Category Archives: Wall Street Journal

The WTO Struggles in Nairobi

Posted on by

The Wall Street Journal

The WTO Struggles in Nairobi
There is serious doubt the organization will ever be able to negotiate meaningful trade liberalization again.

By GREG RUSHFORD
Dec. 21, 2015 12:58 p.m. ET

The World Trade Organization’s ministerial conference in Nairobi last week brought one bit of good news. After five days of wrangling, the 164 member countries announced on Saturday that they had agreed to phase out export subsidies for agricultural products. That’s a small but worthy accomplishment that had eluded the global trading system for five decades.

Otherwise there wasn’t much reason in Nairobi to cheer. The deep divide between rich and poor countries on trade persists. There is serious doubt that the WTO will ever again be able to negotiate meaningful multilateral trade liberalization.

While the Americans, Europeans and Japanese succeeded in killing off the economically outdated Doha negotiations that date to 2001, they offered no new road map. Nor did the Indians, Chinese and some Africans who still pretend that the Doha patient still has a pulse. Accordingly, the Geneva-based WTO remains an institution with an uncertain future.

In the past 20 years, the WTO has completed one multilateral trade negotiation. At the 2013 Bali meeting, members agreed to give the world’s poor nations something called trade-facilitation assistance. That aimed at smoothing the flows of goods across presently clogged borders: modernizing inefficient customs procedures by introducing electronic payments and tracing, and so forth. As Hong Kong’s chief representative to the WTO, Irene Young, reminded everyone in Nairobi this week, that deal “is expected to reduce average trade costs by more than 14%, an impact possibly greater than the elimination of all remaining global tariffs.”

But the Bali deal hasn’t yet been implemented, as only 63 of the 108 necessary WTO members have ratified it. As WTO Director General Roberto Azevêdo told reporters in Nairobi, one successful multilateral negotiation in 20 years “is not good enough.” At the WTO’s closing ceremonies Saturday at the Kenyatta International Convention Center, Mr. Azevêdo referred to the continuing impasse between the rich and poor countries, noting “the world must decide what path this organization should take.”
The fundamental problem is weak political leadership that is mired in parochial protectionist politics, especially in capitals such as Beijing, New Delhi, Pretoria and Washington. In 1948, when the WTO’s predecessor organization, the General Agreement on Tariffs and Trade, was launched, there was a shared consensus that the gradual dismantling of trade barriers was the goal.

From 1948 to 1995, when the GATT morphed into the WTO, seven rounds of multilateral trade liberalization slashed tariffs to an average of 5% from 40%. But nowdays, the GATT/WTO could more aptly be dubbed the General Disagreement on Tariffs and Trade. Few still believe in the WTO’s core multilateral negotiation function.

Some poor countries such as India never really believed. In Nairobi, India’s main goal was the opposite: demanding that the rich countries slash their trade barriers, while raising its own. India already has authority to raise its average agriculture tariffs to more than 100%, yet still demands an additional “special safeguard mechanism” rights.

Last week, India was unable to play its customary role as a wrecker, as spoiling the only WTO ministerial meetings ever held on African soil would have been unthinkable. Besides, India lost the support of traditional allies like Brazil, who demanded more access to protected Indian markets.

The Chinese also were focused almost exclusively on restricting agriculture imports and on continuing the Doha negotiations as planned in 2001. That’s because back then, China was promised preferential treatment as a poor country.

Other examples of economic short-sightedness are depressingly petty. Pakistan came to Nairobi angry that a South African cement cartel has persuaded Pretoria to slap more than 60% tariffs on Pakistani cement imports. Meanwhile, the Pakistanis were against a proposal to give Bangladesh duty-free treatment for Dacca’s clothing exports. African countries like Lesotho, which have been granted preferential tariff-free treatments on their clothing exports to the U.S., also piled on Bangladesh.

So did the Americans, who remain in thrall to their own protectionist textile lobby. Meanwhile, South Africans came to Nairobi with assurances they would stop blocking American poultry imports—hoping that would persuade U.S. President Barack Obama from denying them preferential access to American markets.

Even sadder, when the Philippines offered an excellent idea to streamline export opportunities for small entrepreneurs, the usual nay-sayers—including Bolivia, Cuba, India, and South Africa—shot it down. Don’t give the capitalists anything until our demands for additional protection are met, they insisted.

U.S. Trade Representative Froman made a fine speech to his colleagues in Nairobi. It’s time for WTO members to stop playing cynical games, he said. He meant the other guys.

Mr. Rushford is editor of the Rushford Report, an online journal on the politics of trade.

The Consequences of Indian Obstructionism

Posted on by

OPINION ASIA

The Consequences of Indian Obstructionism

Narendra Modi portrays himself as a pro-growth reformer, but he is behaving like an economic nationalist.

By

GREG RUSHFORD
Aug. 3, 2014 1:00 p.m. ET
Wall Street Journal Asia
India’s newly elected Prime Minister Narendra Modi last Thursday vetoed the implementation of a trade agreement that promised a trillion-dollar boost to the global economy. The deal, inked last December at World Trade Organization meetings in Bali, was the WTO’s first successful multilateral trade negotiation in 20 years.

Mr. Modi wants to extract permission to tear up existing WTO rules that limit government food subsidies and stockpiling. His extortion bid runs counter to the purpose of all WTO negotiations, which is to liberalize trade, not further entrench protectionist rackets.

Moreover, the previous Indian government had agreed to the Bali deal. The “core issue,” as U.S. Ambassador to the WTO Michael Punke reminded his colleagues in Geneva last week, is this: “Will members of the WTO keep their commitments?” Lamented an obviously saddened WTO Director General Roberto Azevedo of India’s handiwork: “This will have consequences.”

One consequence is that India’s reputation as a trustworthy negotiating partner will be further tarnished. The limits on agricultural protectionism that Mr. Modi wants to break date to another WTO trade commitment that India signed 20 years ago. Essentially, the Indian government pays its farmers above-market prices for their crops, which are then stockpiled and doled out in India’s notorious city slums (particularly when elections loom). Much of the grain rots or is stolen.

The Bali deal already gave the Indians a four-year “peace clause,” allowing New Delhi to increase temporarily the otherwise WTO-incompatible subsidies. The four years were to give India time to come up with a more economically defensible system. But the four-year exemption was not enough for Mr. Modi, who demands a permanent exemption to subsidize as much as he wants—and right now, thank you.

How many more rupees does India intend to dole out in the name of “food security”? Many diplomats in WTO headquarters in Geneva would like to know the answer to that question. The last time any Indian government honored its WTO obligations to report how much it spends on agriculture subsidies was 2011—and even then, no data was provided beyond the 2003 crop year.

Mr. Modi promises that his planned increased subsidies and mountains of stockpiled grain will not distort global markets by driving up costs of food around the world. But India’s record of keeping such promises is poor. New Delhi slapped export controls on rice in late 2007, ahead of 2008 elections. That contributed to skyrocketing rice prices in the global markets and riots in Haiti, Cameroon, Senegal and other countries. One of the first things Mr. Modi did after he came to power was to impose new price controls on onions and potatoes.

Mr. Modi’s dubious trade behavior goes beyond just agriculture. India has been a participant in the WTO’s Information Technology Agreement since 1997. As an ITA member, Delhi slashed its tariffs on imports of computers and telecommunications equipment. But in Mr. Modi’s first two months in office, he’s already advocated new trade restrictions and jacked-up tariffs on imports of iPhones.

The clever catch: such high-tech gadgets weren’t invented when India joined the ITA in the 1990s, and thus aren’t covered by that agreement. While Mr. Modi portrays himself as a savvy pro-growth leader from Gujarat, he is rapidly acquiring the look of a pugnacious economic nationalist.

The consequences of India’s blocking implementation of the WTO’s Bali pact will be far-reaching. Individual governments (Sweden and Norway are leaders) and international organizations such as the World Bank and the WTO’s International Trade Centre are spending more than $300 million annually on trade-facilitation projects around the developing world. But much more is needed, as a quick look at Africa illustrates.

It takes three or four days, at best, for ships to clear cargo in Mombasa, Kenya (as compared to just a few hours in Hong Kong and Singapore). To transit goods from Mombasa to Kampala, Uganda, takes another four days; and then another two days on to Rwanda’s Kigali.

That’s actually good news. It used to take 22 days to move cargo from Mombasa to Kigali, says Valentine Rugwabiza, a former high-ranking WTO official who is now CEO of the Rwanda Development Board. “Trade facilitation globally is extremely important,” emphasizes Ms. Rugwabiza.

The Bali deal would have institutionalized this effort and given poor countries the financial and technical wherewithal to modernize their clogged ports, fix their bad roads, and streamline their notoriously inefficient (and corrupt) customs bottlenecks.

India’s ploy has been criticized by dozens of WTO member countries including the United States, the European Union, Australia, Japan, China, Vietnam, Nigeria, and evenVladimir Putin‘s Russia, which isn’t always known for principled stands on rule-of-law issues.

Unless and until Mr. Modi backs off, the credibility of the WTO as an institution capable of forging consensus of its 160 member countries to forge genuine multilateral deals that will expand global trade flows will continue to erode. Nations will increasingly turn to their own bilateral and regional trade arrangements—with New Delhi left behind.

Mr. Rushford is editor of the Rushford Report, an online journal that tracks the politics of trade and diplomacy.

India’s Bali Debacle

Posted on by

OPINION ASIA

India’s Bali Debacle

Delhi holds free trade hostage to score political points at home

 By
GREG RUSHFORD
Wall Street Journal Asia
Dec. 9, 2013 11:50 a.m. ET
Bali, Indonesia

After four days of intense round-the-clock negotiations, the 159 members of the World Trade Organization struck a deal last week that is expected to give the global economy a $1 trillion boost. But progress toward freer trade came at a price. Indian Commerce Minister Anand Sharma held up the deal to extract permission for Delhi to break current WTO rules that limit agricultural cash subsidies and food stockpiling.

The real surprise was how India’s backsliding provoked an angry reaction even among its fellow developing countries. By overplaying its hand, Delhi damaged its reputation as the champion of the world’s poor. That may have important consequences for future WTO negotiations.

First the unalloyed good news. The core of the deal, the Trade Facilitation Package in WTO parlance, aims at moving goods more efficiently across international borders, especially in the less-developed parts of Asia, Latin America and Africa. It should help streamline inefficient customs procedures, improve some of the world’s worst roads and otherwise foster efficiencies in clogged ports of entry.

Mr. Sharma was willing to throw all of these benefits away to score political points at home. Sonia Gandhi’s Congress Party, weakened by corruption scandals, is lagging in the polls ahead of next April’s general election. Mr. Sharma’s mission in Bali was to secure agricultural protectionism, a centerpiece of Congress’s appeal. The largesse is meant to be doled out to hundreds of millions of India’s poor voters–from subsistence farmers to urban slum residents.

At a contentious Dec. 5 press conference, Mr. Sharma told reporters that he had come to Bali not “to make a deal,” but “to secure the interests of the poor, as well as food security.” India was no longer a “beggar nation,” he insisted, and called all criticisms of his position wrong or misinformed.

That infuriated a journalist from Benin, one of the world’s poorest countries, who at the conference shouted to Mr. Sharma, “You don’t speak for us.” WTO members like Benin recognize they cannot afford to lavish subsidies on their poor farmers, Indian style. They did not want Bali to fail.

Nor did more than 100 influential WTO members and groups, including Hong Kong, New Zealand, Costa Rica, Chile, all of Asean, and most African and Latin American countries. On Nov. 29 these WTO leaders circulated a strong letter supporting Director-General Roberto Azevedo’s attempts to ensure a “successful outcome” in Bali. “We were sending a clear message about India’s likely obstructionism,” one Asian diplomat involved in drafting the letter explained.

India also lost the support of important players like China, Brazil, and even Russia. An upset Indonesian President Susilo Bambang Yudhoyono leaked to the Jakarta Post that he planned to call Indian Prime Minister Manmohan Singh, hoping to persuade India to be more reasonable. Indeed, the leading Indonesian newspaper hammered India all week, rightly reporting that Delhi had been “widely blamed” for the hardball tactics leading to the negotiating impasse.

Mr. Sharma offended many peers and undermined his claims to be negotiating in good faith by asserting that his demands were “non-negotiable.” Diplomats privately called the Indian position “arrogant,” “condescending,” and “insulting.”

Said one Latin American trade negotiator, “The WTO is supposed to be about freeing trade, not negotiating increased protectionism.” Another senior Asian diplomat reminded me that India’s unfortunate record of stockpiling grains contributed in 2008 to skyrocketing rice prices that caused food riots from Haiti to the Ivory Coast and Indonesia. “You can’t trust these people,” he said of the Indian delegation.

At the end of the day, Mr. Sharma’s insistence that India needed a permanent exemption from existing WTO rules limiting agricultural subsidies was supported only by the usual suspects when it comes to backward-looking economics: Zimbabwe, Venezuela, Cuba, South Africa, and Bolivia. Not that Mr. Sharma had reason to care. He was really speaking to Congress Party constituencies back home.

Still, the threat to torpedo the entire negotiating package was considered credible enough that Mr. Sharma ended up getting most of what he had wanted. The “peace clause” in this deal allows India to continue its subsidies for four years, at which point the fight could start all over again.

The politics of trade are distorted in India by the country’s failure to take advantage of past openings. China and others have developed their manufacturing industries by exporting finished goods to North America and Europe. In the process they have created unskilled jobs for people moving off the land and into the cities.

In India, by contrast, excessive regulation, taxation and corruption prevent companies from building factories. So the rural poor continue to demand handouts and protection from agricultural imports.

Most other developing countries face a different political calculus. As their labor force moves into the cities, they are less concerned with protecting grain markets and more interested in using the WTO to open markets wider to their manufactured exports.

That created what some are now calling a “South-South split.” While it’s not clear how this will affect the political landscape in future WTO negotiations, it was clearly evident in Bali. The backlash against the main obstructionist power in global trade talks could mean that the tide is finally turning away from a “rich vs. poor” mentality that has stymied the WTO’s Doha Round for the last 12 years.

Mr. Rushford publishes the Rushford Report, an online journal based in Washington, D.C. that specializes in the politics of international trade and development.