TPP vs. WTO

The second half of the 20th century saw profound growth in the world economy as a result of the liberalization of trade. At the center of this process were the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO). The WTO has been one of the most successful instances of post-World War II multi-lateral cooperation. Since its establishment in 1995 as successor to the GATT, the WTO has grown from 128 to 160 members. China joined in 2001, Saudi Arabia in 2005, and Russia in 2012.

WTO’s transparency and dispute settlement mechanisms have helped maintain negotiated levels of market openness, with 475 disputes so far brought to it, and with most rulings implemented by the losing party. Specialised committees provide focal points for governments to raise specific concerns and discuss national trade policies. The main problem confronting the WTO is not the operation of the organisation but the difficulty in reaching an agreement in the the World Trade Organization’s Doha Round on new market access liberalisation and rule-making. Despite its shortcomings, however, the WTO still remains an irreplaceable institution and will remain as such amid the emergence of these “21st century, high-standard” agreements. The WTO’s dispute settlement mechanisms are second to none and are still the best ways that nations raise and settle trade disputes amongst each other.

After almost six years of prolonged negotiations, the Trans-Pacific Partnership (TPP) , the world’s largest mega-trade deal, has been finally concluded by the United States and 11 other Pacific Rim countries on 5 October 2015. The TPP agreement was reached outside the World Trade Organization (WTO), which is the only international organization dealing with the issues and rules of trade between countries at a global level. The total gross domestic product of the TPP parties is approximately $27.7 trillion, comprising 40 percent of global GDP and one-third of world trade.

Optimists emphasise that the historic Pacific Rim trade accord would not doom the future of the WTO nor weaken the WTO’s rule-based multilateral trading system. They claim that the TPP and the WTO can work in parallel, without one being at the expense of the other and that the TPP would not divide the world economy into trading blocs that exclude the majority of the WTO members. According to the WTO rule the regional trade agreements could actually help the WTO’s multilateral trading system. Members are allowed to sign bilateral or regional PTAs which grant each or one another favourable treatment, as long as all bilateral trade between signatory countries is covered by the PTAs. GATT’s Article 24 allows free trade areas or customs unions to be created, as long as non-members don’t find trade with the group any more restrictive than before the regional trade agreement was set up.

The TPP will go well beyond the WTO in terms of coverage, addressing such matters as tariff reductions, services liberalization, foreign direct investment policies, protection of intellectual property, trade in services, behaviour of state-owned enterprises, labour and environment, opening up of government procurement, and reducing the trade-impeding effects of different product standards. Once signed, the TPP will form an FTA which accounts for nearly 40 percent of global output and has a population of 800 million. The TPP aims to be a “21st century, high-standards” agreement in that it covers aspects of trade that extend far beyond just reducing tariff barriers, and this is good for the multilateral trading system overall in that it will continue to raise the bar for freer trade by serving as a laboratory of sorts for new ideas and serve as an example for future agreements at the multilateral level, as well as prod the WTO to work harder to reach an agreement so that it does not become irrelevant.

TPP reflects the U.S. commitment to markets with a limited role for government in the economy. This U.S. view on the appropriate role of government in the market is also reflected in the World Trade Organization (WTO). The TPP, however, departs from the WTO commitment to multilateralism. This departure from multilateralism in international trade is a response to the rise of China and the realization that for the first time since the end of World War II, another country has both the economic power to exercise leadership in Asia and a potentially different view on how economies should develop.