The Hindu Business Line : The decolonisation of trade

It is sad that several GATT and WTO Rounds have only sidelined the interest of developing countries. The Doha Round is also lukewarm to developing countries.

International trade has often been termed the engine of growth. The growth of the British economy, and the wealth of the US, Germany, France and Japan are the result of their global exports without restriction.

Then why has this benefit been denied to the developing countries for the last 60 years? In the 1960s, as much as 80 per cent of world exports was by 8-10 developed countries. This ratio came down to 70 per cent in the 1990s.

It is sad that several GATT (the General Agreement on Tariffs and Trade) and WTO (World trade Organisation) Rounds have only sidelined the interest of developing countries. The Doha Round is also lukewarm to developing countries.

The decisions at the Hong Kong Ministerial Conference, though appearing generous, have a hidden agenda.

Easing of duties

A major relaxation in Hong Kong was duty- and quota-free access for the products of the 50 least developed countries (LDCs).

This will boost the economies of poor African and Asian countries that would now compete with the developing countries in the global market.

The relaxation is likely to lead to competition and division between the LDCs and the developing countries. Such is the agenda, which reflects the strategy of the rich community of WTO to divide and rule the global markets.

Farm subsidies

The second issue of dismantling the farm subsidies of the EU and the US has been resolved to the satisfaction of the developing countries, particularly those exporting farm goods. Three tiers of countries are to be created according to which the EU will cut farm subsidies in the range of 70 per cent and the US and Japan 53-75 per cent by 2013.

However, developing countries, particularly the better off among them, will still have to contend with 30-40 per cent subsidies besides facing conflicts with LDCs. There should have been complete withdrawal of these subsidies by 2013.

Import barriers of the US and the EU against farm exports by providing subsidies are inconsistent with their own slogans of extending freedom of exports to the developing world.

No assessment

A most striking shortcoming is the lack of assessment of implementation and quality of implementation of WTO obligations of member-countries.

For example, use of anti-dumping, reciprocity, and most favoured nations clauses and their impact on flow of trade were not evaluated. The WTO did not even discuss the progress of completion of the Multi-Fibre Agreement, elimination of textile quotas and quota equivalent tariff reductions.

Impact of liberalisation

What has been the impact of WTO's liberalisation efforts on the developing nations' exports?

In 1994, developing countries accounted for nearly 33 per cent of world exports, which rose to 35.8 per cent in 2004. Though the share of industrial countries fell correspondingly from 67.0 per cent in 1994 to 63 per cent in 2004, this decline was due to an increase in the intra-Asia trade.

Asia's share in world exports rose from 17.9 per cent to about 20 per cent, while that of Africa and West Asia declined between 1994 and 2004. Besides Asia, only Europe registered a rise, from 4.5 per cent to 6.8 per cent.

Import curbs

From the Uruguay Round to the Doha Round, imports by industrial countries from developing countries were constrained and as a result the share of the developing world in the total imports of the developed countries rose only marginally from 28.4 per cent to 29.5 per cent.

During the period, the share of Europe went up from 3.6 per cent to 6.9 per cent, while Asia's fell from 14.4 per cent to 12.9 per cent.

This supports the earlier interpretation that the rise in the share of Asia is because of high growth in intra-Asia trade.

In other words, the growth in world exports was shared by developing countries proportionately on a decreasing scale.

Though tariff and other trade barriers have been reduced, increased deregulation, innovations and competition have led to a rapid growth in international trade and competitive advantages for many developed and developing countries, distribution of increased cross-border trade has been increasingly in favour of the developed countries.

Regional FTAs

Another weakness and failure of the WTO is reflected in the growth of regional free trading blocs and free trade areas as a consequence of the failure to eliminate the distorting restrictions on trade of developing world. Today, 120 regional trade agreements account for 52 per cent of the world trade. The WTO has also failed in moving towards balancing the trade deficit of the developing world, particularly those of the African countries.

Doha and development

An achievement of the Doha Round has been the consensus on development dimension of the LDCs. It would involve restructuring the General Agreement on Trade in Goods and Services, including inflows of FDI, into LDCs. After all we need trade to balance the flow of factors of production of goods and services. Developed countries need to dismantle of tariffs and distorting subsidies on exports of manufactured goods to their markets. The Doha Round should close with this achievement.

Market access

If developed countries want to take up the issues relating to growth and development of LDCs, there is not only a need to grant market access with the total elimination of tariffs and other barriers, they should tie development assistance from the World Bank and balance of payment assistance from the IMF free of cost for 20-30 years to promote export-oriented industries of the LDCs. Whatever the short- or even medium-term delivery vehicle, aid should contribute to rebuilding an effective delivery system oriented towards maximisation of production capacities under domestic ownership and not under multinationals.

(The author is a former Economic Advisor to the Securities and Exchange Board of India.)