The
WTO Stutters Towards A Collapse

Amit
Sen Gupta

The
World Trade Organisation stuttered towards another collapse as a
mini-ministerial meeting in Geneva, earlier this month, ended without any
progress. That the talks seem to have reached an impasse was borne out by WTO
chief Pascal Lamy’s comments that: “There has been no progress and
therefore we are in a crisis.” It is being predicted that if no agreement
is reached by the end of the G8 meetings in St Petersburg this month, the round
will collapse.

The
ongoing round of negotiations in the WTO is termed the “Doha Development
Round”. It gets its name from the fact that this round of negotiations was
initiated in at the WTO ministerial meeting in Doha in 2001, and ministers
agreed that the round should be focus on “development” that is designed to
create opportunities for developing countries.

INTRANSIGENCE
OF DEVELOPED COUNTRIES

The
latest breakdown in negotiations came as a result of the extreme intransigence
of developed countries, whereby they wish to negotiate the opening up of
developing country markets for their industrial goods and services, while at the
same time refusing to respond likewise by cutting subsidies that they provide to
their farm products in order to promote access to agricultural products from
developing countries. This stance puts to question the real intent of developed
countries, especially their adherence to a “development” agenda in the WTO.

It
may be recalled that since Doha, the WTO has been on the brink of collapse. The
Cancun Ministerial in 2003 collapsed without any agreement. The Hong Kong
Ministerial in 2005 tried to salvage some ground by keeping many issues open for
negotiations. It is now clear that when pending issues are negotiated, there
appears very little common ground between the interests of developed and
developing countries. As mentioned earlier, at the heart of the continued
failure to reach an agreement, lies the refusal of the EU and US to cut
subsidies to their agriculture and agricultural exports. Given this, developing
countries are loath to concede any more ground, recalling the repeated failure
of developed countries to honour earlier commitments.

GROWING
UNITY OF
DEVELOPING NATIONS

Matters
had reached a flashpoint in 2003 in Cancun when a large number of African
countries walked out of the negotiations saying “enough is enough”. The WTO
has, since its inception, functioned through murky backroom deals and
arm-twisting by developed countries. This has often made a mockery of the
supposed democratic decision making process in the WTO, where technically each
country has one vote. What we are now starting to see is a closing of ranks
within developing countries, apparent since the last rounds of negotiations in
formation of coalitions of developing countries in the form of G20 (group of 20
developing countries), G33, G90 etc. While such coalitions have tended to be
fragile and open to subversion by the US and EU, they seem to have started
solidifying into groups that speak with coherence in the interest of developing
countries.

The
issue for developing countries like India has always been, at what terms should
they agree to be part of the global trading system. The WTO had been created
from the earlier framework called GATT in 1995, in order to provide an impetus
to global trade. It is natural that there are differing perceptions regarding
how global trade should be regulated, depending on which side of the North South
divide one comes from. Developed nations see the expansion of global trade as a
way to prise open markets in developing countries on one hand, while on the
other restricting the ability of developing nations to develop their independent
capabilities in manufacturing and services. Developing countries on the other
hand would like to see global trade as addressing their needs of accessing the
markets of rich countries, while at the same time developing their independent
capabilities. There is an obvious dissonance between these two objectives.
Developing countries erred grievously during the Uruguay Round of negotiations,
by agreeing to terms that placed onerous conditions on them through the WTO
agreement. Having been sucked into this system, developing countries are now
having to look for ways to negotiate terms that provide them with some
advantages. This has not been an easy process. On the face of it, developing
countries are in an obvious majority in the WTO, and should be able to negotiate
better deals for themselves. In practice, such an unity of developing countries
have been almost impossible to forge. Part of this has to do with bilateral
pressures exercised by the US and EU to break the unity of developing nations.
The other part also has to do with the policies promoted by ruling classes in
developing countries themselves, which rely on virtues of the market.

If
we understand this background, it is clear that if talks in the WTO are
collapsing, it is because the US and EU are finding it more and more difficult
to push through their interests in the negotiations. Clearly 2006 is very
different from 1995. After being pushed against the wall, developing countries
are being forced to negotiate better deals for themselves to salvage some degree
of legitimacy as they go back to their people. The ruling classes of most
developing countries had negotiated away large parts of their economy when they
signed the WTO agreement. Now they are being forced to negotiate back some of
the lost ground.

NO
TEARS NEED BE

Given
such a situation, one need not shed tears if the WTO negotiations falter and
come to a standstill. India and other developing countries have a stake, not in
perpetuating the present trading system, but in negotiating a system that serves
their interests. This is not an easy process, but the growing unity of
developing nations is a step in the right direction.

Let
us now turn to the substantial issue that lies at the heart of the present
dispute. Much of it has to do with subsidies that the EU and the US provides to
its farmers. These subsidies include subsidies for domestic production as well
as for exports. At the Hong Kong Ministerial there was some progress only in the
case of export subsidies, with a commitment by the EU that these would be phased
out. But the bulk of the subsidies still remain and there was no progress on
phasing these out. It has been calculated, for example, that the averaged
subsidy available for rearing a cow in Europe is more than the income of an
Indian peasant! This translates into closing the markets of rich countries to
products from the developing countries on one hand, and the accelerated entry of
agricultural products from the EU and US into developing country markets. The EU
and the US have linked their willingness to reduce agricultural subsidies, to
what is called Non-Agricultural Market Access (NAMA). NAMA pertains to market
access for non-agricultural goods (viz. manufactured goods) and this is sought
to be facilitated by lowering of import tariffs. Traditionally developing
countries have kept import tariffs high in sectors where it wants to protect its
domestic industry. It needs to be understood that such protection has been a
historical ploy used by all countries at the stage of development when their
domestic industries are just starting to find their feet and require protection.
The US did it against imports from Europe in the nineteenth century, Japan did
likewise in the early twentieth century, and S.Korea and Taiwan did it in the
late twentieth century. But now this obvious method of protecting domestic
industry is sought to be compromised.

The
story around agricultural subsidies is even more interesting and points to the
negligent ways in which developing country governments (including the present
Indian) have carried out negotiations in the WTO in the past. Traditionally
developing and developed countries have protected domestic agriculture in
different ways. The former, lacking resources to directly subsidise its
agriculture, have tended to protect its agriculture through Quantitative
Restrictions – i.e. by setting quotas above which agricultural imports in
specific areas were not allowed. The latter, as elaborated earlier, provide
direct subsidy to its farmers. Since 1995 developing countries have signed away
their bargaining power by removing QRs on agricultural imports, without
receiving anything in return from developed countries.

NEED
TO GO BEYOND GESTURES

Kamal Nath, India’s
representative at the talks in Geneva, has sent the correct signal by being part
of the developing country bloc that refused to be brow-beaten into agreeing to
an unfair deal. But just as one swallow does not make a summer, this position of
the Indian Government needs to be followed up with other measures and have to be
consistent with policies being pursued by the Government. Among other measures,
the Government needs to impose QRs again on imports from developed countries,
because clearly the US and the EU have refused to honour their side of the
bargain. India should also refuse categorically to negotiate on NAMA till there
is a firm commitment from the US and EU to reduce farm subsidies. As
importantly, India’s positions at the WTO need to be consistent with its
domestic policies. Unfortunately this is far from the case, as India proceeds to
liberalise imports of agricultural commodities on its own, without being obliged
by the WTO to do so. A case in point is the decision to import 3.5 million
tonnes of wheat by drastically reducing the import tariff to zero. It is
understood that the Cabinet has approved plan to give unilateral market access
in sugar against zero duty.

In
the absence of a consistent approach to trade, India’s position at the talks
in Geneva can be interpreted as being mere posturing. Gestures do not make a
real difference, hard policy positions do. It is to be hoped that the signal
sent out by India in Geneva will translate into some actual action.