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THE WTO BALI PACKAGE THE DOHA DEVELOPMENT AGENDA (DDA) IS [STILL] ALIVE By IMD Professor Carlos A. Primo Braga – December 2013

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THE WTO BALI PACKAGE | The Doha Development Agenda (DDA) is [Still] Alive

The 9th WTO Ministerial Conference concluded in Bali on Saturday (December 7th) and there were clear signs of relief among those Members and stakeholders that still believe in the multilateral trade system. The Bali Package, put together under the leadership of the new WTO Director General (Roberto Azevêdo), is the first significant sign of movement in the long and, so far, unhappy story of the Doha Development Agenda (DDA) negotiations. The negotiations at the Ministerial, however, underscored not only the potential of the WTO to make a difference, but also the difficulties of getting results in a multilateral setting. As I discussed elsewhere, WTO Members and the new Director General face an uphill struggle to revitalize the organization.1 The need to dispel the impression that the DDA “coma” was terminal was in everybody’s minds. Against this background, the Bali package is an important step in the right direction. Its main pillars (the Agreement on Trade Facilitation; the decisions on agriculture; and the decisions focusing on least-developed countries, [LDCs]) are the first concrete results after twelve years of negotiations In short, Bali will probably be remembered more as an important moment for the system (underscoring that the multilateral trade system still matters) rather than as a trade package that will immediately impact major economic trends. In preparing for the Ministerial, the WTO Director General decided to take a courageous stance arguing that either a Bali package would be agreed upon or that it was time to take a serious look at the future of the multilateral trade system and of the DDA, in particular. He also argued that Bali should not become a negotiating Ministerial and tried to secure an agreement of the key parameters of the package in Geneva in advance of the meeting. By November 26, however, the Director General noted that even though significant negotiations had occurred and the negotiating package was stable, the Membership had failed to reach consensus. As a consequence too many technical issues were still in “brackets,” requiring additional negotiations in Bali -- not a good omen for the Ministerial. Food security as a deal breaker In Bali, the odds of success became even lower when in the second day of the Ministerial, the Indian Minister of Commerce & Industry (Anand Sharma) made a strong statement arguing that food security was non-negotiable. Positioning itself as the leader for the G33 coalition – a group of 46 WTO Members that have large populations of smallholder farmers – India argued that unless developing countries were granted more flexibility for their food purchasing programs, there would be no deal. By adopting a principled position, India put in motion a “game of chicken” that almost doomed the Ministerial. At the core of the debate was the question of how to treat food-related safety nets in developing countries. The G33 wanted food stocks acquired at administered prices (often entailing a subsidy to domestic producers) not to be included in the aggregate measure of support (AMS) calculations that discipline the level of support allowed. In the case of India, this was a key objective given the potential implications of multilateral disciplines for its own National Food Security Act (2013). In implementing the Act, India may go beyond agreed limits on trade-distorting subsidies. On the other side of the table, many countries expressed concerns that food reserves built under food-security programs could be dumped in international markets, further distorting agricultural trade. Moreover, it was argued that the exception could erode the credibility of the multilateral Agreement on Agriculture. The hard bargaining that ensued led finally to a compromise where Members agreed that they would refrain from using the WTO’s Dispute Settlement Mechanism “in relation to support provided for traditional staple food crops in pursuance of public stockholding programmes for food security purposes” – in other words an implicit Peace Clause – while negotiating a permanent solution. This is not a “carte blanche” for the implementation of new trade-distorting programs since the decision only applies to those programs already existing by the date of the decision and there are strict notification/transparency requirements. Moreover, an implicit deadline remains – contrary to India’s goal of achieving a permanent exemption – since the declaration states that the related work program should be concluded no later than by the 11th Ministerial Conference (i.e., 2017). It does, 1

See C.A. Primo Braga, 2013, 'WTO: The Fight for Relevance', IMD Tomorrow’s Challenge, http://www.imd.org/research/challenges/TC045-13-wto-the-fight-for-relevance-carlos-primo-braga.cfm IMD – www.imd.org

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THE WTO BALI PACKAGE | The Doha Development Agenda (DDA) is [Still] Alive

however, give space for the Government of India to declare “victory” in communicating the outcome to its domestic constituency. Trade facilitation: a US$ 1 trillion deal? The main result in Bali, however, was the trade facilitation agreement, designed to streamline customs procedures, increase transparency, foster customs cooperation and reduce red-tape and redundancies in order to expedite trade flows. Trade facilitation was one of the original Singapore issues that industrialized countries had been promoting since 1996 as important topics for which multilateral disciplines should be negotiated. In July 2004, trade facilitation was finally agreed upon as a topic of the DDA. Still there was significant resistance from developing countries in accepting an agreement that would require substantive reforms and in some cases non-trivial institutional and financial commitments. The outcome is a carefully constructed agreement that entails substantive commitments (as spelled in Section I) while providing flexibility for developing countries in terms of implementation timetables. It also spells out a framework for trade facilitation-related technical assistance and transparency procedures to monitor the implementation of this support by donor countries and relevant international organizations. The agreement is undoubtedly the main achievement of the DDA negotiations so far. One should be careful, however, of not overstating its economic impact. At the end of the Ministerial, many media outlets seized on an ICC report to argue that this part of the package would lead to a US$ 1 trillion expansion of world trade.2 Independently of the robustness of the methodology used to reach these numbers, it is important to emphasize that the agreement is at best a first step in slashing trade costs and many assumptions are required to translate these gains into the US$ 1 trillion figure. Development topics The Bali package also entails decisions on cotton, preferential rules-of-origin for LDCs, preferential treatment for services from LDCs, and duty-free and quota-free (DFQF) market access for LDCs. These further advance special and differential (S&D) treatment provisions for LDCs. In practice, however, the main outcome is a renewed commitment to monitor the implementation of S&D provisions in the context of multilateral agreements, since most of the other decisions essentially reaffirm previous commitments. It is worth noting, however, that LDCs played a positive role in the negotiations leading to the package to the extent that they put emphasis on the importance of preserving the multilateral trade system rather than to push for additional concessions. Summing up In the early hours of December 7th, there was one additional moment of drama when Cuba, backed by other members of the Bolivarian Alliance of the Americas (Bolivia, Nicaragua and Venezuela), raised questions about the trade facilitation agreement trying to incorporate language targeting the US trade embargo against Cuba. In the end, common sense prevailed and language underscoring the virtues of non-discrimination was added to the Ministerial Declaration as a compromise. When the history of the Bali negotiations is written I am willing to bet that there will be consensus on the importance of Roberto Azevêdo and the WTO Secretariat in paving the way for the agreement. In the end, however, WTO deals are always member-driven and in this context countries like Indonesia (as the host), Brazil and China, as well as the EU and the USA played a positive role in supporting the package. In the wings of the conference hall where the negotiations took place, there was praise, in particular, for the diplomatic skills of US Trade Representative Michael Froman.

2

G. Hufbauer and J. Schott, 2013, Payoff from World Trade Agenda 2013. ICC and Qatar Chamber: ICC World Trade Agenda Summit. IMD – www.imd.org

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THE WTO BALI PACKAGE | The Doha Development Agenda (DDA) is [Still] Alive

The DDA is alive. The trade facilitation agreement is likely to re-energize the interest of the private sector in the WTO – an important systemic development, as previously argued by the Evian Group@IMD. The road ahead, however, remains full of traps for the multilateral trade system. But in contrast to December 7, 1941, which saw the attack on Pearl Harbor, this December 7 th brought good news for the world economy. Carlos A. Primo Braga is Professor of International Political Economy at IMD, and Director of the Evian Group@IMD. He teaches on the Orchestrating Winning Performance program.

IMD – www.imd.org

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THE WTO BALI PACKAGE | The Doha Development Agenda (DDA) is [Still] Alive

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