Progressive Regional Action and

Cooperation on Trade

Monthly E-Newsletter

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Volume 2, Issue 21, July-August 2005
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TABLE OF CONTENTS

I. OPINION IN LEAD

'First aproximations' unmet

II. TRADE

WTO-DG designate Lamy selects deputies
LDCs issue Livingstone Declaration
14 LDCs urge US to pass TRADE Act 2005

III. ECONOMY

Slow reform could jeopardize Nepalese economy: IMF
Pakistan faces wheat shortfall
India requires investment in infrastructure to keep up grow
Sri Lanka signs tsunami aid pact with rebels
China revalues yuan
Gleneagles Summit promises aid relief

IV. REGIONAL

Negotiations on SAFTA to end by October 2005
Pakistan urges India to remove trade barriers
Second South Summit at Doha

V. EVENTS

Regional training seminar: 'Road to Hong Kong'

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OPINION IN LEAD
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'First approximations' unmet

The 'July Package' (JP), agreed upon by World Trade Organisation (WTO) members in 2004, rescued multilateral trade talks following the collapse of the Fifth Ministerial Conference at Cancun in 2003. JP set July 2005 as the date for reaching broad consensus on agriculture, non-agricultural market access (NAMA), services, trade facilitation and 'development dimension'.

Since the past 12 months, members have reaffirmed their commitments to the multilateral trading system but have remained short of actually reaching a deal in any area. It comes as no surprise that the WTO General Council (GC) meeting held in Geneva from July 28-30 failed to arrive at 'first approximations', putting the talks in immediate danger but providing a breathing space for members to chalk out deals by the Hong Kong Ministerial Conference. The WTO Director General summed up the situation in the negotiations on the Doha work programme as "disappointing but not disastrous". The Chairs of the negotiating groups could not present 'first approximations' but only report the progress made so far.

The GC meeting comes after a fortnight following the 'mini ministerial' held at Dalian, China from 12-13 July, where 30 trade ministers gathered to discuss issues under the DDA. Earlier 'mini ministerials' in Nairobi and Paris ended without any breakthrough. Declarations and proposals issued by least developed countries (LDCs), G-33 and Asia Pacific Economic Cooperation (APEC) also reveal the deep chasm that exists among members.

The Paris 'mini ministerial' managed to reach a compromise on converting duties to ad valorem equivalents but other issues remain unresolved in the agricultural negotiations, especially on the market access provision of the Agreement on Agriculture. The so-called 'middle ground' proposal of the G-20 has been used as the starting point for negotiations since Dalian. This proposal calls for a banded approach to tariff reductions with four bands for developing countries and five for developed countries. Furthermore, each band would be subjected to a linear tariff reduction approach with overall caps on high tariffs differentiated between developed and developing countries. The United States reacted to this by proposing a more ambitious formula while the European Union is more defensive. Countries are not showing any signs of compromising from these positions.

Talks on NAMA have reached an impasse, as members still remained divided over the industrial tariff reduction formula and also on the treatment of unbound tariffs. Negotiation sessions in June had witnessed support for the Swiss formula, particularly among the trade ministers of developed countries and groups like Asia Pacific Economic Commission (APEC). Higher tariffs imply higher cuts under a simple Swiss formula. Developing countries like Argentina, Brazil and India; which had earlier proposed the Girard formula, remain convinced that the Swiss formula does not reflect the principle of 'less than full reciprocity' in reduction commitments. They would have to make the steepest cuts arising from their higher industrial tariffs than developed countries. However, after Dalian, there is greater possibility about further exploration of the Swiss formula with various coefficients that would accommodate specific concerns of members. Trade ministers also agreed that all tariffs should be bound. Movement on NAMA is closely linked to progress on the agriculture negotiations as statements by countries like France attest.

Although more than 40 new market opening offers - basically revised versions of earlier offers following bilateral negotiations - were submitted between May and June, members remain divided over services negotiations. Therefore, the present request-offer process has not yielded a balanced and substantive outcome. Developed countries and certain newly industrialised countries seek the opening of sectors such as telecommunications, financial markets and information technology while a key issue for some developing countries is lack of movement on Mode 4 (temporary movement of labour).

The WTO’s mandate that puts 'development dimension' at the heart of the negotiations is limited to special and differential treatment provisions. Selected participation in various 'mini ministerials' reveals exclusion and lack of transparency in the working of the WTO, inviting criticisms from many developing countries. Without the realization of 'first approximations', the onus now lies on members to work intensively in the next few months for the success of the Sixth WTO Ministerial Conference.

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TRADE
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WTO-DG designate Lamy selects deputies
 

Incoming World Trade Organisation (WTO) Director-General Pascal Lamy named his team of four Deputy Directors-Generals at the 29 July meeting of the General Council (GC). The deputies are Chilean WTO Ambassador Alejandro Jara, Rwandan WTO Ambassador Valentine Sendanyoye-Rugwabiza, Harsha Vardhana Singh of India, and current Deputy Director-General Rufus Yerxa of the US. They will start their terms of office on 1 October (Bridges Weekly Trade News Digest, 03.8.05).

LDCs issue Livingstone Declaration

Least developed countries (LDCs) have reached consensus against imposition of tariff on products of their export interest and sought duty-free access to developed and advanced developing countries in the upcoming WTO ministerial at Hong Kong in December 2005.  

Issuing the Livingstone Declaration at the end of the Fourth LDC Trade Ministers Meeting held in Livingstone, Zambia, from 25-27 June, they joined hands to push for more financial and technical assistance (TA) to resource-hit countries to help them diversify exports and tap benefits of market access. The Declaration to be presented in the Hong Kong ministerial urges developed countries to provide them with enhanced financial and technical support to help their export diversification initiatives. Developed countries, despite making commitments, have not been enthusiastic to abide by the support commitments as providing TAs is not binding.

The Declaration also calls for unhindered temporary movement of workforce from the LDCs. Identifying that developed and developing countries across the country can absorb a large number of semi-skilled LDCs work force, the trade ministers converged to voice out for unfettered temporary movement of manpower. They also upheld the long running-stand of the past to fight for unconditional elimination of export subsidy in agriculture, which has largely made the agriculture market access in developed countries a distant dream for LDCs.  

Trade ministers from 49 WTO member-states representing least developed, developing and developed countries attended the meeting, which was organised to uphold trade interests of LDCs and forge a unified stand in the international trade forum (The Kathmandu Post, 08.7.05). 

14 LDCs urge US to pass TRADE Act 2005

Readymade garment (RMG) manufacturers of 14 least developed countries (LDCs) in the Asia-Pacific region have agreed to urge the United States (US) for early endorsement of a trade bill, seeking duty-free access for export from these poor countries. Representatives of leading business chambers from seven Asian-Pacific LDCs held a two-day conference in the context of the US TRADE Act 2005 in Dhaka from June 21-22 and adopted the Dhaka Declaration.

Severe loss of employment in apparel industries would be catastrophic for the region in economic, social and political terms, reads the Declaration: "Large-scale loss of employment and widespread poverty continue to pose huge challenges to the region. Indeed, the situation is urgent and need urgent attention." The alliance of 14 Asian-Pacific LDCs and tsunami-devastated Sri Lanka has been seeking duty free access to the US markets, particularly RMG and apparel products following the end of global quota system from 1 January 2005.

Four US senators have sponsored the Tariff Relief Assistance for Developing Economies Act (TRADE Act 2005) in the US Congress, representing the 14 Asia-Pacific LDCs and Sri Lanka. The bill has not only sought duty-free access for apparel products for these countries but also expanded preference for other items currently prohibited under the Generalised System of Preferences (The Himalayan Times, 25.06.05). 

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ECONOMY
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Slow reform could jeopardize Nepalese economy: IMF

The International Monetary Fund (IMF) has stated that the pace of structural reforms in Nepal has slowed down significantly during the last year and has warned that the slow pace of reforms could jeopardize the macroeconomic position of the country.

The effective and sincere implementation of the agreed reform actions would contribute to revitalising the economy and help mobilize more donor resources by signaling that the government's macroeconomic policies are sound, stated a press release issued following the completion of a five-day review of Nepal's macroeconomic situation.

The IMF mission suggested that the annual budget should remain focused on raising revenue and sticking an appropriate balance between development and security needs. It urged the government to introduce performance-based incentives at the customs department and large taxpayer office and stressed on the need to plug leakages in the excise regime. Export taxes should be reduced and fiscal transparency improved by merging the security levy into import duties.  

The delegation also stressed on the need for a significant increase in the allocation for capital spending over the projected outcome for 2004/05 as a signal of the government's continued commitment to development activities, including significant increase in the allocation for social sectors, including education and health. The mission stressed on the need to accelerate financial sector reforms, focusing on recovery of enormous non-performing assets at the public banks (around US$ 500 million) and moving promptly to their privatization. Privatization needs to be pursued vigorously to divest weak public enterprises in order to reduce their burden on scarce budget resources. 

The IMF delegation also underlined the need to expedite civil service reform to adopt merit-based recruitment and promotion, which are crucial in ensuring an efficient and professional civil service. The mission, among others, urged the government to implement flexible labour legislation, which allows for ease of hiring and firing. The IMF delegation was in Kathmandu from 13-18 June to assess the overall macroeconomic condition (The Kathmandu Post, 20.6.05).

Pakistan faces wheat shortfall

Pakistan may have to import 500,000 to 700,000 tonnes of wheat as bad weather has damaged the domestic crop. The country's agriculture ministry has stated that domestic supplies could fall short as the country provides 600,000 to 700,000 tonnes of wheat to Afghanistan a year while Pakistan consumes some 20.8 million tonnes annually.

Output is expected only to match consumption and the government will need imported wheat to keep strategic reserves. The country normally keeps 1.5-2.5 million tonnes of wheat as strategic reserves. Pakistan had cut its wheat output estimate to 21.5 million tonnes from an earlier estimate of 22.5 million tonnes for the crop year to May.

Heavy rain in March followed by windy weather in May in the central Punjab province, which produces 80 per cent of the country's wheat, had damaged the crop and the final output figure could slip further. The estimated damage is around five percent of the crop, mostly in Punjab. In 2004, the country harvested about 19.7 million tonnes, below a domestic annual requirement of about 20.8 million tonnes. The country had to import about 1.4 million tonnes of wheat from Australia, Canada, Russia and the United States (The News, 30.6.05).

India requires investment in infrastructure to keep up growth

India needs around US$ 45.8 billion in annual investment in infrastructure with private participation to sustain the seven percent gross domestic product (GDP) growth, a leading industry lobby has estimated.

According to the Confederation of Indian Industry (CII), the core sector must grow as fast as, if not faster than, the GDP growth to sustain the economy and prevent capacity constraints from appearing. At a meeting held to review the state of economy, the CII felt that "a minimum of seven percent of GDP has to go into gross capital formation in infrastructure. This translates into Rs 2 trillion rupees a year of investment". The CII said the private sector could at best provide 20-30 per cent of the desired investment, with the government providing the rest. It is estimated that currently only half of the desired investment is being made in core sectors like power generation, roads, production of crude, cement and coal. While clearly upbeat on growth in all areas of the economy right from manufacturing to services and agriculture, the CII felt there was a need for larger investment in core sectors.

The CII pointed out that the Indian economy had become resilient to high global oil prices. The value added tax, introduced last April, was getting higher collections. Furthermore, inflation was moderate. Non-food credit was rising by more than 20 percent. The fiscal deficit was coming down and various agencies were all forecasting GDP growth rates higher than seven percent for 2005-06. To sustain this growth momentum, the CII has urged the government to ensure on-the-ground implementation of many infrastructure projects like roads, ports, power, coal projects and airports to sustain high rates of economic growth. To attract larger private participation, the CII said that a proper regulatory framework is important, one that is transparent, empowered, and independent (The Economic Times, 10.7.05).

Sri Lanka signs tsunami aid pact with rebels

Sri Lanka's government signed a long-awaited pact to share US$ 3 billion worth of tsunami aid with the rebel group - Tamil Tigers - on 17 June 2005.

The pact, under which committees comprising rebels and government officials can recommend, prioritize and monitor projects, had been held up for months because of infighting that split the ruling coalition. But the rebels say the pact could help jumpstart stalled talks aimed at converting a three-year ceasefire into permanent peace if properly implemented, a move that would likely boost investor confidence choked by two decades of war. The aid deal will help speed up relief to tens of thousands of Sri Lankans still living in tents, wooden shacks and rudimentary concrete homes six months after December 2004 tsunami that killed 40,000 people along the island's shores.

M.S. Jayasinghe, secretary of the ministry of rehabilitation signed the pact on behalf of the government. Senior government aides said a second-tier official was chosen to play down the political importance of the divisive signing.

Economic analysts say markets will take heart from the pact signing because it could help put a long-stagnant process back on track. That in turn could help boost foreign investment in the US$18 billion economy, which has been held back by years of incessant shelling in the north and east and suicide bombs in Colombo. The aid-share pact will last one year, but could be extended if both sides agreed (Reuters, 20.7.05).

China revalues yen

On 21 July, China's central bank - the People's Bank of China (PBOC) - announced a revaluation in its currency for the first time in about a decade, scrapping the peg to the dollar in favour of a basket of currencies. The currency is now valued at 8.11 yuan to the US dollar compared to the old rate of 8.2765 yuan, effectively a two percent revaluation. Following this move, Malaysia scrapped the ringgit currency's peg to the dollar and said it would move to a managed float. The dollar sank to 110.38 yen immediately following the Chinese announcement. It had stood at 112.50 yen before the move. The PBOC also said it has scrapped the yuan peg to the US dollar and repegged the Chinese unit to a basket of trade-weighted currencies, but did not reveal what they were. China's long awaited but small revaluation of its currency probably heralds the start of a series of revaluations but on its own will make little difference to the huge American trade deficit. The United States, which has been putting intense pressure on the Chinese authorities to revalue the yuan, called the revaluation "encouraging", but it was not clear if the 2.1 percent upward move in the yuan's value against the dollar, combined with the scrapping of the traditional peg to the dollar, would be sufficient to persuade the US to call off its threatened trade sanctions against China. American manufacturers and politicians have long complained that the Chinese authorities have held the currency artificially low to aid its exporters (Agence France Presse, 21.7.05; The Guardian, 22.7.05).

Gleneagles Summit promises aid relief

Months of hard bargaining between the Group of Eight (G-8) industrialised nations on a package of financial help for Africa ended with an eleventh hour deal in which the world's richest countries agreed to provide an extra US$ 48 billion in aid worldwide by 2010.

Under the deal, Japan would increase its aid budget by US$10 billion over the next five years, while Germany would use a tax on air travel to meet its aid targets. Britain, which chairs the G-8, has argued that the deal on Africa was not all that campaigners wanted but represented real progress. Britain had wanted to go further on eliminating the export subsidies, which allow rich nations to dump excess produce on global markets, but was forced to compromise. The summit merely committed itself to setting a credible date for scrapping export subsidies, which is expected to be 2010.

Under the deal, the G-8 pledged to increase aid by 'around US$ 50 billion' a year by 2010. Assistance to Africa will increase by US$ 25 billion, more than doubling the flows in 2004. Britain had feared the G-8 leaders would backslide on commitments made by their finance ministers at a meeting in London in June. In the end, however, they endorsed agreement to write off debts owed by up to 28 countries to the World Bank, the African Development Bank and the International Monetary Fund.
 

The G-8 comprises of Canada, France, Germany, Japan, Italy, Russia, United Kingdom and United States. Debt relief will benefit 18 nations qualifying under Highly Indebted Poor Countries (HIPC) initiative, mostly in Africa and Latin America. They are Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritiana, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia. The remaining countries eligible for debt relief under the HIPC initiative are Cameroon, Chad, Democratic Republic of Congo, Gambia, Guinea, Guinea Bissau, Malawi, Sao Tome and Sierra Leone (International Herald Tribune, 12.6.05; The Guardian, 09.7.05).

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REGIONAL
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Negotiations on SAFTA to end by October 2005

The South Asian Free Trade Area (SAFTA) negotiations are expected to conclude by October 2005 through resolving the remaining issues to give effect to the agreement on SAFTA, as experts from the member-states desired at their just-held ninth meeting in Kathmandu from July 19-22.

South Asian Association for Regional Cooperation (SAARC) members exchanged their respective sensitive lists of products at the Committee of Experts (COE) meeting, with the hope of finalising the negotiations - the crucial one being the sensitive lists - in the next meeting in September in Kathmandu. The members will explain their respective position on the sensitive lists in the 10th meeting. Negotiators came closer on three other outstanding issues, viz., rules of origin (ROO), compensation mechanism for the revenue losses by the least developed members and technical assistance for the LDCs within the region. The 10th COE meeting in Kathmandu will try to finalise the ROO under which the member-states will be able to identify the actual place of manufacturing or production for offering duty concessions.

The seven SAARC countries had signed the SAFTA agreement for the promotion of trade within the region on the occasion of the 12th SAARC Summit held in 2004 in Islamabad. Official trade experts from Bangladesh, India, Pakistan, Sri Lanka, Bhutan, the Maldives and Nepal are negotiating the issues in the COE meetings to minimise the differences to find a common ground on the deal. The SAFTA agreement is scheduled to be effective on 1 January 2006 (The Daily Star, 25.7.05).

Pakistan urges India to remove trade barriers

Pakistan has urged India to lift tariff and non-tariff barriers (NTBs) to create a level playing field for businessmen from Pakistan and enhance trade ties between the two countries. A number of tariff and NTBs had been identified, with New Delhi promising to remove major complaints of Pakistani exporters and importers. India has been showing reluctance to act even after barriers have been identified According to the Pakistani Finance Ministry, a joint committee had held detailed discussions to promote increased trade and it was now up to Indian to ensure level playing field.

Pakistan said it has done enough to satisfy the needs of Indian businessmen. The Ministry claimed that Pakistan had introduced a zero rate export regime and offered a number of facilities to its importers, aiming at promoting trade relations with its neighbours, including India. The livestock sector had been opened to India and it was for exporters from across the border to take advantage. Pakistani businessmen were now looking towards the Indian government to reciprocate by removing tariff and NTBs.

Bilateral trade between India and Pakistan is currently less than one percent of their global trade. Pakistan maintains a 'permissible list' of 600 items like chemicals, minerals, metal products, cardamom and tires that may be legally imported from India. Most finished products and white goods are not part of this list. India and Pakistan have an official annual trade of around Rs 2 billion Indian Currency (IC) but exports through third countries total nearly Rs 1 billion IC. Trade could rise to nearly Rs 4 billion IC if they started trading with each other directly. Meanwhile, India is reported to have has laid down two preconditions for permitting duty-free exports of five food items to Pakistan: enabling trade to Afghanistan and Central Asia via Pakistan, and also permanently opening the land route through a border crossing in Punjab (The Dawn, 18.6.05).

Second South Summit at Doha

At the Second South Summit in Doha, Qatar held from 15-16 June, the Group of 77 (G-77) developing countries called for greater South-South cooperation while urging rich nations to boost aid. The Doha Declaration and a plan of action stressed more cooperation between developing countries to eradicate poverty and achieve progress. The final statement gave top priority to development-related issues, including South-South cooperation, fight against poverty and hunger as well as the promotion of education.

The grouping ¾ that also includes China ¾ called on rich nations to urgently meet the internationally agreed Official Development Assistance target of 0.7 percent of donor countries’ gross national product. The action plan stressed on enhancing cooperation among member states and urged G-77 members to adopt measures and policies suitable to their own national interests and priorities to achieve development. It also acknowledged that total reliance on market mechanism was insufficient to meet the challenges of development in the age of globalisation. The Summit established a fund with an initial amount of US$ 40 million to help developing countries fight poverty and pursue development strategies.

32 heads of state, in addition to prime ministers, foreign ministers and senior officials of over 130 member states, attended the second summit of the G-77 plus China, also known as the Second South Summit. The Third South Summit will be held in South Africa in 2010 (The Himalayan Times, 17.6. 05).

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EVENTS
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Regional training seminar: 'Road to Hong Kong'

South Asia Watch on Trade, Economics and Environment (SAWTEE), Kathmandu and CENTAD (Centre for Trade and Development), an Oxfam GB Initiative, New Delhi; jointly organised a three-day regional training seminar for South Asian journalists called 'Road to Hong Kong' from 11-13 July 2005 in Pokhara, Nepal.
The objectives of the training seminar were three-fold:

- To take stock of issues in the context of the forthcoming Sixth World Trade Organisation (WTO) Ministerial Conference to be held in Hong Kong, China from 13-18 December 2005.
- To orient and build the capacity of economic journalists in the region in the context of understanding issues under the ambit of the WTO and encourage them to help mainstream public interest dimensions in the trade negotiating process.
- To explore the possibility of forming alliances among and establishing linkages between economic journalists in the region.

The following issues were discussed: introduction to the multilateral trading system, agriculture, non-agricultural market access, standards, services, trade facilitation, intellectual property rights, trade and development, dispute settlement, trade and environment.

Participants raised concern over the asymmetric negotiations that were taking place at the WTO. Discussions held, among others, on agriculture and industrial market access, underscored the significance of taking public interest dimensions on board. They also emphasised the need to safeguard the food security, rural development and livelihood interests of the poor, marginalised and vulnerable communities of the developing countries in general and South Asian countries in particular. While it is important to maintain certain level of tariff protection in order to protect the domestic industrial and agricultural sectors and maintain government revenue, participants also urged the trade negotiators to exercise extreme caution so as not to fall pray to the vested interests while making market access commitments.

The need for the small countries, which are not major players in the WTO, to align their positions with that of other developing countries in order to create better impact on negotiations was emphasised. The realisation and awareness of the need for South Asian countries to forge alliance around the issues being discussed/negotiated at the WTO by staking out proactive negotiating positions came out very strongly during the seminar.

40 participants, including 32 economic journalists, belonging to Bangladesh, India, Nepal, Pakistan and Sri Lanka are participating in the three-day seminar. The outcome of the seminar is vital in identifying the main issues facing developing countries in the run up to the upcoming WTO Ministerial and preparing the respective governments in the region during the ongoing negotiations of the multilateral trading system. The seminar will also be instrumental in creating wider public opinion in South Asia on the need to put development at the heart of trade negotiations.

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PREPARED BY
South Asia Watch on Trade, Economics & Environment (SAWTEE)

NOTE TO SUBSCRIBERS

We delayed this e-newsletter as we were waiting from the outcome of the crucial General Council meeting of the World Trade Organisation (WTO) held from 28-30 July 2005. This e-newsletter is a double issue, which incorporates news of both July and August. As the WTO is in recess for the month of August, the next issue will be published in mid-September.

EDITED BY 
Shyamal Krishna Shrestha

This e-newsletter is being circulated under the 'Progressive Regional Action and Cooperation on Trade' project, being implemented by SAWTEE. The project is purposively designed to sensitise stakeholders on globalisation issues confronting South Asia. The project is being supported by Novib, The Netherlands and and Friedrich Ebert Stiftung, Nepal.

About SAWTEE
Launched in December 1994 at Nagarkot, Nepal by a consortium of South Asian NGOs, South Asia Watch on Trade, Economics & Environment (SAWTEE) is a regional network that operates through its secretariat in Kathmandu and 11 member institutions from five South Asian countries, namely Bangladesh, India, Nepal, Pakistan and Sri Lanka. Registered in Kathmandu in 1999, the overall objective of SAWTEE is to build the capacity of concerned stakeholders in South Asia in the context of liberalisation and globalisation.

Contact
South Asia Watch on Trade, Economics & Environment (SAWTEE)
P.O. Box: 19366, 254 Lamtangeen Marg, Baluwatar, Kathmandu, Nepal
Tel: 977-1-4415824, 4444438 Fax: 977-1-4444570
E-mail: sawtee@sawtee.org or hqsawtee@wlink.com.np
Web: www.sawtee.org

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