The WTO Is Obsolete

Representatives of 153 nations and regions will meet in Geneva this week to try and salvage one of the longest and most laborious trade negotiations in modern times. For almost a decade, the World Trade Organization has been trying to lower trade barriers for thousands of goods and services, and now a self-imposed deadline is looming at the end of this year. But whether the WTO succeeds or not will make little difference to most people; indeed, trade negotiations would actually go much further if the WTO simply closed down its talks altogether.

The current trade talks, dubbed the Doha development round, are, at least in principle, intended to give developing countries a trade-fueled boost. Back in 2001, the WTO's own experts estimated that halving trade barriers would inject $200 billion per year into developing countries, or about 2 percent of their total output today. Of course, most of the boost from any deal would go not to places like Niger and Nepal, but to big traders like China and Brazil—countries that have already made huge strides against poverty. Moreover, to make the deadline, negotiators will almost certainly have to settle for a deal that falls far short of the 2 percent figure.

WTO officials and political leaders have played the deadline game before, with no success. But it's not as though trade negotiations have been paralyzed during the past 10 years. Countries have been signing free-trade agreements, both in pairs and at the regional level, more rapidly than ever before. And this is where the future of free trade lies: in pragmatic regional deals, not utopian global ones.

One of the WTO's major problems is also touted as one of its virtues: every member has a veto. In theory, the veto means that no country can be coerced into a lousy deal. In practice, getting all 153 members to agree to lower trade barriers has been akin to teaching puppies synchronized swimming. A few countries have always taken an obstructive stance, either on principle or to push their own priorities. Canada, for example, has insisted that its unique system of supply management be enshrined in any global deal. And France won't even entertain the idea of reducing its massive farm subsidies without major concessions from poor countries.

The only way forward is liberation from the WTO. The majority of nations can simply leave the obstructionists behind and move forward with regional trading partners. Eventually, most of the world's trading nations will arrange themselves into just a few big blocs. These blocs will be diverse, including rich and poor countries, since these complementary groupings often unlock the biggest gains from trade; rich countries like to use cheap materials and labor in poor countries, and poor countries like to export their products to high-income consumers. In fact, the blocs may be so big and diverse that they won't need to worry about lowering trade barriers.

Instead, the blocs will focus on lowering trade barriers among their own members. Those that lower barriers faster will create more gains from trade, and their incomes will rise more quickly. Incomes will probably rise most quickly in the poorest countries as their companies adopt new technologies and their people acquire more remunerative skills. As a result, blocs that lower trade barriers will see incomes converge; their members will start to look more and more like each other. When that happens, the blocs will have to look outside their borders to other countries for cheap materials and labor. They'll find those countries in the blocs where incomes didn't rise as much. All of a sudden, the big blocs will have a very strong economic motive to start talking to each other.

This is how global trade talks will work in the future. Trade barriers will fall, just as the WTO hoped, and with the same result that should have been its goal all along: its own obsolescence.

Altman is the author of Outrageous Fortunes: The Twelve Surprising Trends That Will Reshape The Global Economy.