In Trade Talks, Failure Is Not an Option
Trade ministers gathered in Bali this week have until Friday to finalize the Doha round of trade talks. If they fail, they run the real risk of crippling the World Trade Organization.
Lamentably, a deal is by no means assured, thanks mainly to a quarrel between India and the U.S. over farm subsidies. This doesn’t come close to justifying a collapse. Aside from missing the chance to expand global trade -- hence output, employment and living standards -- a breakdown could do deep harm to the WTO, a body the world economy still needs.
The Doha round started in 2001. It was ambitious to a fault -- aiming for comprehensive liberalization across a wide front of new and old trade-policy issues. After 10 years of getting nowhere, governments narrowed the agenda to “Doha Lite.” The new deal before the ministers in Bali would center not on tariffs or other explicit trade barriers but on so-called trade facilitation, which means reducing the administrative and other costs of moving goods across borders.
This is timid compared to the agenda of 2001, but well worth doing nonetheless. According to one plausible estimate, achievable improvements in trade facilitation -- including streamlining customs formalities -- could eventually expand global trade by a trillion dollars. That would support roughly 20 million jobs in exporting industries.
You might wonder why an international agreement is needed to move these reforms forward in the first place. Good question. Glad you asked. Politics. Domestic interests want to put foreign competitors at a disadvantage. Slow customs procedures serve this purpose, as do import tariffs. Trade facilitation won’t happen fast enough unless trading partners make “concessions” of their own to balance the political equation.
That’s the basic rationale for the WTO: It’s a forum for striking deals that make global -- not just regional -- trade expansion politically palatable.
Failure in Bali puts this at risk. Granted, most of the energy in trade liberalization has already moved to other initiatives -- notably, the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership. These will expand trade within their groups, which is good, but put outsiders at a disadvantage, which isn’t. These deals also mix economics with geopolitics in a potentially dangerous way by creating rivalries between regions where none need exist. At the very least, regionalism in trade policy needs to be policed so that it remains consistent with global trading rules. For this, a strong WTO is the appropriate agency.
If the Bali meeting ends in failure, the biggest cost could be the blow to the WTO’s credibility. As a forum for multilateral trade talks, the WTO is already sidelined. But its two other functions, as rule-writer and arbitrator, remain vital. Success in Bali could give trade a double fillip: the benefits of trade facilitation plus a refreshed, newly empowered WTO. Failure forgoes the first and puts the second in jeopardy.
To contact the Bloomberg View editorial board: firstname.lastname@example.org.