The Hindu Business Line : Movement in WTO negotiations

Assuming that the developed countries have shifted gears on the ongoing WTO negotiations, it can safely be said that the rich have been finding themselves under pressure in recent months, especially since the end of the failed Cancun ministerial meeting. Perhaps, this is the cue that has emboldened the developing countries (the G-20) to pile on the pressure and, in a manner of speaking, act so as to strike while the iron is hot.

DURING the past few days, at least one development has taken place in the ongoing WTO tussle between the rich and the poor which could lead to a meaningful forward movement in getting the Doha Development Round out of the rut it is in. This specific event took place in Paris, in talks among officials from about 30-odd WTO member nations, the subject matter being the methodology of conversion of specific import duty rates on farm product imports into ad valorem rates.

First, let us place the development in proper perspective, as it has been seen by some of the principal players involved.

Thus, the Brazilian Foreign Minister, Mr Celso Amorim, who has played a sterling role in providing, along with India, leadership to the G-20 countries in their campaign against the rich at Cancun in 2003 and subsequently, and who announced the "breakthrough" in Paris, said unambiguously: "Now we are able to put negotiations back on track".

The EU Trade Commissioner, Mr Peter Mandelson, commented: "The road is now clear for rapid and substantial progress...across the board, including manufactured goods and services". The senior US Trade Representative official, Mr Robert Portman, said: "I think it was a significant breakthrough in a lot of different respects".

Now what, in a nutshell, is the precise issue at stake involving specific import duties and their ad valorem equivalents?

The very first thought that comes to mind is that there is something quite arbitrary about the specific duty aspect of import tariffs when compared with duties linked to the value of imports (that is, the price of the imports).

It follows that if an ad valorem duty structure is to replace the specific duty variant, a lot of transparency would be injected into the tariff structure governing trade between nations. Not surprisingly, a large number of food importing groups, such as the G-10 economies and the EU, have taken recourse to specific import duties, which is opposed by exporters such as the Cairns Group, the US and the G-20 (of which India, Brazil, and China are members).

As things stand now, the food-importers no longer have any objection to shifting from specific rates to their ad valorem equivalents. The basic problem now lies in finding a formula which will be adopted for the conversion process.

On the face of it, where import prices conform to notified import values in the WTO Integrated Database, the settlement of ad valorem equivalents poses no problem. But complications arise in the case of tariff quota (preference) imports (sugar and cheese, for example) where the import prices are arbitrarily decided and, consequently, do not reflect the world price statistics that figure in UN commodity databases. Farm goods exporting countries would like to use lower world prices in the calculations which would yield a high ad valorem equivalent of the existing specific rates, which could then be subjected to steeper tariff reductions in the negotiations.

Expectedly, the food-importing countries have opposed the methodology suggested by the exporters, one alternative mooted by the former being that the conversion formula should be different for products the import prices of which vary significantly in the WTO and UN data lists.

Till now there has been no agreement on this contentious issue, and it remains to be seen whether there has been any progress on this specific issue at the Paris meeting.

If one reads carefully the comments made by the USTR and EU officials (quoted above) after the Paris "breakthrough", there seems to be a clear whiff of a quid pro quo in the air. Both the EU and US officials have dropped broad hints of progress being achieved "across the board" and "in a lot of different respects", which at once focuses attention on those areas of negotiations where the food-exporting countries may have agreed to make concessions. One clear candidate for this quid pro quo game is the paper on non-agricultural market access presented by India, Brazil and Argentina late last month, which has raised some controversy in the shape of opposition from the US, EU and a number of Latin American countries.

The paper has called for a tariff reduction formula "that would link a member's tariff cuts to its existing level of tariff protection — so that the higher a country's average tariff rate, the higher its tariffs would remain even after the formula is applied on an item-by-item basis".

More important, the proposal would also link the formula "to differentiated coefficients for developed and developing countries so as to ensure that the latter are permitted to make less onerous tariff reductions".

It also specifies that the "values of these coefficients would be tied to market access commitments in `other areas' of the Doha Round talks". Clearly, there is room for conceding ground here to attain a more important objective elsewhere, and it would not be surprising if this proposal came in handy to make some headway in Paris on the duty conversion issue.

Assuming that the developed countries have shifted gears on the ongoing WTO negotiations (this will become clear when the details of the Paris "breakthrough" are known), it can safely be said that the rich have been finding themselves under pressure in recent months, specially since the end of the failed Cancun ministerial meeting.

Perhaps, this is the cue that has emboldened the developing countries (the G-20) to pile on the pressure and, in a manner of speaking, act so as to strike while the iron is hot.

This explains to a large extent the inordinately aggressive line the G-20 took at the New Delhi meeting some time ago on farm issues.

It also perhaps is a clue to the strong stance adopted by the Union Commerce Minister, Mr Kamal Nath, at the Paris meeting where, among other things, he is reported to have called for a "development audit" of steps already taken by the developed economies.

As the Minister said: "So far we have not seen much action. The developed countries are always telling us that they have given so much and have opened their markets to the LDCs and developing countries. But I am asking everyone who is getting what the developed countries have given.

So far, no one seems to be getting any benefits from these. We have to do the audit to see what is happening in the name of development".

In short, time is fast running out, and it is to be expected that there will be a rush to stitch things up by the end of July when a "first approximation" of a deal is scheduled to be finalised ahead of the December Hong Kong ministerial meeting.

On the face of it, there will be some "progress" (like perhaps the Paris "breakthrough"), but it is also clear that the developing economies will have to be on their guard not to take a false step from which subsequent extrication will be difficult.

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