Trade Block

The draft text for the meeting, put out by WTO8217;s current Director-General Pascal Lamy, shows there are wide differences among key members about everything, be it on opening up the services sector or on reducing tariffs in the manufacturing sector or issues relating to the vital agriculture sector. A few days ago, he toned down expectations from the meeting saying, 8216;8216;I am no Harry Potter.8217;8217;

His reference to J K Rowling8217;s wizard is an indication of how nothing short of magic can help the Hong Kong meeting reach some definite conclusions. The World Economic Forum8217;s Klaus Schwab noted, 8216;8216;If Hong Kong fails, business will lose trust completely in multilateral organisations.8217;8217;

While several leaders have tried to say that December 2006 not 2005 is the deadline for the Doha Round of negotiations, the way things are going, even that looks bleak. The US had appointed a Fast Track Negotiating Authority to push WTO talks forward, but that Authority8217;s tenure ends in early 2007. And unless US President George Bush renews the Authority, this WTO Round could get pushed back as far as 2010, some feel.

State of Play
IN recent times, every alternate WTO meet has been a success and every other one a failure. If the Seattle meet in 1999 failed, the Doha meeting in November 2001 was a success. If the Cancun meet in 2003 flopped miserably, the WTO8217;s General Council meeting in Singapore in July 2004 managed to push through what is called the July Framework.

However, the July Framework was widely opposed by several developing country think-tanks as a 8216;draconian pact8217; that puts them on the backfoot. Devinder Sharma from the Forum for Biotechnology and Food Security argues, 8216;8216;Agreeing to the July 2004 framework itself breaks the lakshman rekha the Indian government has often talked of. According to the Uruguay Round, we have removed restrictions in 2001 itself. So why do we need to concede further?8217;8217;

However, the developing world will not be easily bullied by the US, EU, et al, any more. The core of the G-20 nations8212;India, China, Brazil and South Africa8212;have stuck together since Cancun. In the past, whenever such groups emerged, the developed countries tried to armtwist them or offered a side incentive to make countries pliant.

India8217;s role in the negotiations has also grown substantially. In recent months, Commerce and Industry Minister Kamal Nath has spent almost as much time in Geneva, proactively engaging all key players in the negotiations, as he has spent in his Udyog Bhawan office in New Delhi. Not only is the developed world looking at India8217;s concerns more seriously, the developing world has utmost trust in our sensitivities.

Says Additional Secretary in the Commerce Ministry G K Pillai, 8216;8216;The developing countries believe India, they don8217;t trust Brazil or China. If India agrees to something, they trust it. We have a double role in that sense. In fact, in the TRIPS Public health proposals, the African countries are being put under so much pressure. They tell us that 8216;We may have to concede to the US, but India should support our proposal8217;.8217;8217;

Deadlock December
THERE are many contentious issues at stake in Hong Kong. One is Non-agricultural Market Access NAMA, which deals with global trade in industrial products, marine products and rubber, a sensitive product for India.

All that countries have to agree on in NAMA is just how much tariff cuts can be agreed on. Developed countries are suggesting a Swiss Formula to arrive at the tariff cuts, which is, without getting too technical, basically against the interests of the developing world.

Pillai says that the Swiss formula isn8217;t acceptable as 8216;8216;it means that we have to cut our tariffs more and they have to cut less.8217;8217; The developing world is suggesting an alternative formula for tariff cuts called the Argentina, Brazil and India Formula, but obviously EU and US are not buying.

The services sector, one that has buoyed the Indian economy in recent times, also needs a brief mention. For instance, we have to decide which services sectors we want to open up. Are we fine with letting in international corporate presence in India in return for more free cross-border movement of skilled and unskilled workers? On the other hand, none of these issues are likely to come up in Hong Kong.

It8217;s The Barn, Stupid
UNLIKE NAMA, which has been discussed since 1948, the core issue in Hong Kong is agriculture. Unless we see some action on agriculture, nothing else will move in Hong Kong. And there is good reason to believe that agriculture will see no agreement.

At the core of the disagreement over agriculture is this glaring fact. While peasants in developing countries struggle to earn an income of a dollar a day, the developed countries extend domestic support subsidies of a billion dollars a day to their farmers.

In the first 10 years of agriculture coming into the WTO ambit, from 1995 to 2005, the developed world was to cut those subsidies by 25 per cent. Instead, the actual total money going to the farmers has gone up. In sum, these subsidies have been increased by changing the garbs under which they are extended.

Now, the US and the EU have offered some absurd proposals to 8216;reduce8217; subsidies while still having room to actually 8216;increase8217; them. In return, they want the developing world to open up their markets for their agri-products. This could have disastrous consequences for the food security and the millions of poor farmers across the developing world.

No amount of negotiations can help resolve this gap. The real key to resolving the EU and US8217; obstinate stance on agricultural subsidies at home lies at home. Consider this: In the US, of the 100 billion extended in subsidies to farmers, at least 26 per cent comes back to political parties as contributions from Cotton Farmers8217; Associations and The Sugar Alliance. 8216;8216;It8217;s a real unholy alliance,8217;8217; notes Pillai.

It8217;s up to American taxpayers to wake up to this gross misuse of public money. After all, agriculture only employs 4 per cent of the population and generates only 4 per cent of the US GDP. The same could be said about the EU too. The question is, who will bell the fat cats?

Square brackets in HK loop
Bibek Debroy, director of Rajiv Gandhi Institute of Contemporary Studies, is among the foremost experts on WTO-related matters in the country. In an interaction, he explains what8217;s going to happen8212;and what will not.

On The Hong Kong Agenda
All sorts of issues are contentious. They are bound to be, as that8217;s what the negotiations are about. There are issues in the services sector, like what sectors do I open up? Do I agree to corporate presence in India? In return, do I get cross-border movement of people and services?

Similarly, in manufactured products, the controversy is really about the formula for reducing tariffs.

The WTO operates on the basis of Special and Differential Treatment SNDT in favour of developing countries. This means that these countries have a lower commitment and a longer timeframe to meet those commitments. But the developed countries are calling for proportionately higher reductions in developing countries and lower reductions in developed countries. This is violative of the SNDT principles.

But none of this would have led to the failure of the HK meet. I8217;m certain that nothing is going to happen in Hong Kong. If there are differences in the draft declaration, it8217;s usual practice to mark the areas with square brackets, meaning that the ministers have to sort this out. At the moment, there are too many square brackets in the HK draft. It is completely unreasonable to expect the ministers to reach a conclusion over a few days.

This doesn8217;t mean that the WTO will fail. The Uruguay Round negotiations went through similar hiccups. But no country wants to come back and say HK was a failure. So what will probably happen is another ministerial or mini-ministerial will be planned for March or April 2006, to try and resolve the issues.

On the root of destined failure
The core problem is agriculture. There are three completely separate, yet related issues in agriculture. First is market access, where countries have to agree to open up their markets. Then they have to agree on timeframes, reductions for developing countries, safeguards and exemptions for some special products.

The second part is domestic support to agriculture, which is pretty extensive in most developed countries. And the third part is subsidies of agro exports. Generally, the developed countries8217; position is 8216;Look, we cannot eliminate domestic support or export subsidies. So let8217;s talk about market access.8217;

The developing countries8217; counter-argument is: 8216;If domestic support and export subsidies are distorting the market, then how does market access matter as they are linked. Unless you are prepared to reduce domestic support and export subsidies, there8217;s not much point in talking of market access.8217;

This is where the polarisation happens. So while parallel discussions will be on about manufacturing and services sectors, at the end of it, if you don8217;t have an agreement on agriculture, the other things won8217;t matter.

On India8217;s concerns
The G-20, of which India is a member, has countries like Brazil with strong interests in agro exports. India, however, doesn8217;t have a very strong export interest in agriculture. Our actual interest is really to minimise import damage, which can be significant for two categories8212;certain varieties of edible oils and dairy products, in which we are simply not price-competitive.

If we can8217;t control their imports, all hell will break loose. Both the US and the EU have made offers on domestic support and export subsidies. But the reductions offered are based on their maximum tariff rates, which is much higher than the actual levels of domestic support and export subsidies.

In fact, their reduction proposals give the US and the EU room to actually increase both domestic support and export subsidies from the present levels.

On India8217;s preparedness
If you compare India with the US and EU, our negotiating strategies or team strength may not be up there yet. But compare it with the Uruguay Round and we are much better prepared.

India is in a position to call the development bluff spewed out by developed countries. We can now say: 8216;If we don8217;t have a deal in HK, fair enough, let8217;s go back home.8217; This is something we couldn8217;t have said in 1989.

What changed in Cancun is that the core of the G-208212;India, China, Brazil and South Africa8212;have got much greater power now. Since Cancun, these four countries have stuck together.

8216;They lack sensitivity to our issues8217;
Kamal Nath, Union Minister of Commerce and Industry, has been living out of a suitcase for months now in the run-up to the Hong Kong meet. On the eve of flying out for one last set of meetings, Nath talked to Vikas Dhoot.

What does the WTO mean for the layman?
WTO really makes the rules of global trade, based on the concept of free, and also fair, trade. Those rules are about every aspect of trade, including agriculture, goods, protections. In the first round of the WTO, countries agreed that they would lower tariffs, that there would be fewer barriers to trade, that there would be disciplines to ensure that developing countries are not barred from trading with other countries. In every sphere of trade, including services, the rules of the game have to be equitable to all. But countries8217; perception of what is fair is different. All countries have sensitivities. In India, we have our poor farmers. So we can8217;t say 8216;We will displace our farmers8217;. Reductions in duties cannot happen at the cost of the people.

What is the main bone of contention at Hong Kong?
The developed world gives subsidies on agriculture that cause trade distortions and artificial prices. The OECD countries have subsidies of 1 billion a day. This artificiality in prices must go, because we are talking of trade flows, not subsidy flows. This is our point. That8217;s why we don8217;t want to give it up8212;because the only thing that can protect us from these subsidies is our tariffs. As simple as that.

How would you define success for the Doha round of talks?
To India, success in the Doha Round means several things, most importantly that there should be no displacement of millions of poor farmers. Non-trade barriers that block trade flows from developing countries should be removed. Agricultural subsidies and tariff peaks should end so that developing countries have market access for products of their interest. The abuse and misuse of the anti-dumping process should stop. Some measures should also be in place to prevent bio-piracy and misappropriation of traditional knowledge.

What are the hindrances?
Developed countries want to continue with their trade-distorting support for agriculture and, to do this, they table proposals that are purely self-benefiting. They have no regard for the development objectives and they lack sensitivity to developing country issues. There is an attempt to create divisions among the ranks of developing countries. They are even trying to reopen the framework everybody agreed to in July.

Is there any hope of these issues being resolved at Hong Kong?
From the state of the negotiations and the intransigence of the developed countries on these fundamental issues, 8216;recalibration8217; of expectations from Hong Kong seems to be the only realistic option.

India8217;s stature and importance in the WTO talks have gone up considerably.
I didn8217;t want to say so myself smiles. Developing countries are looking at India to protect them. We are pro-active with everybody and are considered a lead player in the negotiations now. Developing country unity is fundamental to us.

The suits roll up their sleeves
India Inc8217;s largest delegation is pitching to win

DEV CHATTERJEE
INDIA Inc is spoiling for a fight. Apart from the technocrats visiting Hong Kong, an aggressive corporate India will be keeping an eagle eye on the trade negotiations.

Along with the three-member teams of the top four industrial chambers, associate think-tanks will also send their representatives, making it the largest-ever WTO delegation from India Inc. Some leading Indian firms are also hiring lobbyists from among retired bureaucrats, diplomats and lawyers to walk the talk in Hong Kong.

Not only are the stakes high, so are the emotions. 8216;8216;We should put our national interest above all the pulls and pressures from the developed nations. We must not blindly follow commitments we have wrongly signed in the past,8217;8217; says Cipla8217;s Dr Yusuf Hamied, who is fighting a fierce battle with the MNCs to supply cheap drugs to the poor.

The key issues facing India Inc are agriculture8212;increasing agri exports to developed nations8212;deadlocked negotiations over reducing industrial tariffs, and liberalisation of services, where India has become a strong exporter.

Says Dr Dilip Nachane of the Indira Gandhi Institute of Development Research: 8216;8216;All Indian corporates which are importing and exporting will be directly affected by what the Indian government gives in the trade talks. It is important for India to negotiate well.8217;8217;

But the bottomline is that all other issues will flow from what happens in agriculture. Unlike Brazil, India isn8217;t a significant agricultural exporter. Large corporates like Bharti and Reliance can change this, provided trade barriers to developed nations come down.

Says Manab Majumdar, Additional Director of FICCI: 8216;8216;We are disturbed by the WTO draft circulated just before the Hong Kong meeting because an analysis by an Australian group shows that the new provisions would allow additional market-distorting support or to the developed world8217;s farmers.8217;8217;

Lip-service to agriculture it may be, but India Inc is aware that HK8217;s success depends on what happens here. If the talks fail, other negotiations, like Non-Agricultural Market Access, will come to a standstill.

Here, India Inc wants the present trade barriers for foreign imports to continue. 8216;8216;To be precise, we are strongly opposed to the use of the Swiss formula which asks developing countries to drastically reduce import duties for industrial tariff reduction,8217;8217; says Majumdar.

Even in services, Corporate India feels the government should talk tough by asking the developed countries to give more visas to Indian professionals. For instance, in its revised offers on services, the US8212;which has a ceiling on Indian IT professionals visiting US to work8212; has retained restrictions like quotas, labour conditions, thus restricting movement of people from India to the US.

With India8217;s services exports at 51 billion in 2005, Indian outsourcing and IT industries will obviously benefit the most when services are provided from the territory of one member to the territory of another, or mode 1 and free flow of professionals or mode 4.

Siddhartha Roy, economic advisor of the Tata group who will fly to Hong Kong to see that Tata group8217;s interests are suitably addressed, says: 8216;8216;Normally, the negotiators are only concentrating on cross border supply of services and movement of natural persons from one country to another. When we are opening up our services, there should be a trade-off in the movement of people. It should not be one-sided.8217;8217;

But at the end of the day, India Inc is aware that everything hinges on agriculture. And that India could walk away from the table. That8217;s just fine for honchos like Dr Hamied.