Ambassador Lighthizer recently resurrected an issue that academics have debated in the past, but which has not generally been a subject of U.S. policy debate—whether the pursuit of regional or plurilateral agreements is a threat to the multilateral trading system. He did it with a Biblical reference, referring to the European Commission as Pharisees for advocating multilateralism and practicing bilateralism. This is noteworthy, as this administration has been happy to use the Bible as a prop despite little evidence, aside from the vice president, that any of them have actually read it. The ambassador gets points for remembering his Catholic education, and he is right in his characterization of European hypocrisy, but his subsequent argument that we should not have both at the same time and instead must choose is more complicated. Let’s examine the arguments pro and con.
The pro argument is that plurilateral agreements undermine the trading system by diverting interest away from more complicated and difficult multilateral negotiations and by diverting trade in the direction of the plurilateral partners. Of course, the latter is the point—to promote trade among the partners—but if it is simply trade diverted from elsewhere rather than trade being created that would not otherwise occur, what is the net benefit? The fact that there might be no net benefit, that trade is simply being moved around, explains the skepticism toward these agreements.
A more subtle argument, and I credit my fellow Trade Guy, Scott Miller, for explaining this one, is that plurilateral agreements discourage countries from making multilateral concessions. If, for example, you are Vietnam and as a result of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) you now have zero tariffs with Japan (and the other partners) on a broad range of items, you are much less interested in a multilateral agreement reducing tariffs for everybody because that would dilute the advantage you have with Japan. There are advantages to being inside the tent, as it were, but the more people you let into the tent, the more your particular advantage is diminished.
A final argument is that as plurilaterals multiply, they create confusion in the trading system due to conflicting rules, particularly rules of origin, which significantly increase uncertainty in the system and create compliance problems for companies.
The con argument—that plurilaterals do not undermine the trading system—is in two parts. First, while plurilateral agreements may divert some trade, they are net-trade creating, and governments should take what they can get. In addition, increasingly, agreements are not just about tariffs and market access but are about rules and standards. Plurilateral negotiations, where the participants may be more like-minded, present a better opportunity to produce “gold standard” agreements that go significantly farther in the direction of open, rules-based trade than multilateral agreements, which necessarily involve more compromises. An oft-cited example of this is the digital trade language in both the U.S.-Japan agreement and the United States-Mexico-Canada Agreement (USMCA). Of course, there are fewer affected parties, but the very existence of the agreement makes it a model for use in other agreements. In other words, countries might accomplish significant trade liberalization piece by piece rather than all at once.
Second, one theory of plurilaterals is that their proliferation creates a need eventually to stitch them together into a truly multilateral agreement. We are a long way from that right now, but it is an intriguing thought, partly because the obvious place to do that is in the World Trade Organization (WTO), which would help the organization get back to its fundamental purpose of trade liberalization. In this scenario, the world gets a robust WTO through the back door rather than the front door, but it gets one, nonetheless.
Finally, there is the argument that none of this makes any difference because, as a practical matter, there is no real choice. The Doha Round failed, and there is no likelihood it is going to return. A fisheries agreement remains a possibility, as does an e-commerce agreement down the road, but those are both problematic and are much more limited than the Tokyo Round or the Uruguay Round agreements or what the Doha Round was intended to be.
If you believe in the bicycle theory of trade—that if you don’t keep pedaling, the bike will fall over—then you want to produce some progress—keep the bicycle moving—and right now, that means plurilaterals. The irony of that, however, is that we may be caught in a loop. We resort to plurilaterals because multilateral negotiations do not seem feasible, but the plurilaterals themselves make broader negotiations less attractive.
That we have resorted to them is clear.
The curve has slowed down in recent years, but the trend is obvious, and it coincides with the travails of the Doha Round. There were 91 cumulative regional trade agreements in force in 2001 and 305 now. That certainly suggests the failure of one has influenced the success of the others, but that does not mean we have to choose. It makes sense to continue efforts at multilateral agreements, but with the knowledge that failure will likely lead to more regional agreements. That does not mean the Europeans are not Pharisees, but it does suggest pursuing both tracks simultaneously may be a smart policy.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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