The Hindu Business Line : Cancun: A mere show of strength

NOT totally unexpectedly, the Cancun Ministerial of the World Trade Organisation meeting has concluded without yielding any agreement. The major stumbling blocks were the massive agricultural subsidies (estimated at be around $300 billion annually by the rich countries) and the so-called "Singapore issues".

The proceedings of the meeting became a big show of strength between the developed countries — the US and the EU in particular — and the developing countries bloc of G-22, led by India, China and Brazil. Basically, it ended in a stalemate.

What are the major implications and fallout of the collapse of Cancun talks? First, the huge subsidies provided by the rich countries to their farmers would continue unabated. So, the farmers of many poor countries (especially in Africa) would continue to suffer from unfair competition from their richer counterparts in the form of production subsidies, export subsidies and import duties. The developing countries were persuaded to participate in the Doha talks on the promise that their major development concerns would be taken up.

In fact, they felt that the cut in agricultural subsidies agreed by the developed countries in the Uruguay agreement has not been implemented and the issues should be taken up on a priority basis before new ones are included.

The most disturbing aspect of the developed country stand on agricultural subsidies at Cancun was the attempt to change even the definitions of what constitutes "trade-distorting" subsidies. They were willing to consider only export subsidies to be trade-distorting. Quite clearly, domestic support policies in the form of output and input subsidies also give the higher-cost domestic producers an unfair advantage in their home market over the cheaper producers from other countries and should also be regarded as trade-distorting.

Further, the EU-US bloc tried to create division among the ranks of the developing countries by suggesting that they were willing to phase out only export subsidies for products of particular interest to developing countries. They hoped that there will be a rush from some developing countries to get their key products included in the list and damn the G-22 solidarity. They even tried to lure China by suggesting that the subsidy and tariff reduction commitment would be less for China since it has entered the WTO later. So far, no major developing country has fallen into the trap. But already there are ample indications and explicit threats by the US and EU negotiators that they would work out bilateral and regional deals with some countries and try to weaken the developing country coalition.

For the time being, the protection enjoyed by Indian farmers through import duties (now that import quotas are no more) would remain undisturbed. This would be a gain for the government before the elections. The NDA Government may also project itself to be a better protector of India's interests than the Congress Government at Uruguay talks.

The other stumbling block was the Singapore issues — multilateral rules on foreign investment, competition policy, transparency in government purchases and trade facilitation (simplification of Customs procedures, and so on). Out of these, the most contentious from the developing country point of view was the attempt to push through (spearheaded by the EU) a multilateral agreement on investment (MAI).

Countries such as India argue that there cannot be a uniform set of rules governing foreign investment for all countries. Historically, countries at different stages of development (including the US, Japan, France, South Korea, and so on) have imposed many kinds of restrictions on foreign investment should promote economic development. In future, too, they should have the freedom to decide what kinds of foreign investment to be allowed or discouraged. At best, one can insist that once a foreign investor is allowed to set up shop in a country, there should not be a discrimination against the foreign-owned vis-à-vis a domestic company. But that has already been guaranteed through various provisions of TRIMS (Trade-Related Investment Measures) under Uruguay Agreement. For example, no discriminatory local content requirement or export obligations can be imposed on foreign-owned companies any longer.

Regarding the other Singapore issues, the objections were not that strong. In fact, India may well gain if greater transparency is secured in government procurement in all countries.

A set of uniform and transparent rules regarding fair competition may not be a bad idea either. The problem is that even in the US, unfair competition is easier to prove against foreign producers. Same practices followed by domestic producers are condoned. It is precisely for these reasons that the competition policy issue was dropped from the Cancun agenda at the insistence of US. From the developing countries' perspective, allowing free flow of foreign investment without a competition policy in place would have been the worst possible scenario. Fortunately, that has been avoided for the time being.

One particular gain that was secured just before the Cancun talks started would, however, remain. This is regarding TRIPs (Trade-Related Intellectual Property Rights) and compulsory licensing. The developing countries felt that they accepted the new product patents regime at Uruguay without fully understanding its implications. At least the conditions under which the compulsory licensing provision (when a country can violate patent rights for drugs in national interest) can be invoked should be made clear and more liberally applicable. The developed countries have agreed to make an exception in the case of three diseases — AIDS, malaria and tuberculosis — but not for any other so far. It has also been made clear that countries (such as Gabon), which do not have drug manufacturing capabilities, can import cheaper generic drugs from countries such as India in the case of nationally declared health emergencies. The US drug manufacturing companies have, however, managed to put some safeguards to protect against diversion of drugs meant for Gabon finding way into other markets.

Possibly, the most significant development at Cancun was the sticking together of all the major developing countries on most of the issues, despite attempts to break the rank by the rich countries. The fact that China is now a full member of the WTO (unlike at Doha) and it combined its might with India, Brazil, Malaysia and others made a big difference. It also showed that despite differences and competition in other areas, China and India (such as the US and the EU) can form a coalition on matters of common interest in international forums, such as offshore outsourcing and movement of natural persons. This may well signal some hope for the developing countries.

But, past experience is no big comfort here. In the Uruguay negotiations, most Latin American countries sided with the US and against India and Pakistan while negotiating the timetable for the phasing out of the Multi-Fibre Arrangement (MFA). They wanted to get preferential access to the North American market by being members of an expanded NAFTA, to the exclusion of countries such as India. It remains to be seen how long the new-formed coalition survives in the face of lollipops offered by the rich countries.

(The author is a Professor of Economics, Indian Institute of Management, Calcutta. He can be contacted at alokr@iimcal.ac.in)

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