The Hindu Business Line : Multilateralism at crossroads

The aggressive push for preferential trade agreements by rich countries will only attenuate the rule-based multilateral system and the limited developmental gains scored by the WTO till now.

The collapse of multilateral trade talks among the G-6 countries comprising Australia, Brazil, the European Union, India, Japan and the US on July 24 led to the suspension of trade negotiations. The World Trade Organisation (WTO) Director-General, Mr Pascal Lamy, was optimistic in his report to the General Council on December 14 about "an increasing level of engagements" which seem to surface in interminable consultations by the chairs of the various negotiating groups.

"We can be ready to engage fully on substance when the time comes. We need to maintain the rhythm of the informal work in order to exploit the window of opportunity that remains ahead of us in the first quarter of next year," Mr Lamy bravely said.

Considering the jerks and impasses in the history of multilateral trade talks, the stalemate at the WTO signifies just a procrastination of the Doha Round and not its end. No wonder, the inflexible negotiating ploys resorted to by some of the key advanced countries with their ambitions of market access contributed to the deadlock. Developing countries led by India and Brazil have more than on one occasion made it clear that the chasm is basically of "mindsets" and "not numbers," and that while winding up the Doha Round was crucial, it could not be at the expense of its contents. The rich world would like to convert the Doha Development Round, into a market access round, and all stakeholders must work to ensure that this Damocle's sword does not fall on the world trading system.

With the imminent expiry of the Fast Track Negotiating Authority of the US President and the convincing return of the Democrats, which has always had a pronounced bias towards protectionist policies, the dice is heavily loaded against easy wrap up of the framework agreements that would bring the Doha Round to a successful close.

Alternative routes

Despite the professed support to multilateralism, developing countries, in general, and those of South Asia, in particular (India included), have begun looking for alternative mechanisms to expand trade. Hence, the growing popularity of free trade agreements (FTAs) and regional trading agreements (RTAs); these bilateral treaties are proliferating to the detriment and exclusion of non-members. To explore the possibility of how the economies of South Asia can engage in the ongoing trade talks with limited options and without sufficient cushions to fall back on, the Centre for Trade and Development (Centad), a not-for-profit autonomous think tank tailored to reinforce the abilities of governments and communities in South Asia to make globalisation work for development, is hosting a two-day conference.

Titled "Multilateralism at Crossroads: Reaffirming Development Priorities," the conference, beginning today (Tuesday) in New Delhi, will discuss issues relating to agriculture, non-agricultural market access (NAMA), services, rules, RTAs and less developed countries (LDCs). Centad will also unveil its South Asian Yearbook of Trade and Development, the second in a series focussing on the problems plaguing the South Asian economies.

An executive summary of the Yearbook gives a synoptic picture of the development linkages of trade policies in the region. According to the experts who have contributed to this tome, the touchstone of any trade regime should be its potential to maximise welfare and minimise pains of adjustment so that the miseries of people at the margins are not aggravated. But the aggressive push for preferential trade agreements (PTAs) by rich countries, particularly following the suspension of the Doha talks, would attenuate the rule-based multilateral system and the limited developmental gains scored by the WTO up till now.

Unfair terms

It said PTAs between the developed and developing countries enshrine highly unequal and unfair arrangements for the latter, in exchange for limited and illusory gains in market access. This is illustrated in the case of agricultural market access.

A case study of South Asia shows that for products where its countries are dominant exporters, tariff liberalisation is unlikely to translate into increased market access because for most of these products the tariff rates are already quite low in their major export markets. In several cases, barriers to market access stem not from high tariff rates but from numerous non-tariff measures (NTMs) such as food standards and quality requirements, which are costly to comply with and difficult to implement for lack of funds and capacities in these countries.

Even in the case of the impact of the tariff reduction formula of the WTO, simulations using the G-20 formula suggest that though the applied rates would not be affected in most cases, the tariff overhang enjoyed by the South Asian countries would vanish, causing negative fallout for food and livelihood security in the region.

A sensible suggestion proposed in one of the papers in the Yearbook on the textiles and clothing (T&C) sector in South Asia on how to cope with post-quota challenges pertains to the fact that this market is rapidly morphing into a buyers' market due to the emergence of large-scale retailers which tend to centralise their sourcing strategy to cut costs and gain bargaining strength vis-à-vis their suppliers. Hence, countries of the South Asian Free Trade Area (SAFTA) should jointly promote market diversification, build competitiveness at the regional level, promote investment and facilitate technological upgradation. For this, removal of tariff barriers on the export of raw materials must be sine qua non and all countries in the region should exclude these products from their negative lists prepared under SAFTA.

Centad will release its book on trade in services and India during the conference. Edited by Ms Rupa Chanda, a professor at IIM Bangalore, it covers issues relevant to services — foreign direct investment, movement of natural persons, domestic regulation and development.

As Prof Jagdish Bhagwati of Columbia University, in his preface put it, the service sector liberalisation has been an integral part of India's reform process since 1991 and the opening up of key sectors, such as telecom services, has greatly facilitated India's penetration of world markets in IT and business support services.

The Centad Chairman, Mr Samar Verma, believes the time has come for a more objective assessment of India's competencies across a spectrum of services, with outsourcing signifying just one side of the story. Certain service sectors, such as health and education, underline the need for more domestic reforms. He has called for a domestic reform agenda to balance India's aggressive interest with domestic sectoral reforms to enable trade in services work more competitively for development.