The future of trade talks

A surge of trade talks has taken place across the world with a burgeoning number of negotiations − some pan-regional, some regional and others country-by-country. In theory, new activism could fill the void of new WTO deals and bring about much needed growth. In reality, major regional talks are likely to accelerate the multipolarization of the world or even competition among regional blocs far beyond trade.

China and Russia are examples of new powers challenging the Western-led post-war economic and political order through developing “trade” zones and strengthening their influence over their respective neighbourhoods.

China is strongly pushing for the Regional Comprehensive Economic Partnership, against the US-led Trans-Pacific Partnership. Quite a few Asia-Pacific nations have been placed in the awkward position of working out how to reconcile the two competing frameworks. Each discusses different rules on flows of goods, money and intellectual property in line with the respective interests and principles favoured by the United States and China. The turf battle mirrors the rivalry between the world’s two largest economies in far broader arenas, including military prowess.

Russia’s efforts to create a Eurasian Economic Union (EEU), involving Belarus, Kazakhstan and Armenia, are aligned with Moscow’s geopolitical strategy to hold its ground against EU/NATO in the West (overtly) and China in the East (implicitly). Interestingly, the EEU has signalled the intention to leverage the Eurasian Development Bank to help develop the infrastructure of the participating nations, which is reminiscent of China’s advocacy of the Asian Infrastructure Investment Bank over the more Western-influenced Asian Development Bank.

It will be interesting to see in the next few years how Moscow and Beijing manage to harmonize their respective projects of the EEU and the Silk Road Development Area, and how the Central Asian countries manage to play one big neighbour off the other.

Challenges are not limited to the traditional Western-led institutions. Brazil has been the core economic power of the Latin American region, and exerted strong influence over Mercosur along with Argentina. Now four emerging stars – Mexico, Colombia, Chile and Peru – are trying to provide an alternative to Mercosur through the development of the Pacific Alliance. The new framework emphasizes the inclusion of Asian economic powers into Latin American development, and could change the political and economic landscape of the region.

Again, all these moves might benefit the progress of freer trade in the world. Yet, trade and economies cannot exist outside the geopolitical context. At the same time as these regional trade talks advance, the world is moving from Pax Americana to a multipolar system that balances different powers. If geopolitical rivalry among major powers influenced the nature of trade deals to make them mutually competitive both politically and economically, global consumers and businesses would become clear losers. Countries in the periphery of major regional powers would be under their strong influence and lose out too.

The report, Geo-economics: Seven Challenges to Globalization, is available here.

Author: Takashi Mitachi, Senior Partner and Managing Director; Co-Chairman, Japan Boston Consulting Group

Image: People walk up stairs at City Hall in London September 16, 2013. REUTERS/Stefan Wermuth