First CETA, then India and China: Whither the WTO?

As Canada and the European Union held the ninth round of negotiations on the Comprehensive Economic and Trade Agreement (CETA) in Ottawa last week, and moved closer to a conclusion in 2012, what will be the impact on the World Trade Organization (WTO) of this new trend in preferential trade agreements (PTAs) between major developed partners?

The Doha Round of negotiations has floundered. For now, the WTO appears still to have a functioning dispute settlement system, trade policy review mechanism, and a number of Councils and Committees that carry out the ongoing work of the Organization. However, its negotiating machinery has broken down, and the members’ behaviour is already having an impact on the other parts of the Organization.  A WTO Ministerial is scheduled for late November/early December to address the critical issue of the future of the WTO. For the first time in the decade since it commenced, the Doha Round will not be the primary focus of the agenda.

The number of PTAs has increased sharply in the past few years: there are over 300 in effect today and many more are being negotiated, particularly in Asia and Africa. While most PTAs in the past were either regional or involved U.S. or E.U. bilateral agreements with developing country partners, the new phenomenon involves  developed and new-economic powers: U.S.-Australia, U.S.-Singapore, and more recently E.U.-South Korea and U.S.-South Korea.  Following this trend, Canada and the E.U. are currently negotiating trade agreements with India; the U.S. has begun preliminary studies into potential negotiations with India; and Canada has begun preparatory work into trade negotiations with China.

The CETA is a ‘new generation’ economic and trade agreement that aims to go further in its scope and obligations than the WTO Agreement and previous free trade agreements. The original rationale for allowing preferential trade agreements under the GATT was that they could be a testing ground for new principles on a bilateral or plurilateral basis, which could eventually be brought into the multilateral system. But in order for free trade agreements to be legal under WTO rules, they must:  1) eliminate duties and other restrictive regulations of commerce on substantially all trade between the parties, and 2) not increase overall barriers to trade with respect to third parties. It remains to be seen how deep the obligations and commitments of the CETA will be, particularly relating to technical barriers to trade, sanitary and phytosanitary measures, services standards, and regulatory cooperation.

Canada will be expending significant resources over the next few years negotiating major new bilateral economic and trade agreements with the three of the world’s largest economies: the E.U., India and China. Have we done our homework? Do we know what we want in these negotiations? Negotiating with these major powers—which have sophisticated, centralized, career bureaucracies—will be difficult. Are these agreements likely to contain more than WTO obligations, and if so, how will they be enforceable? How will conflicts or inconsistencies between these new trade agreements and the WTO be resolved?  What will the impact be on the WTO as an organization if Canada and other major trading partners continue to negotiate bilateral and plurilateral economic and trade agreements with each other outside of the WTO? The WTO Trade Policy Review Mechanism was given the authority by Members to review new PTAs, but is already facing a significant backlog because of the Secretariat’s limited resources. Conflicts between WTO and PTA obligations have already arisen in some WTO disputes, but thus far, WTO panels and the Appellate Body have been reluctant to examine the relevant provisions of the PTAs. Perhaps in future, they should be more bold.

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