WTO’s Bali honeymoon over
India’s refusal to sign trade facilitation agreement perpetuates feeling trade body is broken.
Bali is a popular honeymoon destination. But for the World Trade Organization, Bali represented a watershed moment in the rebuilding of its reputation as a global force for negotiated trade between nations.
It was there, in December 2013, WTO members agreed in principle on a trade facilitation pact that some analysts estimate would produce as much as $1 trillion in economic benefits annually.
Alas, the honeymoon is over.
In late July, India and a small number of other WTO members effectively blocked the progress made in Bali to lower bureaucratic barriers to trade, refusing to sign the accord unless changes to a parallel food subsidy program for so-called “least developed countries” were made.
The setback is symptomatic of the struggles the WTO and trade advocates have faced in recent years—most notably in the organization’s failure to progress on Doha Round negotiations.
Essentially, Bali represented a scaled-back version of what was originally envisioned for Doha. The focus of the Bali accord was on lowering tariffs enacted by developed nations on exports from developing nations. Many trade experts were left scratching their heads at India’s stance, given the nation stood to benefit from enhanced trading conditions if the deal was signed.
The agreement would have added $21 billion to India's economy by 2020, according to research cited by the U.S. Council for International Business. The United States and international donor organizations were mobilizing to provide capacity-building assistance to ensure less developed nations had the resources to implement customs improvements.
On the whole, the agreement targeted increased growth from small and midsized enterprises—those companies stymied by expensive and time-consuming bureaucratic customs regimes.
The failure to ratify the deal in July saps confidence in the WTO as a forum for multilateral negotiations and undermines the organization's credibility as a monitor of international trade policies, the Peterson Institute's Jeffrey Schott and Gary Hufbauer said.
Yet India trade officials insisted that provisions in the agreement requiring it to reduce subsidies to farmers were unreachable by the stipulated target date in 2017. Just as importantly, India argued the formula used to calculate the subsidies was based on a formula using pricing from the 1980s.
“India is insisting upon change in the method of calculating the legally permissible subsidy,” V. Anantha Nageswaran, founder of the Indian think tank Takshashila Institution, wrote in a column in the Indian business journal Live Mint in July. “It cannot be based on prices that prevailed in 1986-88. That India has a badly-designed and ultimately counterproductive grain procurement and distribution program today is no reason to agree to the use of an outdated benchmark price to calculate the nation’s food subsidy. At a future date, even a well-designed food security program might still fail to comply with the treaty obligation if the reference prices are not updated.”
India has also argued the food subsidy issue should be decoupled from the trade facilitation agreement, a measure that other WTO members say is untenable given the volume of agriculture trade that could be fostered by the agreement.
Indeed, the talk now has moved to another type of decoupling altogether, according to Jake Colvin of the National Foreign Trade Council. In a briefing Aug. 1 in Washington, Colvin conveyed the exasperation of WTO members that had worked for years to forge progress on trade facilitation. Those members thought they had scaled a significant hurdle in Bali, making the setback in July all the more desperate.
“This has left a sour taste in terms of backsliding, the idea that ‘we can’t believe we’re doing this again,’” he said.
On the table now is a plurilateral agreement outside of the direct scope of the WTO. For context, WTO rules dictate that any agreement must pass unanimously. If all members don’t agree, then it does not go into effect. The justification is simple: it gives the smallest trading nations power equivalent to those of the most powerful, in much the same way the U.S. electoral college gives small states more power than a straightforward popular vote in the presidential election.
However, that requirement means one or a handful of nations can essentially filibuster proposed agreements in perpetuity. What has vexed those nations in favor of the Bali accord, as it was agreed upon in December, is not necessarily the particulars that India is fighting. Rather, they worry the WTO as an entity might be forever scarred by throwing out all the work done on such hard-fought progress.
Indeed, the discussion now is whether the WTO is even a viable entity anymore. Colvin said there is talk about whether the best path forward is now to forge an agreement that mirrors the provisions agreed in Bali, only without India (and other nations that refused to sign the accord, including Cuba, Venezuela, and Bolivia).
If the other WTO members do move forward with that plan, it would be negotiated outside the auspices of the WTO. It would also augment other major pan-regional trade agreements currently underway, namely the Trans-Pacific Partnership (TPP), and the Transatlantic Trade and Investment Partnership (TTIP). These agreements have been developed as a direct consequence of the Doha Round making no discernable progress.
India is asking the WTO membership to press on with negotiations on the trade facilitation agreement and food subsidy agreement, but those members might not be so conciliatory given India effectively left them at the altar in July.
India recently elected a new prime minister, Narendra Modi, who built a reputation as chief minister in his home state of Gujarat as a progressive pro-business leader.
However, the global trade community has been left befuddled by the first major act after his election—leaving more than a hundred other nations ready to sign the trade facilitation agreement high and dry.
Political observers note the move is primarily designed to help Modi make inroads with India’s vast and mostly poor rural population, which his Bharatiya Janta Party (BJP) has struggled to lure in the past.
That cynical view doesn’t take into account the potentially legitimate gripes India has with the food subsidy provisions of the agreement. But, again, the real damage, argue trade advocates, comes from the 11th-hour submarining of a long-negotiated agreement, not any particular quibble with the agreement itself. No side gets everything they want in trade negotiations, goes the off-cited mantra.
“To now have this significant agreement delayed due to the reservations of a small number of WTO members means the major gains in world trade, increased GDP and more jobs will not be realized," Michael Mullen, executive director of the Express Association of America, said in a statement.
The EAA represents DHL, FedEx, UPS and TNT.
Colvin said he suspects India “likes being under siege,” in that it galvanizes support within the country that it’s not being pushed around by western nations.
“Lobbying by U.S. businesses isn’t going to help much,” he said.
There may be something to that suspicion. India has been fiercely self-sufficient since independence in 1947, and typically prioritizes internal governmental policy over measures that would stimulate trade. To wit, the nation only recently allowed foreign companies to hold a majority stake in Indian retail ventures.
Eric Kulisch contributed to this report.
This article was published in the September 2014 issue of American Shipper.