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Broad-based round or correcting imbalances?

by Chakravarthi Raghavan

Geneva, 8 Dec 2000 -- The ‘annual overview’ exercise at the WTO of developments in the trading system was used by the majors and their supporters to call for a new, “broad-based” multilateral round of trade negotiations, but some others said the main focus ought to be on correcting the imbalances within the system.

A large number of countries called for a new round, said Mr. Clemens Boonekamp, Director of the WTO’s Trade Policy Review Division, in a media briefing Thursday, adding that others (Bolivia, India, Pakistan, Uganda and Tanzania) said it was necessary to first correct the imbalances in the present agreements.

The overview exercise (mandated by Annex 3, on Trade Policy Review, of the WTO agreement) was in the General Council, sitting as the Trade Policy Review Body, and had before it an annual report by the Director-General Mike Moore, who in some introductory comments acclaimed the WTO as a success, assessed the world trading environment as sound and the multilateral system as working well.

As an indicator of the WTO’s success, Mr. Moore pointed to a 29% rise in world trade since 1994 reaching $6,820 billion in 1999.

A major focus of the report and Moore’s remarks, and even more of the media briefing provided by Boonekamp, was to raise alarm bells over the spread of bilateral, regional and plurilateral trade deals and arrangements, which he said was coming in the way of the political will to negotiate multilateral liberalisation.

Another focus was what Mr. Boonekamp called “worrying” larger use of anti-dumping instruments by developing countries.

In a secretariat where bias against the developing world is a norm, Boonekamp, a Dutch national, has the reputation among Third World trade diplomats as an ideologically-motivated and biased official.

Not too long ago, and immediately after Marrakesh, the WTO came out with a report about the compatibility of regional and multilateral system and in effect praising the regional agreements, both those among the developed countries (as the EC and the US-Canada Free Trade pact), and others where one or the other major developed countries was a partner (NAFTA, APEC, and the EC’s European Economic Zone).

But alarm bells are now being raised as developing countries begin emulating the developed (the US and the EC) in forming regional agreements and arrangements, providing preferential trading among themselves.

While Hong Kong, and India, had perhaps a valid point that these were resulting in varying rules of origin, with local content requirements, that become barriers to trade for outsiders, the secretariat’s “alarm bells” against growing regional agreements (where the developed countries are not partners or leaders) seem to involve double standards.

The secretariat report and Boonekamp’s remarks also focused on the use of anti-dumping instruments by developing countries, with Boonekamp (in the media briefing) saying on the resort to anti-dumping measures that “what was worrying is the larger users are developing countries.”

Asked why in the past the WTO had taken a benign view of regional integration processes and use of anti-dumping instruments by the majors (US, EC, Canada and Australia), but was now raising alarm bells when developing countries were doing so, Boonekamp said the WTO DG had sounded a note of caution about regional agreements. When fully compatible with the WTO, such arrangements could be complementary.

But citing figures in the London weekly ‘the Economist’, India’s Amb.  S.Narayanan challenged the self-congratulatory view of the system by the WTO head, and underlined that the main beneficiaries of the Uruguay Round and the WTO were the US and EU, the two major trading powers, whose shares of world trade had increased, while the shares of the rest of the world had declined.

The fundamental problem, he said, was the complete lack of balance in the commitments undertaken by the majors and the others.

“The major element of the current international trading environment is the complete lack of clarity between what is being preached to developing countries and what is practised by the developed,” he added.  Five years after the entry into force of the UR agreements, it was not unreasonable to look at its impact on the international trading environment, he said. The Economist recently noted in an article that the US and EC as major trading powers had increased their share in international trade, while that of the rest of the world had declined.  Between 1993 and 1999, the US share increased from 15.7 to 17.7% and that of the EU from 34.7 to 38%; during the same period the share of the rest of the world declined from 49.6 to 44.3%.

“The fundamental problem is the complete lack of balance in the commitments undertaken by powerful trading partners on the one hand and the others on the other.” If the information in different parts of the DG’s report were pieced together it would become clear that developing countries were unable to access major developed country markets for products in which developing countries have export capability and competitiveness.

The DG’s report for the overview exercise, and his introductory remarks, mentioned the post-Seattle decisions to undertake ‘confidence-building’ measures and address the ‘implementation’ concerns of developing countries, but did so in language that left, for the unwary, the impression that there was progress on these.

The report brought out that in 1999, total support to agriculture (in the OECD countries) was 306 bill euros or a 5% rise over 1998; producer support was 236 billion euros of which 45% is by the EU, 23% by Japan and 21% by the US—with the levels of support to producers now matching the previous highs of a decade ago when the UR negotiations were under way. Without elaboration, the report spoke of the ‘spillover’ effects of these on world markets and export opportunities of trading partners, particularly developing countries, and need for meaningful progress in the agriculture negotiations.

On Textiles and Clothing, the report notes that the elimination of quotas by Canada, the EU and US has only been modest, if not minimal, so far. On present schedules, the restrictions will go only in January 2005.

In a strange attempt to be even-handed, it then mentions the quotas of India, Pakistan and Turkey. The quantitative restrictions in India, which had been there for BOP reasons, but under a panel ruling and phase-out plan agreed, India is due to remove by April 2001. Pakistan’s are covered by the BOP provisions of GATT 1994. In both cases (and similar restrictions in other developing countries under BOP justification), the restrictions and quotas are non-discriminatory. But those of the US, EC and Canada are discriminatory quotas - a distinction that the report does not mention at all. Turkey’s quotas were put in place, at the instance of the EC, as a part of the customs union, were held illegal by a panel, and are due to be ended by February 2001.

Mentioning these in the same way as the quotas of the three majors perhaps illustrate best the bias of the secretariat and the division.

The comparison came for some sharps criticism at the TPRB, but Boonekamp’s explanation was that the paragraph was factual!

The report also mentions the tariff levels and bindings, and tariff peaks and escalations - and mentions tariff peaks in Japan affecting footwear and headgear; in Canada, the EU and the US affecting textiles and clothing sector where there are also quotas; and tariffs on agriculture products being ‘substantially higher’ than on others like temperate zone products, and the subsidies being an additional distortion.

The report makes a reference to the preferential trading arrangements and the preferences granted under their Generalized System of Preferences GSP schemes, (which is supposed to be non-reciprocal, generalized and non-discriminatory) and speaks of the ‘incentive’ arrangement of the EU of giving positive preferences to countries adhering to internationally recognized worker rights or environmental standards.

But Thailand and India, in their comments, underlined that GSP had to be non-reciprocal and non-discriminatory. And India added that what the EC viewed as an ‘incentive’ remained a discriminatory arrangement under the GSP, depending on adherence of recipients to labour and environmental standards.

But the report again tries to be ‘even-handed’ by speaking of the large differences in developing countries between bindings and applied tariffs, and that this differential was against ‘predictability’ and ‘clarity’ of the trade regime.

Joining issue with this, India noted that when reducing tariffs, government was able to win support of its industry by pointing to the fact that in case of difficulty for the domestic industry, the tariffs could be raised. Any rigid stand on applied and bound tariffs would prevent countries like India from embarking on liberalisation.

On Services, the report refers to the autonomous liberalization efforts in developing countries and argues that the benefits could best be assured “by binding the existing access conditions”.

While the US and EC among others have been pushing for this in the services talks, developing countries including India have been insisting that credit should be given for autonomous liberalization without insisting on these being bound.

On dispute settlement, the report refers to the ‘heavy case load’ of the system, but notes that many disputes are settled at the consultation stage itself, and others after rulings. It however refers to the cases where retaliations have been authorized and imposed for non-implementation, and calls for review of the implications.

Such retaliations (in the banana, beef hormone among others), it is the consumers of the retaliating country that bear the higher cost. And the economic impact of retaliation goes beyond the directly concerned producers, trading firms and distributors - but over the entire chain of production, trade and distribution.

In the area of intellectual property rights (covered by the TRIPS agreement), the report hoes the viewpoints of the majors promoting the corporate view of monopoly rights and rentier incomes as promoting inventiveness and creativity—a view that is now coming under increasing challenge from economists and the UN system. The report refers to the various country reviews and progress in them in changing their laws, but totally ignores the on-going discussions in the TRIPS Council either on the review of Art.27.3(b) of TRIPS or on protection of geographical indications and extending it to products other than wines and spirits.

India in its comments said it also ignores “the debate that is going on outside the WTO about the appropriate balance between public policy objectives and private profits.” India added that in its view, and a view now supported by the World Bank and the UNDP, “the TRIPS Agreement does not get this balance right”.

Listing and surveying various regional trade agreements (RTAs) in place, and/or under negotiation, the report says that the trend to RTAs which took off in the 1990s continued to be very strong in 2000, and with such agreements now linking countries across the globe, the term ‘regional’ was ‘increasingly superfluous’.

In some pros and cons of preferential access to members in high tariff areas, but resulting in discrimination against third parties, including through rules of origin (which Hong Kong China described as hidden local content requirement, prohibited by GATT/WTO), the report says that “negotiation of multiple RTAs burden the scarce negotiating resources of developing countries, while multilateral negotiations provide scope for more concentrated action and results.”

The report speaks of the outreach programmes, and of website and media briefings and information provided.

Perhaps the secretariat and Mr. Moore should ponder over the results of a survey conducted in Europe, and published last week—that the public in Europe have greater confidence in NGOs than in their governments and that the WTO’s credibility is at the lowest.

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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