The WTO Bali Package: What it Means for Africa

Background

The WTO is relatively new, having officially launched in 1995 as a replacement for the then 50 year old General Agreement on Tariffs and Trade (GATT). Despite the GATT’s longevity and its historical successes, it had shortcomings in a few key areas that became more pronounced over time, particularly as the nature of international trade began to change. These shortcomings included: a lack of dispute resolution mechanisms, the exemption of agricultural goods from the agreement, the failure to take into account the trade of services, and insufficient protection for intellectual property. The WTO was established with the inadequacies of its predecessor in mind, and representatives of many emerging economies felt optimistic that the new trade organization would do a better job of addressing some of their previously neglected grievances. This optimism began to erode as productive trade negotiations at the WTO gave way to a nearly permanent state of gridlock.

The 2001 biennial Ministerial Conference (the Ministerial Conference being the highest decision making body of the WTO) marked the beginning of the Doha Development Agenda (DDA). The DDA was meant to represent an institutional shift towards focusing on the trade rights of ‘developing’ countries and work towards boosting their market position—specifically by addressing some of the trade imbalances that constrain exports from emerging markets. DDA negotiations have touched on topics including cutting tariffs, restricting farmer subsidies, removing trade barriers and strengthening intellectual property rules. However, developed and developing countries have mostly split into two camps during the negotiations and have struggled to come to a consensus. Member states came close to an agreement in 2008, when the unfolding global commodities crisis highlighted the need for comprehensive trade reform. Then a dispute that pitted the US and India against China killed the settlement in the eleventh hour.

Five years after that near-success in Geneva, and a full 12 years after the launch of the DDA, the Bali Conference surprised many with an apparent triumph. Member states reached agreements on three central topics: trade facilitation, agriculture, and special and differential treatment for developing countries. Since it was passed in December 2013, the Bali Package has been heralded as having huge implications for developing countries and showing that progress may be possible, if less than originally envisaged in 2001. But morale-boosting for economic multilateralism aside, what does this latest package mean for Africa? And specifically, what does it mean for African agriculture?

The Bali Package: Agriculture 

The three main issues discussed in the farm talks were tariff rate quota (TRQ) administration, or how quotas imposed by WTO members are managed and implemented; domestic policies, such as the inclusion of certain categories of government programs under general services and stockpiling in the name of food security; and export subsidies.

Emerging economies have played a significant role in the DDA negotiations, most notably through Brazil and India’s establishment of the G-20 coalition of developing countries. The group—which includes four sub-Saharan African countries—submitted a proposal prior to the Bali negotiations on tightening rules surrounding TRQs. The resulting declaration has benefits for developing countries, allowing them to take advantage of under-filled tariff quotas. But an opt-out mechanism was also provided, and the US jumped on it. In the long run, such moves increase trade liberalization by providing more transparent rules for exporting members to access underused quotas. But in the short term, the opt-out clause limits the potential advantages to African countries.

Certain types of domestic market support are permitted under WTO rules, provided that they do not cause major distortions to trade. Such support can include government-run programs known as ‘General Services’. At Bali, the list of general services was expanded to include developing country programs concerning land reform and rural livelihood security. For African governments seeking to implement such initiatives, this change will allow greater freedom to provide such support without violating the terms of the WTO.

India led the charge on an issue vital to many African countries: a government’s ability to intervene in markets in the name of food security. The Indian government subsidizes agricultural production by providing farmers input subsidies and buying their products at above-market prices. It also offers subsidies on the side of the consumers, selling them grain at below-market prices. The WTO seeks to cap and regulate subsidies, not eliminate them. Under the WTO’s rules, the total value of a country’s subsidy program must be less than 10% of the total value of its agricultural production. India and its food-security-concerned peers argue that the methods for calculating these values are archaic, as the WTO uses 1986-1988 as the base year for calculating food prices. This is a major point of contention, and other member states are refusing to yield to developing countries’ demand that thresholds be calculated using current prices. WTO members failed to come to an agreement on the issue at Bali, and decided to return to it in four years. They stipulated that countries with existing programs that exceed WTO thresholds would not be punished during that time. Introducing new programs that exceed the threshold would still be in contravention of WTO rules—a point which could be disadvantageous for many countries in Africa. They have not yet had access to the resources necessary to develop the robust farmer subsidy programs that many of them hope or aim for.

Of the agricultural concerns, export competition made the least progress under the Bali Package. The declaration reached at Bali reaffirms members’ commitments to phasing out subsidies provided for export purposes, but avoids any new or binding agreement. Developed countries have historically provided the highest levels of such support. That means that the failure to meet the 2013 deadline for abolishing all forms of export subsidies or agree to any substantive moves going forward is detrimental to African countries that cannot yet afford to subsidize. As a result, they cannot afford to make their agricultural products globally competitive.

Export competition had become a particularly salient issue in regard to cotton. The subject of cotton aroused so much contentious during the Doha talks that it warranted its own separate negotiations outside of the agricultural area. A group of African countries known as the ‘Cotton 4’—Chad, Mali, Benin and Burkina Faso—have attempted since 2005 to create a more competitive market for their produce. Once developed countries such as the US phase out cotton export subsidies, LDCs like the Cotton 4 will benefit from improved market access, which will also be duty- and quota-free. At Bali, WTO members committed to continuing work in this area by holding biennial discussions and monitoring sessions. This continued commitment is to be applauded, but concrete progress for the Cotton 4 at Bali was nil.

The Bali Package: Trade Facilitation 

The Bali Package included the Trade Facilitation Agreement, a binding provision designed to make international trade faster and more efficient. By passing the agreement, member countries principally agreed to simplify their customs procedures by adopting measures including the publication of their border procedures; the provision of information to traders as to how their goods will be treated; the limitation of fees and penalties; and the minimization of restrictions on goods transiting through their countries. These provisions are designed to create global uniformity in customs and border procedures—a move which should cut costs and remove many costly hurdles to international trade. As a part of the agreement, least developed countries (LDCs) were promised the necessary support to allow for them to upgrade their port facilities and customs and border capacity in order to comply. Trade in Africa is particularly slow and bogged down with inefficiencies. Trade bottlenecks including border crossing procedures, documentation, and police checks account for 14% of trade costs in landlocked African countries, compared to a developing country average of 8.6%. African countries are well aware of the inefficiencies in borders and customs procedures and are working to improve them on regional and bilateral bases, but the binding nature of the WTO agreement may provide the extra momentum and support necessary for implementation of these reforms.

Despite the initial flurry of excitement that accompanied the trade facilitation agreement, such feelings have been replaced with apprehension, as India shocked much of the world by failing to sign the provision by the 31st July (2014) deadline. The agreement, like others offered by the WTO, requires unanimous approval. India’s failure to sign means that the agreement cannot move forward.

WTO members had agreed to a temporary ‘peace clause’ that would allow the subsidy question to be addressed in 2017. India is now arguing that it, and other developing countries, should have more freedom when it comes to measures directly related to food security. They say that the stakes are so high that they cannot afford to wait for years for a solution to the question. There has been some support for India’s stance on the issue, particularly from lower-income states. Many analysts argue that higher-income, export-oriented countries have the most to gain in the short-term from the trade facilitation agreement anyway. Support for the Indian position has also come from critics of the US. They argue that the elimination or reduction of the superpower’s subsidy programs should be on the table along with the limitation of subsidy programs in the developing world.

he Bali Package: Special Support for Least Developed Countries

The Bali Package offered measures that specifically targeted the 34 least developed countries (LDCs), aiming to create a more level playing ground for these countries to more fairly participate in international trade. Included in the deal are duty-free and quota-free market access for LDCs, preferential rules of origin for LDCs, and steps towards implementation of the 2011 decision to allow for preferential access to trade in services for LDCs. These decisions were largely uncontroversial, with some onlookers arguing that their impact could in fact be minor.

Conclusion 

The repeated failures of the WTO, including India’s recent refusal to sign trade facilitation agreements, make it increasingly difficult to gauge just how relevant the institution will be to the future of international trade.

Rather, the shortcomings of the WTO have highlighted how important regional and bilateral trade agreements can be. Perhaps their smaller size leads to their effectiveness. Africa is already so rich with trading blocs and regional partnerships, including the East African Community (EAC) and the Economic Community of West African States (ECOWAS), that it seems to make more sense at this point to continue to strengthen these regional institutions and strengthen their partnerships with one another. Where issues continue to exist between African and developed countries, African states could follow in the steps of Brazil: when trying to change American cotton subsidy policy, Brazil did not wait for the WTO to pass more favorable trade agreements, but rather went to the WTO in a legal capacity. It used its dispute-settling mechanisms to resolve its claim that the US’s continued cotton subsidies violated the very ethos of the WTO. Brazil was victorious in the proceedings—a victory which would have been harder won, or even lost, through trade talks. Improving Africa’s position on agricultural trade, therefore, seems increasingly unlikely to come as a result of the WTO’s trade negotiations.