The package that came out of the December 2015 World Trade Organization (WTO) ministerial conference in Nairobi—the first hosted by an African nation—has been hailed as one of the most substantial packages that has been reached over the WTO’s 20 years. In addition, the Nairobi package features a wide range of decisions that are of particular relevance to African economies. The most notable outcomes include the following:
- African farmers will benefit from the immediate (or at least before 2018) phase out of most export subsidies on agricultural goods;
- African least developed countries (LDCs) cotton producers will be provided with duty-free, quota-free access to developed and selected emerging countries markets;
- Under a special safeguard mechanism, African governments will be able to raise their tariffs as needed to protect their farmers;
- They can also claim exemptions from agricultural subsidy limits in order to maintain Public Stocks for Food Security Purposes;
- Preferential rules of origin in free trade agreements will be adjusted to help African LDC exporters;
- LDCs may be given preferential access to members’ service markets until 2030, without violating the members’ most favored nations (MFN) obligations.
Other decisions, that may impact African countries in the medium to long run, include increased support for the Trade Facilitation Agreement, a deal on the expanded Information Technology Agreement (ITA-2); and a work program on electronic commerce.
The big elephant in Nairobi: The likely demise of Doha
Despite these successes, African countries will likely face increasing challenges when it comes to global trade. It appears that these achievements came a bit too late to prop-up support for the so-called Doha Development round, the program of multilateral trade talks under which the Nairobi package was negotiated. Indeed, the most mediatized issue during and after the Nairobi Conference was the failure of the ministers to agree on whether or not to continue the Doha round.
While developing countries are generally in favor of continuing the Doha Round (given its strong emphasis on making trade rules fairer for developing countries), prolonged deadlock in advancing the multilateral trade negotiations that started in 2001 has been a source of fatigue and frustration for many WTO members, inducing them to shift their focus and energy towards other trade initiatives.
For the last few years, big players—such as the U.S., EU, Japan, and Australia, among others—have been pushing for the round’s early closure, and started advocating instead for smaller bilateral, regional, and mega-regional deals on specific sectors and/or with fewer like-minded countries. Prominent examples of mega-regional deals include the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP).
This renewed interest in sectoral and regional deals may, at first glance, look like a sensible and more pragmatic (though second-best) way to pursue a liberal trade agenda given the difficulty in the multilateral route. They can help bypass the current consensus-based decisionmaking process and the single undertaking principle (“Nothing is agreed until everything is agreed”). They can also address the lack of complementary or compatible interests generated by the large group’s heterogeneity. It is easier to come to an agreement with fewer like-minded trade partners than achieve consensus with a diverse group of 162 countries.
Although there are still some lingering debates about whether Doha is actually dead, it is clear that WTO members need to start thinking about a more efficient architecture for conducting trade deals. And while it is broadly accepted that these regional trade agreements are a not substitute for truly multilateral deals, there are some indications that a new wave of regionalism is about to take place. The regional route is obviously not without its problems—for one, it creates complex networks of trade regimes and trade blocs, which may cause confusion and pose a systemic risk to the global trading system.
Five points for navigating the post-Doha trade environment
Whether they support keeping Doha alive or they want the round’s early closure, African policymakers and negotiators need to fully understand the nature and implications of a post-Doha world and constructively contribute to the discussions regarding a new architecture for the global trading system, if and when the time comes. They need to have a solid grasp of the context and the stakes. Below are five important policy-related points for African officials and stakeholders to keep in mind when formulating their positions and strategies for any future negotiations.
1. New contexts and attitudes. The political and economic contexts of global trade have evolved quite a bit during the Doha round’s 14 years. The round was launched two month after September 11, when good will and the spirit of global solidarity were at their highest levels, and the multilateral trading system was considered a “global public good.” Now, though, attitudes towards free trade have changed: While most policymakers and negotiators still talk like free traders, they are increasingly acting like old-fashioned mercantilists focused on opening up other countries’ markets while offering as little as possible themselves. Altruism is less likely to figure among a country’s guiding principles in its trade relationship with the rest of the world. If anything, the key criteria for choosing one’s partners in the new regional trade deals are overwhelmingly based on potential for “coincidence of wants” and the possibility of reciprocal exchange of concessions. In this type of world, poor countries with small domestic markets are not the most attractive partners.
2. New trade issues. The issues of importance have also changed significantly. Developed and emerging countries are more interested in negotiating more sophisticated issues such as investments, government procurement and competition policy, international taxation, migration, intellectual property, financial services, and pharmaceuticals than about import tariffs or agricultural subsidies—which are Doha’s core issues as far as developing economies are concerned. African economies that do not have interests in these new issues or that may not have the capacity nor the resources to negotiate them may choose to opt out or may be left out of those agreements (maybe with the option to join later when the regional deal is multilateralized). Either way, they have to accept that the participating economies will have the early mover’s advantage and get to set the agenda or the negotiating framework for the new issues. Latecomers will face a fait-accompli and have very little say on how they issues are shaped.
3. Preferential and discriminatory deals. Whether by design or not, bilateral, regional, and especially mega-regional trade deals, by their inherent nature, exclude non-participating countries. Most of them contain preferential features that violate the most favored nations principles. Even those that go beyond tariff liberalization often entail some degree of discrimination, which could hurt member countries by diverting trade from more efficient suppliers. More importantly, they are likely to significantly hurt excluded countries, which generally tend to be the poor or small countries with little bargaining chips to offer (such as large domestic markets or access to another large market) and limited negotiating capacity.
4. Costly negotiations. Signing trade agreements could be difficult and costly, especially for small countries that lack negotiation and implementation resources and capacity. The typical African economy may not be able to keep pace with emerging or developed countries that are able to sign multiple deals and will likely remain at the margin of many new agreements. Even if they choose to participate, they may not have the required technical capacity or skills required to negotiate the complexities of the new emerging trade issues. This uneven playing field will evidently result in one-sided agreements that are often written and imposed by the stronger signatory. In this regard, African countries may consider pooling their negotiating resources and negotiate as one entity—thereby saving on negotiation costs and gaining on their combined economic weight.
5. Impact on multilateralism. There is a potentially perverse relationship between multilateralism and the trend towards regional or plurilateral deals. On the one hand, difficulty and slow progress in multilateral liberalization have led to the current push for regional arrangements. On the other hand, those arrangements themselves may render future multilateral deals more difficult and less feasible. In fact, fearing dilution of the benefits or the preferences that they are enjoying, the members of existing bloc may not want to accept new members and expand the size of the bloc, nor would they want to undertake further liberalization with the rest of the world. That is, they may not be willing to multilateralize their regional deal. In this case, choosing the preferential route as the path of least resistance may potentially divert support for multilateral trade liberalization. At the same time, the substantial resources required for negotiating and administrating the regional deals may divert attention away from efforts at the multilateral level.
Note: This blog reflects the views of the author only and does not reflect the views of the Africa Growth Initiative.
Homi Kharas delivered the keynote address at IFPRI’s annual staff retreat on September 12, 2018. He explored the evolving development agenda and its implications for policy research.