Asian logistics set to gain as the Bali Trade Agreement gets back on track

That the US and India have seemingly found bilateral ground common enough to overcome the impasse over the World Trade Organization’s Bali Package of trade reforms agreed almost a year ago is a potential boon to those who believe in free trade. And Asia could be the biggest winner.

To recap, the Bali Package of trade liberalization measures agreed in December 2013 by the WTO’s member states and later branded the Trade Facilitation Agreement (TFA) resuscitated the Doha Round of global trade talks that had been in a state of limbo almost since they began all the way back in 2001.

By avoiding contentious issues such as food subsidies and instead concentrating on detailed customs reforms, cutting red-tape, removing tariffs and other trade facilitation measures the Bali Package seemed to have achieved the impossible by making both the Doha Round and the WTO relevant once more.

The WTO trumpeted that TFA would reduce the costs of global trade by around 10-15%, boost global output by up to $1 trillion and create over 20m new jobs.

Asian nations, especially major exporters, were expected to be the major beneficiaries because they would have better access to more markets and because their share of world trade was already forecast to increase at a faster rate than more economically advanced regions, gains that would be magnified by the TFA.

The logistics industry, meanwhile, widely lauded the reform package as a return to the type of ambitious, multi-lateral agreement that could truly open up global trade in a way that bi-lateral FTAs never could.

The flaw in the plan? All 160 WTO members need to sign off the deal.

Enter India. After a raucous election saw Narendra Modi storm to victory in India’s general election in May on a platform of reform and economic development, in July his government then stunned the world and plunged the WTO into the biggest crisis of its 20-year history when it backed out of the Bali deal.

India, expected to be one of the main beneficiaries of the TFA, instead withdrew its support claiming that agreeing to new customs rules would diminish its food security because its lavish agriculture subsidies would fall foul of WTO rules. The rules state that trade-distorting subsidies to farmers in a developing country cannot exceed 10% of the value of its harvest, a target India is almost certain to exceed.

However, the TFA does now appear to be back on track after talks between President Obama and Prime Minister Modi produced a fudged deal that, if accepted by the full WTO membership, will see India support the Bali Package of reforms if the WTO does not challenge its right to protect its ‘food security’. The bilateral deal and the ratification of the TFA could both now be signed and sealed at the WTO’s General Council meeting early next month.

If ratified TFA would rank as a major accomplishment for the WTO. It would also open up vast new opportunities for the logistics and express industries to make global trade more efficient and transparent.