Wednesday, 11 December 2013

The WTO Bali Deal: ‘Doha Lite and Decaffeinated’

By Dirk Willenbockel

Echoing the official World Trade Organization (WTO) line, many commentators hail the trade deal reached at the WTO Ministerial Conference in Bali on Saturday as a historic landmark agreement that will create 20 million new jobs and a trillion dollars in annual global economic gains. However, a number of charities and campaigners have criticised the Bali package as a scheme that exposes hundreds of millions to the prospect of hunger and starvation. Neither of these assessments withstands closer scrutiny of the actual contents of the package.

Is the WTO Bali Deal a historic moment?

For sure, the label ‘historic’ is justified in a sense. The Bali deal is the preliminary culmination point of 12 years of protracted negotiations under the Doha Round launched in November 2001.  It is also the first truly multilateral pact agreed among all members since the WTO inception in 1995. Over the years, the negotiation process ran into various impasses, and the Doha Round was declared dead by serious experts on several occasions. The fact that the new Brazilian WTO Director-General Roberto Azevedo managed to breathe a new lease of life into the Round by achieving unanimous approval of the deal by the 159 member states after just some 10 weeks in the job deserves respect.

What will the Bali accord mean for the poorest countries?

However, to strike the Bali accord, all the bones of contention within the ambitious wider Doha development agenda had to be taken out of the Bali package by designating it for future negotiation. What is left has been poignantly labelled ‘Doha Lite Decaffeinated’ by Jagdish Bhagwati, eminent trade economist and pro-globalisation guru par excellence.

The only legally binding commitment in the package is about trade facilitation – that is the implementation of measures to tackle red tape and streamline cumbersome customs procedures that cause costly delays at borders and impose other trade transaction costs. Empirical estimates show that such transaction costs are notoriously high, particularly in low-income countries. So the Least Developed Country members could potentially reap significant gains from a resolute implementation of such measures.

Implementation will require staff capacity building and equipment investments. Developed countries have committed to provide assistance for these investments. Doing so is obviously in developed countries’ own interest: a case of win-win. Of course, the required investments will take time and the deal includes provision for LDC’s to phase in the measures over a prolonged period – though in many cases it would make more sense not to exhaust these provisions. So the gains for LDCs will only emerge gradually over time.

Beyond trade facilitation, the Bali accord pays lip service to a range of other trade liberalisation measures of particular interest to the LDCs. For example, developed countries will:
  • “seek to improve” the product coverage of duty-free quota-free (DFQF) access for imports of LDC origin
  • “agree on the importance of pursuing progress” in lowering US subsidies for cotton farmers which particularly hurt cotton producers in a range of West and Central African countries
  • “endeavour” to relax restrictive rules-of-origin requirements that often prevent LDCs from making use of existing DFQF preferences.
So what do the benefits of the cited 1 trillion dollars overall gain actually look like on a regional basis? A glance at the Peterson Institute study, which is the source for this figure, along with some auxiliary calculations, suggests a real income gain of 1.0 per cent for developed countries and a 2.6 per cent gain for developing countries as a whole. Within the latter group, sub-Saharan Africa gains 2.5 per cent, South Asia 0.24 per cent and East Asia 3.2 per cent of baseline GDP from the trade facilitation component. These estimates are not based on an articulated multi-region simulation model.  They combine estimates of trade flow impacts due to trade facilitation from a separate World Bank study with a simple – if heroic - ad hoc scaling-up approach that transforms trade flow impacts into GDP impacts. It is remarkable that these estimates are significantly larger than corresponding typical estimates from model-based simulation studies that consider a full Doha agreement.

One recent CEPII study of this type allows a direct comparison with the Peterson results, as it includes a similar pure trade facilitation scenario. With a projected gain in global GDP of 60 billion dollars for 2025 (0.1 per cent of GDP as opposed to 1.5 per cent in the Peterson study), the CEPII results are more than an order of magnitude smaller, though the study also suggests substantially higher gains for sub-Saharan Africa (+0.5 per cent).

A potential reason for these divergences is that the World Bank study, on which the Peterson report draws, contemplates a far wider set of trade facilitation measures (including, for example, transport infrastructure investments) than actually included in the Bali agreement. It might be conjectured that these estimates contain an element of benign strategic over-optimism, and that this may even have contributed to the completion of the deal.

To conclude, the Bali package has modest ambition overall, but subject to proper implementation the trade facilitation measures can generate non-negligible gains for LDCs and other developing countries. Some see the wider significance of the deal in re-opening the door for the completion of a comprehensive multilateral agreement in the near future. Given the sheer pettiness of some of the issues not conclusively resolved by the Bali deal, I am not holding my breath.

Dirk Willenbockel is a Research Fellow with the Globalisation Team at institute of Development Studies.