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Delhi Mini-Ministerial on Doha: High Stakes to Break an 'Impasse'?

What does India plan to achieve at the mini-ministerial meeting of members of the World Trade Organisation that it is hosting in New Delhi in early September? The most important member of the WTO - the United States - has not shown any enthusiasm to break the impasse on the Doha round. More important, the 2008 proposals on the table work against the interests of the developing countries in the two important areas of agriculture and industry.

COMMENTARY

Delhi Mini-Ministerial on Doha: High Stakes to Break an ‘Impasse’?

Shefali Sharma

The US has not even nominated their a griculture negotiator for Doha (ibid). It appears to be adopting a “wait and see” attitude on Doha and pushing developing countries to start drafting concrete c ommitments (country schedules) even before the terms of the agreement ( modalities) are agreed. Is priority being given to trade enforcement rather than

What does India plan to achieve at the mini-ministerial meeting of members of the World Trade Organisation that it is hosting in New Delhi in early September? The most important member of the WTO – the United States – has not shown any enthusiasm to break the impasse on the Doha round. More important, the 2008 proposals on the table work against the interests of the developing countries in the two important areas of agriculture and industry.

Shefali Sharma (shefali@thirdworldnetwork.net) is with the Third World Network and is based in New Delhi.

O
n 15 June, roughly a year after the stalled ministerial of the World Trade Organisation (WTO) in July 2008, new Commerce Minister Anand Sharma said, “The impasse has been broken” on the Doha round of trade negotiations.1 The statement was made following his meeting in Bali with ministers from a coalition of 19 agriculture exporting countries called the Cairns Group. The statement surprised many since little had changed in terms of substance at the WTO, particularly towards India’s key interests. A few days later, he qualified his statement by saying,

What I said was that the impasse has to be broken, must be broken, number one. Number two, we talked of principles. When I went to the Cairns Group meeting we were not discussing specifics. These specifics will be discussed when the negotiations resume.2

The government of India (GoI) has stated that it is willing to accept WTO’s December 2008 draft texts as the basis of further negotiations to conclude the Doha round. These were drafts prepared by the chairs of the WTO agriculture and non-agriculture market access (NAMA) negotiating committees and focused on economic sectors that generate the largest number of livelihoods for developing countries: agriculture, manufacturing and fisheries. The GoI is hosting an informal mini-ministerial meeting in Delhi on 3-4 September with approximately 35 trade ministers and the director general of the WTO, Pascal Lamy, to “re-energise” the stalled talks in order to bring them to a successful conclusion.

Lack of US Interest

Meanwhile, according to United States (US) reports, the majority of the trade- related p olitical positions remain unfilled in the US administration (Trade Insider 2009).

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trade policy formulation?

The US participation in Doha will only increase once the government has dealt with its economic crisis at home, and if Doha offers its firms and agribusinesses real market access. In the meantime, and in the words of the United States Trade Representative Ron Kirk, the US will

continue to use trade remedies, like antidumping and anti-subsidy laws that the US has on the books, and that are vitally important tools. We use them to correct distortions of trade-situations, where the playing field is artificially tilted against us – and to ensure that the field stays level everywhere else (ibid).

The initiative to re-energise the Doha round must be seen in this wider context and in the context of a detailed assessment of India’s and other developing countries’ gains and losses accrued thus far. Anand Sharma rightfully says that the principles need to be agreed in order to break the impasse. But in WTO negotiations, it is only the specifics of the negotiations that give meaning to principles. This article looks at the key concessions that have been made by developing countries in agriculture and NAMA that call into question some fundamental principles of the Doha round:

Inequities in Agriculture

It is now widely accepted that developing countries did not gain from the WTO’s 1995 Agreement on Agriculture (AoA) and that several inequalities within the agreement actually made their agriculture sectors more vulnerable. For instance, in spite of disciplines imposed on domestic support for agriculture in the AoA, the US and the European Union (EU) continued to heavily subsidise and dump their agricultural commodities onto the world market in huge quantities and at such low rates that they chronically depressed world market prices in quite a few commodities. A study

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of 102 countries conducted by the Food and Agriculture Organisation found that import surges increased for many agriculture commodities post-1995 (FAO 2006). A few large transnational grain traders and processors continue to maintain oligopolies and benefit from the distorted trade regime that allows them to be price-setters of several commodities in global agriculture trade. Yet, even after the Uruguay round and seven and half years of Doha negotiations, the December text on agriculture does not oblige the US and the EU to make actual cuts to their subsidy r egime. In fact, the current December proposal allows them to have unlimited subsidies in the so-called “non-trade distorting” Green Box, which studies (UNCTAD India Team 2007) show, has been and will continue to be trade distorting in reality. Eighty per cent of US domestic support is in the form of Green Box measures. And the latest draft will also allow the US to shield its substantial counter-cyclical a griculture payment programme (Murphy and Suppan 2008) in the expanded Blue Box, a category of measures considered as “minimally trade-distorting” d omestic sup port and thus subject to less WTO d isciplines.

The removal of quantitative restrictions, limits on the types of domestic subsidies developing countries can provide to agriculture, restrictions on managing food stocks, procurement and distribution and prohibition of export subsidies (on the say-so of the WTO and other international financial institutions) has left developing countries with limited options to strengthen their agriculture sectors and food s ecurity. It has significantly narrowed p olicy space at the border and forced the use of tariffs as the primary means with which to shield domestic a griculture against the price volatility of global agriculture markets and corporate concentration.

“Special products” (SP) and “a special safeguard mechanism” (SSM) have emerged as the only tools in the Doha talks with which developing countries would be able to protect their agriculture against this external volatility. SPs are agriculture products on which developing countries would make lesser or no reductions on their maximum allowed customs duties (bound tariffs) to 153 WTO members. G iven India’s large agriculture base with 15 agro-climatic zones, a diverse number of crops grown in each region, extreme vulnerability of the sector and the critical role it plays for food security and livelihoods of over two-thirds of the Indian workforce, India’s main negotiating principle would logically be to have as large a number of SPs as possible.

Special Products

The December text requires developing countries to designate only 12% of their agriculture tariff lines as SPs. Out of this, only 5% of the SPs can be exempted from any tariff reductions, which translates into only 35 tariff lines for India. This means that only about eight or nine crops may be protected since around four tariff lines usually cover one crop. These concessions on SP drastically deviate from the original purpose of SPs as envisioned by the G-33 (a group of countries with large agrarian populations that seek to ensure food security and livelihood concerns in the AoA). In fact, the G-33 position has weakened significantly since 2004, when the concept was formally put forward. Countries with large and vulnerable agrarian populations and food security concerns were supposed to have been able to self-designate a large number of p roducts as SPs that could be exempt from t ariff cuts altogether.3

With more and more demands for market access by developed countries, the G-33 initially agreed to designate “at least 20%” of total tariff lines as SPs. They then conceded to reducing tariffs within SPs. By 2007, they had agreed to cap SPs to 20% of the total tariff lines. This meant that only a 140 tariff lines could be protected. They then agreed to allow only 10% of the SPs to be completely exempt from tariff reductions – immediately undercutting their position by half! During the intense negotiations last July, the G-33 further conceded to a two-tier system of SPs (one-tier of zero cut and the secondtier with an average of 12% cut). The D ecember text drastically undercuts even this position by reducing the SPs to 12% of total tariff lines, 5% no cut and an overall average cut of 11% for all SPs. This means that if India e xempts 35 tariff lines from tariff reductions, it would be forced to r educe the remaining 7% of SPs by an a verage of 19% (because of the overall a verage cut requirement).

Special Safeguard Mechanism

The original purpose of SPs to shield v ulnerable agriculture sectors against u nfair competition appears to have been forgotten and the main area of attention

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has been an SSM mechanism that is primarily volume-based, cross-linked to price declines and riddled with complicated conditions where volume bands and remedies are predefined. The SSM should in principle be easily implementable that allows developing countries to control the impacts of sudden agricultural import surges identified by either a rise in volume or a decline in prices that will displace l ocal markets. This should apply to all agriculture products and not impose c eilings on how high the tariffs can be raised because surges by their nature are unpredictable and highly volatile. The D ecember 2008 text proposes taking an average of the previous three years in terms of volume or price to decide whether a surge has taken place. By default then, an SSM would not deal with the chronic problems of low prices that the US and EU’s subsidy regime create. Nor would it a dequately allow countries to cushion themselves against the real volatility of global agriculture prices because the t rigger would be based on an average. The proposed SSM sets impractical and inadequate limits on how high a country could raise its tariffs, on the number of products on which it could be used and on its duration.

The debate on the mechanism has been reduced to a technical exercise between Geneva-based trade negotiators about volume and price triggers and remedies, but without adequate debate nationally with farmers and agriculture experts in each state who could shed light on the real-life limitations of such a complicated mechanism and the types of measures needed to effectively deal with import surges in today’s world. The debate has been reduced to whether there should be a 10% or a 40% increase in volume to trigger an SSM and how much developing countries should be allowed to raise their tariffs above Doha round levels or Uruguay round levels and for how long. But this debate obscures the fact that most developing countries do not have the ability to monitor volume-based import surges in time for the measure to be effective. It is easier to track global a griculture prices than volumes. In addition, developing countries would be prohibited from using the proposed SSM in free trade agreements. Thus India would not be able to use the SSM with the Association of South East Asian Nations (with whom it has just signed a Free Trade Agreement) or in an EU-India FTA.

Most critically, the debate completely sidesteps the fact that protection of a large number of agriculture products would at best enable agrarian countries to deal with import surges in the short term and price volatility in the long term – which is what the SPs were meant to do. Applying an extremely complicated and limited SSM after the fact will not address the fundamental issue of vulnerability and inequity that the current text heightens for the G-33.

Demands on NAMA

When developing countries signed onto the Doha round in 2001, they were hesitant in initiating NAMA negotiations to reduce industrial and other tariffs, especially given tariff peaks, non-tariff barriers (NTBs) and the dominance of developed countries in this area. Thus, they fought hard for the principle of “less than full reciprocity” (LTFR): developed countries would do more, address their numerous tariff peaks in value added industries and NTBs and developing countries would be guided by LTFR and special and differential treatment (SDT). These concerns were

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acute for India given its sizeable developing or nascent industries, and small- and medium-enterprises (SMEs) that employ a large number of workers. The impact on livelihoods associated with Indian SMEs is particularly difficult to measure given that a majority of the workforce resides in the unorganised or informal sector and SMEs are dispersed and inadequately represented in the capital.

Rather than follow the LTFR principles, the downhill concessions in NAMA are p articularly glaring. India and its allies began with demands for a simple average cut in tariffs and continued to concede without much in return. The middle ground proposed in the December NAMA text requires developing countries to cut their tariffs on average by over 60%, while members like the US, EC and Japan would be expected to do roughly half of that. They are required to do nothing on their NTBs. Given that India’s actual customs duties on average are already around 11.5%, a formula which demands such sharp cuts would actually force India to set tariff ceilings for many industrial products below its current applied customs d uties or just above them. In fact, India’s average tariff ceiling for its highest tariffs will come down to 18.8% from 130%.4 A large number of its tariff ceilings would lie between 11% and 16%, leaving little or no room to increase tariffs in the future if the strategic need arose.5

Even the flexibilities proposed for developing countries have been linked to the amount of cuts they will make in NAMA overall. The flexibilities cannot exceed a certain percentage of volume of imports. The December text also proposes an anticoncentration clause that further imposes limits on vulnerable sectors by demanding either a minimum of 20% of tariff lines or 9% of the value of imports in each NAMA sector.6 The Indian fisheries sector would have to compete with cheap fish for 20% of tariff lines or 9% of the import value even though cheap fish is easily substitutable. Developing countries would be prevented from excluding vulnerable sectors in their entirety even if that was detrimental to upgrading particular sectors. Another highly controversial pro posal is for mandatory commitments by certain countries (such as India) to reduce tariffs to

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zero or near zero in sectors of interest to developed countries. Fourteen sectoral proposals are annexed and include sensitive sectors such as hand tools, fish and fish products; forest products, industrial machinery, chemicals, electronics and toys. This has been vociferously opposed by developing countries, but still finds its way into the December NAMA draft.

Towards a Cost Benefit Analysis

A cursory analysis of two of the three key sectors shows little gain for developing countries – either in principle or on the specifics. Developed countries’ actual subsidies will not be affected, nor will their NTBs be addressed in this round. In exchange, developing countries will sharply bring down their tariff ceilings in NAMA and leave their agriculture sectors critically exposed to the vagaries of a highly distorted global agriculture market. The SSM will be of limited practical utility in its current form, while the SP is whittled down to a handful of tariff lines. Sadly, the SP was intended to be the substantial saviour to help right the wrongs (along with disciplines on domestic support) of the Uruguay round.

The one area where India had sufficient offensive interests – the movement of professional workers through Mode 4 of the services negotiations – is at a standstill. And no developed country is going to c ommit to opening movement of labour in

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the current climate. So, where do developing countries such as India find gain in the December texts? How have the basic principles to create a truly development round been met? Is there truly enough in the Doha drafts to fight for a breakthrough? These are some critical questions that need an informed debate at home.

Notes

1 http://www.livemint.com/2009/06/16204336/ India-says-Doha-trade-8216i.html

2 http://in.reuters.com/article/email/idINIndia40469820090620

3 See G-33 Ministerial Communique, Jakarta, 12 June 2005.

4 The 130% is a figure arrived through a mark-up exercise to set tariff ceilings for unbound tariffs in the Doha round.

5 “NAMA Negotiations: Present State of Play”, Presentation at ICRIER, 24 June 2009, New Delhi.

6 Each sector matches chapters in the international classification system of traded products called the Harmonised System Nomenclature (HS). The HS is divided into 99 chapters and includes chapters on agriculture and non-agriculture goods. Each NAMA sector corresponds to one non-agriculture HS chapter.

References

FAO (2006): “Import Surges: What Is Their Frequency and Which Are the Countries and Commodities Most Affected?” FAO Briefs on Import Surges-Issues, No 2, October.

Murphy, S and S Suppan (2008): “The 2008 Farm Bill and the Doha Agenda”, Commentary, IATP.

Trade Insider (2009): “Majority of Political Trade Positions in USTR, Commerce Remain Unfilled”, Trade Insider, 12 August.

UNCTAD India Team (2007): “Green Box Subsidies: A Theoretical and Empirical Assessment”, A project prepared under UNCTAD – Government of India

– DFID, UK.

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