and the USA would need to include the strongest-possible consumer protection and security regulations in the first draft without limitations. It is a fallacy to believe that low standards could lead to higher profits, according to the former WTO Director-General. Although this initially would mean a more labor-intensive certification process, it would prevent many local evaluations. Therefore, only jointly-defined standards of the highest level are suitable for reducing trade costs over the long term. Alignment at the highest security level – a trade recommendation that all panel participants could agree on.