DP9781 | A Fragmenting Global Economy: A Weakened WTO, Mega FTAs, and Murky Protectionism

Publication Date

08/12/2013

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Abstract

Although the global economy has begun to recover from the 2008-2011 financial crisis, challenges to the world trading system have increased. Several trends are taking public policies further away from the core WTO disciplines of non-discrimination, namely MFN and national treatment. This has manifested itself in 1) growing resort to protectionism in the wake of the crisis; 2) continued interest in FTAs, in particular strong interest in interregional RTAs, such as the TTIP and TPP; 3) A stalled Doha Round negotiation where differentiation among WTO members has become a key source of discord. We identify and discuss four determinants of these trends. First, developing countries believe that they got a bad deal in the Uruguay Round and seek alternative terms. Second, the rapid economic growth of the large emerging markets has led them to be forceful advocates of the developing country position at the WTO. Third, in view of the deadlock at the WTO, the US and EU, and other trade-oriented states, have come to believe that interregional accords may provide a viable alternative to the WTO, and will simultaneously address the creation of a spaghetti or noodle bowl created by the proliferation of FTAs. Fourth, the rise of China, often with significant government intervention and state owned enterprises, has fostered interest in ?new industrial policy? by many countries, both industrialized and developing. The prospects for a seemingly open yet fragmented global trading system are discussed.