WTO Director General Roberto Azevedo presides over the meeting in Bali, Indonesia.
After years of stalled negotiations, the World Trade Organization concluded its first trade deal in more than a decade last week. The agreement, signed in Bali, Indonesia, could increase the value of global trade by $1 trillion and create as many as 20 million jobs, according to a report by the Peterson Institute for International Economics. The Bali package would harmonize border standards, making international trade less cumbersome—a process known as “trade facilitation.” It also includes provisions permitting developing countries to expand subsidies to their agricultural sector and provides support for developing countries to implement the trade facilitation provisions. But the agreement has widely been critiqued by development experts, who observe that the key provisions of the Doha Development Agenda—liberalization of agricultural trade, access to essential medicines, and other pro-development trade policies—were not included in the current agreement.
Bali was widely seen as a “make-or-break” moment for the World Trade Organization, which has been stalled since the Doha Round was launched 12 years ago. In the meantime, bilateral trade negotiations have proliferated, threatening to make the WTO less relevant. The agreement is seen as an important boost for the WTO, helping to repair its image in international trade circles. But parties remain very far apart in addressing the most important questions in the Doha Round, and it remains unclear whether or not the WTO will be able to translate the progress it made in the Bali Agreement into a broader consensus on the more complicated—and politically challenging—questions it still must address, including farm subsidies, tariffs on industrial goods, and liberalization of trade in services.
What do you think? Does the conclusion of the Bali Agreement signal a shift towards a more multilateral approach to trade liberalization? Or does the agreement represent the limits of the WTO and reinforce the trend towards bilateral negotiations?
Although the agreement must still be ratified by the Swiss parliament, the official signing ceremony took place during Chinese Preimier Li Keqiant’s visit to Switzerland last week. Li said that, “This free-trade deal is the first between China and a continental European economy, and the first with one of the 20 leading economies of the globe…This has huge meaning for global free-trade.”
The new agreement adds fuel to the discussion about the relative importance of multilateral versus bilateral trade agreements. When the World Trade Organization came into being in 1995, there was much celebration of its role in reducing global trade barriers. Now, almost 20 years later, the organization seems stuck in the past. It’s been unable to make progress on key issues like agricultural subsidies, and has not successfully concluded a round to talks since it was established…this despite promises to do so in Seattle (1999), Doha (2001), Cancún (2003), Geneva (2004), Paris (2005), Potsdam (2007), and so on. In the wake of its failure, countries seem more inclined to pursue regional and bilateral trade agreements instead.
The advantage of multilateral agreements is that they encourage the establishment of a more equal playing field and generally achieve a wider scope of liberalization. But they are difficult to successfully conclude, as the track record of the WTO suggests. Bilateral agreements, by contrast, permit countries to reach agreements and make progress on liberalizing international trade. But they are not without their critics.
“there is now a danger of creating a hodgepodge of inconsistent and partial bilateral agreements which may lower tariffs, but which also create new inefficiencies and dizzying complexities. A small electronics shop, for example, in the Philippines might import alarm clocks from China under one free trade agreement, calculators from Malaysia under another, and so on—each with its own obscure rules and mountains of paperwork—until it no longer even makes sense to take advantage of the trade agreements at all.”
Interestingly, Clinton called in the speech not for a return to the World Trade Organization or global negotiations, but to regional agreements like the Trans-Pacific Partnership.
More radical critiques of bilateral trade deals focus on the potential inequality between negotiating partners. According to its critics, the US Trade and Development Act (previously known as the African Growth and Opportunities Act, AGOA) was essentially a series of bilateral agreements between the United States and a number of developing countries across Africa that forced African countries to agree to develop stricter intellectual property systems than would otherwise have been required under the WTO agreement—and to refrain from criticizing US foreign policy—in exchange for lower tariffs on textile exports to the United States. By wielding its bilateral muscle, the United States was able to garner greater concessions from its trading partners than it might have been able to in a multilateral negotiation.
But as a result of the (ongoing) failure of the WTO, it seems likely that such bilateral and regional agreements are the wave of the future.
What do you think? Are multilateral trade agreements preferable to bilateral agreements? Take the poll or leave a comment below and let us know what you think.
The “Westphalian shield” allows all nations to dismiss any requirements coming from the global system to safeguard humanity’s longer-term survival as acts of interference in its internal, national affairs. The shield of sovereignty was not to be pierced.
This is an interesting concession from the man who oversees the World Trade Organization and, at least until recently, had been desperately trying to bring the United States, the European Union, and other major economies to agreement on a new round of trade liberalization. Indeed, Lamy’s argument raises a couple of interesting questions for students of global politics.
Second, what is the basis for cooperation in international negotiations, particularly international economic negotiations? For liberal IR scholars, the gains from trade outweigh the costs, so we should prefer liberalization to non-liberalization. But the failure of the WTO to conclude the Doha Round (and the Seattle Round before that) suggests that states do not always behave in ways that the theory suggests they should.
Finally, how does the sovereignty of states, the “Westphalian shield” as Lamy terms it, undermine the prospects of international diplomacy? Realist IR scholars have long asserted that the presence of sovereignty creates an anarchic international system in which cooperation is difficult to maintain. In this context, collective goods problems frequently emerge. What’s interesting about Lamy’s position is the degree to which he appears to have embraced the realist framework.
What do you think? Does the anarchic system of the international system undermine the possibility of cooperation in economic relations between states? If so, how can we explain the general trend of greater cooperation and coordination between states since the end of World War II? Does the global financial crisis affect the calculation of states in new ways? Let us know what you think.
Solar Panel Production: One of the areas China has been accused of engaging in development-through-copying.
Development has long been an elusive challenge. Despite more than sixty years of theorizing, debating, modeling, and discussing, I think a compelling case can be made that we really still don’t understand how and why development takes place. Sure, we understand the basics: corruption is generally bad, loans and foreign investment are insufficient, and so on. But there’s much, much more that we don’t really understand: How are democracy and development related? Is there a resource curse? What are the necessary conditions for economic growth? And so on.
The story of Gamesa in China follows an industrial arc traced in other businesses, like desktop computers and solar panels. Chinese companies acquire the latest Western technology by various means and then take advantage of government policies to become the world’s dominant, low-cost suppliers.
Blattman then goes on to deconstruct this narrative, noting that “there is nothing dark or nefarious here [just] good hold fashioned industrial policy at work.” He notes that the story of Chinese development-through-copying echoes previous patterns of development, including Europe in the 19th century, Japan after the Meiji Restoration, and the Asian Tigers in the 20th century.
Indeed, copying has long been a tool for developing countries to catch up with the industrial leaders of the day. For this reason, developing countries often afford much weaker intellectual property protection than developed countries. Weak IP protection, in other words, was frequently used as a developmental tool. As the U.S. Office of Technology Assessment noted in a 1986 report,
There have been political tensions between nations whose role as producers of intellectual property allowed them greater access to such products, and nations that imported technology products, and had only limited access to them. When the United States was still a relatively young and developing country, for example, it refused to respect international intellectual property rights on the grounds that it was freely entitled to foreign works to further its social and economic development.
Ironically, however, today weak IP protection is often cited as a significant barrier to technology transfer. Further complicating the situation, the development of a uniform system of intellectual property protections deployed globally through the World Trade Organization also serves to preclude this avenue of development-through-copying.
In international trade law, dumping is defined as selling goods below the cost of production plus transportation and handling. Under World Trade Organization rules, dumping is illegal. But countries continue to engage in the process, as demonstrated by the large number of cases involving accusations of dumping heard by the WTO’s dispute resolution panels.
Perhaps the most high-profile dispute in recent years has been the dispute between Brazil and the United States over U.S. cotton subsidies. Brazil contends (and the WTO panels have upheld twice, first in 2005 and again in 2008) that U.S. cotton subsidies are illegal under WTO rules because the sale of such subsidized cotton represents dumping. The cotton dispute is one of the key sticking points in current Doha Round of WTO talks, as a number of developing countries, including Brazil, have demanded the elimination of U.S. cotton subsidies which depress global cotton prices. According to a report prepared by the International Centre for Trade and Sustainable Development, global cotton prices would be 6 percent higher absent U.S. subsidies. This represents a significant increase in the livelihoods of poor cotton producers in the global south.
A new study, prepared by Timothy Wise for Woodrow Wilson Center, analyzes the impact of agricultural dumping on Mexican farmers under NAFTA. Looking at agricultural production and trade from 1997 to 2005,Wise concludes that Mexican producers suffered across a number of agricultural sectors, losing some $1.4 billion per year over the course of the study. According to Wise, this represents more than 10 percent of the value of all Mexican agricultural exports to the United States. Maize production was particularly hard hit, as maize imports from the United States were priced, on average, 19 percent below production costs, leading to a 66 percent decline in real producer prices for maize during the time under study. Wise concludes that
Mexico certainly serves as a warning to developing countries considering agricultural trade liberalization. The case also highlights the weakness of international rules for defining and disciplining agricultural dumping. That weakness, and the vulnerability of developing-country farmers to import surges, makes all the more reasonable developing-country demands in the stalled Doha Round negotiations for strong Special Product measures to protect key food crops and effective Special Safeguard Measures to protect against import surges. Until agricultural dumping can be disciplined effectively, developing countries must retain the policy space to defend themselves. Mexico gave up most of its defenses under NAFTA. Farmers are paying a high price.
Dumping—or more generally agricultural subsidies and trade—represents one of the key barriers to the conclusion of the Doha Round of international trade talks. Intended to address some of the major imbalances in international trade, the Doha Round was intended to be the first round of international trade talks focused squarely on international development. But differences between the developed world, led primarily by the European Union, the United Sates, and Japan, and the developing world, led by China, Brazil, India, and South Africa, have paralyzed talks since 2008, and the prospect of rekindling talks appears dim. The major outstanding issues remain:
Agriculture, especially agricultural subsidies and dumping: Massive subsidies by the United States, Japan and the European Union continue to depress global agricultural prices, undermining production in the global south.
Access to essential medicines: Establishing conditions under which developing countries can reconcile meting public health needs with the strong system of intellectual property protections afforded under World Trade Organization rules.
Special and Differential Treatment: Determining if developing countries will be afforded different treatment under some WTO rules.
Blogging at Triple Crisis, Kevin Gallagher noted an interesting development in the “blame game” between the International Monetary Fund, the World Bank, the United Nations, and the World Trade Organization regarding the causes of the global financial crisis last year. As Gallagher notes, the World Trade Organization held its much anticipated session on the WTO and the financial crisis last week, claiming that the WTO played no negative role in the crisis.
The debate centers on the role of financial controls and capital account liberalization in the broader liberalization process. While the International Monetary Fund increasingly recognizes the importance of capital controls in preventing financial crises, the World Trade Organization continues to maintain that the imposition of capital controls may be “actionable” under the General Agreement on Trade in Services. In other words, even as the IMF acknowledges that imposing limits on the ability of speculative investors to move in and out of particular economies may provide an avenue for governments to limit the negative impact of such speculative investment on their national economies, the World Trade Organization’s rules make such restrictions a punishable offense.
The recognition of the importance of capital controls is not new. Joseph Stiglitz made a similar argument following the 1997 Asian financial crisis, arguing that the IMF ignored the importance of sequencing liberalization to avoid economic crises in developing economies. But there are two important take-away points here. First, the fact that the IMF—the former bastion of unrestricted liberalization—now recognizes that liberalization must be paced represents an important development in the international economy. Indeed, as a February 2010 IMF Staff Paper noted, controls on capital inflows “can usefully form part of the policy toolkit to address the economic or financial concerns surrounding sudden surges in capital.” Second, as Gallagher argues in his paper on the topic, capital account liberalization is not associated with economic growth in developing countries. In other words, at least among developing economies, there is little benefit but much risk in liberalizing financial flows. This is something that the government of Brazil recognized early in the global financial crisis, when it imposed a two percent tax on capital inflows attempting to limit portfolio investment tin the county.
But most of the criticism of the award seems to be reserved for the Nobel Peace Prize Committee rather than for President Obama. Indeed, while calling the decision a “ludicrous choice,” Rothkoph also praised Obama’s speech regarding the award. He wrote,
Short of deferring his acceptance of the Nobel Prize, President Obama could not have struck a better tone in his remarks this morning accepting the award. From saying he did not deserve it to framing the award as a “call to action” to citing others who merited such an award, he was pitch-perfect. And in reciting some of his key goals — from the elimination of nuclear weapons to combating climate change to bringing a lasting peace between Israel and Palestine — he raised hope that the award might be even further motivation to advance to what are, as noted above, worthy objectives.
2. Despite reservations that the treaty would erode national sovereignty and transfer too much power to Germany, Lech Kaczynski, the President of Poland, signed the Lisbon Treaty on Saturday. Poland’s accession make the Czech Republic the lone European Union member that has not approved the Lisbon Treaty. Despite Czech resistance, the treaty appears to be headed for adoption and thus a radical restructuring of the European Union. The treaty would make EU decision making more efficient, streamlining the current voting system in the European Council and strengthening the role of the European Parliament.
3. A number of trade disputes intensified last week. On Thursday, the United States announced an investigation into Chinese steel pipes, the culmination of which could result in a 98.7 percent duty on steel pine imports from China. The announcement follows the imposition of a 35 percent duty on Chinese tire imports last month and a longstanding dispute over Chinese currency values. Meanwhile, the United States filed a complaint against the European Union with the World Trade Organization on Thursday. The complaint alleges that EU restrictions on the importation of chicken meat washed with chlorine and other chemicals constitutes an unfair trade barrier. Canada last week filed a complaint with the WTO alleging US country-of-origin labeling requirements in cattle and hog exports also constitute an unfair trade barrier.
4. Intervention by Secretary of State Hillary Clinton was able to help overcome last minute setbacks to the Armenian-Turkish peace treaty on Saturday. The agreement, which must still be approved by both country’s parliaments, sets out a timeline to restore diplomatic relations and open the border between Amenia and Turkey. While the agreement was difficult to reach, both sides stand to gain. For Turkey, resolving the longstanding dispute could smooth its path to membership in the European Union and increase its influence in the Caucasus. Armenia could see its economy improve access to European Union market. Despite the potential benefits, the agreement could still be derailed due to longstanding tensions between the two countries, which date back to 1915 murder of up to 1.5 million Armenians by the Ottoman Empire, often referred to as the world’s first genocide.
5. On Tuesday, Idelphonse Nizeyimana, a key player in Rwanda’s 1994 genocide, was arrested in Uganda. Nizeyimana was responsible for the organization of the genocide in Butare, a southern province in Rwanda. The arrest was the second high profile detention in a month, following the arrest of Gregoire Ndahimana in the Democratic Republic of the Congo. But the arrests highlight tensions between Rwanda and the United Nations over the handling of charges related to the genocide, in which more than 800,000 ethnic Tutsis and politically moderate Hutus will killed. Both Nizeyimana and Ndahimana have been transferred to Tanzania to stand trial at the International Criminal Tribunal for Rwanda, despite efforts by the Rwandan government to have them tried by the Rwandan government in Kigali.
1. Last week’s meeting of the Central Committee of the Chinese Communist Party raised questions about who will succeed Hu Jintao as the country’s leader. Most analysts had believed that Vice President Xi Jinping was Hu’s heir apparent, poised to take control of the party (and the country) after Hu steps down in 2012. When Xi was named to the Politburo in 2009, it was assumed that his elevation would follow the same path as Hu’s. Hu’s political power rests in his control of three offices: Secretary General of the Communist Party, President of China, and Chairman of the Central Military Commission. Xi was expected to be nominated to succeed Hu as Chairman of the Central Military Commission on Friday, but no announcement from the Central Committee was forthcoming. Although some analysts believe that Xi’s appointment may be announced at a later date, others believe that Hu may be trying to retain control of key positions, including head of the military, after his 2012 retirement.
3. The counting process in the Afghan elections continues to drag on. Although incumbent President Hamid Karzai now has enough votes to win the disputed presidential election outright, according to the most recent results of the Independent Election Commission, widespread irregularities have led to calls for partial recounts. On Sunday, the IEC agreed to move forward with discussions on a recount, but it stopped short of spelling out precisely what votes would or would not be included. The Electoral Complains Commission, a body established by the United Nations to observe elections and investigate allegations of fraud, noted “clear and convincing” evidence of fraud and vote rigging in southern provinces which went heavily towards Karzai.
5. The government of Guatemala last week declared a “state of calamity” in response to the widespread hunger gripping the country. The World Food Programme estimated that the country would require an immediate shipment of 20 tons of food the worst affected areas in order to stave off starvation. Alvar Colom, Guatemala’s president, said that global climate change was affecting the El Niño, causing a massive drought in the northeastern portion of the country. But Colom was also critical of the high level of inequality in the country, observing that “There is food, but those who go hungry have no money to buy it.” Critics also note that poorly defined land rights, narcoviolence, and alleged corruption have also undermined food production. According to the World Food Programme, half of all children under five in Guatemala suffer from malnutrition.
Meanwhile, results from the Afghan election continue to trickle in. By Sunday, the Independent Electoral Commission had tabulated returns from just almost ¾ of country’s polling stations. So far, incumbent President Hamid Karzai leads his closest challenger, Abdullah Abdullah 48.6% to 31.7%. Under Afghan law, the winner must receive an absolute majority of votes cast, so if Karzai is unable to secure at least 50% of the vote, a runoff election would be held in October. But accusations of voting rigging continue to be raised, particularly by Abdullah, who contends that the vote was characterized by widespread fraud. The IEC announced that it had excluded an unknown number of votes from 447 polling stations in which suspicious returns had been found. But the scope of electoral fraud remains unknown.
4. Israeli Prime Minister Benjamin Netanyahu is moving forward with a plan to expand settlement activity in the West Bank, offering approval for the construction of hundreds of new homes. The United States government was quick to condemn the move, asserting, according to White House spokesperson Robert Gibbs, “The U.S. does not accept the legitimacy of continued settlement expansion and we urge that it stop.” Netanyahu is under pressure from rightwing member of his coalition to remove restrictions on new settlements in the West Bank. But the status of settlements in the West Bank remains a key stumbling block in negotiations between Israel and Palestine, and Israel’s decision to increase settlement activity will likely undermine hopes for progress in rekindling stalled peace talks when President Obama’s Middle East Envoy, George Mitchell, visits Israel next week.
5. Last week’s presidential elections in the West African state of Gabon sparked violence after the ruling party candidate, Ali Ben Bongo, claimed victory. Bongo’s father, Omar Bongo, had been Africa’s longest serving ruler, presiding over Gabon since 1967. Under his rule, Gabon’s oil and wood resources were used to expand his personal wealth. At the time of his death, he was under investigation by the French government, which had identified 39 properties, 9 cars, and more than 70 bank accounts owned by the dictator in France alone. Sunday’s announcement that Ali Ben Bongo had won a plurality of the vote to win the presidency sparked unrest by the supporters of his two rivals, former interior minister Andre Mba Obame and opposition figure Pierre Mamboundou, each of whom received approximately 25 percent of the vote. Supporters of Obame and Mamboundou targeted the French embassy and facilities owned by foreign oil companies. But according to the French government, the election “took place in acceptable conditions.”