What Happened at the Bali WTO Meet and Why

The food security issue was not the only one of importance at the Bali ministerial meeting of the World Trade Organisation; the "Bali package" contained a number of decisions of far-reaching importance for India, other developing countries and possibly for the future of multilateral trade organisations. A report and analysis of the run-up to the meet and what happened at the Indonesian resort island.

D Ravi Kanth (dravi_kanth@hotmail.com) is a writer based in Geneva reporting on the multilateral organisations headquartered in Switzerland. He was in Bali for the ministerial conference of the World Trade Organisation.

In just 84 days after assuming office Roberto Carvalho de Azevêdo, the new director general of the World Trade Organisation (WTO) managed to produce a successful outcome to a ministerial meeting, something that had eluded his predecessor for eight years. The WTO’s ninth ministerial meeting during 3-7 December 2013 in Bali, Indonesia, was a “personal triumph” for Azevêdo, who took office only three months before the ministerial.
Given the pronounced descent of the organisation towards irrelevance since 2005 under the leadership of the previous director general Pascal Lamy, the “Azevêdo effect” has dispelled the cycle of negative perceptions that the WTO cannot deliver. The Bali outcome has brought WTO back into the negotiating orbit. It has suddenly raised the prospect of a revival ofi the comatose 12-year-old Doha Round of Trade Negotiations or the Doha Development Agenda (DDA) as it is otherwise called.
An Unequal Package
The industrialised countries along with a group of advanced developing countries, including China, left no stone unturned in harvesting, at Bali, a WTO agreement on trade facilitation (TF), an agreement that is meant to simplify customs procedures and ease the flow of goods across borders. Although TF forms part of the Doha body, the manner in which it was plucked out from the DDA single undertaking constitutes an important victory for the United States (US) and the European Union (EU). Without having to deliver on agriculture, which was to be the engine of the Doha trade negotiations, or the “developmental” benefits promised to the least developed countries (LDCs), the trade elephants succeeded in pushing through a grand but grossly unequal Bali package. Without making any “payment” in the other two pillars – agriculture and development – of the Bali package, the industrialised countries have walked away with a prize that can allow them to close their eyes to the need to rescue the larger 12-year-old DDA.
The proclaimed goal of the first “multilateral TF agreement” since the creation of the WTO in 1995 is “to simplify customs procedures by reducing costs and improving their speed and efficiency”. In reality, the new agreement streamlines market access in developing countries and LDCs, and further expands the WTO’s remit into domestic policy governance. Azevêdo, when he was the trade envoy representing Brazil at the WTO, had argued that TF was nothing but market access for industrialised countries. It is another matter that as the WTO chief he campaigned on a war footing for a binding agreement.
The constant mantra that Azevêdo and think tanks in Washington have chanted endlessly is that the TF agreement will generate an additional $1 trillion to the global economy. There is no consensus on how this estimate has been arrived at, particularly the underlying assumptions. However, this number captured headlines in the global media. “Unfortunately, these figures (about the gains from the TF agreement) depend on too many unjustifiable assumptions to be relied on”, says Jeronim Capaldo, an academic at the Global Development and Environmental Institute at Tufts University in the US. Capaldo argues that the costs of TF agreement will be so high that it would divert resources in developing and poor countries from the provision of social safety services.
The future direction of the multilateral trade negotiations will only become clear in the next year. The “post-Bali work” programme – on which there was little discussion either in the run-up to the meeting or at the ministerial – contains five paragraphs in the Bali Ministerial Declaration. On the DDA, the declaration says,

We instruct the Trade Negotiations Committee to prepare within the next 12 months a clearly defined work programme on the remaining Doha Development Agenda. This will build on the decisions taken at this Ministerial Conference, particularly on agriculture, development and LDC issues, as well as other issues under the Doha mandate that are central to concluding the Round. Issues in the Bali Package where legally binding outcomes could not be achieved will be prioritised. Work on issues in the package that have not been fully addressed at this Conference will resume in the relevant Committees or Negotiating groups of the WTO.

The Bali declaration candidly admitted that there are no legally binding outcomes in the agriculture and development pillars of the package. There are four issues – general services, public stockholding for food security purposes, understanding of tariff rate quota administration and export competition – in the agriculture pillar. And then, there is the issue of trade-distorting subsidies for cotton (provided mainly by the US) that has been hurting some of the poorest countries in Africa and has not been addressed since the Hong Kong Ministerial Meeting of 2005 which called for an “ambitious, expeditious, and specific” outcome to help the cotton farmers in Benin, Chad, Mali and Burkina Faso. In the development and LDC areas, four issues have been pending since 2005. They include preferential rules of origin for the poorest countries, operationalisation of waiver concerning preferential treatment to services and services suppliers in LDCs, duty-free and quota-free market access for these countries, and a monitoring mechanism on special and differential treatment flexibilities. None of these issues were comprehensively addressed in Bali and nothing was treated on par with TF.
Uncertain Future for DDA
The Bali declaration, however, contains a caveat on all these unresolved issues which are presented as best endeavour outcomes so to enable the US to turn its back on the declaration. “The work programme will be developed in a way that is consistent with the guidance we provided at the Eighth Ministerial Conference, including the need to look at ways that may allow members to overcome the most critical and fundamental stumbling blocks”, the declaration says. This is where the nub lies: at a time when the two trade elephants – the US and the EU who created the WTO as part of the overarching Uruguay round agreement – are marching ahead with bilateral, regional, and plurilateral agreements, the so-called fresh lease of life from the Bali accord to prepare the “work programme” on the core issues in DDA, especially agriculture, remains uncertain. Indeed, at an informal closed-door meeting in Geneva a week after the Bali meeting, the US was already cautioning about member-countries rushing to deal with the difficult issues in the DDA.
After the industrialised countries have tasted victory at the WTO thanks to the able leadership provided by a director general from Brazil, it will be a litmus test as to whether the US will support negotiations so that “issues in the Bali Package where legally binding outcomes could not be achieved will be prioritised”. More importantly, those who established the WTO like a banyan tree based on a single undertaking of different agreements that include binding dispute settlement rules, intellectual property rules, services, agriculture, and various other traditional areas, now want to ditch the multilateral negotiating format because there is nothing more that the WTO as a multilateral body can now offer after the TF agreement.
That the Bali declaration is an eyesore is vividly exposed. A binding TF agreement standing like Mukesh Ambani’s 27-floor residence in Mumbai is now surrounded by many unregularised slum-dwellings such as an unbaked deal on public stockholding for food security purposes, and several other agreements in the agriculture and development pillars. How these dwellings of the Bali package will be regularised remains a challenge for the developing and the LDCs in the coming months and years.
Dividing Countries
The Bali conference provided an early glimpse of what is likely to happen at the WTO. The run-up to the ministerial meeting as well as the proceedings at the conference brought to the fore several inconsistent practices that were adopted to divide the developing and LDCs, and prevent them from adopting common positions on TF and public stockholding programmes for food security and other issues of interest to them.
Azevêdo has deployed all his energies from day one to aggressively pursue a strategy that emphasised that a failure at Bali will reduce the organisation to an “empty building and empty chairs”. Success at the ninth ministerial meeting in Bali, he said in the weeks before the meeting, would restore “confidence” and “breathe” new life into the multilateral trading system. Otherwise, “the world will not wait for the WTO indefinitely”. “It will move on... and it will move on with choices that will be not as inclusive or efficient as the deals negotiated within these (WTO) walls”, the director general argued. Several members privately likened Azevêdo’s strategy to “crying wolf” and painting doomsday scenarios for the WTO as unhealthy.
At Geneva, ahead of the Bali meeting, the WTO director general opted for a combination of sustained open-ended informal meetings as well as closed-door small group meetings. Though Azevêdo has said that “transparency and inclusiveness” are his priorities, he also took recourse to practices that are secretive and difficult to fathom. For example, how descriptive and non-binding outcomes on issues in the development dossier of the Bali package were finalised remains a mystery. The four decisions in this area – duty-free and quota-free market access, cotton, preferential rules of origin for the LDCs, and the services waiver – involved Nepal (the coordinator for the LDCs), the US, and the director general. In all the four LDC decisions, the US adopted intransigent positions and refused to agree to any binding commitments. Much of the membership was clueless about the actual negotiations. The language that has emerged in the development dossier is all based on a “should endeavour to” text and does not contain any binding decisions. Effectively, the four outcomes failed to provide any “concrete”, “tangible”, and “measureable” immediate market access to bread-and-butter issues of the LDCs. The development dossier was finalised in Geneva in which the poorest countries agreed to the outcomes with which they remained unhappy.
Focus on Trade Facilitation
The 31-page TF text basically prescribed how developing countries and LDCs

shall publish import procedures, duty rates, and classification/valuation rules; shall issue advance customs rulings where requested; shall provide administrative/judicial review of customs rulings; shall create infrastructure and procedures for expedited shipments of goods coming through air cargo (basically for American courier services); shall establish procedures for pre-arrival processing; and shall allow authorised operators to move their goods on a fast track.

While the industrialised countries are not required to make any legislative changes for these disciplines as they already have them in place, the developing countries and LDCs are required to make many legislative changes as well as create new physical infrastructure.
The TF agreement is structured into two sections. Section 1 sets out all the new comprehensive binding disciplines that developing countries and the LDCs are required to implement. Section 2 contains the road map for implementing commitments by these groups of developing countries in Section 1, based on technical and financial assistance and a phased time frame. Though the developing and the poor countries sought internal “balance” between the comprehensive binding commitments in Section 1 and the provision of financial and technical assistance to developing countries and LDCs, the language in Section 2 is ambiguous and non-binding as regards the financial commitments by the industrialised countries.
Further, the Geneva text on public stockholding programmes for food security was not acceptable to India and Pakistan for different reasons. Argentina expressed reservations on the weak language on export competition disciplines. Despite the sombre and frank assessment delivered at the last general council meeting in Geneva before members proceeded to Bali, Azevêdo chose to pursue a different plan that was not known to members. First, he ensured that the coordinators of the African Group, the Africa, Caribbean and Pacific (ACP), and the LDCs sorted out their differences with the US and the EU over the language in Section 2 of the TF agreement. On a parallel track, a group of countries who are referred to as Friends of the System goaded the WTO director general to do everything possible to reach an agreement at Bali notwithstanding many unresolved technical and legal issues in the TF. The Friends included Australia, New Zealand, Canada, Switzerland, Norway, Singapore, Korea, Hong Kong, Malaysia, Costa Rica, Chile and Mexico among others. The EU’s trade commissioner Karel De Gucht also encouraged the director general to do everything that he deemed fit to achieve success at the Bali meeting. The US, however, remained silent without commenting on whether the director general must take things into his hand to deliver an outcome at Bali.
But it is an open secret that the director general’s overall strategy was premised on the understanding that nothing would move at the trade body without Washington’s concurrence. And in order to secure US support, Azevêdo believed that issues in the Bali agenda – notwithstanding the structural imbalances – would have to be finalised according to the broad parameters decided by the US. Unlike his predecessor Lamy, who failed to secure Washington’s support despite delivering whatever the White House or Congress demanded, Azevêdo built strong and enduring relationship with key US officials ever since he negotiated the compromise package with Washington in the cotton dispute that Brazil won at the WTO.
Negotiations at Bali
So, when the trade ministers started trickling into the Indonesian island, two things happened. India, which was soft during the finalisation of the draft texts on TF and the public stockholding programmes for food security following a series of meetings with Washington since July this year, caused a negotiating tsunami at Bali. Despite the strong understanding between some very senior officials outside the commerce ministry and key officials in Washington on TF and public stockholding programmes for food security, the sudden public uproar at home on the draft text on food security forced the government to change its negotiating position overnight. Although it was well known since last year about the concerted opposition from the US and the EU to the Group of 33 (G-33) (a WTO grouping of like-minded developing countries) proposal on food security, the Manmohan Singh government woke up only at the 11th hour. By the time Union Commerce Minsiter Anand Sharma arrived at Bali on 2 December, the focus had shifted to what India would do.
There was a grand effort to isolate India within the G-33 where the Indian negotiators had played a central role in pressing for changes in the agreement on agriculture, especially the need to update the external reference price of 1986-88 (which plays a crucial role in estimating the total size of agricultural subsidies). The G-33 consistently demanded language to ensure that there is an umbilical link between the interim provision giving exemption to subsidies incurred in food stockholding programmes and the final decision. But in Geneva the US had been willing to concede only a peace clause for two years, which it later extended to four years. However, the US, EU, Canada, Pakistan, and others vehemently rejected language providing for a linkage between the interim mechanism and a permanent solution as well as for protection from the WTO’s subsidy and countervailing measures agreement.
Meanwhile, at Bali the director general quietly began pursuing negotiations on the TF text with a small group of members on special issues such as expedited shipments, transit, consularisation, and penalty disciplines. Even though India raised strong reservations on expedited shipments – which is basically a market access issue for the US courier companies – and penalty disciplines, Azevêdo did not invite the Indian minister or his officials for any discussion on the TF issue at Bali.
In the face of growing opposition from several countries who made strong statements about the need to ensure a “balance” at the plenary session, the director general along with the Indonesian chair of the conference, Gita Wirjawan, held a heads of delegations meeting on 4 December. The 50 countries who took part at the meeting stuck to different narratives. The so-called Friends of the System gave the director general carte blanche to do anything he deemed appropriate for concluding the Bali package.
However, several developing countries such as India, South Africa, Namibia, Kenya, Argentina and Cuba made it known that the draft texts were not ready for concluding the Bali package. Cuba said that the WTO chief had said that there would not be any negotiations at the ministerial conference itself while efforts were being made at Bali to negotiate on issues in trade facilitation and agriculture.
Public Stockholding Deal
Along with the Indonesian chair, Azevêdo held a series of meetings with the Indian minister on the possible language that could satisfy New Delhi. It was basically a negotiation between Azevêdo and Anand Sharma who was assisted by a senior Indian official. After initial discussions on the linkage between the interim mechanism and the road map to negotiate the final solution for public stockholding programmes, India gave three alternative formulations with language about the interim solution leading to a final solution for food security.
In response, the director general informed the Indian minister that the language in the interim mechanism would be close to what India had proposed. However, the Indian delegation was not given any language. In the face what seemed like a cat-and-mouse act, the final compromise offered to India failed to satisfy New Delhi. When things were drifting, India gave its final alternative in the early hours of Friday, 6 December. Apparently, the US created a “ruckus” on the Indian proposal and was not ready to accept it. That is when India told the director general that if the Indian proposal was not acceptable to the US, New Delhi would reject the Bali package.
Finally, there was a face-to-face negotiation between the US, India, and the director general in which the United States Trade Representative accepted the language “in the interim, until a permanent solution is found” for members to refrain from challenging the public stockholding programmes for traditional staple food crops. But, in return, the US, however, inserted strong language on notification requirements as well as safeguard requirements. The US managed to include language that stocks procured under public stockholding programmes “do not distort trade or adversely affect the food security of other Members”. Washington also ensured that there was no explicit protection from the disciplines in the agreement on subsidies and countervailing measures (SCM) as was the case with the previous peace clause that the US and EU enjoyed during 1995-2004.
An agriculture trade expert says it would be difficult for countries to challenge India under the Bali agreement despite lack of protection from SCM agreement. “Pacta sunt servanda” will ensure that the dispute settlement panels do not make adverse pronouncements against countries availing the interim mechanism. However, India may find it intrusive and difficult to comply with the notification requirements to avail of the interim solution, he added.
Following this understanding on food security, India meekly agreed to give up its opposition to expedited shipments and several other provisions in the TF text. The Indian minister, who had mentioned New Delhi’s outstanding concerns in the TF text during the first three days of the meeting generously conceded to his American counterpart that New Delhi would remove the square brackets on its sensitive issues in the TF text. These issues require India to carry out legislative amendments as well as create new infrastructure. Perhaps, the Manmohan Singh government seemed more eager to satisfy Washington even though what it got on the food security issue was only a reprieve with several conditions. The Bali outcome on food security is only a prelude to the battle that will unfold between now and the WTO’s 11th ministerial meeting in four years.
A WTO beyond the DDA?
More importantly, the Bali outcome has provided a ruse to launch negotiations on new issues regardless of what happens to the vitals of the DDA. The Economist magazine which showered wholesome praise on Azevêdo for a successful Bali outcome wants “opening discussions on fresher subjects”. “Investment is one possibility: the WTO could work to rein in subsidies and set rules protecting cross-border investment”, the magazine helpfully suggested. “Trade in environmental goods and services, which covers everything from air filters to green consulting, is another candidate”, it says. “Not all subjects need to be negotiated among all WTO members, as the Bali deal was”, it has cautioned. “Some can be passed to those countries that are eager to press forward (“plurilateral” talks, in the jargon, as opposed to multilateral ones), as long as other WTO members are free to sign up to any resulting agreement”, it said. So will the WTO now abandon the DDA and move into new areas?