WTO Bali Ministerial: Issues and the Challenges

This article was written by IPS Executive Director Dr. Saman Kelegama and published in several local newspapers prior to the Bali talks which were held last week.

 

The Bali Ministerial of the WTO will commence on 3rd December 2013 and will go on for three days. The Ministerial is taking place at a time when there is a struggle to complete the WTO Doha Round agreed in 2001 where for the first time an attempt was made in the WTO to mainstream development into trade policy. The twelve year wait (2001-2013) without a completion of the WTO Doha Round has made many countries of the 159 member organization to lose confidence in the WTO as the main rule making body for international trade. The situation was well summed up by the US Trade Representative, Michael Froman: “in its nearly 20-year history, the WTO has never once produced a new, fully multilateral trade agreement.”

 

The Bali meeting will be the 9th Ministerial and will be the first under the new Brazilian Director General of the WTO, Roberto Azevedo, who took office in September 2013 from the outgoing French Director-General, Pascal Lamy. As usual, the WTO Secretariat has been involved in last minute consultation and negotiations to work out a deal before the Bali Ministerial so that Bali only becomes a formality to the already worked out deal. WTO news reports indicate that a deal has still not been reached and a 53 page draft accord with an array of bracketed options, which over the recent weeks had been cut down from close to 100 to 65, has been prepared for ratification. Will there be a breakthrough in Bali ? This is the vital question. The situation remains uncertain but it is worth quoting the Mexican trade envoy to the WTO, Fernando de Mateo, who said; “Hope is the last thing you lose. We are so near that it is not impossible.”

 

WTO Bali Agenda

 

Unlike in previous Ministerials, the Bali agenda is not overloaded with the entire gamut of the WTO Doha Round issues, i.e., the Doha Development Agenda (DDA). It is focused on three selected areas of the DDA, viz., Trade Facilitation, Agreement on Agriculture, and Duty-Free and Quota-Free status for LDCs. Needless to say, there will be other issues such as tariff rate quotas on the Table including an item which is not part of the DDA, i.e., an International Technology Agreement, but the three issues are the key.

 

bali_logoTrade facilitation was not an area of the original DDA of 2001 but came into the DDA under the July 2004 framework of the WTO. As studies showed that trade facilitation has the same effect or if not more, than lowering tariffs to move trade among nations there was a compelling case for bringing it as a single item to the DDA. Trade facilitation appears to be the key component of the WTO Bali package and it is estimated that the gains from implementing it would be close to US$ 1 trillion enhancement of global annual GDP. Trade facilitation involves reducing the cost of moving goods via customs and this in turn, involves digitalizing customs procedures and interconnecting customs to key government agencies and departments.

 

Unlike tariff reduction, trade facilitation is easy to implement as there is little resistance from vested interests. However, LDCs and some developing countries find it difficult to implement trade facilitation measures due to lack of technical expertise and high costs. Thus, requests have been made to the WTO to: (a) increase technical and financial assistance to implement, and (b) provide special and differential treatment for LDCs to implement them, as these countries need more time to do the necessary changes. Although WTO is not a funding agency, these concerns seem to have been accommodated in the WTO Bali package where WTO will facilitate the individual countries to mobilize funds for implementing such measures. It is reported that the IMF, the World Bank and the regional development banks like the ADB have already announced that they would cooperate with the WTO to ensure that developing countries would receive assistance to meet the new trade facilitation commitments.

 

The next issue is agriculture, where two key issues are on the Table. It is a known fact that many developing countries provide food subsidies by procuring grains at minimum support price from producers and selling them at a subsidized price to consumers through a public distribution system. Under the WTO Agreement on Agriculture (AOA), such support cannot exceed 10 per cent of the value of agricultural goods. This has become a problem for some developing countries like India where under the new Food Security Act, the country has asserted its right to subsidize grain stockpiling to help low income farmers and poor consumers. Thus, an attempt has been made to work out a “peace clause” that will prevent any WTO member from seeking penalties against countries for breaching the permissible limits (a temporary waiver from being challenged under the Agreement). It is reported that US is showing some flexibility on agriculture subsidies and stockpiling but the final outcome is far from clear.

 

Indian Trade Minister, Anand Sharma was quite emphatic when he said: “As far as what we give to our poor people, that is our right, that is insulated in its entirety from any multilateral negotiations or WTO discussions. That is the sovereign space, and for India it is sacrosanct and non-negotiable.” The proposal which is pushed by India has the full backing of the G-33 countries.

 

Another issue that will be addressed under agriculture is on imposing restrictions for food exports. There is evidence to show that the food price escalation during 2006-2008 was exacerbated by food export restrictions imposed by some countries. In order to prevent such occurrences in the future, the WTO Bali Ministerial plans to work out a multilateral agreement on such restrictions.

 

The third issue is extending duty-free quota-free (DFQF) status to LDCs. This offer was first made at the 5th WTO Ministerial in Hong Kong in the year 2005. The status was offered to 97 per cent of tariff lines which enabled developed countries to restrict key exports from LDCs such as ready-made garments, manufactured products, and agricultural items from the DFQF scheme thus preventing them from taking full advantage of duty free market access. There is a request to extend this scheme to all tariff lines because whatever existing duty free market access schemes there are for LDCs, have problems. Two examples may be highlighted — the Everything-But-Arms (EBA) scheme for the EU has strict rules of origin that prevent full exploitation of the scheme for market access and the African Growth Opportunities Act (AGOA) for US market access is confined to Africa and also has rules of origin. It is due to these problems of the existing schemes that the LDCs are making a clear case for more market access for their popular exports.

 

These three issues are under one package and if there is no agreement in one of the items, the entire package will fail to go through at the Bali Ministerial. In other words, it is a ‘single undertaking’ for the three items which is a departure from the usual practice of the WTO going for a single undertaking for the entire DDA. According to Chakravarthi Raghavan of the TWN, the single undertaking of the WTO was allowed to lapse in previous occasions by Pascal Lamy to fulfil political imperatives. The Director General of the WTO is empowered to do so but the exercising of this flexibility is subject to debate. Be that as it may, the departure from single undertaking to all DDA items and confining it to selected issues needs to be welcome. If a breakthrough is worked out in Bali, it could lay the foundation to completely break the single undertaking policy of the WTO and confine it to selected items. It will allow the finalization of other parts of the DDA in a similar manner and expedite the much needed completion of the DDA.

 

Challenges

 

Whether or not a deal is made in Bali, the WTO has many challenges in the coming years. Three areas may be highlighted, viz., trade in services, exchange rate management, and the need to recognize the key countries of the developing world.

 

Trade in services under GATS is a key agenda item of the WTO. There are now increasing signs of liberalization in services trade taking place under plulrilateral arrangements among a selected group of countries. For instance, a new group of “Really Good Friends of Services” (RFGS) promotes Trade in Services Agreement (TISA) as a separate plurilateral agreement. This is occurring outside the WTO framework and making WTO less relevant for services liberalization. This fallout needs to be addressed as progress in services under the WTO is a key factor for many stakeholders, especially, developing countries.

 

Secondly, the exchange rate management may also make inroads to the WTO agenda as some developing countries are becoming concerned about the excessively under-valued Chinese Yen (pegged to the US dollar). These countries argue that there is undue pressure on their domestic industries from Chinese imports and as a result, they find it difficult to reduce tariffs as agreed with the WTO multilateral liberalization framework. Brazil, in particular, is pushing this issue in the WTO taking into account a cue from US Congress including currency management provision under the Trans Pacific Partnership negotiations. As the IMF still remains the key international agency which overlooks exchange rate management in member countries, this area will be an unchartered territory for the WTO and will remain a challenge.

 

Thirdly, the WTO future decisions can no longer become a fait accompli as the Uruguay Round in 1994 as developing countries are becoming more assertive in international fora, in particular, China, India, South Africa and Brazil. They are no longer ‘lite forces’ and their voice needs to be heard and accommodated in setting the global trade agenda. The US becoming flexible on India’s concerns on agriculture food subsidies and stock keeping is also a positive sign in this context. Moreover, the presence of a Brazilian Director General may ensure that the voice of the developing world will be heard loud and clearly.

 

Prospects

 

Failure to take these challenges by the WTO and member countries will make it difficult to complete the DDA. A stasis after Bali meeting will lead to consolidate alternative international rules on trade and investment such as what has already taken place under the Trans Pacific Partnership and Trans-Atlantic Trade and Investment Partnership. Such deals among rich countries will sideline poor nations and once again make might the right. Thus preserving the WTO is all the more important for developing countries than for developed countries. According to Pascal Lamy, successful completion of the Doha Round will add US$ 130 billion to global trade. The main beneficiaries will be the developing countries and Bali provides an excellent opportunity to find a way forward.