Bonn: German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) (The Current Column of 9 December 2013)
Bonn, 9 December 2013. The World Trade Organization (WTO) reached a crossroads in Bali last week, with the credibility of the global trade system hanging in the balance. Days of hard-fought negotiation culminated in a truly historic breakthrough on Saturday, when the first global trade agreement in the WTO's almost 20-year history was reached. The EU Trade Commissioner Karel De Gucht announced: "We have saved the WTO". The deal secured in Bali really does provide new hope for multilateralism, but fresh approaches are needed in order to secure the WTO's future as an important forum for global negotiations.
Bali was all about sending out a signal. The successful conclusion of the Doha Round, an impossible goal, was never on the table here. Instead, the trade ministers hoped to agree a partial package in order to break the deadlock of the last few years. However, India opposed these plans up until the last minute, displaying the kind of behaviour and attitude that sadly seem to have been characteristic of large emerging economies to date. Within the WTO, these countries are known more for seeking to block proposals than for actively contributing to reforms. Consequently, it wasn't until the final day of negotiations that signs of a breakthrough emerged, when India opened the way for an agreement.
The Bali package includes an agreement on trade facilitation, reduces agricultural subsidies and improves export opportunities for the least developed countries. While the agreement is expected to boost growth and create jobs, its greatest achievement, restoring confidence in the WTO as a global standardisation body, is more symbolic in nature. Had the Bali summit collapsed, it would have sounded the death knell for the deadlocked Doha negotiations, which is why its unexpected success offers a glimmer of hope. Nevertheless, despite agreement on the partial package, it remains unlikely that the Doha Round will be concluded any time soon.
However, the end of the Doha Round would not spell the end of the WTO, which fulfils a whole range of other important functions in addition to being a forum for negotiation. The WTO’s procedure for resolving trade disputes is very effective and its mechanisms for ensuring transparency and monitoring existing trade rules are being implemented on an unprecedented scale. At the same time, the global rules that were already agreed are working, keeping protectionism in check in the wake of the global economic and financial crisis.
Yet, the WTO still finds itself in a crisis when it comes to its role as a forum for negotiation, and shaking off the blues in Bali has done nothing to change this. With the Doha negotiations having stalled, an increasing number of countries are seeking bilateral and regional agreements. The EU and the US in particular are hoping to make progress with mega-regional accords. They have been engaged in negotiations on a Transatlantic Trade and Investment Partnership (TTIP) since the summer, while negotiations are simultaneously underway for a Trans-Pacific Partnership (TPP).
These planned mega-regionals are putting emerging powers such as China, India and Brazil under increasing pressure to act, as they are being negotiated without the involvement of emerging economies and developing countries and therefore do not take into account their interests. These nations cannot stop the agreements coming into being, nor can they influence them, yet they are directly affected by the redirecting of trade flows and the creation of new standards.
Consequently, the direction taken by emerging economies in response to these negotiations will be crucial to the future of the WTO. There is a danger that they will turn their backs on the WTO and launch their own regional negotiations. Alternatively, they could choose to jump on the mega-regionals bandwagon, as China is already considering doing in the case of the TPP and the investment negotiations with the EU and the US. One possible consequence of these developments might be the collapse of the world trade system in competing trade blocks. Or perhaps the emerging economies will cease to block progress in the multilateral system in order to preserve the WTO as a forum for negotiation, as India just did in Bali.
One thing that is certain, though, is that multilateralism will continue to be hugely important. While the WTO may have its weaknesses, it is the one forum in which all countries sit together around the negotiating table and have a say. The multilateral process also makes it easier for smaller countries to form coalitions to avoid having their voice drowned out by larger countries. Ultimately, multilateral agreements prevent discrimination against third states not involved in the negotiating process. They create universally applicable trade rules that provide a counterweight to the maze of overlapping regional approaches.
While Bali has provided fresh impetus to the multilateral system, continuing with a business-as-usual approach would not bode well for the WTO. If there is demand for regional and sectoral negotiations, these negotiations should at least take place within the context of the WTO. Consequently, the WTO needs to reach a compromise that enables negotiations to be conducted more efficiently and that simultaneously supports an inclusive and multilateral trade system.
One option for such a compromise would be to make more room for plurilateral agreements within the WTO, provided that pioneering alliances are only permitted to advance more quickly under certain conditions. The WTO's most-favoured nation principle requires, for instance, that trading advantages granted to one party must be provided to all member states. There should also be a possibility for other members to accede to the agreements at a later stage. Plurilateral agreements are not an ideal solution, but they do unlock new prospects for negotiations in the context of the WTO.
Once again, the future of the WTO hinges on the positions adopted by its key actors. Not least as an export nation, Germany has an interest in the future of the global trade system and should strongly back the WTO as a forum for negotiation. As for the heads of state and government of the G20 nations, they need to place greater emphasis going forward on the WTO's role as a key pillar of the global economic order. Given their influence, the major emerging economies in particular should abandon their passive policy within the WTO, bringing the multilateral trade system into greater focus once more.
Multilateralism will continue to be foundational to international cooperation in future. We need multilateral cooperation in order to meet global challenges together. The achievements of the Bali summit could provide new momentum for the multilateral approach.