The World Trade Organization has concluded its first trade reform agreement. Meeting in Bali, Indonesia, earlier this month, trade ministers gave their stamp of approval to a deal that is projected to add $1 trillion in trade to the global economy. WTO Secretary General Roberto Azevedo celebrated the success — his success, according to many accounts — noting that “we are back in business … the ‘world’ is back in World Trade Organization.” It is a moment to savor, but it is just a start.
Since it opened its doors in 1995, the WTO has labored to produce a global deal that would fulfill the promise of an organization designed to promote trade and economic development.
While the WTO has been busy arbitrating disputes under existing rules and regulations, it has failed to produce new rules and regulations that would lower barriers to exchange.
In the aftermath of the September 2001 terrorist attacks on the United States, member states launched the Doha Round of negotiations in an attempt to spur economic growth that would help “drain the swamp” that bred dissatisfaction and produced terrorists. The Doha Round was originally intended to focus on issues of concern to less developed economies.
In the 12 years since, there has been little, if any, progress, primarily because of the truculence of developed economies that have insisted on parity in reform, meaning equal gains for all.
That is understandable in crude, political terms, but it makes a mockery of the notion of a negotiating round that was designed to provide disproportionate benefits to less developed countries.
The breakthrough in Bali reflects much diminished ambitions. Hopes for a wide-ranging deal that would transform global trade were long ago abandoned. Now, the goal was merely to produce an agreement that could be called a success. This was achieved.
The deal focuses on trade facilitation. It lowers trade barriers but mostly by speeding up the passage of goods through customs. It cuts red tape, improves the terms of trade for developing countries, and gives those same economies special allowance to ignore the normal rules on farm subsidies if the intent is to feed the poor.
It is reckoned that the deal will, over time, increase global trade by $960 billion and create more than 20 million jobs, 90 percent of them in the developing world.
Negotiations were a nail-biter. The first significant clash was between the U.S. and India over food subsidies. Delhi insisted that it could only back an agreement that allowed it to continue stockpiling food to feed its poor, a policy that used subsidies to ensure that the poor had access to food stuffs. That common-sense position conflicted with the desire of other countries to reduce government intervention in agriculture markets.
India’s spine was stiffened by the prospect of elections that will be held next year. A compromise allows India to continue current policies for an indefinite period, although a final agreement is expected within four years.
After that deal was worked out, an 11th-hour threat emerged in the form of Cuba’s insistence that the U.S. drop its half-century old embargo on the island. Havana had support from several other Latin American governments that take exception to Washington’s treatment of Cuba in principle and delight in tweaking the U.S. as a rule. As the WTO operates by consensus, Cuba’s objection, tangential though it may seem to the more general trade facilitation process being negotiated, could have blocked an agreement. Cuba eventually dropped its objection.
While the Bali accord represents a sliver of the WTO’s potential, it is an important agreement. It renews hope that the WTO process can bear fruit and challenges the prevailing view that broad global reforms are a bridge too far.
There is a fear that frustration with the WTO has spurred the regional and bilateral trade deals that now consume so much of the time and energy of negotiators, like the Trans-Pacific Partnership for example. The resulting “noodle bowl” of agreements distorts trade and creates suboptimal results.
Bali is a starting point. Each member government must now ratify the agreement via domestic legislation. That is likely, but it is by no means assured. The task now is to build on the momentum of the Bali accord and regain the vision and breadth that animated the original Doha Round. It would be a difficult task at the best of times, and the political difficulties in Washington and the economic troubles in Europe will deprive those governments of critical energy. Japan must promptly ratify the Bali agreement to help maintain the momentum.
With these key players distracted, it is up to other governments to take up the slack. There will be a temptation to rest while absorbing the accomplishments of the Bali deal. That temptation must be resisted. The international community must build on Bali and do more for global trade.