FRAGMENTATION IN TRADE NEGOTIATIONS:
Mega interregional agreements and their potential impact on global
governance
by Félix Peña
March 2014
English translation: Isabel Romero Carranza
The negotiations of mega interregional agreements now have a central place on the
agenda of international trade relations. These are negotiations that are inserted in a
framework of strong uncertainties regarding their future evolution. They can have
the potential to fragment the international trading system and affect its governance.
The fact that the WTO Conference in Bali did not restore the expectations of a global
multilateral negotiation that can be concluded within a reasonable time frame would
seem to be an incentive to move forward through mega interregional agreements.
However, it is possible to argue that the time that these partial scope negotiations
would demand would weaken the political and technical effort that would be needed
to untie some of the major knots that hinder global multilateral trade negotiations.
The problem would not arise from the interregional mega agreements themselves
but from the fact that they could be realized without having restored the strength
and efficacy of the global multilateral system. The main reason for this is that all the
mega agreements that are being negotiated-and many others that have been
concluded or with ongoing negotiations, such as those between the EU and India and
also with Mercosur- are of a preferential nature. This means that they include
commitments that generate benefits only for the participating countries and are
therefore discriminatory towards non-participating countries. Consequently, they
have a significant potential to fragment the international trading system. It is here
precisely where we could find the potential for negative effects of a network of mega
preferential trade agreements inserted in a weakened global multilateral trade
system. It would mean introducing a debilitating factor in the conditions for global
governance.
In this perspective the idea of promoting the convergence of the global multilateral
and preferential agreements, whether regional or interregional, within common
frameworks becomes ever so important. It is an idea that maybe central so that the
many agreements being negotiated help to achieve the necessary goal of reaching
reasonable guidelines for global and regional governance. It implies reconciling the
approaches of partial scope with a joint vision that is essential for promoting global
trade in a context favorable for peace and political stability and, at the same time,
for the economic and social development of all countries.
The negotiations of mega interregional agreements now have a central place on the agenda of
international trade relations. They seem to have come into fashion and it is likely that this will
continue to be so for a while. Despite the results of the WTO Ministerial Conference in Bali, the
attention of those seeking to understand the future of international trade will continue to focus
on what will eventually be, in a still uncertain time frame, the agreements that result from two
major partial scope negotiations, due to the number of countries involved: the Trans-Pacific
Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP).
These negotiations are inserted within a context of strong uncertainties regarding their future
evolution which have been made evident recently in both the TPP and the TTIP. These
uncertainties are related to the resistance that has been shown by some of the main
protagonists, particularly the United States and some countries of the European Union.
However, they are also related to the broader uncertainties that exist in relation to the
evolution of the global international system and some of its main regions. The trends towards
fragmentation and confrontation seem, at times, to prevail over those of cooperation and
convergence. The long history offers a glimpse of what can result from such trends.
Currently, there are other international trade negotiations under way. However, the two we
have mentioned draw more attention perhaps because they encompass the US and the EU, on
the one hand, and the US and a group of still undefined countries of the Pacific Rim, on the
other hand. If added together, these countries still represent a significant share of world
product and trade. Moreover, those who promote them seem to expect that the contents of
the agreements that are reached set the standards for the ground rules of world trade in the
future. This means that they are pursuing goals that include, but at the same time transcend,
the scope of trade promotion.
The fact that the Bali Conference did not restore the expectations of a global multilateral
negotiation that can be concluded within a reasonable time frame -through the current Doha
Round or some of the variations that have arisen within the framework of the WTO- would
seem to be an incentive to move forward through mega interregional agreements. However, it
is possible to argue that the time that these partial scope negotiations would demand would
weaken the political and technical effort that would be needed to untie some of the major
tangles that hinder global multilateral trade negotiations.
At the same time, what can be seen quite clearly is that these major hindrances are similar in all
fronts, either the global multilateral or the interregional. They have to do, among other things
and not always with the same overtones, with the sensitive aspects of the trade of agricultural
products; with key industrial sectors such as the automotive, information technology and
capital goods; with the different regulatory frameworks; with government procurement; with
intellectual property and with the treatment of investments and the settlement of disputes that
these may originate between investors and host countries.
There may be two interpretations as to the motives that lead countries that are relevant
protagonists in world trade and investment -who not only have been so for many years but who
have played the role of rule-makers in the creation of GATT and later of the WTO- to favor now,
in practice though not always in theory, the sphere of interregional agreements above the
global multilateral.
The first interpretation places the emphasis on the fact that within a small group of countries and much more so if they can be considered as like-minded- it is more probable to reach
agreements that go beyond the currently existing commitments within the framework of the
WTO (i.e.: what is often referred to as commitments "WTO plus" or "WTO 2.0"). Such
commitments could then be extended to those interested in joining. According to those that
promote them, this would be an easier way to attain what today is seen as unfeasible within
the scope of the stalled Doha Round.
The second interpretation attaches greater weight to geopolitics. This is closely linked to what
Pascal Lamy noted by stating that "geopolitics is back at the table of international trade
negotiations." It is an interpretation which attributes the momentum of the negotiations of
mega interregional agreements to political reasons related to the need to counterbalance the
growing importance of economies called "emerging", not only in world trade but also in the
competition for world power. According to some analysts the weight of geopolitics would be
more visible in the TPP negotiations, especially if they conclude without having incorporated
China.
One version of this second interpretation sees the negotiation of such agreements as a practical
method to generate rules for international trade and investment which could not be achieved
at the global multilateral level and that, due to the economic weight of the participating
countries, could not be rejected afterwards by other countries. These would have no choice but
to join the WTO plus agreements that are concluded. Sometimes China, Russia, India and Brazil
are referred to as "the others" (without overlooking those developing economies that have a
strong potential for international trade and investment, among which are, no doubt, Argentina
and many of the members of the G77). If this were the case, it would be clear that the strategy
of promoting mega trade agreements with a group of countries of relevant economic
dimension and longstanding tradition as central protagonists of the international system has a
fundamentally political purpose and content. Some might argue, quite rightly, that this could be
viewed as an attempt to reframe what Bertrand Badie called the "diplomacy of collusion" at the
level of trade and investments but with a significant impact on competition for world power.
Actually, the problem would not derive from the mega interregional agreements themselves
but from the fact that they could be realized without having restored the strength and efficacy
of the global multilateral system. The main reason for this is that all the mega trade agreements
being negotiated -and many others that have been concluded or with ongoing negotiations,
such as those between the EU and India and also with Mercosur- are of a preferential nature.
This means that they include commitments that generate benefits only for the participating
countries and are therefore discriminatory towards non-participating countries. Consequently,
they have a significant potential to fragment the international trading system.
And it is here precisely where lies the potential for negative effects of a network of mega
preferential trade agreements inserted in a weakened global multilateral system. It would
mean introducing a possibly debilitating factor in the conditions for global governance. It could
involve accentuating the tendency to fragment the international system at a time when
geopolitical tensions in various regions of the world -the recent events in Crimea are just one
example- remind us of a scenario of similar characteristics to those that led to the catastrophe
of 1914 (in this regard refer to the book by Christopher Clark, recently translated into Spanish
and listed in the Recommended Reading Section of this Newsletter and that by Margaret
MacMillan included in the same section of our Newsletter of last February).
In this perspective, the idea of promoting the convergence of the global multilateral and
preferential agreements becomes ever so important. This was one of the main
recommendations of the report produced by a panel of experts convened by the WTO and
which perhaps has not received the attention it deserved (see the full text of the report "The
Future of Trade: The Challenges of Convergence", Geneva, 24 April, 2013 on
http://www.wto.org/).
Precisely, the idea of convergence in diversity is one of the main contributions of the Latin
American strategy that will guide the new government of Chile (see the article by Chancellor
Heraldo Muñoz in El País of Madrid from March 13, on http://elpais.com/). While it refers
specifically to the necessary articulation between Mercosur -especially if the methodological
renewal is achieved- and the Pacific Alliance -especially if its incipient commitments are
fulfilled-, its approach focuses on the idea of differentiated commitments and speeds that, if
inserted in common institutional and regulatory frameworks such as LAIA at the regional Latin
American level or a renewed and strengthened WTO at the global multilateral level, would
neutralize the systemic fragmentation trends observed today.
It is an idea that may be central so that the agreements that are being negotiated contribute to
the goal of achieving reasonable guidelines for regional and global governance. It involves
reconciling the partial scope approaches with a joint vision that is essential for promoting world
trade in a favorable context for peace and political stability and, at the same time, for the
economic and social development of all countries.
Showing that this is possible might be a worthy goal to feed the agenda of cooperation
between Latin American countries. Its effects would then transcend the regional scope. It will
require, though, a good dose of perseverance, technical imagination and political will.
Recommended Reading:

Baldwin, Richard; Kawai, Masahiro; Wignaraja, Ganeshan, "The Future of the World
Trading System: Asian Perspectives", ADBI Institute - CEPR, VoxEU Org. e-Book,
Tokyo, June 2013, on http://www.adbi.org/.

Barroso, Antonio, "Prospectiva y planificación estratégica en la acción exterior
española", Real Instituto Elcano, Estrategia Exterior Española, N° 4, Madrid, Febrero
2014, on http://www.realinstitutoelcano.org/.

Blanchard, Emily J., "What Global Fragmentation Means for the WTO: Article XXIV,
Behind-the-Border Concessions, and a New Case for WTO Limits on Investment
Incentives", WTO Economic Research and Statistic Division, WTO Working Paper
ERSD-2014-03, Geneva, February 5, 2014, on http://wto.org/.

Canning Papers, "Mercosur vs. the Pacific Alliance", Canning House, published by
LatinNews, London, February 2014.

Clark, Cristopher, "The Sleepwalkers. How Europe Went to War in 2014", Harper,
New York 2013.

Clark, Cristopher, "Sonámbulos. Cómo Europa fue a la guerra en 1914", Galaxia
Gutenberg, Barcelon 2014).

Kawai, Masahiro; Wignaraja, Ganeshan, "Patterns of Free Trade Areas in Asia", EastWest Center, Policy Studies 65, Honolulu 2013, on http://www.eastwestcenter.org/.

Easton, Laird M., "Journey to the Abyss. The Diaries of Count Harry Kessler, 18801818", Vintage Books, New York 2013.

MacClanahan; Chandra, Alexander; Hattari, Ruben; Vis-Dunbar, Damon, "Taking
Advantage of ASEAN'S Free Trade Agreements. A Guide for Small and Medium-Sized
Enterprises", ASEAN BBAC-Foreign & Commonwealth Office-IISD, January 2014, on
http://www.realinstitutoelcano.org/.

Medalla, Erlinda, "Taking Stock of the ROOs in the ASEAN+1 FTAs: Toward
Deepening East Asian Integration", Philippine Institute for Development Studies,
Discussion Paper Series N° 2011-36, Makati City, December 2011, on
http://dirp4.pids.gov.ph/.

Montobbio, Manuel, "Planificación y gestión por objetivos de la política exterior
española", Real Instituto Elcano, Estrategia Exterior Española, N° 7, Madrid, February
2014, on http://www.realinstitutoelcano.org/.

Muñoz, Heraldo, "Convergencia en la diversidad: La nueva política latinoamericana
de Chile", article published in El País, Madrid, Tursday 13 March, 2014, on
http://elpais.com/.

Naray, Olivier, "Commercial Diplomacy: A Conceptual Overview", 7th World
Conference of TPO's - The Hague, Netherlands, 2008, on http://www.intracen.org/.

OSCE, "The integration of formerly deported people of Crimea, Ukraine. Needs
assesment", OSCE High Commissioner on National Minorities, The Hague 2013, on
http://www.osce.org/.

Real Instituto Elcano, "Hacia una renovación estratégica de la política exterior
española", Coordinador Ignacio Molina, Informe 15, Madrid, February 2014, on
http://www.realinstitutoelcano.org/.

Ruel, Huub; Zuidema, Lennart, "The Effectiveness of Commercial Diplomacy. A
Survey Among Dutch Embassies and Consulates", Netherlands Institute of
International Relations "Clingendael", Discussion Papers in Diplomacy, N° 123, The
Hague, March 2012, on http://www.clingendael.nl/.

Steinberg, Federico, "La economía en la estrategia de acción exterior española", Real
Instituto Elcano, Estrategia Exterior Española, N° 5, Madrid, Febrero 2014, on:
http://www.realinstitutoelcano.org/.

Tovar, Juan, "España como potencia media con presencia global", Real Instituto
Elcano, Estrategia Exterior Española, N° 3, Madrid, Febrero 2014, on
http://www.realinstitutoelcano.org/.

Thuchman, Barbara W., "The Guns of August", Ballantine Books, New York, 1994.

Thuchman, Barbara W., "The Zimmerman Telegram", Ballantine Books, New York,
1994.

Urata, Shujiro, "Constructing and Multilateralizing the Regional Comprehensive
Economic Partnership: An Asian Perspective", Asian Development Bank Institute.
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Series,
N°
449,
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December
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on