Economic Policy Program
April 7, 2011
Summary: The WTO has made
little progress since the 1990s
while international commerce
has changed radically. Doha
delays have prevented the WTO
from responding, so unilat-
eralism has accomplished
tariff-cutting while 21st century
regionalism has created new
disciplines. The WTO’s central
place in global trade governance
has been massively eroded.
Halting this requires the G20
to do two things. Step one is
finishing Doha. This is yester-
day’s homework, but it won’t be
enough. Step two is getting the
WTO to confront 21st century
challenges, which requires
reforms that speed negotiating
processes. So far WTO members
have “voted with their feet” for
deeper disciplines in regional
arrangements. Without reform,
the WTO will — at best — remain
relevant only for old trade issues.
At worst WTO centricity could
erode beyond the tipping point
where nations ignore WTO rules
since everyone else does. That
is a possibility that should focus
the minds of G20 leaders.
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Twenty-First Century Regionalism,
Doha, and the Future of the WTO
by Richard E. Baldwin
As far as international organizations
go, the WTO is a smash hit. It under-
pins the market openness that created
a path out of poverty for billions of
people over the past two decades,
while at the same time fostering
growth in the developed world. It also
presides over a rule-based system
whose membership and norms are
almost universal and where decisions
are made by consensus.
But the WTO needs help from the
G20. Its centrality in global trade
governance has been severely eroded
over the last ten years — with much
more erosion likely without a conclu-
sion of the Doha Round this year and
a subsequent change in the way it
does business. In Seoul, G20 leaders
gave Doha a big push and things are
moving, but one more big push is
needed to raise the level of ambition
to a point where the package has a
chance of winning U.S. Congressional
approval.
World Trade Governance:
Multilateralism or Regionalism?
There are three pathways for nations to
liberalize trade and modernize trade
disciplines: unilaterally, regionally,
and multilaterally. The first two paths
have been pursued with a histori-
cally unprecedented vigor, but Doha’s
decade-long delay — and the years of
delay in launching it in the first place
— means that multilateral liberaliza-
tion has made little or no progress
since Bill Clinton was president of the
United States.
Unilateralism is not a systemic threat
to the WTO — although it does make
finishing Doha harder. The real threat
to the WTO’s centrality lies in the deep
regional trade agreements (RTAs)
signed by G20 nations and others.
Regionalism’s true threat, however,
is widely misunderstood. The threat
is not the one envisioned by Jagdish
Bhagwati two decades ago with his
famous question: Would trade blocks
be building blocks or stumbling blocks
on the road to global free trade (Bhag-
wati 1991)? Despite rampant region-
alism, world tariffs have come down by
about 5 percent since the explosion of
regionalism in 1992, almost as much
as it did between the Kennedy Round
and 1991 (Figure 1).
The road to duty-free trade is wide
open and the world is driving as fast
as ever towards it. Regionalism has put
no stumbling blocks on this road.
Economic Policy Program

Two facts explain how RTAs can cover

so much trade while creating so few
preferences:

• The major nations set tariffs to

zero on between a third and half of
their imports (zero tariffs mean no
preferences), and

• Items with high tariffs are often

excluded from RTAs.

The EU, United States, and Japan, for

example, routinely exclude all high-
tariff agriculture goods.

Next consider the regionalism-

and-multilateralism-as-substitutes
Figure 1: Tariff reductions since 1994 assumption. History shows a very
strong parallel between regional and
A Need for New Thinking on Regionalism multilateral liberalization since WWII.
While Bhagwati’s thinking was dead-on in the early 1990s, Regionalism has come in waves since
facts on the ground have made it largely irrelevant to 21st 1947, but so has multilateralism in the
century regionalism. Bhagwati’s anal-
ysis was constructed on the assump-
tions that a) RTAs are mostly about
preferential tariffs, and b) regionalism
and multilateralism were substitutes in
the minds of governments. But facts
on the ground have changed; neither
assumption holds today. It is time for
our thinking to move on.

Start with the assumption that RTAs

are mainly about preferential tariffs.
The share of world trade covered by
RTAs has risen to about half (Figure
2), but recent research shows that tariff
preference is not very important. In
fact, only 16 percent of world trade is
eligible for preferences and less than
2 percent of world imports enjoy
preferences of 10 percent or more.1
1
Carpenter, T and A. Lendl (2010). “How Preferential is
World Trade?” HEID working paper, December. Figures Figure 2: Share of world trade covered by PTAs, 1976-2005
exclude intra-EU trade.

2
Economic Policy Program
Figure 3: Multilateral and regional liberalization as complements
form of GATT membership increases and multilateral trade
negotiations (MTNs) (Figure 3).
A closer look at the historical record shows a remarkable
synchronicity.
• In 1947, the GATT was signed and the Marshall Fund
launched the Organisation for European Economic
Cooperation, which coordinated European preferential
liberalization in the 1950s.
• The Dillion Round (1960-1961) was sparked by the EU’s
formation of a customs union.
• In 1964, the year the Kennedy Round was launched, the
United States and Canada started talks that led to one of
the world’s largest RTAs — the U.S.-Canada Auto Pact.2
Australia and New Zealand also signed their first RTA.
• In 1972, the EEC sealed its first enlargement, signed
bilateral FTAs with all other West Europeans, and the
United States, EEC, and Japan called for the Tokyo
Round.
• In 1986, the Uruguay Round was launched while the
United States and Canada started their FTA talks, and
2
See Keeley (1983 p. 281).
3
European deepened region-
alism with their Single Market
program.
The GATT’s leaders, it seems,
were interested in either tariff
cutting both regionally and
multilaterally, or they were
interested in neither.
Regionalism’s Threat:
New Disciplines not Tariff
Preferences
In the new thinking, region-
alism is a threat to WTO-
centricity. But the challenge
doesn’t come on the tariff-
cutting front; it comes on the
rules-writing front.
The nature of international commerce has changed radically
since the WTO was established, and this has demanded new
trade rules. As the WTO was otherwise occupied and busi-
ness could not wait, new disciplines have been established
outside the WTO system.
As much of the new complexity is related to the interna-
tionalization of supply chains, and these new value chains
tend to be regional, RTAs proved a convenient vehicle for
establishing new rules on the deeper disciplines.
New research shows many RTAs now include beyond-
WTO disciplines, what is often called WTOx issues. Table
1 lists the number of RTAs with legally enforceable WTOx
provisions since 1947 and illustrates the explosion of
deeper disciplines since Doha was launched in 2001. Most
striking is the core of four deeper disciplines that appear in
over a third of RTAs, but which are not part of the WTO’s
rulebook. These are competition policy (47 percent of all
agreements), movement of capital (39 percent), Intellectual
Property Rights not in the TRIPs Agreement (37 percent),
and investment (31 percent).
But RTAs are not the only non-WTO route to establishing
the disciplines required for 21st century trade. Equally
Economic Policy Program

Table 1: WTOx provisions in regional trade agreements • GATT Rounds focused largely on tariffs which are
easy to measure and negotiate. When GATT dealt
Pre-WTO 1995-2000 DDA era,
with more complex issue in the Tokyo and Uruguay
post 2001
Round, progress slowed noticeably (Tokyo and
WTO+ Issues Uruguay lasted 74 and 91 months as opposed to the
Customs 13 11 56 Kennedy’s 42).
AD 12 8 53
• The political economy of the WTO is different.
CVM 4 5 52
Export Taxes 8 8 41 The GATT did not work by directly fostering inter-
national cooperation; it worked by rearranging
State Aid 10 9 34
political economy forces within each nation. The
TRIPs 6 4 41 reciprocity allowed governments to counterbal-
GATS 7 2 39 ance protectionist lobbies (who opposed domestic
STE 5 3 35 tariff cutting) with exporter lobbies (who did not
care directly about domestic tariffs, but who knew
TBT 2 2 36
they had to fight protectionists in their own nation
SPS 2 1 35 to win better foreign market access). Moreover, as
Public Procurement 5 0 32 the domestic cuts weakened protectionist import-
TRIMs 6 2 31 competitors and foreign tariff cuts strengthening the
WTOx Issues exporters, a juggernaut effect ensued (Baldwin 1994).
The reciprocal tariff cuts agreed upon at one GATT
Competition Policy 11 9 39
round altered national political-economy landscapes
Movement of Capital 6 5 38 in a way that fostered continued liberalization at the
IPR 5 2 39 next GATT round. When governments were again
Investment 4 1 35 ready to liberalize, they did so both multilaterally and
Source: WTO database developed for WTR 2011.
regionally, when possible.

important has been the explosion of Bilat-

eral Investment Treaties (BITs) that establish
deeper disciplines on the trade-investment-
services nexus that is at the core of global
value chains (Figure 4).

Why is the WTO so Slow?

The WTO is not slow when measured against
other international-cooperation efforts, such
as climate change, human rights, nuclear
proliferation, UN control of the use of mili-
tary force, torture, etc. But it is slow compared
to the GATT. Much of the GATT’s relative
success rested on two facts:
Figure 4: Explosion of Bilateral Investment Treaties
Source: UNCTAD’s World Investment Report, various issues.

4
Economic Policy Program
The nature of GATT membership also made the GATT’s job
easier than the WTO’s. The key change, however, is not the
number or diversity as is often asserted. GATT membership
has always been diverse; 7 of the original 18 members were
developing nations including Burma, Zimbabwe, India,
Brazil and pre-communist China.
The Doha Round is now very difficult for two reasons:
• First, the “single undertaking” principle — which binds
all members to all agreements unless an explicit opt-out
is agreed — makes developing nations much harder to
satisfy. Now they must obey, so they must object. In the
GATT days, they could simply ignore the rules due to
non-reciprocity, special and differential treatment, and
weak enforcement.
• Second, during the GATT years, all poor nations had
economically small markets, and all big markets were in
rich nations, so granting poor nations a free-ride made
commercial and humanitarian sense.
This allowed the “Quad” (United States, EU, Japan, and
Canada) to run the GATT with a consensus rule despite a
large and highly diverse membership. Now, however, some
poor nations have markets that are too large for free-riding.
Indeed, the WTO and GATT are completely different
international organizations from a political perspec-
tive. Marrakesh’s Single Undertaking and hardening of
the Dispute Settlement Understanding pushed the WTO
into decision-making’s “impossible triangle” of consensus
decision-making, universal rules, and strict enforcement.
The only proven solution for the impossible triangle is the
“big package” tactic where there is something for anyone.
That is how the EU defeats the triangle when it needs to
adopt a new treaty. And big-package is the approach being
used to finish Doha. Unfortunately, this tactic is slow and
getting slower as issues multiple in number and complexity
and the diversity of the members with large markets grows.
WTO Reforms Needed
Getting the WTO to confront 21st century challenges in a
timely manner requires reform. Doing another Doha round
5
will not work. For example, assuming Doha does finish,
the next round is unlikely to be concluded before 2020 or
2025. That will not be soon enough to address, for instance,
conflicts between national climate policies and WTO rules,
or modernize WTO rules to match today’s commercial
realities.
Pure logic tells us that getting the WTO to act more quickly
requires a weakening of at least one of the impossible
triangle’s corners. The three leading contenders are:
• Plurilaterals (like the ITA) that erase the consensus
and the universal-rules vertices but only for particular
issues.
• Signing RTAs erases the consensus and the strict-
enforcement vertices but only for sub-groups of WTO
members.
• Restricting the authority of the WTO’s Dispute Settle-
ment Mechanism (DSM) erases the strict-enforcement
vertex for all members but only for certain issues (e.g.
the GPA is not subject to DSM authority).
Assuming Doha does finish,
the next round is unlikely to be
concluded before 2020 or 2025.
That will not be soon enough to
address, for instance, conflicts
between national climate policies
and WTO rules, or modernize WTO
rules to match today’s commercial
realities.
Economic Policy Program
All three ways deserve greater study and the wisest path
may involve a portfolio of all three.
Absence explicit WTO reform, however, it is absolutely
clear which will win. Over the past ten years, WTO
members have “voted with their feet” for the RTA option.
Without a reform that eases the impossible triangle,
this trend is likely to continue — further eroding WTO
centricity and possibly taking it beyond the tipping point
where nations ignore WTO rules since everyone else does.
This would put the world trade system back to power
politics as usual — a “Great Powers” trading system of the
19th-century type. The GATT/WTO would then go down
in future history books as a 70-year experiment where
world trade was rules-based instead of power-based. This is
a scenario that all WTO members should have an interest in
avoiding.
There are five critical nations or blocs in the Doha endgame
— China, the United States, Brazil, India, and the EU, all
of them G20 members. Together they need to come up
with one last push to finish Doha. This is the first step in
ensuring that the world trade system takes the multilateral
fork in the road. The second is to embrace WTO reforms
that allow it to remain relevant to the trade system’s 21st
century challenges.
About the Author
Richard E. Baldwin has been a professor of international economics
at the Graduate Institute in Geneva since 1991, policy director of the
Center for Economic Policy Research (CEPR) since 2006, editor-in-
chief and founder of the policy portal VoxEU.org since 2007, and an
elected member of the Council of the European Economic Associa-
tion.
About GMF
The German Marshall Fund of the United States (GMF) is a non-
partisan American public policy and grantmaking institution dedi-
cated to promoting better understanding and cooperation between
North America and Europe on transatlantic and global issues.
GMF does this by supporting individuals and institutions working
in the transatlantic sphere, by convening leaders and members of
the policy and business communities, by contributing research
and analysis on transatlantic topics, and by providing exchange
opportunities to foster renewed commitment to the transatlantic
relationship. In addition, GMF supports a number of initiatives
to strengthen democracies. Founded in 1972 through a gift from
Germany as a permanent memorial to Marshall Plan assistance,
GMF maintains a strong presence on both sides of the Atlantic. In
addition to its headquarters in Washington, DC, GMF has six offices
in Europe: Berlin, Paris, Brussels, Belgrade, Ankara, and Bucharest.
GMF also has smaller representations in Bratislava, Turin, and
Stockholm.