Bali Outcome: Implications for Bangladesh

Dr Fahmida Khatun, CPD Research Director, writes on the outcomes of the recently concluded WTO Ministerial Conference held in Bali, Indonesia, particularly in light of the newly announced ‘Bali Package’ for the LDCs, published in The Daily Star on Tuesday, 10 December 2013.

AFP: Indonesia's Trade Minister Gita Wirjawan (R) shakes hands with WTO Director General Roberto Azevedo (L) after the final agreement before the closing ceremony of the World Trade Organisation conference in Bali on December 7.
AFP: Indonesia’s Trade Minister Gita Wirjawan (R) shakes hands with WTO Director General Roberto Azevedo (L) after the final agreement before the closing ceremony of the World Trade Organisation conference in Bali on December 7.

Bali outcome: implications for Bangladesh

Fahmida Khatun

The outcome of the Bali Ministerial Conference of the World Trade Organisation, billed as a historic achievement since formation of the multilateral trading system in 1995, has several ramifications for the member countries.

As has been said by experts, the Bali ministerial, which delivered mainly a three-pronged package, a sub-set of the Doha Round negotiations, has saved the WTO from becoming a defunct organisation having no role in advancing the global economy.

Though the Doha Round that began in 2001 at the fourth WTO ministerial conference was to be concluded by 2005, the subsequent WTO conferences failed to reach an agreement due to different positions of member countries on a number of important issues.

Some of the most difficult areas of the Doha Round negotiations have been agricultural and non-agricultural market access, reform of domestic support policies in agriculture and market access of services. The Bali outcome concerning a few important areas has become a milestone in fulfilling the commitments of the Doha Round.

The Bali package includes trade facilitation (TF), some agricultural issues and a few developmental proposals. TF aims to simplify customs rules and reduce cost of inefficiencies, which are created for a delayed delivery of goods across borders.

A striking feature at present is that the global production process is being disintegrated as the global economy is integrating fast.

The need for TF is urgent in recent years in order to operationalise global supply chains efficiently. The much circulated estimate suggests that the global economy can gain by $1 trillion from trade facilitation. Trade costs are expected to decline by 10 to 15 percent through increased flow of trade, creation of a stable business friendly environment and attraction of additional foreign investment.

The most contentious issue of the Bali package was the agriculture subsidy on which India took a strong position. As can be recalled, the Doha Round aimed for a ‘fair and market-oriented agricultural trading system’.

This was to be achieved by way of substantial reductions in trade-distorting domestic support for agricultural commodities, improvements in market access for agricultural goods, and reduction of export subsidy.

The deal on agriculture subsidy has been difficult since developing countries have urged reforms for the trade-distorting farm policies adopted by developed countries. Developing countries also demanded special treatment for their small farmers to allow for more flexibility for food purchased at subsidised prices. It allows countries to build public stocks of food grains for food security purposes.

The Bali outcome declares that developing countries will not be challenged legally even if the limit to trade distorting domestic support by a country exceeds 10 percent.

However, the proposed solution on food subsidy is an interim one until a permanent one is reached. Member countries have committed to setting up a work programme to find a permanent negotiation outcome within four years, which is no later than the eleventh WTO ministerial conference in 2017.

In the Doha Round talks, ‘development’ was placed at the core—to address the needs of developing countries, particularly the least developed countries.

The development package announced in Bali reiterates various issues that include simplified rules of origin, operationalisation of the ‘services waiver’ for LDCs, duty-free and quota-free market access for LDCs and monitoring mechanism on special and differential treatment.

For LDCs such as Bangladesh, the Bali text has high significance. Bangladesh will need support to implement the TF agreement so that it can build infrastructure and an institutional framework to increase trade.

Besides, the Bali declaration indicates that developing and LDC members will get waivers in implementing the TF agreement provisions until they acquire implementation capacity.

Only on the basis of their individual development, financial and trade needs or their administrative and institutional capabilities, LDC members will have to undertake commitments on TF.

The MC9 also calls upon developing country members to provide capacity building assistance to other developing countries and LDCs.

Though Bangladesh is not a food exporting country, it has to follow the implementation of the food subsidy issue carefully. Food prices may increase in the global market due to higher procurement by countries.

Moreover, during times of food shortage, stock piling may encourage export bans. This will hurt consumers in Bangladesh as was experienced in 2008.

The operationalisation of the ‘services waiver’ offered during the MC8 in 2011 and reiterated at the MC9, is fraught with several challenges as it is not a legal binding on the part of the developed countries.

LDCs need to improve upon their capacities in order to take full advantage of this facility for which financial and technical support is a pre-requisite.

The major component of the development package for Bangladesh is implementation of the DFQF market access. The MC9 stipulates that developed countries, which are yet to provide DFQF to LDCs will do so for more than 97 percent tariff lines before the next WTO ministerial conference (MC10).

Developing countries are also required to start providing DFQF to LDCs. However, providing DFQF market access for more than 97 percent tariff lines by developed countries is not a legally binding commitment as is the case with services waiver.

Given the limited productive capacity, LDCs sought simplified preferential rules of origin (RoO) for implementing the DFQF decision and keeping the threshold level of value addition as low as possible so that LDCs can comply with it.

Overall, the Bali package is expected to bring in a number of positives for Bangladesh as much as it will do for other member countries. The rest of the Doha Round work programme will be revisited in the next twelve months as to how to address them. Among these, the most important one would be making the commitments legally binding. The work programme to be devised by the members during the coming months will shape the implementation process.

Dr Fahmida Khatun is the research director at Centre for Policy Dialogue.