Developing countries have not been powerful actors in global governance. It investigates the notion of institutional inequality in the WTO and it explores the extent to which bilateral and mega- regional trade agreements challenge the WTO as a multilateral decision-making forum for global trade rules, how mega-regionals emerge in response to power shifts in global economic governance, and how the rising powers are reacting to the changing landscape of trade governance.
This article argues that some members of the WTO, the dominant ones, benefit from the current process of layering, shopping, and shifting. These mechanisms, as is argued in this paper, have become considerably more relevant due to the emergence of mega-regional trade agreements.
The article shows that when examining how the institutional status quo limits institutional changes within the WTO, the situation outside that multilateral forum also must be addressed. The behavior of actors within individual organizations like the WTO must be analyzed — as well as the wider institutional context which may involve other organizational mechanisms to increase, balance, or reduce inequalities. The remainder of this article discusses the role of rising powers in the WTO and explores the emergence of bilateral and mega- -regional agreements and the implications for the global governance of international trade, focusing on how rising powers are reacting to the changing landscape of trade governance and the repercussions for developing and emerging economies.
In the Doha Round, the traditionally dominant powers began to be more open to the idea of altering the old hierarchy.
Changes were accelerated when, prior to the Cancun Ministerial in , the EU and the US introduced a joint proposal on agriculture that triggered strong opposition from developing and emerging economies and encouraged Brazil and India to cooperate. Less powerful countries also got more say in different stages of WTO negotiations.
Then, in , it was invited to join the inner circle Hopewell By building successful coalitions, Brazil and India became the first countries capable of challenging the traditional powers, overturning the old power structure, and emerging as key new actors in the WTO. However, coalitions tend to be less stable and effective than economic might. During the final night of the Ministerial in Nairobi, at the meeting of the inner circle of negotiating countries, India and China fought for clear language reaffirming the continuation of the Doha negotiations.
During the marathon negotiations, India apparently yielded ground while the US and the EU — with Brazil — managed to secure a substantive agreement about eliminating agricultural export subsidies, which many hailed as a milestone. Brazil and India were highly dependent on the backing of other states.
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Another source of instability for rising powers and developing countries is that the old powers have better outside options beyond the WTO. Arguably, the multilateral system became increasingly unequal during the first decades of its existence, with the Quad countries establishing a hierarchical order of states and tendencies towards exclusiveness. Especially following the Uruguay Round of trade negotiations and during the Doha Rounds, efforts have been made to better include emerging and developing countries in the agenda-setting and negotiation processes, reducing the procedural inequality.
Normative demands usually favor equality over inequality. Recent global economic power shifts and the rise of new powers have reduced inequality in the distribution of economic capabilities, which in turn could foster more equality, both formally and informally.
However, as subsequent sections illustrate, the prospects for less institutional inequality in the global trading system have fewer clear-cut positive implications than might be expected. An examination of the whole trading system — including the free trade agreements that are mushrooming outside the multilateral regime — underlines the significance of the institutional status quo of formal equality in the WTO.
In response to changes in the WTO that create more equality among all the member states, the powerful members can simply set up new, even more unequal institutions that weaken, and to some extent replace, the multilateral institution. This process can be illustrated in the context of the global trading system: The slow progress of the Doha negotiations has led to debates about reforming the trade regime, such as by abandoning consensus decision-making for majority voting.
However, such reforms have not been instituted. Instead, deadlock in the WTO rather generated an institutional innovation to sidestep the blockage through more and more bilateral and mega- regional rather than multilateral approaches. But bilateral and regional trade-rule-making tends to entail more inequality than multilateral trade-rule-making because less powerful countries have fewer — if any — options to veto the proposals of the more powerful, and fewer opportunities to create coalitions.
Recently, mega-regional trade negotiations have become increasingly relevant. If mega-regionals like the TPP and TTIP are established, a number of third countries, including rising powers and developing countries, are likely to suffer from the negative impacts of these agreements. Trade agreements lead to trade diversion effects.
For example, lower trading costs between the USA and the EU would lead to increased trade between the two economies and reduced trade with third countries.
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Moreover, with regard to TTIP, the US and the EU will write new rules in areas such as intellectual property rights which could raise the threshold for enterprises which seek to enter the North American and European markets. TTIP is expected to negatively affect a number of developing countries and emerging economies including China Felbermayr et al. So why are third parties — all the countries excluded from mega-regional negotiations — willing to accept institutionalized inequality in the context of the rise of mega-regional agreements?
Many have no choice. They probably will have to respect the rules of mega-regionals in the future even though they have had no say in shaping them. They also cannot stop these initiatives that are occurring outside the multilateral trading system. In the context of TTIP and TPP, strong states, led by the US and the EU, write institutional rules which benefit them and generate positive Pauwelyn as well as negative externalities, for instance through trade diversion.
All the states that are not at the negotiation table for the new mega-regional agreements will end up being rule takers with regard to many of the important trade rules of the future. Moreover, the better outside option of the old powers in the context of mega-regionals puts the rest of the WTO membership under pressure. For example, given the proliferation of bilateral and mega- regional agreements at the WTO Ministerial, many member states, including the rising powers, felt they had to agree to the proposed Nairobi Package.
This is bad news for developing countries: Especially less powerful, poorer countries need the WTO in order to have a better chance to be heard. The countries that are relatively insignificant in terms of economic status and geopolitical position have the most to fear from mega-regionals. African countries, for example, are not part of any mega-regional negotiations.
RISING POWERS QUARTERLY
On the other hand, rising powers are in a better position to enter the competition for regional trade partnerships due to their economic and political weight. Indeed, China has put the spotlight on this challenge.
It has also been actively promoting regional trade partnerships, pushing the Regional Comprehensive Economic Partnership RCEP , a proposed mega-trade agreement in Asia. More recently, China has begun to take interest in joining other mega-regionals, above all TPP. While India is participating in the RCEP negotiations, the country has not been pushing other regional and mega-regional initiatives.
Looking at the reality on the ground, though, how far along are banks in their digital transformation? While progress is being made towards digitalisation, document verification is a notable laggard when it comes to removing the use of physical paper. To what extent has your bank removed the use of physical paper for documentary transactions? Please indicate the maturity of your organization in using technology solution to achieve benefits such as reduced time and costs as well as improved associated with trade related due diligence?
Rising Powers in the Global Trading System – China and Mega-Regional Trade Negotiations
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Digitalisation will make trade more inclusive. We need to do everything we can now to stimulate growth. Trade finance is an obvious place for policymakers to start. Roberto Azevedo. Arancha Gonzalez. Sukand Ramachandran. Natalie Blyth. John W. Denton AO. Sir Michael Rake. Highlights Where will future gains come from? New players, new places: Banks expect medium-term gains from non-bank entities and greater geographical coverage Please indicate what you consider to be the priority areas of development and strategic focus for your bank in terms of growth and evolution in the financing of international trade?
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