AJISS-Commentary
The Association of Japanese Institutes of Strategic Studies
IIPSRIPSInstitute for International

The Japan Institute ofResearch Institute for

Policy Studies

International Affairs

Peace and Security

Editorial Advisory Board:

No. 177

Akio Watanabe (Chair)
Masashi Nishihara
Yoshiji Nogami
Taizo Yakushiji

4 June 2013

Editorial Committee:
Taizo Yakushiji
Hisayoshi Ina
Tsutomu Kikuchi
Shujiro Urata and
Hideki Asari
Editor & Online Publisher:
Yoshji Nogami
President, JIIASERIOUS EFFORTS NECESSARY TO
REINVIGORATING THE WTO
Junji Nakagawa
The WTO stands at a critical juncture as amainstream institution for global trade governance.
While the Doha Development Agenda (DDA),
which started in 2001, has long been in deadlock,many of its Members are pursuing tradeliberalization through free trade agreements (FTAs).
Why has the DDA been deadlocked for such a longtime? The changed power structure among theMembers has been the major cause, as a few
major trading nations, or the Quod (US, EU, Japanand Canada), no longer have the power to make adecision which will later be adopted by consensus.
Instead, major trading nations, represented by theUS and EU, have to secure the consent ofemerging market economies, represented by India,Brazil and China, before reaching final agreementof the DDA.
The views expressed in this piece are the author’s own and should
not be attributed to The Association of Japanese Institutes ofStrategic Studies.

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The Association of Japanese Institutes of Strategic Studies

As these key players (US, EU, India, Brazil and China) conflict with each otheron a number of issues on the DDA negotiating agenda, there is a slim chancethat they will reach agreement on the whole package of the DDA.
The changed power structure among the Members was, however, not theonly reason for the recent policy shift of the WTO Members toward tradeliberalization through FTAs. Although it is true that the stalemate of the DDA has
accelerated the proliferation of FTAs, it is not adequate to regard the WTO andFTAs as mere alternative means for trade liberalization, because they differ inthe coverage of market access and rules. The WTO aims mainly at liberalizationof trade in goods and services and protection of intellectual property rights. Its
regulatory coverage is mainly over behind-the-border, non-tariff barriers to tradein goods and services. On the other hand, the FTAs aim at not only liberalizationof trade in goods and services and protection of intellectual property rights, butalso liberalization of government procurement and investment. Their regulatory
coverage is also broader than that of the WTO, encompassing competitiveconditions and regulatory environment of the parties’ private firms conducting
trade and investment in the other parties’ markets.
In sum, private firms came to require better business environment for theirtrade and investment activities since the late 1990s, and countries came toconclude FTAs and bilateral investment treaties (BITs) to meet theserequirements. Why, then, did private firms come to require better businessenvironment since the late 1990s? It was because supply chains, or production
networks, were rapidly globalized since the late1990s, due to the innovations in
information and communication technology (ICT) and transportation technology,
and the resulting reduction in communication and transportation costs among
different production and distribution processes across borders. This new type ofinternational division of labor, or global supply chains, rapidly progressed in East
Asia in manufacturing industries in the 1990s (Factory Asia), but has soon
spread globally, covering not only manufacturing industries but also service
industries. The bottom line is that the global supply chains require a set of rules
and policies which are different from those required by the traditional, Ricardian
international division of labor. They include not only trade liberalization, trade

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The Association of Japanese Institutes of Strategic Studies

facilitation and protection of intellectual property rights, which are covered by theWTO, but also investment liberalization, investment facilitation and regulatory
harmonization in a broad range of economic regulations, and many of the latterare covered by FTAs and BITs. This is why the US intends to negotiate theTrans-Pacific Partnership (TPP) Agreement as “a high-standard, 21st centuryagreement”.
This is the major cause of the proliferation of FTAs and BITs since the late
1990s. In light of this, we have to make a rather pessimistic forecast on thefuture of the WTO. Even if the WTO finds ways to overcome the deadlock of theDDA, reflecting the changed power structure among the Members, insofar as it
remains a promoter of trade in goods and services, its role in the global trade
governance will be diminished, and will be replaced by FTAs and BITs. This may
have two potentially detrimental effects on the global trade governance. First,
accumulation of FTAs and BITs has a slim chance of producing global rules andinstitutions which come up to the WTO. Secondly, some countries, mostprobably the least-developed countries (LDCs), will be excluded from the global
supply chains and the networks of FTAs and BITs. Global trade order will bedecentralized and economic rules will be fragmented. LDCs will be excluded
from prosperity and this will exacerbate global economic disparity and socialdisorder.
In light of these serious expected outcomes, we should take serious effort
in reinvigorating the WTO by introducing a new set of agenda that meet thedemand of the global supply chains. The WTO is equipped with a number ofdevices for rule creation and rule implementation by its Members with different
stages of economic development; multilateral and plurilateral trade negotiations,special and differential treatments (S&D) capacity building for developing
country Members, Trade Policy Review Mechanism, and the highly judicialized
dispute settlement mechanism. These are an important and effective institutional
infrastructure of the WTO as part and parcel of the global trading system, whichcannot be attained by the proliferation of FTAs and BITs. We should redefine therole of the WTO, based on the demands of global supply chains, a new reality of

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The Association of Japanese Institutes of Strategic Studies

the 21st century global economy. We should give it a new mandate, and mobilize
its institutional infrastructure for the realization of the new mandate.
Japan is in a position to lead the revitalization of the WTO. As it finallyjoined the TPP negotiation, Japan is negotiating several mega-FTAs at a time,
namely, the RCEP (ASEAN+6), Japan/China/Korea Trilateral FTA, andJapan/EU EPA. By infusing the high-standard trade and investment rules of theTPP into these mega-FTAs by reference to them, Japan may contribute to theevolution of these TPP rules to de facto global standards. Then, by infusing suchde facto global standards into the WTO’s new mandate, Japan may contribute to
the revitalization of the WTO. This should be the utmost goal of Japan’s tradestrategy.

Junji Nakagawa is Professor of International Economic Law, Institute ofSocial Science, the University of Tokyo.

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