The WTO Stutters Towards A Collapse

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.


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.


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.


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.


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.