Opinion

Ways to break the Doha deadlock

NILANJAN BANIK | Updated on April 28, 2013

The workforce of developing countries could do with smoother issue of short-term visas.— R. Ragu

There are areas where some give-and-take between the rich and poor countries is possible.

Ever wondered why World Trade Organisation (WTO) negotiations are so important? When there is the slightest hint about ministerial rounds failing, it is all over the news. Successful negotiations at WTO are important; with 159 members, the WTO accounts for more than 95 per cent of world trade. A consensus is expected to strengthen the world economic order through increase in trade.

The WTO was born on January 1, 1995, after completion of Uruguay Round of GATT negotiations (1986-94). After the formation of WTO, three new working groups were added to the existing WTO structure during the first Ministerial Conference in Singapore in 1996. The idea was to chalk out a relationship between trade and investment, and trade and competition policy, besides introducing more transparency in the government procurement process.

CONTENTIOUS AREAS

The negotiations were intended to start at the ministerial conference in Seattle, US, better known as the Millennium Round. However, Millennium Round in 1999 failed, and it was decided that negotiations would not start until the next ministerial conference in 2001 in Doha, Qatar.

This also led to the inception of the Doha Development Round in November 2001, which is yet to be concluded because of lack of consensus.

Last time, negotiations failed mainly because of arguments centred around agriculture. In addition, there was a lack of consensus between developed and the developing economies, on issues relating to Non-Agricultural Market Access (NAMA), Trade-Related Intellectual Property Rights (TRIPS), Trade Related Investment Measures (TRIMS), and General Agreement on Trade in Services (GATS). Let us look at these issues by turn.

Agriculture: Broadly, the association of developing nations — the G20 group of countries — wants subsidies given by the developed countries to their farmers and processed food manufacturers (items such as beef, poultry, etc.) to be reduced. The US and the EU want big developing economies, such as China and India, to open up their markets in industrial goods as well as farm products, in return for reducing subsidies on agriculture items. They are also not in favour of India and other developing countries procuring farm output from farmers through Minimum Support Price (MSP). Therefore, without a further reduction in subsidies, negotiations are stalled.

NAMA: In the case of items such as manufactured products, fuels and mining products, fish and fish products, and forestry products — items not covered by the Agreement on Agriculture but classified under NAMA — developing countries submitted a number of proposals to modify the Swiss formula.

According to this formula, the tariffs should be reduced on a pro-rata basis — higher tariffs subject to a greater cut, compared with lower tariffs.

Since, the bound tariffs level for most developing countries are higher compared with high income countries, the former group of countries, including Argentina, India, and Brazil, are opposing the Swiss formula.

TRIPS: Developing countries have a problem with inclusion of TRIPS on the ground that it seems to be discriminatory and welfare-reducing.

The TRIPS agreement provides a higher degree of protection for wines and spirit compared with that for basmati rice, tequila, Szatmar plums, etc. India wanted “geographical indication” to go beyond wine and spirits to other products.

TRIMS: Developing countries have, for long, opposed inclusion of TRIMS on the ground that the provisions laid under it impede the process of industrialisation and balance of payment stability.

There is a belief that firms with considerable lobbying power are using this Agreement for their own benefit.

Services: Typically, developing countries have advantages in Mode 1 (such as outsourcing of office works), and Mode 4 (such as movement of natural persons) types services.

Developed countries have advantages in Mode 3 type services, such as financial and professional services. In Mode 4, developing countries want issue of short-term visas at very short notice; exemption from social security contributions; and de-linking movement of natural persons from the requirement to set up an office in a foreign country. In Mode 1, the demands are for removal of any form of government ban on outsourcing.

THE WAY OUT

Here are some suggestions as to how this impasse can be broken.

On agriculture, while protecting the interests of marginal farmers is justified, developing countries should also make a conscious effort to remove domestic distortions. In the case of marginal farmers, much of the producer surplus is lost because of market imperfections, where the middlemen skim off most of the agricultural income.

Likewise, as subsidy generates large economic inefficiencies and distorts the world market price for agricultural produce, policymakers in the developed countries should make an attempt to reduce the same.

About NAMA, it is important to understand whether the reasons for restricting market access are genuine. For instance, in an era of globalisation, predatory pricing policy is difficult to practise.

So, using antidumping measures on the presumption of stopping predatory pricing would be meaningless.

As for TRIPS, there is a need to harmonise IPR protection across countries. Many developing countries have appropriate laws, but lack implementation. There is enough evidence to suggest that an effective IPR regime leads to more foreign direct investment.

On TRIMS, the system requires an effective competition policy. There is a need to address private sector-induced distortion before market access is granted to firms from richer nations.

It is essential to have property rights. Lack of property rights and an effective competition policy in many less developed nations has a direct implication on distribution of resources.

In services, there will be considerable resistance if basic services such as health, education, water and sanitation are privatised, especially in the context of the less developed economies.

Citizens from less developed nations are averse to paying a price for these basic services — something they consider as their democratic right.

Hence, it will not be meaningful for developed countries to pursue market access in these areas. Instead, they can argue for market access in services such as finance, telecommunication, while offering to lift restrictions on Mode 1 and Mode 4 type services.

(The author is Professor at Institute for Financial Management Research, Chennai.)

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Published on April 28, 2013
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