Why the Trade Deal in Bali Was a Game-Changer

Readers of this blog are by now bored aware that I'm finishing off a book on post-2008 global economic governance, in which I take the contrarian view that the system worked surprisingly well after the collapse of Lehman Brothers to avert a second Great Depression. 

Of course, not everyone shares this view, and there has been no shortage of arguments that say the opposite.  One of the strongest data points in their empirical quiver has been the failure of the Doha round of WTO talks to be completed.  Indeed, for the past five years, "Doha" has been wonk shorthand for "dysfunctional global governance that accomplishes nothing but gridlock."  Even in my own book, I wrote at one point that, "To be fair, there are examples in which it seems like the system is broken.  Despite the longest set of trade negotiations in history, the Doha round of trade talks remains moribund." 

So... looks like I'm gonna have to do some last-minute revisions, because the WTO had quite a weekend in Bali:

Ministers from around the world sealed the first global trade deal in a generation on Saturday in a move hailed as a tonic for both the global economy and the battered credibility of the World Trade Organisation.

Almost two decades after the WTO was founded ministers from its 159 member countries approved a “trade facilitation” agreement to set common customs standards and ease the flow of goods through borders around the world. They also took decisions on a range of issues from how the WTO should respond to government food security programmes to securing better market access to the rich world for the globe’s least developed economies.

Business groups immediately praised the trade facilitation deal as a needed stimulus for the global economy. The International Chamber of Commerce estimates it will lower the cost of doing trade by as much as 10-15 per cent and add $1tn to global output.

When Walter Russell Mead starts writing things like, "WTO Poised for Biggest Success in Years," well, you know the ground has shifted.   

Truth be told, however, this isn't that big of a big deal when compared to the goals originally set at Doha in 2001.  As the Wall Street Journal observed, "The WTO's members two years ago agreed to drop the goal of eliminating or reducing tariffs on a range of goods and services after years of acrimonious discussions. Instead, they focused on more achievable targets." 

And yet, Mead is still correct.  A big word in the wonk argot is "optics" -- how an event or policy initiative looks to observers.  What the Bali agreement does is transform the optics in two big ways.

First, Bali helps to demonstrate the surprising forward momentum on trade liberalization.  The deal in Bali comes on the same week that Congress nears approving trade promotion authority -- or "fast-track' for President Obama.  If that passes, then the United States will be able to negotiate the Transatlantic Trade and Investment Partnership (TTIP) with Europe and the Trans-Pacific Partnership with a passel of Asia/Pacific economies (indeed, U.S. trade negotiators went from Bali to Singapore to continue talks on that deal).  Fast track will signal to U.S. negotiating partners that Washington is committed to finishing a deal.  Combine these negotiations with ongoing services negotiations, as well as a bilateral investment treaty with China, and you have the most ambitious trade agenda for the United States since the first year of the Clinton administration. 

[Hmm... this observation sounds familiar!--ed.]  Right, but no one was listening to me a year ago.  The way Bali matters is that it alters the perceptions of those pundits who haven't been paying attention.  Now suddenly the narrative shifts from not much getting done on trade - or bilateral/regional deals fragmenting the global trade regime -- to a narrative where the WTO has made forward progress and maintained its relevancy (even though it was always going to be relevant).  Now these same pessimists will observe that Americans seem pretty enthusiastic about trade expansion and that the bilateral and multilateral trade agreements are far more likely to be complements than substitutes.  When Tom Friedman writes his inevitable "hey, I talked to a cabbie in Bali and there seems to be a real trade agenda" op-ed in, oh, six weeks from now, perceptions will actually change. 

The second way in which Bali matters is that it alters perceptions about global economic governance more generally.  The Doha round was viewed as the weakest sister in the multilateral economic agenda.  Now that story has to be revised, and the cheapest shot that could be lobbed at a "G-Zero" world is no longer available.  Between this and signs that the global economy is starting to accelerate, who knows, maybe people will start to think about global economic governance a bit more favorably.... just in time for a book to come out confirming this position

As I've noted multiple times in recent weeks, there are greater career risks in being wrong on the optimistic side than the pessimistic side when it comes to world politics.  Being right just before the rest of the foreign policy community moves in your direction, however, is worth its weight in Bitcoin gold.

Am I missing anything?

Daniel W. Drezner

The Exhausting Worldview of the Neocons

Your humble blogger has been attending Chatham House-y type meetings recently in which Very Prominent Neooconservatives have been participating.  It's been a while since I've really had to sit and listen to their increasingly unpopular worldview.  And the more I thought about it, the more I began to appreciate that for the True Believers of the neoconservative faith, watching world politics much be exhausting

To understand what I mean, consider two stories plucked not entirely at random from the news wires.  The first is Israel's decision to stop throwing a public temper tantrum and to start focusing on the coming negotiations with Iran and accept that the interim deal is a fait accompli

Israel is shifting its tactics over the Iran nuclear talks, moving from fierce public criticism of the Obama administration to private pressure about the next stage of the negotiations, according to US, Israeli and western officials.

After several weeks when Prime Minister Benjamin Netanyahu openly tried to lobby US public opinion against the interim agreement with Iran reached last month in Geneva, the Israeli government is now looking to use its influence in Washington to shape the administration’s negotiating position.

A team of senior Israeli officials led by Yossi Cohen, national security adviser, is due to visit Washington in the coming days to begin detailed discussions with the Obama administration.

Mr Netanyahu described the Geneva deal as a “historic mistake”, appearing to open a new breach in relations between the two countries and offering a reminder of the difficult relationship Mr Obama and the Israeli leader have had over the past five years.

However, Israel’s government, despite its sharp words, believes the deal that was finally reached was better than a previous draft on the table because of its lobbying of the six powers involved and now plans to continue the effort in Washington.

“Our opinion is still that the first deal was a move in the wrong direction,” said an Israeli official. “But that’s water under the bridge and we will now focus on what is going to happen in the coming months.”

Now, to you or me, this reads like Israel adapting to reality and trying to maintain its influence over the evolving geopolitical arrangements in the Middle East.  To neoconservatives, however, this is Israel in retreat.  They've given up on fighting the interim deal!  Their threat to launch a military strike against Iran has been exposed as empty rhetoric!!  Why should Iran ever take Netanyahu seriously again? 

The key things to realize about the neoconservative worldview is that: 

1)  Reputation and the image of strength are everything;

2)  Countries bandwagon to the strong states and eschew the weak states. 

3)  Even the slightest concession in the present weakens one's reputation and strength for the future; so

4)  Any concession in a present negotiation ineluctably leads to unconditional surrender in the future. 

If you think that news item will put neoconservatives in a tizzy, then this one about easing Sino-American tensions over the new ADIZ will send them into orbit: 

The U.S. and China both signaled they are backing away from a confrontation over China's new air-defense zone, with both nations moving toward an understanding that the zone won't be policed in ways that threaten the region or endanger the lives of pilots and passengers.

U.S. officials insist the defense zone established by China on Nov. 23 over disputed islands in the East China Sea is illegitimate. Some said privately that they don't expect China to roll it back.

Vice President Joe Biden met with Chinese President Xi Jinping met more than five hours in Beijing on Wednesday to discuss the air-defense zone and other issues....

[T]here was little talk of China formally rescinding the air-defense identification zone, or ADIZ. A defense official echoed the U.S. position that China shouldn't "implement" the zone—statements that could suggest the U.S. wants China to halt steps toward adopting the stringent regulations Beijing originally announced.

The U.S. position, coupled with China's elastic interpretation of its own rules so far, appeared to reduce the immediate threat of the standoff widening into a military clash that could embroil the U.S.

China on Thursday asked the U.S. to respect the zone, saying it complied with international norms. But China added that it was willing to discuss "technical issues" with other countries on flight safety in the region.

Beijing has also clarified requirements that aircraft file reports or face unspecified defensive measures.

China's defense ministry, which issued the rules, now says the military won't shoot down aircraft in the zone, and will instead monitor and identify them, only sending up fighter jets to track them if they are considered a threat.

Defense experts said that interpretation of the rules is relatively close to how other countries, including the U.S. and Japan, enforce air-defense zones, which are established unilaterally and aren't regulated by an international body.

"Here we have our ally, Japan, saying the zone should be undone, but that's a position the U.S. is unlikely to take," said M. Taylor Fravel, an expert on China and international security at the Massachusetts Institute of Technology. "The real question is what you do to enforce it, so that's why you see the U.S. increasingly focusing on the procedures." He added that "there's been an evolution" in the U.S. position.

Fravel calls it an evolution, and most analysts would see this as a decent compromise that saves face for most of the involved parties.  Neoconservatives see this as the first pebble of an inexorable avalanche that will lead to the ejection of U.S. influence from the Western Pacific, the abject surrender of South Korea and Japan to regional Chinese hegemony, and the evaporation of U.S. credibility in the region.

Here's the thing:  every once in a while, the neoconservatives are right.  There are other actors out there who share this kind of bullying worldview, and the neoconservative policy response is usually best way to deal with them.  The problem is that most actors in the world -- yes, including China and Iran -- don't think this way.  They fear balancing coalitions and are sensitive to the security dilemma and so forth.  Responding in a neoconservative fashion to these actors is counterproductive.  A mixture of prudence, tough-minded negotiations and patient policy planning works better. 

But if you buy into the neoconservative worldview, this approach to threats seems like the first step on the road to abject surrender (and, to be fair, the Obama administration's track record on policy planning has been... not great).  So you warn people of the dangers.  And after a decade in which Americans are listening to you less and less, these warnings have to get more shrill just to have an impact -- which, of course, only undercuts the reputation and credibility of those speaking so shrilly. 

So, today, I do have some sympathy for the neoconservatives.  Theirs is a lonely, exhausting worldview -- and it's not going to get better anytime soon.