On the face of it, the deal struck by global trade officials on the Indonesian island of Bali on December 7 was nothing to write home about. After nearly 10 years of talks, all they managed to do was to agree rules to speed up the passage of goods through customs.
But the Bali accord is significant for two reasons.
First, it will make the manufacture and shipment of goods more efficient. In today’s economy, component parts crisscross the oceans before they are assembled into computers, cars or mobile phones. Companies in developing countries will have the chance to join these global supply chains if multinational companies can be sure that exports and imports will not be held up at the border by red tape. New manufacturing jobs will lift more people out of poverty. For the first time customs offices will have to post online what forms must be completed and fees paid, thereby tackling corruption.
No wonder that big business, including shippers such as FedEx, lobbied hard for the Bali deal. Time costs money, so unpredictable delays do more harm than tariffs. By one estimate, the Bali pact will cut shipping costs by 10 percent, helping Western shoppers.
Time costs money, so unpredictable delays do more harm than tariffs. By one estimate, the Bali pact will cut shipping costs by 10 percent, helping Western shoppers
Second, Bali preserved the credibility of the World Trade Organization (WTO). Much of the credit goes to the body’s new director-general, Brazil’s Roberto Azevedo.
Failure would have undermined the WTO’s free-trade principles and could have encouraged governments to erect barriers to protect their economies – a trend that has been thankfully muted despite the financial crisis.
The WTO is often pilloried as remote and technocratic. Critics charge that the trading rules it enforces discriminate against emerging economies, especially when it comes to agriculture.
Yet the Geneva-based WTO is the ultimate democratic forum. David can take on Goliath in its Dispute Settlement Body, a sort of world trade court, and win. Washington has been humbled more than once in cases brought by small states. And each of the WTO’s 159 members has a veto: nothing is agreed until everyone agrees. Indeed, Cuba and India were last-minute holdouts in Bali.
The requirement for unanimity explains why this was the first global trade deal since the WTO was established in 1995. An overly ambitious liberalization plan was launched in Doha in 2001 but foundered in 2003 because of objections by some African governments. Frustration over the slow pace of market opening has prompted some countries to sidestep the WTO and push for “competitive liberalization”. The United States is negotiating separate trade and investment pacts with a clutch of Asia-Pacific countries and with the European Union. And more than 20 countries are exploring a Trade in Services Agreement (TSA).
Free-trade purists fear that a plethora of regional and sectoral agreements will Balkanize the global economy, confronting exporters with a mosaic of tariffs and trade rules. A more optimistic view is that such deals will evolve into multilateral agreements because governments now on the sidelines will not want rivals to write the rules of commerce.
China, importantly, is making noises about joining the TSA consultations, seeing services as key to sustaining economic growth. Were China to join, India and Brazil would probably follow. With a critical mass of big participants, the prospect would then arise of bringing the talks under the WTO umbrella and eventually forging a global deal.
Lowering barriers to trade in services would be a big prize. If the WTO had been neutered by failure to agree on something as mundane as streamlined customs procedures, there would have been a vanishingly small chance of claiming the prize. That is the significance of Bali.
Alan Wheatley is an economics writer and editor based in London. He was until recently Reuter’s global economics correspondent, reporting from more than 40 countries and living in London, Frankfurt, Paris, New York, Washington, Tokyo, Singapore and Beijing. He is editor and co-author of The Power of Currencies, Currencies of Power, which explores the consequences of looming challenges to the dollar’s status as the world’s pre-eminent reserve currency.