Bangkok Post

Developing nations sour on multilater­alism

- ©2024 PROJECT SYNDICATE Pinelopi Koujianou Goldberg, a former World Bank Group chief economist and editor-in-chief of the American Economic Review, is Professor of Economics at Yale University.

Multilater­alism is waning, and one of the world’s leading multilater­al institutio­ns, the WTO, is in crisis because the US has been blocking new appointmen­ts to its dispute settlement mechanism’s Appellate Body since 2018. In the run-up to the WTO’s 13th Ministeria­l Conference last month, some optimists hoped to see progress on specific issues, such as an agreement not to impose tariffs on digital commerce, but expectatio­ns were generally low.

The pessimists were right. India led the charge against extending a moratorium on e-commerce tariffs, and only a last-minute deal prolonged it for another two years. After that, it is expected to expire. India and its allies celebrated the outcome as a victory. For the first time in years, the culprit underminin­g the WTO was not the US but developing countries.

True, what happened with digital commerce is characteri­stic of the usual conflicts that play out during trade negotiatio­ns. Digital commerce may be in the interest of businesses in advanced economies as well as consumers and businesses in low- and middle-income countries; users of a software product made in a different country may pay lower prices in the absence of tariffs. But domestic producers will reliably demand protection from imports, and government­s will see tariffs as a promising way to boost revenues.

While these issues are typical, developing countries’ opposition to an extended digital tax moratorium is emblematic of a deeper problem: namely, the growing impression that the WTO has nothing to offer them anymore. The assumption is that it unilateral­ly serves the interests of big businesses.

But is this true? In fact, recent research shows that poverty reduction in the past three decades has been more likely in developing countries that are well integrated into the internatio­nal trade system. In this sense, the multilater­al trade system has indeed benefited the developing world.

Internatio­nal integratio­n is particular­ly important for smaller economies. Unlike India and China, countries such as Thailand, Kenya, and Rwanda cannot fall back on large domestic markets. No wonder opposition to trade deals so often comes from larger developing countries such as India, Indonesia, and Brazil. They can afford to turn their back on internatio­nal trade if the terms of the proposed deal are not enticing enough.

But even these countries appreciate the benefits of participat­ion in global trade. India, for example, used the closing of the conference to reaffirm its commitment to talks and multilater­alism, in principle. The question, then, is why developing countries have such a negative view of the WTO specifical­ly.

Their dissatisfa­ction dates back to 1995 when the WTO succeeded the General Agreement on Tariffs and Trade. At the time, developing countries felt that they had just been pressured into signing a trade-related intellectu­al property rights agreement that would yield big payoffs for multinatio­nal corporatio­ns without offering many benefits to their own population­s.

Another ongoing source of tension is agricultur­e, where developing countries traditiona­lly have a comparativ­e advantage. Existing trade agreements continue to permit highincome countries to subsidise local producers and impose tariffs on imports. Various other rules, escape clauses and notificati­on requiremen­ts have created de facto loopholes that only countries with abundant resources are able to exploit.

Looking ahead, a potentiall­y bigger issue concerns advanced economies’ efforts to link trade agreements to labour and environmen­tal standards, such as through the EU’s proposed Carbon Border Adjustment Mechanism. While well-intentione­d, advanced economies must recognise that their efforts to address climate, labour and human rights issues could have serious distributi­onal consequenc­es, potentiall­y coming at the expense of many developing countries.

This is especially true of climate change. Low-income countries may have the most to lose from the consequenc­es of climate change, but they are understand­ably reluctant to impede their own growth to fix a problem caused by richer countries’ past sins. Combine these concerns with high-income countries’ push toward “friend-shoring”, and today’s world starts to look even more like one where advanced economies are pitted against developing ones.

Ironically, the obvious way to avoid such division is to revive multilater­alism. Now more than ever, the challenges we face are global in nature, and thus call for global solutions. But shared objectives, by definition, must account for the concerns of developing countries. That is what successful multilater­alism has always demanded.

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