The Economist Intelligence Unit
On December 7th negotiators at a World Trade Organisation (WTO) meeting in Bali, Indonesia announced an agreement on aspects of global trade. The deal focuses on “trade facilitation”, such as the reduction of red tape at borders and the setting of binding standards for the movement of goods internationally. It also addresses food security, and market access for least developed countries (LDCs). The deal is a minor breakthrough for the WTO, but the broader Doha round is far from complete. In addition, the WTO’s multilateral agenda continues to be threatened by the proliferation of regional and bilateral free-trade agreements (FTAs).
The Bali package marks one of the first significant achievements of the troubled Doha round of WTO trade negotiations since talks began in 2001. The agreement on trade facilitation is intended to streamline global trade in goods by reducing bureaucracy and transaction costs. Countries will have to adopt more standardised customs procedures and technology. The WTO hopes that this will reduce the amount of time that goods await customs clearance—which, in developing countries, in particular, can be lengthy. A more transparent trade regime could reduce corruption and create a more predictable operating environment for exporters and importers, who, for example, would potentially have more clarity on compliance with customs rules and on the length of time needed to clear a shipment through customs.
Cheaper and easier trade promises broader economic benefits. Quantifying these benefits is tricky, but the WTO estimates that the Bali trade facilitation package could reduce the costs of trade by 10–15%, boost foreign investment and increase merchandise trade volumes. The WTO notes that duplication of data and customs documentation, and other inefficiencies, can sometimes be costlier than actual customs duties. Given the fact that resistance from developing countries has been a significant factor behind delays in WTO negotiations in recent years, it is worth noting the WTO’s claim that the benefits from trade facilitation will mainly accrue to developing countries (many of which will also qualify for financial and technical support to upgrade their information technology systems, codify regulations and train staff). Speedier customs clearances could benefit agricultural exporters by reducing wastage of perishable produce. In principle, improvements in technology and transparency could help governments to boost customs revenue (in part by reducing corruption) without raising import duties and other levies that would potentially have a detrimental impact on trade flows.
The other main achievement at the Bali summit was to reassure developing countries—most notably, India—that policies to improve food security would not lead to legal sanctions even if they nominally violated WTO rules on subsidies and trade-distorting policies. India, for example, fiercely defended its policy of subsidising and stockpiling staple foods, and threatened to block the overall Bali package if its demands were ignored. In the event, it secured an interim waiver for developing countries on this issue, along with agreement that the waiver would continue to apply until a permanent solution is negotiated. For this agreement to work, however, it will be important for developing countries to demonstrate that public food-stockholding programmes are not being abused for the purposes of trade competition with other countries. The Bali summit also confirmed previously drafted decisions on trade development for LDCs—including measures on preferential rules of origin, and on duty-free and quota-free market access.
Multilateralism still under pressure
The latest agreement provides a limited but much-needed boost to the WTO’s credibility, after many years in which progress on the Doha round of trade talks has stalled. In addition to the economic benefits from trade facilitation, the WTO may find that the success of its negotiations in Bali marginally reinforces its authority as an arbiter in crossborder trade disputes. However, the multilateral free-trade ideal embodied by the WTO is by no means secure. First, the Bali agreement leaves most of the major policy issues of the Doha round untouched, including key steps to address services and agricultural trade, and to reduce tariffs or quotas on goods further.
The Doha round also remains vulnerable to the trend towards bilateral FTAs and large regional FTAs that have increasingly competed with the WTO’s multilateralism in recent years. Largely because of the Doha round’s diminished prospects, many countries have turned to such deals. Proposed agreements include the Trans-Pacific Partnership, a planned inter-regional FTA that includes countries on both sides of the Pacific and that could yet expand beyond its current membership of 12 (the US, Canada, Chile, Mexico, Peru, Australia, Japan, Singapore, Malaysia, Brunei, Vietnam and New Zealand). Talks have also begun on a bilateral transatlantic trade pact between the US and the EU, while the US has launched an expanded trade initiative with ten South–east Asian countries. There have been many other examples of bilateral and regional FTAs—almost too numerous to mention—in the past decade. One of the key problems with the Doha round has been the difficulty of achieving consensus among all 159 WTO members, as the 11th-hour negotiations in Bali confirmed. The temptation for governments to negotiate bilateral and regional agreements is therefore substantial, as these require less convoluted (albeit still extensive) negotiations.
This trend has pros and cons. Trade liberalisation has not broken down completely in the absence of progress on the Doha round of trade talks. Moreover, the array of regional deals currently on the table, if all successfully concluded, would cover the vast majority of the global economy. This would boost global trade in aggregate. However, regional deals have the potential to divert trade from those countries not included. This has several potential political and trade-distorting twists: for example, Taiwan, which is a major exporter, has much to gain from multilateral trade liberalisation under the umbrella of the WTO, whereas mainland China’s assertion of its sovereignty over the island circumscribes Taiwan’s ability to seal bilateral deals with other countries. At the same time, LDCs are likely to lack the institutional capacity to be able to negotiate and comply with a multitude of different trading regimes. Ironically, the proliferation of bilateral and regional FTAs in the past two decades risks encouraging the spread of a complex network of overlapping FTAs, each with different rules (a “spaghetti bowl” of obligations, as one academic has described it). Even as the Bali agreement aims to simplify and streamline trade, and to reduce businesses’ compliance costs, the competing trend towards regional and bilateral FTAs may achieve the reverse.
