Geneva Debacle and its Aftermath

Published: The Kathmandu Post, 4&5 August 2008
By: Ratnakar Adhikari

The announcement of the failure of the mini-ministerial conference held at the World Trade Organization (WTO) headquarters in Geneva after nine days of acrimonious negotiations is certainly not good news for the multilateral trade negotiations. The meeting was convened to salvage the Doha Round of trade negotiations, which has been passing through turbulent phases ever since it was launched in the Qatari capital in November 2001.

Although the talk seems to have failed on a non-trivial issue, it was definitely not one of those high profiled issues such as removal of subsidies on agricultural products, tariffs on industrial products, cross-border movement of workers for the provision of services, or amendment of the global intellectual property rights (IPR) regime that were also on the table. These were the issues that were suspected to become contentious and had the potential to derail the entire negotiations.

As informed by Pascal Lamy, Director General of the WTO, there was "convergence" on nearly 18 issues which were under negotiations as a part of the Doha Deal. He had also circulated a text as a possible compromise for negotiations on agriculture and industrial goods (known as non-agricultural market access, or NAMA in WTO jargon). He had based his opinion on the text of the Chairs of the Agriculture and NAMA negotiations, both issued on 10 July 2008 as the basis. Some of the salient parts of these texts are discussed below.  

On the most controversial matter of reduction of agricultural subsidies, Lamy proposed that the US would reduce its "other trade distorting support" (OTDS) by 70 percent and the European Union by 80 percent. These figures are mid-point between the range proposed by the Chair of agriculture negotiations. Critics of Lamy’s proposal, such as the Third World Network, argue that despite being huge numbers, these figures do not mean much to the developing countries both in terms of protecting their agriculture or achieving market access. This is because both the EU and US have transferred major portion of their subsidies to the so called "Green Box" subsidies which are not actionable under the Agreement on Agriculture (AoA) of the WTO.  

NAMA is naturally the second most contentious issue given its implications for the market access of developing countries on certain sensitive products such as textiles and clothing on industrial countries market, and its potential to drastically reduce tariff barriers on the industrial products of the developing countries. However, Lamy's text called for bringing down all tariffs of the developed countries below 8 percent and those of developing countries below 20 or 25 percent depending on the how many products developing countries would like to exclude from the tariff reduction commitment.

Since developed countries' tariffs are already low (3.8 percent on an average) with high tariffs being maintained on certain industrial products, the proposed arrangement would reduce their tariff only by 28 percent, whereas tariff reduction in the case of developing countries would be by 60 percentage point, as highlighted by critics. However, given the fact that developing countries tariff barriers were considerably higher, it was natural for the proposal to recommend sharp reduction of the same. Despite its shortcomings, such a reduction commitment, bound at the multilateral level, would promote South-South trade, which has not achieved its true potential due to high tariffs on industrial products in developing countries.

Besides, there was some movement on the proposal of the developing countries to facilitate the temporary movement of workers to the developing countries for the provision of services during the "signalling conference" that was organized on 26 July. Similarly, on the issue of intellectual property rights, although the convergence was difficult, the matter was at least beginning to "come on the radar screen" in the words of Norwegian foreign minister Jonas Gahr Store who was heading the consultation on IPR issues.

The talk broke down over the issue of protecting the livelihood of the farmers in the developing countries through a mechanism to raise import tariffs on agricultural products in case of "import surge." Technically know as "Special Safeguard Mechanism" (SSM), developing countries had managed to incorporate this issue during the historic negotiations held in Geneva in July 2004, which prevented the Doha Round from sinking after the failure of the Cancun Ministerial Conference of the WTO in 2003. 

In the AoA, there is a provision for the use of special safeguard (SSG) to deal with the import surge of agricultural products that had gone through the process of "tariffication" (a process of converting non-tariff barriers to tariff) during the Uruguay Round of multilateral trade negotiations. Since majority of countries that have tariffied non-tariff barriers are the developed countries, majority of them have the right to make use of SSG. Very limited number of developing countries is able to take resource to SSG even in the event of import surge.  

SSG contains a provision of volume and price trigger for the imposition of additional safeguard duty in the event of import surge without following the generally stringent WTO rules on safeguards. The volume trigger has fixed between 105 and 125 percent depending on the available market access opportunities, which means that if the volume of import is between 5 and 25 higher than the average imports of previous three years' period, SSG can be imposed. Similarly, price trigger has been fixed at 10 percent, implying that if the import price of the product falls below 90 percent of the price of the base year (1986-1988), SSG can be imposed.   

However, developed countries, particularly the USA, were found reluctant to offer similar treatment to developing countries in the case of the use of SSM. USA, following the proposal from the Director General of the WTO, maintained that volume trigger should not be less than 140 percent with the condition that it has to be demonstrated that prices have also declined due to the import surge. Whereas in the SSG, the volume and price trigger are independent of each other and any one of them can be used to address the problem of import surge, the above proposal on SSM would be attracted only when there is 40 percent increase in volume of import as well as reduction in the price of the commodity in question. 

There was no way that China and India would have accepted such a proposal and due to rigid stance of the USA, the talk collapsed. As reported by BRIDGES -- one of the most authentic and independent sources for the information on WTO issues -- The US "did not budge from its position that a 40 percent increase in import volume was the lowest possible trigger it could accept for SSM remedies".

It appears that the USA, despite posturing its image as the saviour of the global trade talks, could not show minimum flexibility that was necessary to rescue the round. Indeed, developing countries had made a counter proposal whereby they would be allowed to impose SSM on 7 percent of their tariff lines, with SSM remedies triggered by the volume increases starting at 10 percent. According to the proposal for the remaining 93 percent, they were willing forgo the remedy by remaining within the pre-Doha tariff binding. Even this proposal was turned down by the USA. In order the dispel the fear that developing countries could misuse the SSM for the protectionist purpose, developing countries even offered that it can be subjected to strict review mechanism. Even after that the US did not change its position. 

One can sympathise with the US position. As the lone superpower, it would have liked to impose its will on the rest of the world as it was able to do until the conclusion of the Uruguay Round. This is understandable from a country, which has even taken recourse to unilateral measures when it is unable to bend the rules in its favour multilaterally. However, time has come for the USA to recognize that emerging economic superpowers are not likely to comply with the terms and conditions of the USA, at least on an issue that has global ramifications that too at a multilateral forum like the WTO. This is because WTO, unlike World Bank and International Monetary System, operates through the system of consensus based on the principle of one country one vote. 

Although India and China were seen as the vocal proponents of the developing countries' rights to protect their farmers from import surge, they were, in fact, representing the interest of close to 100 developing Member countries of the WTO. This number does not include some developing countries, which are among the major agricultural exporters such as Argentina and Uruguay.

The failed meeting is clearly a missed opportunity, particularly to address the problem of agricultural subsidy in the developed countries, which has been the cause of the failures of most of the trade negotiations so far. Time was ripe because such a reform would have been much easier due to the increased income of the farmers resulting from rising prices of agricultural produce globally.

From the perspective of a least developed country (LDC) like Nepal, a successful conclusion of the round would have meant the possibility to make use of SSM, and development of a possible mechanism for the protection of its biological diversity and associated traditional knowledge. Moreover, an agreement on trade facilitation and commitment to provide technical assistance for the same would have resulted in reduced cost of doing business.

Finally, Nepal would have gained through liberalization of workers' movement to the developed countries' market, even though in a limited number to begin with. Two other issues, in which Nepal has considerable interest, namely, duty-free quota-free market access and aid for trade should move forward even without the conclusion of the DDA. Nepal would have obtained all these benefits without having to make any sacrifice not only by virtue of being an LDC, but also due to the commitments it has made at the time of its accession to the WTO.

What is the future of trade liberalization now and what should be the way forward for a country like Nepal? 

First, the multilateral talks are not likely to resume anytime before the summer of 2009, because of the elections in USA, India and some of the European countries. Some suspect that it may not even start until the beginning of 2010.

Second, this failure is likely to result in resurgence of protectionist sentiments particularly in the USA and the Eurozone, which is witnessing recession at present. The new wave of protectionism may not take the form of raising tariffs by violating the WTO commitments but increasing tariffs upto the bound level or making use of various trade remedy measures, such as anti-dumping, countervailing and safeguards.

Third, temptation to ink bilateral and regional agreements to reduce trade barriers is likely to increase. While regional trade agreement could prove beneficial for the developing countries as well as LDCs like Nepal, bilateral trade agreement could have deleterious impact on the weaker nations due to asymmetric bargaining positions. Bilateral trade agreements signed by the USA and EU with various developing countries contain WTO-plus provisions particularly in the areas of intellectual property rights; services and investment liberalization; and environment and labour standards. For a country like Nepal, one of the major strategies should be to conclude Comprehensive Economic Partnership Agreement (CEPA) with its largest trading partner -- India. However, such as agreement, which involves liberalization of goods, services and investment as well as establishment of other economic and technical cooperation, should be signed only after conducting a comprehensive study on the costs and benefits to the economy as well as by building national consensus on the issue. 

Finally, on a positive note, with so much of achievements in terms of reaching agreement on a number of issues, it is quite possible that the WTO member countries will use the current draft package as a starting point for any future negotiations. Although there is a disagreement on this point not least because of uncertainty about how the political climate will shape up in the major trading nations, it is likely that some consensus will emerge on this issue in days to come.

As and when negotiations resume, Nepal and other LDCs should not only support the current proposal of developing countries on SSM, but also collectively press for the timely implementation of trade facilitation decisions. Similarly, movement of workers as well as amendment of TRIPS Agreement to incorporate disclosure requirements on patent applications so as to prevent bio-piracy remain equally vital to protect the economic and social interests of the LDCs.