17 December 2013

Ghana: The Bali Trade Package - What It Means for Developing Countries in the Light of the Doha Round and Other Existing Multilateral Frameworks.

The World Trade Organisation has just been able to agree on the Bali Package at its Ninth Ministerial Conference, the first unanimous agreement since the inception of the Organisation in 1995. The Bali Package is not a replacement of the infamous Doha Round of 2001 but rather an attempt to achieve some progress on the Doha Development Agenda in smaller, manageable amounts. The purpose of the Doha Round was to establish a binding framework that was fair to all and agreed by every member of the WTO. Its aims, and by extension all subsequent ministerial conferences, is to loosen trade barriers between countries and to aid development through trade. Media houses, especially in the West are hailing this as the saving of the Organisation. This is important to developing countries as the World Trade Organisation is currently one of the most democratic institutions. There were not as many bones of contention in the agreeing of the Bali Package, as there were in the initial Doha Round and subsequent Ministerial Conferences. This is because all countries have used numerous Ministerial Conferences and inter-conference meetings to lay proposals that would be of interest to themselves and their political groupings.

There are four key features to the Bali Package: trade facilitation, food security in developing countries, cotton and measure for developing countries. Every feature will affect developing countries in some way, however they will not all impact every developing country. One feature, for instance cotton, focuses on a select few countries. Nevertheless the impact of the Bali Package on the economic prosperity of developing countries especially Least Developed Countries (LDCs) must not be overlooked, in the analysis of the importance of this agreement.

Trade facilitation

The most exciting feature of the Bali Package is the trade facilitation deal which will simplify customs bureaucracy. It has been most welcomed by businesses such as UPS who have to deal with numerous checkpoint and restrictions in their business. The trade facilitation deal makes provision for goods in transit, lowering tariffs and non-tariff barriers for transit goods. This will be very impactful for landlocked countries, the majority of which are developing countries. The effects of the deal will be most felt in the developing countries of Africa. The UNCTAD estimates that the average import involves up to 30 different parties, 40 documents and the repeating of 70% of data at least once. Savings from trade facilitation for developing APEC countries is estimated to be between 1-2% of import prices. With the trade facilitation deal, these barriers will be rapidly reduced. The harmonisation of documents, reformation of custom procedures and increased transparency and clarity will greatly help developing countries two-fold. Firstly, it will welcome foreign investment and second, it will facilitate easier exportation from their own small and medium business. Furthermore, as part of the agreement, African states and other developing countries will receive assistance from the World Bank, EU and OECD in the development of infrastructure and training.

It is expected that an extra $1trillion will be added to the global economy as a result of this particular section of the Bali Package. The UK expecting to benefit in excess of $1bn, whilst Germany has predicted they are due to make an extra sixty million euros a year from this deal. In addition, these new measures will ensure that the developing countries are more appealing to foreign investors as it is often the stress of goods mobility that is cited as the repellent to foreign direct investment. However, there are no figures of expected financial gain for developing countries from this deal.

Food Security

Food security has long been a controversial factor in the Doha Development Agenda and it remained the key negotiation of the Bali Package. It is the key feature that affects all developing countries equally. Developing countries led by India, struggled but succeeded in keeping the right to hold stocks of food to protect their populations from a food crisis without risk of legal action from other members of the WTO. The Bali Package offers a four year grace period at the end of which stockholding will be revisited. Although, this is thought of as a success, it should be noted that the data that was being used (and was being rejected by India) derives from 1988 and therefore leaves little room for developing countries to remain within agreed limits because the 1988 data does not reflect adequately their needs or capacity today.

The Bali Package helps developing countries in that it stops short of making legal commitments for WTO members. It requires only that members do their best to reduce any policies that may resemble export subsidies, this includes policies such as the EU's CAP and the US' government agro-subsidies programme. However, the disadvantage of the Package is that the larger, richer countries can still channel large amounts of money to their own food security policies and remain well within the limits of the agreement, a luxury many developing countries cannot do.

For developing countries, food security proves to be the most worrying agreement. It is important that developing countries that governments protect their citizens from the volatility of global markets otherwise they risk a food crisis. At present the Bali Package, in this respect does not make them better off but it does allow them a level of freedom to determine their own domestic needs.

Cotton

The decision on the cotton industry in the Bali Package is a culmination of negotiations at the 2005 Hong Kong Ministerial that could not be settled on as the WTO could not agree. The Bali draft decision allows for continuous, twice-yearly re-evaluation of the information on market access and export subsidies. In accordance with the Bali Package, LDCs will be given duty-free, quota-free access to developed and emerging markets. Furthermore, LDCs are being given the chance to be more competitive in the cotton industry as the developed countries will abolish any existing export subsidies, thus giving the LDCs a more level playing field. This plan will affect the Cotton Four (C4) which consists of Benin, Burkina Faso, Chad and Mali who are al developing countries.

Measures for developing countries

One of the measures being put in place for developing countries is the preferential treatment for services from LDCs. This will increase LDCs involvement in global trade, especially in services which accounts for 70 per cent of global GDP. However, there is no binding guarantee that LDCs are chosen. Furthermore the economic portfolio of LDCs, do not lend themselves to enabling the states to make the most of the preferential treatment measure. Travel and transport account from 44.9% and 21.8% respectively, services that cannot be exported to other countries.

Rules of origin are applied to products to ensure that products genuinely originating in LDCs benefit from the preferential measures. This will help overcome the measures of exploitation that some countries experienced when America offered preferential treatment to African countries.

Tariff-rate quotas (TRQs) see that tariffs are lower on imports within quota limits but understandably high on imports exceeding those limits. This is a feature of the Bali Package that derives from the Uruguay Round. Therefore, the Bali Package, with regards to tariff-rate quotas has not made developing countries better off, it has put onto the table for operationalisation policies that were agreed earlier than the Doha Round which have been lost in the political negotiations of the Doha Round.

Critique

What does this mean for developing countries? Is the Bali Package better than, if any different from, other existing multilateral frameworks? Should it be as celebrated as it is? Gita Wirjawan, the Indonesian Finance Minister has declared that the Bali Package will support the least developed countries (LDCs) to "take more benefits from the multilateral system" he adds that "most of the economic benefit from trade facilitation will flow to developing countries". The WTO will have us praise the fact that the Bali Package is an agreement that every country, including LDCs and other developing countries have agreed to. It apparently sits in the interests of the poor as well as rich countries and is not like other multilateral agreements shaped and driven from the secret rooms of Europe or the USA. That being said, developing countries were not a stumbling block in previous failed negotiations. The spectrum of developing countries affected by this Package is wide. It ranges from the LDCs who account for less that 1% of global trade, to the emerging markets of Brazil, China, India and South Africa. It is therefore difficult to claim that "developing countries are better off" or "developing countries are not better off" because the assistance given to LDCs and the responsibilities attributed to the larger developing economies are different from other developing countries.

One critique of the Bali Package is the opt-out option from the tariff-quota system that would allow developing countries to fill under-filled quota tariffs, an option the US (and a few developing countries in the Americas) has utilised. Furthermore, non-governmental organisations have expressed concern that the sudden reduction of import taxes can wipe out industries and create job losses as opposed to the 20 million jobs that the plan is purported to create. Many countries receive a large proportion of their revenue from the tariffs they impose and for national security and data collection reasons must put many non-tariff barriers in place. The trade facilitation deal removes that power and effectively the expected revenue with no guarantee that it would attract investment, especially for resource-poor, land-locked or low population markets. In addition, the aim of the WTO, the Doha Round and the Bali Package is to lower duties and barriers (tariff and non-tariff) between all countries. Across the board, tariffs are being lowered and therefore it is not clear how much impact the duty-free, quota-free (DFQF) agreement for LDCs will have on those economies. The quotas will be a deciding factor on how much LDCs benefit from the Bali Package in comparison to non-beneficiaries of the DFQF waiver, however for countries with very little to offer they will find that competing with wealthier states, in a world of lower tariffs will be difficult.

The one feature that favours all states equally also hinders countries. Most of the WTO's agreements are legally binding and therefore this stops countries from setting their own priorities and responding to the changing features of their political and economic domestic needs. This was shown more specifically in the food security negotiation that India fought for. There is obviously a clear attempt to liberalise international relations and individual markets however, this liberalisation for the most vulnerable countries can be more harmful than good as their policies are decided by more stable markets. Short URL: http://thechronicle.com.gh/?p=68872

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