New rules for global trade and Turkey

New rules for global trade and Turkey

The impact of the U.S. and the developed countries on the multilateral system is waning. The quest to liberalize the system through the Breton Woods agencies established after the Second World War, dedicated to monitor and streamline the global trade, have stopped yielding results as of last decade. Yet, the necessity to maintain and develop the system has been more vital than ever. The synergy created by the U.S. and the European Union nowadays has not been sufficient to bring about the new rules necessary to address the complexities inherent in today’s trade environment.

The financial crises of 2008 have accelerated the diffusion of power among countries. Global markets have the built-in quality to foretell how the balance of power among major stakeholders will be molded in the near future. Simply, global trade precedes the other spheres of international relations.

As has been highlighted in the report of the U.S. Intelligence Council’s Global Trends 2030, “Asia will have surpassed North America and Europe combined in terms of global power, based upon GDP, population size, military spending, and technological investment… In a tectonic shift, the health of the global economy increasingly will be linked to how well the developing world does – more so than the traditional West.” There are signs that the shift has started to take place sooner than anticipated. The emerging economies and developing countries are obviously on the rise. According to the above-mentioned report, in addition to China, India, and Brazil, regional players such as Colombia, Indonesia, Nigeria, South Africa, and Turkey will become especially important to the global economy.

Now the question: Is the West prepared to roll over and let the gloomy forecast take its toll at this juncture? The short answer is: no.

The developed countries spearheaded by the U.S. have swiftly started to undertake two major initiatives to counter the weight of the emerging East: the Transpacific Partnership (TPP) and the recently announced Trans-Atlantic Trade and Investment Partnership (TTIP). Both of the initiatives are complementary and should be treated as integral parts of a coherent strategy.

In May 2013 Japan, after some effort, managed to participate in the 12-nation TPP scheme that includes major countries such as Canada, Mexico, Australia, New Zealand, and Vietnam. Without the U.S., the TPP represents roughly 14 % of global GDP. More than 15 rounds conducted so far have brought the negotiations to an advanced stage.

TTIP has been in the agenda of many U.S. administrations before. However, this time both the US and EU have expressed a compelling desire to launch negotiations quickly to stimulate their stagnant economies particularly in the aftermath of the crisis of 2008. Together the U.S. and EU account for 47% of the world GDP and over 30% of global trade flows. Two-way foreign direct investment in each other’s market roughly amounts to $3.7 trillion.

Both TPP and TTIP should not be regarded as conventional free trade agreements (FTA) where the focus would be to eliminate or lower the existing tariffs particularly on industrial goods. In fact in the US and EU around 70% of the tariffs lines on industrial products are at zero level. It seems that the elimination or substantial reduction on the remaining lines and dealing with the sensitive sectors will be the least difficult issue. However the new generation of FTAs go beyond tariff reduction and cover complex areas such as agriculture and services. The developed economies stand to gain from improved access in those two areas. The market access negotiations on agriculture and services are expected to be arduous and the reconciliation of the interests especially among the 27 countries of EU will be extremely demanding and time consuming.

However, the major gain is expected to be in the “rule-making” capacity of the deal. The elimination of bureaucratic duplication, greater regulatory alignment on trade facilitation, competition policy, and labor and environment issues are to be settled among a group of developed countries roughly representing 60% of the world GDP and 45% of world trade. It will have a decisive impact on the multilateral system. In other words the rule-making for the 21st century trade issues would be crafted by developed countries without seeking the consent of the developing and emerging world.

To be isolated from the process of new rule-making will be more costly to Turkey in the medium to long term. It will be logical for Turkey to be part of the TTIP quest and aggressively demand to be included in the process. It should also be kept in mind that the transformation required to comply with the new generation of agreements that include agriculture and services will be very demanding and challenging for the Turkish economy. The customs union with the EU covering industrial products had been a real anchor for the Turkish industry that gave a chance to prove its resilience and furnished the industry with a highly competitive edge. Now TTIP could be the new anchor for the transformation of our agriculture and service sectors as well adaptation to the new rules of global trade.

Bozkurt Aran is Director of the Center for Multilateral Trade Studies at TEPAV, former Ambassador and former Permanent Representative of Turkey to the World Trade Organization (WTO).