A trade stalemate

Print edition : December 02, 2005

Planting paddy in Kerala's Wayanad district. It is by now wellestablished that farmers in developing countries suffered huge losses in export earnings because the subsidies granted in developed countries kept international prices of major commodities at artificially low levels. - K.K. MUSTAFAH

Recent events reinforce the view that the ambitious trade liberalisation agenda that developed countries, primarily the U.S. and the E.U., have tried to realise through the WTO is a non-starter.

IT is now official: the Sixth Ministerial Conference of the World Trade Organisation (WTO), to be held in Hong Kong in mid-December, faces the bleak prospect of becoming yet another non-event. In his report to the heads of delegations on November 10, WTO Director-General Pascal Lamy pointed out that the member-countries of the fledgling organisation should "recalibrate" the expectations for the conference or run the risk of making Hong Kong an "announced failure". The latest turn of events must be seen as the reinforcement of the view that the ambitious trade liberalisation agenda that the developed countries (read the United States and the European Union) have tried to realise through the WTO is a non-starter.

Although the stalemate on agriculture yet again provided the trigger for the latest impasse in the multilateral trade negotiations, it was the lack of movement in the negotiations on the other key issues on the table that was the major contributory factor. In the negotiations on non-agricultural market access (NAMA) and services, there were indications that unrealistic expectations of achieving substantive results had been building up. Now that the agriculture negotiations seem to have reached a dead-end, WTO member-countries would have to reassess their expectations for the Hong Kong conference in the two other areas.

For most part, the current round of negotiations have witnessed a stand-off on agriculture between developing countries led by the G-20 and the G-33 on the one hand and with the U.S.-E.U. on the other. Developing countries have insisted that developed countries, in particular the U.S. and the E.U., undertake comprehensive policy reforms involving their agricultural sectors by reducing subsidies and tariffs.

Reduction of farm subsidies was particularly important, for it could provide large gains for developing countries. It is by now well-established that farmers in developing countries suffered huge losses in export earnings because the subsidies in developed countries kept international prices of major commodities at artificially low levels. The adverse terms of trade that these countries have faced for decades have left them condemned to the ranks of "less developed" countries. In fact, most of the highly indebted developing countries in Africa would not have met with such a fate had they received the "right prices" for their products in the international market.

Undoubtedly, the impasse over agriculture negotiations is the result of the extreme intransigence shown by both the U.S. and the E.U. towards the suggestion that farm subsidies should be reduced. It does appear that under the prevailing circumstances any deal on agriculture would have gone against the interests of developing countries because the U.S. and the E.U. would have muscled in and extracted some concessions from them. But the lack of a deal could hurt developing countries even more, for not only would they fail to get the much-needed benefits from a lowering of subsidies, but many of them may have to bite the bullet in both NAMA and services. And these are the two areas that could be used for salvaging the Hong Kong meeting.

The mandate for the NAMA negotiations includes reduction of tariffs and non-tariff barriers (NTBs). During the past few months, there has been some convergence among members on the approach that could be adopted for reducing tariffs. But though the NAMA negotiations have been driven by the willingness on the part of most WTO members to reduce their existing levels of tariffs, differences persist on the levels at which they would bind their tariffs. The negotiations have also had to contend with the heightened ambitions of some countries to eliminate tariffs on a range of sectors within a specific period. The major problem in the NAMA negotiations, particularly from the point of view of India, is the lack of any progress on the issue of NTBs. In recent years, India's export interests have been dented by the increasing use of NTBs by partner countries. This was not entirely unexpected since most developed countries and some of the more advanced developing countries have moved away from using tariffs as a border protection measure and have been relying extensively on NTBs.

The dynamism shown by the global services trade was expected to provide the much-needed impetus for WTO negotiations that have aimed at deepening the process of services trade liberalisation. An additional element providing the momentum for the services negotiations was the role played by some developing countries, including India, in pushing for greater liberalisation in services trade. At the same time, however, these countries have made it eminently clear that they would be interested in greater liberalisation of trade in services provided their developed country partners make meaningful commitments in both Mode 1 (cross-border supply) and Mode 4 (movement of natural persons).

But as in the case of agriculture negotiations, exaggerated ambitions of some of the developed country members in respect of services trade liberalisation have left negotiations in this area facing considerable uncertainty. The initiative for raising the bar in respect of services trade negotiations was taken by the E.U., which proposed the adoption of certain minimum "benchmarks" that can take the form of numerical targets and indicators to ensure that the WTO member-countries make definite progress towards liberalising services trade. Most developing countries have viewed this proposal with considerable suspicion, for they feel that they would be forced to take commitments much in excess of what they are capable of.

The biggest challenge for developing countries as they face the prospects of dealing with NAMA and services is the absence of a coordinated strategy. What impact this could have on the realisation of the development agenda would be watched with interest.

Dr. Biswajit Dar is head of the Centre for WTO Studies, Indian Institute of Foreign Trade, New Delhi.

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