Why the Trade Deal in Bali Was a Game-Changer

Readers of this blog are by now bored aware that I’m finishing off a book on post-2008 global economic governance, in which I take the contrarian view that the system worked surprisingly well after the collapse of Lehman Brothers to avert a second Great Depression. 

Of course, not everyone shares this view, and there has been no shortage of arguments that say the opposite.  One of the strongest data points in their empirical quiver has been the failure of the Doha round of WTO talks to be completed.  Indeed, for the past five years, "Doha" has been wonk shorthand for "dysfunctional global governance that accomplishes nothing but gridlock."  Even in my own book, I wrote at one point that, "To be fair, there are examples in which it seems like the system is broken.  Despite the longest set of trade negotiations in history, the Doha round of trade talks remains moribund." 

So… looks like I’m gonna have to do some last-minute revisions, because the WTO had quite a weekend in Bali:

Ministers from around the world sealed the first global trade deal in a generation on Saturday in a move hailed as a tonic for both the global economy and the battered credibility of the World Trade Organisation.

Almost two decades after the WTO was founded ministers from its 159 member countries approved a “trade facilitation” agreement to set common customs standards and ease the flow of goods through borders around the world. They also took decisions on a range of issues from how the WTO should respond to government food security programmes to securing better market access to the rich world for the globe’s least developed economies.

Business groups immediately praised the trade facilitation deal as a needed stimulus for the global economy. The International Chamber of Commerce estimates it will lower the cost of doing trade by as much as 10-15 per cent and add $1tn to global output.

When Walter Russell Mead starts writing things like, "WTO Poised for Biggest Success in Years," well, you know the ground has shifted.   

Truth be told, however, this isn’t that big of a big deal when compared to the goals originally set at Doha in 2001.  As the Wall Street Journal observed, "The WTO’s members two years ago agreed to drop the goal of eliminating or reducing tariffs on a range of goods and services after years of acrimonious discussions. Instead, they focused on more achievable targets." 

And yet, Mead is still correct.  A big word in the wonk argot is "optics" — how an event or policy initiative looks to observers.  What the Bali agreement does is transform the optics in two big ways.

First, Bali helps to demonstrate the surprising forward momentum on trade liberalization.  The deal in Bali comes on the same week that Congress nears approving trade promotion authority — or "fast-track’ for President Obama.  If that passes, then the United States will be able to negotiate the Transatlantic Trade and Investment Partnership (TTIP) with Europe and the Trans-Pacific Partnership with a passel of Asia/Pacific economies (indeed, U.S. trade negotiators went from Bali to Singapore to continue talks on that deal).  Fast track will signal to U.S. negotiating partners that Washington is committed to finishing a deal.  Combine these negotiations with ongoing services negotiations, as well as a bilateral investment treaty with China, and you have the most ambitious trade agenda for the United States since the first year of the Clinton administration. 

[Hmm… this observation sounds familiar!–ed.]  Right, but no one was listening to me a year ago.  The way Bali matters is that it alters the perceptions of those pundits who haven’t been paying attention.  Now suddenly the narrative shifts from not much getting done on trade – or bilateral/regional deals fragmenting the global trade regime — to a narrative where the WTO has made forward progress and maintained its relevancy (even though it was always going to be relevant).  Now these same pessimists will observe that Americans seem pretty enthusiastic about trade expansion and that the bilateral and multilateral trade agreements are far more likely to be complements than substitutes.  When Tom Friedman writes his inevitable "hey, I talked to a cabbie in Bali and there seems to be a real trade agenda" op-ed in, oh, six weeks from now, perceptions will actually change. 

The second way in which Bali matters is that it alters perceptions about global economic governance more generally.  The Doha round was viewed as the weakest sister in the multilateral economic agenda.  Now that story has to be revised, and the cheapest shot that could be lobbed at a "G-Zero" world is no longer available.  Between this and signs that the global economy is starting to accelerate, who knows, maybe people will start to think about global economic governance a bit more favorably…. just in time for a book to come out confirming this position. 

As I’ve noted multiple times in recent weeks, there are greater career risks in being wrong on the optimistic side than the pessimistic side when it comes to world politics.  Being right just before the rest of the foreign policy community moves in your direction, however, is worth its weight in Bitcoin gold.

Am I missing anything?