INSIGHT: WTO breakthrough a first, welcome step

09 December 2013 17:18  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Concern within the chemical industry that the repeated failure of global trade talks would lead to a proliferation of bi-lateral trade agreements and slower market growth were allayed somewhat last week.

A major step forward for the World Trade Organisation (WTO), the so-called ‘Bali Package’ (the negotiations, part of the Doha Round of trade talks, were held on the Indonesian island of Bali), was described as the first major agreement among member nations since the WTO was formed in 1995.

A great deal of media attention was given to the barriers on agriculture and export subsidies that were broached but the agreement also included a package of measures designed to cut red tape and speed up port clearances.

“The trade facilitation decision is a multilateral deal to simplify customs procedures by reducing costs and improving their speed and efficiency,” the WTO said. “It will be a legally binding agreement and is one of the biggest reforms of the WTO since its establishment in 1995.”

Trade should be made easier through clearer and more effective customs procedures. There is a training assistance package that implies that developed countries will help less developed nations update their customs infrastructure and train officials.

The objectives of the agreement are to “speed up customs procedures; make trade easier, faster and cheaper; provide clarity, efficiency and transparency; reduce bureaucracy and corruption, and use technological advances,” the WTO said.

“It also has provisions on goods in transit, an issue particularly of interest to landlocked countries seeking to trade through ports in neighbouring countries.”

The WTO has estimated that the economic benefits of an agreement would be between $400bn and $1,000bn with the costs of trade reduced by between 10% and 15%.

The text of the agreement is not final although the WTO said that the substance will not change. A legally-correct agreement should be adopted by the WTO’s General Council by 31 July 2014.

The chemical industry reacted to the breakthrough with muted optimism but on-going concern over the rising tide of protectionism.

Arguments for more not less tariff protection in chemicals continue to be made. And the emergence of large trading blocks, and the proliferation of bilateral trade deals in the absence of any global agreement, is seen by some as making global agreement harder to achieve.

“The Bali agreement is only a minimal solution. But this solution shows that industrial, emerging and developing countries can overcome deadlock and engage in compromise. We hope that this is just the first step” director general of Germany's chemical industry association, the VCI, Utz Tillmann, said in a statement released on Saturday.

“In order to fully use the potential of increasing numbers of global value chains, we need new and stronger rules for world trade. The elimination of industrial tariffs and new rules on investment and export restrictions are in the interest of all WTO members, including the emerging countries,” he added.

The European chemical industry federation, Cefic, and its member associations support the current WTO Doha round of multilateral trade talks but have to be realistic and back certain inter-regional trade agreements.

Cefic and the International Council of Chemical Associations (ICCA) have requested the elimination of chemical import duties by all countries with a viable chemical industry. The annual tariff burden for the European chemical and downstream industry could be cut by €2bn if this were achieved, the European federation says.

Most of the world’s major chemical companies rely heavily on exports and global trade. Cefic makes the key point that about 80% of the chemicals produced are used in the chemical industry for further processing.

“The chemical industry itself benefits most from the reduced input costs resulting from chemical tariff liberalisation,” it says. And industries using chemicals benefit also, it suggests, from lower input costs.

The Chemical Tariff Harmonisation Agreement (CTHA) which harmonised chemical import duties at 6.5%, 5.5% or 0% in the chemical producing countries was achieved in the Uruguay Round of multinational trade talks.

The current generation of bilateral free trade agreements can be beneficial, Cefic says, but can also bring about trade distortion.

“Cefic prefers to pursue multilateral trade liberalisation and trade dispute settlement under the aegis of the WTO but recognises that bilateral and regional trade agreements can be building blocks for further multilateral trade liberalisation,” it adds.

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By: Nigel Davis
+44 20 8652 3214

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