What’s at Stake this Week in Bali? And Where Next?

By Dirk Willem te Velde, Overseas Development Institute

The Doha round of WTO trade talks that began in 2001 was getting close to the finish line in 2008, before the global financial crisis grabbed everyone’s attention. The talks became deadlocked and, by 2011, it was clear that they were at a complete standstill. Once broad negotiations have since been narrowed down to just three issues to be discussed at this week’s WTO negotiations in Bali:

• development issues (those that help least-Developed Countries (LDCs), such as Duty Free Quota Free market access, cumulation of rules of origin, services waiver and cotton)
• agriculture (discussions on food stockholdings) and
• trade facilitation (measures to reduce red tape in customs).

Agreement on these is proving difficult, but there is hope for a modest deal. And that would be a success for Roberto Azevêdo, WTO’s new Director-General.

As so often happens in trade negotiations, there is a gap between economic and negotiation perspectives. And trade facilitation is a classic example. There is general agreement that a deal on trade facilitation would benefit the WTO membership. Countries would gain from streamlined customs procedures: while the estimate of gains worth $1 trillion from current trade facilitation negotiations may not be realistic, one study suggests that a gain of $68 billion in GDP looks more likely. Whatever the actual total, the qualitative benefits are the same: all countries gain, especially with the additional offer to the poorest countries for more time, space and money to implement commitments.

If a deal on trade facilitation was being negotiated by economists, it would have been nailed down yesterday. And if our leaders cannot even reach an agreement on such a no-brainer, the future of multilateralism looks shaky.

Hardened negotiation stances sometimes defy economic rationality. Some countries want to be able to extend subsidies even when this is an expensive way of attaining food security.  For example, the EU’s Common Agricultural Policy for existing farmers is not an efficient way to ensure food security in the EU or other regions. Far better to support agriculture productivity globally through innovation, skills and infrastructure than pay individual farmers a subsidy that does not affect behaviour.

Other countries want to link negotiation issues in arbitrary ways – the notion of a single undertaking (with all negotiation issues agreed at the same time) was abandoned in 2011, but a smaller version is reappearing. The Indian cabinet, for example, has announced it wants to link progress on trade facilitation talks to permanent solutions for its ability to pay food subsidies. This might be understandable for domestic politics, but not for global economic development.

So, agreement on even a modest Bali package is under threat, while the negotiations still do not address the main issues of liberalisation in trade in goods, services or subsidies. While there are discussions about food stockholdings in developing countries, there is no discussion on important issues such as tariff and non-tariff barriers, including export restrictions or subsidies in OECD countries. Some of these might come up in regional trade negotiations involving the EU or US, but these negotiations leave out China and many poor and vulnerable economies, and some issues, such as agricultural subsidies, will only be settled at multilateral level. Given recent experience, it also takes time to conclude negotiations at a regional level. However, such regional negotiations might see economic considerations trumping defensive, domestic negotiation objectives, and this could then help, rather than hinder, other negotiations.

Are there ways to incentivise economic considerations rather than defensive negotiation strategies in multilateral trade negotiations? And how can a future WTO programme help? My list is as follows (but is not exhaustive):

• Let go of grand expectations, but highlight the beneficial role of trade. Modelling studies that suggest unrealistically large gains are often revised or subject to assumptions. Trade can help address development challenges, but it is not a magic bullet. The WTO can, however, provide a platform to highlight the beneficial role of trade from a bottom-up approach. For example, I benefit from cheap manufactured imports or imported skills that deliver health and financial services. Trade rules help me do that. Similarly, high food prices are a cost for me, so enabling freer food trade would help me. The same holds true for consumers in developing countries, but as their countries have a much smaller share of trade than the EU these consumers find themselves far more vulnerable to actions by other countries than to actions by their own governments. For them, international trade rules are even more important than for me.

• Communicate the useful role of global trade rules embodied by the WTO. These rules have an actual, enforceable, effect on trade and a signalling role for areas such as finance or environment that are not policed in the same way.

• Deepen a role for the WTO in providing a platform for the exchange of thoughts and assessments amongst all affected parties of current regional integration efforts.

• Build in flexibilities so that the WTO can respond quickly, with the help of informal discussion groups, to new bottom-up issues, such as trade and climate change, trade and innovation, or the operationalisation of the LDC package on the services waiver or the use of cumulation in rules of origin. Flexibilities to consider new areas might be more important than sticking by a single undertaking that relates to an area fenced-off in an arbitrary way.

• Ratchet up Aid for Trade (AfT) at the WTO as a complement to current talks on trade liberalisation, such as existing trade rules, but also as an essential input into post-2015discussions. Here, a monitoring role for the WTO/OECD in AfT is an important short-term objective. Contributors from the OECD, WTO, as well as Jodie Keane of ODI discuss the role of AfT in more detail in this mini-blog series.

This is a very full agenda for the WTO in the years ahead; but over time these elements could lead to trade talks that have both meaning and impact.

This blog is part of an Aid for Trade special with the Overseas Development Institute, the OECD and the WTO.