Role of the Multilateral Trading System in Global Governance

Arshad Balwa June 2013, Geneva

Role of the Multilateral Trading System in Global Governance

The WTO espouses a world where trade is carried out without discrimination, is freer, is predictable, is more competitive and more beneficial for less developed countries1. The aim is to use the gains from trade as a means to raise the living standards all around the world.2

The principles of the trading system have evolved since the emergence of mankind. In the medieval times, kingdoms forged alliances in the name of kinship, religion, race, etc. Such alliances formed the backbone of trade These alliances and treaties

between the subjects of these kingdoms.

between kingdoms were enforced in the name of blood and honor, through war. With the advent of democracy and its increasingly global prevalence,

global trade between countries today is expected to reflect the will of its citizens. Democratically elected governments are, in Lincolns famous phrase, government of the people, for the people and by the people, and undoubtedly trade both internal and external is at the heart of the governance mandate provided by the people. The collapse of the USSR brought an end to the trading blocs created through the policy of balance of powers. Since then the world and its nations are no longer aligned solely on political ideology. In this post-ideological age, trade has become the driving force for building new partnerships. This new world order has created interdependence between mankind. Countries can no longer afford to go to war as they used to in the past.

Our generation is the first since the dawn of history in which mankind dares to believe it possible or practical to make the benefits of civilization available to the whole human race.3 But to realize this potential in a complex world of almost 200 sovereign national governments, global governance on issues that affect many nations, has become imperative.

Many institutions are at the forefront of global governance. The UN and its bodies deal with a myriad of issues. However, in todays world, at the heart of the agenda of most nations, is the agenda to improve the living standards of people. It is common place to describe the WTO as one of the pillars of the global system of economic governance; it underpins the liberalization of the real economy of goods, services and in some cases investment which has contributed so effectively to global growth.4 The WTOs basic objective is of a world where trade is undertaken without discrimination, sans barriers, is predictable, is more competitive and more beneficial for less developed countries, is in tune with basic human nature and values. governance. It is thus in tune with democratic principles and good

History has witnessed many a conflict where the underlying agenda was economic prowess and imperialist expansion. With the advent of peace and the end of Cold War, trade has now become the principle source of reconciliation. Cobden, the renowned 19th Century British statesman, hoped

that he had began genuinely to persuade the peoples and government of Europe that free trade could be not only a law of wealth and prosperity but a law of friendship a web of concord woven between people and people.5 There is enough empirical data to suggest that free trade is the foundation for lasting peace. Polacheck argues that a 1% increase in trade would

decrease conflict [increase co-operation] by between 0.15% to 0.19%. Thus doubling trade between two countries would lead to about a 15% to 19% decline in the net frequency of dyadic hostility.6

The world has witnessed many wars since the beginning of the 18 th century. It can be argued at the fundamental level, that most of these wars were intertwined with the perceived economic interest of the countries at war. Lasting peace results in long term prosperity for people. Commerce promotes peace because violence has substantial costs whether these are paid prospectively or contemporaneously.7 This is also consistent with the history of the post World War II period, when trade expanded greatly, even relative to production, and inter state violence fell dramatically.8

Ronald Reagan once famously said trade brings peace. If this is seen the context of India Pakistans rocky relationship, it seems clear that the absence of deep trade links between the two countries has often enabled brinkmanship. In fact, the military spending by both these nations on their armies has had a great negative effect on economic growth of both these countries, albeit a little less so in the case of India. A Regional Trade

Agreement between India and Pakistan which is truly promoted by the respective Governments and which has the potential of increasing trade exponentially will diminish the chances of a military conflict between the two nations, and improve the ties between the two nations and its people. Deep trading ties between nations generally deter leaders from taking hardline positions in favour of compromise and trade.

Montesquieu sums this up by writing that commerce cures destructive prejudices.9 An institutionalized trading system like the GATT/WTO order puts in place a mechanism for peaceful dispute resolution in cases where the parties concerned are unable to resolve their difference within a defined framework. The leaders of the disputing nations are able to work within the global governance framework provided by WTO.

It is clear that for any trading system to succeed, it must achieve the objective of greater good, that is, to improve the standard of living of people and reduce poverty and bring about lasting peace. However, Pierre Jacquet, Jean Pisani-Ferry and Laurence Tubiana argue that to ensure that decision taken for international integration are sustainable, it is important that populations see the benefits, that state agree on their goals and that the institutions governing the process are seen as legitimate. These three

conditions are only partially being met. I agree with their assessment that the success of the global governance framework on these fronts has only been partial.

The primary reason, in my opinion, behind their assessment is the fact that the WTO, which is at the center of this global governance framework, is a consensus based organization, based on the principle of one country one vote. However, the countries that make up the WTO have disparate

economic and political agendas. Moreover, it is my belief that even though national trade representatives represent their home states economic and political interests, more often than not there is not enough domestic debate on international issues within these countries. WTO Director-General Pascal Lamy argues that the exercise of democracy today needs an international dimension. The fact that citizens elect the Governments that represents them in global institutions is not self sufficient to ensure the legitimacy of international organizations. National actors, political parties, parliaments, civil society, trade unions and citizens need to ensure that the issues discussed and decided at the global level are carefully explored, first, at the domestic level.10 I believe that for global governance to gain legitimacy of purpose, it is imperative the people of this world know about it and accept it.

In India, for example, most of the nations 1.2 billion people dont even know the meaning of trading systems or global governance. However, people do know about poverty reduction. It is therefore necessary that for

Trading Systems to succeed, the agenda for Global Governance must be poverty alleviation and improvement of living standards. Obviously, every

nation will require a different strategy, but the central theme remains the same.

Unless these objectives are achieved or substantial progress is made, no meaningful purpose would be achieved. It is important to emphasize that global governance is an outcome of domestic governance and that global governance can only succeed if domestic governance succeeds. The

population of the world is growing, and in 100 years, we might well number more than 16 billion. The future conflicts seem likely to be over fundamental issues such as water and food. Mankind has to learn to co-exist and plan for the future. Global governance is the only way forward if man has to survive in the future. I believe that the world must start putting together a Global Constitution. No doubt it may take years and even decades to agree on

something like this.

However, global governance and institutions such as WTO can be the catalyst for such a Global Constitution. This can be done by asking How do we enable countries to rise from poverty? instead of How de we maximize trade and market access?11. It is without doubt that for trading systems to succeed, global governance more broadly must succeed.

The preamble of the WTO must be implemented in letter and spirit. The WTO should be conceived of not as an institution devoted to harmonization and reduction of national institutional differences but as one

that manages the interface between different national systems.12 Pascal Lamy argues that to ensure legitimacy, we need a common and representative debating chambers, because there can be no appropriation of political will without it, the basis of democracy, we will not succeed in creating a real international Community unless we make a determined effort to create such an arena for dialogue and politics13

The world we live in demands that equality be the guiding principle for trade. Global Trade today is mired in conflict between the advocates of free trade and protectionism. Although thinkers, economists and politicians

have strong views on both sides of the fence, historical data conclusively establishes that countries prone to protectionism, do not fare as well as the countries embracing free trade. The fundamental principle of a trading

system provides for a level playing field amongst countries and movement of goods and services without unreasonable impediments. must serve as the backdrop of governance. These principles

In 1749, Montesquieu wrote

Commerce polishes and softens barbaric ways as we can see every day14

After a long struggle, the Uruguay Round was completed in 1994, leading to the establishment of the WTO as a formal rules-based organization governing multilateral trading relations, succeeding the ostensibly provisional, albeit venerable, GATT. The WTO system has led to the advancement of greater economic equity in trade relations between member countries. Many

of the initial misgivings of smaller and developing nations have been dispelled through the progress achieved so for. Hitherto unknown to international

trade, the idea of fairness has now been firmly established as a guiding principle for all trade negotiations.

The fact being, an institutional framework can support good governance within member countries. It is also facilitates global governance. If conflicts are to be avoided, the world and its leaders must move quickly to embrace the multi-lateral system within a legalistic framework. The world

and its nations exists in a complex environment. Each nation has its interests closely linked with the others. In such a situation an institutionalized

mechanism is required to have an alignment of objectives. It is impossible that all notions will be able to align all their objectives. However, it is

certainly possible that over a period, through constant dialogue and negotiations, many of the most important and contentious issues may get aligned.

At the WTO, through dialogue conducted under the aegis of an institutionalized trading system, countries are under obligation to follow good global governance standards. Consensus based decision-making enables and fosters good global governance. The dispute resolution mechanism further cements the primacy of Global Governance amongst countries.

The stagnation of the Doha Round should not be seen as a setback, in fact, it should be considered as the beginning of exchange of ideas between the nations of the haves and the nations of the have-nots. History manifests

itself in many ways and seen from the hourglass of history, a decade invested in dialogue is but not a second.

Eventually I believe, much will be achieved and the future generations to come will look back at the visionary work done by the founding fathers of global governance, including the path breaking initiatives of the WTO in putting together a trading system for all times to come which will in turn lead to better life for the human race.

Reference 1. 2. 3. WTO Website The Global Governance of Trade. As if Trade Ready Mattered Dani Rodrik. Arnold Toynbee Uneseo (1996). Our creative Diversity Report of the world commission on culture and Development, summary version, Unesco Paris. 4. Multilateral Trading system and Global Governance after Done. Deutsche Gesellschaft F. Auswartige Politik (German Council of Foreign Relations) 5. 6. 7. Read D, Cobden and Bright : A Victorian Political Partnership, London : Edward Arnold 19677. Solomon W Polachek Crossroads ISSN 1825-7208 Vol.5, no.1PP.119-151 HarvardHegre & Ors. Trade does promote peace : new simultaneous estimates of the reciprocal efforts of trade and conflicts. 8. 9. 10. Gurr, Marshall & Khosla, 2000: Harbon & Wallensteen, 2007:625; Gleditsch, 2008 Spirit of Laws (1749) Quoted in Forbers 1997, 2 Pascal Lamy Director General of the WTO Addressing the audience at Bilkent University, Ankara on 15/03/2013 11. 12. 13. 14. The Global Governance of Trade As if Development Really Mattered by Dani Rodrik The Global Governance of Trade As if Development Really Mattered by Dani Rodrik. Pascal Lamy Director General of WTO Inangnal lecture at Institute detudez de Paris 21/10/2005 (quoted in Hirschman 1982 1464) (Forbes 1997)