The Director-General of the World Trade Organization is sounding despondent after the latest setback to the December 2013 Bali Agreement. Meanwhile, a survey of exporters has given some endorsement for the alternative path of free trade agreements (FTAs). Is there any hope for furthering the multilateral trade agenda?
Mike Callaghan described the Bali Agreement signed last December as a small win for the WTO — the first multilateral trade agreement since the WTO replaced the GATT as the multilateral trade forum in 1995. The main components of the Bali Agreement were trade facilitation (aimed at cutting red tape and corruption in ports, thus encouraging international trade), an agriculture package that allowed governments to run food security programs without breaching WTO commitments, and a reaffirmation of market access for less-developed countries.
While the agreement reached in Bali required subsequent endorsement, this was seen as a mere formality, as the text was signed by all trade ministers and had been painstakingly tailored to India's special sensitivities on food security. Yet India late last month blocked the deal.
The time limit for final endorsement expired at the end of July, with India insisting on re-opening the agricultural issues. The WTO Director-General, reporting to the WTO ambassadors in Geneva on 31 July, had a tone of desperation. This is not 'just another delay which can simply be ignored or accommodated into a new timetable'. Here is the wider context:
I want to stress the importance of each of the three pillars of the WTO: disputes, monitoring and negotiations — not to mention our work on technical assistance and aid-for-trade. We saw the importance of our work during the financial crisis when, unlike with previous crises, there was no surge in protectionism. Having the rules in place and adherence closely monitored — with the dispute settlement mechanism there to back them up — helped to keep protectionism in check during a dangerous period for the global economy. The value of those pillars was plain to see — and they performed very well. But, when I took office last September, I was clear that I had real concerns for the future of the negotiating pillar. Bali was a very important moment in reviving and revitalising the negotiating function. But, just seven months later, once again I am very, very concerned.
The central component of the Bali Agreement (making ports more efficient) is hardly controversial. But why is food security policy such a sticking point? In an imperfect-market world, surely India should be able to offer some subsidies to its own farmers? When, however, the farm price-support programs result in what are effectively export subsidies, it becomes a multilateral concern.
The WTO Director-General expressed some hope that the European summer holiday period might deliver a breakthrough when the ambassadors next meet in September. But if not, the consequences do indeed seem dire for the future of multilateral trade agreements. When a hard-fought negotiation, finally brought to fruition, can be torpedoed in this way, who will bother to try again?
Meanwhile, the rival model for international trade negotiation, FTAs, received some endorsement from a survey by The Economist Intelligence Unit. Senior executives from 800 exporters in Australia, China, Hong Kong, India, Indonesia, Malaysia, Singapore and Vietnam were quizzed on their experience. All these countries have extensive FTA coverage. The survey finds that each FTA signed in Asia is used, on average, by only one in four exporters. But where they are used, the result is positive: more than 85% of respondents report that their exports to the markets concerned have increased either significantly or moderately as a result of FTAs. According to the EIU report:
Critics of FTAs have long warned this would happen. FTAs, they say, replace the relative simplicity of multilateral WTO agreements with a "noodle bowl" of overlapping preferences and rules and regulations that, in practice, often prove more trouble than they are worth for companies to use. But the result is nonetheless surprising, given the benefits in terms of increased exports reported by companies that do use the FTAs.
Of course exporters (the survey respondents) are not in a position to judge the overall national or multilateral benefit of FTAs. The central criticism of FTAs (which should properly be called 'discriminatory preferential trade arrangements') is that they divert a country from buying its imports from the cheapest foreign supplier. FTAs are unambiguously second-best, compared with multilateral agreements. But the current multilateral model seems in need of drastic modification.
Photo by Flickr user Betsy Dorset.