Volume 22 - Issue 27 December 31, 2005 - January 13, 2006
A RAW DEAL IN HONG KONG PRASENJIT BOSE
Developing countries are the losers at the World Trade Organisation Ministerial Conference. They have committed themselves to cuts in both agricultural and industrial tariffs without getting anything substantial in return from the developed countries.
BOBBY PIP/REUTERS: South Korean protesters, mainly farmers, being prevented by the police from marching to the Hong Kong Convention and Exhibition Centre, the venue of the Ministerial.
The World Trade Organisation (WTO) Ministerial Conference, which commenced in Hong Kong on December 13, adopted a declaration on December 18 after six days of acrimonious negotiations between developed and developing countries. Although initially there was a show of unity among developing countries, especially on the issue of agriculture, which was reflected in the formation of the G-110, the final outcome of the Ministerial has been thoroughly anti-development. The Ministerial Declaration has not only failed to address substantially the concerns of developing countries but has actually paved the way for an eventual trade deal by the end of 2006, which is going to be severely detrimental to their interests.
It is clear by now that the so-called "Development Round" launched in Doha in 2001 has been manipulated by developed countries, especially the United States and the members of the European Union, to push for further trade liberalisation in developing countries while they continue to protect their economies through high subsidies and non-tariff barriers. Far from redressing the asymmetries of the global trading system, the Doha Round seems to be heading for another catastrophe for the developing world.
The E.U. stuck to its intransigent position on the deadline of 2013 for the elimination of export subsidies and developing countries gave up their demand for an earlier end date despite the initial collective efforts of the G-110. The gross inadequacy of this so-called "concession" can be understood from the fact that export subsidies comprise less than 2 per cent of the total farm subsidies in the developed world. There has been no concrete commitment on the reduction of domestic support other than export subsidies. The E.U. can continue to subsidise agriculture to the tune of 55 billion euros a year. The E.U. budget adopted recently ensures that nothing can be touched in the agriculture budget till at least 2013. The U.S. budget reconciliation process and the final vote in the Congress are set to extend domestic support to agriculture and counter-cyclical support to commodities up to around 2011.
Even in the case of cotton, the agreement to eliminate subsidies by 2006 is restricted to export subsidies only and does not include other forms of domestic support. The U.S. refused to give duty-free access to exports from Least Developed Countries (LDCs) for 99.9 per cent of product lines and the final agreement was on 97 per cent of them, which would enable the U.S. and Japan to deny market access to LDCs in product lines such as rice and textiles. Much of the Aid for Trade for LDCs, which is being showcased by developed countries as a "development package", is disguised in conditional loan packages that are contingent upon further opening up of their markets.
India stands to gain almost nothing from the so-called "concessions" offered by developed countries. Whatever little benefit would accrue to developing countries in terms of enhanced market access would be cornered by agri-exporters such as Brazil and Argentina. India's proactive support to Annex C of the Ministerial Text (on Services), which was opposed by a large number of developing countries, with the G-90 submitting an alternative draft, was most unfortunate. This reflected India's lack of commitment to the unity of developing nations. The gains that are supposed to accrue to India in terms of Mode 1 and Mode 4 liberalisation, which would only benefit some sections of the corporate sector such as the business process outsourcing (BPO) industry and a small segment of skilled professionals, does not justify compromising the interests of an overwhelming majority of the Indian population.
Union Commerce Minister Kamal Nath had categorically assured Parliament before travelling to Hong Kong that there would be no compromise on India's interests in agriculture and industry in return for some concessions in services. He spoke almost on the same lines at the plenary session of the Ministerial as well. However, all this was forgotten during the final stages of the negotiations. Rather than standing up to the pressure exerted by developed countries, India played the most disappointing role of facilitating the adoption of the Ministerial Text despite the unwillingness of several developing countries. India's complicity in pushing the final agreement along with Brazil reflects poorly on the ability of these two major players of the G-20 to provide leadership to developing countries. It is noteworthy that Cuba and Venezuela categorically expressed their reservations on the texts on non-agricultural market access (NAMA) and services in the concluding session of the Ministerial.
The most dangerous aspect of the Hong Kong deal is the agreement on services (Annex C of the Ministerial Text) that seeks to subvert the basic structure of the General Agreement on Trade in Services (GATS), where countries are hitherto allowed to make voluntary commitments to liberalise their services sectors in accordance with the level of their economic development and national requirements. Para 7 of Annex C emphasises request-offer negotiations on a "plurilateral basis", which would undermine that flexibility. Though these "plurilateral negotiations" (in a specific sector or Mode) are seemingly envisaged as part of the "request-offer" approach, the way the text is worded in Para 7(b) makes it clear that those who receive such a request "shall enter" into plurilateral negotiations "so organised" as to facilitate participation by all members. In effect, any individual developing country receiving "plurilateral" requests will find it very difficult to resist them. With the Ministerial Text setting October 26 as the timeframe for the final draft schedules of commitments , it is evident that developing countries like India would be soon forced into sectoral and government procurement negotiations through offers made by developed countries for across-the-board opening up of the services sectors.
While the government has already launched a propaganda on the supposed gains accruing to India following further liberalisation in Mode 1 and Mode 4, in terms of more outsourcing and more H1B visas, it is silent on the agreed "objectives" with regard to Mode 3, that is, "commercial presence" category of service providers, which is a euphemism for foreign direct investment (FDI) in a wide range of services, from banking and insurance to health and education. Major concessions on the part of developing countries have been made here which would only benefit the multinational companies based in the developed world. On Mode 3, the agreed "objectives" are: "Commitments on enhanced levels of foreign equity participation; removal or substantial reduction of economic needs test; commitments allowing greater flexibility on the types of legal entity permitted."
The objectives of the multilateral investment regime and government procurement, which developed countries had pushed earlier on from the Singapore Conference in 1997 (hence known as Singapore Issues) and given up in the aftermath of Cancun after strong resistance from developing countries, have made a backdoor entry through the Services Text in Hong Kong, with the active support and collaboration of India. The gains of Cancun have thus been frittered away.
By agreeing to the objective of securing "commitments on enhanced levels of foreign equity participation" under Mode 3, India has paved the way for greater liberalisation of the services sector in future. Besides the threat of commercialisation of social services such as higher education and health facilities (which have already figured in India's Offer list), this would also come into conflict with India's domestic regulations in terms of the FDI caps in financial services such as banking and insurance. GATS clauses of progressive liberalisation will also ensure that foreign service providers will have to be given the same regulatory treatment as domestic ones. This will severely compromise the ability of developing countries to regulate foreign service providers.
INDIA'S prime interest in agriculture was to ensure the protection of its small and marginal farmers from the onslaught of artificially low-priced imports or threats thereof. The proposals for agricultural tariff cuts, which are already on the table, are quite ambitious and the G-20 has already committed itself to undertake cuts to the extent of two-thirds of the level applicable to developed countries. Moreover, India has 100 per cent tariff lines bound in agriculture with the difference in the applied level and the bound level not very marked in many lines. In this context, the systemic problem faced by India's small and marginal farmers practising subsistence agriculture will only get aggravated as a result of the impending tariff cuts that have been agreed upon. The government claims that the right to designate a number of agricultural product lines as special products based upon the considerations of food and livelihood security and to establish a special safeguard mechanism based on import quantity and price triggers, which have been mentioned in the Ministerial Text, adequately addresses the concerns of Indian farmers. The claim is questionable since the nature as well as the extent of protection under the category of special products remains restricted and the special safeguard mechanism, admittedly, is a measure to deal with an emergency and is of "a temporary nature". Therefore, seen in the light of the insignificant reductions in domestic farm subsidies by developed countries , tariff reduction commitments by developing countries seem to be totally unjustifiable.
Developing countries have also agreed on the Swiss formula for tariff cuts under NAMA. Although the coefficients will be negotiated later, it is unlikely that developed countries will agree upon sufficiently large coefficients for the formula that would ensure adequate policy space for developing countries in future to facilitate development of different sectors of their industries. The Ministerial Text's ritual references to "less than full reciprocity" and "special and differential treatment" fails to conceal the fact that the flexibilities provided by the July framework (Para 8) regarding the nature of the tariff reduction formula, product coverage, the extent of binding and the depth of cuts have been done away with. Moreover, no concrete commitment has been obtained in the Ministerial Text for the removal of the Non-Tariff Barriers by developed countries, which is their principal mode of protection, despite developing countries making such major concessions on industrial tariff cuts.
The fact of the matter is that developing countries have committed themselves to cuts in both agricultural and industrial tariffs, without getting anything substantial in return from developed countries. And India has facilitated the adoption of this bad deal in the backdrop of an acute crisis faced by Indian agriculture. Unfortunately, developing countries have lost the opportunity to rework fundamentally the iniquitous Agreement on Agriculture and protect the domestic policy space vis-à-vis industrial protection by developing countries, which could have been achieved by galvanising the unity of the G-110.
THE developed countries have been able to extract the maximum advantage possible out of the agreement on the Trade-related Aspects of Intellectual Property Rights (TRIPS). Therefore, they are not interested in a review of the TRIPS Agreement. However, it was in India's interest to bring to the table issues related to TRIPS that should be considered for review and for necessary amendments. Specifically they pertain to issues such as patent period, patenting of life forms, the possibility of having special provisions for sectors related to health and food security. This is well within the mandate of the TRIPS Agreement, where a mandated review of the agreement is long overdue. Many developing countries have already called for such a review.
It is also surprising that India did not oppose the decision of the WTO (announced on December 6) to amend the TRIPS agreement based on a mechanism that has failed to prove that it can increase access to medicines. The so-called "August 30 decision", which was designed in 2003 in the aftermath of the Doha Declaration on Public Health and Access to Medicines - - to allow production and export of generic medicines to countries without manufacturing capability, is widely acknowledged to be cumbersome and inefficient. Till date there is not a single instance where the mechanism has been used, and not one patient has benefited from its use despite the fact that newer medicines, such as second-line drugs for the Acquired Immune Deficiency Syndrome (AIDS), are priced so high that they are out of reach of poor patients. India should have argued for delaying the amendment and exploring the possibility of an improved mechanism for supply of patented drugs at affordable prices to countries that do not have the capability to manufacture them. The amendment has made permanent a burdensome drug-by-drug, country-by-country decision-making process, which does not take into account the fact that economies of scale are needed to attract the interest of manufacturers of medicines. Without the pull of a viable market for generic pharmaceutical products, manufacturers are not likely to want to take part in the production-for-export system on a large scale.
Kamal Nath was among the first few developing country Ministers to endorse publicly the Draft of the Ministerial Text in Hong Kong and its development content. A study of the fine print of the Ministerial Text, however, shows that the gains for developing countries, particularly India , are by far too few. Moreover, the costs in terms of agricultural and industrial tariff cuts and service sector liberalisation far outweigh the supposed benefits. No deal in Hong Kong would have been better than a bad deal. The Union Commerce Minister has to explain why such a bad deal was eventually agreed upon and why India acted as a facilitator of its adoption.