The Future of Transatlantic Economic Relations: Back to Multilateralism?

BY DAVIT SAHAKYAN (Op-Ed Contributor)

Last week’s NATO summit in Brussels and President Trump’s first official visit to the UK were to reveal the state of transatlantic relations and rekindle the bond between allies on the both sides of the Atlantic. Instead, they revealed that transatlantic relations—and especially their economic component—may have hit a new low point, as President Trump called the EU a “foe” of the U.S. on trade[1], after having imposed additional tariffs on steel and aluminum imports from the EU weeks earlier.[2] The remedy for the souring transatlantic relations may lie in the World Trade Organization (WTO), in the wake of the revival of its post-Doha multilateral agenda.

Transatlantic economic relations have gone through a number of phases for the last several decades that, among other things, have brought about a solid and functional multilateral trading system and further trade liberalization through regional trade agreements (RTAs). The cooperation of the European Community (EC)—the EU’s predecessor—and the United States was a decisive force behind pushing for the conclusion of the Uruguay Round of negotiations in 1994 in the wake of diverging views on trade liberalization among negotiating countries. The divide between developing southern countries and developed northern countries over issues, such as investment protection, intellectual property rights, agriculture, and non-agricultural market access, was poised to jeopardize the eight years of negotiations of the Uruguay Round. The stalemate in the negotiations was eventually resolved through a recourse to the economic might of developed northern countries.  The U.S. and EC withdrew from the old multilateral trading arrangement—the General Agreement on Tariffs and Trade (GATT) created in 1947—leaving southern countries with the option of either ratifying the WTO with its different agreements as a “single undertaking” or being left with the old GATT 1947 that had no meaningful economic significance as major countries had withdrawn from it.[3]

This “power play” failed to work during the Doha Round of negotiations inter alia because southern countries could afford to say no to the Doha Round and stick to the status quo, i.e., the Uruguay Round provisions, as these provisions were there to remain.[4] As a result, the Doha stalemate persisted and hampered the progress of multilateral trade liberalization for the subsequent 15 years. Given the impasse in the Doha Round, the U.S. and EU started to push their respective trade agendas through regional trade agreements (RTAs). Each of the U.S. and EU has signed more than a dozen RTAs since the completion of the WTO Uruguay Round in 1994. Due to the proactive trade policies in the rich world and the inherent discriminative nature of RTAs, participation in RTAs soared during the 2000s and 2010s among emerging and developing countries. Concerned about being left out of important markets, countries increasingly sought RTAs with advanced countries even if such agreements entailed painful domestic reforms.[5]

The pinnacle of regional integration with ambitious trade rules could have been the Transatlantic Trade and Investment Partnership (TTIP). Initiated in 2013, the TTIP negotiations between the world’s two biggest economies comprising nearly half of the global GDP and 30 percent of global trade[6] eventually collapsed in 2016 under the weight of irreconcilable differences between the parties. Moreover, neither side finds the resumption of the talks feasible in the near future.[7]

The collapse of TTIP coincided with two major developments that are poised to bring the U.S.-EU relations to the multilateral fora for years to come. First, the reshaping of the multilateral trade agenda after the ministers fell short of reaffirming the Doha Development Round in Nairobi in 2015[8] will revive the WTO and reinstate its significance in the U.S.-EU relations. Second, the drastic policy reversals of the Trump administration away from regionalism and towards protectionism will force the EU to seek regional trade partners elsewhere, leaving the WTO as the only viable platform for interaction with America.

The collapse of the Doha round has been acknowledged both by the EU and U.S. As the EU Commissioner for Trade Cecilia Malmström argued in a 2016 article in Politico[9], although many of the Doha issues remain essential, new pressing issues have emerged that need to be reflected in future multilateral negotiations. Moreover, old structures and approaches have proved inefficient in reconciling some of the key differences among WTO members. Hence, in addition to the inclusion of new issues that reflect the changes in politics, economics, and technology since the beginning of the Doha Development Round in 2001, new avenues for compromise need to be sought. Similar rhetoric was expressed by a senior U.S. trade official, who claimed that the new multilateral agenda will provide America a viable platform for advancing trade relations with the rest of the world, including Europe.[10]

The novelty of the post-Doha agenda is the abandonment of the nothing-is-agreed-until-everything-is-agreed principle, which would allow small but steady progress on a plurilateral basis within smaller groups of countries. This will help overcome the lowest-common-denominator problem in multilateral negotiations and allow smaller groups of countries to advance agendas by leaving out those who are not ready or willing to join. This may eventually pressure non-participants to join the bandwagon when ready. In the words of Cecilia Malmström, the new structure will increase the importance of the WTO at the expense of RTAs by enabling “willing members to advance a given issue within the WTO, and not outside of it.”[11]

The shift in U.S. trade policy introduced by the Trump administration is another reason that will inevitably push the U.S.-EU relations into the realm of multilateralism. After a period of proactive trade policies aimed at opening up new markets through RTAs, against the backdrop of stalled Doha talks, the U.S. has become increasingly protectionist under President Trump. The swift withdrawal from the Trans-Pacific Partnership in early 2017 and the recent imposition of tariffs on steel and aluminum products from a number of countries are but a few examples of its increasingly protectionist stance. That being said, as noted by a senior U.S. trade official,[12] the U.S. is willing to further its interests in the WTO through plurilateral arrangements in smaller groupings.

Transatlantic cooperation in the framework of a new and refined WTO, however, depends on the ability of major powers to agree on the underlying principles of a new multilateral deal. President Trump has repeatedly threatened to abandon the WTO, which may have been nothing but a negotiating tactics, as the incentives for major trading powers, including the U.S., EU, and Japan, to come up with new and enforceable multilateral rules (largely targeted towards constraining China’s mercantilism) seem be to plentiful.[13] Thus, the WTO with a revived agenda appears to have emerged as the platform for future transatlantic trade talks after a spell of relative irrelevance during the futile Doha negotiations.

References

[1] Euronews (2018). Trump calls European Union a “foe” of the USA on trade. http://www.euronews.com/2018/07/15/trump-calls-european-union-a-foe-of-the-usa-on-trade?utm_campaign=Echobox&utm_medium=Social&utm_source=Facebook#Echobox=1531717148

[2] Sahakyan, Davit (2018). “Canada’s Trade Policy Dilemmas in the Wake of an Increasingly Protectionist America” Op-Ed, ERA Institute, Washington, DC, June 10, https://www.erainstitute.org/canadas-trade-policy-dilemmas-in-the-wake-of-an-increasingly-protectionist-america/

[3] Sahakyan, Davit (2016). “Reassessing North-South Relations: The Case of North-South Preferential Trade Agreements.” Journal of International Trade Law and Policy 15 (1): 51-66. http://www.emeraldinsight.com/doi/pdfplus/10.1108/JITLP-11-2015-0040

[4] Sahakyan, Davit (2016). “Reassessing North-South Relations: The Case of North-South Preferential Trade Agreements.” Journal of International Trade Law and Policy 15 (1): 51-66. http://www.emeraldinsight.com/doi/pdfplus/10.1108/JITLP-11-2015-0040

[5] Sahakyan, Davit (2015). “TPA and Inherent Discrimination Drive US Regional Trade Agreements.” Op-Ed, Atlantic Community, the Open Think Tank on Foreign Policy, July 21, http://www.atlantic-community.org/-/tpa-and-inherent-discrimination-drive-us-regional-trade-agreements

[6] Congressional Research Service (2014). Transatlantic Trade and Investment Partnership (TTIP) Negotiations. https://fas.org/sgp/crs/row/R43387.pdf

[7] Autor’s personal interviews with US trade officials, Washington, DC, June 4-8, 2018.

[8] WTO (2015). WTO members secure “historic” Nairobi Package for Africa and the world. https://www.wto.org/english/news_e/news15_e/mc10_19dec15_e.htm

New York Times (2016). Global Trade After the Failure of the Doha Round. January 1. https://www.nytimes.com/2016/01/01/opinion/global-trade-after-the-failure-of-the-doha-round.html

[9] Malmström, Cecilia (2016). Doha may be dead. Long live free trade: How to still use the WTO to spur growth and support development. January 21 https://www.politico.eu/article/davos-wto-doha-may-be-dead-long-live-free-trade-negotiations/

[10] Autor’s personal interview with a senior US trade official, Washington, DC, June 6, 2018.

[11] Malmström, Cecilia (2016). Doha may be dead. Long live free trade: How to still use the WTO to spur growth and support development. January 21 https://www.politico.eu/article/davos-wto-doha-may-be-dead-long-live-free-trade-negotiations/

[12] Autor’s personal interview with a senior US trade official, Washington, DC, June 6, 2018.

[13] The Economist. World Trade: How to rescue the WTO. https://www.economist.com/leaders/2018/07/19/how-to-rescue-the-wto

Image source: www.rackspace.com

About the Author 

Davit Sahakyan, PhD is a professor of international political economy at Pace University in New York.


This article is produced by the Eurasian Research and Analysis Institute, Inc. (ERA Institute), a public, 501(c)(3) nonprofit institution devoted to studying Eurasian affairs. All views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

This article is produced by the Eurasian Research and Analysis Institute, Inc. (ERA Institute), a public, 501(c)(3) nonprofit institution devoted to studying Eurasian affairs. All views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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