Why developing countries in general, and India in particular, ought to refuse to participate in any new round of world trade negotiations until a review of the Uruguay Round is undertaken - notwithstanding the efforts under way to weaken opposition.
ROBERT ZOELLICK, freshman appointee to the post of the United States Trade Representative, is a man with a mission. Early into his tenure, he has been assigned the challenging job of winning universal support for the highly controversial new round of world trade negotiations. He has a tight deadline too - the next ministerial meeting at Doha, Qatar is in November. Success in this effort depends on his ability to soften two principal targets. One is the European Union(E.U.), which is unwilling to cutback significantly on its support to agriculture, and is willing to talk about the matter only if a whole set of new issues ranging from protecting environment to reducing foreign investment regulations and implementing a competition policy are addressed. The other is the group of developing countries, led by the "like-minded five", which includes India, Pakistan, Egypt and Malaysia, that has held that no new round should be considered before a review of the impact of the Uruguay Round agreement is made and a number of inadequacies in its implementation addressed.
Of these two targets, the E.U. appeared the more difficult nut to crack. Getting it to budge on agricultural support would be difficult, given the crucial role of such support for its farming community. What is more, with the United States having provided the lead, the E.U. has been reforming its common agricultural policy in order to shift from forms of support that obviously affect prices and trade, to other ostensibly "decoupled" forms of support, such as income transfers and "deficiency payments". In the Uruguay Round, the U.S. and the E.U. had come together and manoeuvred to keep such forms of support out of the definition of "trade-distorting" subsidies. Thus, though the total subsidy provided to American and European farmers - a figure captured in the Organisation for Economic Cooperation and Development's (OECD) computations of the "producer subsidy equivalent"- has remained high and even increased over the 1990s, these countries persisted with claims of making their Uruguay Round commitments with regard to reducing the tariff support and subsidies being provided to their agricultural sector. Further, in an effort to completely legitimise such support to agriculture, the U.S. and E.U. had ensured the inclusion of a "peace clause" in the Uruguay Round Agreement on Agriculture(AoA) that decreed that no disputes could be raised regarding the "green-box policies" and other AoA-conforming support and subsidy measures, during the phase when the agreement was being implemented.The results of these features of the Uruguay Round are now proving a thorn in the flesh of Mr. Zoellick.
The American farming community is unhappy over the high support afforded to European farmers, despite the massive support it receives from its own government. And the Cairns group of agricultural exporters, which includes Australia and Argentina among others, is keen on enforcing its one-point programme when it comes to world trade - the complete freeing of trade in agricultural products. The end-July meet of trade officials in Geneva was the occasion chosen by Zoellick to try and convince the E.U. that it must give in on this matter. In this effort he found an ally in Pascal Lamy, E.U. Trade Commissioner and reported long-term friend, who is busy working out the quid pro quo needed to win the support of E.U. members for progress on matters relating to agricultural trade. In the event, Lamy has come up with a long list of issues that need to be discussed along with reduction of support for agriculture. These include regulation to protect the environment, competition policies and multilateral rules governing investment. Thus, the next stage in world trade negotiations should, in its view, be not just about further reduction in tariffs on manufactures and trade-limiting forms of support to agriculture, but rather a comprehensive new round that brings in issues that have hitherto been substantially delinked from trade.
THE E.U. stance is both a loss and a gain for Zoellick. A loss because it seeks to bring in issues such as competition policy and environmental protection, that are unlikely to be popular at home. Giant American corporations that straddle world markets and zealously guard their turf through means fair and foul, as Microsoft has done, would not be too happy if regulations that limit their spread into Europe through mergers and acquisitions are to be discussed. The E.U.'s notion of environmental protection, which includes ensuring food safety, by keeping out genetically modified foods for instance, has already upset American farmers who account for a large share of acreage under G.M. crops. Moreover, these fresh demands to use such grounds to limit trade come at a time when U.S. farmers would have to give in to the Cairns Group's call to reduce income support.
But this loss is no unmixed blessing, since it brings with it the assurance that if at least some of these issues are included in the negotiating agenda, the "all-important" E.U. would be willing to go along with the American desire for a new round of trade negotiations. Having registered this gain, Zoellick set out on a whirlwind tour, that brought him to India, with the aim of neutralising the developing country bloc that is opposed to a new round before issues of Uruguay Round implementation are discussed. In this effort, Zoellick has three grounds on which to bargain. The first is the claim that any advance on the agricultural front could be of benefit to developing countries that can also then demand that some of the other inadequacies of the Uruguay Round should be addressed in the new round.
The second is that with him having won E.U. support, it is unlikely that the new round can be stalled for long. This would condemn opponents of the round to isolation. In an address to industrialists in New Delhi, he in fact warned that India is likely to be left behind and would lose out at the coming Doha ministerial conference, if it stuck to its opposition to a new trade round. Finally, in New Delhi, he combined the demand for support for a new round with the promise of cooperation on sensitive issues such as counter-terrorism, nuclear non-proliferation and human rights. This is nothing but a veiled threat of political boycott if India did not fall in line.
DEVELOPING country opposition to a new round just now is, however, based on strong grounds. They point to the fact that the U.S. and the E.U. had used their strong negotiating position in the Uruguay Round virtually to deprive developing countries of any benefits from trade in agriculture. In fact, some countries like India have lost out substantially. Lulled into complacence by the fact that international prices of a range of agricultural crops ruled well above domestic prices, India bound its tariffs on a number of commodities like maize, rice and spilt wheat at zero. At the same time, it set overall tariff binding commitments at 100 per cent for unprocessed products, 150 per cent for processed cereals and 300 per cent for certain categories of edible oils. Since then there have been two developments.
First, international prices of agricultural commodities have collapsed, taking them below India's domestic prices. The price of copra, which stood at $461.5 a tonne in 1999 (annual average) fell to an average of $304.8 a tonne in 2000, and stood at $191.3 a tonne in the first half (January-June) of 2001.The price of coffee (arabica) which stood at 229.1 cents a kg in 1999 (annual average) fell to an average of 192 cents in 2000, and stood at 140.6 cents a kg in the first half of 2001. The price of coffee (robusta) which stood at 148.9 cents a kg in 1999 (annual average) fell to an average of 91.3 cents in 2000, and stood at 66.8 cents a kg in the first half of 2001. The price of palm oil, which stood at $436 a tonne in 1999 (annual average) fell to an average of $310 a tonne in 2000, and stood at $248 a tonne in the first half of 2001. This makes existing tariff bindings inadequate to protect domestic farmers.
Second, as part of its commitments and under U.S. pressure, India has had to remove all quantitative restrictions on imports, including on imports of agricultural commodities. This would aggravate the surge in imports of a number of commodities. For example, palm oil imports rose from 970,000 tonnes in marketing year 1995 to 4 million tonnes in marketing year 2000. Although India has subsequently renegotiated its bound tariffs under Article XXVIII, there are limits to the protection it can ensure since the relevant clause requires renegotiation with individual members or groups of members. As a result, while India obtained the right to raise ceiling duty levels and actually raised duties to 50 to 80 per cent in the case of a number of agricultural commodities such as rice, maize, wheat, sorghum, the duties on soybean oil imports have been fixed at 45 per cent - ostensibly as a concession to the U.S.
SIMILAR losses on the agricultural front have been seen in other developing countries as well, which contrasts sharply with the huge gains that the U.S. and the E.U. have made. On the subsidy front, according to one analyst, "the top five users of export subsidies for wheat accounted for 95 per cent of subsidised wheat exports (which is over 50 million tonnes) every year between 1986 and 1990." It has been estimated that even after meeting the cutback commitments under the AoA, these five exporters would be able to channel about 40 million tonnes of subsidised wheat into the world market. This amounts to about 40 per cent of the wheat trade in the mid-1990s. Similar estimates for coarse cereals and poultry place the figures at 22 and 25 per cent respectively.
This strategic victory of the developed countries on the agricultural front was not accompanied by the provision of benefits to the developing countries on other fronts - the most important among them being trade in textiles. Here, commitments to remove quotas were staggered in a manner whereby close to 50 per cent of imports under quotas were to be freed only at the end of 2004, or the end of the 10-year implementation period. In the interim, since the developed countries have chosen to remove quotas on products of little relevance to textile exporters from developing countries, hardly any gains have been registered on the textile export front.
Further, even in non-traditional export areas, such as steel, the U.S. has been using the option of introducing "anti-dumping" levies to prevent import surges or market disruption as a protectionist device against manufactured imports from the developing countries. Even the World Trade Organisation's (WTO) dispute settlement panel has already ruled against the U.S. in cases filed by some countries; it is expected to do the same in others cases, including one filed by India.
Finally, the developing countries have been badly affected by the implementation of the unequal Trade-Related Intellectual Property Rights (TRIPS) agreement, which some of them have institutionalised through domestic legislation.
GIVEN all this, the case for developing countries in general, and India in particular, refusing to participate in a new round prior to a review of the Uruguay Round is indeed extremely strong. But there are signs that developing-country opposition is weakening. The "like-minded group" is in any case handicapped by the fact that within the developing countries there are some who have reportedly expressed their willingness to divide implementation issues into those that need to be addressed before a new round and those that can be considered as part of the round. This could help postpone discussions on the most controversial issues such as textiles and agricultural support.
But the developing countries are even more weakened by the fact that many of these governments have internalised the liberalisation and globalisation agenda, and are seeking in the U.S. an ally to pull them out of their economic and political difficulties. It was this weakness that Zoellick was exploiting vis-a-vis India, when he spoke of the possibility of cooperation on issues such as counter-terrorism, nuclear non-proliferation and human rights. The effects of this weakness are already visible. Thus, at the time of the Geneva meeting, The Financial Times reported that besides Brazil, Mexico and South Africa, "that favour a round, as does China, which is poised to enter the WTO", "even India, which has long led the opposition to new global negotiations, seems to be wavering. More recently, The Times of India reported a subtle change in India's stand, from opposing the new round to pressing for a limited agenda. According to that report, senior officials felt that India's focus should be on" keeping out multiple new issues while taking care of its core concerns".
While these reports are by nature speculative, they do reflect a real possibility. And if the experience with the Uruguay Round is anything to go by, India's officialdom has an uncanny knack of making huge concessions that are completely at variance with their public postures. This necessitates emphasis on the need for public debate and parliamentary sanction before a departure from publicly declared positions is made. If not, India could lose far more this time than it did in the last round.