By Sung-Ah Kyun and Alexander Plekhanov
“We did it! We achieved what many said could not be done,” proclaimed Chairman Gita Wirjawan, Indonesia’s trade minister after the WTO Bali Package was adopted on 7 December 2013.
The first global trade agreement achieved under the aegis of the World Trade Organization (WTO) since its establishment in 1994, following the conclusion of the Uruguay Round of trade talks, was indeed a signal moment. The deal, agreed by all 159 member states, even succeeded in reviving measures from the so far largely failed Doha Round, launched back in 2001.
Yet for all the excitement, there is still scepticism as to what the deal actually amounts to. Here we briefly explore the implications of the agreement for world trade and the EBRD region in particular.
The Bali Package is intended as a first stepping stone towards the completion of the Doha Round that covers over 20 areas of trade, also known as the Doha Development Agenda (DDA). The Doha negotiations ran into many disagreements between the US, the EU and the developing economies (notably China and India). As the consent of all WTO members is required for adopting any agreement, the Doha Round looked increasingly impossible to complete.
The Bali Package carved from the Doha Round the “least common denominator” acceptable to all countries. It centred on trade facilitation that will cut down border bureaucracy and speed up port clearance. Agreements on development, food security and cotton also made into the Package, while the pricklier subjects such as intellectual property and trade in services had to be dropped.
Even so, the agreement was in question until the very last moment. Cuba, Bolivia, Nicaragua and Venezuela, in particular, raised serious concerns over agreements favouring the richer countries and Cuba came very close to calling off the deal, demanding a provision against trade embargoes.
All 26 WTO members in the EBRD region signed up to the Bali Package. Among the six observer countries, Azerbaijan, Bosnia and Herzegovina andSerbia are close to finalising their accessions and will automatically sign up to the Bali Package upon joining the WTO.
Kazakhstan’s accession negotiations are also well advanced; less so in the case of Belarus and Uzbekistan. Kosovo and Turkmenistan, the remaining two countries, have recently expressed interest in starting the accession process. Overall, the EBRD region now accounts for 9 per cent of the world trade and this share has been gradually rising.
In principle, the trade facilitation component agreed in Bali may be very important, despite proving to be the easiest part of the Doha Agenda to agree on. Implementation of key Doha Round trade facilitation measures can reduce total trade costs by around 10 per cent, according to OECD estimates.
In Emerging (non-OECD) Europe and Central Asia, the potential cost savings from a comprehensive trade facilitation reform are estimated at 13 per cent of total costs, with half of the cost reduction coming from streamlining of customs procedures, automation of information exchange and improving appeals procedures.
Indeed, much room for improvement remains even in most OECD countries when it comes to customs procedures, document requirements and automation of clearance, according to OECD Trade Facilitation Indicators (Chart 1). Many EBRD countries, including EU member states such as Poland, Hungary or the Slovak Republic, receive low scores in these areas, as do members of the Eurasian Customs Union.
Another important dimension of trade facilitation covered by the Bali Agreement is improving cross-border and customs infrastructure. This is an area where significant challenges remain across the transition region, as illustrated by the values of the World Bank Logistics Performance Index (Chart 2).
The index captures the efficiency of customs and border management, the quality of trade and transport infrastructure, the ease of arranging competitively priced shipments and the quality of logistics services, reliability of delivery on time and availability of consignment tracking. On this aggregate measure, all the EBRD countries of operations score below the OECD average.
Given the room for improvement and based on various WTO and OECD estimates, implementation of the Bali Package could bring annual benefits between US$ 35 and 90 billion to the EBRD region, once all measures are implemented in full.
At the same time, effectiveness of the latest global deal will crucially depend on its implementation by all WTO members, as elimination of the non-tariff barriers targeted by the accord is notoriously difficult to measure and verify. In addition, the deal focusses only on technical non-tariff barriers, such as customs paperwork. Other important non-tariff barriers, such as varying sanitary or technical requirements, are not covered.
The Package also includes a relatively modest interim agreement on agriculture. The countries decided to temporarily refrain from legal complaints against developing countries purchasing government reserves of food staples from local producers in excess of pre-agreed limits. Increased exchange of information has been agreed in this area, as well as in the area of partial utilisation of tariff quotas. A more ambitious deal to limit agricultural subsidies was blocked by India and a number of other developing countries. The deal will be reviewed after a four year interim period.
The Package also included adoption of the decisions from the 2011 Geneva Conference that grant greater market access and preferential treatment for the Least Developed Countries (LDCs).
Most of the Doha Development Agenda remains to be agreed, including liberalisation in agriculture, access to services markets and protection of intellectual property rights. Countries with state-dominated services sectors, in particular, tend to be reluctant to open these industries to international competition.
Reaching universal and unanimous agreements on these issues is increasingly difficult. Many countries thus focus their efforts on extending regional trade agreements. These include the Transatlantic Trade and Investment Partnership (TTIP), which involves the EU and the United States, and may become the biggest trade and investment deal to date; the Trans-Pacific Partnership (TPP), under negotiation since 2005; the Regional Comprehensive Economic Partnership (RCEP), involving 10 ASEAN member states and China, India, Japan, Korea, Australia and New Zealand), as well as bilateral free trade agreements (FTAs).
In the EBRD region, a number of agreements between individual countries and the EU are currently under negotiation, as well as a number of bilateral deals, for instance between Ukraine and Singapore. However, bilateral FTAs concluded by the EBRD countries of operations tend to be narrower in scope, focusing predominantly on trade in goods, but not services (Chart 3).
Yet regional agreements may not be ideal substitutes for a more ambitious global one. They may be complex, difficult to keep track of, and participating countries may at times struggle to ensure that their commitments under various agreements are compatible. The Bali Deal gives some hope that ambitious global trade agreements are still possible to conclude.