People's Democracy

C P Chandrasekhar

JUDGING BY the rhetoric, it was a triumphant return. Union commerce minister Kamal Nath arrived from Hong Kong, after attending the sixth ministerial meeting of the WTO, to declare that a "grand coalition" (G110) of the poorer countries had helped secure a favourable agreement. In particular, in his view, the Hong Kong agreement protects the interests of India's farmers. Elsewhere, Indian negotiators have claimed that India has not given too much in the two other critical areas of non-agricultural market access and trade in services.

Those less optimistic about what the Hong Kong declaration offers developing countries and critical of the role played by India and Brazil in the final stages of the Hong Kong negotiations, would see the commerce minister as claiming too much too early. Too early because, as expected, the declaration is still a framework and leaves most of the modalities for determining the extent of trade liberalisation by various members in the different areas largely unspecified. Too much because the framework extracts little by way of liberalisation from the developed countries in agriculture, while paving the way for substantial liberalisation of the markets for manufactures and services in developing countries.

Few would deny that nothing illustrates the unequal nature of the previous round of global trade negotiations than the persistence of massive levels of protection and support for farmers in the Organisation for Economic Co-operation and Development (OECD). Yet, the developed countries had already extracted substantial concessions in the area of agricultural trade in the "July Framework" of 2004. That document had signalled acceptance of the continuation of the Blue Box (which was to be phased out by the end of the Uruguay Round implementation period) and almost completely ignored the problem of "Box shifting" or transformation of trade-distorting support into forms conveniently defined as non-trade-distorting. The only issues up for negotiation were the extent of and timeline for import tariff and domestic subsidy reduction by different members and the date and modalities for elimination of export subsidies on agricultural products.

Even here the Hong Kong declaration has little by way of finality. Its major "advance" is the acceptance by the European Union that export subsidies would be phased out by 2013, as opposed to the demand that this should be done by 2010. From the point of the EU this is really no concession at all. It currently offers support equivalent to around 90 billion euros under the Green, Blue, and Amber Boxes, whilst trade distorting export subsidies amount only to around 3 billion euros. In any case, a substantial reduction in these export subsidies had been envisaged as an integral part of the current phase of reform of its Common Agricultural policy, which was to be completed by 2013.

On other agricultural issues, the declaration reiterates the need to work out the modalities for reduction of tariffs and domestic support and agrees that these will have to be "non-linear" in the sense that those currently providing greater domestic support and imposing higher import tariffs will have to make larger reduction commitments. This it does by specifying that countries would be included in one of three and four "bands" respectively, when defining the extent of domestic support and tariff reduction. But the exact details of the reduction are yet to be negotiated. If the Hong Kong declaration is any indication, it is unlikely that these reductions would go beyond current offers by the United States and the EU, which relate only to "bound" (not actual) levels and are therefore unlikely to involve significant, if any, cuts in support.

Faced with these circumstances, Indian negotiators have implicitly argued India's interests in agriculture are not aggressive, or focussed on expanding exports, but "defensive," in the form of protecting domestic producers from international competition. Their claim is that the country's defensive interests in agriculture have been advanced by three Hong Kong "gains": the EU "concession" to phase out export subsidies by 2013; the agreement that developing countries will have the flexibility to "self-designate" an "appropriate" number of agricultural products as Special Products, which would not be subject to tariff reduction commitments; and the recognition of the "right" of developing countries to take recourse to a Special Safeguard Mechanism to deal with either import surges or sharp price declines in particular agricultural products, the "precise arrangements" for which have to defined after further negotiation. In sum, India, along with other developing countries, has committed to providing greater market access for agricultural commodities, in return for minor concessions from the EU and the U.S., with the caveat that an as yet unspecified number of special products will be exempted from significant tariff reduction and additional tariff protection can be resorted to against an import surge.

It is necessary to recall that in the period between the July (2004) framework and the Hong Kong Ministerial, there were two kinds of concerns. The first related to the intransigence of the EU with regard to significantly reducing the protection and support offered to their producers, which was threatening to derail the Doha Round. The second was the expectation that if and when EU did make any concessions, and the US and the EU reached an agreement, the demands they would make of the developing countries in the areas of non-agricultural markets access and services would set up a new stumbling block. The first concern has been resolved by virtually letting the EU off the hook. Where are we on the second?

It is here that developing countries, led by Brazil and India, have given too much even at this near-framework stage. In the area of non-agriculture market access, a contentious issue was the degree to which developing countries would have to give up their right to protect domestic firms in order to build and strengthen their domestic industrial base and face the threat of deindustrialisation by opening up their markets to imports of industrial goods. The thrust of the developed countries was to demand that all industrial tariffs have to be bound in all countries except the Least Developed Countries (LDCs) and these bound tariff levels must over time converge across countries and products. The developing country position was that this amounted to ignoring the implications of international inequalities in industrial capacity and the policies adopted by the developed countries themselves in earlier phases of their industrial history. Despite this, the declaration signals agreement on a non-linear Swiss Formula that would harmonise tariff levels by ensuring larger cuts in the case of higher tariffs. Though there is recognition of the need for less than full reciprocity in reduction commitments for developing countries, the acceptance of a Swiss-type formula paves the way for harmonisation over an as yet unspecified time period.

The setback for developing countries is true of the services area too. Services negotiations mandated by the Uruguay Round, with no binding commitments in a reciprocal request and offer process in self-selected areas, are still in their early stages. Rather than continue with this process and assess its implications when completed, the drive has been to accelerate the pace of liberalisation services by mandating sectoral negotiations in key areas such as finance, telecommunications, distribution, education, postal services and computer and business services. The intention clearly is to get developing countries to open domestic services markets and accept a set of rules in each of these sectors that will allow foreign investors the same rights as local suppliers. Further, to increase the pressure to liberalise all services areas, there has been an effort to push for plurilateral negotiations in addition to bilateral ones.

In the draft declaration that went to Hong Kong, Annex C, which argued for accelerating the liberalisation of services, was bracketed, implying that there was no agreement on the area. In a surprising development the whole of Annex C has now been unbracketed, albeit with some changes. In particular, the reference (in a footnote) to the attachment to the contentious Report of the Chairman to the Trade Negotiations Committee in connection with sectoral and modal objectives is accompanied by the statement that the attachment has no legal standing. But the inclusion of Annex C in the declaration is a signal that developing countries are now willing to engage in sectoral and plurilateral negotiations, though Cuba and Venezuela have formally expressed their reservations on the issue. Reports have it that India's role in mobilising developing country support for the inclusion of Annex C, driven by a misreading of its own interests, was crucial.

In sum, even at this framework stage, developing countries have given too much for little in return. Needless to say, the exact levels of gains and losses would be clear when the modalities have been fully worked out. But using the near impossible deadlines that have been set for finalising these, the threat of being identified as responsible for the collapse of the Doha Round would be leveraged to ensure that the trend set by the declaration would be strengthened in any final agreement that is forged.