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World Trade Organisation snatched from jaws of failure

This month's Bali agreement is a start, but leadership and reform are required

It would be churlish not to congratulate the World Trade Organisation and especially Roberto Azevêdo, its dynamic director-general, for passing a "Bali package" at the Indonesian resort well past the 11th hour on December 7. The WTO Doha Round, launched in the Qatari capital in 2001 had become a synonym of failure: failure of the WTO and failure to move forward an inclusive agenda of globalisation. Many, including this author, expected the ninth ministerial conference to follow that pattern. Instead Bali succeeded, at least in the sense that unlike previous ministerial conferences it did not collapse. The question is whether, as some are excitedly declaring, the Doha Development Agenda has been brought back to life or, as others fear, the state of suspended animation has been extended by temporarily rebooting the life-support machine.

The trading system put in place after the second world war with the 1947 General Agreement on Tariffs and Trade, or GATT, contributed enormously to bringing peace and prosperity to the nations of the North Atlantic. This was when the world was divided in three: a first world of rich market economies; a second world of state-led central-command economies; and a third world of poor countries, among which many - including Brazil, Argentina, Indonesia and India - were practising import-substitution industrialisation policies. Thus the GATT was essentially an elite club of OECD countries, with Canada, the US, the EU and Japan (the "quad") calling the shots. This was fine because other countries were not interested. After the last GATT Uruguay Round in 1994, the institution was reformed and recreated the following year into the World Trade Organisation.

The first director-general, the late Renato Ruggiero, referred to the WTO as the first true institution of this new phase of globalisation. As the Soviet empire and the second world imploded and major market-oriented reforms swept third-world countries, the planet gradually unified into one global integrated market economy. Ruggiero warned early on: "we have gone from a divided world to an integrated world; and an integrated world is much more difficult to manage". And so far, that has proved to be the case.

In 1995, the WTO counted some 90 member states; at Bali there were 160. But apart from the membership boost, development has not gone smoothly. The 1999 WTO ministerial meeting in Seattle ended in total fiasco. Then director-general Mike Moore expressed the prophetic fear that the WTO would become the League of Nations of the 21st-century world economy - impotent and irrelevant.

In 2001, China was admitted and the ministerial meeting was held in Doha. Developing countries from the South wanted a piece of the global trade action, but in areas where they had comparative advantage - agriculture, raw materials and labour intensive goods - the precise areas where the quad had maintained high tariffs, subsidies, quotas and other trade barriers discriminatory against developing countries. The South clamoured for a level playing field, something they would not be granted because of the North's lobbies and vested interests.

Nevertheless in Doha - amid a brief moment of global solidarity in the wake of the 9/11 attacks - a new round called the Doha Development Agenda (DDA) was launched and understood by countries of the South as development-oriented, aimed at eliminating discriminatory trade distortions. But the spirit of global cooperation and development orientation disappeared before the ink was dry. At the 2003 WTO meeting in Cancún, talks collapsed largely because of Washington's refusal to cut massive subsidies to its powerful cotton lobby, thereby undermining more cost-efficient producers from developing countries, especially Africa's "cotton four" - Benin, Burkina Faso, Chad and Mali.

In the decade since Cancún attempts to restore the DDA have failed. While the North-South divide remains, other issues complicate the global trade picture. Two stand out: First, the remarkable rise of China as a global trade superpower; second, technology has created a new globalised system of highly dispersed value chains for production of goods and services.

The DDA was launched prior to these transformations. Negotiations were fought on yesterday's battlefields. The world has changed immensely while Doha has remained a constant.

Unable to adjust, lead or compromise, and thereby frustrated by no longer being able to dictate the global trade agenda, the established powers opted to play in regional trade deals and then in another more exclusive trade sandbox - what's been called the "trade mega-deals". There are two especially big ones: TTIP, the Transatlantic Trade and Investment Partnership, composed of the US and EU, and the Transpacific Partnership, composed of a dozen Pacific countries led by the United States. Both exclude the new emerging trading powers - China, Brazil, India, South Africa - along with the poor countries, especially those from southern and central Asia and Africa. The intention of these mega-deals is not only to liberalise trade among members but, more significantly, to write new trade rules for the 21st century.

So in the space of not much more than a decade, the world has transformed from a three-part split to an attempt at integration, but is now back divided in two - rich "in" countries who are making the rules, and poor, developing countries who are forced to follow them.

There is no guarantee that these mega-deals will see the light of day. But there's been a trend in recent years from global trade integration to fragmentation. Of course, trends need not be irreversible. Will Bali be seen as reversing these trends of global fragmentation in favour of greater integration? A closer look at the outcome in Bali suggests this is unlikely.

Much of the Bali package is rhetoric, not yet translated into implementable concrete reality. More fundamentally, it remains to be seen whether the spirit of global cooperation, the setting aside of national interests in favour of shared global ones, will prevail sufficiently to generate post-Bali momentum. Bali is Doha-lite. One reason for its "success" is the view among US trade officials that none of the provisions are likely to require approval by Congress, in these days an almost-certain graveyard for trade deals, perhaps even for TPP and TTIP.

Optimists are happy that, thanks to Bali, trade multilateralism will live to see another day. The fear was that a Bali failure would not only hammer the last nail into the Doha coffin, but also hastened the demise of the already fragile rules-based multilateral trade regime. It is a victory of sorts, but perhaps of the Pyrrhic variety. The tattered global trade fabric is in desperate need of radical reform. Mindsets must change to embrace radical reforms that adapt to the new realities and thereby seize the opportunities for a more equitable, inclusive and sustainable globalisation.

So Bali is not the end, but is perhaps the end of a long, tortuous beginning. Great effort, leadership and vision are required to build solid foundations for a 21st-century global trade regime.

Jean-Pierre Lehmann is emeritus professor at Switzerland's International Institute for Management Development; visiting professor at Hong Kong University and NIIT University (Neemrana, Rajasthan, India); and founder of the Evian Group.


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