RIETI Report June 2012

21st Century Trade and the 21st Century WTO

The World Trade Organization (WTO) is widely regarded as being trapped in a deep malaise. Originally designed to handle 20th century trade, in which goods made in one nation are sold to customers abroad, the WTO is facing woes in dealing with 21st century trade, which involves complex cross-border flows arising from internationalized supply chains and is intimately tied to the unbundling of production, as it requires disciplines that fall outside of its jurisdictions. Until now, virtually all of the necessary governance has emerged spontaneously in regional trade agreements or via unilateral "pro-business" policy reforms by developing nations. Therefore, the real threat is not the failure of the WTO, but rather the erosion of its centricity in the world trade system.

This suggests that the future of the WTO will either be relevant for 20th century trade and the basic rules of the road, but irrelevant for 21st century trade, or engaged in 21st century trade issues both by crafting new multilateral disciplines and by multilateralizing some of the new disciplines that have arisen in regional trade agreements.

In the June issue of the RIETI Report, the Centre for Economic Policy Research (CEPR) Policy Director and VoxEU Editor-in-Chief Professor Richard Baldwin supports these conjectures by first discussing why the General Agreement on Tariffs and Trade (GATT) had so many wins while the WTO had so many woes and then explaining why 21st century trade emerged as it did and how it differs. He concludes his work by pulling all of the threads together and discusses the implication of the situation.

This month's featured article

21st Century Trade and the 21st Century WTO

Richard BALDWIN Professor of International Economics, Graduate Institute, Geneva, CEPR Policy Director, and VoxEU.org Editor-in-Chief

The WTO is doing fine when it comes to the 20th century trade it was designed for—goods made in one nation's factories being sold to customers abroad. The WTO's woes stem from the emergence of "21st century trade" (the complex cross-border flows arising from internationalised supply chains) and its demand for beyond-WTO disciplines. The WTO's centrality was undermined as such disciplines emerged in regional trade agreements. The future will either see multi-pillar global trade governance with the WTO as the pillar for 20th century trade, or a WTO that engages creatively and constructively with 21st century trade issues.

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