Plurilateral trade agreements: an overlooked but powerful force for international trade opening for Asia?

by Ganeshan Wignaraja, Matthias Helble, 
February 2015

After more than a decade of inconclusive talks, a small but important step was taken in late 2014 to finish the Doha Round negotiations of the World Trade Organization (WTO). In 2015 and beyond, actions to arrive at a Doha Round Agreement should be accompanied by embracing new plurilateral trade agreements within the WTO. This move can benefit growth and development in Asia.

The 27 November 2014 WTO General Council Meeting at last brought a positive outcome to a rather difficult year for the trade diplomats in Geneva. After India and the US managed to reach an agreement on public stockholdings for food security purposes, WTO members finally adopted the Bali Package. Director-General Roberto Azevêdo strongly welcomed this commitment to the multilateral system by WTO members. In addition, the members agreed during the meeting to develop a work programme by July 2015 on how to move forward on the remaining Doha Development Agenda issues.

The core themes of the work programme will be agriculture, non-agricultural market access, and services. In the area of agriculture, the key challenge will be to find a permanent solution for the issue of public stockholdings. In light of the difficult negotiations, Director-General Azevêdo urged members to consider what is “doable” and to set “reasonable goals.” It thus seems that he is convinced that the DDA can only be successfully concluded if all WTO members lower their ambitions. For the 20th anniversary of the WTO as well as the 10th Ministerial Conference in 2015, it might be more important to have a shallow agreement rather than no agreement at all.

The November 2014 agreement among all WTO members is certainly good news for a world economy that is confronted with uncertain growth prospects. The implementation of the Bali Package is expected to generate billions of dollars of additional trade. Optimistic projections also suggest that millions of jobs will be created. However, a note of caution seems warranted. The Bali Package will take many years to implement and most of the commitments are not binding. Furthermore, speeding up cross-border trade by enhancing soft and hard trade infrastructure will require substantial development assistance from advanced countries as well as from multilateral and regional development banks – especially the poorest of the developing countries.

The promise of plurilaterals in 2014

While the potential gains from the Bali Package are uncertain, 2014 has brought about dramatic and immediate improvements in market access for a large number of WTO members through breakthroughs in plurilateral agreements. These agreements are concluded among a subset of WTO members and the resulting commitments can be either exclusively for the signatories of the agreement or for all WTO members. The trade opening that was achieved through plurilateral agreements in 2014 has received little public attention, despite the fact that we can expect large immediate benefits for trade and growth.

The first plurilateral achievement of the past year was the entering into force of the revised WTO Agreement on Government Procurement (GPA) at the beginning of April 2014. The revisions, which were agreed about two years ago, include additional market access to numerous government entities (ministries and agencies) and extend the scope to new services and other areas of public procurement. The WTO expects that the revision of the GPA holds gains in market access of up to US$100 billion annually for the 43 WTO members. Moreover, 10 other WTO members, among them China, have applied to join the GPA.

Another example is the Information Technology Agreement (ITA). Initially agreed among 29 WTO members in 1996, the ITA now includes 70 WTO members which represent about 97 percent of world trade in information technology (IT) products. ITA signatory countries grant duty-free access to all IT products covered by the agreement with small exceptions for developing countries. In order to take into account technological advances, 54 WTO members started to negotiate on how to add new products to the agreement in 2012. However, the negotiations stalled over a dispute between the US and China, which was resolved in November 2014. At the time of writing, negotiations among some of the parties were still ongoing, but hopefully the agreement will be finalised soon. Once concluded, the enhanced ITA will bring gains between US$800 billion and US$1.4 trillion according to the WTO. The US government expects that the expanded ITA will create 60,000 new jobs in the US alone.

Finally, the third positive news for world trade came in summer 2014, when 14 WTO members, among them China, the EU, Japan, and the US, agreed to start plurilateral negotiations on liberalising trade in environmental goods. The main objective will be to identify an agreeable list of environmental goods on which the 14 WTO members would grant duty-free market access. As a starting point, the negotiators will look at the list of 54 environmental goods agreed among Asia-Pacific Economic Cooperation (APEC) members. Once agreed, the duty-free market access would not only apply to the signatories of the agreement, but would be extended to all WTO members following the most-favoured nation (MFN) principle. Given the heavyweights included in the negotiations, the liberalisation of environmental goods could substantially spur trade in environmental goods with positive effects not only for growth, but also for the environment.

Evaluating plurilaterals for Asia

The year 2014 demonstrated how plurilateral efforts to liberalise trade can be a powerful tool. Almost unnoticed by the international media, the plurilateral negotiations are achieving more than the heavily publicised negotiations of the Doha Development Agenda. As long as the plurilateral liberalisation is based on the MFN principle, such as the ITA or envisaged environmental goods agreement, it is certainly a welcoming trend. The fact that all plurilateral agreements described above have been negotiated under the auspices of the WTO is a positive development. While multilateral trade opening may be preferably to plurilateral agreements, as long as the commitments are MFN based, plurilaterals constitute a powerful tool for trade opening and are certainly a building block for a more open international trade regime.

As such, plurilaterals seem a useful additional track for Asia’s multitrack trade opening strategy – which is currently based on pursuing multilateral negotiations under the WTO, mega-regional free trade agreements such as the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP), and unilateral liberalisation. Plurilaterals will certainly make an important contribution to Asia’s trade liberalisation as some of the largest Asian economies, such as China, Japan, and Korea, play a vital role in the negotiations. As long as the plurilateral agreements are MFN based, smaller developing countries – including those in Asia – can also benefit. Plurilaterals can thus become an additional powerful engine of trade liberalisation and an important means to boost Asia’s growth and job creation amid a fragile world economy.

Matthias Helble is a Research Fellow with the Asian Development Bank Institute. Ganeshan Wignaraja is the Director of Research at the Asian Development Bank Institute.

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