- By Phil LevyPhil Levy is Senior Fellow on the Global Economy, The Chicago Council on Global Affairs, and teaches strategy at Northwestern University’s Kellogg Schoool of Management.
Dan Drezner gets enthused about the last-minute trade pact struck over the weekend in Bali, Indonesia, between World Trade Organization negotiators — and rightly so. The WTO has been pushing toward a deal since the "Doha Development Agenda" launched in 2001.
The pact that emerged over the weekend covered a sliver of the original ambition. Media sources are running with an estimate of $1 trillion as the value of the deal. That’s plausible, but by no means certain. The centerpiece of the accord is an agreement on "trade facilitation" — making it easier to move goods across borders. Delays in the processing of imports and exports can be as costly as or even more costly than tariffs. The catch is that procedural reforms to expedite trade can be costly. Developing countries have complained in the past about undertaking such reforms without compensation. There will be more questions about details and implementation than there would be with a good old-fashioned tariff cut.
That said, this still qualifies as a Bidenian BFD. The World Trade Organization had not struck a broad, significant agreement since the conclusion of Uruguay Round talks almost two decades ago. That experience has been wildly different from the vision some had held of a quasi-legislative body meeting regularly to craft new trade rules.
One of the early problems that emerged with WTO negotiations was that there were an awful lot of "veto players." In 2003, at what was supposed to be a midterm assessment of the Doha negotiations, the ministerial meeting in Cancún ground to a halt when West African cotton producers demanded recompense for the harm done by cotton subsidies. In 2008, at the last serious effort to conclude the Doha Round, the talks fell apart when India, and then China, demanded a special agricultural safeguard that would have them raise levels of protection. That pattern of some subset of the 159 member countries blocking a deal looked set to repeat late last week, when Cuba demanded action on the U.S. trade embargo.
Roberto Azevedo, the WTO’s new director-general, deserves immense credit for crafting a compromise. It is vital for the institution that it be able to function as a negotiating body. U.S. Trade Representative Michael Froman suggested at one earlier point that, in the absence of a deal, the WTO would at least be able to serve as an impartial arbiter of disputes. In fact, there are strong reasons to think that this ability would decay in the absence of legislative progress. First, the rules the WTO would be enforcing would start to look time-worn (already two decades old) without new agreements. Second, there is the persistent question of why large, strong countries should ever give in to judgments in favor of small, weak ones. In the absence of any WTO army or marshal service, and with small countries constrained in their ability to retaliate, large countries will only comply if they feel the need to maintain their "good standing" at the organization. They will only feel that way if the WTO proves itself useful as a negotiating body.
So the bargain at Bali preserves the viability of the WTO. If we want to be wildly optimistic, we can envision a series of such deals that, combined, would begin to address the range of issues originally placed on the Doha agenda — or new issues, such as data privacy. If participants expect a rapid succession of deals, they may be less likely to demand precise balance of gains in each one, which would certainly make them easier to conclude.
Beyond wild optimism, however, lies fantasy. Here we imagine that the Bali deal reveals the magic of trade liberalization and that, as at the end of a cheap musical, former antagonists embrace and join each other in song. This is a slightly exaggerated description of what Drezner describes as "the surprising forward momentum on trade liberalization." He cites the near passage of trade promotion authority (TPA). In fact, a TPA bill has yet to be introduced. There were rumors last week that a deal may be close, but there have been rumors like that since June. One of the distinctive features of the Bali deal is that, according to Office of the United States Trade Representative, it does not need to be submitted to Congress. That makes it vastly easier than TPA, the Trans-Pacific Partnership (TPP), and the (Transatlantic Trade and Investment Partnership) TTIP, on which there are serious fractures in Congress over issues such as intellectual property protection and regulation of labor and the environment.
Agreements are much easier to reach if the participants can just scale back their ambitions and declare victory. It was necessary and important to do that in Bali. WTO deals are designed to be partial, with leftover issues picked up at a later date. Big free trade agreement deals such as the TTIP or the TPP are designed to be one-offs (or at least infrequent); any move to scale back ambition will leave someone feeling seriously jilted.
Fortunately or unfortunately, there is no need to speculate on the "momentum" effects of Bali. U.S. trade negotiators went from Bali to Singapore, where TPP talks were supposed to conclude. On the home front, this week is likely the last for action by both houses of Congress this year. We will soon know the results.