After several days of grueling negotiations the Ninth WTO Ministerial Conference in Bali, Indonesia, in December 2013, adopted the Bali Package aimed at mainly streamlining global trade. However, this is only the first step toward a Doha deal and much work remains to re-formulate a post-Bali agenda, as well as reform of the WTO to restore its relevance as a key pillar of multilateral trade relations.
“Early Harvest” as key for success
The negotiations in Bali took place under the umbrella of the Doha Development Round, launched in 2001 in Doha, Qatar. This ninth round of multilateral trade negotiations had a comprehensive agenda covering agriculture, services, and WTO rules, etc. From the beginning, the negotiations advanced slowly and came to a standstill in 2008 over an agriculture dispute between India and the US. As various subsequent attempts to revive the Doha Round failed, the idea of a so-called “early harvest” emerged. An early harvest means bundling together a smaller set of issues from the Doha Round with the aim to come to an agreement more quickly. Despite this lowered ambition of a slimmed-down deal, many were pessimistic about securing an agreement.
However, the pessimists were proven wrong and the WTO members adopted the Bali Package, which is made up of several agreements in four core areas of trade facilitation, agriculture, cotton, and development issues:
- The Agreement on Trade Facilitation (AFT) aims to accelerate the cross-border trade of goods by enhancing transparency, harmonizing customs procedures, and by improving trade infrastructure.
- The main agreement in the area of agriculture is on Public Stockholding for Food Security Purposes. It puts in place an interim mechanism for continued food stocking for security purposes by WTO developing members until a permanent solution can be found.
- WTO members agreed to hold biannual discussions on trade-related developments in cotton concerning market access, domestic support, and export competition.
- Development and least developed countries (LDCs) issues contain four texts that underscore the special needs of LDCs, including exceptions and waivers from certain WTO rules.
Outlook for global trade after AFT implementation
AFT implementation is expected to have the biggest impact on trade. WTO Director General Roberto Azevedo suggested that AFT would generate $1 trillion for the global economy and create up to 21 million jobs. Whether these high numbers are overestimates remains to be seen. However, empirical studies show the high potential for boosting trade through facilitating and streamlining the cross-border flows of goods.1 These estimates are based on trade flow data from the early and mid-2000s and could therefore be an underestimation of what may happen with full implementation of the agreement. Today, production in many sectors is split up across countries and relies heavily on trade in intermediate goods, which must be delivered in a predictable and timely manner. The hope is that by increasing the speed and reliability of cross-border crossings, companies, particular small and medium-sized enterprises, will find it easier to connect to international supply chains. This involves facilitated trade in both directions: imports and exports.
How the ATF is implemented at the country level will determine the magnitude of the gains. Upgrading and modernizing customs and customs procedures requires a substantive amount of investment in software, hardware, and human skills. The training of customs officials may take time and changing certain habits may be a challenge, such as rent-seeking by customs officials. These efforts may prove a burden for developing countries, especially LDCs that lack the capacity and expertise. The Bali Package may thus have no immediate effect on international trade. Gains in the medium- and long-run may occur if capacity is built and effective implementation is carried out.
Future of the Doha Round and WTO
Given the very comprehensive Doha Agenda and the difficulties to rally all WTO members even behind a small Bali Package, a successful conclusion of the entire Doha Round seems difficult to imagine. Salvaging the Doha Round will require an agreement on a ministerial mandate that singles out core issues and may even require the jettisoning of part of the original ambitious Doha mandate. Agriculture and non-agricultural market access are two obvious core issues with substantive trade potential.
In parallel to this process, fresh thinking is needed on the future of the WTO, including its mandate, role, and procedures. The emergence of global supply chains provides a new and strong rationale for multilateral trade liberalization. Bilateral and regional trade agreements respond poorly to the imperative of global supply chains, which are built on the smooth flow of goods and services around the world. At the same time, we see a trend toward mega-regional trade agreements that encompass some of the biggest traders in the world. The emergence of mega-regionals will have substantive systemic implications. In an ideal case, mega-regionals will go beyond the WTO in liberalizing trade and collectively complement global trade liberalization. In the worst case, they might create trade blocs with desperate trade rules and exclude small developing countries, especially LDCs.
Whatever the future brings, the Bali Package will help restore the systemic importance for the WTO as the key pillar of multilateral trade relations. Before the Bali ministerial meeting there was a substantive risk that the WTO as an institution and as rulebook for international trade would slide slowly into irrelevance, as trade liberalization has been progressing through other means and channels. But the success at Bali shows that the WTO is where deals and rulemaking can be done—Bali has thus avoided the decoupling: The WTO train is back on track, but much work remains to transform it into a locomotive of multilateral trade liberalization.
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1 For example, Djankov et al. 2006, estimate that each day a product is delayed prior to being shipped reduces trade by more than 1%. Helble et al. 2009, estimate that a more predictable and transparent trade policy regime, especially customs procedures, could boost trade in APEC economies by up to 7.5%.
References:
Roberto Azevedo, WTO Director. 2014. “Bali is just the start” speech delivered at a diplomatic seminar in Lisbon, Portugal, 6 January 2014. For the potential trade gains and creation of employment Roberto Azevedo referred to a recent study by Hufbauer and Schott 2013.
Simeon Djankov, Caroline Freund, and Cong S. Pham. 2006. Trading on Time. World Bank Policy Research Working Paper. No. 3909. Washington, DC: World Bank.
Matthias Helble, Ben Shepherd, and John S. Wilson. 2009. Transparency and Regional Integration in the Asia Pacific. The World Economy. Wiley Blackwell. 32(3). pp. 479–508.
Gary C. Hufbauer and Jeffrey J. Schott. 2013. Payoff from the World Trade Agenda 2013. Report to the ICC Research Foundation. Peterson Institute for International Economics.
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