After Bali: An Assessment of the WTOs 2013 Ministerial and the Bali Package McDermott Will & Emery

500 North Capitol Street, 9th Floor Washington, DC December 17, 2013 Remarks by John Murphy Vice President for International Affairs U.S. Chamber of Commerce Negotiations went into extra innings at the 9th Ministerial Conference of the World Trade Organization (WTO) in Bali, Indonesia, but on December 7 trade ministers unanimously endorsed the first multilateral trade agreement since the organizations creation in 1995. The principal commercial deliverable in the Bali Package is a new Trade Facilitation Agreement (TFA). The TFA is a cost-cutting, competition-enhancing, anti-corruption, good-government agreement of the first order. It may take years to see all of its benefits, but they will be big, and it is impressive to see 159 countries agree to such a strong, binding accord. The TFA will streamline the passage of goods across borders by cutting red tape and bureaucracy and establishing common approaches to the mundane but important task of clearing goods through customs. In this agreement, all 159 WTO Members have accepted binding obligations for customs authorities to: Publish all customs forms, rules, and procedures on the Internet; Afford opportunities to comment on new or amended customs laws and regulations and maintain regular stakeholder consultation; Issue advance rulings (prior to importation) on a goods tariff classification and provide for administrative or judicial appeal; Establish pre-arrival processing of required information by electronic means to permit clearance through customs before goods arrive in the country; Allow the release of goods from customs prior to the final determination of customs duties and taxes; Adopt authorized operator programs to speed clearance for firms that have established a good record of compliance with customs regulations, as in trusted trader programs such as CT-PAT; 1

Provide expedited customs clearance for air cargo and release such goods as soon as possible after arrival; and Require each country to set a de minimis value below which duties are not required in order to expedite the release of low-value shipments (though no specific value was set).

Let me offer a few observations. First, this was a big deal. Not every observer agrees. Ive seen a number of Swiss academics who have called it a modest or slimmed down package. A study commissioned by the International Chamber of Commerce estimated that the TFA could boost the global economic by $1 trillion. One observer had the temerity to protest that, in a world economy with a gross product of $60 trillion, this was less than a two percent increase. This is nonsense. On what planet is a trillion dollars a small sum? What other public policy initiative promises so much benefit for so many people, including the worlds poorest, at so little cost? Several years ago, a collection of Nobel Prize-winning economists gathered in Copenhagen to decide how to allocate a sum of money to do the most good in a world of finite resources. Multilateral trade liberalization came in second place, topped only by the provision of vitamin A and zinc supplements to malnourished children. It is also useful to recall the 2009 research paper in which the Peterson Institute for International Economics estimated the trade facilitation element in a completed Doha Round would add almost four times as much to global economic output as the Rounds agriculture and non-agricultural market access portions even though these were supposedly the meat of the deal. In that analysis, the TFA is not low hanging fruit or a nice addition to a more serious package: It is the lions share of the Doha Round. Its worth also noting that a failure at Bali when a final text had been almost entirely agreed and when more than 150 of the 159 WTO members had voiced support would have sent a signal that the WTO is incapable of delivering as a negotiating forum. Second, this was a victory for the developing world. Negotiators from all four corners of the world helped make it possible, underscoring a broad commitment to the WTO. But at a key juncture, the developing nations stepped up and showed leadership. Ten days before the ministerial, the deal seemed to have collapsed, but the very next day the LDCs concluded negotiations with the United States and the EU on the TFAs section two, dealing with technical support. Coming just a day after Director-General Roberto Azevdo announced the impasse, this was a very pleasant shock.

Why did this happen? The developing world seems to have gotten religion on trade facilitation. Many took heart from the success of those countries that have already adopted these reforms unilaterally. For example, in Ethiopia, customs revenues increased by more than 50% on the back of trade facilitation reforms that also helped boost exports by 200%. In Peru, customs revenue more than tripled following trade facilitation reforms, even as tariff levels were reduced between 15% and 35%. These experiences showed gains from trade, but they also showed that trade facilitation reforms did not mean lost revenue. Third, this was a victory for the new Director-General, Roberto Azevdo. He showed his mettle in the three months since he took office, and this agreement would not have been possible without his diplomacy and determination. Azevdo was the hero of the hour in Bali, and delegates literally lined up afterward to have their picture taken with him and then tweeted them to the planet. He is a trade policy rock star. Fourth, this was a victory for U.S. leadership. U.S. Trade Representative Michael Froman obviously played a key role in the final stage of negotiations. I recall how he was tasked in the first year of the Obama Administration with figuring out how to address the impasse in Doha; the results of the Bali ministerial must be very gratifying. U.S. Ambassador to the WTO Michael Punke deserves a standing ovation. In visits to Geneva earlier this year, Chamber delegations were able to glean how a collection of Member State ambassadors were collaborating to drive the trade facilitation negotiations forward chairs and friends of the chair, each focusing on discrete tasks, but all working together. Many national ambassadors from a diverse range of countries were playing vital roles, but Ambassador Punkes role was central to the process a fine example of American diplomacy. Above all, it was surprising the degree to which the world looked to the United States to find a deal in Bali. More than 150 countries had signaled their support for the Bali package, and criticism of Indias position was mounting. At that moment, 150 countries deferred to the United States to work out a reasonable compromise, shepherded through by the Director-General. Supposedly we live in a G-Zero world bereft of leadership, or at least a multi-polar one, but there was remarkable deference to the United States at that moment. There was trust. The foundation for that trust was laid over many months in Geneva by Ambassador Punke and his team. Fifth, its not clear exactly what this means for the rest of the Doha Round. To start, take a look at whats left on the table. 3

The Doha Round started with four working groups looking at market access agriculture, non-agricultural market access (NAMA), services, and trade facilitation. So whats left? The TFA has been concluded. Services industries and sympathetic governments grew frustrated with how they were completely shut out of meaningful negotiations over the course of the Doha negotiations, which in part led to the launch of the Trade in Services Agreement (TISA) negotiations. That leaves agriculture and NAMA. But look at how the agriculture is being discussed today at the WTO as opposed to 2001, when the Doha Round was launched. One important impetus for the launch of the round was a desire on the part of developing economies to discipline EU and U.S. subsidies. But 12 years later, in Bali, these same advanced developing countries were seeking to ease disciplines on themselves. Moreover, there has been a secular increase in farm prices over the past decade, driven by increasing affluence in big emerging markets such as China. The world today has more mouths to feed, and its citizens have fatter wallets with which to buy food. This has resulted recently in some pretty good times for farmers, with ups and downs, but it has also resulted in the United States and the EU providing significantly less support to farmers. The OECD releases authoritative data on public support to farmers as a percentage of farm receipts. Its most recent report finds such support hit a historic low in 2011 in the OECD nations, though it increased slightly last year. For reference, public support for agriculture on this measurement was 1% in New Zealand and 56% in Japan. In the EU it is near the OECD average 19%. But in the United States it has fallen to just 7%. Meanwhile, developing countries have gotten on the subsidy bandwagon in a significant way. The equivalent figures are 17% for China and 21% for Indonesia, and India is preparing to massively increase its support. In this context, who is the demandeur in WTO negotiations regarding agriculture subsidies? Certainly the constellation of interests has changed. Market access is another issue of course, but its hard to say how any aspect of the Doha Round agriculture negotiations has gotten any easier. And what about NAMA? Single-factor explanations are usually no good, but they are enticing. One that emerged for the Doha Rounds travails was that the negotiations bogged down as the Chinese manufacturing export juggernaut exploded over the past decade. While many developing countries enjoyed an export bonanza of their own by selling raw materials and intermediate goods to China, a flood of Chinese manufactures had a big political impact in many middle income countries.

This clearly led to a renewed reticence toward the NAMA negotiations on the part of countries such as Brazil, India, Argentina, and many others. In short, they are very reluctant to cut their tariffs on manufactures. As in agriculture, the past 12 years have arguably made a Doha bargain on NAMA even more difficult, the Bali package notwithstanding. Recall again the Peterson Institutes 2009 paper, which found the potential benefits of the TFA would be nearly four times as great as those from the agriculture and NAMA negotiations. In that context, we have to ask ourselves: Where will the world find the impetus to conclude those remaining portions of the Doha Round? So, sixth, in this environment, prospects are brighter for plurilaterals. Of course, one immediate priority will be to conclude negotiations to expand the product coverage of the Information Technology Agreement, which has delivered a cornucopia of technology products to the world. Extending free trade to the hundreds of new tech products invented since that agreement was reached in 1996 will multiply its benefits. However, despite progress over the past year, the ITA expansion talks were suspended in July and again in November. These actions were triggered by Chinas insistence on the exclusion of roughly 100 product lines from the negotiations. Many WTO Members have objected: In fact, China is quite isolated in its stance. The Chamber was one of several dozen business groups from dozens of countries that recently sent a joint letter to Chinese Vice Premier Wang Yang urging China to alter its stance. A commercially significant expansion of the ITA would add to the WTOs newfound bit of momentum, and more importantly, it would add an estimated $190 billion to global GDP annually. We hope to see China return to the negotiations with a more practical stance early in the new year; if that happens, a successful conclusion could be reached expeditiously. The Trade in Services Agreement (TISA) negotiations are another example of a plurilateral negotiation among a coalition of the ambitious. They are of course taking place outside the WTO, on its doorstep in Geneva; but with interest from countries such as China, its worth asking whether the TISA could one day find a home inside the House of Trade. There may be other ideas for plurilaterals that emerge in the months ahead. One focusing on tariff elimination for environmental goods, based in part on an APEC tariffelimination initiative, has been mooted. The prospect of the Bali package being held up by a single country, or one large developing country and a small handful of sympathizers, has reminded WTO members of the difficulty of reaching true multilateral agreements based on consensus among what is soon to be 160 members. This will surely encourage plurilateral approaches. 5

But there will be time later to consider all of that. Its appropriate, especially for our negotiators, to take a moment to bask in the accomplishment of the TFA. Let me close saying simply: In Bali, the WTO has given the world proof of life proof that it can succeed as a forum for trade negotiations, with plenty of grounds for caution. But for the moment, the WTO stands as a rare example of successful multilateralism in a world where the only objects of unanimity seem to be admiration for Beyoncs new album and opposition to the U.S. embargo on Cuba. All in all, the spirit of Bali is a very welcome addition to our holiday spirits, and it should make for a happier new year. ####