Policy Research Institute - PRI Bangladesh

The Policy Research Institute of Bangladesh (PRI) is a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of the Bangladesh economy, its key policy challenges, domestically, and in a rapidly integrating global marketplace.

Is WTO in the twilight zone?

View

Published: Sunday, Dec 27, 2015

Posted : 27 Dec, 2015 00:00:00

 

 

Is WTO in the twilight zone?

Economic Analysis

Zaidi Sattar

At the conclusion of the 10th WTO Ministerial (MC10) at Nairobi, Garry Hufbauer, one of the world's leading trade policy experts, described the Doha Development Agenda as the "Walking Dead", like the cast of ghoulish characters in a Hollywood movie. If anything, the deal struck at the Nairobi meet was laced with obfuscation. What has become clear from the style and length of negotiations is that members were sharply divided, there were stark difference of opinions between the developed and developing economies, and the best language they could agree on was that of 'agreeing to disagree'. No wonder, the key paragraph #30 of the Ministerial declaration of the World Trade Organisation (WTO) reads thus: "We recognise that many Members reaffirm the Doha Development Agenda (DDA), ……, and reaffirm their full commitment to conclude the DDA on that basis. Other Members do not reaffirm the Doha mandates, as they believe new approaches are necessary to achieve meaningful outcomes in multilateral negotiations. Members have different views on how to address the negotiations". That was how the MC10 was salvaged from becoming a colossal fiasco in a gathering of 162 member nations in the boom town of Nairobi, Kenya. In spite of strong lobbying by a large group of members which included, among others, Bangladesh, India, China, Group of Three (G-33), African Union (AU), the DDA process could not be reaffirmed, leaving its future hanging in the balance.

So what do we take from the 10th WTO Ministerial despite all the hype and splendour of a global multilateral meeting of trade ministers of the vast majority of countries around the world. A number of emerging challenges cloud the prospects of DDA. First, after 15 years of hard negotiations on the DDA package what has become clear is the impossibility of reaching consensus on the entire package. Some measure of consensus could only be reached on a few of the more popular components (e.g. trade facilitation) leaving some of the vital goals of the Round (e.g. competition in agriculture) in jeopardy. Trade experts are writing the obituary of WTO's "single undertaking" route (all or nothing principle) to decision making which has become a clear casualty of the Doha Round. Going forward, it seems we have seen the end of Rounds to negotiate and confirm ambitious policy packages. What is likely to happen is for WTO to take on trade reforms, for what it is worth, in smaller manageable pieces. That would augur in a new architecture for global trade reforms. There is also the realisation that trade issues are far more complex and contentious (any trade policy creates at the outset gainers and losers) than what would form a package of Sustainable Development Goals (SDGs) or even adapting to or mitigating global Climate Change prospects.

Second, the rise of mega trading blocs in the past decade is really the elephant in the room that threatens to turn the tables on trade multilateralism. Despite contentious issues such as agricultural protection in Japan and automobile tariffs in the USA, there was significant traction in the negotiating process that yielded agreement within six years of negotiations in order for the Trans-Pacific Partnership (TPP) to be signed off in Atlanta last October. The TTP process started five years after the launch of DDA and closed without the acrimony and bitterness that seems to have taken root in WTO. Another mega trading bloc in the offing is the Trans-Atlantic Trade and Investment Partnership (TTIP) which could see the light of day even before DDA has seen any closure. These are US-centered trading blocs, making up 80 per cent of global gross domestic product (GDP) and 75 per cent of international trade, intended, according to some political analysts, to neutralise China's rising trade prowess and to give US and European firms an edge. In the past couple of years, China overtook the US as the largest trading nation in the world with imports and exports crossing $4.0 trillion. Geo-politics of these mega trading blocs aside, the very fact that they address WTO-plus trade and investment issues, they claim to deal with the next generation of trade rules of the 21st century for the most vibrant part of the world economy, while the WTO suffers from stasis unable to come out of the quagmire of the sticky issues of the 20th century, like agricultural protection.

A third rising current that was being pressed by advanced economies led by the USA was the need for emerging market economies or EME (e.g. China, India, Brazil, South Africa) to take on some of the obligations of trade openness without recourse to the flexibility accorded to "developing countries"; to move away from a situation which one ambassador to the WTO famously remarked as "the elephants hiding behind the mice". With growing trade prowess of EMEs, the traditional division in WTO between developed and developing member countries was being questioned. Developed country members would like to see EMEs in a different category altogether adding to the complexity of negotiations.

Coming on the heels of two mega global successes, the UN Sustainable Development Goals 2030 and COP 21 in Paris, the WTO Ministerial was too high profile to fail. There had to be something for both sides, as it were. Though a vast majority of members (developing countries) would have liked to see the DDA reaffirmed, that was not how MC10 ended in a conference where the rule of the majority does not apply. The smaller group of developed countries which command the predominant share of global GDP and world trade have enough clout to dissuade the reaffirmation of DDA. On the eve of the opening of MC10, Michael Froman, the US Trade Representative (Minister of Trade) wrote an op ed in the Financial Times which read like an obituary on the DDA calling it a historical relic like the Treaty of Versailles. His predecessor, Susan Schwab, in a 2011 Foreign Affairs article (After Doha) had described the Doha Round (DR) as a case of abortive pole-vaulting. Whereas other trade agreements survived several failed attempts the DR seems to "keep crashing into the bar". The US disappointment with DR was so deep-rooted that it prompted the launch of mega regional trade agreements (RTAs) -- TPP and TTIP.

That said, though largely inconclusive in so far as the finality of DDA was concerned, the 10th WTO Ministerial did produce some winners for developing countries like Bangladesh which gave leadership to the LDC group:

* The crowning achievement for an LDC like Bangladesh was the confirmation of the decision to extend the patent waiver under WTO’s Trade Related Intellectual Property Rights (TRIPS) until 2033. This will allow Bangladeshi pharmaceutical companies to continue producing and exporting life-saving drugs sans expensive patent fees.

* Next was the Trade Facilitation Agreement (TFA), a crowning achievement of the 9th Ministerial in Bali in 2013. MC10 obtained additional pledges to ratify and operationalise the TFA. This was one issue that received endorsement from both developed and developing economies as its impacts are expected to be beneficial to both groups.

* There was good traction on simplifying preferential rules of origin. Members were urged to write preferential rules of origin in free trade agreements (such as the TPP, South Asian Free Trade Agreement or SAFTA, Asia-Pacific Trade Accord or APTA) in a manner that allowed least developed countries (LDCs) to have a larger quantity of third- country inputs in their qualifying exports;

* There was also traction on operationalisation of the decision to give waiver on LDC services. Members were permitted to give LDCs preferential access to their service markets until 2030, without violating the members' Most Favoured Nation (MFN) obligations.

* Another decision that will benefit developing countries including Bangladesh was the one on phasing out of export subsidies on agricultural goods - advanced countries immediately, developing countries by 2018.

* Two more decisions that were favourable for developing members included (a) to protect their farmers, developing countries could use a Special Safeguard Mechanism to escalate tariffs as needed in the case of import surges in agricultural products; and (b) the provision to maintain Public Stocks for Food Security Purposes without violating agricultural subsidy limits.

To be sure, there were also some winners for the advanced economies, including (a) a deal on the expanded Information Technology Agreement (ITA-2), a plurilateral pact among 53 WTO members accounting for about 90 per cent of global ITC trade; and (b) a work programme on electronic commerce was endorsed, and a no-duty pledge was reaffirmed to be taken up in the 11th WTO Ministerial, to be held in 2017.

So, is the DDA dead -- as some critiques would like to describe it? The answer might have to be deduced from the WTO's mechanics of decision by consensus. The DDA package was born out of consensus. Its demise can only come out of consensus which, as we can infer from the sharp division among members, does not exist. So the DDA or its 'ghost' might actually live on driving the WTO into uncharted territory. In the circumstances, a possible option to bring DDA to closure would be to salvage partial agreements out of the whole package and walk away from the rest -- by consensus of course!

WTO decision by consensus appears to be a survivor, along with this multilateral organisation that is unlikely to fade away into the twilight zone of history just yet.

Dr. Zaidi Sattar is Chairman, Policy Research Institute of Bangladesh and Anchor of The Financial Express (FE)-PRI Economic Analysis Unit. He can be reached at zaidisattar@gmail.com

- See more at: http://old.thefinancialexpress-bd.com/2015/12/27/127842#sthash.5htpd7vG.dpuf

Speech