Tuesday, 26 June 2012

Trading experience: What can environmental negotiations learn from trade failures?

By Carlos Fortin

In a recent Development Horizons blog Lawrence Haddad persuasively argued for more lateral thinking to understand multilateral inertia on the environment, and suggested we could learn from trade failures.

Failures of WTO
World Trade Organization (WTO) analyst Paul Blustein has made some perceptive observations what these failures may be. He was struck by the fact that in a three-month WTO course (in 2009) for developing country officials there was only one day on trade theory; the bulk of the course was spent instructing the students in “the art of hard headed mercantilism … the basic idea is that each team is supposed to gain as much access as possible for its country’s most competitive exports in the other countries’ markets, while giving up as little access as possible in its own market”.*

In fact, a major problem in trade negotiations in the WTO has been the contradiction between the free trade theoretical approach of the organisation, which views trade negotiations as a positive-sum game; and the mercantilist ethos of the country negotiators, who effectively define the negotiations as a zero-sum game.  This, of course, makes a successful outcome difficult, and, in some cases (e.g. agriculture), impossible, at least so far.

The fundamental cause of the mercantilist stance of negotiators lies, of course, in the national political economy of the negotiations.  Governments stand to lose revenue when they reduce tariffs; national industries stand to lose domestic market shares when they face competition from imports.  The training of negotiators compounds the problem.

What to do? 
For one thing, the training of negotiators –both from developing and developed countries- and more generally the public discourse of the WTO and the international trade community should strike a balance between emphasising the win-win possibilities of trade and recognising frankly its distributional consequences.

For another, and more importantly, the international community as a whole should address the distributional issue seriously through mechanisms to compensate the countries that would experience welfare loses; this can be done by means of direct transfers as well as policy changes elsewhere that raise the welfare of the affected countries. The very good paper by Patrick Low and Marina Murina referred to in Lawrence‘s blog hints clearly that the WTO might not have been sufficiently diligent in considering this problem and that, as a result, “the challenges faced by the multilateral trading system in defining its scope and negotiating agenda may have been greater”.

So, what lessons from trade for the environmental question?
Environmental negotiations are in some important respects different from those in trade, and again the Low/Murina paper identifies lucidly the main differences. But the basic principles –maximise mutual benefits and compensate for losses incurred- are the same. What this duo say about trade negotiations -“if countries can suffer welfare losses from participating in internationally agreed regulatory reform, some notion of justice and legitimacy would seem to require that the distributional issue receives consideration” - seems just as valid when applied to the environmental field.

*Paul Blustein, Misadventures of the Most Favored Nations. Clashing Egos, Inflated Ambitions and the Great Shambles of the World Trade System, New York, PublicAffairs, 2009: 22