The Hindu Business Line : Hong Kong Ministerial

Greater trade offers enormous opportunities for human development. Under the right conditions it has the potential to reduce poverty and promote economic growth. However, for many of the world's poorest countries, and for millions of poor people, these conditions have yet to be created. This structural imbalance will again be in focus at the forthcoming Hong Kong Ministerial of the WTO, where developing countries must be firm in demanding fairplay in the terms of trade, says Harish Anand.

FOR globalisation enthusiasts the rapid expansion of world trade over the past two decades has been a blessing, notably for the poor. But the reality is more prosaic.

True, greater trade does offer enormous opportunities for human development. Under the right conditions it can reduce poverty and promote economic growth However, for many of the world's poorest countries, these conditions have yet to be created, noted the UN Human Development Report 2005 released in September this year. It is essentially the existence of this structural imbalance that was the catalyst for the birth of the World Trade Organisation. Without removing this structural imbalance, the advocacy of relentless trade liberalisation will not result in orderly, balanced and fair international trade and would have manifold adverse consequences.

The issue has been raised time and again at various multilateral trade negotiation rounds but has failed to get adequate attention, and will again be taken up at the upcoming Hong Kong Ministerial of the WTO as part of the Doha Round.

However, the race among developed countries towards greater market access in developing nations, stressing the element of reciprocity in tariff reduction, continuing to restrict domestic market access to developing countries and distortion of world trade through export of highly subsidised agro products runs counter to their promises at the start of the Doha Round (2001) to make it a `Development Round".

Developed countries still dominate world trade as they account for two-thirds of the world exports though only for 15 per cent of the population. This situation has not changed much in the last 25 years. Meanwhile, developing countries have been relentlessly pursuing import liberalisation.

Consequently, the import tariff in developing countries has come down, on an average, from 25 per cent to 11 per cent but the exports from developing to developed countries still attract an import tariff that is three-four times higher than the tariff imposed on exports from other developed countries.

As it is not sufficient, the system of perverse graduation of taxes — that is, lower import tariff on raw material and higher tariff on intermediaries and end products — has been pursued, which resulted in transfer of value addition to developed countries and denied developing countries the opportunity to move to exports of high value addition products.

Though the share of manufactured exports of the developing countries has increased, 70 per cent of the total value addition takes place in developed nations.

The European Union counters the comparative advantage of developing countries in terms of low- cost manpower with high tariff on labour-intensive products in comparison to others, as evident from the imposition of 10 per cent import tariff on garment exports from India against the 4-5 per cent average tariff rate.

As a result, the developing countries, which contribute only one-third of the total imports of developed nations, account for two-thirds of the total import tariff collected by the latter. The developed economies' compound the unfair trade practice of restricting imports from developing countries by heavily subsidising their agriculture sector that distorts the world trade.

According to the HDR, developed countries provide agriculture subsidy worth $350 billion a year and a significant part of this is garnered by the large farmers, corporates and land-owners as the dole is linked to size of output and land holding.

Obliviously, it is not the comparative advantage but the comparative access to subsidy that enabled the developed countries to maintaina two-thirds share of the world trade in agriculture commodities since the late 1990s.

To ensure the continuation of the present arrangement to subsidise the domestic farm sector, arrangements such as Green Box and Blue Box were created to make the farm subsidy WTO-compatible. Another critical issue is that a huge part of such largesse is financed by the developing countries in the form of the high tariff paid by them on exports to developed markets.

Amid the strong resentment among developing countries, the TRIPS, TRIMS and trade in services have been included in the WTO negotiations and now efforts are now on to push them through in the Doha Round.

The HDR noted the success of China, which followed the policy of reverse-engineering and producing import substitutes, made agreements with foreign technology suppliers to transfer know-how, set up joint ventures and then went for a gradual replacement of local content rather than a sudden import liberalisation, as prescribed by the developed countries.

This helped China achieve rapid economic growth and an increasing share of world exports, which is doubling every five years.

Further, the HDR points out that the WTO also has provisions for import duty cuts and other related issues for developing countries in sync with their economic needs and status, and advocates that the liberalisation process should be sequenced with national priorities. In this regard, the report cautions that a sudden opening of economies would go against the industries in the start-up stage.

Further, it is also suggested that as the multilateral and regional trade rules have adverse affect on the revenue collected from imposition of tariff, the developing countries should be suitably compensated for the loss of the revenue that would have been used to carry out various developmental activities.

Similarly, adoption of Trade Related Intellectual Property Rights (TRIPS) would open up global markets to the MNCs but could result in serious consequences for the public health safety measurers in developing countries.

Further, in trade in services, the developed countries are talking of everything but the liberal movement of low-cost labour of the developing countries by liberalising their own domestic labour market. These developments may fuel the growing apprehensions among developing countries that the terms of trade may turn in favour of the developed nations and this could leave the former with no option but to harden their position. If this happens, it would jeopardise further trade negotiations, endangering the Doha Round itself. Worse would be if developing countries gave in due to various pulls and pressures of the developed countries. In both cases, the likely outcome would have far-reaching adverse effects for the world economy and the achievement of the Millennium Development Goals (MDGs).

It is pertinent to note that the success of the trade negotiations hinges on the fairness of trade and the faith of developing countries in the WTO's ability to ensure fairplay, and this calls for precise and effective time-bound action by developed countries.

It would also be helpful to follow the guidelines suggested in the Human Development Report. These include limiting reciprocal demands for market access in non-agricultural goods, allowing developing countries to reduce average tariff through a formula that allows a high degree of flexibility, exempting "special products" in agriculture from any requirement to liberalise, and permitting developing countries to apply safeguard mechanisms to restrict market access.

Phasing out subsidy given on agriculture products to revive international commodity prices, and revising WTO accession rules to ensure that new developing country members are not compelled to comply with liberalisation demands inconsistent with their development status would further help to make the Doha Round a `Development Round'.

(The author is an economist with a leading textile company in India.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page