Bali and the future of multilateral trade

7 February 2014

Trade ministers meeting on the Indonesian island province of Bali announced last December that they had finalised negotiations for a global trade pact - the first since the WTO opened its doors in 1995. The so-called Bali package covers only a small fraction of the Doha Round mandate, established by the WTO in 2001, with the more difficult topics left for further down the road. The systemic impact, however, could be substantial if WTO members manage to hold onto this momentum.

A failure in Bali would have been devastating for the multilateral trading system as we know it. Success, though, begs its own set of questions, namely whether achieving the first multilateral trade deal in nearly 20 years is enough to reinvigorate the WTO's negotiating function in the long-term - especially as bilateral, regional, and plurilateral agreements take an increasingly prominent role on the world stage.

Meanwhile, the emergence of the so-called "new issues," such as energy, exchange rates, or investment, have caused many to question whether the mandate from 2001 still matches up with the needs of the global economy - and if not, whether the WTO is equipped to adapt to an ever-changing trade landscape.

The Bali deal
The package reached in Bali had three parts: an agreement on trade facilitation (TF); four texts on select agriculture issues; and a short series of items related to developing and least developed countries (LDCs).

Choosing to focus on just a subset of the Doha Round negotiations - rather than dealing with it as a whole - was a major departure for the 159-member body, which had previously long held onto the notion that an "early harvest" was not an option.

Only in mid-2011, after a last-ditch effort to finalise the Round as a whole failed, did members decide instead to break the negotiations into parts, and later review the various pieces for balance. While an attempt to achieve a Doha mini-package fell apart only a few months later, just ahead of the December 2011 Geneva ministerial, WTO ministers did agree to declare the Round officially at an impasse, committing themselves to pursue "new negotiating approaches" to break the stalemate.

Trade facilitation quickly emerged in 2012 as an area where an agreement might be feasible. Although not originally part of the Doha Round mandate, trade facilitation had been one of the fastest moving areas of the negotiations in recent years, and had long been considered a possible candidate for a WTO "early harvest" should one come to fruition.

Trade facilitation aims to reduce red tape and bureaucracy at the border, an issue of particular relevance for landlocked developing countries, where passing goods through customs checks can take weeks, in some cases months. The Bali agreement in this area has been touted by its proponents as a win-win for all, with the most optimistic estimates predicting that it could yield a US$1 trillion annual boost in world trade.

A last minute stand however on the topic by Cuba on the final night of negotiations nearly scuppered the entire Bali conference. Havana, with the support of Bolivia, Venezuela, and Nicaragua - also part of the Bolivarian Alliance of the Americas, or ALBA - pushed for the language that would have prohibited members from applying discriminatory measures to "goods in transit, or to vessels or other means of transport from other members," aimed at taking down the US embargo imposed in 1960.

Negotiators burned the midnight oil looking for a comprise - which, when it came, stated that members would not maintain any "voluntary restraints" or "other similar measure on traffic in transit," but that this was "without prejudice to existing and future national regulations, bilateral and multilateral arrangements related to regulating transport consistent with WTO rules." The ministerial declaration also included a line reaffirming members' commitment to the principle of non-discrimination enshrined in the trade body's core legal foundation, the General Agreement on Trade and Tariffs (GATT), as updated in 1994.

With regards to agriculture, the Bali texts deal with three main issues: tariff rate quotas, public stockholding for food security purposes, and export competition. Though all of the agriculture proposals hit their share of setbacks in the negotiating process, the issues surrounding public stockholding at one point also threatened to derail the show.

Backed by the G-33 coalition of developing countries with large populations of smallholder farmers, the group - led by India - had pushed for greater flexibility under WTO rules for purchasing food at administered (government-set) prices when building public stocks for food security purposes. However, some developed and developing countries questioned whether allowing unlimited levels of market price support to count as minimally trade distorting might actually lead to the opposite effect, while potentially causing food security problems elsewhere should excess grains be dumped onto third country markets.

The public stockholding issue dominated most of the Bali conference, with the G-33 coalition itself splintering as the negotiations went on. Indian Commerce Minister Anand Sharma took a strong stand on the subject at the meeting, telling a packed press conference that his country's right to ensure its own food security was "non-negotiable."

The final text now commits members to negotiating a permanent solution, with a peace clause - also known as a legal "due restraint" mechanism that would commit WTO members to not launch disputes in this area - serving as an interim arrangement until then. The deadline to conclude a permanent solution is scheduled as the WTO's eleventh ministerial conference, expected for 2017. In the meantime, only stockholding schemes in place on the date of the Bali decision will be covered by the new arrangement.

Public stockholding was not the only farm trade fight featured in the context of these talks. Ahead of Bali, a proposal by the G-20 coalition of developing countries - not to be confused with the G-20 group of major industrialised and emerging economies - on agricultural export competition served to raise the blood pressure of delegates negotiating in Geneva.

At the WTO's 2005 ministerial conference in Hong Kong, ministers had agreed to eliminate all export subsidies and similar measures by 2013. However, the US and EU have argued that this pledge was made conditional on the completion of a full Doha deal.

In the months leading up to Bali, the G-20 suggested that some formal assurances were still needed of WTO members' commitment to resolving the matter. The final language agreed in Bali "reaffirms" members' commitment to eliminating these export disciplines as an outcome of the Doha talks, while encouraging them to continue their domestic reform processes to reduce such subsidies in parallel.

Also agreed in Bali was a provision that would allow developed countries to ease their farm import quotas in cases where such quotas were regularly left unfilled. Separately, members also decided to exempt certain farm subsidy schemes - such as "general services" programmes involving soil conservation or rural employment, among others - from certain ceilings, on the grounds that these cause minimal trade distortions.

In the area of development, the Bali package establishes a "Monitoring Mechanism" for special and differential treatment (S&DT) - which at the WTO refers to specific provision for developing countries - including the possibility for developed countries to provide the former with more favourable treatment.

This mechanism would analyse and review the implementation of S&DT provisions across all the WTO Agreements, with the option of making recommendations to the relevant WTO bodies for launching negotiations on such provisions if a problem is identified.

The other four developing country texts in the Bali package refer specifically to LDCs. These include terms for operationalising the services waiver agreed at the 2011 Geneva ministerial, which permits members to grant preferential treatment to LDC services and service suppliers; more favourable rules of origin; duty-free quota-free market access; and a new set of dedicated discussions on the controversial subject of cotton trade.

Maintaining momentum
What the Bali deal will actually mean for world trade in the long run remains to be seen. Officials predict that the trade facilitation deal, for instance, could take as many as two years to implement. Under WTO rules, two-thirds of the membership must ratify the pact in order for it to apply to those members. How countries use the flexibility provided under the public stockholding text is another key area to watch.

Meanwhile, the looming question in trade negotiators' minds is what the WTO should do next. Notably, the final Bali declaration features several paragraphs on "post-Bali," including a directive to develop a work programme that would deal with the outstanding Doha Round issues. WTO members have 12 months to develop such a plan, which also has to be consistent with the 2011 ministerial guidance of exploring new negotiating approaches -including ways to work past the "most critical and fundamental stumbling blocks."

What this language could lead to in practice is still an open question. Resolving some of the Doha Round's most difficult issues - agriculture, industrial market access, and service- is expected to be difficult, if not impossible, particularly given the widely-held view that these three are inextricably interlinked.

Some have suggested that a possible way forward could include future WTO mini packages, such as the one seen in Bali. Others counter that the circumstances that allowed for the Bali deal might not hold for other elements of the Doha Round.

Another option that has been gaining traction in certain circles is the possibility of pursuing ‘plurilateral initiatives' that could later be extended to the whole WTO membership - a controversial topic. While some have warned that this could detract from the multilateral process, others have said that these efforts could be just the sort of "flexible negotiating approaches" that WTO members are looking for. In the meantime, new plurilaterals are expected to take shape.

In 2012, for example, a group of WTO members announced that they would be initiating negotiations on a plurilateral deal on services trade. The talks for this Trade in Service Agreement (TISA) are now well underway, with the next round of negotiations set for February 2014.

And on 24 January on the sidelines of the World Economic Forum in Davos, Switzerland a group of 14 WTO members - including the US, EU, and China - announced that they were launching a new plurilateral initiative aimed at achieving "global free trade" in environmental goods. The initiative will eventually lead to formal negotiations, though participants have not yet confirmed a timeframe for these.

The group, which also includes Australia, Canada, Costa Rica, Chinese Taipei, Hong Kong, Japan, Korea, New Zealand, Norway, Switzerland, and Singapore, reportedly make up 86 percent of trade in the environmental goods tentatively expected for tariff liberalisation. Global trade in environmental goods, according to US data, amounts to just under US$1 trillion a year. Tariffs on such goods, however, can be as high as 35 percent.

Liberalising trade in environmental goods and services had been part of the Doha Round negotiating mandate, with members directed to find ways to lower tariff and non-tariff barriers in this area. The talks languished however on the WTO stage due largely to questions over what constitutes an environmental good and which products a final global deal might cover.

Meanwhile, the idea to attempt plurilateral talks on green goods has been quietly building steam over the past year, ever since the Asia-Pacific Economic Cooperation (APEC) forum - a regional coalition of 21 members - reached a non-binding commitment to lower tariffs to five percent or less on a list of 54 environmental goods by the end of 2015.

Calling the APEC deal and the product categories included a "good start," the Davos group behind this new initiative has said that they hope to develop a "future oriented agreement" that would be adaptable to the evolution of new technologies, as well as capable of addressing other barriers to trade in the environmental sector.

Participants in this effort have said that they hope to bring their agreement under the WTO umbrella. Once the number of participants covers a high enough percentage of world trade on the list of goods agreed-upon - usually 90 percent, as seen with the WTO's Information Technology Agreement - the pact's benefits would be extended to the global trade body's entire membership. Concessions, however, would only be required from its signatories.

A rare opportunity
No one can say for certain what lies in store for the WTO as it begins this next chapter, particularly given the Doha Round's long and troubled history. There is the risk that the post-Bali glow could fade, and calls for creativity, flexibility, and new approaches might ultimately go unheeded, especially as politics and domestic concerns come into play.

Conversely, WTO members could use Bali for what it is: a rare opportunity to start fresh, in a new global context, while making sure to remember the lessons of over a dozen Doha years.

As we enter the new year, efforts to close mega-regionals like the Trans-Pacific Partnership (TPP) or the Transatlantic Trade and Investment Partnership (TTIP) are ramping up, and other new plurilaterals may emerge along the lines of TISA and the environmental goods initiative. Whether these processes succeed or stumble, they will have a wide-ranging impact on how negotiators see trade reform. Meanwhile, the global economy is finally emerging from half-a-decade in crisis, and is eagerly looking for opportunities to move forward.

It is also important to remember that one of the WTO's key functions is as an arbiter of global trade rules. A quick glance at some of the more recent disputes brought to the trade body - covering topics from seal products, to fisheries, to renewable energy support policies - demonstrates the extent to which environment-related issues are increasingly intertwined with trade policy. Negotiators therefore might be advised to consider whether the WTO edicts from two decades ago match up with today's environmental policy landscape, and if not, where changes can be made.

In all the uncertainty ahead, what is clear is that the global economic landscape will continue to change, and quickly - WTO members can ill afford to let this Bali boost pass.

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