The Uruguay Round of trade negotiations that spanned eight years has produced a remarkable set of agreements consisting of 26,000 textual pages and covering facets of international commerce that had not previously been within the realm of multilateral trade rules. This ambitious and ultimately successful undertaking culminated with the creation of the World Trade Organization (WTO) in 1995 and a binding dispute resolution system that has proven to be very effective and resilient. Greater market access was realized and protectionist trade barriers were dismantled for cross-border trade in services (including financial services and telecommunications), the intellectual property sphere, as well as for certain investment-related measures and government procurement.
WTO a Real Deal for Some
Despite these extraordinary accomplishments, even at the time of the conclusion of the Uruguay Round it was universally accepted that the benefits of the WTO would not be shared equitably and that the greatest beneficiaries would be the developed economies of the world that are increasingly reliant on services trade and advanced technologically-based industries for their well being. Dependant on agricultural production, the poor nations of the world would not share in the benefits of liberalization in the new areas covered by the Uruguay Round agreements to the same degree. While some reductions in agricultural subsidies were negotiated, the farm policies of the richer developed economies remained substantially untouched by the Uruguay Round agreements.
Doha Round – Focus on Agricultural Trade
It is no surprise, then, that agricultural trade became the centrepiece of the new trade negotiations, known as the “Doha Round,” that were launched in November 2001. Now into its seventh year, the Doha Round has seen little progress being made. While trade negotiators in the areas of non-agricultural goods, services, intellectual property and various technical rules-related subjects have been assiduously preparing negotiated texts in anticipation of a conclusion to the Doha Round, the awaited “break-through” event in the area of agriculture has not happened.
With the looming Presidential election in the United States and elections in other member countries on the not-too-distant horizon, 31 Ministers of WTO members met in Geneva beginning on July 21, 2008 to work out the parameters for what was intended to be substantial progress on farm trade negotiations by the end of 2008, leading to the conclusion of the talks shortly thereafter.
These meetings were considered critical to the success of the Doha Round, with negotiators from many countries proclaiming that failed discussions in July would lead to a final and irretrievable collapse of the Doha Round. In the face of such a failure, any renewed trade negotiations could not possibly commence in earnest until at least 2010 and would most likely proceed under a different name. Also, much of what had been discussed under the Doha Round would potentially have to be renegotiated, in some cases by different trade ambassadors representing newly elected administrations in many countries, including the United States. If initiated in 2010, new negotiations would have no prospect of conclusion until at least 2015 – a lapse of two full decades since the WTO agreements had become effective.
Negotiations Fall Apart in Geneva
Despite the obvious recognition of the gravity of these talks, the Doha Round negotiations in Geneva broke down, ostensibly because of a technical measure dealing with import surges known as a “special safeguard mechanism.” While there was general agreement on the principle of a safeguards mechanism, disagreement on the quantification of the level of import increases that would trigger resort to this mechanism, and the maximum tariff protection that could be imposed, led to the demise of the talks. The unwillingness to bridge differences over arcane technical aspects of this obscure measure led the E.U. trade commissioner to conclude, “[W]e failed because we lacked the political will to close the final gap.” Attempts at reviving negotiations continue, but the chances of their success appear slim.
Impact on Canadian Businesses – Commitment to the Global Commerce Strategy
The benefits to Canadian businesses of a successful, subsequent round of multilateral trade negotiations would be immense. Canada is the second most trade-intensive country in the G7, with 70 percent of its gross domestic product attributable to international trade. While the Canadian government declared its disappointment when the Doha Round talks collapsed in Geneva, the government also re-iterated its commitment to forging new markets under the Global Commerce Strategy (GCS) that it had announced as part of the March 2007 federal budget, pending the resumption of further multilateral negotiations. (For a discussion of the GCS, please see the Spring 2007 issue of The Osler Outlook.)
While a successful Doha Round remains Canada’s primary goal, the GCS aims to strengthen the ability of Canadian businesses to fully participate in global market opportunities. The GCS requires Canada to:
- Expand its bilateral trade and investment treaties network;
- Intensify its participation in the U.S. market, where new players are challenging Canada’s dominant role, by strengthening NAFTA; and
- Expand opportunities in fast-emerging markets like China, India and Brazil.
FTAs and FIPAs – The Current Canadian Strategy
The expansion of Canada’s bilateral trade and investment treaties network is to be accomplished through new free trade agreements (FTAs) and foreign investment promotion and protection agreements (FIPAs). Due to the complexities of negotiating comprehensive FTAs, the Canadian government has embarked on an aggressive program to conclude FIPAs that can provide the foundation for further negotiations leading to FTAs. Investment protection agreements provide Canadian businesses significant benefits, including potentially mitigating against political and regulatory risks. These agreements also provide for international arbitration in a neutral venue that may be initiated unilaterally at the instigation of Canadian investors against foreign government measures that result in investor mistreatment or harm to investments. Such a mechanism can help even out the bargaining position of Canadian investors vis à vis foreign governments.
Strategic Planning – Incorporating Trade Policy Measures to Survive and Thrive
While the recent collapse of the Doha Round talks is a significant setback for Canadian businesses seeking greater access to foreign markets, there is still much that can be done by Canadian companies that are either in competition with foreign businesses operating in the Canadian market or are conducting business overseas with or without direct investment in foreign markets. Canadian businesses need to become fully familiar with the existing multilateral trade rules of the WTO, NAFTA and all of the relevant bilateral FTAs that Canada has concluded since 1996 with Chile, Costa Rica, the European Free Trade Association, Israel, Jordan and Peru. Many of the opportunities presented by Canada’s current free trade arrangements are either not fully understood or incorporated into the strategic business plans of Canadian enterprises. Often, investment decisions are being made without fully comprehending the potential competitive threats that exist when competing businesses take advantage of market liberalization initiatives.
Learn From the Doha Round
While it is not clear whether the Doha Round will be resuscitated, it is clear that in the near future (whether in the next few months or certainly within the new few years), a new set of international trade rules will further open up international markets and remove protectionist barriers. Canadian businesses can learn considerably from the Doha Round negotiations so that, on the resumption of trade negotiations, they are better able to shape the final outcome of such talks to their benefit.
Use the WTO Trade Dispute Resolution Rules
A prolonged stalemate at the WTO can be expected to result in many of the currently contentious measures within existing trade rules remaining open to differing interpretations and application by various WTO member countries. These differences will have a limited chance of being resolved through the WTO negotiations process and are, therefore, more apt to become the source of trade disputes. Canadian businesses should become familiar with, and proactively employ, the WTO’s trade dispute resolution rules by seeking Canadian government participation in trade proceedings, whether to defend or advance economic interests at home and abroad.
Seek Out New Free Trade Agreement Partners
In a race with its major trading partners, Canada will initiate talks under its GCS to establish new free trade agreement partners and seek out countries willing to negotiate FIPAs. It will be incumbent on Canadian businesses that are competing globally to engage the Canadian government and focus its efforts on those countries presenting significant potential business opportunities.
Consider WTO Membership Status of Countries in Which Investment is Being Contemplated
The Doha Round (or a re-named multilateral round of negotiations) and successive rounds thereafter will offer greater liberalization in agricultural trade as well as in the trade of services (such as financial and energy services), intellectual property, harmonized rules concerning competition laws, multilateral investment rules and many other market-opening and trade-enhancing measures. Nonetheless, there are many countries that, even now, have not adopted the current WTO rules. Canadian businesses venturing overseas should be mindful of whether the countries in which they seek to invest are existing members of the WTO, are applying for accession or have chosen to remain outside of the WTO. Countries that are applying for membership in the WTO can be made to remove trade barriers and undertake liberalization commitments during the accession negotiations. It is up to Canadian businesses operating (or planning to operate) in such countries to identify for the Canadian government the trade obstacles that need to be eliminated.
Become Familiar With the Fundamental Rules of International Trade
While the international trade landscape can be expected to continually shift, it will advance towards greater free trade, with the result that global competition will increase. Businesses looking to fully and effectively compete in the global marketplace need to monitor ever-changing trade rules and incorporate these rules into their strategic business plans. Few (if any) significant Canadian businesses can avoid being buffeted by the rising tides of global trade. Running a business without knowing the fundamental rules of international trade can lead to surprises, more often than not of an unfavourable nature.