The Hindu Business Line : The Doha Round impasse

Though no country wants the multilateral trade negotiation and dispute settlement mechanism of the WTO to break down, much of the world economy is in serious trouble and in no mood for trade liberalisation. Thus, the chances of any real breakthrough in the Doha Round talks do not look bright at this moment, says ALOK RAY.

The Commerce Minister, Mr Kamal Nath… Let down by failure of best efforts.

Despite nearly three dozen trade and commerce ministers meeting at Geneva last month to save the Doha Round, the trade talks broke down. The principal players turned out to be the EU, the US and the developing world, led by India and China. The US Trade Representative, Ms Susan Schwab, openly expressed her opinion that “a handful of big emerging countries (read India and China) really threaten this round for the rest of us.” On the other side, the Commerce Mini ster, Mr Kamal Nath, put the blame squarely on the US with his rhetoric that he cannot negotiate the livelihood concerns of millions of poor Indian farmers against the commercial interests of the US.

One may ask: Why try again to flog a dead horse, especially now? The US President, Mr George Bush, is on his way out. Moreover, he has lost the so-called fast-track authority under which the President can take a simple ‘yes or no’ vote in the US Congress on a trade Bill, without detailed clause-by-clause ratification.

The US economy and much of the world economy (except the major oil-producing States such as Russia and Saudi Arabia, which are either not members of WTO or are marginal players) is in serious trouble and is in no mood for trade liberalisation.

In India, the Government has narrowly survived the Indo-US nuclear deal. Then, who is interested in restarting the trade talks which could not succeed even under more favourable economic and political conditions? Several answers are possible.

Restarting trade talks

First, it would be even more difficult to strike any complex multilateral WTO trade deal for the new US President in the initial years of his presidency. But if the outgoing President Bush can come close to striking a WTO trade deal, it may be easier for the next President to give some finishing touches and get it through the Congress.

Second, without the constraints imposed by the Left partners of the coalition, the Indian Government may now want to strike a more reformist posture. However, with general elections round the corner, this does not seem very likely — specially if it is a question of reducing tariff barriers on agricultural imports, which affects millions of small farmers.

Third, the long-term costs of failed WTO talks could be substantial. Hence, all efforts should be made to bring about even a minimalist agreement to save WTO as an institution of multilateral trade talks. The other option is bilateral or regional trade agreements which have substantially weakened the multilateral negotiations machinery.

Fourth, there could be a stronger case for negotiated multilateral trade liberalisation agreements when the world economic system is in trouble. In times of recession and job loss, there will be more pressures to revert to protectionism and beggar-thy-neighbour policies.

Chances of progress

So, one should not grudge the efforts or the timing. But, what are the chances of any progress in the future?

It should be noted here that a substantial agreement was reached at Geneva on 18 out of 20 issues put on the table for negotiations. The two contentious issues on which no agreement could be reached were the agricultural subsidies by the developed countries and the Special Products (SP) and the Special Safeguard Mechanism (SSM) for agricultural imports by the developing countries.

The US was willing to cap its trade-distorting agricultural subsidies at $15 billion which is way above its actual level of subsidies in 2006 ($11 billion) and 2007 ($7 billion). Since these were years of unusually high global farm prices and, hence, low levels of subsidy payouts, the US wanted to keep the door open to raise subsidies if agricultural prices plummet in future.

Gaps in negotiating positions

India wanted to put the cap on US subsidies at its current level. On the other hand, it wanted to have the right to hike its (already high) import duties on sensitive agricultural products (SPs) if imports reach 10 per cent of domestic market for such commodities. The US wanted to set the SSM trigger at 40 per cent of imports. Given these wide gaps in the negotiating positions of the two camps on these two issues, the talks had to collapse.

The WTO decision-making relies on consensus and not majority voting of any kind. Hence, if an exception is demanded by a member, no agreement is reached unless the exception is either accommodated or dropped by consensus. This has made WTO negotiations increasingly complex and time-consuming.

It should also be noted that there is a difference in the position taken by US and EU in this connection. The EU is willing to cut back some of its agricultural subsidies provided countries such as India reduce restrictions on imports of industrial products and services. That is easier for India to accept. But the US farm lobby is willing to allow reduction in farm subsidies only if the US agriculture gets additional market access in countries such as India.

Given the livelihood concerns of millions of small farmers and the potential political fallout, it is nearly impossible for the Indian government to liberalise imports in sensitive agricultural products. Thus, the chances of any real breakthrough in Doha talks do not look bright at this moment.

There could still be a breakthrough if the developed countries eventually accept — though grudgingly — the stand of developing countries that though they gave a lot of concessions in the Uruguay Round, the agricultural subsidies in the developed countries have not materially changed (except that some subsidies have been de-linked from production).

So, this time, the developed countries should unilaterally cut farm subsidies without expecting any significant reciprocal reduction in agricultural protection on the part of developing nations.

Areas of (dis)agreement

India has already expressed its willingness to open up more in some service areas such as telecom and financial services provided the developed countries allow additional concessions in the movement of temporary work-related personnel.

The areas of disagreement in the manufacturing sector are mainly over whether the reciprocal tariff reductions would take the form of small cuts on a wide front or larger cuts in some specific sectors, leaving other sensitive areas (like the “infant” automobiles sector for India) unaffected. Such disagreements can be narrowed down with more negotiations.

WTO negotiations do not take place over high moral principles. Ultimately, multilateral trade agreements are the products of hard bargaining. Most countries start with apparently rigid positions which gradually soften after a lot of behind-the-door deal making.

It is clear that no country — especially the poorer and weaker nations — wants the multilateral trade negotiation and dispute settlement mechanism of WTO to break down. In fact, with the signing of more FTAs, the difficulties of enforcement of rules are increasingly coming out in the open.

Even in the US, politicians, including the Democrat Presidential candidate, Mr Barack Obama, are voicing concern over the implications of NAFTA and other FTAs with the neighbouring nations. They want to bring in other issues, such as labour and environmental standards, into the agreements.

In a recent international conference in New Delhi attended by the WTO chief, Mr Pascal Lamy, Mr Kamal Nath and other bigwigs, strong sentiments were expressed against the proliferation of regional trade arrangements. A proposal was mooted that there should be a ‘sunset clause’, setting a time limit on preferential tariffs allowed to members.

At the end of the term, the same preferential tariffs will have to be extended to all WTO members. Regionalism, even if permitted temporarily, will eventually have to give way to multilateralism. Hence, all is not lost yet.

(The author is a former Professor of Economics at IIM Calcutta. Responses to blfeedback@thehindu.co.in)