The End of Multilateral Trade?

The World Trade Organization is set to meet in Bali starting today in the latest last-ditch effort to salvage something from the Doha round, which means there's a round of news stories about the significance of the meetings.  The Wall Street Journal's Ben Otto files the exemplar of this kind of story, which is worth mulling over a bit: 

The World Trade Organization this week makes what could be a final effort to keep long-sputtering trade talks alive amid mounting signs that many of its 159 members have given up on a global agreement.

After 12 years of missed deadlines—and the failure last week to agree on even a scaled-back package of measures ahead of the four-day meeting in Bali—the negotiations appear all but dead, barring a last-minute breakthrough.

Countries including the U.S. have turned instead in recent years to smaller bilateral and regional trade deals, bypassing the WTO. Just Monday, U.K. Prime Minister David Cameron called for a free trade deal between the European Union and China.

The WTO as a negotiating forum for trade liberalization has "become irrelevant," said Jean-Pierre Lehmann, a professor at IMD, a Switzerland-based business school.

Even the WTO's other main function—as an arbiter of trade disputes between members—could be at risk if trade talks break down in acrimony, Mr. Lehmann cautioned. Over the long term, the dispute-resolution mechanism risks losing legitimacy, which could result in more trade wars.

"Dispute settlement only works if there is consensus," he said. "The WTO has no army."....

The growing economic weight of developing nations like China, Brazil and India has added to the cacophony of voices, agendas and friction. Four ministerial conferences failed to make much progress, including in Cancun, Mexico, in 2003, Hong Kong in 2005, and Geneva in 2009 and 2011.

Some observers say the WTO has become less important as the nature of global trade has changed.

Scott Miller, a trade expert at the Center for Strategic and International Studies in Washington, points out that half of global trade is in components, meaning products are rarely made in one country.

Countries in those supply chains are increasingly carving out regional trade agreements. "My view is that Doha has been dead since 2008," Mr. Miller said (emphasis added).

This kind of story is both overly optimistic and overly pessimistic about the state of the WTO.  It's overly optimistic in assuming that, even if something is negotiated in Bali (and the odds aren't great of that happening), it's unlikely that the WTO will ever be the focal point for comprehensive trade talks ever again. Even getting agreement on the "easy" parts of Doha has been super-hard. There's very little upside to making the WTO the focal point of new talks, especially given that most of the regional and bilateral trade talks have been of the "open regionalism" variety. 

On the other hand, the "slippery slope" argument of the WTO losing relevance is also way overplayed.  Such a statement omits two very important facts.  First, even if there's no further WTO-guided liberalization, the rounds negotiated to date constitute far more liberalization than what can be achieved in the future.  In other words, the WTO rules still govern a lot of trade, and further liberalization won't erode the WTO's bailiwick that much. 

Second, the WTO's Dispute Settlement Understanding remains the ne plus ultra of enforcement arrangements in global governance.  Contrary to the WSJ story, there is zero evidence that WTO enforcement has weakened as Doha bogged down or as protectionism increased after 2008.  That part of the trade system is still working pretty well. 

For decades, trade commentary has implicitly embraced the "bicycle theory" - the belief that unless multilateral trade liberalization moves ahead, the entire global trade regime will collapse because of a lack of forward momentum.  The last decade -- and particularly the post-2008 period -- suggests that there are limits to that rule of thumb.  It is possible for the WTO to matter less on jump-starting multilateral trade negotiations while still mattering a great deal in enforcing the rules of the game. 

So Bali might represent the end of multilateral trade negotiations -- but it's not the end of multilateral trade. 

Daniel W. Drezner

The Hard Limits of Economic Power

If I was trying to design a case where economic statecraft would have a significant effect on world politics, I could do a lot worse than Russia's leverage over Ukraine.  Geographic proximity, cultural affinity, and Ukraine's energy dependence make that country a perfect target for Russian economic statecraft.  And, indeed, ten days ago Vladimir Putin's Russian government appeared to eke out a win from its economic statecraft.  "Under threat of crippling trade sanctions by Russia," Ukrainian president Viktor Yanukovich appeared to accede to Russian demands, rejecting the EU's Eastern Partnership and indicating that it would join Russia's planned Eurasian Union

Geopolitically, this was a Very Big Deal.  For all of Putin's Middle East diplomacy, Ukraine is far more important to his great power ambitions.  One of the very first sentences you're taught to say in Foreign Policy Community College is, "Russia without Ukraine is a country; Russia with Ukraine is an empire."  And as Walter Russell Mead blogged last week, "The EU brought a baguette to a knife fight, and was harshly reminded of the limits of soft power."

Well... not so fast.  It turns out that a lot of Ukrainians were not happy about this turn of events, and have engaged in eleven days of massive protests. Even Yanukovich's allies are now talking about reconciling with the domestic political opposition.  The New York Times' David Herszenhorn aptly summarizes the current geopolitical state of play:

Many Ukrainians see the agreements with Europe as crucial steps toward a brighter economic and political future, and as a way to break free from the grip of Russia and from Ukraine’s Soviet past. The outcry over Mr. Yanukovich’s abandonment of the accords is pushing Russia into a corner.

The Kremlin, which has supported Mr. Yanukovich as a geopolitical ally for years despite its frequent annoyance with him, used aggressive pressure to persuade him not to sign the accords. Now the anger over Russia’s role has made it all but impossible for Mr. Yanukovich to take the alternative offered by the Kremlin — joining a customs union with Russia, Belarus and Kazakhstan. Any compromise with the protesters would have to revive the accords with Europe, and reduce Russia’s sway (emphasis added).

If that bolded assessment is accurate, then Russia has lost.  Furthermore, as the Economist points out, the way Russia has lost is even more damning.  Rather than EU pressure, it is domestic discontent that has stayed Yanukovich's hand:  "It is far better for the EU that the backlash against Mr Yanukovych comes from the streets of Kiev rather than from Brussels."

It seems highly unlikely that the current Ukrainian government will resort to massive repression at this point -- which means the worst-case scenario is that Ukraine doesn't join either economic bloc.  The only way this ends as a win for Putin would be if he was able to use force to seize control -- or coerce the Ukrainian security apparatus to do the same.  I seriously doubt that he is either willing or able to pull off such a coup d'etat

Stepping back, let this be an important lesson about the limits of economic power.  As I noted at the outset, most of the conditions for successful economic statecraft had been met by this case.  Had Putin been able to get Ukraine to spurn the EU and join the EAU, the foundation for Moscow's domination over  Kiev would have been set.  The one wrinkle was the extent to which much of the Ukrainian body politic anticipated future conflicts with Russia.  That appears to have been enough to thwart Russian economic pressure.  Which nicely clarifies the hard limits of economic power as a means of affecting alignment in world politics. 

The Ukrainian desire to be part of Europe -- rather than part of Eurasia -- has disrupted the plans of The Most Powerful Man in the World According to Forbes.  Which suggests that maybe, just maybe, Forbes has no idea what the f**k it's talking about when it talks about power.