W

em>When the negotiation for a global trade deal under the Doha Round completely fell apart last year, economies were left to their own devices in terms of dealing with free trade while at the same time adjusting hard to the changing landscape of globalization following the economic crisis in the developed world. The Jakarta Post’s Andi Haswidi and Linda Yulisman recently had the opportunity to discuss this issue with World Trade Organization (WTO) director general Pascal Lamy and his deputy, Valentine Rugwabiza. Below is an excerpt from the conversation:

Question: Since the impasse started in December, how close are we in terms of achieving a new consensus to revive the negotiations?

Lamy: What we know about the negotiations is that the big deal was structured with 20 topics ranging from farm subsidies to industrial tariffs to fishery subsidies, to anti-dumping regulations, with the understanding that nothing was agreed until everything was agreed. This will not unfold anytime soon, and that’s basically because of disagreements between the US and China on industrial tariff reduction.

Ministers decided when they met in December last year that instead of looking at this big bundle package, the solution probably was in trying to negotiate the package bit by bit, and we are making progress with some of the low-hanging fruit.

The most promising area of the negotiation is a trade facilitation agreement, which is about the simplification, streamlining and harmonization of customs procedures, which has caused relatively high costs to trade. Average customs-processing costs of trade worldwide are approximately 10 percent of the value of the trade, maybe higher than import tariffs in many countries.

So, the priority at the moment is to try and focus on this and try to get an agreement. When? We do not know. There is no sort of specific deadline. This is something that, if enough political energy is put into this negotiation, could unfold sometime next year.

Due to the absence of a global deal on trade, more countries are committing themselves to bilateral agreements and exclusive multilateral agreements. Is this a good thing? Do you think trade has become freer in that sense?

L: It all depends on whether these bilateral or regional preferential agreements are conducive to later multilateral opening or not. Sometimes this is a stepping stone to further multilateral agreements, sometimes it’s not, depending on the topic under consideration. So the answer to this question is not in theory. We have had coexistence of bilateral, preferential trade agreements, and multilateral global agreements for a long time. It sometimes works in the right direction and sometimes necessitates precautions.

It seems that people’s perception of the WTO has changed a lot since 1999, when there was a big riot in Seattle against a WTO conference. Many stakeholders now sense that the WTO also represents the interests of developing countries. What is your comment on that?

L: I think you are right. At the time, the main argument of anti WTO activists was that opening trade is bad for development. If you see what happened during the last 10 years, developing countries have benefitted a lot from trade opening, starting with of course giants like India and China. Once you have these elements, these facts, it’s more difficult to argue that opening trade is not good for development.

If there is a single threat to trade and investment, it would be when nations go to war. Do you see that risk becoming more apparent now?

L: We have a system, a rule that provides on multilateral disciplines on trade. We do not have a disciplined global system on investment. We have a myriad of bilateral investment treaties. You don’t have something like a framework of multilateral discipline. This, for some, is a big hole in globalization.

This can only change, if WTO members would agree that we establish multilateral rules on investment in the WTO. So far, there hasn’t been a consensus that these disciplines should enter the WTO.

In my view, there is a good case to be made, especially for developing countries, who often do not have the technical resources to negotiate a bilateral investment treaty with a big economy like the US and EU. They would probably be better off with a multilateral system, where their own capacity to negotiate is better because the balance of forces is more equal.

I think one of the great things about the WTO is that we don’t have to wage wars anymore. We have trade frictions. The more trade you have, the more occasions you have to have frictions. Part of this friction becomes trade disputes. If there is a trade dispute we will adjudicate it, but there is nothing like a trade war, like there was in the past. So, in many ways, the existence of the WTO provides a sort of collective insurance policy against trade friction degenerating into political problems.

Indonesia has recently imposed a tax on raw mineral exports with the hope of encouraging local smelting processes. This regulation will expand into a full ban on exports in 2014. How do you view this policy?

Rugwabiza: If you look at it from a simply legal perspective, it is an option that the government has. At the same time, the objective is, as you said, to encourage some value addition in the downstream level.

Quite honestly, encouraging the value addition downstream will not necessarily be triggered by restrictions. To improve productivity, you need to attract investment, both domestic and foreign direct investment. So, one has to look at what is the kind of message that export restrictions are sending to investment, both domestic investment in those sectors, and foreign direct investment.

The kind of message sent [by the policy] is not necessarily a very encouraging one, and in that sense, one has to be very careful about the type of tools that are used. And the tools that tend to restrict trade generally are also tools that tend to impede investment.