The Hindu Business Line : Doha Round: Caught in a 'crisis of immobility'

With hardly six months left for the Sixth WTO Ministerial Conference in Hong Kong, few economists are hopeful of the Doha Round leading to an outcome meaningful for the developing countries. There could at best be a limited set of tariff concessions and subsidy reduction over an extended time-frame premised on developing countries providing a `level-playing field'.

THE Doha Development Round is in a "crisis of immobility", as the WTO Director-General, Dr Supachai Panitchpadki, puts it, with the G-8 Summit failing to give political directions to the negotiators on the vexed issue of subsidies in agriculture.

The Round, now in its fourth year, still lacks momentum with leading industrial nations merely reaffirming their desire for "ambitious and successful conclusion" of the Round in 2006.

It was at G-8 Summit in Scotland between July 6-8 that one looked for positive signals since both the European Union and the US have been dragging their feet, looking for trade-offs in negotiations with developing countries on the key issues of agriculture, market access and services. The "development" dimension is thus sought to be pushed to the background.

After the Cancun collapse (2003), the "Framework Agreement" (August 2004) revived hopes for progress, especially on agriculture, which could unlock the impasse in other areas of negotiations. This agreement envisaged elimination of export subsidy by developed nations for their farmers, reduction in "trade-distorting" domestic support in a phased manner, and lowering of tariffs for market access for developing country agricultural products. The EU is not willing to set the end date for the phase-out of export subsidy and does not envisage any significant reduction in domestic support for its farmers over the medium term. Focus on agriculture has also tended to put negotiations on NAMA (non-agricultural market access) on the back-burner.

Instead of being asked to lower tariffs for their competitively prices manufacturers, developing countries are being pressured to lower barriers in trade among themselves as well as bound rates closer to the existing tariff. The Chairman of the Committee on Agriculture, Mr Tim Groser, had admitted that he would not be able to produce the first draft of an outline agreement by the July 31 deadline, because of "wide differences" among member-countries.

Trade officials from 148 member-countries, accounting for 97 per cent of global trade, were unable to reach a consensus on any of the market-opening measures.

One obstacle to tariff-cutting negotiations in agriculture was removed by measuring duties as a percentage of goods value, which became a pre-requisite for further progress on tariff reductions. This was, at best, a procedural breakthrough and there are still big differences to overcome with regard to the extent of tariff reduction.

The G-8 Summit did not come up with any target date for the abolition of export subsidy, which speeded up the negotiations.

Dr Supachai Panitchpakdi, who will be handing over to his successor Mr Pascal Lamy on August 31, had hoped for some "serious results" in July-August (both on modalities in agriculture negotiations and on operationalising "special and differential treatment" provisions in favour of developing countries) but groundwork, so far, does not seem to make that possible. This leaves a new set of challenges for the 148 Trade Ministers when they meet in Hong Kong in December (13-18). The EU and the US have greater interest in liberalisation of services, which account for 70-80 per cent of GDP in several developed countries, and expect freer access to developing countries in financial (banking and insurance), transportation and telecommunication sectors. Very few countries had offered to open up their service sectors by the deadline, May 31.While developed countries have been wanting "ambitious results" in the Doha Round, they clearly look for linkages between different areas and issues for a "balanced outcome". There is every likelihood that in this process, the trade-offs could leave the developing countries way behind the development objectives which the Round was intended to promote.

India has gone far ahead of other developing countries in making offers to open up its service sector provided its demands on Mode 1 and 4 — on cross-border supply of services with easier entry for professionals, and movement of natural persons — are met. Not all developing countries have the same priorities or concerns but it is of strategic importance for them to maintain solidarity and ensure that maximum possible gains are achieved in the negotiations which, on present indications, would last well into 2006. The success of the Doha Round would depend entirely on the political will shown by developed and developing countries and Hong Kong may be the last opportunity for this Round.

There are other causes for despair. Trade tensions are again on the rise between the US and EU on aircraft subsidies and issues concerning the EU banana trade regime. Protectionism has re-emerged in the US with the Bush administration slapping quotas on certain categories of Chinese textile exports within months of the dismantling of the quota system under the Multi-fibre Agreement from January 1, 2005.

Removal of quotas has set the stage for intense competition among exporters, particularly in low-income countries, but China, already the largest exporter, clocking $97 billion in 2004, is likely to command 50 per cent of the world market.

The US textile industry, already thinning out, raised a hue and cry over the "disruptive" imports in the first quarter of 2005 and the Commerce Department responded with an investigation and set new quotas restricting import of several categories of clothing from China. The Congress awaits China's responses on export restraint and revaluation of its currency before voting on a Bill to levy a 27.5 per cent across-the-board tariff on Chinese imports. Faced with a similar problem of surge in textile imports from China, the European Union Trade Commissioner, Mr Peter Mandelson, visited Beijing and struck an accord which committed China to "reasonable growth" in exports until 2008 giving the EU textile industry time to adjust.

Even in agriculture, the much-touted gains for the developing countries from the Doha Round may prove elusive, judging by the latest study on OECD agricultural outlook (2005-14) and farm policies. Given the continuing high levels of rich country support to their farmers, distorting production, trade and global prices, and with no firm commitments on their part on the extent of subsidy and tariff reductions in this period, the low-cost producers would be left to trade more among themselves than with the developed nations.

According to OECD data, developed countries paid out $279 billion, mainly as production support, in 2004 accounting for 30 per cent of total farm incomes. There has been little change from the level of protection since the mid-1990s and though policy reform is focusing on a gradual shift from production support in the coming years, the study points out, production-linked measures would dominate producer support in most countries.

While the EU, providing the highest support ($133 billion) in the OECD area, had decided in 2003 to reform its Common Agricultural Policy, which takes away a major chunk of EU budget, the OECD report sees only "a very modest move toward policies targeted to clearly-defined objectives and beneficiaries".

Market price support continues to be the dominant form of subsidy in many countries, it says. Competition in global commodity markets is expected to intensify as production expands in many countries, especially among exporters of wheat, rice, oilseeds, sugar and livestock in both developed and developing countries. Stiff competition would result in further drop in real prices for most basic food commodities. Farmers would thus have to make continued efforts for higher efficiency while policy reforms could help to improve agricultural markets.

(The author, a former Chief Editor of PTI, is a freelance journalist.)

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