Piecing together a framework

Published : Aug 27, 2004 00:00 IST

At the opening session of the General Council at the World Trade Organisation headquarters in Geneva on July 27. - DENIS BALIBOUSE/KEYSTONE/AP

At the opening session of the General Council at the World Trade Organisation headquarters in Geneva on July 27. - DENIS BALIBOUSE/KEYSTONE/AP

The framework agreement worked out in Geneva for global trade talks marks a step forward from Cancun but indications are that developing countries are the losers once again.

MORE than a week after, analysts are piecing together the disparate sections of the World Trade Organisation (WTO) General Council's framework agreement that sets the stage for the Doha Round of trade negotiations. Although it is only a framework for negotiations, which are bound to be hard and protracted, the agreement sets minimal or maximal bounds for the discussion in terms of the areas to be covered and the extent of liberalisation in particular areas. The framework agreement, therefore, has significance beyond its role in keeping the Doha Round alive.

The process of arriving at an agreement on the Geneva framework had all the features of a gruelling test of nerves. A near-impossible deadline to examine the implications of the first draft agreement, all-night meetings, informal consultations, accusations of arm-twisting, proxy wars through the media and deals-on-the-side paved the way for the WTO's favoured result: a "consensus". Of these, the most contentious issue is likely to remain the creation of what in WTO-speak was called "non-group 5" (NG-5), which has since been renamed the "group of five interested parties" or FIPs. If Cancun had seen the birth of the G-20 group of developing countries, which was a potent developing country forum formed to scupper the efforts of the United States and the European Union to push through a blatantly unjust launch framework, Geneva witnessed the emergence of FIPs. India and Brazil broke ranks with the G-20 to join "by invitation" the FIPs, which also include the U.S. and the E.U. (representing the developed countries) and Australia (representing the Cairns group of agricultural exporters).

The role of FIPs in generating a consensus, through discussions on the changes to be incorporated in the original July 16 draft framework, is now widely accepted. On July 29, WTO Director-General Supachai Panitchpakdi welcomed an agreement on the agriculture text reached overnight by Ministers from FIPs as a key first step towards a consensus. Crucial to the consensus, however, was the ability of the FIPs, especially Brazil and India, to win the support of other developing countries, despite their criticism of the process that largely involved discussions among the FIPs. This they were able to do, despite the fact that the annexure on non-agricultural market access does not take the framework agreement any further than the much-criticised Derbez draft.

However, the Indian delegation has come home with claims of a "victory" that helps protect the interests of developing countries. It must be said that compared with what was sought to be pushed through at Cancun, the Geneva framework agreement does reflect a substantial advance. The two major advances are in the areas of agriculture and the so-called Singapore issues. With regard to the latter, three of four contentious new issues that the developed countries wanted included in the Doha Round, namely, investment, competition policy and government procurement, have been dropped from the agenda.

In agriculture, the framework binds the developed countries into doing away with direct and indirect subsidies provided to their exports. It also extracts a promise of substantial reduction of domestic support provided to their farmers. This comes primarily in the form of an agreement to reduce substantially on the basis of negotiations, the sum total of Final Bound levels of the Aggregate Measure of Support (AMS), de minimis (or minimal acceptable) support and Blue Box measures. Such reduction is to occur through a tiered formula involving larger reductions by those currently providing higher levels of support, leading to some "harmonisation" of support levels. In particular, the framework requires that there would be a minimal reduction in such support to 80 per cent of pre-existing levels in the very first year and throughout the period of implementation. Finally, while a major compromise in the form of the continuation of the Blue Box has been made, a promise to cap Blue Box support at 5 per cent of the value of production has been extracted.

There are also important gains in terms of special treatment for developing countries. The agreement explicitly recognises the need for Special and Differential Treatment for developing countries - in terms of the quantum of tariff reduction, tariff rate quota expansion, number and treatment of sensitive products and the length of the implementation period. Further, in parallel with the right of developed countries to designate certain products as "sensitive", developing countries have the right to identify an appropriate number of Special Products, based on criteria of food security, livelihood security and rural development needs, which would be eligible for more flexible treatment. Finally, the framework provides for a Special Safeguard Mechanism against disruptive imports, the details of which are to be worked out.

It must be noted that all of these gains are not really commodity specific, but apply to agricultural products in general. In an area like cotton, where some developing countries, especially those from the African, Caribbean and Pacific (ACP) bloc, had a special interest and where their demands were specific, the framework agreement recognises the vital importance of this sector to certain least developed countries (LDC) and promises to work to achieve ambitious results expeditiously, but within the parameters set out in the Annex on agriculture.

However, the overall gains are seen by India as justifying its claims of a victory for developing countries and itself and of the correctness of its participating in the FIPs discussions. In the official view of the Indian delegation, India's participation also helped protect the countries (short-term) interests. According to this view, the grouping helped present to the U.S. and the E.U. the minimal requirements of the more developed of the developing countries, by providing a negotiating channel between the dominant powers and the G-20. It helped ensure that the basis for a minimal set of concessions in the agricultural area was accepted formally by the developed countries. It helped prevent the developed-country bloc from offering damaging special concessions to the G-90, the group of less-developed developing countries in order to win their support for a framework agreement that works against the interests of countries such as India and Brazil. For example, the developed country suggestion that all countries should provide duty free access to global, non-agricultural export markets to the G-90 countries, could have paved the way for them to be used as locations from which developed country transnationals could access markets in the more developed among the developing countries. And, as Indian officials informally argue, the formation of FIPs helped prevent Brazil - ostensibly the "weak link" in the developing-country camp - from breaking ranks and striking a separate deal with the developed countries.

THESE claims of success notwithstanding, the creation of FIPs, the inclusion of India, along with Brazil, in the grouping and the nature of the framework agreement that the FIP group was instrumental in forging, raise a number of questions about the political economy of the emerging world trade regime. First, what explains the willingness of the U.S. and the E.U., which had fought hard and long for an excessively favourable settlement to agree to a significant climbdown relative to the positions they took at Cancun and which they were espousing until quite recently in the run up to the Geneva General Council meeting? Second, what explains the strength of India and Brazil that allows them to be chosen by the developed countries and accepted by the developing countries as interlocutors between the two?

An answer to those questions must begin by recognising that two different factors influence the extent of liberalisation that the evolution of the trade regime implies: first, multilaterally agreed, monitored and implemented measures, which define the minimal level of institutionalised trade reform; second, the regionally, bilaterally or unilaterally implemented measures of liberalisation, shaped by domestic and international compulsions. It hardly bears stating that, in developing countries, in most areas the liberalisation implied by the latter go far beyond those mandated by the former. Multilateral rules most often institutionalise the levels beyond which countries cannot retreat from existing degrees of liberalisation, rather than requiring them to undertake further liberalisation.

The result is that for most of the less-developed developing countries, the principal issues in trade talks are the degree to which they can legitimately seek out markets in the developed or other developing countries and the extent of special treatment they obtain to do this given their underdeveloped status. To boot, the role of these countries in world markets is limited, except in the case of particular primary commodities, such as cotton for example. The implications of these features are that they have little to defend, and more to gain from others. Their need for a multilaterally agreed set of possibilities is far greater.

As compared with this, the more developed of the developing countries such as Brazil and India have far more to defend, in both agricultural and non-agricultural markets, and they are or can be important players in global export markets for agricultural, manufacturing and service sector exports. This makes their endorsement, which is crucial if a consensus has to be forged, more uncertain. On the other hand, if their endorsement is obtained, bringing in other developing countries is easier. This includes major powers such as China, the dependence of which on world markets and the huge concession they have already given, makes any agreement better than none. It also includes countries such as Thailand and the Philippines, whose dependence on the U.S. and/or the E.U. is too strong to permit dissent. Thus, the FIP group was clearly created to obtain an endorsement from India and Brazil, and other similarly placed developing countries, and to use that endorsement to bring all others in line. The developed-country camp's climbdown on the hard positions it took on agriculture, including the promise of special and differential treatment, especially in the form of Special Products and new possibilities in areas such as services for India, helped clinch that endorsement outside the formal negotiations.

This explains the strength of India and Brazil, but leaves unexplained the question of the factors driving the apparent climbdown by the U.S. and the E.U., especially the latter. The question is how much has the E.U., which massively supports its agriculture, actually conceded and what, if any, it has gained. There are two major gains in agriculture that the U.S. and the E.U. have obtained, which are taken for granted now. The first is the "preserve-as-is" attitude to permitted Green Box support measures, whose "basic concepts, principles and effectiveness" remain untouched, subject to a review to ensure that its trade-distorting effects are `minimal'. The second is the continuation of the Blue Box, which was to be phased out at the end of the Uruguay Round implementation period. Not only can members take recourse to existing forms of Blue Box support but new measures can be negotiated, subject to the condition that such payments will be less trade-distorting than AMS measures. Clearly then, the idea is to maximise support, which is provided to agriculture by offering an appropriate combination of Green Box and Blue Box support, rather than through measures defined conventionally as trade-distorting.

The real concession, if any, is the promise to reduce aggregate support in the form of the sum total of current levels of bound AMS rates, de minimis support and Blue Box support. How much of a concession does this involve in the case of the E.U.? In 2000/01, at the end of the Uruguay Round implementation period, the bound AMS support that the E.U. was eligible to provide was Euro 67.2 billion. However, as a result of the reform of its Common Agricultural Policy, the actual support provided in the form of recognised AMS measures amounted to only 43.7 billion euros. Permitted de minimis support, at 5 per cent of the value of production, amounted to 12.2 billion euros. And total Blue Box support in that year amounted to 22.2 billion euros or 9.12 per cent of the value of agricultural production.

Thus, the total value of support, subject to the minimal 20 per cent reduction commitment agreed on so far, which equals the total of bound AMS plus de minimis support and Blue Box support, stood at 101.6 billion euros. The framework agreement requires that, at the minimum, this is brought down to 80 per cent of that level or down to 81.3 billion euros. However, since the actual AMS is less than the bound, commitment level, the level of actual as opposed to bound-AMS based total support stood at only 78.1 billion in 2000/01. Thus, in terms of aggregate commitment provided for in the framework agreement the E.U. does not have to make any change. Change would be required only if negotiations are able to extract more than a 20 per cent commitment.

However, there is a 5 per cent of value of production cap on Blue Box support, which implies that such support in the E.U. would have to be brought down by 10 billion euros from 22.2 billion euros. This reduction is not guaranteed, since the framework agreement provides for the possibility of some flexibility in cases where "a Member has placed an exceptionally large percentage of its trade-distorting support in the Blue Box".

Further, if Blue Box support can be restructured and rendered in the form of Green Box measures, the required reduction could be shifted and added to the Euro 21.8 billion of Green Box support that the E.U. provided in 2000/01. In sum it can get away with no reduction whatsoever to meet its proposed new minimal commitments. In a worst case scenario, it would have to make a less-than-10 per cent reduction in total support to meet the requirement set thus far by the framework agreement.

This is not to say no concessions have been made. There are some areas, such as export subsidies to agriculture, where recent WTO rulings had made clear that compromise in the form of a phase out was inevitable. These were areas where the need for revised rules had been conceded. Even there the E.U. managed to extract the promise of parallel concessions in the form of reductions of implicit subsidies on export credits, for example, from the U.S.

In return for these minimal concessions, at the framework stage, the U.S. and the E.U. have managed to obtain significant agricultural and non-agricultural market access commitments in the form of to-be-negotiated, non-linear tariff reductions from the developing countries. India and Brazil have ignored the implications of these likely reductions, because they have unilaterally been reducing their tariffs. But when bound rates are reduced from their current relatively high levels, protection to prevent market disruption would depend on the yet-to-be-elaborated Special Products provision.

When the full implications of these reciprocal market access concessions are analysed fully, the losses that developing countries have suffered may prove substantial relative to the gains assessed relative to the hard positions adopted by the developed countries in Cancun. This would show that even until now the negotiations have not been a cakewalk for the self-designated and much-resented leadership of the developing world. And the process has just begun. Developing countries may have moved one step forward from Cancun, but it is not yet time to celebrate.

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