1In December 2013, after five days of intense negotiations that had often seemed too close to call, trade ministers from the World Trade Organisation (WTO), meeting at the Indonesian resort of Nussa Dua, finally reached an agreement on a so-called “Bali package”. “It may have seemed impossible, but now it’s done. We all did deliver here and now”, said Director General Roberto Azevêdo at the closing ceremony, drawing a standing ovation from the audience.1 The Bali package is an agreement on a small subset of issues being negotiated under the Doha Round, launched in 2001 in Qatar. It represents, however, the first truly multilateral agreement negotiated under the auspices of the 20-year-old organisation, in what was seen by many as the last opportunity to save the Doha talks. This article provides an assessment of what was achieved in Bali from a development perspective. It starts with a short description of the preparatory process ahead of the ministerial. It then describes the content of the agreement and its possible implications for developing countries. Finally it reviews possible options post-Bali to move forward on the broader negotiating agenda of the WTO.
2Because of their structural handicaps reflected in low income levels, high economic vulnerability, and weak human assets, small developing countries and least developed countries (LDCs) in particular face certain challenges in integrating into the global economy. As the weakest players on the international scene, and given their great dependence on international trade, LDCs have — almost by definition — a strong interest in a well-functioning, rule-based multilateral system for governing economic interdependencies. Such a system protects them from power-based relations and enhances their bargaining power by allowing the formation of effective coalitions to advance their development interests, something that can hardly be achieved through bilateral negotiations.
3In this context, the difficulties WTO members have experienced in bringing the Doha Round talks to a successful conclusion have clearly affected the ability of smaller developing countries to advance their development concerns. Meanwhile, in the face of persistent deadlock in multilateral talks, a series of initiatives to advance trade liberalisation outside of the WTO framework were launched in the run-up to the Bali ministerial. These included the negotiation of large cross-regional schemes or “mega-regionals” such as the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP), or plurilateral initiatives such as the Trade in Services Agreement (TISA) initiated by the United States and Australia and currently being negotiated with a group of leading countries representing roughly 70 per cent of the world's trade in services.
4From the perspective of LDCs, the prospect of plurilateral agreements outside of the WTO realm has traditionally been an area of concern. This is both because these agreements tend to be exclusive, and because they de facto remove certain elements from the Doha equation (e.g. services) ultimately reducing trade-off opportunities for LDCs to advance their own priorities in areas such as food security or market access. In short, plurilateral and regional agreements could contribute to further marginalising LDCs in global trade and lead major trading partners to pay less attention to their development concerns. For these reasons, putting the WTO back at the centre of international trade governance became a priority for several smaller developing countries and the Bali ministerial conference was probably the last opportunity to achieve this.
5The notion of a small package to be agreed in Bali has to be seen as part of a series of efforts to break the long-lasting stalemate in multilateral trade negotiations resulting from the failure of the July 2008 mini-ministerial. At that time, ministers from the WTO’s leading players met for a nine-day marathon negotiation in a last-ditch effort to save the round. On that occasion, members came closer than ever to concluding the talks but ultimately failed to reach agreement when the Indian and US ministers disagreed on an agricultural safeguard (VanGrasstek, 2013). After this third collapse in three successive summers, negotiations appeared to have completely stalled.
- 2 See ICTSD (2009), Lamy Tapped to Lead the WTO for Another 4 Years, Bridges Weekly Trade News Diges (...)
6In the run-up to the 2011 ministerial conference and in the face of persistent impasses in the talks, Director General Pascal Lamy asked members to focus on a mini-package as a down payment to rebuild trust and generate momentum for the completion of the broader agenda. The idea was to identify a set of “low-hanging fruit” with a particular focus on least developed countries (LDCs). After all, in Lamy’s own words, members had already agreed on 80 per cent of the Doha Mandate at the July 2008 mini-ministerial (ICTSD, 2009).2 In this context, several less controversial elements — he believed — could realistically be delivered as an “early harvest”.
7The proposal ultimately failed to gather sufficient support. The exclusive focus on LDCs led several non-LDC members to wonder what was in it for them. Defining the contours of the agreement itself became a challenge as members added their own issues to the package and established linkages among different negotiating tracks. This “Christmas tree” approach soon became unmanageable and the mini-package finally fell apart just ahead of the 2011 ministerial. At the conference itself, however, ministers called for a change of approach to overcome the Doha deadlock. They also committed to “advance negotiations, where progress can be achieved, including focusing on the elements of the Doha Declaration that allow Members to reach provisional or definitive agreements based on consensus earlier than the full conclusion of the single undertaking” (WTO, 2011). Soon after, feedback from the negotiating groups and from members indicated that a small package for the 9th ministerial in Bali (MC9) built around trade facilitation — an issue not originally part of the Doha mandate, but one of the fastest moving areas of the negotiations in recent years, and therefore a top candidate for an early harvest — some elements of agriculture, and some issues of particular concern to LDCs, could be feasible.
- 3 S&DT at the WTO refers to specific provision for developing countries – including the possibility (...)
8In addition to trade facilitation, three proposals were eventually submitted as part of the agricultural elements of the package. Two by the G20 coalition of developing countries — essentially made up of agricultural exporters — on tariff rate quota administration and export subsidies, and one by the G33, a coalition of developing countries with more defensive interests, on public stockholding for food security purposes. This proposal turned out to be the most controversial element of the package. On the Development-LDCs leg of the package, discussions focused on (i) establishing a “monitoring mechanism” to review the implementation of special and differential treatment (S&DT) provisions3 across all the WTO agreements, (ii) terms for operationalising the services waiver agreed at the 2011 Geneva ministerial, which permits members to grant trade preferences to LDC services and service suppliers; (iii) more favourable rules of origin, (iv) duty-free, quota-free (DFQF) market access for LDCs; and (v) progress on the controversial subject of cotton subsidies.
9The negotiating process ahead of Bali was marked by several elements, starting with a change in WTO leadership. On 1 September, Roberto Carvalho de Azevêdo formally began his term as new Director General, succeeding Pascal Lamy in the role. Well known to the Geneva trade community from his five years as Brazil’s ambassador to the WTO, Azevêdo had stressed — during the campaign — the importance of the new DG being familiar with the Geneva scene and the intricacies of recent negotiations. With just a few months to go until Bali, his insider perspective certainly played a role in convincing WTO members that he would be the best candidate to facilitate consensus at MC9 in spite of the fact that — contrary to most other candidates — he had no prior experience as a trade minister. Azevêdo made success in Bali his top priority and immediately jump-started the negotiations by launching an intensive series of consultations aimed at narrowing the gaps ahead of the global trade gathering (ICTSD, 2013a). According to most observers, his proactive, bottom-up and inclusive approach, combining meetings at different levels and in different configurations, played a critical role in re-energizing the talks. Later on, his diplomatic skills would also largely contribute to the successful conclusion of the Bali package.
10As negotiations progressed, it soon became clear that a failure to deliver on the Bali small package would represent a major blow for the WTO, de facto puttingan end to the Doha negotiations. In this context, the political cost of a failure appeared significant. Members — and particularly leading players — had to show that they still believed in the multilateral trading system and avoid being blamed for failure. This clearly introduced a sense of urgency. At the same time, it was obvious to most delegations that the Bali package in itself would not solve the whole Doha Round. It would only provide a much needed breathing space for the system. Therefore, assuming a consensus on the short term deliverables, the real challenge would be to start designing the contours of a post-Bali road map establishing a credible process to address Doha “unfinished business”.
11In the run-up to MC9, texts were nearly completed in the agriculture and development parts of the Bali package, but marathon-length negotiating sessions on trade facilitation ended without a final resolution, leaving the prospects for the upcoming conference markedly uncertain. More significantly, in the absence of a consensus on the small package, there was virtually no time to discuss the “post-Bali agenda” either before or during the ministerial conference, de facto postponing debates on this critical issue until 2014.
12Despite these shortcomings and after several suspenseful days and nights of meetings, ministers finally signed off on their first multilateral trade deal since the creation of the WTO. The final agreement begins with a three-page ministerial declaration, acknowledging the accession of Yemen and adopting decisions on the ten texts regarding the three pillars of the Bali package: trade facilitation, some agricultural issues, and selected development-focused provisions (WTO, 2013a). It also features a series of decisions submitted by the General Council in areas such as e-commerce and TRIPS non-violation and situation complaints, as well as other standing items at WTO ministerials.
- 4 Article V, involving freedom of transit; Article VIII, which deals with limiting border fees and f (...)
13The Trade Facilitation (TF) agreement reached in Bali constitutes without doubt the main outcome of MC9 (WTO, 2013b). It will reduce the cost of trading, smooth customs procedures, reduce red tape, and enhance efficiency and transparency. It will also provide assistance to developing and least developed countries to update their infrastructure and train customs officials, or for any other cost associated with implementing the agreement. The negotiations were essentially aimed at developing disciplines of three articles of the WTO’s General Agreement on Tariffs and Trade (GATT) 1994.4 They involved areas such as improving transparency, standardising documentation requirements and trade-related fees, and streamlining existing border procedures with specific disciplines on issues such as transit of goods, single window clearance, and customs cooperation, or the use of customs brokers.
14Estimates of economic gains resulting from the TF agreement vary widely, with some studies indicating that it could increase global GDP by up to USD 1 trillion and create 21 million jobs (Hufbauer et al., 2013) — a probably largely overestimated figure. The OECD, on the other hand, anticipates that the combined effect of a comprehensive trade facilitation reform would reduce total trade costs by almost 14.5 per cent for low income countries, 15.5 per cent for lower-middle income countries, and 13.2 per cent for upper-middle income countries (Moïsé and Sorescu, 2013). Beyond these quantitative assessments, it is clear that simplified customs procedures and lower transaction costs have become a critical issue in a world increasingly dominated by global value chains and international production networks. But the most significant gains for small developing countries are likely to arise from a possible boost in intra-regional trade where a considerable growth potential remains untapped.
15While TF is probably the area of the Bali package that will generate the largest immediate benefits to poor countries, paradoxically most of them were not demandeurs in this area. In the run-up to Bali, many were concerned that an agreement would lock them into costly commitments, with little aid from development partners to implement them. For this reason, while most countries recognized the importance of trade facilitation — as reflected by the numerous ambitious reform projects already underway at the regional level — several were reluctant to undertake binding commitments in the WTO in the absence of financial assistance from their development partners. Others feared that trade facilitation would only contribute to increasing imports, but do little to tackle supply-side constraints affecting exports. Finally, others insisted on the fact that trade facilitation should not distract members from the LDCs top priority reflected in the LDCs package.
16Reflecting these concerns, the final text adopted in Bali is divided into two parts: the first involving specific commitments countries will make to improve their customs procedures (Section I); the second involving special and differential treatment for developing and least developed countries (Section II). Achieving a balance between firm commitments in Section I and technical assistance and capacity-building in Section II was the major stumbling block.
17To reconcile those two objectives, the final agreement contains a set of landmark provisions allowing for flexibility in the scheduling and sequencing of implementation, and linking commitments to acquired capacity resulting from technical assistance. In a marked departure from usual WTO practices, developing countries and LDCs are allowed to self-define their implementation period within three categories of implementation modalities. Category A includes those provisions that will be implemented immediately upon the agreement’s entry into force; category B includes those commitments that will be implemented after a “self-selected” transition period; and category C involves those commitments that will require both a self-selected transition period and technical assistance. Under this last category, an innovative mechanism ensures that assistance arrangements be notified by donor countries before LDCs would be obligated to notify their definitive implementation date, therefore linking implementation obligations to the provision of technical assistance and capacity building. Overall, these provisions significantly alter the current approach to special and differential treatment for developing countries, creating an innovative template for future solutions.
18To bring the deal into force, two-thirds of the WTO’s membership must first ratify it. The agreement will then apply to those members. In the meantime, a committee tasked with administering the agreement will undertake a legal review of the pact, prepare a protocol of amendment to include it in the overall WTO agreement, and begin receiving notifications of Category A commitments. Providing support for developing countries to implement their trade facilitation commitments is another key area. The Secretariat, with the support of donor countries, has started carrying out needs assessments to evaluate priorities and capacity building and technical assistance needs.
19As countries move towards implementation, assessing the cost of trade facilitation measures will be at the heart of future discussions. A recent OECD study (Moïsé, 2013), based on nine developing countries and LDCs, estimates that the costs of putting in place trade facilitation reforms would range from EUR 3.5 million to EUR 19 million in capital expenditure, and less than EUR 2.5 million in annual operating costs. While these figures can represent an important amount for smaller countries, overall they look relatively small in the light of available resources provided by the donor community and the potentially large efficiency gains resulting from the implementation of trade facilitation reforms.
20In countries in which such reforms have been implemented, initial expenses for purchasing equipment, training officials, and putting in place new measures have been largely met by international financial assistance. Annual operating expenses on the other hand are difficult to separate from the overall functioning of customs and other border administration and are generally absorbed by border agencies’ regular operating budgets. Although it is important to ensure that budgets for maintenance of either equipment or human skills are available in the long term to ensure the sustainability of reforms, efficiency enhancements brought about by trade facilitation measures also allow border authorities to make the most of existing resources, a factor often underestimated when calculating the cost of implementing reforms.
21In terms of international financial assistance, donor commitments directed at simplifying and modernising border rules and procedures exceeded USD 460 million in 2012, a significant increase from the average of 27 million during the 2002‒05 baseline period. As illustrated in Figure 1, the largest share of committed funding went to Africa. The region however shows significant differences between commitments and actual disbursements of Aid-for-Trade resources. A similar pattern is observed when looking at LDCs as a group but such differences are not mirrored in other regions of the world. This gap may reflect the fact that a number of donors did not meet their aid commitments — a long standing complaint of several developing countries that have been reluctant to take on costly new commitments or agreements in the absence of strong guarantees from their development partners that technical assistance and capacity building would be available. Beyond trade facilitation, this reality might also explain why developing countries have been hesitant to accept new commitments in the broader DDA negotiations. On the other hand, the fact that such a discrepancy is only clearly marked in the case of LDCs and Africa, but much less pronounced in other regions, might also be interpreted as a problem of limited absorptive capacity in those countries more than as a failure from the donors to meet their commitments. Whether those differences are linked to weaker absorptive capacity in Africa and LDCs or to other problems is beyond the scope of this paper but these figures clearly point to specific problems related to aid for trade disbursements in those regions. As we move towards implementation, identifying the precise reasons for the existence of such a gap and overcoming this problem should be a priority for both donors and aid recipients.
Figure 1: Aid-for-Trade Flows in Trade Facilitation (USD m)
Source: Author’s calculation based on OECD CRS database
- 5 JOB/AG/22, 13 November 2012.
22The Bali outcome on agriculture focused on three distinct areas. Two proposals were submitted by the G20 group of developing countries that favour reform in developed countries’ farm trade policies; one on export subsidies and one on tariff rate quotas (TRQs). Meanwhile, the G33 coalition of developing countries —home to sizeable populations of small farmers — had rallied around a proposal from India on public food stockholding.5 A separate proposal from West African countries, on cotton, was considered as part of the set of “development” issues (see next section).
- 6 During the Doha negotiations, several countries have expressed concerns that the methods government (...)
23The tariff rate quota discussion remained a rather technical issue and was eventually solved through an understanding on TRQ administration (WTO, 2013c).6 The discussion on export subsidies on the other hand was dealt with through a political statement. WTO members had already agreed in 2005 to eliminate export subsidies by 2013 as part of a broader Doha deal but this deadline had been missed because of the general impasse in the round. The G20 nevertheless argued that concrete steps were needed to show that WTO members remained serious about achieving this goal, even if the specific target had been missed. Others argued that this could not be done in Bali without matching steps on agricultural market access, domestic support, and the rest of the broader Doha Round package. In the end, the Bali declaration refrained from making any legal commitment in this area. Members would “exercise utmost restraint” in using any form of export subsidy and “ensure to the maximum extent possible” that “progress towards the parallel elimination of all forms of export subsidies […] will be maintained”. The text also proposes improved information sharing and monitoring in order to support reform in this area (WTO, 2013d).
24By contrast, disagreement over the G33 proposal brought the whole negotiations to the brink of collapse, as controversy over proposed reforms on public food stockpiling pushed the talks late into the night (ICTSD, 2013b). At the heart of the matter was the consistency of policies pursued by some developing countries to advance food security with existing WTO rules and disciplines. Spearheaded by India, the G33 coalition of developing countries proposed two specific measures. The first, relatively uncontroversial, consisted in listing a range of support policies used predominantly in developing countries (e.g. land rehabilitation, drought management, and rural employment and farmer settlement programmes) as general government services under the WTO “green box”. In WTO parlance, the green box refers to measures considered as non- or minimally trade-distorting subsidies which are exempted from any limitation on the amount of spending allowed.
25The second — much more controversial — measure proposed that current WTO farm subsidy rules be relaxed to allow governments more policy space to buy food from low-income and resource-poor producers at administered prices as part of their food stockholding programmes. Under existing WTO rules, government expenditure incurred in building stocks and reserves for food security are considered as non-or minimally trade-distorting subsidies and therefore not subject to any limitation as long as certain conditions are met, including that the food purchase takes place at market prices. If the stocks are acquired and released at an administered price set by the government, the difference between this administered price and a fixed external reference price, established at the end of the Uruguay Round, must be accounted as a trade-distorting subsidy or “amber box” and is subject to WTO limitations. For the majority of developing countries, this amber box limit is set at a de minimis of 10 per cent of the value of production (8.5 per cent in the case of China). In other words, when multiplied by the production eligible under the particular scheme, the difference between the administered price and the reference price should not exceed 10 percent of the total value of production of the specific commodity. This can be summarised with the following equation:
26 [Administered price – external reference price] x eligible production ≤ 10 per cent of value of production
27The fixed external reference price is based on the years 1986 to 1988 for each commodity. If the administered price remains below the reference price, the amount of subsidy is considered to be zero. So far most product-specific support has remained well below the maximum allowed level of 10 per cent of the value of production. Over recent years, however, administered prices have increased significantly compared to the fixed reference price with several countries risking exceeding their 10 per cent de minimis limitand therefore breaching their WTO commitments. India in particular feared being in such a situation once it implemented its National Food Security Act which extends the provision of subsidised food grains under the Public Distribution System. Under this scheme food grains equivalent to around 30 per cent of India’s total production could be procured at a minimum-support or administered price (Narayanan, 2013).
28To address this concern, India proposed to remove the obligation to account for the difference between the administered price and the fixed reference price as an amber box subsidy. Instead such price support schemes should be considered compatible with the “green box” and be subject to no limitations. According to India such flexibilities are needed for developing countries to support low-income and resource-poor producers, while providing food aid to poor consumers. In this context, WTO rules should not get in the way of members’ rights to advance food security. On the other side of the spectrum, developed countries, as well as a number of developing countries, expressed concern that such a proposal would affect the fundamental requirement of the green box — that measures included should not provide price support to producers. For some countries, contemplating such permanent distortions of agricultural trade was simply unacceptable. Others feared that surplus stocks built through such schemes could eventually be dumped on world markets affecting third countries’ producers (Bellmann et al., 2013).
- 7 The question of the duration of such a peace clause was at the heart of the controversy in Bali wi (...)
29In Bali, members could not solve this complicated matter. Instead, they opted for an interim solution in the form of a peace clause and committed to finding a permanent solution by the 11th ministerial conference in 2017 (WTO, 2013e). Under this peace clause, which will remain in place until a permanent solution is found,7 WTO members shall temporarily refrain from lodging a legal complaint through the WTO Dispute Settlement Mechanism if a developing country exceeds its “amber box” limits as a result of stockholding for food security. This clause comes, however, with a number of conditions: first it is limited to traditional staple food crops and to existing programmes. Second it sets a series of notification and transparency requirements and the obligation to hold consultations upon request. Finally the stocks procured under such programmes should not distort trade or adversely affect the food security of other members.
- 8 TN/AG/W/4/Rev.4, para 1-3 of Annex B (p.39).
30Beyond Bali, as WTO members start working on a permanent solution, several options are already on the table (Matthews, 2014) — some of them proposed by the G33 itself in a non-paper circulated in the run-up to Bali (ICTSD, 2013c). A first option simply consists in accepting the G33 proposal as it stands. This is, however, unlikely in the absence of a broader agreement on agriculture. Granted, the proposal had already been reflected in the 2008 draft negotiating text8 and considered as stabilised as part of a broader package of subsidy and market-access reforms, but the moment it was taken out of this context it became highly controversial. A second option would consist in allowing countries to reflect the effect of inflation in calculating price support when notifying their price support. From an economic perspective if the increase in the administered price only reflects domestic inflation, it cannot be argued that it is creating trade distortions on world markets (Matthews, 2014). Indeed, as illustrated in Figure 2 in the case of rice or wheat in India, if the 1986-88 fixed reference price had been adjusted for inflation, then the administered price guaranteed by the government would have been systematically below the reference price for the previous six years (Hoda and Gulati, 2013).
Figure 2: Administered Prices and External Reference Prices for Rice and Wheat in India (INR/ton)
Source: Hoda and Gulati, 2013.
31A third option would consist in updating the 1986-88 fixed reference price used as the benchmark for calculating the level of price support. In the words of the G33, this fixed reference price was established at the end of the Uruguay Round and does not reflect the reality of today’s price environment. In particular, it does not capture the large increase in food prices over the last few decades and therefore “grossly exaggerates and overstates the economic subsidy provided”. To capture better the effective distortions resulting from price support, this reference price could either be based on a more recent period or alternatively be calculated as a three-year rolling average of world prices as suggested by the G33.
32A similar way of addressing the G33’s concern has been suggested by Diaz-Bonilla (Diaz-Bonilla, 2013). It starts from the realisation that in the case of rice in India, while the administered price has been well above the 1986-88 external reference price, it has been consistently below the world market price. This means that in pure economic terms there has been no trade distortion created by the administered price even if — from a WTO legal perspective — the administered price is considered a trade-distorting subsidy. Diaz-Bonilla therefore suggests that if the administered price is at or below the market price, it should not be considered as providing price support and therefore could be considered green box compatible.
- 9 Other possible options exist if one looks at the different variables involved in the equation. One (...)
33These two scenarios are illustrated in Figure 3 below, which compares India’s administered price for rice in USD, the fixed external price, and world prices during the same period. Figure 2 also tests the idea of replacing the fixed external reference price with a three-year rolling average of world prices. Overall, in any of these scenarios, the Indian administered price remains below the world price or the three-year rolling average. Adopting any of these solutions would therefore accommodate India’s concern — at least regarding rice — and provide it with the necessary policy space to maintain its public stockpiling programme without breaching its WTO commitments.9 Whether these approaches would be acceptable to other WTO members remains to be seen. While relatively uncontroversial from a purely economic perspective, in practice they would result in the enhancing policy space available to developing countries, something that is likely to be resisted by a number of trading partners.
Figure 3: India’s Minimum Support Price for Rice, and International Prices 2000 – 2012 (USD)
Source: Author’s calculations based on Hoda et al. (2013)
34The set of ministerial decisions dealing with development and LDCs’ issues is without doubt the weakest component of the Bali package. Most of the texts had already been “stabilised” in Geneva and the limited amount of discussions that took place at MC9 on those issues hardly made any change to what had been agreed. The package essentially consists of a series of political statements, non-binding commitments, and procedural decisions with very few tangible and immediate benefits for developing countries. This partly reflects LDCs’ limited bargaining power as the weakest members of the organisation, but also the fact that LDCs had difficulties in articulating common positions among themselves on issues such as duty-free, quota-free market access. In other areas, such as cotton, proposals were submitted so late in the game that they had virtually no chance of being taken on board ahead of the ministerial.
- 10 Discussions regarding a series of concrete propositions for strengthening S&DT proposals had previo (...)
35The first element of the package is the establishment of a monitoring mechanism on special and differential treatment (S&DT). This responds to paragraph 44 of the 2001 Doha Ministerial Declaration which granted a mandate to review all WTO S&DT provisions with a view to making them stronger, more precise, effective, and operational. As established in Bali, the mechanism will serve as a focal point within the WTO for analysing and reviewing all aspects of the implementation of S&DT provisions (WTO, 2013f). But it will not function as a negotiating forum. In cases in which the review identifies a problem, the mechanism may make recommendations — including, if necessary, that negotiations be launched — to the relevant WTO body.10
36The second element of the package deals with rules of origin (RoO). These confer an economic nationality to products traded internationally. In the context of trade preference granted to LDCs — such as duty-free, quota-free schemes — RoO define how much processing must take place locally before goods are considered to be of an LDC origin and therefore benefit from preferential treatment. In practice, preferential RoO are often considered too restrictive and inflexible, making it difficult for LDCs to effectively take advantage of the intended preferences. Furthermore, these are designed on a unilateral basis by preference-granting countries, without any harmonised standard. A long-standing demand of LDCs has therefore been to promote enhanced harmonisation and simplification of RoO. The Bali decision contains, for the first time, a set of multilaterally agreed guidelines, which should make it easier for LDC exports to qualify for preferential market access (WTO, 2013g). It reiterates that RoO should be as transparent, simple, and objective as possible but also recognizes that each country granting trade preferences to LDCs has its own method of determining such rules. The decision then provides some illustrations of how RoO can be made easier to comply with. The decision is however in the form of non-binding guidelines, implying that developed member countries are free to choose to follow these guidelines or not.
- 11 A recent International Trade Centre study for example (International Trade Centre, 2013) has docum (...)
37LDCs accounted for a negligible 0.5 per cent of world trade in services between 2009 and 2011. Several studies have however pointed to the large potential for LDC growth in this sector.11 At the 8th WTO ministerial conference in 2011, ministers adopted a waiver to enable members to provide trade preferences to services and service suppliers of least-developed countries (LDC). The waiver, which will last initially for 15 years, is meant to promote LDCs’ service trade by allowing WTO members to treat LDCs in a more favourable manner by reducing or removing trade barriers affecting their exports. While representing a significant win for LDCs, the waiver itself does not confer any direct economic benefit. It first needs to be operationalised through the establishment of new unilateral trade preference schemes that cover services.
38In Bali ministers agreed that the WTO Council for Trade in Services (CTS) shall initiate a process aimed at promoting the expeditious and effective operationalisation of the LDC services waiver (WTO, 2013h). The CTS will also convene a high-level meeting six months after the submission by LDCs of a collective request identifying the sectors and modes of supply in which they would like to receive preferences. At that meeting, developed and developing members, in a position to do so, shall indicate where they intend to provide preferential treatment to LDC services and service suppliers. As with the monitoring mechanism, this decision essentially set up a process through which LDCs might advance their concerns but does not result in any immediate economic gains at this stage.
- 12 According to emerging research, this fear seems however to be largely exaggerated. For example, CG (...)
39At the 2005 ministerial conference, WTO members agreed that: “Developed-country members shall, […], provide duty-free and quota-free market access on a lasting basis, for all products originating from all LDCs …” However, a convenient escape clause stated that: “Members facing difficulties […] shall provide duty-free and quota-free market access for at least 97 percent of products originating from LDCs defined at the tariff line level”, while taking steps to progressively achieve 100 per cent DFQF. Since then, several developed countries and some emerging economies have put in place DFQF schemes of various kinds. For example, whereas Canada, Japan, and the EU provide duty-free coverage to over 98 per cent of tariff lines and feature few exclusions, the US trade preference schemes admit on average only 82.4 per cent of imports duty-free, with exclusions hitting 1,834 national tariff lines (WTO, 2012), essentially covering textiles and clothing to avoid competition from countries like Bangladesh and Cambodia.12
- 13 See Laird (2012). The study employs a partial equilibrium model to examine the impact of the provi (...)
- 14 In 2010, for example, Lesotho received USD 194 million in Aid-for-Trade (at 2000 prices), and the (...)
40According to a recent study,13 under full DFQF LDC exports would expand by 2.9 per cent, with the biggest impacts coming from India (21.7 per cent increase in imports from LDCs), Korea (12.9 per cent), and the USA (11.8 per cent). Country-wise, Haiti, Uganda, Malawi, Cambodia, Bangladesh, and Nepal would be among the biggest winners (see Figure 4). At the other extreme, it appears that Lesotho would be negatively affected. Even so, its loss would be a mere 1 per cent of exports, or about USD 5 million — an amount largely offset by Aid-for-Trade flows in recent years.14The loss would derive from the erosion of Lesotho’s preference margins mainly in the US to the benefit of other competing LDCs such as Bangladesh and Cambodia. Contrary to those countries Lesotho already benefits from free market access to the US market for textiles and clothing under AGOA. Extending similar benefits to more competitive producers in Asia would affect Lesotho’s market share.
41Several proposals have been made to address this concern. While some call for targeted measures aimed at increasing Lesotho’s export competitiveness, other have suggested that the US could extend duty-free access to Asian LDCs while preserving a small number of key preferences benefiting less competitive LDCs like Lesotho by selectively excluding their key export products from the duty-free list (Elliott, 2012). So far however, this reality has generated tensions among the LDCs themselves and has significantly weakened the group’s negotiating position. This was largely reflected in the lack of significant progress at MC9. In Bali, the decision on DFQF essentially reiterates what had been agreed at the 2005 Hong Kong ministerial with only minor procedural improvements (WTO, 2013i). In particular, ministers decided that “Developed-country Members that do not yet provide duty-free and quota-free (DFQF) market access for at least 97 percent of products originating from LDCs, defined at the tariff line level, shall seek to improve their existing DFQF coverage for such products, so as to provide increasingly greater market access to LDCs, prior to the next ministerial conference.”
Figure 4: Changes in LDCs’ Exports Resulting from Full DFQF
Source: Adapted from Laird (2012)
42Cotton has long been considered a symbol of the development dimension of the Doha Round. Ever since 2003, when a group of West African countries known as the C4 (Benin, Burkina Faso, Chad, and Mali) launched the cotton initiative, the issue has been high on the WTO’s agenda. At that time, the C4 countries accused the EU and the US of providing trade-distorting subsides to their farmers, depressing world prices and affecting poor producers in Africa unable to compete with Brussels and Washington treasuries. In Hong Kong in 2005, ministers recognised the need to “address cotton ambitiously, quickly, and specifically” but, in the absence of progress on the broader agriculture negotiations, no deal on cotton could be reached.
43Since then, the context that prevailed for cotton back in 2003 has drastically changed (Bahalim and Gruere, 2013). Prices have increased significantly, reducing pressure in the EU and US to provide farm payments. As a result, subsidies in the US have declined from historical highs and are projected to be lower as a result of the new US farm bill. Higher prices for alternative crops, such as corn and wheat, together with declining yields and rising production costs of cotton have also provided incentives to US farmers to move away from cotton production. At the global level, patterns of trade have shifted and new players have emerged. India has moved from a net importer to the second largest exporter of cotton. China is now the largest producer, importer, and consumer of cotton worldwide. Granted, all these factors have contributed to reducing the pressure of subsidies on African cotton producing countries, but at the same time they have also eased the political challenge of reforming trade-distorting payments. Along with budgetary pressures in the US and elsewhere, they suggest that the time for cotton reform has never been better.
44In spite of this, the decision adopted in Bali only recognises that the organisation is yet to deliver on the cotton initiative and stresses the importance of pursuing progress in this area (WTO, 2013j). Members will meet twice a year to study the latest information and to discuss the latest developments on market access, and domestic support and export subsidies for cotton, particularly from LDCs. As highlighted above, part of the reason for such a limited outcome relates to the fact that the C4 proposal to address this issue at MC9 came exceedingly late in the game, at a time when members were not ready to contemplate ambitious commitments in the light of other pending issues that needed to be resolved, not least regarding trade facilitation.
45As mentioned earlier, the largest benefits for LDCs in Bali might, paradoxically, result from the agreement on trade facilitation — an area in which LDCs were not the main demandeurs. In a world increasingly dominated by global value chains, the gains occurring from simplified customs procedures and lower transaction costs are well established. But the most significant gains are likely to arise from a possible boost in intra-regional trade where considerable growth potential remains untapped. Granted, some countries will have real difficulties in implementing certain elements of the agreement in the absence of technical assistance and capacity building. These concerns have largely crystallised around the need to balance sections I and II of the agreement. But the deal contains a set of landmark provisions allowing for flexibility in the scheduling and sequencing of implementation, and linking commitments to acquired capacity resulting from technical assistance.
46As we move towards implementation, making efficient use of these flexibilities will require developing countries to properly assess their technical assistance needs. Beyond technical assistance, political momentum and sufficient time will also be essential to overcoming resistance to change. Experience so far has shown that the introduction of formal trade facilitation reforms is not always followed by full implementation in the day-to-day operation of border agencies because of the difficulty of changing entrenched behaviours and the desire to preserve rents. Specifically, reforms are only successful if there is a high degree of political acceptability and public support. In terms of sequencing, experience has shown that equipment and infrastructure should be viewed as implementation tools to be carefully combined with regulatory, institutional, or human-resource changes. In this respect some observers have suggested that the flow of aid should be conditionally tied to legislative reforms so that it is more difficult for it to be reversed by opposing forces. Finally, there should be a willingness to continue reforms beyond the life of the aid initiative.
47The other elements of the Bali package are less likely to result in tangible gains at least in the immediate term, as illustrated by the establishment of a monitoring mechanism on special and differential treatment, which constitutes a welcome development but remains a rather procedural issue. The proposed decision on rules of origin, as important as it is, only constitutes a best endeavour agreement. Similarly, there is little to expect on cotton or on duty-free, quota-free market access where LDCs themselves have not managed to overcome their internal divisions.
48Finally, on agriculture, improvements in tariff rate quota administration or the possibility of increasing government subsidies as proposed by the G33 will do little to address LDCs’ food security concerns, not least because most of the LDCs don’t have the resources to benefit from such flexibilities. While food security stockpiling may play an important role in stabilising prices, achieving this goal requires significant financial resources which usually don’t exist in most developing countries. This is not to say that LDCs don’t have stakes in food security. As net food importing countries, LDCs have been hit hard by recent price spikes further accentuated by policy responses such as export restrictions or biofuels policies. As a result, they have seen their food import bill growing to worrying levels while productivity growth has remained stagnant, putting large segments of their populations at risk. These concerns, largely associated with the new price environment prevailing in agriculture, will require targeted responses from the system. While they have not been resolved in Bali, LDCs might consider addressing them as part of a post-Bali work programme on food security.
49Avoiding failure was an imperative for restoring the WTO’s credibility, rebuilding confidence, and creating political momentum. But the Bali deal only addressed a subset of the Doha Round, and —even then — achieving consensus on this limited package of low-hanging fruit proved particularly challenging. Beyond the intrinsic value of the Bali package itself, the immediate question for the WTO is therefore how to build on Bali to deliver on the broader Doha Agenda. With ministers’ attention focused on clinching a deal on trade facilitation and crafting an interim solution on public stockholding for food security purposes, members have not been able to design the contours of a post-Bali roadmap laying the ground for future negotiations.
- 15 See Part III, paragraph 1.11 of the Bali Ministerial Declaration (WTO, 2013a).
50True, some of the decisions made at MC9 define next steps in specific areas of the Bali package (e.g. the ratification and entry into force of the trade facilitation agreement or the work programme under the Committee on Agriculture to negotiate a permanent solution on public stockholding). But no clear process has been established to bring Doha to closure. Instead members have given themselves twelve months to prepare a “clearly defined work program on the remaining Doha Development Agenda issues”.15 According to the ministerial declaration, such a work programme should build on the decisions taken in Bali, particularly regarding agriculture, development, and LDC issues, “as well as all other issues under the Doha mandate”. Issues for which legally binding outcomes could not be achieved will be prioritised. Finally, ministers recalled the need expressed at the 2011 ministerial to explore different negotiating approaches while respecting the principles of transparency and inclusiveness, and to look at ways of overcoming the most critical and fundamental stumbling blocks.
51How WTO members will define the work programme based on such broad and all-encompassing ministerial guidance remains open to significant speculation at this stage. However, as the MC9 dust settles certain elements seem to be slowly emerging. First, on substance, three sets of issues will have to be addressed. As mentioned above, a first set of issues will refer to “Bali unfinished business”. In trade facilitation, for example, a preparatory committee will have to draft a protocol of amendments to include the agreement under the WTO framework. Members will have to ratify it and notify their commitments under Category A, B, or C. Developing countries and LDCs will also need to identify their respective needs for technical assistance and capacity building. In agriculture, countries wanting to use the peace clause will have to notify their respective programmes. Under the services waiver, LDCs will have to submit a joint request highlighting sectors in which they would benefit from trade preferences in services, etc. These issues are not easy but the way forward is relatively clear.
52A second set of issues refers to the rest of the Doha negotiations including agriculture, industrial goods, or trade in services to list just a few. Here, the emerging feeling is that the Bali approach, consisting in identifying a small set of low-hanging fruit for early harvest, might not be replicable in the future. While most countries greatly appreciated the transparent and inclusive Bali process, the approach has probably been exhausted, not least because there are not many — if any — low-hanging fruit left around which to build a small package. This means that members will have to find a way of tackling some of the core issues that have been put on hold since 2008, starting with the highly controversial agriculture talks. Granted, not all of them might be resolved in one go, but completely avoiding them seems impossible at this stage.
53To do so, members will first have to assess the extent to which going back to the 2008 draft texts as a basis for further negotiations is both possible and desirable. Some countries argue that what has been achieved so far should form the basis for any future negotiations. Others — and this is where the third set of issues comes into play — observe that the world has changed since 2001 and that “21st century issues” will have to be addressed. They point to recent developments, which arguably were not in the minds of negotiators when they launched the Doha Round, ranging from the emergence of global value change, the rise of emerging economies, tensions around exchange rates, the negotiations of “mega-regional trade arrangements”, or recent food-price spikes. They argue that while the overall objectives defined in the Doha mandates might remain relevant, the negotiating texts developed since then essentially reflected a reality prevailing in the late 1990s and early 2000s which has largely evolved over the last 15 years. Under these circumstances, any fruitful conversation needs to incorporate, as a minimum, a sound understanding of this new global reality and its implications for the main players or the various country groupings.
54Second, on process, two different but not mutually exclusive approaches can be envisaged. The first acknowledges that addressing all three sets of issues highlighted above might be too much to swallow in one go and that a “piecemeal approach”, slicing “the salami” into several parts, might be more promising. If a Bali type of low-hanging-fruit package is not realistic, members should consider crafting a new package carefully calibrating ambition and feasibility. Such a package would probably need to include elements of agriculture, industrial products, and services, and a set of specific development and LDC issues. This is probably the approach that will ultimately be adopted. How to achieve the right balance under a new package remains, however, highly challenging.
- 16 Initiated by the United States and Australia, the TISA is currently being negotiated in Geneva, wi (...)
55A second approach would consist in privileging plurilateral or critical-mass agreements. If consensus is too difficult to achieve among all WTO members, this approach suggests that nothing should prevent a coalition of willing countries from moving forward and reaching agreement among themselves on selected issues. Plurilateral agreements are not new to the WTO, and several precedents exist, starting with the Government Procurement Agreement or the Information Technology Agreement (ITA). Negotiations under such approaches are already underway in a number of areas including services with the Trade in Services Agreement (TISA16) or, since January 2014, on environmental goods among a group of 14 WTO members — including the US, the EU, and China — comprising 86 per cent of the global trade in environmental goods. A critical aspect of such approaches is ensuring that they remain under the WTO umbrella, transparent, and open to new comers. If the benefits are extended to non-members on a most favoured nation (MFN) basis, as would probably be the case with critical-mass agreements such as ITA, environmental goods, and TISA, such approaches will ultimately contribute to strengthening the multilateral trading system.
56Bali was without doubt a critical success for the multilateral trading system. As pointed out by Director General Roberto Azevêdo at the closing ceremony — “For the first time in our history: the WTO has truly delivered”.17 By avoiding failure, Bali contradicted those dismissing the multilateral trading system as a negotiating forum and has, to some extent, put the WTO back on track. The package itself is substantive with a comprehensive agreement on trade facilitation which might significantly reduce red tape and the cost of doing business. In a world increasingly dominated by global value chains, achieving such a result will surely reinvigorate business interest in multilateral negotiations. Beyond trade facilitation, however, achievements under agriculture, development, and LDCs’ issues are rather limited, if not disappointing. The success of Bali also needs to be put into perspective. Clearly it provided some much needed breathing space for the system but much more still needs to be done to effectively rehabilitate the WTO’s centrality in global trade governance. In other words, while success was a necessary condition for creating momentum and building trust it was clearly not sufficient to fully restore the WTO’s fortunes, let alone to unlock the Doha Round.
57Building on the success of Bali, members are now set to revisit the rest of the Doha trade talks. In addition to a rather narrowly defined work programme, under the Committee on Agriculture, to find a permanent solution to the controversy surrounding public food stock-holding, members have given themselves twelve months to design a “clearly defined” work programme on the remaining Doha Development Agenda issues. How WTO members will define such a work programme remains speculative source of great speculation at this stage. While some insist on the need to adopt a piecemeal approach, carefully calibrating ambition and “do-ability”, others have privileged plurilateral or critical-mass agreements. Yet, regardless of the approach adopted, it is clear that the work programme will have to tackle, in one way or another, the DDA “core issues” that had been put on the back burner for the last five years. At the same time, it might be impossible to do this without taking a fresh look at the 2008 negotiating texts, in the light of recent changes in the global economy. In this context, there is clearly a need for a new conversation, particularly among key players, focusing on what such players might be willing to offer in light of the new global environment in which we live. The extent to which leading WTO members are willing to engage in such a conversation in the coming months will probably determine the fate of the Doha Round.