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WTO Hong Kong Ministerial - Will a consensus emerge on crucial issues?

WTO's so-called bad construct, political intransigence and little headway on crucial issues could see the Doha Round stymied in Hong Kong.

TRADE analysts, commentators and even ministers headed for Hong Kong to participate in the forthcoming biennial World Trade Organisation Ministerial do not seem optimistic. Any hopes of an agreement among the member-countries are fast receding. The current round of trade negotiations technically known as the Doha Round has been lacklustre and most of the key deadlines have not been met because of the rigid positions taken by the members. The experiences of developing nations in the decade following the establishment of the WTO in 1994 have left them disenchanted. That is probably why the WTO is called a bad construct addressing the concerns of developed nations first and that of the developing nations later. It was to address these inherent deficiencies that the Doha Round was launched.

Now, at the heart of the problem lies the Agreement on Agriculture (AoA). The promised market access on agriculture goods failed to happen due to the gargantuan subsidy regime (estimated at over $1 billion a day) of the developed nations. This subsidy regime coupled with high tariffs on agricultural products, virtually meant that the promises of the Uruguay Round onmarket access to agriculture remained on paper.

No meeting point
In agriculture, the issue for developing countries has primarily been two-fold reduction of trade-distorting domestic and export subsidies provided by developed nations, and reduction of tariffs in those countries. While the proposal for cutting subsidies and tariffs is a matter of intense debate and contingent on what other countries offer, what has emerged from the sidelines of these negotiations is that both Japan and the EU, more particularly France, seem to be far less enthused at the speed and direction of the negotiations on agriculture. In contrast, developing countries under the leadership of India, China, Brazil and Argentina have virtually turned down every "ambitious" proposal of the developed world to cut their subsidies.

They, in turn, are demanding steeper cuts in subsidies offered by the developed nations. If poor countries such as Benin, Mali, Chad and Burkina Faso could derail the Cancun Ministerial, in all likelihood rich countries, especially France and Japan, which heavily subsidise their agriculture, would refuse to sail along with others in Hong Kong. Either way, the Hong Kong ministerial looks doomed at this point in time.

One is indeed surprised at the extent to which developed countries are prepared to cut their subsidies, something unthinkable even a year or two ago. Demanding far greater cuts, developing countries have even refused negotiations on any other substantive area till they are satisfied on the subsidy issue. What is crucial is that the developing countries have seldom demonstrated such constancy of purpose. And, rarer still, for the developed nations to be put on the mat in the WTO negotiations.

The issue does not stop with mere reduction of subsidies. Debates also revolve around their computation and monitoring. Should a consensus be reached on these, the next issue would obviously be providing market access to farm products by reducing tariffs. Obviously, the trade-off here, which is expected to be steeper for developed countries, could, in itself, result in a fresh round of conflict.

Should the negotiating countries surmount the issues pertaining to the farm sector, tariff reduction on the non-agricultural sector and providing market access to the same could be another area of conflict between developing and developed countries, with the latter insisting that the former bind their tariffs on the entire range of industrial goods as well as cut them to significantly lower levels. This could be because (in direct contrast to the demands in the farm sector) developed nations have already brought down their tariffs. Nevertheless, high and escalating tariffs maintained by developed countries on products of export interest to the developing world can torpedo the negotiations.

Another area of potential conflict is the negotiations on services under the GATS Agreement. While the developed countries want market access for their service providers under Mode 3 allowing them to open branches by establishing commercial presence the developing countries are keen on Mode 4 allowing movement of natural persons between one country to another to supply services. With consensus eluding the negotiators, one is not sure how negotiations within the services sector can be used to provide the necessary headroom in cross-negotiations with other sectors.

There are issues pertaining to trade facilitation and cotton (including compensation for losses due to heavy subsidies) that are of interest to some African countries which had walked out of the Cancun Ministerial. And they could do an encore should they remain dissatisfied on this account.

Political intransigence
The entire negotiations, both the substance and the manner of conducting them, will be subject to scrutiny. These are to be accepted as part of a "single undertaking" by all the countries through a further process of cross-negotiation on each sector. The manner of arriving at a consensus within each sub-sector is a complex process, involving loads of details and excruciating negotiations.

The WTO's preliminary draft of November 26 clearly shows that not much headway has been made on these crucial issues.

At the root of the rigid posturing by the developing countries is the fact that the experience of the past decade makes them suspect every game-plan of the developed nations. This means that trade negotiations are not based on mutual trust. Psychology, the most crucial factor in negotiations, is surely negative at this point in time.

What is important is that as far as the common man in developing countries is concerned, thanks to the aggressive posturing of civil society and trade analysts, the WTO arrangement has come to be seen as serving the interests of the MNCs.

No wonder the "failure" of the WTO ministerial at Cancun was celebrated as a "success" by many developing countries. The reason for such a perspective is not far to seek. For instance, India is still not sure if it can enter into "any" agreement in the forthcoming Ministerial, especially on agriculture. It is most likely that even genuine trade-offs would be accompanied by cries of "sell-off" by the political allies and much shriller accusations by the opposition. If that were so, one is not sure to what extent the Government would be willing to stick its neck out.

But India is no exception. In fact, within the developing countries, there is significant political pressure on the negotiating heads to wangle more from others, while placing far less on the negotiating table.

With growing understanding of multilateral trade agreements, it would be virtual political suicide for any developing country to offer major giveaways. Developed countries, too, will be hesitant to offer anything substantial as they are also subject to public scrutiny.

This triggers reticence amongst member-countries, completely vitiating the atmosphere for negotiations.

All this would mean that the decade-long functioning of the WTO has exposed its shortcomings. Having missed the bus with their limited understanding of the subject, many developing countries, including India, entered into the agreement.

Wiser by the experiences of the past decade as well due to the pressure exerted by civil society, NGOs and trade analysts, these developing countries are now attacking developed counterparts where it hurts most farm subsidies.

And by their very arrangement, many of the developed countries cannot cut farm subsidies. And should they accept any cuts, even if they were marginal, the counter demand is most likely to be too stringent for the developing countries to accept.

The bad construct of the WTO coupled with political intransigence virtually means that the Hong Kong Ministerial would result in an impasse.

Published at: http://www.thehindubusinessline.com/2005/12/01/stories/2005120101061000.htm

Last modified on Friday, 19 July 2013 17:15

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