A few days ago, I enjoyed the opportunity to visit and chat with one of my longtime friends in the field of international trade about the failed World Trade Organization talks. My good friend does not see much hope for these talks. I must admit that I follow what is happening with the talks but do not hold out much hope for a substantial breakthrough either until the United States and the EU does something to address its agricultural subsidies.
Nevertheless, today is the start of the 9th WTO Ministerial Conference in Bali Indonesia. Failure to reach a mini-trade deal last week ahead of the Bali meeting, once again, dampens any hope of concluding the Doha Round.
The Doha Round of talks has been stalled since the Hong Kong Ministerial, during which the talks were supposed to conclude, in December 2005. The talks have been stalled surrounding the issue of the liberalization of agricultural trade. Many developing countries, led by Brazil, South Africa and India, contested proposals requiring them to open their agricultural markets while developed countries, especially the United States and the European Union, continued with agricultural subsidies.
Government subsidies violate the objectives of free trade, in which the market should determine winners and losers. Furthermore, subsidies to farmers, as I have argued in a number of earlier posts, give those farmers an unfair competitive advantage over foreign competitors and distort international trade in agriculture.
In October, it appeared as if there would be a glimmer of hope as the new WTO Director-General Roberto Azevedo discussed reviving the long-stalled Doha Round by focusing on trade facilitation rather than just tariff reduction prior to the Bali meeting.
The World Bank, International Monetary Fund and a number of regional development banks (African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development, European Investment Bank, Inter-American Development Bank) also encouraged the World Trade Organization to at least conclude an agreement pertaining to trade facilitation to move the Doha talks forward. Trade facilitation refers to addressing problems with infrastructure and customs and border procedures that hinder trade. These institutions wrote in a joint statement:
Tackling inefficiency in clearing goods and shortening delays can reduce the cost of getting goods to market with positive effects on competitiveness and consumer welfare…A WTO trade facilitation agreement would add significant momentum to efforts to increase developing country competitiveness, and provide a multilateral framework to shape and guide trade facilitation efforts taking place at the regional and national level.
Azevedo expressed his support for assisting poorer countries with reforms so that they could become more competitive.
Focusing on trade facilitation is definitely worthwhile to cut down the costs of trade. Simpler and consistent customs and border procedures make the cross-border flow of goods easier. Additionally, improved road conditions and transportation systems facilitate the ease of trade. By tackling these challenges, developing countries are better positioned to compete in the global economy. The Organization for Economic Cooperation and Development estimates that the WTO deal would reduce the cost of trade in developing countries by 15.5%. A one-percent reduction in global trade costs would boost global income by more than US$40 billion, especially among developing countries.
This seems like a reasonable deal that will benefit developing countries. A failure in this area will only demonstrate the weakness of the WTO as an institution to promote global trade. I shall wait and see what emerges from this meeting as it concludes on December 6th. Eight years after the Doha Rounds were supposed to conclude and the inability of trade ministers to reach some sort of agreement last week, I, like my close friend, can only be skeptical.
What do you think?
Note: This is an updated version of an earlier blog post on Oct. 24, 2013.
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