December 12, 2017 Reading Time: 5 minutes
Ganeshan Wignaraja and Adam Collins*
The World Trade Organization (WTO) is back on the global economic radar. Its 11th Ministerial Conference (MC-11) – the highest decision-making body that meets every two years – will convene in Buenos Aires, Argentina on 10th to 13th December 2017.1 While expectations for a major trade deal at the conference are low, Sri Lanka should continue to support the WTO-led multilateral trading system in the new Trump and Brexit era.
Multilateral trade liberalisation under the WTO has had a difficult decade. Despite the initial optimism surrounding the Doha Development Round of negotiations that began in 2001, multiple deadlines have come and gone without any breakthroughs on the most contentious issues such as improving market access for developing countries. At the last ministerial conference in late 2015, negotiators could not even agree on whether they should continue the Doha Round. This impasse has left the WTO to focus on more modest outcomes like the Trade Facilitation Agreement, which was announced at its 2013 Bali meeting and which Sri Lanka ratified last year, and the 2015 Nairobi Package, which included an agreement to eliminate export subsidies. MC-11 looks set to continue this trend by trying to find agreement on a few specific topics, thereby supporting the quest for multilateral trade liberalisation.
Three main areas are up for discussion in Buenos Aires. The first is a possible agreement on the reduction and elimination of fisheries subsidies, which encourage the unsustainable overfishing of the world’s oceans. The second is how to ensure free trade in the booming e-commerce sector. The third is the long-standing issue of reducing the support that some governments, most notably in developed economies, provide to their agricultural sectors. Agricultural subsidies, in particular, keep global prices artificially low and make it difficult for exporters from developing countries like Sri Lanka to compete in these markets.
Of these three topics, Sri Lanka should focus its limited trade negotiating capacity and lobbying capital on advocating for a successful outcome on the reduction of global fisheries subsidies. This is the least contentious area up for negotiation and so is the most likely candidate for some kind of agreement at MC-11. Most governments accept that subsidies are a key driver behind overfishing and they have signed up to eliminating them by 2020 as one of the United Nations Sustainable Development Goals (SDGs). It is also the area where Sri Lanka stands to benefit most. While fisheries are not a major part of the Sri Lankan economy, accounting for only 1.5% of GDP and 1.7% of exports in 2016, the sector provides employment to almost 10% of the labour force2 and is ripe for further development, as recognised in the government’s Vision 2025 plan. Provided that Sri Lanka retains the ability to support the development of its own fisheries sector using sensible measures under the WTO’s ‘special and differential treatment’ for developing economies, a reduction in the estimated $35 billion spent3 on fisheries subsidies globally will help to level the playing field for Sri Lankan fishermen and create export opportunities for the local industry. At the same time, it will help to combat overfishing and therefore, ensure the protection of the industry for future generations.
E-commerce also has substantial economic potential for Sri Lanka as the world economy transits to the so-called “Fourth Industrial Revolution” (based on digitisation and artificial intelligence). The IT sector in Sri Lanka already employs around 85,000 people and generated export revenue of $900 million last year.4 However, discussions of international trade rules remain in their infancy. There is little agreement on what exactly constitutes e-commerce, and several developing economies have voiced concerns about whether they have much to gain from an agreement when they have limited access to technology. Broadband costs in many developing economies are also high relative to advanced economies. As such, e-commerce seems more likely to be a prime candidate for a plurilateral or sector-specific agreement among like-minded economies in the future rather than a full-scale multilateral deal in Buenos Aires. Similar to the Information Technology Agreement 2 (ITA-2), this could still be done within the WTO framework so that other countries can join later and Sri Lanka should keep a close eye on this area given its aspirations of developing a vibrant information technology sector, as well as the Colombo International Financial City.
Reducing domestic support to agriculture is the area least likely to be resolved in Buenos Aires. It remains highly contentious and the continued power of agricultural lobby groups in advanced economies makes a significant reduction in such support a distant prospect. Meanwhile, developing economies, in particular India, are strongly resisting calls to classify the practice of buying food at guaranteed prices for public stockholdings as domestic support. They argue that it helps ensure food security. What’s more, a reduction in global support for agriculture would have a mixed impact on Sri Lanka. While the economy would benefit over time from a fairer and more efficient market in global agricultural commodities, as a net food importer it would initially be made worse by higher prices. Reducing agricultural support will remain an important issue that is most likely to be resolved at the multilateral level, but finding a solution will go far beyond Buenos Aires.
Even more important, however, are the issues not explicitly on the negotiating table in Buenos Aires – specifically the increasing strains on the WTO’s Dispute Settlement Mechanism (DSM). The DSM has played a crucial role of mediating trade disagreements between countries over the last two decades. For instance, Sri Lanka successfully deployed the DSM when Brazil imposed countervailing duties on imports of desiccated coconut and coconut powder from Sri Lanka. Yet the US has criticised the DSM for unfairly favouring other nations, particularly China. President Trump has gone as far as saying the US may not comply with the WTO’s verdicts in several important cases if they are not in favour of the US. To pressure the WTO, the US administration is also blocking the appointment of judges to its highest appeal body until the system reformed, which risks bringing the DSM to a complete halt. Without a working DSM, the WTO’s trading rules would become toothless and governments would face few consequences for violating them. In the worst case, this could spark a tit-for-tat trade war between major powers.
Sri Lanka must lobby other governments to ensure a robust defence of the WTO’s DSM in Buenos Aires, while putting its support behind sensible reforms to moderate the US position. As a small open economy, Sri Lanka benefits significantly from being able to engage with economies many times its size on an equal basis through the WTO. This is one important reason why Sri Lanka was a founding member of the WTO in 1995 and an early signatory of its predecessor, the General Agreement on Tariffs and Trade (GATT) soon after independence in 1948. The DSM will only become more important as Sri Lanka seeks to develop its economy by boosting exports. What’s more, Sri Lanka is pursuing several free trade agreements (FTA) with China, India and Singapore and may have to use the DSM to resolve future disputes with FTA partners.
The WTO’s failure to make significant progress towards further multilateral liberalisation in recent years does not mean its previous achievements should be discarded. While attempting to find agreements on the areas that are most beneficial to its economy, Sri Lanka should make it clear that the global trading system is worth defending as it provides a level playing field for small and large countries alike. This is a fight that will go far beyond Buenos Aires.
1World Trade Organization. (2017). WTO | Ministerial conferences – Eleventh WTO Ministerial Conference – Buenos Aires. [online] Available at: https://www.wto.org/english/thewto_e/minist_e/mc11_e/mc11_e.htm
2Ministry of Fisheries and Aquatic Resources Development (2016). Fisheries Statistics 2016. [online] Available at: http://www.fisheries.gov.lk/documents/c5px3hp60mxw2aqdbz8v5wks4.pdf
3Sumaila, U.R., Lam, V., Le Manach, F., Swartz, W. and Pauly, D., 2016. Global fisheries subsidies: An updated estimate. Marine Policy, 69, pp.189-193
4Sri Lanka Export Development Board. (2017). ICT Services Overview. [online] Available at: http://www.srilankabusiness.com/export-services/ict/
*Dr. Ganeshan Wignaraja is the Chair of the Global Economy Programme at the Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKI). Adam Collins is a Research Fellow at LKI. This article was originally published by the Daily FT (Sri Lanka) on 5 December 2017. Thanks are due to colleagues at the Lakshman Kadirgamar Institute for helpful comments on earlier drafts of this article. The opinions expressed in this article are the authors’ own and not the institutional views of LKI. They do not necessarily represent or reflect the position of any other institution or individual with which the authors are affiliated.