IMD Professor Reacts
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The mouse that roared

IMD Professor Jean-Pierre Lehmann on Wallonia, the failure of CETA and the ever more dismal outlook for the global trade regime

By Jean-Pierre Lehmann

The headline of a recent article in the New York Times read: “With Europe-Canada Deal Near Collapse, Globalization’s Latest Chapter Is History”. In the article, the authors went on to assert: “The phase of globalization that began with the ending of World War II is essentially over.”

These are pretty dramatic affirmations. What was the cause? On the previous day, Canadian Trade Minister Chrystia Freeland at a press conference in Brussels broke into tears as she announced she was going home to Ottawa to find solace with her three children following the collapse of the Canada and European Union (EU) Comprehensive Economic and Trade Agreement (CETA). CETA had been undergoing extensive and intensive negotiations for seven years. It was due finally to be signed and ratified on Thursday 20th October. It was not to be.

500 million citizens held hostage

Though all twenty-eight (UK is still in there) EU governments were in favor, for the Belgium government it was necessary to obtain the assent of its sub-regional governments. Though the Flemish government agreed, Wallonia’s Minister-President Paul Magnette of the French speaking community vetoed. Wallonia’s population is 3,5 million. Hence the mouse that held hostage 500 million citizens of the EU and 35 million Canadians.

The outcome is painful for its architects and backers not only because of the seven years of negotiating efforts, but also because (a) it was expected to be a shoe-in (how can one object to these nice Canadians?) and (b) it was seen as a model 21st century trade agreement, a beacon for other regions and actors to follow.   

The reasons for the veto are, as always in such cases, arcane and need not detain us too much here. Suffice it to say that they result from a toxic combination of Belgian/Wallonian parish-pump politics and the more general Western (Europe and US) backlash against globalization. Hence, the New York Times headline!

The global trade agenda has been in dire straits for some time; in fact since the beginning of this century. The WTO Doha “Development” Round was launched in the Qatari capital with much fanfare in 2001, only to fall off the wall two years later, 2003, at the Cancún Ministerial. As with Humpty-Dumpy, in the ensuing years all the king’s horses and all the king's men (read: trade negotiators) couldn't put Doha together again. Doha is dead. Though like an Agatha Christie thriller there are many culprits, ultimately it reflects the precipitate decline of American global leadership – culminating in the virulent anti-trade stance of both 2016 presidential contenders, Hillary Clinton and Donald Trump.

With the failure of the multilateral round, the focus switched to regionals, and especially two “mega-regionals”: Transatlantic Trade and Investment Partnership (TTIP) and the Trans Pacific Partnership (TPP). TTIP is languishing and though perhaps not dead yet, it would seem to be on its deathbed. Furthermore, with the EU unable to ratify the far, far less controversial CETA, the prognosis for TTIP can only be much worse. As to TPP, devised by Washington as a geopolitical means masked as a trade agreement to contain China’s expansion, it too seems on the rocks.

This rout of the global trade regime is occurring at a time of heightening geopolitical tensions, depressed economic perspectives, the rise of populism and nationalism, social unrest, and the consequent specter of protectionism. This makes for very ominous global prospects.

In that context, it should be pointed out that since the founding of the GATT (General Agreement on Tariffs and Trade, the precursor of the WTO), every single round, no matter how tortuous, had been concluded: from the first, the Geneva Round, launched in 1947, to the latest, the Uruguay Round launched in 1986 and lasting till 1994. The failure to conclude the Doha Round warrants the comment cited above from the New York Times: “The phase of globalization that began with the ending of World War II is essentially over.”

Business irresponsibility and trade

Though the collapse of the global trade regime is due principally, as I pointed out, to the decline of US leadership and to the failure – of both the US and EU – to adjust to the new global realities and emerging actors, especially China, the international, especially Western and Japanese, business community bears a huge responsibility. It is indeed pretty much the consensus view outside business circles that a major factor in the collapse of Doha was the lack of interest, commitment and support of business, with, it must be added, some notable exceptions.

Some business lobbies have been supportive of TTIP and TPP, inspired mainly by narrow and myopic short-term considerations. There has been a notable lack of business vision arising from a lack of interest, or even lack of understanding of the deeper, broader and more challenging issues at stake. With the view that globalization has brought about both winners and losers, and that big business especially figures prominently in the former, there has been a failure in the business community to foster a more solid, sustainable, inclusive, equitable and dynamic globalization that will reap rewards for the majority today and especially for the coming generations tomorrow.

The world stands at the eleventh hour in the face of possible great peril. It is not too late. But there is an urgency for the business community to address the challenges of the trade regime and seek to reboot positively globalization.    

Jean-Pierre Lehmann is emeritus Professor of International Political Economy at IMD. Professor Lehmann teaches on the Orchestrating Winning Performance program.

Jean-Pierre Lehmann

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