Are mega-regionals the future of global trade?

A lot is happening on the trade negotiations front in almost every corner of the world. Countries have been active and prolific at the bilateral and regional levels for some time but the key ongoing negotiations are of a different dimension: they involve more partners, from different levels of development and different regions, covering larger volumes of trade and aiming at reaching agreements of a deeper nature on a wide scope of issues. These are the mega-regionals, of which the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership are in a category of their own by virtue of their scope and impact.

If current negotiations are successful, new rules will shape trade and investment flows, underpin global governance on 21st purported emphasis on promoting broad liberalization, reducing non-tariff barriers and addressing regulatory hurdles through greater convergence would unleash new opportunities and bring about more growth in the world economy. They may also contribute to bringing more dynamism to the multilateral trading system, spearheading a virtuous circle of enhanced rule-making and trade liberalization.

Or they may not. Much will depend on the specific provisions to be agreed upon and the type of preference they will create. Not all preferences are equal. Some of them carry a larger potential for discrimination than others. The greater their discriminatory nature, the higher the friction and fragmentation risks they entail. On the contrary, provisions with low or no discriminatory potential actually may be quite beneficial for non-members.

This is no minor issue. While mega-regional negotiations encompass a large number of countries, they exclude an even larger group. About 160 nations, home to over 80% of the world’s population, are sitting on the sidelines while these discussions take place. The way in which countries choose to react to these developments may determine, at least in part, the impact of these pacts on individual non-members and on different regions, as well as on countries that are party to the mega-regionals. The broader question of the geopolitical impact that mega-regionals may have in today’s world is an issue that demands great reflection.

The multilateral trading system is not exempt from the impact of mega-regionals. Much will depend on the specifics of the agreements that are finally concluded, and in particular on whether they are crafted with an inclusive perspective and are open to new members. Much will also depend on whether members of the World Trade Organization opt to advance an ambitious post-Bali multilateral agenda, which could include plurilateral agreements as a way to proceed in consolidating the WTO’s centrality.

All of this presumes that mega-regionals will come to fruition as planned, but this cannot be taken for granted. There are big negotiating challenges ahead, and domestic political divisions in participating countries to be bridged. If the mega-regionals fail, the consequences for the potential of trade and investment to continue driving world growth and prosperity will be considerable.

Read our report, Mega-regional Trade Agreements – Game-Changers or Costly Distractions for the World Trading System?

Author: Anabel González is senior director, Global Practice on Trade and Competitiveness, World Bank Group

Image: U.S. President Barack Obama (C) speaks at the Trans-Pacific Partnership Leaders meeting at the Hale Koa Hotel during the APEC Summit in Honolulu, Hawaii, November 12, 2011. REUTERS/Larry Downing