Asymmetric Trade Negotiations

Sanoussi Bilal, Philippe De Lombaerde

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317177692
• Edition: 1
• Topic: Economía
• Subtopic: Economía internacional

The slow pace of the Doha Round has boosted the proliferation of regional and bilateral trade agreements. Paradoxically, the more powerful actors, the US and the European Union, who at the same time have benefited the most from the multilateral system, have also been engaged in bilateral and regional negotiations in order to sign WTO-plus agreements with developing countries. Combining a clear theoretical exposition with systematic cross-regional analysis, 'Asymmetric Trade Negotiations' offers a coherent picture of strategic, design and political economy aspects of North-South trade negotiation processes, from African, Asian and Latin American perspectives. Skilled area specialists gather to provide negotiators and policy makers in the South with recommendations, best practices, and benchmarks and contribute to the understanding of these recent processes.

Chapter 1
The Sweep of Asymmetric Trade Negotiations: Introduction and Overview

Diana Tussie and Marcelo Saguier

Introduction

Trade always raises the old question of who gets what. Despite pretensions to ‘global’ scope and relevance, the multilateral trade system covered a highly specific and asymmetric set of rules which served the interests of global business. The extent of ‘global’ applicability of its central rules and the fairness of processes was always open to considerable question.1 The evolution of global trade regulation must be seen as the result of a history of political bargains among states of differing power capabilities. Each bargain struck put in place a new layer of regulation that creates economic opportunities for global interests (in industrial countries and sectors) while narrowing or offering less opportunities for others (in developing countries and sectors).

The trading system was composed of rules and institutions which reflect the broader US-led arrangement of strategic alliances in a permanent tension with the East-West and North-South binary axes. The United States, with its willing quasi-hegemonic allies in Western Europe, promoted and supported the General Agreement on Tariffs and Trade (GATT) because under the GATT’s consensus rule its own power was maximised. GATT members operated on the basis of a negative consensus rule. This meant that unless a member objected decision consensus was assumed. Powerful players like the US or the European Union (EU) could better absorb the costs of denying consensus, more credibly threaten objecting to a consensus and find more ways to exert pressure in order to reach consensus.

When the World Trade Organisation (WTO) was born, a new era of rule of law was believed to have come into being. Yet, the growing coverage and rule orientation of the WTO also meant that cohesion was lost. Consensus became harder to reach amongst the ever growing number of entrants with less accepting views and interests of their own. The diversity of goals and interests currently at stake and the resulting newly forged crisscrossing alliances changed the character of the institution.2 This was especially the case after the Cancun Ministerial in 2003 when the South showed that collectively they could muster the power to block consensus, endangering the underlying structure of power in the WTO. To be sure, negotiations were derailed and continue to go on seemingly forever without result; but the process of creating norms continued.

A period of slow motion was opened in which developed countries found new ways for extending some rules and evading others; a network of bilateralism agreements spread swiftly; and new binary distinctions were construed.3 With the world’s major trading power playing a trade game based on securing preferences, other trading nations saw little option but to follow suit and secure preferential deals for themselves. The upshot was a dramatic rise in the number of North-South regional trade agreements which we assert to be asymmetrical in nature.

The Oxford English Dictionary defines asymmetry as a state in which there is a disproportionate correspondence between parts. Though asymmetries are rampant and varied, we are interested in circumstances of significant disparity between contending parties where there is no consideration of such disparity or a fair chance of matching up forces in the process. Interdependent economic relations may be relatively asymmetrical from time to time. However, in these circumstances the interactions, and its outcomes, have a chance of being equally distributed and both parties are more or less equally vulnerable to the positive and the negative effects or threats of eventual discontinuations.

In contrast, the nature of asymmetry in the cases we study is such that not only the threat of discontinuation is disproportionate but that such discontinuation can cut lifelines. Hence are concerned with absolute rather than relative asymmetry. This is the case of free trade agreements (FTAs). As a result of such asymmetry, FTAs cover not only the reduction or elimination of tariffs and other non-tariff barriers on the trade of goods and services, but also broader elements that had become difficult to obtain in the WTO game such as investment rules, intellectual property rights and so on. Far from being the confused ‘spaghetti bowl’ described by some observers, FTAs are the manifestation of coherent geopolitical strategies on the part of the major trading countries.

Taking clear issue with a number of the assumptions about the GATT-era belle époque rule of law, this introductory chapter discusses the place of power asymmetries in current multilateral and bilateral trade regimes. Differences of national strength, capabilities and competence are what the study and practice of international relations is almost entirely about. But circumstances are not fixed. Since these change we need to see how the range of alternative strategies is available for developing countries affected but asymmetries in the trade system and processes.4 How can developing countries manage the terms of integration into the global economy? How do different sets of external pressures place constraints on national development strategies? What offsetting mechanisms have emerged? These questions are the centre of current challenges of the trade system with deep implications for global order and future development prospects.

Asymmetry is unavoidable. But its more destructive outcomes need not be

The underpinning of this chapter is the simple thought that asymmetry must not be viewed as static. Form and content suffer tortuous twists and remain in constant flux. In the first part we discuss the dynamics of trade negotiation processes in multilateral and bilateral fora to show to what extent they reflect, as well as reproduce, entrenched power asymmetries. These asymmetries are revealed in the unequal conditions affecting the participation and representation of countries’ interests in trade negotiations; the prevalence of reciprocity over dispensations of special and differential treatment; the recurrent bias of the agenda-setting; and in the choice of trade fora.

The second section explores the opportunities and constraints available for developing country governments to offset the unequal power structure that characterise international trade negotiation processes. To do so it identifies some of the main elements which countries can seize on to increase bargaining power in a creative process that can affect the outcome of a process of permanent and constant negotiations. To this end, we have to revert to a micropolitical approach in order to examine the conditions of asymmetry, whereby the loss of power to do certain things is compensated by seeking power with kindred spirits, collective forces and alternative partners.5 Victims act! Yet balancing cannot take place without mustering power and increased bargaining competence. Two broad strategies to confront power asymmetry are open confrontation and strategic influence. The chapter leaves aside defection, opt out strategies and open confrontation to concentrate on how countries act in alliances of convenience to address vulnerabilities and strategically influence the process in which they have chosen to persist.

Asymmetries in processes

Participation and representation

For a good 40 years after World War II, most developing countries did not perceive the GATT as a friendly or fruitful institution in which to promote their interests. Inward-oriented industrialisation and nationalist ideologies of development prevailed, turning trade relations into the crux of the North-South debate. Involvement in the GATT reflected these preferences: developing countries adopted a ‘passive’ or ‘defensive’ attitude, refraining from significantly engaging in the exchange of reciprocal concessions. Moreover, many developing countries were not members, and among those that were, many failed to maintain official representation in Geneva. The result was a situation in which developing countries had negligible obligations and liberalisation in sectors of export interest to them was disproportionately small (Tussie 1987).

The passage from the GATT to the WTO represented a major turning point in the participation and representation of developing countries. These evidenced a new willingness to take on new commitments, come out of the fringes and shed their mostly defensive pre-Uruguay Round position. Their strategic dilemma turned from expanding their rights to free themselves from prevailing rules to choosing an appropriate strategy of participation, focusing on what commitments to make and on how to micromanage a bloated trade agenda. The challenges of inclusion soon proved to be highly demanding. Developing countries learned that greater participation did not translate automatically into leverage, as they found it difficult to decisively influence the process of agenda setting and to shape the final outcome of negotiations.

As in most earlier rounds, decision-making in the Uruguay Round negotiations was ‘pyramidal’ in structure in the sense that the major trading partners (US, EU and Japan) had implicit, yet effective, veto power over the negotiation’s overall outcome (Winham 1997). Formal equality in the WTO, in which every country has an equal vote, does not translate in a democratic decision-making process. Decisions over key issues of the agenda are decided exclusively by the few major industrial countries in the so-called Green Room process during and prior to the WTO Ministerial Conferences. The ‘green room’ is the name given to the traditional method used in the GATT/WTO to expedite consultations; it involves the Director General and a small group of members, numbering between 25 and 30 and including the major trading countries, both industrial and developing, as well as a number of other countries that are deemed to be representative. Once a narrowed down consensus is obtained, agreements are passed on to exclude governments for their approval or rejection, thus legitimating negative ‘consent’ (Helleiner 2002, Kumar 2007: 5, UNDP 2001: 13–14, 77–78, Smythe 2007).

The composition of the green room tended to vary by issue, but there is no objective basis for participation. This procedure worked when most developing countries were quiet bystanders. After the significant concessions made in the Uruguay Round, developing countries felt entitled to be included in the green-room process, and on several occasions they submitted declarations stating that they would not adhere to any consensus reached without their effective participation. The subsequent ministerial meetings, especially Doha in 2001 and Hong Kong in 2005 were more inclusive and open to all members.

The democratic deficit has begun to be firmly resisted since the Cancun ministerial meeting in 2003 with the emergence of a number of issue-based coalitions. It may be too early to conclude that the influence gained by developing country coalitions is enough to remedy the undemocratic practices in the WTO. However, it certainly suggests that the leading position of industrial states in the international trade system is being contested by a group of emerging economies from the South. The broadening of participation and interest representation has reduced northern domination of the multilateral agenda and hence reduced the value of the new WTO to older established interests.

Constraints to participation and representation in trade negotiations are also derived from limited capacity of some state bureaucracies to follow complex negotiations with often limited financial resources. With the incorporation of the ‘new issues’ (services, intellectual property rights and investment measures) at the Uruguay Round, trade negotiations shifted the policy focus from border barriers – as it had been under the GATT – to domestic regulatory and legal systems. This introduced great complexity and technical sophistication to the negotiations, making knowledge a strategic and highly valuable asset. Poor countries with limited access to this kind of technical information became invariably disadvantaged in comparison to industrial countries with sufficient resources to produce information to assist negotiators. Countries with insufficient resources fell into a ‘knowledge trap’ (Ostry 2007: 28) which, in turn, further reinforced existing asymmetries in the trading system.

This limitation is even worse in cases of countries that do not have a Mission in Geneva where the WTO is headquartered, or others that are understaffed or unable to adequately follow the discussions and the negotiations (Tussie and Lengyel 2002). This invariably affects their capacity to participate effectively in the WTO system – to take advantage of their rights, defend their interests and even meet their obligations. In this regard, the Uruguay Round imbued the multilateral trading system with a structural asymmetry that served to disadvantage poor developing states (Ostry 2007).

Weak bureaucracies and limited resources is also an impediment for poor countries to use the WTO Dispute Settlement System (DSS). This mechanism was introduced to constrain power and so protect weak states from the bullying and arbitrariness of the strong. At least in principle, this creates incentives for developing countries to participate in the multilateral trade system. It also increases their bargaining power in multilateral negotiations, allowing them to obtain greater concessions from more powerful states than in bilateral negotiations (Davis 2006).

However, in practice developing countries are restricted in their use of the dispute settlement mechanism due to the high costs involved in taking retaliatory action against an erring country (UNDP 2001: 12). The ‘juridification’ of the trade process has made access to expensive legal services a necessity, which in most cases poor countries cannot afford. This creates an asymmetric situation, since when large countries ‘breach the agreed rules at the expense of the small and ill-endowed, the cost of a legal challenge may exceed the financial capacities of the latter (or, in some cases, even the relevant trade losses)’ (Helleiner 2002: 327).

In addition to financial limitations of developing countries to use the dispute settlement system, there are also political costs which can often act as effective deterrents. The mere threat of anti-dumping action, for instance, is enough to discourage small exporters without the wherewithal to launch a legal defence. Pressure used to deter countries from dissonant behaviour includes threats to withdraw food aid or market access benefits under the Generalised System of Preferences (GSP) or, as in the case of Bolivia and Ecuador, from the Andean Trade Promotion and Drug Eradication Act (ATPDEA).

Unequal conditions are even greater in bilateral or inter-regional trade processes than in multilateral processes. The lack of technical capacity has been a key factor in weakening the positions of governments in the negotiations of preferential FTAs with the US or the EU – particularly in relation to negotiations of intellectual property rights (Díaz 2008: 102).6 From the US and EU perspective, the opportunity of obtaining a WTO-Plus regulatory setting for intellectual property rights, investments and services provision holds out obvious advantages to push special interests. In this regard, bilateral trade agreements are not even subject to a minimal degree of international consensus to smooth problems of governance and compliance.

Reciprocity vs. special and differential treatment

In international trade negotiations asymmetries are also evidenced in the predominance of the principles of reciprocity and the single undertaking at the expense of the use of the special and differential (S&D) treatment principle. The Most Favoured Nation (MFN) principle was originally introduced in the GATT in order to prevent strong countries from exercising undue power against smaller countries through trade discrimination. However, equal treatment among unequal partners constitutes a form of discrimination in itself, since this assumes that all countries have the same economic conditions to be able to participate and benefit from international trade. The principle of S&D was incorporated in the GATT in recognition that the multilateral trading system consists of countries at markedly different levels of development.

Broadly reflecting these concerns, S&D provisions are designed to accomplish two objectives: to enhance the market access conditions facing the beneficiary countries, and to exempt them from certain multilateral trade disciplines and thus give them some flexibility in the use of various trade and trade-related measures. In operational terms, enhanced market access has been implemented through trade preferences offered by the industrial countries on an individual basis to specific countries. The right of the developing and least-developed countries to regulate access to their own markets is operationalised through substantial exemption from several GATT/WTO disciplines. The exemptions enable them to use quantitative import restrictions for both infant indus...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of Figures, Tables and Boxes
• List of Contributors
• Acknowledgements
• List of Acronyms
• 1 The Sweep of Asymmetric Trade Negotiations: Introduction and Overview
• 2 The Scope for Asymmetry in the World Trade Organisation (WTO)
• 3 Asymmetric Trade Negotiations for Development: What Does the Experience from the ACP-EU Economic Partnership Agreements Tell Us?
• 4 Comparative Asymmetric Trade Negotiations in the Southern Cone: FTAA and EU-MERCOSUR
• 5 Venezuela in Asymmetric Trade Negotiations: The Cases of Negotiations in the FTAA and with the EU
• 6 Negotiating the Colombia-US FTA: A Colombian Perspective
• 7 Negotiating the Thailand-US Free Trade Agreement
• 8 Postscript: Asymmetric Trade Negotiations After the Turn-of-the-decade ‘Global’ Financial Crisis?
• Index