World Trade Organization (WTO) Global Trade Deal In Bali 'Is Not Such A Big Deal,' Says Capital Economics

The World Trade Organization saved itself from irrelevance by announcing on Saturday in Bali, Indonesia, the first global trade deal in its 18-year history, but economists doubt that the package will make much difference to world trade volumes, nor do they think it signals a renaissance for multilateral trade negotiations.

“The deal signed in Bali was reached only after the bulk of the Doha trade agenda was dropped from the negotiations,” Andrew Kenningham, senior global economist at Capital Economics, said in a note to clients.

The most-important component, known as “trade facilitation,” sets minimum standards for customs administration. It aims to reduce the amount of bureaucracy involved in clearing customs and limit delays at borders, in ports and in transit.

There's plenty of evidence that this is a big cost of doing trade in many of the world’s poorest countries, and particularly for those that are landlocked. Therefore, the benefits of reducing these trade barriers could, in principle, be large.

That said, the gains from “trade facilitation” are far less certain than they are from more-traditional agreements to reduce tariffs or quotas, in part because it is doubtful that the governments concerned will meet the new standards any time soon, according to Kenningham.

In principle, the fact that this deal is legally binding should provide some reassurance on this score, but enforcing such WTO agreements in sub-Saharan Africa, for example, or between India and Bangladesh, may prove difficult.

“The bigger picture is that the Bali agreement does nothing to boost trade between advanced economies and little to boost trade with the larger emerging economies, nor does it address most of the topics which were originally included in the ‘Doha Development Round,’” Kenningham said.

Key issues that haven't been addressed include a reduction of barriers to trade in manufactured goods, liberalization of trade in services and agreement on rules governing intellectual-property rights.

Last week’s negotiations did cover agricultural subsidies, but an agreement on these was postponed because India insisted on continuing with its subsidies as part of its “food security” program.

As a compromise, it was agreed that these subsidies won't be challenged under the WTO for at least four years. “The intention is that a lasting settlement will be reached after that, but there's no guarantee that this will happen,” Kenningham said. “Nor has there been any progress in reducing EU, U.S. and Japanese farm subsidies.”

Capital Economics is also skeptical of the claim that this deal represents the start of a lasting revival in multilateralism.

“On the contrary, the fact that, after twelve years of negotiations, only such a limited agreement could be reached underlines that multilateral trade talks are all but dead,” Kenningham said.

This is perhaps not surprising given that the WTO has 159 members, all of which have to agree to any deal, and that there are clearly political barriers to reaching an agreement on the most-important areas.

There may be more chance of progress in the regional transatlantic and trans-pacific talks, which are now underway. These are at least addressing the big topics affecting trade between advanced economies, such as public procurement, harmonization of health and safety standards, intellectual property and financial sector regulation. However, they also face a host of political obstacles and may not reach a conclusion for years, if at all.

“The prospects of a major breakthrough in international trade liberalization in the foreseeable future remain fairly bleak,” Kenningham said.