Global Trends by Martin Khor

Monday 16 December 2013

WTO makes a small deal

Recently, the tense WTO conference concluded a deal in Bali, while the TPPA Ministers’ Singapore meeting continued to be dogged by complex issues

Two major events involving Trade Ministers and trade rules took place in the past fortnight in our region.

The Ministerial conference of the World Trade Organisation in Bali was followed immediately by the Ministers’ meeting of the Trans Pacific Partnership Agreement in Singapore.

The Bali meeting ended with a small deal, hailed by many for reviving the WTO as a viable venue for trade talks. The results are however very modest, and there are also imbalances in gains and losses.

On the other hand, the Singapore meeting did not meet its target for closing the TPPA negotiations.  The TPPA agenda is much more far reaching, so it’s not that surprising that a final deal was not at hand.

The WTO’s Bali conference was mainly conducted behind closed doors, with the Director General Roberto Azevedo holding meetings issue by issue with a few countries.

Participants were given the final draft only a few hours before a final plenary meeting.

Most of the week was spent on the “food security” issue, with the Director General being the go-between between the United States and India.

India was the most prominent among the developing countries that wanted to change the present WTO rules on agricultural subsidies that hinder the ability of government to purchase and stock staple foods from farmers.

It was agreed that a permanent solution involving changes to rules would take more time, so Bali discussed an interim measure – a “peace clause” whereby WTO legal cases will not be taken against countries having a public food stocktaking programme.

The issue was how long this peace clause would last.  India, backed by many developing countries, wanted it to last till the permanent solution is found. The US and others wanted the peace clause to expire in four years.        

The final agreement was that the WTO would negotiate a permanent solution within four years, and countries will refrain from taking cases until that solution is found. 

Thus the “food security” developing countries won the battle of duration, but in reality the peace clause is of limited value. 

First, it applies only to the Agriculture Agreement; countries can still sue under another agreement on subsidies.

Second, the peace clause applies only to “existing programmes.”  Thus countries that have no programme and want to start one will not be covered.

Third, there are cumbersome conditions including the country providing a lot of information and notifying that it has reached its allowed subsidy limit, that may make it not worthwhile to use the peace clause.

What is more important is that serious work be done to find a permanent solution.

On another agriculture issue, the WTO failed to live up to the 2005 Ministerial deadline to eliminate export subsidies by 2013.  Instead the weak Bali decision on export competition regretted the missed deadline and undertook to maintain progress.

With the food issue cleared, the Bali Conference was able to adopt a trade facilitation treaty which obliges all countries to streamline their customs procedures and upgrade their technology and infrastructure, so that imported goods can be cleared faster and easier.

The new obligations can be easily met by developed countries that already have the measures and technology, but are onerous on poorer countries that don’t have the capacity.  

It will be of greater benefit to those countries who are net exporters as their goods will clear faster in other countries.  Net importers can be expected to see their imports rising faster than their exports, with adverse effects on their trade balance, a concern raised by some developing countries. 

Developing countries are able to designate which specific obligations they need more time to implement, and there is also promise of technical assistance for them, but there is only a more vague and less explicit commitment to provide them with “financial assistance”.

The Bali meeting also approved decisions to assist least developed countries on market access, rules of origin, cotton and services. However the decisions are not binding and thus have little practical benefit.  These LDC decisions should be seen as a starting rather than an end point, with further negotiations for future decisions that are more useful.

Overall the Bali deal lacks balance, with as the trade facilitation treaty advocated by developed countries is binding (with those not fulfilling their obligations facing WTO legal cases) while the decisions on LDC issues and export subsidies favoured by developing countries are not binding in nature, while on food security only an interim measure (peace clause) with limited value was obtained.

Meanwhile, on the TPPA, the negotiations have been very intense in recent months and will continue to be so.

For Malaysia, according to reports, there remain many sticky issues, including state-owned enterprises, government procurement, intellectual property and investor-state dispute.  Reaching or joining agreement will not be easy.