The death of the MFN clause
Between democrats and republicans both want the US to write new rules of the game. Both have buried the WTO and multilateralism as the way to hold international relations.
Historically, there have been two basic principles in international trade:
- The Most-favoured-nation (MFN) principle: treating other people equally.
- The National treatment principle: Treating foreigners and locals equally.
The MFN clause homogenizes treatments, and national treatment prevents some local producers getting a different treatment from foreign ones. According to the WTO “Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.” Equally “Imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents.”
Regional blocs in this framework are difficult but the WTO has “Article XXIV that provides that regional integration may be allowed as an exception to the MFN rule only if the following conditions are met. First, tariffs and other barriers to trade must be eliminated with respect to substantially all trade within the region. Second, the tariffs and other barriers to trade applied to outside countries must not be higher or more restrictive than they were prior to regional integration.”
These principles have been used time and again by the United States to stop regional trading blocs and promote the principles of free trade in the spirit of Ricardo and Bretton Woods.
The New Times
For the past ten years a new mechanism has been deployed by the United States where the MFN does not apply, this is the Alliance of the Pacific. The US concedes certain rights to some countries under certain conditions, much like the Toronto Imperial Agreement of 1932. It is also the case of the TPP and the TTIP.
This is a sharp change in US international trade policy and the first of its kind since the 19th Century. Said Obama in his text in the Washington Post on the matter “As a Pacific power, the United States has pushed to develop a high-standard Trans-Pacific Partnership, a trade deal that puts American workers first and makes sure we write the rules of the road for trade in the 21st century.” ... “The TPP brings together 12 countries representing nearly 40 percent of the global economy to make sure that private firms have a fair shot at competing against state-owned enterprises.”
The new policy is that for those 12 TTP member countries the rules of the game will be different than for the rest of the world and that the MFN clause will not function. The notorious bias is towards 12 countries that hold “40% of world GDP.” Evidence from 2015 using current dollars for world GDP shows that the 12 countries add 23.2% of total world GDP according to the CIA FACTBOOK, of which 2/3 is North America. (see table)
TTP MEMBER COUNTRIES, GDP
Total GDP in USD
% World GDP
Source: CIA FACTBOOK
So the TPP really has little to do with volumes of new markets and more with preventing China from having easy access to these markets. Above all, it eliminates the possibility of having universal rules of the game at the WTO and more “homemade” ones instead, made to order for private corporate interests.
Hillary, Trump and the new rules
Trump has said he will end the NAFTA. Being an exceptional country, the US can do whatever it wants in terms of international rules of the game because there are no instances that will even try to have it comply with international agreements. Trump has said he will eliminate NAFTA. This implies the US will write the rules of the game, as Obama has written. So essentially between democrats and republicans both want the US to write new rules of the game. Both have buried the WTO and multilateralism as the way to hold international relations and are more prone to a unilateral geostrategic view of the world than to a multilateral one.
Assuming Trump wins and that he disavows NAFTA, the consequences would be from then onwards. All agreements signed from 1994 to 2016 will remain in place and from 2017 the world will see a new unilateral trade mechanism develop. This will end whatever remains of the multilateral trading system and force new alignments. Hillary has a similar position but she counts on Obama signing the TPP and the TTIP before the presidential change.
Latin America in this scenario has shifted over this past year from regional integration to Pan-American integration and will observe more and more countries entering the Alliance of the Pacific/TPP door, a form of Pan-Americanism+.
- Oscar Ugarteche, Instituto de Investigaciones Económicas UNAM, SNI/Conacyt. Coordinator of the Observatorio Económico de América Latina, www.Obela.org. Ex president and Member of the Board of ALAI.
 President Obama: The TPP would let America, not China, lead the way on global trade. https://www.washingtonpost.com/opinions/president-obama-the-tpp-would-let-america-not-china-lead-the-way-on-global-trade/2016/05/02/680540e4-0fd0-11e6-93ae-50921721165d_story.html?utm_term=.721c7e7721e5
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