Bali, the Doha Round and the multilateral legal framework

15 November 2013

What are the changes that have occurred since Doha? What impact  have they had on the LDCs and on the inclusive multilateral trading system?

The Doha Development Round, launched in 2001, has not yet been able to produce substantial results. With little prospects for a breakthrough in the negotiations, the following strategy was defined for Bali: Agreeing on some so-called "low-hanging fruits" to show that the WTO is able to come to a consensus, at least on some issues" and exploring new and more efficient negotiating mechanisms.

These two measures are intended to revitalize the Round and lead to its successful conclusion.The so-called "small package" consists of an agreement on trade facilitation, and some agreement on three agricultural issues, and on the so-called development component.  It is likely that some degree of agreement covering the three components is attainable.

Agreeing on a small package will not however be enough to revive the Doha negotiations. To save the multilateral system, it is essential to establish a credible way forward for the negotiations after Bali.Any "new" approach to the negotiations will have to address the causes of the present stalemate.

Major, rapid and alarming changes inside and outside WTO

First and foremost, the situation in LDCs and their position in the world have fundamentally changed. The decade before Doha was a period of relative stagnation in most LDCs. In the past ten years, LDCs have experienced sustained economic growth and have become coveted partners both for their resources and as a destination for investments. However, this remarkable development has made it more difficult for LDCs to agree on a common position, as the their economies have become more diverse and their needs have increased.

Second, the organization of the world's production processes, and hence the content of the trade relations, are changing rapidly. Trade in goods and services is progressively replaced by trade in tasks through global value chains (GVCs). Value chains need what is called deep integration as opposed to "only" free trade.  Deep integration can be much more easily negotiated within a small and voluntary group of countries that share similar interests than by an inclusive process where any member can block the whole process. It is thus not surprising that the framework conditions for GVCs are negotiated in smaller groups, normally in relation to a consumption centre and the related production centres (e.g. USA with Asia and Latin America, EU with Eastern Europe; and Japan with Asia).

Third, there has been a tectonic change in the distribution of economic power and thus in negotiating power within the WTO. Developed countries can no longer impose their solutions on the rest of the world. The BRICS are now major trading powers and formidable competitors for the developed countries.

What do these changes mean for the Doha Round and the WTO?

All these changes have had an important impact on the multilateral trade framework and on the negotiating process: The willingness to make concessions to maintain the system has decreased;

Special and differential treatment has to be redefined; The various groups need to adapt to the economic evolution of the last twenty years; A new balance between rights and obligations among the major trading partners has to be defined; Negotiating topics have to be adapted to the requirements of an ever changing economic environment; Bigger powers have alternative ways to achieve their trade objectives: WTO no longer has the monopoly to define the multilateral trade framework.

Most important, a common purpose of the negotiations, in which each country sees its interest to make concessions so as to receive concessions, has to be established.

In the present negotiations, some countries perceive the status quo as sufficient and acceptable (BRICS), whereas others fear that they may actually lose in an agreement (the LDCs).  A third group of countries (the big powers) are convinced that they can get a much better deal for themselves outside the system (mega-deals, EPAS, plurilaterals). In such a situation, it is not surprising that the required political will to come to an agreement is simply not there; agreement on a small package will not be enough to reinvigorate the process. Bali needs first and foremost to define a credible way forward that ensures deliverables by mobilizing the political will of all parties concerned to make the necessary concessions.

There are three possible outcomes in Bali:

There is no agreement in Bali. In such a case (fortunately rather unlikely), not only the Doha Round but also the negotiating function of WTO would most probably be abandoned in favour of bilateral, regional, plurilateral and mega deals, in which developed and emerging trading parties will dictate the functioning of the global system. LDCs and other small economies have the most to lose in such a scenario.

There is an agreement on a small package that is not really credible, but sufficient for the participants to pretend that Doha is not dead -a scenario that is not unrealistic. In such a case, the negotiations will most probably continue officially. However, the big powers-and their economic clientele, representing about 80 to 90 percent of world trade-will put their energy and resources into mega deals and plurilaterals, where results are more easily attained.

The Bali Ministerial concludes with a small package and a credible way forward for the negotiations. This may well be the only way to preserve the Doha Round and an inclusive multilateral framework. LDCs should endeavour to do anything in their power to bring about this third solution, given their fundamental interest in a functioning inclusive trading system.

What does this mean for LDCs and other smaller, poorer nations?

First, the change in the international division of labour and the global production processes (GVCs) requires a rethinking of how LDCs want their special situation addressed. Exemptions from rules are not the solution. LDCs have to make sure that the rules that are agreed multilaterally are in line with their development needs and can be implemented according to their development priorities and with the assistance of the developed world. In this respect, the Trade Facilitation Agreement is a very good example on how future rules should be negotiated.

Second, LDCs have to accept that all parties are required to do their part to come to an agreement. The concept of a "round for free" is an illusion. LDCs may consider proposing concessions (i.e. reforms) in line with their development needs.  This requires a more pro-active position.

Third, LDCs have to acknowledge that their interests will diverge once the negotiations advance to specific concessions. They need to find ways to negotiate among themselves to come to common positions. Unless the LDCs have the structures and capability to come to such compromises, they will not be able to negotiate pro-actively and will be limited to reacting (in most cases defensively) to proposals from their partners.

Fourth, LDCs' main interest in Bali is the survival of the Doha negotiations and, more importantly, the survival of an inclusive multilateral system. The content of the small package is of secondary importance. As the main beneficiaries of an inclusive multilateral system, LDCs should be unequivocally vocal about their attachment to the multilateral system.

Fifth, LDCs may want to put heavy emphasis on the way forward after Bali. They have to take into account the fact that major powers have already shifted their interest towards other trade forums: mega deals, RTAs, and plurilaterals. They are, however, aware that politically an inclusive multilateral system has to remain the main objective of the world community. The WTO at Bali has to show that the multilateral system can deliver.

Sixth, the system has not been able to deliver and there is no reason to believe that it will deliver, unless substantive changes in its functioning are proposed. The bigger powers are already unilaterally redefining the way rules are made through mega deals and plurilaterals, i.e. non- inclusive systems. Let there be no doubt: once essentially all interested and interesting parties participate in a non-inclusive deal, other countries will have no choice but to abide by the rules thus defined, or be marginalized in the world economy.

These new non-inclusive approaches are game changers. Development issues are not central to these approaches; the single undertaking is gone and the themes negotiated will be those of interest to the big powers, not to the LDCs. While LDCs are right to be against these new approaches, they cannot stop them. Unless LDCs come up with credible alternatives, those approaches will be used with or without LDCs' agreement.

Seventh, LDCs therefore have to identify ways to combine the legitimate request of the big powers to have efficient negotiating structures with the legitimate goal of LDCs to maintain an inclusive multilateral system. Such a consensus on the way forward can be found:  On the one hand, the bigger powers have a political interest to maintain an inclusive multilateral system, and should be willing to pay a certain price to maintain it.  On the other hand, LDCs know that deeper integration agreements among a group of countries willing to do so cannot be avoided and therefore should be willing to make concessions so as to bring these agreements into the WTO.

Eighth, a new multilateral trading system may well be based on the comparative advantage of the two negotiating processes, i.e. the advantage of plurilaterals and FTAs in the efficiency of negotiating deep integration and the advantages of inclusiveness of the WTO system. A possible approach maybe to:

  • Define within WTO, and inclusively, the basic principles any FTA or plurilateral agreement should follow when negotiating exclusive deeper integration agreements;
  • Accept those agreements (through Annex 4 procedures) within WTO's legal structure and submit them to the supervision of the WTO.

Clearly, such a new system would require time to be negotiated and can certainly not be ready for Bali. However, a Ministerial Declaration in Bali could give to the WTO a mandate to work out such an approach, to be submitted to a Ministerial Conference to be convened within a year.

Author: Nicolas Imboden is the Executive Director of IDEAS centre

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