A golden opportunity for a new trading system

January 27, 2011


By Mari Pangestu, who is the Trade Minister of Indonesia. The opinions expressed are her own.

The world continues to face great uncertainties. Global recovery has been uneven, unemployment high and current account imbalances have led to continued tension including the use of currencies and other mercantilist policies for protectionist purposes. And we have yet to conclude the Doha Round of World Trade Organization Negotiations. So what do trade policymakers have to do to face this situation and ensure trade continues to contribute to growth and development?

For Indonesia, trade has recovered to higher than pre-crisis 2008 levels and in line with the higher growth in emerging economies. Like other East Asian economies, Indonesia is increasingly integrated with the region, clearly indicating that East Asia is a growing market with the rise of its population, middle class and purchasing power.

Increased integration within East Asia has taken place because of growth, the unilateral opening up of trade and investment, and more recently the various regional and bilateral free-trade agreements (FTAs). The regional agreements include the Association of Southeast Asian Nations (ASEAN) Economic Community by 2015, as well as FTAs between ASEAN with China, Japan, Korea, India, Australia and New Zealand. Is this an alternative to the multilateral trading system?

The answer is no. As the Chair of ASEAN and East Asia this year, Indonesia’s vision is not that of an insular Asian bloc — but for an ASEAN community in a global community of nations. This means that as Asia grows economically, Asian nations will and should do their part to increase growth and demand, develop regional agreements that are open and become model agreements for others. The various regional agreements should not overlap like a noodle bowl.

It also means individual countries and regions need to do their part to become building blocks and contribute to global governance. Indonesia and others in Asia benefited from an open and fair trading system, so they will continue to prioritize the completion of the Doha Development Round in 2011.

Leaders at the G20 meeting in Seoul agreed that this is the “critical” window of opportunity to conclude the Doha Development Round. Perhaps a more appropriate word, given political cycles and the fact that we are now in the 10th year of the Round, is the “last” window of opportunity.

The cost of not delivering the promise of Seoul is high.

First, it is the risks to the world trading system and the potential for increased protectionism.

Second, it is the dangers of a messy noodle bowl of proliferating and overlapping regional and bilateral agreements. The pressure to do more such deals will put pressure on the resources of small and lesser developed countries.

Third, it is opportunity lost. Bilateral and regional agreements, including the Trans Pacific Partnership, cannot deal with sensitive sectors, rules, and the removal of distorting export subsidies and domestic support in agriculture. These issues can only be resolved multilaterally.

Fourth, regional and bilateral agreements can become building blocks and not just turn into a messy noodle bowl of overlapping deals. However, this can only happen if they are WTO-plus agreements. If they are to be plus — going beyond what is agreed at the WTO — then the multilateral trading system must set the benchmark. Otherwise the WTO becomes a repository for past rules and disputes, but is unable to capture new advances in international trade such as those in services or overcome key distortions such as in agriculture.

What needs to be done?

The formula is very clear.

First a big dose of political will from leaders, especially the major players, which must be translated into movement in negotiations. All of us have to respond. All of us have to be willing to collaborate and cooperate.

Every country and its leaders, including Indonesia, faces some level of constraints from its domestic constituency. President Obama talks of the need to double exports by 2014 and create jobs. Every other leader also faces similar challenges to bring the beef home. In his recent State of the Union Address, there was a positive development. The indication that jobs through exports can be achieved by trade agreements including the global Doha trade deal.

Second, another big dose of pragmatism, leadership and responsibility toward the future from an effective and resilient multilateral trading system.

This means getting to the end-game with a balanced and fair package to be sold back home, but not just solely from the individual country’s viewpoint. There has to be a spirit of collaboration and cooperation to resolve the remaining 20 percent in agriculture and non-agriculture market access and other components of the single undertaking. While remembering that a Doha Development Round also means that there has to be flexibilities for lesser developed members, duty-free and quota-free access for least developed countries and an effective aid-for-trade and capacity-building package.

It is our collective conscience and responsibility to deliver. The world is waiting for a final result. The private sector needs the right signals. Let us not miss this golden opportunity for fundamental progress in the multilateral trading system, to provide a stimulus to the world economy and most of all to deliver long awaited development dividends.

Photo: Indonesia’s Trade Minister Mari Pangestu (C) holds hands with other ASEAN economic ministers as they pose for a group photo before their 13th ASEAN Economic Ministers Retreat and Related Meetings in Bandar Seri Begawan May 3, 2007. Standing with Pangestu are (from L-R) Malaysia’s Rafidah Aziz, Brunei’s Lim Jock Seng, Thailand’s Krirk-Krai Jirapaet and Myanmar’s U Soe Tha. REUTERS/Bazuki Muhammad (BRUNEI)

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